-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WlzqxvUSZ2/A9RMQz+CsRo7xQf3j6Gysa1D3jZah9acC2e6INSWzQF4h0DKCFASS 5jg0jlldjX68Eexmc0dimg== 0000950130-99-001958.txt : 19990405 0000950130-99-001958.hdr.sgml : 19990405 ACCESSION NUMBER: 0000950130-99-001958 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990402 EFFECTIVENESS DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-47927 FILM NUMBER: 99586701 BUSINESS ADDRESS: STREET 1: 1 MADISON AVE STREET 2: METROPOLITAN LIFE INSURANCE CO CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2125788717 MAIL ADDRESS: STREET 1: 1 MADISON AVENUE STREET 2: LAW DEPARTMENT AREA 7 G CITY: NEW YORK STATE: NY ZIP: 10010 485BPOS 1 METROPOLITAN SEPARATE ACCOUNT UL As filed with the Securities and Exchange Commission on April 2, 1999 Registration No. 33-47927 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form S-6 POST-EFFECTIVE AMENDMENT No. 10 To REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- Metropolitan Life Separate Account UL (Exact name of trust) Metropolitan Life Insurance Company (Name of depositor) 1 Madison Avenue New York, New York 10010 (Complete address of depositor's principal executive offices) ---------------- GARY A. BELLER, ESQ. Senior Executive Vice-President and General Counsel Metropolitan Life Insurance Company 1 Madison Avenue New York, New York 10010 (Name and complete address of agent for service) ---------------- Copies to: GARY O. COHEN, ESQ. and THOMAS C. LAUERMAN, ESQ. Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 ---------------- It is proposed that the filing will become effective (check appropriate box) [_] immediately upon filing pursuant to paragraph (b) [X] on April 30, 1999 pursuant to paragraph (b) [_] on (date) pursuant to paragraph (a)(1) of Rule 485 [_] on (date), pursuant to paragraph (a) of Rule 485 This filing is made in reliance on Rule 6c-3 and 6e-3(T) under the Investment Company Act of 1940 to register an indefinite amount of interests in Metropolitan Life Separate Account UL which funds certain variable universal life insurance policies. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- METROPOLITAN LIFE SEPARATE ACCOUNT UL METROPOLITAN LIFE INSURANCE COMPANY Cross-Reference Table
Items of Captions in Prospectuses Form N-8B-2 ------------------------ - ----------- 1...................... Cover Page 2...................... SUMMARY; METLIFE 3...................... Inapplicable 4...................... SALES AND ADMINISTRATION OF THE POLICIES 5, 6, 7................ SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND 8...................... FINANCIAL STATEMENTS 9...................... Inapplicable 10(a)................... OTHER POLICY PROVISIONS; POLICY RIGHTS 10(b)................... OTHER POLICY PROVISIONS 10(c), 10(d)............ SUMMARY; POLICY BENEFITS; POLICY RIGHTS; PAYMENT AND ALLOCATION OF PREMIUMS; THE FIXED ACCOUNT; OTHER POLICY PROVISIONS 10(e)................... PAYMENT AND ALLOCATION OF PREMIUMS 10(f)................... VOTING RIGHTS 10(g)(1)-(3), 10(h)(1)- (3).................... RIGHTS WE RESERVE 10(g)(4), 10(h)(4)...... Inapplicable 10(i)................... POLICY BENEFITS; PAYMENT AND ALLOCATION OF PREMIUMS 11...................... SUMMARY; SEPARATE ACCOUNT UL; THE METROPOLITAN SE- RIES FUND 12(a)................... Cover Page 12(b), 12(e)............ Inapplicable 12(c), 12(d)............ SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND
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Items of Form N-8B-2 Captions in Prospectuses - ----------- ------------------------ 13(a), 13(b), 13(c), SUMMARY; CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT 13(d)................... UL; THE METROPOLITAN SERIES FUND; POLICY BENEFITS 13(e).................... SALES AND ADMINISTRATION OF THE POLICIES 13(f), 13(g)............. Inapplicable 14....................... ISSUING OF A POLICY 15....................... PAYMENT AND ALLOCATION OF PREMIUMS 16....................... SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND 17(a), 17(b)............. Captions referenced under Items 10(c), 10(d), 10(e) and 10(i) above 17(c).................... Inapplicable 18(a), 18(c)............. SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND 18(b), 18(d)............. Inapplicable 19....................... SALES AND ADMINISTRATION OF THE POLICIES; VOTING RIGHTS; REPORTS 20(a), 20(b)............. RIGHTS WE RESERVE; SEPARATE ACCOUNT UL; THE METRO- POLITAN SERIES FUND 20(c), 20(d), 20(e), 20(f)................... Inapplicable 21(a), 21(b)............. POLICY RIGHTS 21(c), 22................ Inapplicable 23....................... SALES AND ADMINISTRATION OF THE POLICIES 24....................... OTHER POLICY PROVISIONS 25....................... METLIFE 26....................... CHARGES AND DEDUCTIONS 27....................... METLIFE 28....................... MANAGEMENT 29....................... Inapplicable 30, 31, 32, 33, 34....... Inapplicable 35....................... GETTING MORE INFORMATION 36, 37................... Inapplicable
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Items of Form N-8B-2 Captions in Prospectuses - ----------- ------------------------ 38........................ SALES AND ADMINISTRATION OF THE POLICIES; DISTRIBU- TION OF THE POLICIES 39........................ SUMMARY--METLIFE; SALES AND ADMINISTRATION OF THE POLICIES 40(a)..................... Inapplicable 40(b)..................... SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND; CHARGES AND DEDUCTIONS 41(a)..................... SUMMARY; METLIFE; SALES AND ADMINISTRATION OF THE POLICIES 41(b), 41(c), 42, 43...... Inapplicable 44(a)..................... SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND; POLICY BENEFITS 44(b)..................... Inapplicable 44(c)..................... CHARGES AND DEDUCTIONS 45........................ Inapplicable 46........................ Captions referenced under Item 44 above 47........................ Captions referenced under Items 10(c) and 16 above 48, 49.................... Inapplicable 50........................ SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND 51(a), 51(b).............. SUMMARY; METLIFE; POLICY BENEFITS; POLICY RIGHTS 51(c), 51(d), 51(e)....... Captions referenced under Item 10(i) above 51(f)..................... PAYMENT AND ALLOCATION OF PREMIUMS 51(g)..................... Captions referenced under Items 10(i) and 13 above 51(h), 51(j).............. Inapplicable 51(i)..................... SALES AND ADMINISTRATION OF THE POLICIES 52(a), 52(c).............. RIGHTS WE RESERVE 52(b), 52(d).............. Inapplicable 53(a)..................... FEDERAL TAX MATTERS 53(b), 54 through 58...... Inapplicable 59........................ FINANCIAL STATEMENTS
iii U L 2 0 0 1 PROSPECTUS FOR UL2001, a Flexible Premium Multifunded Life Insurance Policy Issued by Metropolitan Life Insurance Company April 30, 1999 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 the following Metropolitan Life Separate Account UL investment divisions: State Street Research Neuberger Berman Partners Mid Cap Value Aggressive Growth Scudder Global Equity State Street Research Diversified T. Rowe Price Large Cap Growth State Street Research Growth T. Rowe Price Small Cap Growth State Street Research Income Lehman Brothers Aggregate Bond Index Santander International MetLife Stock Index Stock (formerly State Street Research International Stock) Morgan Stanley EAFE Index Russell 2000 Index Harris Oakmark Large Cap Value Janus Mid Cap Loomis Sayles High Yield Bond A word about risk: This Prospectus discusses the risks associated with purchasing the Policy. The Metropolitan Series Fund, Inc. (the "Fund") prospectus discusses the risks associated with investment in the Fund. The Fund prospectus is being provided to you in addition to this Prospectus because each of the Separate Account UL investment divisions named above invest solely in a corresponding "Portfolio" of the Fund. The Prospectus is not valid unless you also receive or have received a current Fund prospectus. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. How to learn more: Before purchasing a Policy, read the information in this Prospectus and in the 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 and the Fixed Account are not deposits or obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation, 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......................................... 6 Separate Account UL............................. 7 The Fixed Account............................... 7 Metropolitan Series Fund, Inc................... 7 Issuing a Policy................................ 8 Policy Benefits................................. 9 Policy Rights................................... 15 Payment and Allocation of Premiums.............. 18 Charges and Deductions.......................... 20 Federal Tax Matters............................. 23 Showing Performance............................. 25 Rights We Reserve............................... 25 Other Policy Provisions......................... 25 Sales and Administration of the Policies........ 27 Voting Rights................................... 28 Reports......................................... 28 Illustration of Policy Benefits................. 29 Getting More Information........................ 29 Legal, Accounting, and Actuarial Matters........ 30 Management...................................... 31 Financial Statements............................ 34
Summary This summary gives an overview of the Policy and is qualified by the more detailed information in the Prospectus and the Policy. 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 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 in any 24 month period, 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 taxed 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 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
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Type of Charge or Expense Amount of Charge or Expense - -------------------------------------------------------------------------------- Monthly Deduction from your Policy's cash value/1/ Cost of term insurance charges: Amount varies depending on the specifics of your Policy/2/ Administration charge: First Policy year/3/: (a) $20 per month for insureds Age 26 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 premiums that would maintain the guaranteed minimum death benefit to Age 65 (or to the next shortest available duration, if any, or if none, then as specified in 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 do not guarantee that we will) reduce this charge after Policy year 10 to .60%. 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. - -------------------------------------------------------------------------------- Surrender charge on certain transactions: Full surrender or termination of your The lesser of (a) 75% of one Federal Policy during its 1st year: Guideline Annual Premium/4/ or (b) the amount of premiums you have actually paid Full surrender or termination of your The lesser of (a) one Federal Policy during its 2nd year: Guideline Annual Premium or (b) the amount of all premiums you have actually paid Full surrender or termination of your 90% of one Federal Guideline Annual Policy during its 3rd through 15th Premium during Policy year 3, which year: percentage declines periodically until it is 0% during Policy years 16 and later./5/ (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/6/ Reduction in specified face amount A pro-rata portion of the surrender (i.e. "partial" surrender): charge that would apply to a full surrender/7/ Partial withdrawals of up to 10% of No surrender charge the Policy's cash value/8/ 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/9/
- -------- /1/Charges for any insurance coverage provided by any riders you choose will be included as part of the monthly deduction. /2/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. /3/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. /4/The Federal Guideline Annual Premium is the amount of the level premium you would need to pay each year for your policy (for Death Benefit Option A and all riders), based on certain assumptions reflected below under "Charges and Deductions--Surrender Charge." /5/The precise timetable of how this percentage declines over this period is set forth below under "Charges and Deductions--Surrender Charge." Also, during each of these years, the surrender charge is subject to the further limitation that it will never exceed the then-applicable percentage multiplied by the sum of all premiums you have paid to date. /6/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 /7/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. /8/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. /9/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 MetLife receives an investment management fee from the Fund and the Fund incurs direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein). You bear indirectly your proportionate share of the fees and expenses of the Portfolios of the Fund that correspond to the Separate Account investment divisions you are using. The following sets forth the Fund's fees and expenses for the year ending 12/31/98:
Total Total 1998 1998 Manage- Other Annual Manage- Other Annual Portfolios ment Fee Expenses Expenses Portfolios ment Fee Expenses Expenses - ------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid State Street Research Cap Aggressive Growth(a) .71% .04% .75% Value(b)(c) .70% .89% 1.59% - ------------------------------------------------------------------------------------------------- State Street Research Scudder Global Growth(a) .48% .05% .53% Equity(a) .74% .28% 1.02% - ------------------------------------------------------------------------------------------------- T. Rowe Price State Street Research Large Cap Diversified(a) .43% .05% .48% Growth(b)(c) .70% 1.18% 1.88% - ------------------------------------------------------------------------------------------------- T. Rowe Price State Street Research Small Cap Income(a) .33% .06% .39% Growth(a)(c) .53% .14% .67% - ------------------------------------------------------------------------------------------------- Lehman Brothers Santander International Aggregate Bond Stock(a) .75% .27% 1.02% Index(b)(c) .25% .32% .57% - ------------------------------------------------------------------------------------------------- Harris Oakmark Large Cap MetLife Value(b)(c) .75% .80% 1.55% Stock Index(c) .25% .05% .30% - ------------------------------------------------------------------------------------------------- Morgan Stanley EAFE Janus Mid Cap(a) .72% .09% .81% Index(b)(c) .30% .99% 1.29% - ------------------------------------------------------------------------------------------------- Loomis Sayles High Yield Russell 2000 Bond(a)(c) .70% .35% 1.05% Index(b)(c) .25% .70% .95%
- -------- (a)Total annual expenses of these portfolios are expressed as a percentage of average net assets. (b)These portfolios commenced operations on 11/9/98. Total annual expenses of these portfolios are expressed as a percentage of the year-end net assets. Expenses (other than the management fees) are based on estimated amounts for 1998. (c)During all or a portion of 1998, we bore all expenses (other than management fees, brokerage commissions, taxes, interest and any non-recurring expenses) in excess of .20% of the net assets for each of these portfolios. Therefore the expenses these Portfolios paid were lower than those indicated in the chart above. The below chart shows the actual expenses for these portfolios:
Total 1998 Total 1998 Annual Other Annual Other Expenses Expenses Expenses Expenses After Expense After Expense After Expense After Expense Portfolio Reimbursement Reimbursement Portfolio Reimbursement Reimbursement - ------------------------------------------------------------------------------------ T. Rowe .20% .90% Lehman Price Large Brothers Cap Growth Aggregate Bond Index .23% .48% - ------------------------------------------------------------------------------------ Loomis .31% 1.01% Sayles High Morgan Yield Bond Stanley EAFE Index .25% .55% - ------------------------------------------------------------------------------------ Harris .20% .95% Oakmark Large Cap Russell 2000 Value Index .20% .45% - ------------------------------------------------------------------------------------ Neuberger .20% .90% Berman Partners Mid Cap Value
5 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 We are a mutual life insurance company. We were formed in 1868 in New York and we currently conduct business in all 50 states, the District of Columbia, Puerto Rico and Canada. We are one of the largest financial services companies in the world with many of the largest United States corporations for clients. As of December 31, 1998, we had total life insurance in force of approximately $1.7 trillion and total assets under management of approximately $359 billion. 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 our home office at 1 Madison Avenue, New York, NY 10010. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. When your requests, instructions and notifications become effective: . Generally, requests, premium payments and other instructions and notifications are effective on the Date of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) . A Valuation Period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. . A Valuation Date is: . Each day on which the New York Stock Exchange is open for trading. . Other days, if we, as the Fund's investment manager, think that there has been a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. . The effective time of premium allocation instructions and transfer requests you make in your Policy application or within 20 days of your Investment Start Date, is the end of the first Valuation Date after that 20 day period. Your Investment Start Date is the date the first net premium is applied to the Fixed Account and is the later of (1) the Date of Policy and (2) the Date of Receipt of your first premium payment. 6 . 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 the Fund.] The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of the 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 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, strategies, and risks of each Fund Portfolio, which are contained in the Fund prospectus you have also received.] The Metropolitan Series Fund, Inc. The Fund is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. The Fund is divided into Portfolios, each of which represent a different class of stock in which a corresponding investment division of the Separate Account invests. You should read the Fund prospectus, which you have also received. It contains information about the Fund and its Portfolios, including the investment objectives, strategies, risks and investment advisers that are associated with each Portfolio. It also contains information on our different separate accounts and our affiliates that invest in the Fund and the risks related thereto. 7 As of the end of each Valuation Period, we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: . The allocation of net premiums to the Separate Account. . Dividends and distributions on Fund shares that are reinvested as of the dates paid (which reduces the value of each share of the Fund, increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). . Policy loans and loan repayments allocated to the Separate Account. . Transfers to and among investment divisions. . Withdrawals and surrenders taken from the Separate Account. Issuing a Policy [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.] 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 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 is received 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. 8 Policy Benefits 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. 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: . CI: 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. . CII: 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. 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. 9 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 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. 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 death benefit levels. . 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. 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. 10 [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 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 monthly anniversary 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. You can choose one of the following durations for your guaranteed minimum death benefit to be in effect:** . 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). You must choose the duration of the guaranteed minimum death benefit by the Policy's issue date, or we will assume that you do not want the guarantee. You can reduce the duration by reducing the premiums paid to an amount that will only support a shorter duration. If at the end of the elected duration, your cumulative premiums paid by each monthly anniversary would entitle you to receive a longer duration that would have been available to you, we will increase the duration appropriately. 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 11 . $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: (a) the monthly anniversary on or next following 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. 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 based on your most recent cost of term insurance charge. 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, other than a decrease resulting automatically from a partial withdrawal or from a death benefit option change. . 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. . In some circumstances, that the Policy could become a modified endowment contract. . The monthly administration charge may change. 12 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 . 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 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 13 carefully review their provisions to be sure if the benefit is something that you want. You should also consider: . The effects on the premium requirements for maintaining the guaranteed minimum death benefit, 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/
- -------- /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, unless a guaranteed minimum death benefit is in effect. /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. [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. 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
14 Policy Rights Cash Value Transfers [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.] 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. . 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 the interest earned on amounts in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. . Equalizer: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization at the end of each calendar quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. . Rebalancer: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution at the beginning of each calendar 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 . 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 and Russell 2000 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 his strategy may be more volatile than the other strategies. 15 . 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 premium 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. [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. . 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 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 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) reduce this rate to 4.6% after the 10th Policy 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. 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, we will still consider them 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 net premiums are then allocated. 16 Before taking a Policy loan you should consider the following: . Interest payments on loans are generally not deductible for tax purposes. . Under certain situations, Policy loans could be considered taxable distributions. . If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. (See "Federal Tax Matters--The Policy--Loans" below.) . A policy loan increases the chances of our terminating your policy due to insufficient cash value. 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 after the second Policy year if: . The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. . The withdrawal is at least $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 CI, 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. 17 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. 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. Paying Premiums [SIDEBAR: You can make voluntary planned periodic premium payments and unscheduled premium payments.] 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 period premium schedule. . Unscheduled premium payment option: You can make premium payments at any time. 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 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). 18 . Policy riders (generally higher levels are required if you have riders in force). [SIDEBAR: Net premiums are your premiums minus the charges deducted from your premiums.] Maximum and Minimum Premium Payments . During the first Policy year you must pay an amount of premium that we call the minimum initial premium 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 (except that some Policies distributed by certain brokers must be at least $2,500) . $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. 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 another 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 the monthly deduction. 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 must within 3 years (or within a longer period if required by state law) after the end of the grace period and before the Final Date. You also must provide us: . A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). . Evidence of insurability that we find satisfactory. . An additional premium amount that the Policy prescribes for this purpose. 19 Charges and Deductions The Policy charges compensate us for our expenses and risks. Any distinctions we make about the specific purposes of the different charges are imprecise, and we are free to keep and use our revenues or profits for any other purpose, including paying any of our costs and expenses in connection with the Policies. The following sets forth additional information about some (but not all) of the Policy charges. [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; 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 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 20 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 in the first year, also include 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. If our estimates are correct, we will realize a profit from this charge, otherwise, we could incur a loss. [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 21 (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. . 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 22 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. 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). Finally, if your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed annually. Loans . loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract or terminates. . Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. . If your Policy terminates (upon surrender, cancellation, lapse or the Final Date) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. 23 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 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 We don't expect to, incur federal, state or local taxes upon the earnings or realize capital gains attributable to the Separate Account. If we do incur such taxes at some time in the future, we reserve the right to charge cash value allocated to the Separate Account for these taxes. 24 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. 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 the 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 within seven days. 25 Incontestability We will not contest: . Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). . An increase in a death benefit after it has been in effect for two years. Suicide If the insured commits suicide within the first two Policy years (or another period required by state law), your beneficiary will receive all premiums paid (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 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 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 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 6% 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. 26 [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 an investment manager to the Fund and may also provide advisory services to other clients. Computer Systems We use computer systems to process Policy transactions and valuations. These systems need to be adjusted to be able to continue to administer the Policies beginning January 1, 2000. As is the case with most systems conversion projects, risks and uncertainties exist due, in part to reliance on third party vendors and a project could be delayed. Although we cannot give you assurances, we are devoting substantial resources necessary to make these systems modifications and expect that necessary changes will be completed on time and in a way that will result in no disruption to Policy servicing operations. 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 1996 or 1997 on the Policies, because the product was not sold before 1998. Commissions paid in 1998 totaled $ . Maximum commissions are: . First Policy Year: . 50% of the lesser of : (i) Actual premiums paid in the first year; (ii) The initial voluntary planned periodic premium for the first year; and (iii) 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; plus . 50% of the lesser of : (i) 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; and 27 (ii) the portion (iii) 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. [SIDEBAR: You can give us voting instructions on shares of each Fund Portfolio that are attributed to your Policy.] Voting Rights The Fund has shareholder meetings from time to time to, for example, elect directors and approve investment managers. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in the Fund. If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: . Your Policy's cash value in the corresponding investment division; by . The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are 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. 28 . 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 the Fund's annual and semi-annual reports to shareholders. [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. 29 This Prospectus is part of a registration statement that we filed with the Securities and Exchange Commission under the Securities Act of 1933. The registration statement includes additional information, amendments and exhibits. You can get this information from the Securities and Exchange Commission (a copying fee may apply) by visiting or writing to its Public Reference Room or using its Internet site at: . Securities and Exchange Commission Public Reference Room Washington, D.C. 20549 Call 1-800-SEC-0330 (for information about using the Public Reference Room) Internet site: http://www.sec.gov Legal, Accounting and Actuarial Matters Christopher P. Nicholas, Associate General Counsel at MetLife, has passed upon the legality of the Policies. Messrs. Freedman, Levy Kroll & Simonds, Washington, D.C., have advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, 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. 30 Management The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: Directors, Officers-Directors
Principal Occupation & Positions and Offices Name Business Address with MetLife - ------------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman and Chief Executive Officer Director Bethlehem Steel Corp. 1170 Eight Ave. -- Martin Tower 2118 Bethlehem, PA 18016 - ------------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, President, Chief Executive Officer Chief Executive Officer and Director Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - ------------------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board and Vice Chairman of the Board, New York, NY 10010 Chief Investment Officer Chief Investment Officer and Director Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - ------------------------------------------------------------------------------------------------- Joan Ganz Cooney Chairman, Executive Committee Director Children's Television Workshop One Lincoln Plaza New York, NY 10023 - ------------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman, President and Director Chief Executive Officer Puritan Bennett Overland Park, KS - ------------------------------------------------------------------------------------------------- James R. Houghton Chairman of the Board Emeritus Director and Director Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 - ------------------------------------------------------------------------------------------------- Harry P. Kamen Chairman and Director Chief Executive Officer (Retired) Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - ------------------------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom 919 Third Ave. New York, NY 10022 - ------------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. Bolton, MA 01720 - ------------------------------------------------------------------------------------------------- Allen E. Murray Retired Chairman of the Board and Director Chief Executive Officer Mobil Corporation 375 Park Ave., Suite 2901 New York, NY 10163 - ------------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Board and Chief Financial Officer Chief Financial Officer and Director Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010
31
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 312 Mill Neck, NY 11765 - ------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 12 Wall Street New York, NY 10005 - ------------------------------------------------------------------------------------- Robert G. Schwartz Retired Chairman of the Board, Director President and Chief Executive Officer Metropolitan Life Insurance Company 200 Park Ave., Suite 5700 New York, NY 10166 - ------------------------------------------------------------------------------------- Ruth J. Simmons, Ph.D. President Director Smith College College Hall 20 Northhampton, MA 01063 - ------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board and Director Chief Executive Officer Pfizer, Inc. 235 East 42nd Street New York, NY 10017
32
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 - --------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board - --------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel - --------------------------------------------------------------------------------------- C. Robert Henrikson Senior Executive Vice-President - --------------------------------------------------------------------------------------- William J. Toppeta Senior Executive Vice-President - --------------------------------------------------------------------------------------- John H. Tweedie Senior Executive Vice-President - --------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice-President - --------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice-President - --------------------------------------------------------------------------------------- Terence I. Lennon Executive Vice-President - --------------------------------------------------------------------------------------- David A. Levene Executive Vice-President - --------------------------------------------------------------------------------------- John D. Moynahan, Jr. Executive Vice-President - --------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President and Chief Actuary - --------------------------------------------------------------------------------------- Alexander D. Brunini Senior Vice-President - --------------------------------------------------------------------------------------- Jon F. Danski Senior Vice-President and Controller - --------------------------------------------------------------------------------------- Richard M. Blackwell Senior Vice-President - --------------------------------------------------------------------------------------- James B. Digney Senior Vice-President - --------------------------------------------------------------------------------------- William T. Friedman Senior Vice-President - --------------------------------------------------------------------------------------- Ira Friedman Senior Vice-President - --------------------------------------------------------------------------------------- Anne E. Hayden Senior Vice-President - --------------------------------------------------------------------------------------- Sybil C. Jacobsen Senior Vice-President - --------------------------------------------------------------------------------------- Joseph W. Jordan Senior Vice-President - --------------------------------------------------------------------------------------- Kernan F. King Senior Vice-President - --------------------------------------------------------------------------------------- Nicholas D. Latrenta Senior Vice-President - --------------------------------------------------------------------------------------- Leland C. Launer, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- Gary E. Lineberry Senior Vice-President - --------------------------------------------------------------------------------------- James L. Lipscomb Senior Vice-President - --------------------------------------------------------------------------------------- William Livesey Senior Vice-President - --------------------------------------------------------------------------------------- James M. Logan Senior Vice-President - --------------------------------------------------------------------------------------- Eugene Marks, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- William R. Prueter Senior Vice-President - --------------------------------------------------------------------------------------- Joseph A. Reali Senior Vice-President - --------------------------------------------------------------------------------------- Vincent P. Reusing Senior Vice-President - --------------------------------------------------------------------------------------- Felix Schirripa Senior Vice-President - --------------------------------------------------------------------------------------- Robert E. Sollmann, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- Thomas L. Stapleton Senior Vice-President and Tax Director - --------------------------------------------------------------------------------------- James F. Stenson Senior Vice-President - --------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President - --------------------------------------------------------------------------------------- Richard R. Tartre Senior Vice-President - --------------------------------------------------------------------------------------- James A. Valentino Senior Vice-President - --------------------------------------------------------------------------------------- Lisa M. Weber Senior Vice-President - --------------------------------------------------------------------------------------- William J. Wheeler Senior Vice-President and Treasurer - --------------------------------------------------------------------------------------- Anthony J. Williamson Senior Vice-President - --------------------------------------------------------------------------------------- Louis J. Ragusa Vice-President and Secretary
- ------------ * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Gary A. Beller has been an officer of Metropolitan Life since November, 1994; prior thereto, he was a Consultant and Executive Vice- President and General Counsel of the Americana Express Company. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice-President of Paine Webber. Terrence I. Lennon has been an officer of Metropolitan since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. Richard R. Tartre has been an officer of Metropolitan Life since January 13, 1997, prior thereto, he was President and CEO of Astra Management Corp. William J. Wheeler became an officer of Metropolitan Life since October 13, 1997; prior thereto, he was Senior Vice-President, Investment Banking of Donaldson, Lufkin and Jenrette. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. John F. Danski has been an officer of Metropolitan Life since March 25, 1998; prior thereto, he was Senior Vice-President, Controller and General Auditor at ITT Corporation. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 33 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1998, and the related statements (i) of operations for the year ended December 31, 1998 and of changes in net assets for the years ended December 31, 1998 and 1997 of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index and Santander International Stock Divisions and (ii) of operations for the year ended December 31, 1998 and of changes in net assets for the year ended December 31, 1998 and for the period March 3, 1997 (commencement of operations) to December 31, 1997 of the Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL at December 31, 1998 and the results of their operations and the changes in their net assets for the respective stated periods, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York March 15, 1999 1 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1998
State Street State Street State Street State Street State Street Research MetLife Santander Research Research Research Research Aggressive Stock International Growth Income Money Market Diversified Growth Index Stock Division Division Division Division Division Division Division ------------ ------------ ------------ ------------ ------------ ------------ ------------- ASSETS: Investments in Metropolitan Series Fund,Inc. at Value (Note 1A): State Street Research Growth Portfolio (8,991,252 shares; cost $262,836,766).......... $333,575,453 -- -- -- -- -- -- State Street Research Income Portfolio (4,419,504 shares; cost $56,262,271)........... -- $56,481,257 -- -- -- -- -- State Street Research Money Market Portfolio (2,150,767 shares; cost $22,944,978)........... -- -- $22,265,813 -- -- -- -- State Street Research Diversified Portfolio (11,376,036 shares; cost $184,766,024)..... -- -- -- $209,205,308 -- -- -- State Street Research Aggressive Growth Portfolio (5,227,911 shares; cost $136,845,160).......... -- -- -- -- $154,380,221 -- -- MetLife Stock Index Portfolio (4,498,549 shares; cost $118,596,732).......... -- -- -- -- -- $159,158,678 -- Santander International Stock Portfolio (2,566,510 shares; cost $32,397,518)........... -- -- -- -- -- -- $36,290,449 Loomis Sayles High Yield Bond Portfolio (303,096 shares; cost $3,041,405)............ -- -- -- -- -- -- -- Janus Mid Cap Portfolio (1,214,612 shares; cost $16,647,482)........... -- -- -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (1,084,560 shares; cost $12,826,959)........... -- -- -- -- -- -- -- Scudder Global Equity Portfolio (671,753 shares; cost $7,767,908)............ -- -- -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ ------------ ----------- Total Assets........... 333,575,453 56,481,257 22,265,813 209,205,308 154,380,221 159,158,678 36,290,449 LIABILITIES............. 1,013,304 41,286 5,651 384,868 298,061 292,002 37,716 ------------ ----------- ----------- ------------ ------------ ------------ ----------- NET ASSETS.............. $332,562,149 $56,439,971 $22,260,162 $208,820,440 $154,082,160 $158,866,676 $36,252,733 ============ =========== =========== ============ ============ ============ ===========
See Notes to Financial Statements. 2
Loomis T. Rowe Sayles Price Scudder High Yield Janus Small Cap Global Bond Mid Cap Growth Equity Division Division Division Division - ---------- ----------- ----------- ---------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $2,542,977 -- -- -- -- $21,170,685 -- -- -- -- $13,329,240 -- -- -- -- $8,316,299 - ---------- ----------- ----------- ---------- 2,542,977 21,170,685 13,329,240 8,316,299 3,066 44,138 23,779 13,441 - ---------- ----------- ----------- ---------- $2,539,911 $21,126,547 $13,305,461 $8,302,858 ========== =========== =========== ==========
3 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS For the year ended December 31, 1998
State State State State State Street Street Street Street Street Research MetLife Santander Research Research Research Research Aggressive Stock International Growth Income Money Market Diversified Growth Index Stock Division Division Division Division Division Division Division ----------- ---------- ------------ ----------- ----------- ----------- ------------- INVESTMENT INCOME: Income: Dividends (Note 2)..... $30,285,471 $4,298,707 $1,166,116 $19,448,803 $ 8,619,767 $ 6,486,305 $ 404,896 Expenses: Mortality and expense charges (Note 3).............. 2,500,061 420,836 143,978 1,610,657 1,146,158 1,020,115 284,929 ----------- ---------- ---------- ----------- ----------- ----------- ---------- Net investment income (loss)................. 27,785,410 3,877,871 1,022,138 17,838,146 7,473,609 5,466,190 119,967 ----------- ---------- ---------- ----------- ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1B) Net realized gain (loss) from security transactions........... 1,828,922 239,248 139,583 522,086 390,678 2,060,324 251,518 Change in unrealized appreciation (depreciation) of investments............ 38,462,367 (12,424) (384,125) 12,721,568 9,316,026 21,573,004 5,740,557 ----------- ---------- ---------- ----------- ----------- ----------- ---------- Net realized and unrealized gain (loss) on investments......... 40,291,289 226,824 (244,542) 13,243,654 9,706,704 23,633,328 5,992,075 ----------- ---------- ---------- ----------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $68,076,699 $4,104,695 $ 777,596 $31,081,800 $17,180,313 $29,099,518 $6,112,042 =========== ========== ========== =========== =========== =========== ==========
See Notes to Financial Statements. 4
Loomis T. Rowe Sayles Price Scudder High Yield Janus Small Cap Global Bond Mid Cap Growth Equity Division Division Division Division ---------- ---------- --------- -------- $ 256,747 $ 98,545 $ 0 $125,120 15,303 88,984 71,325 42,804 --------- ---------- -------- -------- 241,444 9,561 (71,325) 82,316 --------- ---------- -------- -------- (15,746) 178,428 (14,908) 35,936 (428,334) 4,299,801 455,213 556,946 --------- ---------- -------- -------- (444,080) 4,478,229 440,305 592,882 --------- ---------- -------- -------- $(202,636) $4,487,790 $368,980 $675,198 ========= ========== ======== ========
5 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research State Street Research State Street Research Growth Division Income Division Money Market Division -------------------------- -------------------------- -------------------------- 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, 1998 1997 1998 1997 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 27,785,410 $ 40,418,794 $ 3,877,871 $ 2,617,788 $ 1,022,138 $ 353,194 Net realized gain (loss) from security transactions.......... 1,828,922 1,080,724 239,248 32,950 139,583 68,458 Change in unrealized appreciation (depreciation) of investments........... 38,462,367 6,378,588 (12,424) 748,796 (384,125) (49,717) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 68,076,699 47,878,106 4,104,695 3,399,534 777,596 371,935 ------------ ------------ ----------- ----------- ----------- ----------- From capital transactions: Net premiums........... 68,697,236 59,834,638 13,501,414 13,090,983 28,800,532 13,691,749 Redemptions............ (9,651,413) (7,416,220) (1,455,088) (1,082,695) (292,311) (357,692) Net portfolio transfers............. 462,907 3,569,720 2,032,607 1,296,485 (12,984,969) (12,877,177) Other net transfers.... (33,909,522) (29,309,077) (5,444,551) (4,895,666) (2,036,921) (887,059) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 25,599,208 26,679,061 8,634,382 8,409,107 13,486,331 (430,179) ------------ ------------ ----------- ----------- ----------- ----------- NET CHANGE IN NET AS- SETS................... 93,675,907 74,557,167 12,739,077 11,808,641 14,263,927 (58,244) NET ASSETS--BEGINNING OF YEAR................... 238,886,242 164,329,075 43,700,894 31,892,253 7,996,235 8,054,479 ------------ ------------ ----------- ----------- ----------- ----------- NET ASSETS--END OF YEAR................... $332,562,149 $238,886,242 $56,439,971 $43,700,894 $22,260,162 $ 7,996,235 ============ ============ =========== =========== =========== ===========
See Notes to Financial Statements. 6
State Street Research Santander State Street Research Aggressive Growth MetLife International Stock Diversified Division Division Stock Index Division Division - -------------------------- -------------------------- -------------------------- -------------------------- 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, 1998 1997 1998 1997 1998 1997 1998 1997 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 17,838,146 $ 22,302,995 $ 7,473,609 $ 3,470,806 $ 5,466,190 $ 1,186,647 $ 119,967 $ (232,079) 522,086 418,723 390,678 136,827 2,060,324 1,210,648 251,518 (84,952) 12,721,568 1,103,869 9,316,026 2,615,059 21,573,004 13,344,725 5,740,557 (691,181) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 31,081,800 23,825,587 17,180,313 6,222,692 29,099,518 15,742,020 6,112,042 (1,008,212) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 48,746,380 41,236,061 48,080,744 52,235,040 59,343,787 38,059,853 10,224,172 11,240,912 (5,712,146) (4,829,385) (4,373,459) (3,613,975) (2,361,734) (1,198,193) (1,153,624) (1,139,393) 2,809,643 1,557,340 (6,687,894) (5,941,719) 9,729,932 9,580,428 (2,377,311) (3,084,541) (23,504,994) (19,209,913) (18,773,580) (20,670,473) (23,041,439) (13,547,536) (3,678,501) (5,008,528) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 22,338,883 18,754,103 18,245,811 22,008,873 43,670,546 32,894,552 3,014,736 2,008,450 - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 53,420,683 42,579,690 35,426,124 28,231,565 72,770,064 48,636,572 9,126,778 1,000,238 155,399,757 112,820,067 118,656,036 90,424,471 86,096,612 37,460,040 27,125,955 26,125,717 - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- $208,820,440 $155,399,757 $154,082,160 $118,656,036 $158,866,676 $86,096,612 $36,252,733 $27,125,955 ============ ============ ============ ============ ============ =========== =========== ===========
7 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Loomis Sayles Janus High Yield Bond Division Mid Cap Division --------------------------- ---------------------------- For the Period For the Period For the Year March 3, 1997 For the Year March 3, 1997 Ended to Ended to December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ -------------- ------------ -------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 241,444 $ 59,549 $ 9,561 $ 5,937 Net realized gain (loss) from security transactions.......... (15,746) 9,361 178,428 26,779 Change in unrealized appreciation (depreciation) of investments........... (428,334) (70,093) 4,299,801 223,402 ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ (202,636) (1,183) 4,487,790 256,118 ---------- ---------- ----------- ---------- From capital transactions: Net premiums........... 1,559,975 590,158 13,796,446 2,676,784 Redemptions............ (29,635) (1,126) (179,560) (46,974) Net portfolio transfers............. 180,422 1,002,454 4,280,509 1,554,471 Other net transfers.... (451,340) (107,178) (5,121,876) (577,161) ---------- ---------- ----------- ---------- Net increase in net assets resulting from capital transactions.. 1,259,422 1,484,308 12,775,519 3,607,120 ---------- ---------- ----------- ---------- NET CHANGE IN NET ASSETS................. 1,056,786 1,483,125 17,263,309 3,863,238 NET ASSETS--BEGINNING OF PERIOD................. 1,483,125 -- 3,863,238 -- ---------- ---------- ----------- ---------- NET ASSETS--END OF PERIOD................. $2,539,911 $1,483,125 $21,126,547 $3,863,238 ========== ========== =========== ==========
See Notes to Financial Statements. 8
T. Rowe Price Scudder Small Cap Growth Division Global Equity Division ------------------------------------ ---------------------------------------------- For the Period For the Period For the Year March 3, 1997 For the Year March 3, 1997 Ended to Ended to December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ -------------- ------------ -------------- $ (71,325) $ (8,790) $ 82,316 $ 23,414 (14,908) 47,764 35,936 21,982 455,213 47,067 556,946 (8,556) ----------- ---------- ----------- ---------- 368,980 86,041 675,198 36,840 ----------- ---------- ----------- ---------- 8,413,079 1,816,732 3,660,518 1,425,649 (87,656) (40,707) (44,451) (7,873) 3,021,876 3,110,800 2,251,711 1,855,028 (2,968,930) (414,754) (1,263,459) (286,303) ----------- ---------- ----------- ---------- 8,378,369 4,472,071 4,604,319 2,986,501 ----------- ---------- ----------- ---------- 8,747,349 4,558,112 5,279,517 3,023,341 4,558,112 -- 3,023,341 -- ----------- ---------- ----------- ---------- $13,305,461 $4,558,112 $ 8,302,858 $3,023,341 =========== ========== =========== ==========
9 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 1998 Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940 and consists of eleven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund'). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life") on December 13, 1988, and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On March 3, 1997, operations commenced for the four new investment divisions added to the Separate Account on that date: the Loomis Sayles High Yield Bond Division, the Janus Mid Cap Division, the T. Rowe Price Small Cap Growth Division and the Scudder Global Equity Division. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1.SIGNIFICANT ACCOUNTING POLICIES A.Valuation of Investments Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the eleven designated portfolios of the Fund in which the eleven investment divisions of the Separate Account invests as of December 31, 1998 is included as Note 5. B.Security Transactions Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C.Federal Income Taxes In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed separately as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes, or reserves for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any Federal income taxes against the Separate Account arising from the earnings or realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D.Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain of the policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain of the policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2.DIVIDENDS On May 5, 1998 and December 16, 1998, the Fund declared dividends for all shareholders of record on May 7, 1998 and December 23, 1998, respectively. The amount of dividends received by the Separate Account was $71,190,477. The dividends were paid to Metropolitan Life on May 8, 1998 and December 24, 1998, respectively, and were immediately reinvested in additional shares of the portfolios in which the investment divisions invest. As a result of 10 NOTES TO FINANCIAL STATEMENTS--(Continued) this reinvestment, the number of shares of the Fund held by each of the eleven investment divisions increased by the following: State Street Research Growth Portfolio, 827,171 shares; State Street Research Income Portfolio, 339,329 shares; State Street Research Money Market Portfolio, 112,807 shares; State Street Research Diversified Portfolio, 1,066,122 shares; State Street Research Aggressive Growth Portfolio, 304,920 shares; MetLife Stock Index Portfolio, 183,724 shares; Santander International Stock Portfolio, 28,929 shares; Loomis Growth Sayles High Yield Bond Portfolio, 30,811 shares; Janus Mid Cap Portfolio, 6,072 shares; T. Rowe Price Small Cap Growth Portfolio, 0 shares and Scudder Global Equity Portfolio, 10,237 shares. 3.EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will not be higher than an effective annual rate of .90% of the average daily value of the net assets or the monthly anniversary value of the net assets in the Separate Account which are attributable to such policies. 4.CHANGE OF NAME Effective November 9, 1998, Santander Global Advisors, Inc. became the sub- investment manager of the Santander International Stock Portfolio (formerly State Street Research International Stock Portfolio) of the Metropolitan Series Fund, Inc. Simultaneously with that change, the corresponding investment division had its name changed to the Santander International Stock Division. 11 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998 Below are summarized information of the investments of the portfolios of the Fund in which each of the investment divisions invest. Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- COMMON STOCK Automotive............. $ 50,517,664 (1.6%) $ 22,855,593 (0.9%) Banking................ 172,519,438 (5.5%) 80,028,947 (3.0%) Broadcasting........... 225,213,831 (7.2%) 105,681,212 (4.0%) Business Services...... 18,336,219 (0.6%) 8,507,594 (0.3%) Chemicals.............. 62,797,294 (2.0%) 29,250,869 (1.1%) Computer Equipment & 41,206,377 (1.3%) 19,014,400 (0.7%) Service............... Drugs & Health Care.... 131,563,219 (4.2%) 60,383,637 (2.3%) Electrical Equipment... 138,582,619 (4.5%) 63,888,537 (2.4%) Electronics............ 138,832,022 (4.5%) 64,421,153 (2.4%) Entertainment & 27,114,300 (0.9%) 12,803,681 (0.5%) Leisure............... Financial Services..... 191,024,825 (6.1%) 88,565,588 (3.3%) Food & Beverages....... 134,094,937 (4.3%) 60,573,275 (2.3%) Forest Products & 32,516,000 (1.0%) 14,948,000 (0.6%) Paper................. Hotel & Motel.......... 19,960,981 (0.6%) 9,194,031 (0.3%) Household Products..... 46,167,600 (1.5%) 21,275,813 (0.8%) Insurance.............. 141,994,575 (4.6%) 64,324,269 (2.4%) Medical Equipment & 117,281,881 (3.8%) 54,248,912 (2.0%) Supply................ Miscellaneous.......... 44,334,619 (1.7%) Multi-Industry......... 95,549,138 (3.1%) Office & Business 191,625,919 (6.2%) 88,440,600 (3.3%) Equipment............. Oil & Gas Exploration.. 7,017,606 (0.2%) 3,077,344 (0.1%) Oil.................... 45,891,390 (1.5%) 21,240,514 (0.8%) Oil-Domestic........... 53,123,188 (1.7%) 24,575,613 (0.9%) Oil-International...... 54,448,875 (1.7%) 25,169,625 (1.0%) Pollution Control...... 16,542,550 (0.5%) 7,697,788 (0.3%) Restaurant............. 56,595,225 (1.8%) 26,450,950 (1.0%) Retail Grocery......... 96,199,400 (3.1%) 44,458,550 (1.7%) Retail Trade........... 203,995,450 (6.6%) 94,199,631 (3.5%) Software............... 82,984,778 (2.7%) 38,365,860 (1.4%) Telecommunications 20,702,053 (0.7%) 9,738,909 (0.4%) Equipment & Services.. Tobacco................ 55,233,400 (1.8%) 26,279,200 (1.0%) Transportation- 288 (0.0%) Trucking.............. Utilities-Electric..... 85,602,613 (2.8%) 38,564,994 (1.5%) Utilities-Gas 28,536,956 (0.9%) 13,312,681 (0.5%) Distribution & Pipelines............. Utilities-Telephone.... 178,222,078 (5.7%) 82,338,872 (3.1%) -------------- -------------- Total Common Stock..... 2,961,994,401 (95.2%) 1,368,211,549 (51.5%) -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Asset Backed........... $ 5,952,261 (1.1%) 55,261 (0.0%) Banking................ 4,912,622 (0.9%) 17,413,654 (0.7%) Collateralized Mortgage 23,365,521 (4.4%) 44,988,869 (1.7%) Obligations........... Drugs & Health Care.... 4,023,433 (0.8%) 9,762,956 (0.4%) Electrical Equipment... 5,669,210 (0.2%) Finance & Banking...... 12,285,984 (0.5%) Financial Services..... 88,530,073 (16.8%) 187,150,983 (7.0%) Food & Beverages....... 7,991,697 (1.5%) Healthcare Services.... 10,514,202 (2.0%) 19,278,706 (0.7%) Household Products..... 4,022,759 (0.8%) 5,804,994 (0.2%) Industrials............ 25,394,604 (4.8%) 96,688,722 (3.6%) Insurance.............. 2,999,260 (0.6%) 6,981,640 (0.3%) Miscellaneous.......... 2,397,587 (0.5%) 9,052,290 (0.3%) Mortgage Related....... 2,067,088 (0.4%) 18,490,416 (0.7%) Multi-Industry......... 4,255,312 (0.8%) 14,878,388 (0.6%) Newspapers............. 10,184,873 (1.9%) 20,021,470 (0.7%) Pollution Control...... 6,608,464 (1.3%) 17,460,438 (0.7%) Restaurant............. 3,312,855 (0.6%) 4,164,732 (0.2%) Retail Grocery......... 5,018,800 (0.9%) 10,149,300 (0.4%) Utilities-Electric..... 11,597,255 (2.2%) 11,922,582 (0.4%) Utilities-Telephone.... 4,725,144 (0.9%) 15,953,880 (0.6%) ------------ -------------- Total Corporate Bonds.. 227,873,810 (43.2%) 528,174,475 (19.9%) Federal Agency 43,969,433 (8.3%) 99,933,906 (3.8%) Obligations............ Federal Treasury 190,468,139 (36.2%) 413,509,607 (15.6%) Obligations............ Foreign Obligations..... 14,827,292 (2.8%) 31,091,792 (1.2%) State Agency 20,142,424 (3.8%) 50,582,786 (1.9%) Obligation............. Yankee Bonds............ 21,382,026 (4.1%) 43,966,468 (1.6%) ------------ -------------- Total Bonds............ 518,663,124 (98.4%) 1,167,259,034 (44.0%) ------------ -------------- SHORT-TERM OBLIGATIONS Commercial Paper....... 153,385,000 (4.9%) 24,658,252 (4.7%) $38,907,115 (94.5%) 144,348,000 (5.4%) -------------- ------------ ----------- -------------- FOREIGN OBLIGATIONS .... 1,978,317 (4.8%) ----------- TOTAL INVESTMENTS....... 3,115,379,401 (100.1%) 543,321,376 (103.1%) 40,885,432 (99.3%) 2,679,818,583 (100.9%) Other Assets Less (3,298,290) (-0.1%) (16,467,003) (-3.1%) 299,303 (0.7%) (22,831,517) (-0.9%) Liabilities........... -------------- ------------ ----------- -------------- NET ASSETS.............. $3,112,081,111 (100.0%) $526,854,373 (100.0%) $41,184,735 (100.0%) $2,656,987,066 (100.0%) ============== ============ =========== ==============
12 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
State Street Research Santander MetLife Aggressive International Stock Index Growth Stock Portfolio Portfolio Portfolio -------------- -------------- ------------- COMMON STOCK Aerospace............... $ 39,162,797 (1.3%) $ 19,058,175 (1.3%) $ 1,022,761 (0.3%) Automotive.............. 50,697,557 (1.6%) 50,687,806 (3.6%) 9,542,116 (3.2%) Banking................. 226,942,249 (7.3%) 13,915,069 (1.0%) 43,646,670 (14.7%) Broadcasting............ 68,923,306 (2.2%) 129,192,089 (9.0%) Business Services....... 182,199,234 (12.7%) Building & 11,707,369 (0.4%) 6,667,401 (2.2%) Construction............ Business Services....... 44,921,087 (1.4%) Chemicals............... 56,423,606 (1.8%) 52,643,156 (3.7%) 539,483 (0.2%) Computer Equipment & 117,894,780 (3.8%) 39,012,934 (2.7%) Service................. Construction & Mining 148,738 (0.0%) Equipment............... Construction Materials.. 8,604,883 (2.9%) Consumer Products....... 581,507 (0.2%) Containers & Glass...... 5,030,406 (0.2%) 11,219,387 (0.8%) Cosmetics............... 5,524,500 (0.2%) Drugs & Health Care..... 275,280,674 (8.8%) 57,715,516 (4.0%) 30,583,278 (10.3%) Education............... 21,623,094 (1.5%) Electrical Equipment.... 133,697,394 (4.3%) 7,149,188 (0.5%) 5,308,380 (1.8%) Electronics............. 162,610,341 (5.2%) 72,071,731 (5.0%) 8,966,121 (3.0%) Entertainment & 29,081,710 (0.9%) 89,647,425 (6.3%) Leisure................. Financial Services...... 155,792,983 (5.0%) 26,278,875 (1.8%) 10,369,932 (3.5%) Food & Beverages........ 142,667,553 (4.6%) 3,010,144 (1.0%) Forest Products & 27,901,546 (0.9%) 593,175 (0.2%) Paper................... Healthcare Services..... 1,019,313 (0.0%) 20,341,956 (1.4%) Homebuilders............ 1,575,306 (0.1%) 3,931,488 (1.3%) Hospital Management..... 9,035,485 (0.3%) 16,403,625 (1.2%) Hotel & Motel........... 5,102,388 (0.2%) 20,250,769 (1.4%) Household Appliances & 5,126,825 (0.2%) 4,650,482 (1.6%) Home Furnishings........ Household Products...... 88,111,919 (2.8%) Industrial Components & 231,000 (0.0%) Material................ Insurance............... 100,057,086 (3.2%) 42,106,469 (2.9%) 28,578,219 (9.6%) Liquor.................. 4,647,400 (0.1%) Machinery............... 21,152,778 (0.7%) Medical Equipment & 86,922,531 (2.8%) 13,084,500 (0.9%) Supply.................. Metals-Aluminum......... 7,229,194 (0.2%) Metals-Gold............. 5,043,754 (0.2%) Metals-Non-Ferrous...... 1,590,626 (0.1%) 2,856,153 (1.0%) Metals-Steel & Iron..... 2,500,224 (0.1%) 649,136 (0.2%) Mining.................. 1,733,106 (0.1%) Miscellaneous........... 21,171,351 (0.7%) 12,238,669 (0.9%) 3,109,774 (1.0%) Multi-Industry.......... 11,674,256 (0.4%) 2,932,702 (1.0%) Newspapers.............. 14,141,700 (0.5%) Office & Business 139,575,075 (4.5%) 38,931,731 (2.7%) 1,794,427 (0.6%) Equipment............... Oil & Gas Exploration... 2,982,744 (0.1%) 15,520,862 (1.1%) 5,273,395 (1.8%) Oil-Domestic............ 23,193,860 (0.7%) Oil-International....... 133,887,606 (4.3%) 10,485,842 (3.5%) Oil-Services............ 17,001,025 (0.5%) Photography............. 7,522,413 (0.2%) 3,083,591 (1.0%) Pollution Control....... 9,371,951 (0.3%) 24,137,762 (1.7%) Printing & Publishing... 8,504,231 (0.3%) 32,332,737 (2.3%) Restaurant.............. 20,110,638 (0.6%) Retail Grocery.......... 24,447,469 (0.8%) 4,145,160 (1.4%) Retail Trade............ 177,505,612 (5.7%) 190,272,119 (13.3%) 7,371,495 (2.5%) Software................ 148,059,255 (4.8%) 99,577,969 (7.0%) Telecommunications 73,478,888 (5.1%) 12,397,259 (4.2%) Equipment & Services.... Textiles & Apparel...... 7,063,863 (0.2%) 10,687,669 (0.8%) Tires & Rubber.......... 3,766,669 (0.1%) 1,421,457 (0.5%) Tobacco................. 45,493,656 (1.5%) 9,957,902 (3.3%) Toys & Amusements....... 3,494,528 (0.1%) 11,522,594 (0.8%) 1,598,187 (0.5%) Transportation.......... 624,855 (0.2%) Transportation- 9,437,948 (0.3%) 3,280,800 (1.1%) Airlines................ Transportation- 3,068,259 (1.0%) Miscellaneous........... Transportation- 14,912,864 (0.5%) 508,639 (0.2%) Railroad................ Transportation- 572,000 (0.0%) Trucking................ Utilities-Electric...... 75,968,625 (2.4%) 11,213,151 (3.8%) Utilities-Gas 13,329,126 (0.4%) 16,061,906 (1.1%) 3,019,359 (1.0%) Distribution & Pipelines............... Utilities- 1,886,504 (0.1%) 2,707,194 (0.9%) Miscellaneous........... Utilities-Telephone..... 259,132,899 (8.3%) 33,505,139 (11.3%) -------------- -------------- ------------ Total Common Stock...... 3,089,695,399 (99.3%) 1,409,363,904 (98.5%) 291,599,916 (98.0%) ------------ PREFERRED STOCK Retail Trade............ 269,563 (0.1%) ------------ Total Preferred Stock... 269,563 (0.1%) ------------ Total Equity 291,869,479 Securities.............. SHORT-TERM OBLIGATIONS-- 6,447,000 (2.2%) REPURCHASE AGREEMENTS... ------------ SHORT-TERM OBLIGATIONS-- 1,574,324 (0.1%) COMMERCIAL PAPER........ -------------- -------------- TOTAL INVESTMENTS....... 3,089,695,399 (99.3%) 1,410,938,228 (98.6%) 298,316,479 (100.3%) Other Assets Less 22,223,585 (0.7%) 20,398,358 (1.4%) (935,567) (-0.3%) Liabilities............. -------------- -------------- ------------ NET ASSETS.............. $3,111,918,984 (100.0%) $1,431,336,586 (100.0%) $297,380,912 (100.0%) ============== ============== ============
13 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio --------------- COMMON STOCK Banking............................................... $ 15,557 (0.0%) Forest Products & Paper............................... 870,986 (2.1%) Oil & Gas Exploration................................. 52,216 (0.1%) Real Estate........................................... 539,556 (1.3%) Restaurant............................................ 12,460 (0.0%) Utilities-Electric.................................... 89,870 (0.2%) ----------- Total Common Stock.................................... 1,580,645 (3.7%) ----------- PREFERRED STOCK Banking............................................... 212,295 (0.4%) Construction Materials................................ 62,344 (0.2%) Financial Services.................................... 164,529 (0.4%) Metals-Steel & Iron................................... 265,687 (0.6%) Office & Business Equipment........................... 820,589 (1.9%) Oil-Services.......................................... 112,219 (0.3%) Transportation-Shipping............................... 232,000 (0.6%) Transportation-Trucking............................... 51,000 (0.1%) Utilities-Electric.................................... 320,200 (0.8%) Utilities-Telephone................................... 213,750 (0.5%) ----------- Total Preferred Stock................................. 2,454,613 (5.8%) ----------- LONG-TERM DEBT SECURITIES Convertible Bonds: Automotive............................................ 351,750 (0.8%) Building & Construction............................... 84,000 (0.2%) Computer Equipment & Service.......................... 3,652,187 (8.6%) Drugs & Health Care................................... 1,117,000 (2.6%) Electronics........................................... 1,819,762 (4.3%) Entertainment & Leisure............................... 75,580 (0.2%) Foreign Obligation.................................... 4,378,810 (10.3%) Healthcare Services................................... 171,313 (0.4%) Industrial Components & Material...................... 73,750 (0.2%) Industrials........................................... 117,975 (0.3%) Medical Equipment & Supply............................ 407,825 (1.0%) Metals-Steel & Iron................................... 0 (0.0%) Mining................................................ 354,875 (0.8%) Oil & Gas Exploration................................. 136,000 (0.3%) Oil-Services.......................................... 261,056 (0.6%) Pollution Control..................................... 375,458 (0.9%) Real Estate........................................... 94,000 (0.2%) Restaurant............................................ 608,630 (1.4%) Retail Trade.......................................... 81,000 (0.2%) Telecommunications Equipment & Services............... 190,000 (0.5%) Textiles & Apparel.................................... 411,162 (1.0%) Transportation-Shipping............................... 241,125 (0.6%) Transportation-Trucking............................... 128,000 (0.3%) ----------- Total Convertible Bonds............................... 15,131,258 (35.7%) ----------- Corporate Bonds: Broadcasting.......................................... 1,762,079 (4.2%) Food & Beverages...................................... 588,209 (1.4%) Industrials........................................... 484,325 (1.1%) Oil & Gas Exploration................................. 856,500 (2.0%) Retail Grocery........................................ 216,000 (0.5%) Retail Trade.......................................... 389,250 (0.9%) Telecommunications Equipment & Services............... 2,226,525 (5.3%) Transportation........................................ 412,500 (1.0%) Transportation-Shipping............................... 360,000 (0.9%) Utilities-Electric.................................... 783,500 (1.8%) Utilities-Telephone................................... 1,162,125 (2.7%) ----------- Total Corporate Bonds................................. 9,241,013 (21.8%) ----------- Foreign Obligations.................................... 9,503,947 (22.4%) ----------- Yankee Bonds........................................... 2,867,825 (6.7%) ----------- Total Bonds........................................... 36,744,043 (96.1%) ----------- SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.......... 794,000 (1.9%) ----------- TOTAL INVESTMENTS...................................... 41,573,301 (98.0%) Other Assets Less Liabilities......................... 829,690 (2.0%) ----------- NET ASSETS............................................. $42,402,991 (100.0%) ===========
14 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
Janus T. Rowe Price Scudder Mid Cap Small Cap Growth Global Equity Portfolio Portfolio Portfolio ------------ ---------------- ------------- COMMON STOCK Aerospace............... $3,727,399 (1.0%) $ 4,229,684 2.2%) $ 1,879,388 (1.7%) Automotive.............. 2,564,169 (1.4%) Banking................. 9,622,934 (2.6%) 4,461,345 (2.4%) 4,198,216 (3.7%) Biotechnology........... 11,305,260 (3.0%) 1,266,294 (0.7%) 1,453,650 (1.3%) Broadcasting............ 56,634,368 (15.2%) 8,249,688 (4.4%) 5,551,477 (4.9%) Building & 2,130,563 (1.1%) Construction........... Business Services....... 28,673,398 (7.7%) 20,708,402 (11.0%) 1,494,872 (1.3%) Chemicals............... 1,736,627 (0.9%) 7,465,971 (6.6%) Computer Equipment & 24,005,995 (6.5%) 13,056,117 (6.9%) Service................ Construction Materials.. 1,041,569 (0.6%) 804,892 (0.7%) Construction & Mining 1,196,531 (0.6%) Equipment.............. Consumer Products....... 810,937 (0.4%) 1,847,336 (1.6%) Consumer Services....... 314,036 (0.3%) Drugs & Health Care..... 29,539,775 (8.0%) 15,080,999 (8.0%) 4,157,539 (3.7%) Education............... 49,914,109 (13.4%) 2,946,847 (1.6%) Electrical Equipment.... 1,206,631 (0.6%) 1,451,842 (1.3%) Electronics............. 31,345,472 (8.5%) 15,441,078 (8.2%) 2,655,535 (2.3%) Entertainment & 3,353,212 (0.9%) 4,214,784 (2.2%) Leisure................ Financial Services...... 18,747,329 (5.0%) 5,415,602 (2.9%) 645,360 (0.6%) Food & Beverages........ 2,135,359 (1.1%) 2,954,732 (2.6%) Forest Products & 55,000 (0.0%) 319,973 (0.3%) Paper.................. General Business........ 3,927,964 (1.1%) Healthcare Services..... 4,612,719 (2.4%) Hospital Management..... 638,575 (0.3%) Hotel & Motel........... 340,747 (0.2%) Household Appliances & 403,925 (0.2%) Home Furnishings....... Insurance............... 3,745,319 (2.0%) 11,857,700 (10.4%) Machinery............... 669,592 (0.6%) Medical Equipment & 4,249,506 (2.2%) 1,516,833 (1.3%) Supply................. Metals--Gold............ 2,892,048 (2.5%) Metals--Non-Ferrous..... 215,600 (0.1%) 2,869,241 (2.5%) Metals--Steel & Iron.... 1,047,581 (0.9%) Mining.................. 876,832 (0.8%) Miscellaneous........... 1,838,275 (1.0%) Multi-Industry.......... 3,295,292 (0.9%) 3,397,089 (3.0%) Newspapers.............. 1,033,000 (0.5%) Office & Business 4,521,756 (2.4%) 3,408,501 (3.0%) Equipment.............. Oil & Gas Exploration... 697,450 (0.4%) 1,039,598 (0.9%) Oil..................... 213,875 (0.2%) Oil--Domestic........... 1,949,213 (1.7%) Oil--International...... 1,961,332 (1.7%) Oil--Services........... 1,409,228 (0.7%) 904,951 (0.8%) Photography............. 450,056 (0.2%) Pollution Control....... 923,737 (0.5%) Printing & Publishing... 1,210,744 (0.6%) 1,014,244 (0.9%) Real Estate............. 1,252,440 (0.7%) 1,934,002 (1.7%) Restaurant.............. 19,240,018 (5.2%) 3,582,490 (1.9%) Retail Grocery.......... 1,872,900 (1.0%) Retail Trade............ 13,958,932 (3.8%) 16,684,107 (8.8%) Shipbuilding............ 717,072 (0.4%) Software................ 13,719,159 (3.7%) 14,046,833 (7.4%) 3,141,600 (2.8%) Telecommunications 27,154,008 (7.3%) 10,619,403 (5.6%) 1,177,250 (1.0%) Equipment & Services... Textiles & Apparel...... 1,837,403 (1.0%) Transportation-- 6,419,241 (1.7%) 1,762,225 (0.9%) 2,026,000 (1.8%) Airlines............... Transportation-- 883,047 (0.5%) 1,918,670 (1.7%) Railroad............... Transportation-- 1,206,775 (0.6%) Trucking............... Utilities--Electric..... 7,631,561 (6.7%) Utilities--Gas 2,852,129 (2.5%) Distribution & Pipelines.............. Utilities--Telephone.... 103,469 (0.1%) 2,664,242 (2.3%) ------------ ------------ ------------ Total Common Stock...... 354,583,865 (95.5%) 188,807,027 (99.8%) 96,158,903 (84.6%) ------------ ------------ ------------ PREFERRED STOCK Food & Beverages........ 227,228 (0.2%) Metals--Steel & Iron.... 327,140 (0.3%) Oil--International...... 244,426 (0.2%) Software................ 1,099,328 (1.0%) ------------ ------------ ------------ Total Preferred Stock... -- -- 1,898,122 (1.7%) ------------ ------------ ------------ Total Equity 354,583,865 (95.5%) 188,807,027 (99.8%) 98,057,025 (86.3%) Securities............. ------------ ------------ ------------ LONG-TERM DEBT SECURITIES Federal Treasury 7,775,488 (6.8%) Obligations............ Foreign Obligations..... 2,113,840 (1.9%) ------------ Total Long-Term Debt 9,889,328 (8.7%) Securities............. ------------ SHORT-TERM OBLIGATIONS Commercial Paper........ 14,593,552 (3.9%) 1,170,561 (0.6%) Federal Agency 7,884,076 (4.2%) Obligations............ Repurchase Agreements... 6,398,000 (5.6%) ------------ ------------ ------------ Total Short-Term 14,593,552 (3.9%) 9,054,637 (4.8%) 6,398,000 (5.6%) Obligations............ ------------ ------------ ------------ TOTAL INVESTMENTS....... 369,177,417 (99.4%) 197,861,664 (104.6%) 114,344,353 (100.6%) Other Assets Less 2,326,494 (0.6%) (8,729,698) (-4.6%) (629,356) (-0.6%) Liabilities............ ------------ ------------ ------------ NET ASSETS.............. $371,503,911 (100.0%) $189,131,966 (100.0%) $113,714,997 (100.0%) ============ ============ ============
15 NOTES TO FINANCIAL STATEMENTS--(Concluded) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONCLUDED) The value of the investments of the Fund's portfolios are determined using the following valuation techniques. Portfolio securities that are traded on domestic stock exchanges are valued at the last price as of the close of business on the day the securities are being valued, or, lacking any sales, at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which in the latter case would value such securities at the last bid price). Securities trading primarily on non- domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or, in the case of the Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued by using the mean between the last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio which second values such securities at the last current bid, and third by using the last available price). Domestic securities traded in the over-the-counter market are valued at the mean between the bid and asked prices or yield equivalent as obtained from two or more dealers that make markets in the securities (except for the Loomis Sayles High Yield Bond Portfolio, which, in the latter case, would value such security at the last bid price; or the Scudder Global Equity Portfolio which would value such security first at the last sale, and second at the bid price). All non-U.S. securities traded in the over-the-counter securities market are valued at the last sale quote, if market quotations are available, or the last closing bid price, if there is no active trading in a particular security for a given day. Where market quotations are not readily available such non-domestic over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors, or it delegates, believe accurately reflects fair value. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long-term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost, method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same methods as securities having a maturity of more than sixty days. Options, whether on securities, indices, or futures contracts, are valued at the last sales price available as of the close of business on the day of valuation or, if no sale, at the mean between the bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to-market daily. The value of futures contracts will be the sum of the margin deposit plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated, value being that established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. 16 Metropolitan Life Insurance Company Consolidated Financial Statements as of December 31, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 and Independent Auditors' Report Independent Auditors' Report The Board of Directors and Policyholders of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1997 the Company changed the method of accounting for investment income on certain structured securities. DELOITTE & TOUCHE LLP New York, New York February 4, 1999 2 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
1998 1997 1996 ------- ------- ------- REVENUES Premiums............................................... $11,503 $11,278 $11,345 Universal life and investment-type product policy fees. 1,360 1,418 1,243 Net investment income.................................. 10,228 9,491 8,978 Other revenues......................................... 1,965 1,491 1,246 Net realized investment gains.......................... 2,021 787 231 ------- ------- ------- 27,077 24,465 23,043 ------- ------- ------- EXPENSES Policyholder benefits and claims....................... 12,488 12,234 12,286 Interest credited to policyholder account balances..... 2,731 2,884 2,868 Policyholder dividends................................. 1,653 1,742 1,728 Other expenses......................................... 8,118 5,934 4,755 ------- ------- ------- 24,990 22,794 21,637 ------- ------- ------- Income before provision for income taxes, discontinued operations and extraordinary item..................... 2,087 1,671 1,406 Provision for income taxes............................. 740 468 482 ------- ------- ------- Income before discontinued operations and extraordinary item.................................................. 1,347 1,203 924 Loss from discontinued operations...................... -- -- 71 ------- ------- ------- Income before extraordinary item....................... 1,347 1,203 853 Extraordinary item--demutualization expense............ 4 -- -- ------- ------- ------- Net income............................................. $ 1,343 $ 1,203 $ 853 ======= ======= =======
See accompanying notes to consolidated financial statements. 3 Metropolitan Life Insurance Company CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 (In millions)
1998 1997 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value......... $100,767 $ 92,630 Equity securities, at fair value........................... 2,340 4,250 Mortgage loans on real estate.............................. 16,827 20,193 Real estate and real estate joint ventures................. 6,287 7,080 Policy loans............................................... 5,600 5,846 Other limited partnership interests........................ 964 855 Short-term investments..................................... 1,369 679 Other invested assets...................................... 1,567 4,456 -------- -------- 135,721 135,989 Cash and cash equivalents.................................... 3,301 2,911 Accrued investment income.................................... 1,994 1,860 Premiums and other receivables............................... 5,972 3,319 Deferred policy acquisition costs............................ 6,560 6,436 Other........................................................ 3,448 3,641 Separate account assets...................................... 58,350 48,620 -------- -------- $215,346 $202,776 ======== ======== LIABILITIES AND EQUITY Liabilities: Future policy benefits....................................... $ 72,701 $ 73,848 Policyholder account balances................................ 46,494 48,543 Other policyholder funds..................................... 4,061 3,998 Policyholder dividends payable............................... 947 969 Short-term debt.............................................. 3,585 4,587 Long-term debt............................................... 2,903 2,884 Income taxes payable, current and deferred................... 948 952 Other........................................................ 10,772 4,650 Separate account liabilities................................. 58,068 48,338 -------- -------- 200,479 188,769 -------- -------- Commitments and contingencies (Note 9) Equity: Retained earnings............................................ 13,483 12,140 Accumulated other comprehensive income....................... 1,384 1,867 -------- -------- 14,867 14,007 -------- -------- $215,346 $202,776 ======== ========
See accompanying notes to consolidated financial statements. 4 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED) For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
Accumulated Other Comprehensive Income ---------------------------------------------- Net Foreign Minimum Unrealized Currency Pension Comprehensive Retained Investment Translation Liability Total Income Earnings Gains Adjustment Adjustment ------- ------------- -------- ------------- ------------- ------------ Balance at January 1, 1996................... $11,754 $10,084 $ 1,646 $ 24 $ -- Comprehensive income: Net income............. 853 $ 853 853 ------ Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes........ (618) (618) Foreign currency translation adjustments......... (6) (6) ------ Other comprehensive loss.................. (624) (624) ------ Comprehensive income. $ 229 ------- ====== ------- ------------- ------------ ------------ Balance at December 31, 1996................... 11,983 10,937 1,028 18 -- Comprehensive income: Net income............. 1,203 $1,203 1,203 ------ Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes........ 870 870 Foreign currency translation adjustments......... (49) (49) ------ Other comprehensive income................ 821 821 ------ Comprehensive income. $2,024 ------- ====== ------- ------------- ------------ ------------ Balance at December 31, 1997................... 14,007 12,140 1,898 (31) -- Comprehensive income: Net income............. 1,343 $1,343 1,343 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes........ (358) (358) Foreign currency translation adjustments......... (113) (113) Minimum pension liability adjustment.......... (12) (12) ------ Other comprehensive loss.................. (483) (483) ------- ------ Comprehensive income. $ 860 ------- ------- ------------- ------------ ------------ ====== Balance at December 31, 1998................... $14,867 $13,483 $ 1,540 $ (144) $ (12) ======= ======= ============= ============ ============
See accompanying notes to consolidated financial statements. 5 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities Net income....................................... $ 1,343 $ 1,203 $ 853 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses....... 56 (36) (18) Gains from sales of investments and businesses, net............................. (2,629) (1,018) (428) Change in undistributed income of real estate joint ventures and other limited partnership interests................................... (91) 157 (45) Interest credited to policyholder account balances.................................... 2,731 2,884 2,868 Universal life and investment-type product policy fees................................. (1,360) (1,418) (1,243) Change in accrued investment income.......... (181) (215) 350 Change in premiums and other receivables..... (2,681) (792) (125) Change in deferred policy acquisition costs, net......................................... (188) (159) (391) Change in insurance related liabilities...... 1,493 2,364 2,349 Change in income taxes payable............... 211 (99) (134) Change in other liabilities.................. 2,390 (206) 902 Other, net................................... (253) 207 (1,250) -------- -------- -------- Net cash provided by operating activities........ 841 2,872 3,688 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................. 57,857 75,346 76,117 Equity securities............................ 3,085 1,821 2,069 Mortgage loans on real estate................ 2,296 2,784 2,380 Real estate and real estate joint ventures... 1,122 2,046 2,358 Other limited partnership interests.......... 146 166 178 Purchases of: Fixed maturities............................. (67,543) (76,603) (76,225) Equity securities............................ (854) (2,121) (2,742) Mortgage loans on real estate................ (2,610) (4,119) (4,225) Real estate and real estate joint ventures... (423) (624) (989) Other limited partnership interests.......... (723) (338) (307) Net change in short-term investments........... (761) 63 1,028 Net change in policy loans..................... 133 17 (128) Proceeds from sales of businesses.............. 7,372 274 -- Net change in investment collateral............ 3,769 -- -- Other, net..................................... (183) (378) (438) -------- -------- -------- Net cash provided by (used in) investing activities...................................... 2,683 (1,666) (924) -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits..................................... $ 19,361 $ 16,061 $ 17,167 Withdrawals.................................. (21,706) (18,831) (19,321) Short-term debt, net........................... (1,001) 1,265 69 Long-term debt issued.......................... 693 989 -- Long-term debt repaid.......................... (481) (104) (284) -------- -------- -------- Net cash used in financing activities............ (3,134) (620) (2,369) -------- -------- -------- Change in cash and cash equivalents.............. 390 586 395 Cash and cash equivalents, beginning of year..... 2,911 2,325 1,930 -------- -------- -------- Cash and cash equivalents, end of year........... $ 3,301 $ 2,911 $ 2,325 ======== ======== ======== Supplemental disclosures of cash flow information: Interest....................................... $ 367 $ 422 $ 310 ======== ======== ======== Income taxes................................... $ 579 $ 589 $ 497 ======== ======== ========
Cash paid during the year for: See accompanying notes to consolidated financial statements. 6 Metropolitan Life Insurance Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts are in millions unless otherwise stated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of institutional and individual customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance and retirement and savings products and services to corporations and other institutions. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. During 1997, management changed to the retrospective interest method of accounting for investment income on structured notes in accordance with authoritative guidance issued in late 1996. As a result, net investment income increased by $175. The cumulative effect of this accounting change on prior years' income was not material. Principles of Consolidation The accompanying consolidated financial statements include the accounts of MetLife and its subsidiaries, partnerships and joint ventures in which MetLife has a controlling interest. All material intercompany accounts and transactions have been eliminated. The Company accounts for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but more than a minimal interest, under the equity method of accounting. Minority interest relating to consolidated entities included in other liabilities was $274 and $277 at December 31, 1998 and 1997, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 1998 presentation. Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as realized losses on investments. Realized gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the 7 NOTES TO FINANCIAL STATEMENTS--(Continued) contractual terms of the loan agreement. Valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in realized losses on investments. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or estimated fair value, net of disposition costs. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Derivative Instruments The Company uses derivative instruments to manage market risk through one of four principal risk management strategies: the hedging of invested assets, liabilities, portfolios of assets or liabilities and anticipated transactions. The Company's derivative strategy employs a variety of instruments including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options. The Company's derivative program is monitored by senior management. The Company's risk of loss is typically limited to the fair value of its derivative instruments and not to the notional or contractual amounts of these derivatives. Risk arises from changes in the fair value of the underlying instruments and, with respect to over-the-counter transactions, from the possible inability of counterparties to meet the terms of the contracts. The Company has strict policies regarding the financial stability and credit standing of its major counterparties. The Company's derivative instruments are designated as hedges and are highly correlated to the underlying risk at contract inception. The Company monitors the effectiveness of its hedges throughout the contract term using an offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge effectiveness. Derivative instruments that lose their effectiveness are marked to market through net investment income. Gains or losses on financial futures contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, recorded as an adjustment to the basis of the purchased assets or to the proceeds on disposition. Gains or losses on financial futures used in asset risk management are deferred and amortized into net investment income over the remaining term of the investment. Gains or losses on financial futures used in portfolio risk management are deferred and amortized into net investment income or policyholder benefits over the remaining life of the hedged sector of the underlying portfolio. Financial forward contracts that are entered into to purchase securities are marked to fair value through other comprehensive income, similar to the accounting for the investment security. Such contracts are accounted for at settlement by recording the purchase of the specified securities at fair value. Gains or losses resulting from the termination of forward contracts are recognized immediately as a component of net investment income. Interest rate and certain foreign currency swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net receipts or payments are accrued and recognized over the term of the swap agreement as an adjustment to net investment income or other expense. Gains or losses resulting from swap terminations are amortized over the remaining term of the underlying asset or liability. Gains and losses on swaps and certain foreign forward exchange contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, reflected as an adjustment to the basis of the purchased 8 NOTES TO FINANCIAL STATEMENTS--(Continued) assets or to the proceeds of disposition. In the event the asset or liability underlying a swap is disposed of, the swap position is closed immediately and any gain or loss is recorded as an adjustment to the proceeds from disposition. The Company periodically enters into collars, which consist of purchased put and written call options, to lock in unrealized gains on equity securities. Collars are marked to market through other comprehensive income, similar to the accounting for the underlying equity securities. Purchased interest rate caps and floors are used to offset the risk of interest rate changes related to insurance liabilities. Premiums paid on floors, caps and options are split into two components, time value and intrinsic value. Time value is amortized over the life of the applicable derivative instrument. The intrinsic value and any gains or losses relating to these derivative instruments adjust the basis of the underlying asset or liability and are recognized as a component of net investment income over the term of the underlying asset or liability being hedged as an adjustment to the yield. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years- digits method over the estimated useful lives of the assets. Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for all other property and equipment. Accumulated depreciation on property and equipment and accumulated amortization of leasehold improvements was $1,048 at both December 31, 1998 and 1997. Related depreciation and amortization expense was $95, $103 and $78 for the years ended December 31, 1998, 1997 and 1996, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized 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. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs for property and liability 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. Other Intangible Assets The excess of cost over the fair value of net assets acquired ("goodwill") and the value of business acquired are included in other assets. Goodwill is amortized on a straight-line basis over a period ranging from 10 to 30 years. The Company continually reviews goodwill to assess recoverability from future operations using undiscounted cash flows. 9 NOTES TO FINANCIAL STATEMENTS--(Continued) Impairments are recognized in operating results if a permanent diminution in value is deemed to have occurred. The value of business acquired is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts.
Value of Business Acquired Goodwill -------------------------- ---------------- Years Ended December 31 1998 1997 1996 1998 1997 1996 - ----------------------- -------- -------- -------- ---- ---- ---- Net Balance at January 1........ $ 498 $ 358 $ 381 $884 $544 $377 Acquisitions.................... 32 176 7 80 387 197 Amortization.................... (55) (36) (30) (59) (47) (30) -------- -------- -------- ---- ---- ---- Net Balance at December 31...... $ 475 $ 498 $ 358 $905 $884 $544 ======== ======== ======== ==== ==== ==== December 31 1998 1997 1998 1997 - ----------- -------- -------- ---- ---- Accumulated Amortization........ $ 142 $ 87 $207 $148 ======== ======== ==== ====
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 2% to 7%, 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 5% to 8%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 4% to 7%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 4% to 8%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 3% to 17%, less expenses, mortality charges and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs. Revisions of these estimates are reflected 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. 10 NOTES TO FINANCIAL STATEMENTS--(Continued) Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Premiums related to universal life and investment-type contracts are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Dividends to Policyholders Dividends to policyholders are determined annually by the Board of Directors. The aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the Company. Participating Business Participating business represented approximately 21% and 22% of the Company's life insurance in-force, and 81% and 87% of the number of life insurance policies in-force, at December 31, 1998 and 1997, respectively. Participating policies represented approximately 39% and 40%, 41% and 41%, and 40% and 44% of gross and net life insurance premiums for the years ended December 31, 1998, 1997 and 1996, respectively. Income Taxes MetLife and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. Federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended ("the Code"). Under the Code, the amount of Federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured as of the balance sheet dates and are recorded as deferred income tax assets 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. 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 generally the functional currencies. Translation adjustments are charged or 11 NOTES TO FINANCIAL STATEMENTS--(Continued) credited directly to other comprehensive income. Gains and losses from foreign currency transactions are reported in other expenses and were insignificant for all years presented. Extraordinary Item--Demutualization Expense On November 24, 1998, the Board of Directors authorized management to develop a plan to convert from a mutual life insurance company to a stock life insurance company (the "demutualization"). A final plan to convert to a publicly traded stock company is subject to the approval of the Board of Directors, the policyholders and the New York Superintendent of Insurance ("Superintendent"). The Department has not yet reviewed or approved any materials relating to the demutualization. The accompanying consolidated statements of income reflect an extraordinary charge of $4 (net of income taxes of $2) for the year ended December 31, 1998 related to costs associated with the demutualization. Application of Accounting Pronouncements In October 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing or underwriting risk and 4) have an indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1, 2000. Adoption of SOP 98-7 is not expected to have a material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in income. The Company is required to adopt SFAS 133 as of January 1, 2000. The Company is in the process of quantifying the impact of SFAS 133 on its consolidated financial statements. In April 1998, the AICPA issued 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. The Company is required to adopt SOP 98-5 as of January 1, 1999. Adoption of SOP 98-5 is not expected to have a material effect on the Company's consolidated financial statements. In March 1998, the AICPA issued 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. The Company is required to adopt SOP 98-1 as of January 1, 1999. Adoption of SOP 98-1 is not expected to have a material effect on the Company's consolidated financial statements. In December 1997, the AICPA issued 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. The Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP 97-3 is not expected to have a material effect on the Company's consolidated financial statements. In 1998, the Company adopted SFAS 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards for reporting financial information and related disclosures about products and services, geographic areas and major customers relating to operating segments in annual financial statements. Adoption of SFAS 131 had no effect on the Company's consolidated financial statements. 12 NOTES TO FINANCIAL STATEMENTS--(Continued) In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Adoption of SFAS 130 had no effect on the Company's consolidated financial statements. In 1998, the Company adopted the provisions of SFAS 125 which were deferred by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. The deferred provisions provide accounting and reporting standards related to repurchase agreements, dollar rolls, securities lending and similar transactions. Adoption of the provisions had the effect of increasing assets and liabilities by $3,769 at December 31, 1998 and increasing revenues and expenses by $266 for the year ended December 31, 1998. 2. INVESTMENTS The components of net investment income were as follows:
Years ended December 31, --------------------------- 1998 1997 1996 -------- -------- -------- Fixed maturities........................... $ 6,563 $ 6,445 $ 6,042 Equity securities.......................... 78 50 60 Mortgage loans on real estate.............. 1,572 1,684 1,523 Real estate and real estate joint ventures. 1,529 1,718 1,668 Policy loans............................... 387 368 399 Other limited partnership interests........ 196 302 215 Cash, cash equivalents and short-term investments 187 169 214 Other...................................... 841 368 401 -------- ------- -------- 11,353 11,104 10,522 Less: Investment expenses.................. 1,125 1,613 1,544 -------- ------- -------- $10,228 $ 9,491 $ 8,978 ======== ======= ======== Net realized investment gains, including changes in valuation allowances, were as follows: Years ended December 31, --------------------------- 1998 1997 1996 -------- -------- -------- Fixed maturities........................... $ 573 $ 118 $ 234 Equity securities.......................... 994 224 101 Mortgage loans on real estate.............. 23 56 (86) Real estate and real estate joint ventures. 424 446 371 Other limited partnership interests........ 13 12 (129) Sale of subsidiaries....................... 531 139 -- Other...................................... 71 23 (33) -------- ------- -------- 2,629 1,018 458 Amounts allocable to: Future policy benefit loss recognition... (300) (126) (203) Deferred policy acquisition costs........ (240) (70) (4) Participating pension contracts.......... (68) (35) (20) -------- ------- -------- $ 2,021 $ 787 $ 231 ======== ======= ========
13 NOTES TO FINANCIAL STATEMENTS--(Continued) The components of net unrealized investment gains, included in accumulated other comprehensive income, were as follows:
Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Fixed maturities............................. $ 4,809 $ 4,766 $ 2,226 Equity securities............................ 832 1,605 563 Other invested assets........................ 125 294 474 ------- ------- ------- 5,766 6,665 3,263 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition..... (2,248) (2,189) (1,219) Deferred policy acquisition costs.......... (902) (1,147) (420) Participating pension contracts............ (212) (312) (9) Deferred income taxes........................ (864) (1,119) (587) ------- ------- ------- (4,226) (4,767) (2,235) ------- ------- ------- $ 1,540 $ 1,898 $ 1,028 ======= ======= ======= The changes in net unrealized investment gains were as follows: Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1......................... $ 1,898 $ 1,028 $ 1,646 Unrealized investment gains (losses) during the year.................................... (899) 3,402 (2,493) Unrealized investment (gains) losses relating to: Future policy benefit loss recognition..... (59) (970) 845 Deferred policy acquisition costs.......... 245 (727) 328 Participating pension contracts............ 100 (303) 341 Deferred income taxes........................ 255 (532) 361 ------- ------- ------- Balance at December 31....................... $ 1,540 $ 1,898 $ 1,028 ======= ======= ======= Net change in unrealized investment gains.... $ (358) $ 870 $ (618) ======= ======= =======
14 NOTES TO FINANCIAL STATEMENTS--(Continued) Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 1998 were as follows:
Gross Cost or Unrealized Estimated Amortized ------------ Fair Cost Gain Loss Value --------- ------- ---- --------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 6,640 $ 1,117 $ 10 $ 7,747 States and political subdivisions......... 597 26 -- 623 Foreign governments....................... 3,435 254 88 3,601 Corporate................................. 46,377 2,471 260 48,588 Mortgage and asset-backed securities 26,456 569 46 26,979 Other..................................... 12,438 1,069 293 13,214 ------- ------- ---- -------- 95,943 5,506 697 100,752 Redeemable preferred stocks............... 15 -- -- 15 ------- ------- ---- -------- $95,958 $ 5,506 $697 $100,767 ======= ======= ==== ======== Equity Securities: Common stocks............................. $ 1,286 $ 923 $ 77 $ 2,132 Nonredeemable preferred stocks............ 222 4 18 208 ------- ------- ---- -------- $ 1,508 $ 927 $ 95 $ 2,340 ======= ======= ==== ======== Fixed maturities and equity securities at December 31, 1997 were as follows: Gross Cost or Unrealized Estimated Amortized ------------ Fair Cost Gain Loss Value --------- ------- ---- --------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U. S. government corporations and agencies................ $ 8,708 $ 1,010 $ 2 $ 9,716 States and political subdivisions......... 486 22 -- 508 Foreign governments....................... 3,420 371 52 3,739 Corporate................................. 41,012 2,337 291 43,058 Mortgage and asset-backed securities...... 22,370 579 21 22,928 Other..................................... 11,374 929 134 12,169 ------- ------- ---- -------- 87,370 5,248 500 92,118 Redeemable preferred stocks............... 494 19 1 512 ------- ------- ---- -------- $87,864 $ 5,267 $501 $ 92,630 ======= ======= ==== ======== Equity Securities: Common stocks............................. $ 2,444 $ 1,716 $105 $ 4,055 Nonredeemable preferred stocks............ 201 5 11 195 ------- ------- ---- -------- $ 2,645 $ 1,721 $116 $ 4,250 ======= ======= ==== ========
The Company held foreign currency derivatives with notional amounts of $716 and $408 to hedge the exchange rate risk associated with foreign bonds at December 31, 1998 and 1997, respectively. The Company also held options with fair values of $(11) and $33 to hedge the market value of common stocks at December 31, 1998 and 1997, respectively. 15 NOTES TO FINANCIAL STATEMENTS--(Continued) At December 31, 1998, fixed maturities held by the Company that were below investment grade or not rated by an independent rating agency totaled $8,289. At December 31, 1998, non-income producing fixed maturities were insignificant. The amortized cost and estimated fair value of bonds at December 31, 1998, by contractual maturity date, are shown below:
Estimated Amortized Fair Cost Value --------- --------- Due in one year or less............................... $ 2,380 $ 2,462 Due after one year through five years................. 17,062 17,527 Due after five years through 10 years................. 23,769 24,714 Due after 10 years.................................... 26,276 29,070 -------- -------- 69,487 73,773 Mortgage and asset-backed securities.................. 26,456 26,979 -------- -------- $ 95,943 $100,752 ======== ========
Fixed maturities not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of fixed maturities and equity securities were as follows:
Years ended December 31, ----------------------- 1998 1997 1996 ------- ------- ------- Fixed maturities classified as available-for- sale: Proceeds..................................... $43,828 $67,454 $67,239 Gross realized gains......................... $ 928 $ 672 $ 1,067 Gross realized losses........................ $ 355 $ 558 $ 842 Fixed maturities classified as held-to- maturity: Proceeds..................................... $ -- $ 352 $ 1,281 Gross realized gains......................... $ -- $ 5 $ 10 Gross realized losses........................ $ -- $ 1 $ 1 Equity securities: Proceeds..................................... $ 3,085 $ 1,821 $ 2,069 Gross realized gains......................... $ 1,125 $ 293 $ 150 Gross realized losses........................ $ 131 $ 69 $ 49
During 1997, fixed maturities with an amortized cost of $11,682 were transferred from held-to-maturity to available-for-sale. Other comprehensive income at the date of reclassification was increased by $198 excluding the effects of deferred income taxes and policyholder related amounts. Excluding investments in U.S. governments and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby large blocks of securities 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 $4,005 and $6,068 and estimated fair value of $4,552 and $6,653 were on loan under the program at December 31, 1998 and 1997, respectively. The Company is liable for cash collateral of $3,769 at December 31, 1998. This liability is included in other liabilities. Rebates of $266 were paid and accrued on the cash collateral for the year ended 16 NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1998. The rebates paid and accrued during 1998 are included in other operating costs and expenses. Security collateral is returnable on short notice and is not reflected in the consolidated financial statements. Statutory Deposits The Company had investment assets on deposit with regulatory agencies of $466 and $4,695 as of December 31, 1998 and 1997, respectively. Mortgage Loans on Real Estate Mortgage loans were categorized as follows:
December 31, ---------------------------------- 1998 1997 ---------------- ---------------- Amount Percent Amount Percent ------- ------- ------- ------- Commercial mortgage loans.................... $12,503 74% $14,945 73% Agriculture mortgage loans................... 4,256 25% 3,753 18% Residential mortgage loans................... 241 1% 272 1% Other loans.................................. -- -- 1,512 8% ------- ------ ------- ----- 17,000 100% 20,482 100% ====== ===== Less: Valuation allowances................... 173 289 ------- ------- $16,827 $20,193 ======= ======= Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 1998, approximately 15%, 9% and 7% of the properties were located in California, New York and Florida, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $606 and $725 at December 31, 1998 and 1997, respectively. Changes in mortgage loan valuation allowances were as follows: Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1......................... $ 289 $ 469 $ 491 Additions.................................... 40 61 144 Deductions for writedowns and dispositions... (130) (241) (166) Deductions for disposition of affiliates..... (26) -- -- ------- ------ ------- Balance at December 31....................... $ 173 $ 289 $ 469 ======= ====== ======= A portion of the Company's mortgage loans on real estate was impaired and consisted of the following: December 31, ---------------- 1998 1997 ------- ------- Impaired mortgage loans with valuation allowances.................................. $ 823 $1,231 Impaired mortgage loans without valuation allowances.................................. 375 306 ------- ------ 1,198 1,537 Less: Valuation allowances................... 149 250 ------- ------ $ 1,049 $1,287 ======= ======
17 NOTES TO FINANCIAL STATEMENTS--(Continued) The average recorded investment in impaired mortgage loans on real estate was $1,282, $1,680 and $2,113 for the years ended December 31, 1998, 1997 and 1996, respectively. Interest income on impaired mortgages was $109, $110 and $119 for the years ended December 31, 1998, 1997 and 1996, respectively. Restructured mortgage loans on real estate were $1,036 and $1,207 at December 31, 1998 and 1997, respectively. Interest income of $74, $91 and $135 was recognized on restructured loans for the years ended December 31, 1998, 1997 and 1996, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $87, $116 and $198 for the years ended December 31, 1998, 1997 and 1996, respectively. Mortgage loans on real estate with scheduled payments 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $65 and $255 as of December 31, 1998 and 1997, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, --------------- 1998 1997 ------- ------ Real estate and real estate joint ventures held-for- investment............................................ $ 6,301 $6,731 Impairments............................................ (408) (407) ------- ------ 5,893 6,324 ------- ------ Real estate and real estate joint ventures held-for- sale.................................................. 546 915 Impairments............................................ (119) (49) Valuation allowance.................................... (33) (110) ------- ------ 394 756 ------- ------ $ 6,287 $7,080 ======= ======
Accumulated depreciation on real estate was $2,065 and $2,030 at December 31, 1998 and 1997, respectively. Related depreciation expense was $282, $338 and $348 for the years ended December 31, 1998, 1997 and 1996, respectively. Real estate and real estate joint ventures were categorized as follows:
December 31, ------------------------------ 1998 1997 --------------- -------------- Amount Percent Amount Percent ------- ------- ------ ------- Office..................................... $ 4,265 68% $4,730 67% Retail..................................... 640 10% 804 11% Apartments................................. 418 7% 406 6% Land....................................... 313 5% 346 5% Agriculture................................ 195 3% 214 3% Other...................................... 456 7% 580 8% ------- --- ------ --- $ 6,287 100% $7,080 100% ======= === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 1998, approximately 23%, 23% and 12% 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, ---------------------------- 1998 1997 1996 -------- -------- -------- Balance at January 1.... $ 110 $ 661 $ 924 Additions charged (credited) to operations............. (5) (76) 127 Deductions for writedowns and dispositions........... (72) (475) (390) -------- -------- -------- Balance at December 31.. $ 33 $ 110 $ 661 ======== ======== ========
18 NOTES TO FINANCIAL STATEMENTS--(Continued) Investment income (expense) relating to impaired real estate and real estate joint ventures held-for-investment was $105, $28 and $(10) for the years ended December 31, 1998, 1997 and 1996, respectively. Investment income relating to real estate and real estate joint ventures held-for-sale was $3, $11 and $70 for the years ended December 31, 1998, 1997 and 1996, respectively. The carrying value of non-income producing real estate and real estate joint ventures was insignificant at December 31, 1998 and 1997, respectively. The Company owned real estate acquired in satisfaction of debt of $154 and $218 at December 31, 1998 and 1997, respectively. Direct Financing and Leveraged Leases Direct financing and leveraged leases, included in other invested assets, consisted of the following:
December 31, ------------------------------------------------- Direct Financing Leveraged Leases Leases Total ----------------- -------------- -------------- 1998 1997 1998 1997 1998 1997 ----------------- ------ ------ ------ ------ Investment................... $ -- $ 1,137 $1,067 $ 851 $1,067 $1,988 Estimated residual values.... -- 183 607 641 607 824 ------- --------- ------ ------ ------ ------ -- 1,320 1,674 1,492 1,674 2,812 Unearned income.............. -- (261) (471) (428) (471) (689) ------- --------- ------ ------ ------ ------ Net investment............... $ -- $ 1,059 $1,203 $1,064 $1,203 $2,123 ======= ========= ====== ====== ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to eight years, but in certain circumstances are as long as 20 years. Average yields range from 7% to 12%. These receivables are generally collateralized by the related property. 3. DERIVATIVE INSTRUMENTS The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments (other than equity options) held at December 31, 1998 and 1997:
1998 1997 ------------------------------------- ------------------------------------- Current Market or Current Market or Fair Value Fair Value ------------------ ------------------ Carrying Notional Carrying Notional Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- Financial futures....... $ 3 $ 2,190 $ 8 $ 6 $ 10 $ 2,262 $ 17 $ 7 Foreign exchange contracts.............. -- 136 -- 2 -- 150 2 -- Interest rate swaps..... (9) 1,621 17 50 (11) 1,464 9 28 Foreign currency swaps.. (1) 580 3 62 -- 258 3 30 Caps.................... -- 8,391 -- -- -- 1,545 13 -- Options (fixed income).. -- -- -- -- 2 275 -- 2 -------- -------- ------ ----------- -------- -------- ------ ----------- Total contractual commitments............ $ (7) $ 12,918 $ 28 $ 120 $ 1 $ 5,954 $ 44 $ 67 ======== ======== ====== =========== ======== ======== ====== ===========
19 NOTES TO FINANCIAL STATEMENTS--(Continued) The following is a reconciliation of the notional amounts by derivative type and strategy as of December 31, 1998 and 1997:
December 31, 1997 Terminations/ December 31, 1998 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- BY DERIVATIVE TYPE Financial futures....... $2,262 $25,073 $(25,145) $ 2,190 Foreign exchange contracts.............. 150 1,231 (1,245) 136 Interest rate swaps..... 1,464 788 (631) 1,621 Foreign currency swaps.. 258 386 (64) 580 Caps.................... 1,545 8,250 (1,404) 8,391 Options (fixed income).. 275 -- (275) -- ------ ------- -------- ------- Total contractual commitments............ $5,954 $35,728 $(28,764) $12,918 ====== ======= ======== ======= BY STRATEGY Liability hedging....... $1,860 $ 8,419 $ (1,538) $ 8,741 Invested asset hedging.. 817 1,666 (1,619) 864 Portfolio hedging....... 2,787 25,643 (25,600) 2,830 Anticipated transaction hedging................ 490 -- (7) 483 ------ ------- -------- ------- Total contractual commitments............ $5,954 $35,728 $(28,764) $12,918 ====== ======= ======== =======
The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 1998:
Remaining Life --------------------------------------- After Five After One Years After One Year Year Through Through Ten Ten or Less Five Years Years Years Total -------- ------------ ----------- ----- ------- Financial futures.............. $2,190 $ -- $ -- $ -- $ 2,190 Foreign exchange contracts..... 136 -- -- -- 136 Interest rate swaps............ 470 774 162 215 1,621 Foreign currency swaps......... 39 182 343 16 580 Caps........................... 1,875 6,496 20 -- 8,391 -------- ------------ ----------- ----- ------- Total contractual commitments.. $4,710 $ 7,452 $ 525 $ 231 $12,918 ======== ============ =========== ===== =======
In addition to the derivative instruments above, the Company uses equity option contracts as invested asset hedges. There were 92 thousand and 7 million equity option contracts outstanding with carrying values of $(11) and $27 and market values of $(11) and $33, as of December 31, 1998 and 1997, respectively. The outstanding contracts have a remaining life of one year or less as of December 31, 1998. 4. REINSURANCE The Company assumes and cedes insurance with other insurance companies. The Company continually evaluates the financial condition of its reinsurers and monitors concentration of credit risk in an effort to minimize its exposure to significant losses from reinsurer insolvencies. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to material fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to diversify its risk portfolio. 20 NOTES TO FINANCIAL STATEMENTS--(Continued) The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Direct premiums............................... $12,763 $12,728 $12,452 Reinsurance assumed........................... 409 360 508 Reinsurance ceded............................. (1,669) (1,810) (1,615) ------- ------- ------- Net premiums.................................. $11,503 $11,278 $11,345 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits........................ $ 1,751 $ 1,648 $ 1,667 ======= ======= =======
Reinsurance recoverables, included in other receivables, were $2,956 and $1,511 at December 31, 1998 and 1997, respectively. Reinsurance and ceded commissions payables, included in other liabilities, were $105 and $158 at December 31, 1998 and 1997, respectively. 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, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1........................... $ 3,655 $ 3,345 $ 3,296 Reinsurance recoverables..................... (229) (215) (214) ------- ------- ------- Net balance at January 1....................... 3,426 3,130 3,082 ------- ------- ------- Incurred related to: Current year................................. 2,726 2,855 2,951 Prior years.................................. (245) 88 (114) ------- ------- ------- 2,481 2,943 2,837 ------- ------- ------- Paid related to: Current year................................. (1,967) (1,832) (1,998) Prior years.................................. (853) (815) (791) ------- ------- ------- (2,820) (2,647) (2,789) ------- ------- ------- Balance at December 31......................... 3,087 3,426 3,130 Add: Reinsurance recoverables................ 233 229 215 ------- ------- ------- Balance at December 31......................... $ 3,320 $ 3,655 $ 3,345 ======= ======= =======
5. INCOME TAXES The provision for income taxes was as follows:
Years ended December 31, ------------------ 1998 1997 1996 ------ ---- ---- Current: Federal............................................. $ 821 $424 $346 State and local..................................... 60 10 25 Foreign............................................. 99 26 27 ------ ---- ---- 980 460 398 ------ ---- ---- Deferred: Federal............................................. (178) (26) 66 State and local..................................... (8) 9 6 Foreign............................................. (54) 25 12 ------ ---- ---- (240) 8 84 ------ ---- ---- Provision for income taxes............................ $ 740 $468 $482 ====== ==== ====
21 NOTES TO 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, -------------------- 1998 1997 1996 ------ ------ ---- Tax provision at U.S. statutory rate................ $ 730 $ 585 $492 Tax effect of: Tax exempt investment income...................... (40) (30) (18) Goodwill.......................................... 5 9 -- Surplus tax....................................... 18 (40) 38 State and local income taxes...................... 31 15 23 Foreign operations................................ 12 7 (7) Tax credits....................................... (25) (15) (15) Prior year taxes.................................. 4 (2) (46) Sale of subsidiaries.............................. (19) (41) -- Other, net........................................ 24 (20) 15 ------ ------ ---- Provision for income taxes.......................... $ 740 $ 468 $482 ====== ====== ==== Deferred income taxes represent the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax liabilities consisted of the following: December 31, -------------- 1998 1997 ------ ------ Deferred income tax assets: Policyholder liabilities and receivables.......... $3,239 $3,174 Net operating losses.............................. 22 33 Employee benefits................................. 174 187 Non-deductible liabilities........................ 441 162 Other, net........................................ 158 223 ------ ------ 4,034 3,779 Less: Valuation allowance......................... 21 24 ------ ------ 4,013 3,755 ------ ------ Deferred income tax liabilities: Investments....................................... 1,417 1,118 Deferred policy acquisition costs................. 1,774 1,890 Net unrealized investment gains................... 864 1,119 Other, net........................................ 18 100 ------ ------ 4,073 4,227 ------ ------ Net deferred income tax liability................... $ (60) $ (472) ====== ======
Foreign net operating loss carryforwards generated a deferred income tax benefit of $21. The Company has recorded a valuation allowance related to these tax benefits. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for foreign net operating loss carryforwards will not be realized. The benefit will be recognized at such time management believes that it is more likely than not that the portion of the deferred income tax asset is realizable. 22 NOTES TO FINANCIAL STATEMENTS--(Continued) The sources of deferred income tax expense (benefit) and their tax effects were as follows:
Years ended December 31, ----------------- 1998 1997 1996 ----- ---- ---- Policyholder liabilities and receivables............... $ (65) $(93) $ 27 Net operating losses................................... 11 5 (19) Investments............................................ 230 245 (6) Deferred policy acquisition costs...................... (116) (51) 55 Employee benefits...................................... 13 (40) (4) Non-deductible liabilities............................. (279) (66) (24) Change in valuation allowances......................... (3) 10 4 Other, net............................................. (31) (2) 51 ----- ---- ---- $(240) $ 8 $ 84 ===== ==== ====
The Company has been audited by the Internal Revenue Service for the years through and including 1993. The Company is being audited for the years 1994, 1995 and 1996. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 23 NOTES TO FINANCIAL STATEMENTS--(Continued) 6. EMPLOYEE BENEFIT PLANS Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of MetLife and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company.
December 31, ------------------------------------ Pension Benefits Other Benefits ------------------ ---------------- 1998 1997 1998 1997 -------- -------- ------- ------- Change in projected benefit obligation: Projected benefit obligation at beginning of year................................. $ 3,523 $ 3,268 $ 1,763 $ 1,773 Service cost............................. 88 73 31 30 Interest cost............................ 254 244 114 122 Actuarial gain........................... 205 160 (74) (57) Divestitures, curtailments and terminations............................ 24 (9) (13) 2 Change in benefits....................... 12 6 -- (2) Benefits paid............................ (245) (219) (113) (105) -------- -------- ------- ------- Projected benefit obligation at end of year.................................... 3,861 3,523 1,708 1,763 -------- -------- ------- ------- Change in plan assets: Contract value of plan assets at beginning of year....................... 3,982 3,628 1,004 897 Actual return on plan assets............. 671 566 171 128 Employer contribution.................... 15 7 61 84 Benefits paid............................ (245) (219) (113) (105) Other payments........................... (100) -- -- -- -------- -------- ------- ------- Contract value of plan assets at end of year.................................... 4,323 3,982 1,123 1,004 -------- -------- ------- ------- Over (under) funded...................... 462 459 (585) (759) Unrecognized net asset at transition..... (95) (140) -- -- Unrecognized net actuarial gains......... (81) (109) (322) (171) Unrecognized prior service cost.......... 144 150 (3) (2) -------- -------- ------- ------- Prepaid (accrued) benefit cost........... $ 430 $ 360 $ (910) $ (932) ======== ======== ======= ======= Qualified plan prepaid pension cost...... $ 546 $ 516 $ -- $ -- Non-qualified plan accrued pension cost.. (116) (156) -- -- -------- -------- ------- ------- Prepaid benefit cost..................... $ 430 $ 360 $ -- $ -- ======== ======== ======= =======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Qualified Plan Non-Qualified Plan Total --------------- ------------------ ------------- 1998 1997 1998 1997 1998 1997 ------- ------- --------- --------- ------ ------ Aggregate projected benefit obligation................ $ 3,638 $ 3,170 $ 223 $ 353 $3,861 $3,523 Aggregate contract value of plan assets (principally Company contracts)........ 4,323 3,831 -- 151 4,323 3,982 ------- ------- --------- --------- ------ ------ Over (under) funded........ $ 685 $ 661 $ (223) $ (202) $ 462 $ 459 ======= ======= ========= ========= ====== ======
24 NOTES TO FINANCIAL STATEMENTS--(Continued) The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
Pension Benefits Other Benefits --------------------- -------------------- Weighted average assumptions as of December 31, 1998 1997 1998 1997 - ---------------------------------- --------- ----------- -------- ----------- Discount rate...................... 7%-7.25% 7.25%-7.75% 7% 7.25%-7.75% Expected return on plan assets..... 8.5% 8.75% 7.25%-9% 8.75% Rate of compensation increase...... 4.5%-8.5% 4.5%-8.5% n/a n/a
The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was 6.5% per year for pre- Medicare eligible claims and 6% for Medicare eligible claims in 1998. The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was generally 9% in 1997, gradually decreasing to 5.25% over 5 years. 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 One Percent Percent Increase Decrease -------- -------- Effect on total of service and interest cost components........................................... $ 16 $ 18 Effect on accumulated postretirement benefit obligation........................................... $124 $183
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ---------------- 1998 1997 1996 1998 1997 1996 ----- ----- ----- ---- ---- ---- Service cost............................ $ 88 $ 73 $ 77 $ 31 $ 30 $ 41 Interest cost........................... 254 244 232 114 122 127 Expected return on plan assets.......... (330) (318) (273) (79) (66) (58) Amortization of prior actuarial (gain) loss................................... (11) (5) (12) (12) (4) 2 Curtailment (credit) cost............... (10) -- -- 4 -- -- ----- ----- ----- ---- ---- ---- Net periodic benefit cost (credit)...... $ (9) $ (6) $ 24 $ 58 $ 82 $112 ===== ===== ===== ==== ==== ====
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 $43, $44 and $42 for the years ended December 31, 1998, 1997 and 1996, respectively. 7. 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 ------ -------- -------- 1999...................................... $1,213 $10 $126 2000...................................... 1,150 11 109 2001...................................... 1,052 11 94 2002...................................... 942 10 72 2003...................................... 787 9 51 Thereafter................................ 2,636 35 242
25 NOTES TO FINANCIAL STATEMENTS--(Continued) 8. DEBT Debt consisted of the following:
December 31, -------------- 1998 1997 ------- ------ MetLife: 6.300% surplus notes due 2003.................................. $ 397 $ 397 7.000% surplus notes due 2005.................................. 249 249 7.700% surplus notes due 2015.................................. 198 198 7.450% surplus notes due 2023.................................. 296 296 7.875% surplus notes due 2024.................................. 148 148 7.800% surplus notes due 2025.................................. 248 248 Other.......................................................... 207 436 ------- ------ 1,743 1,972 ------- ------ Investment Related: Exchangeable subordinated debt, interest based on LIBOR plus factors, due 1999........................................... 212 374 Exchangeable subordinated debt, interest rates ranging from 4.90% to 6.18%, due 2001 and 2002.................................................... 371 -- ------- ------ 583 374 ------- ------ Total MetLife.................................................... 2,326 2,346 ------- ------ Nvest: 7.060% senior notes due 2003................................... 110 110 7.290% senior notes due 2007................................... 160 160 ------- ------ 270 270 ------- ------ Other Companies: Fixed rate notes, interest rates ranging from 6.96% to 8.51%, maturity dates ranging from 1999 to 2008 179 -- Floating rate notes, interest based on LIBOR plus factors...... -- 146 Other.......................................................... 128 122 ------- ------ 307 268 ------- ------ Total long-term debt............................................. 2,903 2,884 Total short-term debt............................................ 3,585 4,587 ------- ------ $ 6,488 $7,471 ======= ======
Short-term debt consisted of commercial paper with a weighted average interest rate of 5.31% and 5.75% and a weighted average maturity of 44 and 71 days as of December 31, 1998 and 1997, respectively. The Company maintains an unsecured credit facility of $2,000 under which bank loans and other short-term debt are drawn. This facility is maintained for general corporate purposes and to provide additional support to the Company's commercial paper program. At December 31, 1998 there were no outstanding borrowings under the 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 Superintendent. Subject to the prior approval of the Superintendent, the 7.45% surplus notes may be redeemed, in whole or in part, at the election of the Company at any time on or after November 1, 2003. The exchangeable subordinated debt is payable in cash or by the delivery of the underlying common stock collateral owned by the Company. The value ascribed to the common stock at the date of delivery is the greater of the market value at the date of the debt issuance or date of delivery. The debt provides for additional interest if the market value of the common stock appreciates above certain levels at the date of delivery as compared with the market value at the date of issuance. 26 NOTES TO FINANCIAL STATEMENTS--(Continued) The aggregate maturities of long-term debt are $413 in 1999, $45 in 2000, $191 in 2001, $221 in 2002, $527 in 2003 and $1,518 thereafter. Interest expense related to the Company's outstanding indebtedness was $333, $344 and $311, for the years ended December 31, 1998, 1997 and 1996, respectively. 9. COMMITMENTS AND CONTINGENCIES Litigation The Company and certain of its subsidiaries are currently defendants in approximately 400 lawsuits, including over 40 putative or certified class action lawsuits, raising allegations of improper marketing and sales of individual life insurance or annuities (hereafter "sales practices claims"). Two of these putative class actions are filed in Canada and the remainder are filed in the United States. These cases are brought by or on behalf of policyholders and others and allege, among other claims, that individual life insurance policies were improperly sold in replacement transactions or with inadequate or inaccurate disclosure concerning the period for which premiums would be payable, or were misleadingly sold as savings or retirement plans. The classes proposed in the pending class actions are defined broadly enough, in the aggregate, to include a substantial number of active and lapsed policyholders who purchased individual life insurance policies from the Company during the 1980's and 1990's. In California, Ohio and West Virginia, courts have certified or deemed certifiable classes on behalf of policyholders in those states who allegedly did not receive proper notice of replacement. A Federal Court in Massachusetts has certified a mandatory class involving certain former policyholders of New England Mutual Life Insurance Company which merged into the Company in 1996. The United States Court of Appeals remanded the case to the trial court for further consideration. A number of the sales practices claims pending in federal courts have been consolidated as a multidistrict proceeding for pre-trial purposes in the United States District Court for the Western District of Pennsylvania and, as to former New England Mutual Life Insurance Company policyholders, in the United States District Court in Massachusetts. In another case, a New York federal court has certified or conditionally certified some subclasses of purchasers of the Company's policies and annuity contracts outside the United States. While most of these cases are in the early stages of litigation, they seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sale of individual life insurance may be commenced in the future. Regulatory authorities in a small number of states, including both insurance departments and attorneys general, have ongoing investigations of the Company's sales of individual life insurance or annuities, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures as to the period for which premiums would be payable. Over the past several years, a number of investigations by other regulatory authorities have been resolved by the Company for monetary payments and certain other relief. The Company 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. The Company 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 the Company's employees during the period from the 1920's through approximately the 1950's and alleging that the Company 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 the Company have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While the Company believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect thereof, most of the cases have been resolved by settlements. The Company intends to continue to exercise its best judgment regarding settlement or defense of such cases. The number of such cases that may be brought or the aggregate amount of any liability that may ultimately be incurred by the Company is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously resolved dispute with its primary, umbrella and first level excess liability insurance carriers. The Company is presently in litigation with several of its excess liability insurers regarding amounts payable under the Company's policies with respect to coverage for these claims. 27 NOTES TO FINANCIAL STATEMENTS--(Continued) The Company believes that the claims and the amount of damages asserted in the aforementioned sales practices and asbestos personal injury litigations are without merit, and it intends to continue to defend its interests vigorously. During 1998, the Company obtained certain excess reinsurance and insurance policies providing coverage for risks associated primarily with sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. In 1998, the Company recorded a charge of $1,715, included in other expenses, for related insurance and reinsurance premiums and for potential liabilities related to certain of these claims. Various litigation, claims and assessments against the Company, in addition to the aforementioned and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including in connection with its activities as an insurer, employer, investor and taxpayer. Further, state insurance regulatory authorities and other authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. In certain of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings, it is the opinion of the Company's management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in the Company's consolidated financial statements, are not likely to have a material adverse effect on the Company's financial position. However, given the large and/or indeterminable 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 in particular quarterly or annual periods. Year 2000 The Year 2000 issue is the result of the widespread use of computer programs written using two digits (rather than four) to define the applicable year. Such programming was a common industry practice designed to avoid the significant costs associated with additional mainframe capacity necessary to accommodate a four-digit year field. As a result, any of the Company's computer systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failures or miscalculations. The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 issue and has developed and implemented a plan to resolve the issue. The Company currently believes that, with modifications to existing software and converting to new software, the Year 2000 issue will not pose significant operational problems for the Company's computer systems. However, if such modifications and conversions are not completed on a timely basis, the Year 2000 issue may have a material impact on the operations of the Company. Furthermore, even if the Company completes such modifications and conversions on a timely basis, there can be no assurance that the failure by vendors or other third parties to solve the Year 2000 issue will not have a material impact on the operations of the Company. The Company estimates the total cost to resolve its Year 2000 problem to be approximately $210 (unaudited) of which approximately $149 has been incurred through December 31, 1998. Guaranty Funds Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Recent regulatory actions against certain large life insurers encountering financial difficulty have prompted various state insurance guaranty associations to begin assessing life insurance companies for the deemed losses. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments. A large part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the Company's premium taxes. The Company paid guaranty fund assessments of $35, $23 and $25 in 1998, 1997 and 1996, respectively, of which $24, $20 and $19 were estimated to be credited against future premium taxes. 28 NOTES TO FINANCIAL STATEMENTS--(Continued) 10. OTHER EXPENSES Other expenses were comprised of the following:
Years ended December 31, ------------------------ 1998 1997 1996 ------- ------ ------- Compensation.................................. $ 2,478 $2,072 $ 1,813 Commissions................................... 902 766 722 Interest and debt issue costs................. 379 453 311 Amortization of policy acquisition costs...... 587 771 633 Capitalization of policy acquisition costs.... (1,025) (1,000) (1,028) Rent, net of sublease......................... 155 179 183 Minority interest............................. 67 56 30 Restructuring charge.......................... 81 -- -- Other......................................... 4,494 2,637 2,091 ------- ------ ------- $ 8,118 $5,934 $ 4,755 ======= ====== =======
11. DISCONTINUED OPERATIONS The 1996 loss from discontinued operations resulted from the finalization of the transfer of certain group medical contracts in connection with the Company's disposal of its group medical benefits business during 1995. The components of discontinued operations for the year ended December 31, 1996 were as follows: Loss from discontinued operations, net of income tax benefit of $18........................................ $ 52 Loss on disposal of discontinued operations, net of income tax benefit of $11........................................ 19 ---- Loss from discontinued operations................................. $ 71 ====
12. CONSOLIDATED CASH FLOW INFORMATION During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial financing company) and substantially all of its Canadian and Mexican insurance operations, which resulted in realized investment gains of $531. During 1997, the Company sold its United Kingdom insurance operations, which resulted in a realized investment gain of $139. Such sales caused a reduction in assets by $10,663 and $4,342 and liabilities by $3,691 and $4,207 in 1998 and 1997, respectively. In 1997, the Company also acquired assets of $3,777 and assumed liabilities of $3,347, through the acquisition of certain insurance and noninsurance companies. The aggregate purchase prices were allocated to the assets and liabilities acquired based upon their estimated fair values. Real estate of $69, $151 and $189 was acquired in satisfaction of debt for the years ended December 31, 1998, 1997 and 1996, respectively. 13. 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. 29 NOTES TO FINANCIAL STATEMENTS--(Continued) Amounts related to the Company's financial instruments were as follows:
Estimated Notional Carrying Fair Amount Value Value December 31, 1998 -------- -------- --------- Assets: Fixed maturities.................................. $ $100,767 $100,767 Equity securities................................. 2,340 2,340 Mortgage loans on real estate..................... 16,827 17,793 Policy loans...................................... 5,600 6,143 Short-term investments............................ 1,369 1,369 Cash and cash equivalents......................... 3,301 3,301 Mortgage loan commitments......................... 472 -- 14 Liabilities: Policyholder account balances..................... 37,088 37,304 Short-term debt................................... 3,585 3,585 Long-term debt.................................... 2,903 2,995 Estimated Notional Carrying Fair Amount Value Value December 31, 1997 -------- -------- --------- Assets: Fixed maturities.................................. $ $ 92,630 $ 92,630 Equity securities................................. 4,250 4,250 Mortgage loans on real estate..................... 20,193 21,084 Policy loans...................................... 5,846 6,110 Short-term investments............................ 679 679 Cash and cash equivalents......................... 2,911 2,911 Mortgage loan commitments......................... 334 -- 4 Liabilities: Policyholder account balances..................... 37,034 37,265 Short-term debt................................... 4,587 4,587 Long-term debt.................................... 2,884 2,939
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 and mortgage loan commitments are estimated by discounting expected future cash flows using current interest rates for similar loans with similar credit risk. 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. 30 NOTES TO FINANCIAL STATEMENTS--(Continued) 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 The fair values of short-term and long-term debt 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. 14. STATUTORY FINANCIAL INFORMATION The reconciliation of MetLife's statutory surplus and net change in statutory surplus, determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities, with equity and net income determined in conformity with generally accepted accounting principles were as follows:
December 31, ---------------- 1998 1997 ------- ------- Statutory surplus..................................... $ 7,388 $ 7,378 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... (6,830) (6,807) Deferred policy acquisition costs................... 6,560 6,438 Deferred income taxes............................... 295 (242) Valuation of investments............................ 3,981 3,474 Statutory asset valuation reserves.................. 3,381 3,854 Statutory interest maintenance reserve.............. 1,486 1,261 Surplus notes....................................... (1,595) (1,555) Other, net.......................................... 201 206 ------- ------- Equity................................................ $14,867 $14,007 ======= ======= Years ended December 31, ----------------------- 1998 1997 1996 ------- ------- ----- Net change in statutory surplus....................... $ 10 $ 227 $ 366 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... 127 (38) (165) Deferred policy acquisition costs................... 224 149 391 Deferred income taxes............................... 234 62 (74) Valuation of investments............................ 1,158 (387) (84) Statutory asset valuation reserves.................. (461) 1,136 599 Statutory interest maintenance reserve.............. 312 53 19 Other, net.......................................... (261) 1 (199) ------- ------- ----- Net income............................................ $ 1,343 $ 1,203 $ 853 ======= ======= =====
31 NOTES TO FINANCIAL STATEMENTS--(Continued) 15. SEPARATE ACCOUNTS Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $39,490 and $32,893 at December 31, 1998 and 1997, respectively, in which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $18,578 and $15,445 at December 31, 1998 and 1997, respectively, in which MetLife contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $413, $287 and $216 in 1998, 1997 and 1996, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rate credited on these contracts was 7% at December 31, 1998. The assets that support these liabilities were comprised of $16,639 in fixed maturities as of December 31, 1998. 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. 16. OTHER COMPREHENSIVE INCOME The following tables set forth the reclassification adjustments required for the years ended December 31, 1998, 1997 and 1996 to avoid double-counting in comprehensive income items that are included as part of net income for the current year that have been reported as a part of other comprehensive income in the current or prior year:
1998 1997 1996 ------- ------- ------- Holding gains (losses) on investments arising during the year........................................... $ 1,556 $ 4,479 $(1,494) Income tax effect of holding gains or losses........ (646) (1,698) 550 Transfer of securities from held-to-maturity to available-for-sale: Holding gains on investments...................... -- 198 -- Income tax effect................................. -- (75) -- Reclassification adjustments: Realized holding gains included in current year net income....................................... (2,043) (868) (367) Amortization of premium and discount on investments...................................... (411) (406) (631) Realized holding gains (losses) allocated to other policyholder amounts............................. 608 231 227 Income tax effect................................. 766 394 285 Allocation of holding (gains) losses on investments relating to other policyholder amounts............................... (322) (2,231) 1,286 Income tax effect of allocation of holding gains and losses to other policyholder amounts............................... 134 846 (474) ------- ------- ------- Net unrealized investment (losses) gains............ (358) 870 (618) ------- ------- ------- Foreign currency translation adjustments arising during the year.................................... (115) (46) (6) Reclassification adjustment for sale of investment in foreign operation............................... 2 (3) -- ------- ------- ------- Foreign currency translation adjustment............. (113) (49) (6) ------- ------- ------- Minimum pension liability adjustment................ (12) -- -- ------- ------- ------- Other comprehensive (loss) income................... $ (483) $ 821 $ (624) ======= ======= =======
32 NOTES TO FINANCIAL STATEMENTS--(Continued) 17. RESTRUCTURING During 1998, the Company restructured headquarters operations and consolidated certain agencies and other operations. The impacts of these actions on a segment basis are as follows:
Severance and Related Facility Number of Termination Consolidation Positions Costs Costs Total --------- ----------- ------------- ----- Individual............................ 488 $15 $16 $31 Institutional......................... 320 8 2 10 Auto & Home........................... 357 4 -- 4 Corporate and Other................... 1,102 30 6 36 ----- --- --- --- 2,267 $57 $24 $81 ===== === === ===
These programs are expected to be completed by the third quarter of 1999. As of December 31, 1998, $28 of these restructuring costs had been paid and the unpaid balance was $53. 18. BUSINESS SEGMENT INFORMATION The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe and Asia. The Company's business is divided into six segments: Individual, Institutional, Auto & Home, International, Asset Management and Corporate. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care and dental insurance and other insurance products and services. Auto & Home provides insurance coverages including private passenger automobile, homeowners and personnel excess liability insurance. 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. Asset Management provides a broad variety of asset management products and services to individuals and institutions such as mutual funds for savings and retirement needs, commercial real estate advisory and management services, and institutional and retail investment management. Through its Corporate segment, the Company reports items that are not allocated to any of the business segments. Set forth in the tables below is certain financial information with respect to the Company's operating segments for the years ended December 31, 1998, 1997 and 1996. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company has divested operations that did not meet targeted rates of return, including its medical insurance operations, commercial leasing business, and insurance operations in the United Kingdom and substantially all of its Canadian operations. 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 to the Corporate segment. 33 NOTES TO FINANCIAL STATEMENTS--(Continued)
Auto At or for the year ended & Asset Consolidation/ December 31, 1998 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,381 $ 5,101 $1,403 $ 618 $ -- $ -- $ -- $11,503 Universal life and investment-type product policy fees 817 475 -- 68 -- -- -- 1,360 Net investment income... 5,501 3,864 81 343 76 808 (445) 10,228 Other revenues.......... 523 574 36 33 814 35 (50) 1,965 Net realized investment gains.................. 663 552 122 117 -- 683 (116) 2,021 Policyholder benefits and claims............. 4,659 6,373 869 597 -- (10) -- 12,488 Interest credited to policyholder account balances............... 1,443 1,199 -- 89 -- -- -- 2,731 Policyholder dividends.. 1,447 142 -- 64 -- -- -- 1,653 Other expenses.......... 2,609 1,592 546 352 799 2,632 (412) 8,118 Income before provision for income taxes....... 1,727 1,260 227 77 91 (1,096) (199) 2,087 Income after provision for income taxes....... 1,091 833 161 56 47 (675) (166) 1,347 Total assets............ 103,974 88,356 2,771 3,432 1,165 20,652 (5,004) 215,346 Deferred policy acquisition costs...... 6,255 43 57 205 -- -- -- 6,560 Separate account assets. 23,038 35,286 -- 26 -- -- -- 58,350 Policyholder liabilities............ 71,989 49,045 1,477 2,043 -- 1 (352) 124,203 Separate account liabilities............ $23,013 $35,029 $ -- $ 26 $ -- $ -- $ -- $58,068
Auto At or for the year ended & Asset Consolidation/ December 31, 1997 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $11,278 Universal life and investment-type product policy fees............ 855 426 -- 137 -- -- -- 1,418 Net investment income... 4,754 3,754 71 504 87 895 (574) 9,491 Other revenues.......... 338 357 25 54 682 19 16 1,491 Net realized investment gains.................. 356 45 9 142 -- 326 (91) 787 Policyholder benefits and claims............. 4,597 5,934 834 869 -- -- -- 12,234 Interest credited to policyholder account balances............... 1,428 1,319 -- 137 -- -- -- 2,884 Policyholder dividends.. 1,340 305 -- 97 -- -- -- 1,742 Other expenses.......... 2,384 1,178 520 497 679 1,118 (442) 5,934 Income before provision for income taxes....... 881 535 105 145 90 122 (207) 1,671 Income after provision for income taxes....... 603 339 74 126 52 210 (201) 1,203 Total assets............ 95,990 83,481 2,542 7,412 1,147 18,494 (6,290) 202,776 Deferred policy acquisition costs...... 5,912 40 56 428 -- -- -- 6,436 Separate account assets. 17,368 30,732 -- 520 -- -- -- 48,620 Policyholder liabilities............ 70,686 49,550 1,509 5,615 -- 1 (3) 127,358 Separate account liabilities............ $17,345 $30,473 $ -- $ 520 $ -- $ -- $ -- $48,338
34 NOTES TO FINANCIAL STATEMENTS--(Continued)
Auto At or for the year ended & Asset Consolidation/ December 31, 1996 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,559 $ 4,676 $1,316 $ 794 $-- $ -- $ -- $11,345 Universal life and investment-type product policy fees............ 729 375 -- 139 -- -- -- 1,243 Net investment income... 4,604 3,446 71 523 60 761 (487) 8,978 Other revenues.......... 74 475 26 37 495 89 50 1,246 Net realized investment gains (losses) ....... 282 28 24 13 -- (112) (4) 231 Policyholder benefits and claims............. 4,690 6,006 891 700 -- (1) -- 12,286 Interest credited to policyholder account balances 1,354 1,358 -- 156 -- -- -- 2,868 Policyholder dividends.. 1,333 284 -- 111 -- -- -- 1,728 Other expenses.......... 2,019 1,008 490 418 498 706 (384) 4,755 Income before provision for income taxes....... 852 344 56 121 57 33 (57) 1,406 Income after provision for income taxes....... 511 217 34 86 47 85 (56) 924 Total assets............ 86,042 75,872 2,801 11,714 901 18,900 (6,954) 189,276 Deferred policy acquisition costs...... 6,495 29 56 647 -- -- -- 7,227 Separate account assets. 12,403 27,715 -- 3,645 -- -- -- 43,763 Policyholder liabilities............ 67,220 48,253 1,562 6,045 -- 1 (55) 123,026 Separate account liabilities............ $12,386 $27,368 $ -- $3,645 $-- $ -- $ -- $43,399
The individual segment includes an equity ownership interest in Nvest Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has been included within the asset management segment due to the types of products and strategies employed by the entity. The individual segment's equity in earnings of Nvest, which is included in net investment income, was $49, $45 and $43 for the years ended December 31, 1998, 1997 and 1996, respectively. The investment in Nvest was $252, $216 and $152 at December 31, 1998, 1997 and 1996, respectively. Net investment income and net realized investment gains are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. The consolidation/elimination column includes the elimination of all intersegment amounts and the individual segment's ownership interest in Nvest. The principal component of the intersegment amounts related to intersegment loans, which bore interest at rates commensurate with related borrowings. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $25,643, $22,664 and $21,762 for the years ended December 31, 1998, 1997 and 1996, respectively, which represented 96%, 93% and 94%, respectively, of consolidated revenues. 35 U L I I PROSPECTUS FOR ULII, a Flexible Premium Multifunded Life Insurance Policy Issued by Metropolitan Life Insurance Company April 30, 1999 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 the following Metropolitan Life Separate Account UL investment divisions: State Street Research Janus Mid Cap Aggressive Growth Loomis Sayles High Yield Bond State Street Research Diversified Scudder Global Equity State Street Research Growth T. Rowe Price Small Cap Growth State Street Research Income MetLife Stock Index State Street Research Money Market Santander International Stock (formerly State Street Research International Stock) A word about risk: This Prospectus discusses the risks associated with purchasing the Policy. The Metropolitan Series Fund, Inc. (the "Fund") prospectus discusses the risks associated with investment in the Fund. The Fund prospectus is being provided to you in addition to this Prospectus because each of the Separate Account UL investment divisions named above invest solely in a corresponding "Portfolio" of the Fund. The Prospectus is not valid unless you also receive or have received a current Fund prospectus. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. How to learn more: Before purchasing a Policy, read the information in this Prospectus and in the 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 and the Fixed Account are not deposits or obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation, 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......................................... 6 Separate Account UL............................. 7 The Fixed Account............................... 7 Metropolitan Series Fund, Inc. ................. 7 Issuing a Policy................................ 8 Policy Benefits................................. 9 Policy Rights................................... 14 Payment and Allocation of Premiums.............. 17 Charges and Deductions.......................... 18 Federal Tax Matters............................. 21 Showing Performance............................. 22 Rights We Reserve............................... 23 Other Policy Provisions......................... 23 Sales and Administration of the Policies........ 24 Voting Rights................................... 25 Reports......................................... 26 Illustration of Policy Benefits................. 27 Getting More Information........................ 27 Legal, Accounting and Actuarial Matters......... 27 Management...................................... 28 Financial Statements............................ 31
Summary This summary gives an overview of the Policy and is qualified by the more detailed information in the Prospectus and the Policy. 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. 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 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 taxed 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 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/2/ Administration charge: $.25 per $1,000 of specified face amount per month, plus First Policy year/3/: (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.
3
Type of Charge or Expense Amount of Charge or Expense - -------------------------------------------------------------------------------- Second and later Policy years/3/: (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 - -------------------------------------------------------------------------------- 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 and is based 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/5/, 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./6/ Partial withdrawals: No surrender charge
- -------- /1/Charges for any insurance coverage provided by any riders you choose will be included as part of the monthly deduction. /2/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. /3/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. /4/The Surrender Charge tables are set forth below under "Charges and Deductions--Surrender Charge." 4 /5/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. /6/To compute this limit a portion of each premium paid after the increase will be attributed to the increase, as prescribed by SEC rule. Fund Investment Management Fees and Direct Expenses MetLife receives an investment management fee from the Fund and the Fund incurs direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein). You bear indirectly your proportionate share of the fees and expenses of the Portfolios of the Fund that correspond to the Separate Account investment divisions you are using. The following sets forth the Fund's fees and expenses for the year ending 12/31/98:
Total Total 1998 1998 Manage- Other Annual Manage- Other Annual Portfolios ment Fee Expenses Expenses Portfolios ment Fee Expenses Expenses - --------------------------------------------------------------------------------------------- State Street Research Janus Mid Aggressive Growth(a) .71% .04% .75% Cap(a) .72% .09% .81% - --------------------------------------------------------------------------------------------- Loomis Sayles High State Street Research Yield Growth(a) .48% .05% .53% Bond(a)(c) .70% .35% 1.05% - --------------------------------------------------------------------------------------------- Scudder State Street Research Global Diversified(a) .43% .05% .48% Equity(a) .74% .28% 1.02% - --------------------------------------------------------------------------------------------- T. Rowe Price Small State Street Research Cap Income(a) .33% .06% .39% Growth(a)(c) .53% .14% .67% - --------------------------------------------------------------------------------------------- MetLife State Street Research Stock Money Market(a) .25% .23% .48% Index(a) .25% .05% .30% - --------------------------------------------------------------------------------------------- Santander International Stock(a) .75% .27% 1.02%
- -------- (a) Total annual expenses of these portfolios are expressed as a percentage of average net assets. (b) These portfolios commenced operations on 11/9/98. Total annual expenses of these portfolios are expressed as a percentage of the year-end net assets. Expenses (other than the management fees) are based on estimated amounts for 1998. (c) During all or a portion of 1998, we bore all expenses (other than management fees, brokerage commissions, taxes, interest and any non-recurring expenses) in excess of .20% of the net assets for the Loomis Sayles High Yield Bond Portfolio. Therefore the expenses this Portfolio paid was lower than those indicated in the charge above. The other expenses after expense reimbursement for this Portfolio was .31% and the total 1998 annual expenses after expense reimbursement was 1.01%. 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. 5 MetLife We are a mutual life insurance company. We were formed in 1868 in New York and we currently conduct business in all 50 states, the District of Columbia, Puerto Rico and Canada. We are one of the largest financial services companies in the world with many of the largest United States corporations for clients. As of December 31, 1998, we had total life insurance in force of approximately $1.7 trillion and total assets under management of approximately $359 billion. 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 our home office at 1 Madison Avenue, New York, NY 10010. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. When your requests, instructions and notifications become effective: . Generally, requests, premium payments premium allocation and transfer requests 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, as the Fund's investment manager, think that there has been a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. . 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. 6 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 the Fund.] The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of the 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 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, strategies, and risks of each Fund Portfolio, which are contained in the Fund prospectus you have also received.] The Metropolitan Series Fund, Inc. The Fund is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. The Fund is divided into Portfolios, each of which represent a different class of stock in which a corresponding investment division of the Separate Account invests. You should read the Fund prospectus, which you have also received. It contains information about the Fund and its Portfolios, including the investment objectives, strategies, risks and investment advisers that are associated with each Portfolio. It also contains information on our different separate accounts and our affiliates that invest in the Fund and the risks related thereto. 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 7 redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: . The allocation of net premiums to the Separate Account. . Dividends and distributions on Fund shares that are reinvested as of the dates paid (which reduces the value of each share of the Fund, increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). . Policy loans and loan repayments allocated to the Separate Account. . Transfers to and among investment divisions. . Withdrawals and surrenders taken from the Separate Account. [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 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. 8 Policy Benefits 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. 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 after May 1, 1994: . CI: 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. . CII: 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. 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. 9 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 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. 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 death benefit levels. . If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; 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. 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 10 [SIDEBAR: You can generally increase or decrease your Policy's specified face amount.] 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. If there have been previous specified face amount increases, any decreases in specified face amount will be made in the following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if: the cash surrender value after the change is large enough to cover at least two monthly deductions based on your most recent cost of term insurance charge. 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, that the Policy could become a modified endowment contract. . The monthly administration charge may change. 11 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. 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 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 if the benefit is something that you want. You should also consider: . That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. 12 . 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 Deduction .Children's Term Insurance Benefit 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. [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. 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
13 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. . 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 the interest earned on amounts in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. . Equalizer: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization at the end of each calendar quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. . Rebalancer: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution at the beginning of each calendar quarter. . Allocator: allows you to systematically transfer money from the State Street Research Money Market division to the Fixed Account and/or 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 . 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 premium 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. 14 . 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. Loan Privileges [SIDEBAR: You can borrow from us and use your Policy as security for the loan.] The amount of each loan must be: . At least $250 . 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. 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. (See "Federal Tax Matters--The Policy--Loans" below.) . A policy loan increases the chances of our terminating your policy due to insufficient cash value. We will terminate your Policy with no value if: (a) on a monthly anniversary your loans (plus accrued interest) exceed your 15 cash value minus the monthly deduction; and (b) we tell you of the insufficiency and you do not make a sufficient payment within 61 days of the monthly anniversary. . Your Policy's death benefit will be reduced by any unpaid loan (plus accrued interest). Surrender and Withdrawal Privileges [SIDEBAR: You can surrender your Policy for its cash surrender value.] 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 without charge if: . The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. . The withdrawal is at least $250. . The withdrawal would not result in 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. 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 CI, 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 16 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. 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 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. Maximum and Minimum Premium Payments . During the first two Policy years you must pay an amount of premium that we call the minimum allowable planned premium or we will terminate your Policy after the grace period. . After the first two Policy years, your voluntary planned periodic payments must be at least: . $200 annually (except that some Policies distributed by certain brokers must be at least $2,500) . $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 17 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 another 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; and . We do not receive a sufficient premium payment within the 61-day grace period to cover the monthly deduction. We will mail you notice if any grace period starts. Reinstatement: Upon your request, we will reinstate your Policy without reinstating any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request must within 3 years (or within a longer period if required by state law) after the end of the grace period and before the Final Date. You also must provide us: . A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). . Evidence of insurability that we find satisfactory. . An additional premium amount that the Policy prescribes for this purpose. [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. Any distinctions we make about the specific purposes of the different charges are imprecise, and we are free to keep and use our revenues or profits for any other purpose, including paying any of our costs and expenses in connection with the Policies. The following sets forth additional information about some (but not all) of the Policy charges. 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 then 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 18 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 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 in the first year, also include 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. If our estimates are correct, we will realize a profit from this charge, otherwise, we could incur a loss. Surrender charge The surrender charges per thousand dollars of specified face amount are as follows: 19 [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
20 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). Finally, if your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed annually. Loans . loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract or terminates. . Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. . If your Policy terminates (upon surrender, cancellation, lapse or the Final Date) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Modified Endowment Contracts These contracts are life insurance contracts where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the Policy, exceeds tax law limits referred to as the "7-pay test." Material 21 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 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 We don't expect to, incur federal, state or local taxes upon the earnings or realize capital gains attributable to the Separate Account. If we do incur such taxes at some time in the future, we reserve the right to charge cash value allocated to the Separate Account for these taxes. Showing Performance We may advertise or otherwise show: . Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. 22 . 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 the 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 within seven days. You have a smiliar free look period with respect to any specified face amount increase you request. If you so 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). . An increase in a death benefit after it has been in effect for two years. 23 Suicide If the insured commits suicide within the first two Policy years (or another period required by state law), your beneficiary will receive all premiums paid (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 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 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 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 6% per year (or higher if state law requires) from the date of death until the date we pay the benefit. Dividends The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. Sales and Administration of the Policies [SIDEBAR: We perform the sales and administrative services for 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 an investment manager to the Fund and may also provide advisory services to other clients. 24 Computer Systems We use computer systems to process Policy transactions and valuations. These systems need to be adjusted to be able to continue to administer the Policies beginning January 1, 2000. As is the case with most systems conversion projects, risks and uncertainties exist due, in part to reliance on third party vendors and a project could be delayed. Although we cannot give you assurances, we are devoting substantial resources necessary to make these systems modifications and expect that necessary changes will be completed on time and in a way that will result in no disruption to Policy servicing operations. 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 1996, 1997 and 1998 totaled $26,092,000, $21,001,907, and $ respectively. Maximum commissions are: . First Policy Year: . The lesser of 55% of the Option A target premium; plus . 3% of the excess of the premium paid over the Option A target premium; of . 75% of the federally prescribed guideline level premium set forth in Section 7702 of the Internal Revenue Code. . 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. [SIDEBAR: You can give us voting instructions on shares of each Fund Portfolio that are attributed to your Policy.] Voting Rights The Fund has shareholder meetings from time to time to, for example, elect directors and approve investment managers. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in the Fund. 25 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. . 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 the Fund's annual and semi-annual reports to shareholders. 26 [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 Christopher P. Nicholas, Associate General Counsel at MetLife, has passed upon the legality of the Policies. Messrs. Freedman, Levy Kroll &Simonds, Washington, D.C., have advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, 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. 27 Management The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: Directors, Officers-Directors
Principal Occupation & Positions and Offices Name Business Address with MetLife - ------------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman and Chief Executive Officer Director Bethlehem Steel Corp. 1170 Eight Ave. -- Martin Tower 2118 Bethlehem, PA 18016 - ------------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, President, Chief Executive Officer Chief Executive Officer and Director Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - ------------------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board and Vice Chairman of the Board, New York, NY 10010 Chief Investment Officer Chief Investment Officer and Director Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - ------------------------------------------------------------------------------------------------- Joan Ganz Cooney Chairman, Executive Committee Director Children's Television Workshop One Lincoln Plaza New York, NY 10023 - ------------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman, President and Director Chief Executive Officer Puritan Bennett Overland Park, KS - ------------------------------------------------------------------------------------------------- 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 919 Third Ave. New York, NY 10022 - ------------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. Bolton, MA 01720 - ------------------------------------------------------------------------------------------------- Allen E. Murray Retired Chairman of the Board and Director Chief Executive Officer Mobil Corporation 375 Park Ave., Suite 2901 New York, NY 10163 - ------------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Board and Chief Financial Officer Chief Financial Officer and Director Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010
28
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 312 Mill Neck, NY 11765 - ------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 12 Wall Street New York, NY 10005 - ------------------------------------------------------------------------------------- Robert G. Schwartz Retired Chairman of the Board, Director President and Chief Executive Officer Metropolitan Life Insurance Company 200 Park Ave., Suite 5700 New York, NY 10166 - ------------------------------------------------------------------------------------- Ruth J. Simmons, Ph.D. President Director Smith College College Hall 20 Northhampton, MA 01063 - ------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board and Director Chief Executive Officer Pfizer, Inc. 235 East 42nd Street New York, NY 10017
29
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 - --------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board - --------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel - --------------------------------------------------------------------------------------- C. Robert Henrikson Senior Executive Vice-President - --------------------------------------------------------------------------------------- William J. Toppeta Senior Executive Vice-President - --------------------------------------------------------------------------------------- John H. Tweedie Senior Executive Vice-President - --------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice-President - --------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice-President - --------------------------------------------------------------------------------------- Terence I. Lennon Executive Vice-President - --------------------------------------------------------------------------------------- David A. Levene Executive Vice-President - --------------------------------------------------------------------------------------- John D. Moynahan, Jr. Executive Vice-President - --------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President and Chief Actuary - --------------------------------------------------------------------------------------- Alexander D. Brunini Senior Vice-President - --------------------------------------------------------------------------------------- Jon F. Danski Senior Vice-President and Controller - --------------------------------------------------------------------------------------- Richard M. Blackwell Senior Vice-President - --------------------------------------------------------------------------------------- James B. Digney Senior Vice-President - --------------------------------------------------------------------------------------- William T. Friedman Senior Vice-President - --------------------------------------------------------------------------------------- Ira Friedman Senior Vice-President - --------------------------------------------------------------------------------------- Anne E. Hayden Senior Vice-President - --------------------------------------------------------------------------------------- Sybil C. Jacobsen Senior Vice-President - --------------------------------------------------------------------------------------- Joseph W. Jordan Senior Vice-President - --------------------------------------------------------------------------------------- Kernan F. King Senior Vice-President - --------------------------------------------------------------------------------------- Nicholas D. Latrenta Senior Vice-President - --------------------------------------------------------------------------------------- Leland C. Launer, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- Gary E. Lineberry Senior Vice-President - --------------------------------------------------------------------------------------- James L. Lipscomb Senior Vice-President - --------------------------------------------------------------------------------------- William Livesey Senior Vice-President - --------------------------------------------------------------------------------------- James M. Logan Senior Vice-President - --------------------------------------------------------------------------------------- Eugene Marks, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- William R. Prueter Senior Vice-President - --------------------------------------------------------------------------------------- Joseph A. Reali Senior Vice-President - --------------------------------------------------------------------------------------- Vincent P. Reusing Senior Vice-President - --------------------------------------------------------------------------------------- Felix Schirripa Senior Vice-President - --------------------------------------------------------------------------------------- Robert E. Sollmann, Jr. Senior Vice-President - --------------------------------------------------------------------------------------- Thomas L. Stapleton Senior Vice-President and Tax Director - --------------------------------------------------------------------------------------- James F. Stenson Senior Vice-President - --------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President - --------------------------------------------------------------------------------------- Richard R. Tartre Senior Vice-President - --------------------------------------------------------------------------------------- James A. Valentino Senior Vice-President - --------------------------------------------------------------------------------------- Lisa M. Weber Senior Vice-President - --------------------------------------------------------------------------------------- William J. Wheeler Senior Vice-President and Treasurer - --------------------------------------------------------------------------------------- Anthony J. Williamson Senior Vice-President - --------------------------------------------------------------------------------------- Louis J. Ragusa Vice-President and Secretary
- ------------ * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Gary A. Beller has been an officer of Metropolitan Life since November, 1994; prior thereto, he was a Consultant and Executive Vice- President and General Counsel of the Americana Express Company. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice-President of Paine Webber. Terrence I. Lennon has been an officer of Metropolitan since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. Richard R. Tartre has been an officer of Metropolitan Life since January 13, 1997, prior thereto, he was President and CEO of Astra Management Corp. William J. Wheeler became an officer of Metropolitan Life since October 13, 1997; prior thereto, he was Senior Vice-President, Investment Banking of Donaldson, Lufkin and Jenrette. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. John F. Danski has been an officer of Metropolitan Life since March 25, 1998; prior thereto, he was Senior Vice-President, Controller and General Auditor at ITT Corporation. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 30 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1998, and the related statements (i) of operations for the year ended December 31, 1998 and of changes in net assets for the years ended December 31, 1998 and 1997 of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index and Santander International Stock Divisions and (ii) of operations for the year ended December 31, 1998 and of changes in net assets for the year ended December 31, 1998 and for the period March 3, 1997 (commencement of operations) to December 31, 1997 of the Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998 by correspondence with the custodian and depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL at December 31, 1998 and the results of their operations and the changes in their net assets for the respective stated periods, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York March 15, 1999 1 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1998
State Street State Street State Street State Street State Street Research MetLife Santander Research Research Research Research Aggressive Stock International Growth Income Money Market Diversified Growth Index Stock Division Division Division Division Division Division Division ------------ ------------ ------------ ------------ ------------ ------------ ------------- ASSETS: Investments in Metropolitan Series Fund,Inc. at Value (Note 1A): State Street Research Growth Portfolio (8,991,252 shares; cost $262,836,766).......... $333,575,453 -- -- -- -- -- -- State Street Research Income Portfolio (4,419,504 shares; cost $56,262,271)........... -- $56,481,257 -- -- -- -- -- State Street Research Money Market Portfolio (2,150,767 shares; cost $22,944,978)........... -- -- $22,265,813 -- -- -- -- State Street Research Diversified Portfolio (11,376,036 shares; cost $184,766,024)..... -- -- -- $209,205,308 -- -- -- State Street Research Aggressive Growth Portfolio (5,227,911 shares; cost $136,845,160).......... -- -- -- -- $154,380,221 -- -- MetLife Stock Index Portfolio (4,498,549 shares; cost $118,596,732).......... -- -- -- -- -- $159,158,678 -- Santander International Stock Portfolio (2,566,510 shares; cost $32,397,518)........... -- -- -- -- -- -- $36,290,449 Loomis Sayles High Yield Bond Portfolio (303,096 shares; cost $3,041,405)............ -- -- -- -- -- -- -- Janus Mid Cap Portfolio (1,214,612 shares; cost $16,647,482)........... -- -- -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (1,084,560 shares; cost $12,826,959)........... -- -- -- -- -- -- -- Scudder Global Equity Portfolio (671,753 shares; cost $7,767,908)............ -- -- -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ ------------ ----------- Total Assets........... 333,575,453 56,481,257 22,265,813 209,205,308 154,380,221 159,158,678 36,290,449 LIABILITIES............. 1,013,304 41,286 5,651 384,868 298,061 292,002 37,716 ------------ ----------- ----------- ------------ ------------ ------------ ----------- NET ASSETS.............. $332,562,149 $56,439,971 $22,260,162 $208,820,440 $154,082,160 $158,866,676 $36,252,733 ============ =========== =========== ============ ============ ============ ===========
See Notes to Financial Statements. 2
Loomis T. Rowe Sayles Price Scudder High Yield Janus Small Cap Global Bond Mid Cap Growth Equity Division Division Division Division - ---------- ----------- ----------- ---------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $2,542,977 -- -- -- -- $21,170,685 -- -- -- -- $13,329,240 -- -- -- -- $8,316,299 - ---------- ----------- ----------- ---------- 2,542,977 21,170,685 13,329,240 8,316,299 3,066 44,138 23,779 13,441 - ---------- ----------- ----------- ---------- $2,539,911 $21,126,547 $13,305,461 $8,302,858 ========== =========== =========== ==========
3 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS For the year ended December 31, 1998
State State State State State Street Street Street Street Street Research MetLife Santander Research Research Research Research Aggressive Stock International Growth Income Money Market Diversified Growth Index Stock Division Division Division Division Division Division Division ----------- ---------- ------------ ----------- ----------- ----------- ------------- INVESTMENT INCOME: Income: Dividends (Note 2)..... $30,285,471 $4,298,707 $1,166,116 $19,448,803 $ 8,619,767 $ 6,486,305 $ 404,896 Expenses: Mortality and expense charges (Note 3).............. 2,500,061 420,836 143,978 1,610,657 1,146,158 1,020,115 284,929 ----------- ---------- ---------- ----------- ----------- ----------- ---------- Net investment income (loss)................. 27,785,410 3,877,871 1,022,138 17,838,146 7,473,609 5,466,190 119,967 ----------- ---------- ---------- ----------- ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1B) Net realized gain (loss) from security transactions........... 1,828,922 239,248 139,583 522,086 390,678 2,060,324 251,518 Change in unrealized appreciation (depreciation) of investments............ 38,462,367 (12,424) (384,125) 12,721,568 9,316,026 21,573,004 5,740,557 ----------- ---------- ---------- ----------- ----------- ----------- ---------- Net realized and unrealized gain (loss) on investments......... 40,291,289 226,824 (244,542) 13,243,654 9,706,704 23,633,328 5,992,075 ----------- ---------- ---------- ----------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $68,076,699 $4,104,695 $ 777,596 $31,081,800 $17,180,313 $29,099,518 $6,112,042 =========== ========== ========== =========== =========== =========== ==========
See Notes to Financial Statements. 4
Loomis T. Rowe Sayles Price Scudder High Yield Janus Small Cap Global Bond Mid Cap Growth Equity Division Division Division Division ---------- ---------- --------- -------- $ 256,747 $ 98,545 $ 0 $125,120 15,303 88,984 71,325 42,804 --------- ---------- -------- -------- 241,444 9,561 (71,325) 82,316 --------- ---------- -------- -------- (15,746) 178,428 (14,908) 35,936 (428,334) 4,299,801 455,213 556,946 --------- ---------- -------- -------- (444,080) 4,478,229 440,305 592,882 --------- ---------- -------- -------- $(202,636) $4,487,790 $368,980 $675,198 ========= ========== ======== ========
5 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research State Street Research State Street Research Growth Division Income Division Money Market Division -------------------------- -------------------------- -------------------------- 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, 1998 1997 1998 1997 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 27,785,410 $ 40,418,794 $ 3,877,871 $ 2,617,788 $ 1,022,138 $ 353,194 Net realized gain (loss) from security transactions.......... 1,828,922 1,080,724 239,248 32,950 139,583 68,458 Change in unrealized appreciation (depreciation) of investments........... 38,462,367 6,378,588 (12,424) 748,796 (384,125) (49,717) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 68,076,699 47,878,106 4,104,695 3,399,534 777,596 371,935 ------------ ------------ ----------- ----------- ----------- ----------- From capital transactions: Net premiums........... 68,697,236 59,834,638 13,501,414 13,090,983 28,800,532 13,691,749 Redemptions............ (9,651,413) (7,416,220) (1,455,088) (1,082,695) (292,311) (357,692) Net portfolio transfers............. 462,907 3,569,720 2,032,607 1,296,485 (12,984,969) (12,877,177) Other net transfers.... (33,909,522) (29,309,077) (5,444,551) (4,895,666) (2,036,921) (887,059) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 25,599,208 26,679,061 8,634,382 8,409,107 13,486,331 (430,179) ------------ ------------ ----------- ----------- ----------- ----------- NET CHANGE IN NET AS- SETS................... 93,675,907 74,557,167 12,739,077 11,808,641 14,263,927 (58,244) NET ASSETS--BEGINNING OF YEAR................... 238,886,242 164,329,075 43,700,894 31,892,253 7,996,235 8,054,479 ------------ ------------ ----------- ----------- ----------- ----------- NET ASSETS--END OF YEAR................... $332,562,149 $238,886,242 $56,439,971 $43,700,894 $22,260,162 $ 7,996,235 ============ ============ =========== =========== =========== ===========
See Notes to Financial Statements. 6
State Street Research Santander State Street Research Aggressive Growth MetLife International Stock Diversified Division Division Stock Index Division Division - -------------------------- -------------------------- -------------------------- -------------------------- 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, 1998 1997 1998 1997 1998 1997 1998 1997 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 17,838,146 $ 22,302,995 $ 7,473,609 $ 3,470,806 $ 5,466,190 $ 1,186,647 $ 119,967 $ (232,079) 522,086 418,723 390,678 136,827 2,060,324 1,210,648 251,518 (84,952) 12,721,568 1,103,869 9,316,026 2,615,059 21,573,004 13,344,725 5,740,557 (691,181) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 31,081,800 23,825,587 17,180,313 6,222,692 29,099,518 15,742,020 6,112,042 (1,008,212) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 48,746,380 41,236,061 48,080,744 52,235,040 59,343,787 38,059,853 10,224,172 11,240,912 (5,712,146) (4,829,385) (4,373,459) (3,613,975) (2,361,734) (1,198,193) (1,153,624) (1,139,393) 2,809,643 1,557,340 (6,687,894) (5,941,719) 9,729,932 9,580,428 (2,377,311) (3,084,541) (23,504,994) (19,209,913) (18,773,580) (20,670,473) (23,041,439) (13,547,536) (3,678,501) (5,008,528) - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 22,338,883 18,754,103 18,245,811 22,008,873 43,670,546 32,894,552 3,014,736 2,008,450 - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- 53,420,683 42,579,690 35,426,124 28,231,565 72,770,064 48,636,572 9,126,778 1,000,238 155,399,757 112,820,067 118,656,036 90,424,471 86,096,612 37,460,040 27,125,955 26,125,717 - ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- $208,820,440 $155,399,757 $154,082,160 $118,656,036 $158,866,676 $86,096,612 $36,252,733 $27,125,955 ============ ============ ============ ============ ============ =========== =========== ===========
7 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Loomis Sayles Janus High Yield Bond Division Mid Cap Division --------------------------- ---------------------------- For the Period For the Period For the Year March 3, 1997 For the Year March 3, 1997 Ended to Ended to December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ -------------- ------------ -------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 241,444 $ 59,549 $ 9,561 $ 5,937 Net realized gain (loss) from security transactions.......... (15,746) 9,361 178,428 26,779 Change in unrealized appreciation (depreciation) of investments........... (428,334) (70,093) 4,299,801 223,402 ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ (202,636) (1,183) 4,487,790 256,118 ---------- ---------- ----------- ---------- From capital transactions: Net premiums........... 1,559,975 590,158 13,796,446 2,676,784 Redemptions............ (29,635) (1,126) (179,560) (46,974) Net portfolio transfers............. 180,422 1,002,454 4,280,509 1,554,471 Other net transfers.... (451,340) (107,178) (5,121,876) (577,161) ---------- ---------- ----------- ---------- Net increase in net assets resulting from capital transactions.. 1,259,422 1,484,308 12,775,519 3,607,120 ---------- ---------- ----------- ---------- NET CHANGE IN NET ASSETS................. 1,056,786 1,483,125 17,263,309 3,863,238 NET ASSETS--BEGINNING OF PERIOD................. 1,483,125 -- 3,863,238 -- ---------- ---------- ----------- ---------- NET ASSETS--END OF PERIOD................. $2,539,911 $1,483,125 $21,126,547 $3,863,238 ========== ========== =========== ==========
See Notes to Financial Statements. 8
T. Rowe Price Scudder Small Cap Growth Division Global Equity Division ------------------------------------ ---------------------------------------------- For the Period For the Period For the Year March 3, 1997 For the Year March 3, 1997 Ended to Ended to December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ -------------- ------------ -------------- $ (71,325) $ (8,790) $ 82,316 $ 23,414 (14,908) 47,764 35,936 21,982 455,213 47,067 556,946 (8,556) ----------- ---------- ----------- ---------- 368,980 86,041 675,198 36,840 ----------- ---------- ----------- ---------- 8,413,079 1,816,732 3,660,518 1,425,649 (87,656) (40,707) (44,451) (7,873) 3,021,876 3,110,800 2,251,711 1,855,028 (2,968,930) (414,754) (1,263,459) (286,303) ----------- ---------- ----------- ---------- 8,378,369 4,472,071 4,604,319 2,986,501 ----------- ---------- ----------- ---------- 8,747,349 4,558,112 5,279,517 3,023,341 4,558,112 -- 3,023,341 -- ----------- ---------- ----------- ---------- $13,305,461 $4,558,112 $ 8,302,858 $3,023,341 =========== ========== =========== ==========
9 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 1998 Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940 and consists of eleven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund'). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life") on December 13, 1988, and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On March 3, 1997, operations commenced for the four new investment divisions added to the Separate Account on that date: the Loomis Sayles High Yield Bond Division, the Janus Mid Cap Division, the T. Rowe Price Small Cap Growth Division and the Scudder Global Equity Division. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1.SIGNIFICANT ACCOUNTING POLICIES A.Valuation of Investments Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the eleven designated portfolios of the Fund in which the eleven investment divisions of the Separate Account invests as of December 31, 1998 is included as Note 5. B.Security Transactions Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C.Federal Income Taxes In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed separately as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes, or reserves for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any Federal income taxes against the Separate Account arising from the earnings or realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D.Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain of the policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain of the policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2.DIVIDENDS On May 5, 1998 and December 16, 1998, the Fund declared dividends for all shareholders of record on May 7, 1998 and December 23, 1998, respectively. The amount of dividends received by the Separate Account was $71,190,477. The dividends were paid to Metropolitan Life on May 8, 1998 and December 24, 1998, respectively, and were immediately reinvested in additional shares of the portfolios in which the investment divisions invest. As a result of 10 NOTES TO FINANCIAL STATEMENTS--(Continued) this reinvestment, the number of shares of the Fund held by each of the eleven investment divisions increased by the following: State Street Research Growth Portfolio, 827,171 shares; State Street Research Income Portfolio, 339,329 shares; State Street Research Money Market Portfolio, 112,807 shares; State Street Research Diversified Portfolio, 1,066,122 shares; State Street Research Aggressive Growth Portfolio, 304,920 shares; MetLife Stock Index Portfolio, 183,724 shares; Santander International Stock Portfolio, 28,929 shares; Loomis Growth Sayles High Yield Bond Portfolio, 30,811 shares; Janus Mid Cap Portfolio, 6,072 shares; T. Rowe Price Small Cap Growth Portfolio, 0 shares and Scudder Global Equity Portfolio, 10,237 shares. 3.EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will not be higher than an effective annual rate of .90% of the average daily value of the net assets or the monthly anniversary value of the net assets in the Separate Account which are attributable to such policies. 4.CHANGE OF NAME Effective November 9, 1998, Santander Global Advisors, Inc. became the sub- investment manager of the Santander International Stock Portfolio (formerly State Street Research International Stock Portfolio) of the Metropolitan Series Fund, Inc. Simultaneously with that change, the corresponding investment division had its name changed to the Santander International Stock Division. 11 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998 Below are summarized information of the investments of the portfolios of the Fund in which each of the investment divisions invest. Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- COMMON STOCK Automotive............. $ 50,517,664 (1.6%) $ 22,855,593 (0.9%) Banking................ 172,519,438 (5.5%) 80,028,947 (3.0%) Broadcasting........... 225,213,831 (7.2%) 105,681,212 (4.0%) Business Services...... 18,336,219 (0.6%) 8,507,594 (0.3%) Chemicals.............. 62,797,294 (2.0%) 29,250,869 (1.1%) Computer Equipment & 41,206,377 (1.3%) 19,014,400 (0.7%) Service............... Drugs & Health Care.... 131,563,219 (4.2%) 60,383,637 (2.3%) Electrical Equipment... 138,582,619 (4.5%) 63,888,537 (2.4%) Electronics............ 138,832,022 (4.5%) 64,421,153 (2.4%) Entertainment & 27,114,300 (0.9%) 12,803,681 (0.5%) Leisure............... Financial Services..... 191,024,825 (6.1%) 88,565,588 (3.3%) Food & Beverages....... 134,094,937 (4.3%) 60,573,275 (2.3%) Forest Products & 32,516,000 (1.0%) 14,948,000 (0.6%) Paper................. Hotel & Motel.......... 19,960,981 (0.6%) 9,194,031 (0.3%) Household Products..... 46,167,600 (1.5%) 21,275,813 (0.8%) Insurance.............. 141,994,575 (4.6%) 64,324,269 (2.4%) Medical Equipment & 117,281,881 (3.8%) 54,248,912 (2.0%) Supply................ Miscellaneous.......... 44,334,619 (1.7%) Multi-Industry......... 95,549,138 (3.1%) Office & Business 191,625,919 (6.2%) 88,440,600 (3.3%) Equipment............. Oil & Gas Exploration.. 7,017,606 (0.2%) 3,077,344 (0.1%) Oil.................... 45,891,390 (1.5%) 21,240,514 (0.8%) Oil-Domestic........... 53,123,188 (1.7%) 24,575,613 (0.9%) Oil-International...... 54,448,875 (1.7%) 25,169,625 (1.0%) Pollution Control...... 16,542,550 (0.5%) 7,697,788 (0.3%) Restaurant............. 56,595,225 (1.8%) 26,450,950 (1.0%) Retail Grocery......... 96,199,400 (3.1%) 44,458,550 (1.7%) Retail Trade........... 203,995,450 (6.6%) 94,199,631 (3.5%) Software............... 82,984,778 (2.7%) 38,365,860 (1.4%) Telecommunications 20,702,053 (0.7%) 9,738,909 (0.4%) Equipment & Services.. Tobacco................ 55,233,400 (1.8%) 26,279,200 (1.0%) Transportation- 288 (0.0%) Trucking.............. Utilities-Electric..... 85,602,613 (2.8%) 38,564,994 (1.5%) Utilities-Gas 28,536,956 (0.9%) 13,312,681 (0.5%) Distribution & Pipelines............. Utilities-Telephone.... 178,222,078 (5.7%) 82,338,872 (3.1%) -------------- -------------- Total Common Stock..... 2,961,994,401 (95.2%) 1,368,211,549 (51.5%) -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Asset Backed........... $ 5,952,261 (1.1%) 55,261 (0.0%) Banking................ 4,912,622 (0.9%) 17,413,654 (0.7%) Collateralized Mortgage 23,365,521 (4.4%) 44,988,869 (1.7%) Obligations........... Drugs & Health Care.... 4,023,433 (0.8%) 9,762,956 (0.4%) Electrical Equipment... 5,669,210 (0.2%) Finance & Banking...... 12,285,984 (0.5%) Financial Services..... 88,530,073 (16.8%) 187,150,983 (7.0%) Food & Beverages....... 7,991,697 (1.5%) Healthcare Services.... 10,514,202 (2.0%) 19,278,706 (0.7%) Household Products..... 4,022,759 (0.8%) 5,804,994 (0.2%) Industrials............ 25,394,604 (4.8%) 96,688,722 (3.6%) Insurance.............. 2,999,260 (0.6%) 6,981,640 (0.3%) Miscellaneous.......... 2,397,587 (0.5%) 9,052,290 (0.3%) Mortgage Related....... 2,067,088 (0.4%) 18,490,416 (0.7%) Multi-Industry......... 4,255,312 (0.8%) 14,878,388 (0.6%) Newspapers............. 10,184,873 (1.9%) 20,021,470 (0.7%) Pollution Control...... 6,608,464 (1.3%) 17,460,438 (0.7%) Restaurant............. 3,312,855 (0.6%) 4,164,732 (0.2%) Retail Grocery......... 5,018,800 (0.9%) 10,149,300 (0.4%) Utilities-Electric..... 11,597,255 (2.2%) 11,922,582 (0.4%) Utilities-Telephone.... 4,725,144 (0.9%) 15,953,880 (0.6%) ------------ -------------- Total Corporate Bonds.. 227,873,810 (43.2%) 528,174,475 (19.9%) Federal Agency 43,969,433 (8.3%) 99,933,906 (3.8%) Obligations............ Federal Treasury 190,468,139 (36.2%) 413,509,607 (15.6%) Obligations............ Foreign Obligations..... 14,827,292 (2.8%) 31,091,792 (1.2%) State Agency 20,142,424 (3.8%) 50,582,786 (1.9%) Obligation............. Yankee Bonds............ 21,382,026 (4.1%) 43,966,468 (1.6%) ------------ -------------- Total Bonds............ 518,663,124 (98.4%) 1,167,259,034 (44.0%) ------------ -------------- SHORT-TERM OBLIGATIONS Commercial Paper....... 153,385,000 (4.9%) 24,658,252 (4.7%) $38,907,115 (94.5%) 144,348,000 (5.4%) -------------- ------------ ----------- -------------- FOREIGN OBLIGATIONS .... 1,978,317 (4.8%) ----------- TOTAL INVESTMENTS....... 3,115,379,401 (100.1%) 543,321,376 (103.1%) 40,885,432 (99.3%) 2,679,818,583 (100.9%) Other Assets Less (3,298,290) (-0.1%) (16,467,003) (-3.1%) 299,303 (0.7%) (22,831,517) (-0.9%) Liabilities........... -------------- ------------ ----------- -------------- NET ASSETS.............. $3,112,081,111 (100.0%) $526,854,373 (100.0%) $41,184,735 (100.0%) $2,656,987,066 (100.0%) ============== ============ =========== ==============
12 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
State Street Research Santander MetLife Aggressive International Stock Index Growth Stock Portfolio Portfolio Portfolio -------------- -------------- ------------- COMMON STOCK Aerospace............... $ 39,162,797 (1.3%) $ 19,058,175 (1.3%) $ 1,022,761 (0.3%) Automotive.............. 50,697,557 (1.6%) 50,687,806 (3.6%) 9,542,116 (3.2%) Banking................. 226,942,249 (7.3%) 13,915,069 (1.0%) 43,646,670 (14.7%) Broadcasting............ 68,923,306 (2.2%) 129,192,089 (9.0%) Business Services....... 182,199,234 (12.7%) Building & 11,707,369 (0.4%) 6,667,401 (2.2%) Construction............ Business Services....... 44,921,087 (1.4%) Chemicals............... 56,423,606 (1.8%) 52,643,156 (3.7%) 539,483 (0.2%) Computer Equipment & 117,894,780 (3.8%) 39,012,934 (2.7%) Service................. Construction & Mining 148,738 (0.0%) Equipment............... Construction Materials.. 8,604,883 (2.9%) Consumer Products....... 581,507 (0.2%) Containers & Glass...... 5,030,406 (0.2%) 11,219,387 (0.8%) Cosmetics............... 5,524,500 (0.2%) Drugs & Health Care..... 275,280,674 (8.8%) 57,715,516 (4.0%) 30,583,278 (10.3%) Education............... 21,623,094 (1.5%) Electrical Equipment.... 133,697,394 (4.3%) 7,149,188 (0.5%) 5,308,380 (1.8%) Electronics............. 162,610,341 (5.2%) 72,071,731 (5.0%) 8,966,121 (3.0%) Entertainment & 29,081,710 (0.9%) 89,647,425 (6.3%) Leisure................. Financial Services...... 155,792,983 (5.0%) 26,278,875 (1.8%) 10,369,932 (3.5%) Food & Beverages........ 142,667,553 (4.6%) 3,010,144 (1.0%) Forest Products & 27,901,546 (0.9%) 593,175 (0.2%) Paper................... Healthcare Services..... 1,019,313 (0.0%) 20,341,956 (1.4%) Homebuilders............ 1,575,306 (0.1%) 3,931,488 (1.3%) Hospital Management..... 9,035,485 (0.3%) 16,403,625 (1.2%) Hotel & Motel........... 5,102,388 (0.2%) 20,250,769 (1.4%) Household Appliances & 5,126,825 (0.2%) 4,650,482 (1.6%) Home Furnishings........ Household Products...... 88,111,919 (2.8%) Industrial Components & 231,000 (0.0%) Material................ Insurance............... 100,057,086 (3.2%) 42,106,469 (2.9%) 28,578,219 (9.6%) Liquor.................. 4,647,400 (0.1%) Machinery............... 21,152,778 (0.7%) Medical Equipment & 86,922,531 (2.8%) 13,084,500 (0.9%) Supply.................. Metals-Aluminum......... 7,229,194 (0.2%) Metals-Gold............. 5,043,754 (0.2%) Metals-Non-Ferrous...... 1,590,626 (0.1%) 2,856,153 (1.0%) Metals-Steel & Iron..... 2,500,224 (0.1%) 649,136 (0.2%) Mining.................. 1,733,106 (0.1%) Miscellaneous........... 21,171,351 (0.7%) 12,238,669 (0.9%) 3,109,774 (1.0%) Multi-Industry.......... 11,674,256 (0.4%) 2,932,702 (1.0%) Newspapers.............. 14,141,700 (0.5%) Office & Business 139,575,075 (4.5%) 38,931,731 (2.7%) 1,794,427 (0.6%) Equipment............... Oil & Gas Exploration... 2,982,744 (0.1%) 15,520,862 (1.1%) 5,273,395 (1.8%) Oil-Domestic............ 23,193,860 (0.7%) Oil-International....... 133,887,606 (4.3%) 10,485,842 (3.5%) Oil-Services............ 17,001,025 (0.5%) Photography............. 7,522,413 (0.2%) 3,083,591 (1.0%) Pollution Control....... 9,371,951 (0.3%) 24,137,762 (1.7%) Printing & Publishing... 8,504,231 (0.3%) 32,332,737 (2.3%) Restaurant.............. 20,110,638 (0.6%) Retail Grocery.......... 24,447,469 (0.8%) 4,145,160 (1.4%) Retail Trade............ 177,505,612 (5.7%) 190,272,119 (13.3%) 7,371,495 (2.5%) Software................ 148,059,255 (4.8%) 99,577,969 (7.0%) Telecommunications 73,478,888 (5.1%) 12,397,259 (4.2%) Equipment & Services.... Textiles & Apparel...... 7,063,863 (0.2%) 10,687,669 (0.8%) Tires & Rubber.......... 3,766,669 (0.1%) 1,421,457 (0.5%) Tobacco................. 45,493,656 (1.5%) 9,957,902 (3.3%) Toys & Amusements....... 3,494,528 (0.1%) 11,522,594 (0.8%) 1,598,187 (0.5%) Transportation.......... 624,855 (0.2%) Transportation- 9,437,948 (0.3%) 3,280,800 (1.1%) Airlines................ Transportation- 3,068,259 (1.0%) Miscellaneous........... Transportation- 14,912,864 (0.5%) 508,639 (0.2%) Railroad................ Transportation- 572,000 (0.0%) Trucking................ Utilities-Electric...... 75,968,625 (2.4%) 11,213,151 (3.8%) Utilities-Gas 13,329,126 (0.4%) 16,061,906 (1.1%) 3,019,359 (1.0%) Distribution & Pipelines............... Utilities- 1,886,504 (0.1%) 2,707,194 (0.9%) Miscellaneous........... Utilities-Telephone..... 259,132,899 (8.3%) 33,505,139 (11.3%) -------------- -------------- ------------ Total Common Stock...... 3,089,695,399 (99.3%) 1,409,363,904 (98.5%) 291,599,916 (98.0%) ------------ PREFERRED STOCK Retail Trade............ 269,563 (0.1%) ------------ Total Preferred Stock... 269,563 (0.1%) ------------ Total Equity 291,869,479 Securities.............. SHORT-TERM OBLIGATIONS-- 6,447,000 (2.2%) REPURCHASE AGREEMENTS... ------------ SHORT-TERM OBLIGATIONS-- 1,574,324 (0.1%) COMMERCIAL PAPER........ -------------- -------------- TOTAL INVESTMENTS....... 3,089,695,399 (99.3%) 1,410,938,228 (98.6%) 298,316,479 (100.3%) Other Assets Less 22,223,585 (0.7%) 20,398,358 (1.4%) (935,567) (-0.3%) Liabilities............. -------------- -------------- ------------ NET ASSETS.............. $3,111,918,984 (100.0%) $1,431,336,586 (100.0%) $297,380,912 (100.0%) ============== ============== ============
13 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio --------------- COMMON STOCK Banking............................................... $ 15,557 (0.0%) Forest Products & Paper............................... 870,986 (2.1%) Oil & Gas Exploration................................. 52,216 (0.1%) Real Estate........................................... 539,556 (1.3%) Restaurant............................................ 12,460 (0.0%) Utilities-Electric.................................... 89,870 (0.2%) ----------- Total Common Stock.................................... 1,580,645 (3.7%) ----------- PREFERRED STOCK Banking............................................... 212,295 (0.4%) Construction Materials................................ 62,344 (0.2%) Financial Services.................................... 164,529 (0.4%) Metals-Steel & Iron................................... 265,687 (0.6%) Office & Business Equipment........................... 820,589 (1.9%) Oil-Services.......................................... 112,219 (0.3%) Transportation-Shipping............................... 232,000 (0.6%) Transportation-Trucking............................... 51,000 (0.1%) Utilities-Electric.................................... 320,200 (0.8%) Utilities-Telephone................................... 213,750 (0.5%) ----------- Total Preferred Stock................................. 2,454,613 (5.8%) ----------- LONG-TERM DEBT SECURITIES Convertible Bonds: Automotive............................................ 351,750 (0.8%) Building & Construction............................... 84,000 (0.2%) Computer Equipment & Service.......................... 3,652,187 (8.6%) Drugs & Health Care................................... 1,117,000 (2.6%) Electronics........................................... 1,819,762 (4.3%) Entertainment & Leisure............................... 75,580 (0.2%) Foreign Obligation.................................... 4,378,810 (10.3%) Healthcare Services................................... 171,313 (0.4%) Industrial Components & Material...................... 73,750 (0.2%) Industrials........................................... 117,975 (0.3%) Medical Equipment & Supply............................ 407,825 (1.0%) Metals-Steel & Iron................................... 0 (0.0%) Mining................................................ 354,875 (0.8%) Oil & Gas Exploration................................. 136,000 (0.3%) Oil-Services.......................................... 261,056 (0.6%) Pollution Control..................................... 375,458 (0.9%) Real Estate........................................... 94,000 (0.2%) Restaurant............................................ 608,630 (1.4%) Retail Trade.......................................... 81,000 (0.2%) Telecommunications Equipment & Services............... 190,000 (0.5%) Textiles & Apparel.................................... 411,162 (1.0%) Transportation-Shipping............................... 241,125 (0.6%) Transportation-Trucking............................... 128,000 (0.3%) ----------- Total Convertible Bonds............................... 15,131,258 (35.7%) ----------- Corporate Bonds: Broadcasting.......................................... 1,762,079 (4.2%) Food & Beverages...................................... 588,209 (1.4%) Industrials........................................... 484,325 (1.1%) Oil & Gas Exploration................................. 856,500 (2.0%) Retail Grocery........................................ 216,000 (0.5%) Retail Trade.......................................... 389,250 (0.9%) Telecommunications Equipment & Services............... 2,226,525 (5.3%) Transportation........................................ 412,500 (1.0%) Transportation-Shipping............................... 360,000 (0.9%) Utilities-Electric.................................... 783,500 (1.8%) Utilities-Telephone................................... 1,162,125 (2.7%) ----------- Total Corporate Bonds................................. 9,241,013 (21.8%) ----------- Foreign Obligations.................................... 9,503,947 (22.4%) ----------- Yankee Bonds........................................... 2,867,825 (6.7%) ----------- Total Bonds........................................... 36,744,043 (96.1%) ----------- SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.......... 794,000 (1.9%) ----------- TOTAL INVESTMENTS...................................... 41,573,301 (98.0%) Other Assets Less Liabilities......................... 829,690 (2.0%) ----------- NET ASSETS............................................. $42,402,991 (100.0%) ===========
14 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED) Metropolitan Series Fund, Inc.
Janus T. Rowe Price Scudder Mid Cap Small Cap Growth Global Equity Portfolio Portfolio Portfolio ------------ ---------------- ------------- COMMON STOCK Aerospace............... $3,727,399 (1.0%) $ 4,229,684 2.2%) $ 1,879,388 (1.7%) Automotive.............. 2,564,169 (1.4%) Banking................. 9,622,934 (2.6%) 4,461,345 (2.4%) 4,198,216 (3.7%) Biotechnology........... 11,305,260 (3.0%) 1,266,294 (0.7%) 1,453,650 (1.3%) Broadcasting............ 56,634,368 (15.2%) 8,249,688 (4.4%) 5,551,477 (4.9%) Building & 2,130,563 (1.1%) Construction........... Business Services....... 28,673,398 (7.7%) 20,708,402 (11.0%) 1,494,872 (1.3%) Chemicals............... 1,736,627 (0.9%) 7,465,971 (6.6%) Computer Equipment & 24,005,995 (6.5%) 13,056,117 (6.9%) Service................ Construction Materials.. 1,041,569 (0.6%) 804,892 (0.7%) Construction & Mining 1,196,531 (0.6%) Equipment.............. Consumer Products....... 810,937 (0.4%) 1,847,336 (1.6%) Consumer Services....... 314,036 (0.3%) Drugs & Health Care..... 29,539,775 (8.0%) 15,080,999 (8.0%) 4,157,539 (3.7%) Education............... 49,914,109 (13.4%) 2,946,847 (1.6%) Electrical Equipment.... 1,206,631 (0.6%) 1,451,842 (1.3%) Electronics............. 31,345,472 (8.5%) 15,441,078 (8.2%) 2,655,535 (2.3%) Entertainment & 3,353,212 (0.9%) 4,214,784 (2.2%) Leisure................ Financial Services...... 18,747,329 (5.0%) 5,415,602 (2.9%) 645,360 (0.6%) Food & Beverages........ 2,135,359 (1.1%) 2,954,732 (2.6%) Forest Products & 55,000 (0.0%) 319,973 (0.3%) Paper.................. General Business........ 3,927,964 (1.1%) Healthcare Services..... 4,612,719 (2.4%) Hospital Management..... 638,575 (0.3%) Hotel & Motel........... 340,747 (0.2%) Household Appliances & 403,925 (0.2%) Home Furnishings....... Insurance............... 3,745,319 (2.0%) 11,857,700 (10.4%) Machinery............... 669,592 (0.6%) Medical Equipment & 4,249,506 (2.2%) 1,516,833 (1.3%) Supply................. Metals--Gold............ 2,892,048 (2.5%) Metals--Non-Ferrous..... 215,600 (0.1%) 2,869,241 (2.5%) Metals--Steel & Iron.... 1,047,581 (0.9%) Mining.................. 876,832 (0.8%) Miscellaneous........... 1,838,275 (1.0%) Multi-Industry.......... 3,295,292 (0.9%) 3,397,089 (3.0%) Newspapers.............. 1,033,000 (0.5%) Office & Business 4,521,756 (2.4%) 3,408,501 (3.0%) Equipment.............. Oil & Gas Exploration... 697,450 (0.4%) 1,039,598 (0.9%) Oil..................... 213,875 (0.2%) Oil--Domestic........... 1,949,213 (1.7%) Oil--International...... 1,961,332 (1.7%) Oil--Services........... 1,409,228 (0.7%) 904,951 (0.8%) Photography............. 450,056 (0.2%) Pollution Control....... 923,737 (0.5%) Printing & Publishing... 1,210,744 (0.6%) 1,014,244 (0.9%) Real Estate............. 1,252,440 (0.7%) 1,934,002 (1.7%) Restaurant.............. 19,240,018 (5.2%) 3,582,490 (1.9%) Retail Grocery.......... 1,872,900 (1.0%) Retail Trade............ 13,958,932 (3.8%) 16,684,107 (8.8%) Shipbuilding............ 717,072 (0.4%) Software................ 13,719,159 (3.7%) 14,046,833 (7.4%) 3,141,600 (2.8%) Telecommunications 27,154,008 (7.3%) 10,619,403 (5.6%) 1,177,250 (1.0%) Equipment & Services... Textiles & Apparel...... 1,837,403 (1.0%) Transportation-- 6,419,241 (1.7%) 1,762,225 (0.9%) 2,026,000 (1.8%) Airlines............... Transportation-- 883,047 (0.5%) 1,918,670 (1.7%) Railroad............... Transportation-- 1,206,775 (0.6%) Trucking............... Utilities--Electric..... 7,631,561 (6.7%) Utilities--Gas 2,852,129 (2.5%) Distribution & Pipelines.............. Utilities--Telephone.... 103,469 (0.1%) 2,664,242 (2.3%) ------------ ------------ ------------ Total Common Stock...... 354,583,865 (95.5%) 188,807,027 (99.8%) 96,158,903 (84.6%) ------------ ------------ ------------ PREFERRED STOCK Food & Beverages........ 227,228 (0.2%) Metals--Steel & Iron.... 327,140 (0.3%) Oil--International...... 244,426 (0.2%) Software................ 1,099,328 (1.0%) ------------ ------------ ------------ Total Preferred Stock... -- -- 1,898,122 (1.7%) ------------ ------------ ------------ Total Equity 354,583,865 (95.5%) 188,807,027 (99.8%) 98,057,025 (86.3%) Securities............. ------------ ------------ ------------ LONG-TERM DEBT SECURITIES Federal Treasury 7,775,488 (6.8%) Obligations............ Foreign Obligations..... 2,113,840 (1.9%) ------------ Total Long-Term Debt 9,889,328 (8.7%) Securities............. ------------ SHORT-TERM OBLIGATIONS Commercial Paper........ 14,593,552 (3.9%) 1,170,561 (0.6%) Federal Agency 7,884,076 (4.2%) Obligations............ Repurchase Agreements... 6,398,000 (5.6%) ------------ ------------ ------------ Total Short-Term 14,593,552 (3.9%) 9,054,637 (4.8%) 6,398,000 (5.6%) Obligations............ ------------ ------------ ------------ TOTAL INVESTMENTS....... 369,177,417 (99.4%) 197,861,664 (104.6%) 114,344,353 (100.6%) Other Assets Less 2,326,494 (0.6%) (8,729,698) (-4.6%) (629,356) (-0.6%) Liabilities............ ------------ ------------ ------------ NET ASSETS.............. $371,503,911 (100.0%) $189,131,966 (100.0%) $113,714,997 (100.0%) ============ ============ ============
15 NOTES TO FINANCIAL STATEMENTS--(Concluded) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONCLUDED) The value of the investments of the Fund's portfolios are determined using the following valuation techniques. Portfolio securities that are traded on domestic stock exchanges are valued at the last price as of the close of business on the day the securities are being valued, or, lacking any sales, at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which in the latter case would value such securities at the last bid price). Securities trading primarily on non- domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or, in the case of the Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued by using the mean between the last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio which second values such securities at the last current bid, and third by using the last available price). Domestic securities traded in the over-the-counter market are valued at the mean between the bid and asked prices or yield equivalent as obtained from two or more dealers that make markets in the securities (except for the Loomis Sayles High Yield Bond Portfolio, which, in the latter case, would value such security at the last bid price; or the Scudder Global Equity Portfolio which would value such security first at the last sale, and second at the bid price). All non-U.S. securities traded in the over-the-counter securities market are valued at the last sale quote, if market quotations are available, or the last closing bid price, if there is no active trading in a particular security for a given day. Where market quotations are not readily available such non-domestic over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors, or it delegates, believe accurately reflects fair value. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long-term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost, method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same methods as securities having a maturity of more than sixty days. Options, whether on securities, indices, or futures contracts, are valued at the last sales price available as of the close of business on the day of valuation or, if no sale, at the mean between the bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to-market daily. The value of futures contracts will be the sum of the margin deposit plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated, value being that established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. 16 Metropolitan Life Insurance Company Consolidated Financial Statements as of December 31, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 and Independent Auditors' Report Independent Auditors' Report The Board of Directors and Policyholders of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1997 the Company changed the method of accounting for investment income on certain structured securities. DELOITTE & TOUCHE LLP New York, New York February 4, 1999 2 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
1998 1997 1996 ------- ------- ------- REVENUES Premiums............................................... $11,503 $11,278 $11,345 Universal life and investment-type product policy fees. 1,360 1,418 1,243 Net investment income.................................. 10,228 9,491 8,978 Other revenues......................................... 1,965 1,491 1,246 Net realized investment gains.......................... 2,021 787 231 ------- ------- ------- 27,077 24,465 23,043 ------- ------- ------- EXPENSES Policyholder benefits and claims....................... 12,488 12,234 12,286 Interest credited to policyholder account balances..... 2,731 2,884 2,868 Policyholder dividends................................. 1,653 1,742 1,728 Other expenses......................................... 8,118 5,934 4,755 ------- ------- ------- 24,990 22,794 21,637 ------- ------- ------- Income before provision for income taxes, discontinued operations and extraordinary item..................... 2,087 1,671 1,406 Provision for income taxes............................. 740 468 482 ------- ------- ------- Income before discontinued operations and extraordinary item.................................................. 1,347 1,203 924 Loss from discontinued operations...................... -- -- 71 ------- ------- ------- Income before extraordinary item....................... 1,347 1,203 853 Extraordinary item--demutualization expense............ 4 -- -- ------- ------- ------- Net income............................................. $ 1,343 $ 1,203 $ 853 ======= ======= =======
See accompanying notes to consolidated financial statements. 3 Metropolitan Life Insurance Company CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 (In millions)
1998 1997 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value......... $100,767 $ 92,630 Equity securities, at fair value........................... 2,340 4,250 Mortgage loans on real estate.............................. 16,827 20,193 Real estate and real estate joint ventures................. 6,287 7,080 Policy loans............................................... 5,600 5,846 Other limited partnership interests........................ 964 855 Short-term investments..................................... 1,369 679 Other invested assets...................................... 1,567 4,456 -------- -------- 135,721 135,989 Cash and cash equivalents.................................... 3,301 2,911 Accrued investment income.................................... 1,994 1,860 Premiums and other receivables............................... 5,972 3,319 Deferred policy acquisition costs............................ 6,560 6,436 Other........................................................ 3,448 3,641 Separate account assets...................................... 58,350 48,620 -------- -------- $215,346 $202,776 ======== ======== LIABILITIES AND EQUITY Liabilities: Future policy benefits....................................... $ 72,701 $ 73,848 Policyholder account balances................................ 46,494 48,543 Other policyholder funds..................................... 4,061 3,998 Policyholder dividends payable............................... 947 969 Short-term debt.............................................. 3,585 4,587 Long-term debt............................................... 2,903 2,884 Income taxes payable, current and deferred................... 948 952 Other........................................................ 10,772 4,650 Separate account liabilities................................. 58,068 48,338 -------- -------- 200,479 188,769 -------- -------- Commitments and contingencies (Note 9) Equity: Retained earnings............................................ 13,483 12,140 Accumulated other comprehensive income....................... 1,384 1,867 -------- -------- 14,867 14,007 -------- -------- $215,346 $202,776 ======== ========
See accompanying notes to consolidated financial statements. 4 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED) For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
Accumulated Other Comprehensive Income ---------------------------------------------- Net Foreign Minimum Unrealized Currency Pension Comprehensive Retained Investment Translation Liability Total Income Earnings Gains Adjustment Adjustment ------- ------------- -------- ------------- ------------- ------------ Balance at January 1, 1996................... $11,754 $10,084 $ 1,646 $ 24 $ -- Comprehensive income: Net income............. 853 $ 853 853 ------ Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes........ (618) (618) Foreign currency translation adjustments......... (6) (6) ------ Other comprehensive loss.................. (624) (624) ------ Comprehensive income. $ 229 ------- ====== ------- ------------- ------------ ------------ Balance at December 31, 1996................... 11,983 10,937 1,028 18 -- Comprehensive income: Net income............. 1,203 $1,203 1,203 ------ Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes........ 870 870 Foreign currency translation adjustments......... (49) (49) ------ Other comprehensive income................ 821 821 ------ Comprehensive income. $2,024 ------- ====== ------- ------------- ------------ ------------ Balance at December 31, 1997................... 14,007 12,140 1,898 (31) -- Comprehensive income: Net income............. 1,343 $1,343 1,343 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes........ (358) (358) Foreign currency translation adjustments......... (113) (113) Minimum pension liability adjustment.......... (12) (12) ------ Other comprehensive loss.................. (483) (483) ------- ------ Comprehensive income. $ 860 ------- ------- ------------- ------------ ------------ ====== Balance at December 31, 1998................... $14,867 $13,483 $ 1,540 $ (144) $ (12) ======= ======= ============= ============ ============
See accompanying notes to consolidated financial statements. 5 Metropolitan Life Insurance Company CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998, 1997 and 1996 (In millions)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities Net income....................................... $ 1,343 $ 1,203 $ 853 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses....... 56 (36) (18) Gains from sales of investments and businesses, net............................. (2,629) (1,018) (428) Change in undistributed income of real estate joint ventures and other limited partnership interests................................... (91) 157 (45) Interest credited to policyholder account balances.................................... 2,731 2,884 2,868 Universal life and investment-type product policy fees................................. (1,360) (1,418) (1,243) Change in accrued investment income.......... (181) (215) 350 Change in premiums and other receivables..... (2,681) (792) (125) Change in deferred policy acquisition costs, net......................................... (188) (159) (391) Change in insurance related liabilities...... 1,493 2,364 2,349 Change in income taxes payable............... 211 (99) (134) Change in other liabilities.................. 2,390 (206) 902 Other, net................................... (253) 207 (1,250) -------- -------- -------- Net cash provided by operating activities........ 841 2,872 3,688 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................. 57,857 75,346 76,117 Equity securities............................ 3,085 1,821 2,069 Mortgage loans on real estate................ 2,296 2,784 2,380 Real estate and real estate joint ventures... 1,122 2,046 2,358 Other limited partnership interests.......... 146 166 178 Purchases of: Fixed maturities............................. (67,543) (76,603) (76,225) Equity securities............................ (854) (2,121) (2,742) Mortgage loans on real estate................ (2,610) (4,119) (4,225) Real estate and real estate joint ventures... (423) (624) (989) Other limited partnership interests.......... (723) (338) (307) Net change in short-term investments........... (761) 63 1,028 Net change in policy loans..................... 133 17 (128) Proceeds from sales of businesses.............. 7,372 274 -- Net change in investment collateral............ 3,769 -- -- Other, net..................................... (183) (378) (438) -------- -------- -------- Net cash provided by (used in) investing activities...................................... 2,683 (1,666) (924) -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits..................................... $ 19,361 $ 16,061 $ 17,167 Withdrawals.................................. (21,706) (18,831) (19,321) Short-term debt, net........................... (1,001) 1,265 69 Long-term debt issued.......................... 693 989 -- Long-term debt repaid.......................... (481) (104) (284) -------- -------- -------- Net cash used in financing activities............ (3,134) (620) (2,369) -------- -------- -------- Change in cash and cash equivalents.............. 390 586 395 Cash and cash equivalents, beginning of year..... 2,911 2,325 1,930 -------- -------- -------- Cash and cash equivalents, end of year........... $ 3,301 $ 2,911 $ 2,325 ======== ======== ======== Supplemental disclosures of cash flow information: Interest....................................... $ 367 $ 422 $ 310 ======== ======== ======== Income taxes................................... $ 579 $ 589 $ 497 ======== ======== ========
Cash paid during the year for: See accompanying notes to consolidated financial statements. 6 Metropolitan Life Insurance Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts are in millions unless otherwise stated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of institutional and individual customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance and retirement and savings products and services to corporations and other institutions. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. During 1997, management changed to the retrospective interest method of accounting for investment income on structured notes in accordance with authoritative guidance issued in late 1996. As a result, net investment income increased by $175. The cumulative effect of this accounting change on prior years' income was not material. Principles of Consolidation The accompanying consolidated financial statements include the accounts of MetLife and its subsidiaries, partnerships and joint ventures in which MetLife has a controlling interest. All material intercompany accounts and transactions have been eliminated. The Company accounts for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but more than a minimal interest, under the equity method of accounting. Minority interest relating to consolidated entities included in other liabilities was $274 and $277 at December 31, 1998 and 1997, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 1998 presentation. Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as realized losses on investments. Realized gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the 7 NOTES TO FINANCIAL STATEMENTS--(Continued) contractual terms of the loan agreement. Valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in realized losses on investments. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or estimated fair value, net of disposition costs. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Derivative Instruments The Company uses derivative instruments to manage market risk through one of four principal risk management strategies: the hedging of invested assets, liabilities, portfolios of assets or liabilities and anticipated transactions. The Company's derivative strategy employs a variety of instruments including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options. The Company's derivative program is monitored by senior management. The Company's risk of loss is typically limited to the fair value of its derivative instruments and not to the notional or contractual amounts of these derivatives. Risk arises from changes in the fair value of the underlying instruments and, with respect to over-the-counter transactions, from the possible inability of counterparties to meet the terms of the contracts. The Company has strict policies regarding the financial stability and credit standing of its major counterparties. The Company's derivative instruments are designated as hedges and are highly correlated to the underlying risk at contract inception. The Company monitors the effectiveness of its hedges throughout the contract term using an offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge effectiveness. Derivative instruments that lose their effectiveness are marked to market through net investment income. Gains or losses on financial futures contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, recorded as an adjustment to the basis of the purchased assets or to the proceeds on disposition. Gains or losses on financial futures used in asset risk management are deferred and amortized into net investment income over the remaining term of the investment. Gains or losses on financial futures used in portfolio risk management are deferred and amortized into net investment income or policyholder benefits over the remaining life of the hedged sector of the underlying portfolio. Financial forward contracts that are entered into to purchase securities are marked to fair value through other comprehensive income, similar to the accounting for the investment security. Such contracts are accounted for at settlement by recording the purchase of the specified securities at fair value. Gains or losses resulting from the termination of forward contracts are recognized immediately as a component of net investment income. Interest rate and certain foreign currency swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net receipts or payments are accrued and recognized over the term of the swap agreement as an adjustment to net investment income or other expense. Gains or losses resulting from swap terminations are amortized over the remaining term of the underlying asset or liability. Gains and losses on swaps and certain foreign forward exchange contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, reflected as an adjustment to the basis of the purchased 8 NOTES TO FINANCIAL STATEMENTS--(Continued) assets or to the proceeds of disposition. In the event the asset or liability underlying a swap is disposed of, the swap position is closed immediately and any gain or loss is recorded as an adjustment to the proceeds from disposition. The Company periodically enters into collars, which consist of purchased put and written call options, to lock in unrealized gains on equity securities. Collars are marked to market through other comprehensive income, similar to the accounting for the underlying equity securities. Purchased interest rate caps and floors are used to offset the risk of interest rate changes related to insurance liabilities. Premiums paid on floors, caps and options are split into two components, time value and intrinsic value. Time value is amortized over the life of the applicable derivative instrument. The intrinsic value and any gains or losses relating to these derivative instruments adjust the basis of the underlying asset or liability and are recognized as a component of net investment income over the term of the underlying asset or liability being hedged as an adjustment to the yield. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years- digits method over the estimated useful lives of the assets. Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for all other property and equipment. Accumulated depreciation on property and equipment and accumulated amortization of leasehold improvements was $1,048 at both December 31, 1998 and 1997. Related depreciation and amortization expense was $95, $103 and $78 for the years ended December 31, 1998, 1997 and 1996, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized 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. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs for property and liability 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. Other Intangible Assets The excess of cost over the fair value of net assets acquired ("goodwill") and the value of business acquired are included in other assets. Goodwill is amortized on a straight-line basis over a period ranging from 10 to 30 years. The Company continually reviews goodwill to assess recoverability from future operations using undiscounted cash flows. 9 NOTES TO FINANCIAL STATEMENTS--(Continued) Impairments are recognized in operating results if a permanent diminution in value is deemed to have occurred. The value of business acquired is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts.
Value of Business Acquired Goodwill -------------------------- ---------------- Years Ended December 31 1998 1997 1996 1998 1997 1996 - ----------------------- -------- -------- -------- ---- ---- ---- Net Balance at January 1........ $ 498 $ 358 $ 381 $884 $544 $377 Acquisitions.................... 32 176 7 80 387 197 Amortization.................... (55) (36) (30) (59) (47) (30) -------- -------- -------- ---- ---- ---- Net Balance at December 31...... $ 475 $ 498 $ 358 $905 $884 $544 ======== ======== ======== ==== ==== ==== December 31 1998 1997 1998 1997 - ----------- -------- -------- ---- ---- Accumulated Amortization........ $ 142 $ 87 $207 $148 ======== ======== ==== ====
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 2% to 7%, 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 5% to 8%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 4% to 7%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 4% to 8%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 3% to 17%, less expenses, mortality charges and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs. Revisions of these estimates are reflected 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. 10 NOTES TO FINANCIAL STATEMENTS--(Continued) Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Premiums related to universal life and investment-type contracts are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Dividends to Policyholders Dividends to policyholders are determined annually by the Board of Directors. The aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the Company. Participating Business Participating business represented approximately 21% and 22% of the Company's life insurance in-force, and 81% and 87% of the number of life insurance policies in-force, at December 31, 1998 and 1997, respectively. Participating policies represented approximately 39% and 40%, 41% and 41%, and 40% and 44% of gross and net life insurance premiums for the years ended December 31, 1998, 1997 and 1996, respectively. Income Taxes MetLife and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. Federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended ("the Code"). Under the Code, the amount of Federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured as of the balance sheet dates and are recorded as deferred income tax assets 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. 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 generally the functional currencies. Translation adjustments are charged or 11 NOTES TO FINANCIAL STATEMENTS--(Continued) credited directly to other comprehensive income. Gains and losses from foreign currency transactions are reported in other expenses and were insignificant for all years presented. Extraordinary Item--Demutualization Expense On November 24, 1998, the Board of Directors authorized management to develop a plan to convert from a mutual life insurance company to a stock life insurance company (the "demutualization"). A final plan to convert to a publicly traded stock company is subject to the approval of the Board of Directors, the policyholders and the New York Superintendent of Insurance ("Superintendent"). The Department has not yet reviewed or approved any materials relating to the demutualization. The accompanying consolidated statements of income reflect an extraordinary charge of $4 (net of income taxes of $2) for the year ended December 31, 1998 related to costs associated with the demutualization. Application of Accounting Pronouncements In October 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing or underwriting risk and 4) have an indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1, 2000. Adoption of SOP 98-7 is not expected to have a material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in income. The Company is required to adopt SFAS 133 as of January 1, 2000. The Company is in the process of quantifying the impact of SFAS 133 on its consolidated financial statements. In April 1998, the AICPA issued 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. The Company is required to adopt SOP 98-5 as of January 1, 1999. Adoption of SOP 98-5 is not expected to have a material effect on the Company's consolidated financial statements. In March 1998, the AICPA issued 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. The Company is required to adopt SOP 98-1 as of January 1, 1999. Adoption of SOP 98-1 is not expected to have a material effect on the Company's consolidated financial statements. In December 1997, the AICPA issued 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. The Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP 97-3 is not expected to have a material effect on the Company's consolidated financial statements. In 1998, the Company adopted SFAS 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards for reporting financial information and related disclosures about products and services, geographic areas and major customers relating to operating segments in annual financial statements. Adoption of SFAS 131 had no effect on the Company's consolidated financial statements. 12 NOTES TO FINANCIAL STATEMENTS--(Continued) In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Adoption of SFAS 130 had no effect on the Company's consolidated financial statements. In 1998, the Company adopted the provisions of SFAS 125 which were deferred by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. The deferred provisions provide accounting and reporting standards related to repurchase agreements, dollar rolls, securities lending and similar transactions. Adoption of the provisions had the effect of increasing assets and liabilities by $3,769 at December 31, 1998 and increasing revenues and expenses by $266 for the year ended December 31, 1998. 2. INVESTMENTS The components of net investment income were as follows:
Years ended December 31, --------------------------- 1998 1997 1996 -------- -------- -------- Fixed maturities........................... $ 6,563 $ 6,445 $ 6,042 Equity securities.......................... 78 50 60 Mortgage loans on real estate.............. 1,572 1,684 1,523 Real estate and real estate joint ventures. 1,529 1,718 1,668 Policy loans............................... 387 368 399 Other limited partnership interests........ 196 302 215 Cash, cash equivalents and short-term investments 187 169 214 Other...................................... 841 368 401 -------- ------- -------- 11,353 11,104 10,522 Less: Investment expenses.................. 1,125 1,613 1,544 -------- ------- -------- $10,228 $ 9,491 $ 8,978 ======== ======= ======== Net realized investment gains, including changes in valuation allowances, were as follows: Years ended December 31, --------------------------- 1998 1997 1996 -------- -------- -------- Fixed maturities........................... $ 573 $ 118 $ 234 Equity securities.......................... 994 224 101 Mortgage loans on real estate.............. 23 56 (86) Real estate and real estate joint ventures. 424 446 371 Other limited partnership interests........ 13 12 (129) Sale of subsidiaries....................... 531 139 -- Other...................................... 71 23 (33) -------- ------- -------- 2,629 1,018 458 Amounts allocable to: Future policy benefit loss recognition... (300) (126) (203) Deferred policy acquisition costs........ (240) (70) (4) Participating pension contracts.......... (68) (35) (20) -------- ------- -------- $ 2,021 $ 787 $ 231 ======== ======= ========
13 NOTES TO FINANCIAL STATEMENTS--(Continued) The components of net unrealized investment gains, included in accumulated other comprehensive income, were as follows:
Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Fixed maturities............................. $ 4,809 $ 4,766 $ 2,226 Equity securities............................ 832 1,605 563 Other invested assets........................ 125 294 474 ------- ------- ------- 5,766 6,665 3,263 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition..... (2,248) (2,189) (1,219) Deferred policy acquisition costs.......... (902) (1,147) (420) Participating pension contracts............ (212) (312) (9) Deferred income taxes........................ (864) (1,119) (587) ------- ------- ------- (4,226) (4,767) (2,235) ------- ------- ------- $ 1,540 $ 1,898 $ 1,028 ======= ======= ======= The changes in net unrealized investment gains were as follows: Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1......................... $ 1,898 $ 1,028 $ 1,646 Unrealized investment gains (losses) during the year.................................... (899) 3,402 (2,493) Unrealized investment (gains) losses relating to: Future policy benefit loss recognition..... (59) (970) 845 Deferred policy acquisition costs.......... 245 (727) 328 Participating pension contracts............ 100 (303) 341 Deferred income taxes........................ 255 (532) 361 ------- ------- ------- Balance at December 31....................... $ 1,540 $ 1,898 $ 1,028 ======= ======= ======= Net change in unrealized investment gains.... $ (358) $ 870 $ (618) ======= ======= =======
14 NOTES TO FINANCIAL STATEMENTS--(Continued) Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 1998 were as follows:
Gross Cost or Unrealized Estimated Amortized ------------ Fair Cost Gain Loss Value --------- ------- ---- --------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 6,640 $ 1,117 $ 10 $ 7,747 States and political subdivisions......... 597 26 -- 623 Foreign governments....................... 3,435 254 88 3,601 Corporate................................. 46,377 2,471 260 48,588 Mortgage and asset-backed securities 26,456 569 46 26,979 Other..................................... 12,438 1,069 293 13,214 ------- ------- ---- -------- 95,943 5,506 697 100,752 Redeemable preferred stocks............... 15 -- -- 15 ------- ------- ---- -------- $95,958 $ 5,506 $697 $100,767 ======= ======= ==== ======== Equity Securities: Common stocks............................. $ 1,286 $ 923 $ 77 $ 2,132 Nonredeemable preferred stocks............ 222 4 18 208 ------- ------- ---- -------- $ 1,508 $ 927 $ 95 $ 2,340 ======= ======= ==== ======== Fixed maturities and equity securities at December 31, 1997 were as follows: Gross Cost or Unrealized Estimated Amortized ------------ Fair Cost Gain Loss Value --------- ------- ---- --------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U. S. government corporations and agencies................ $ 8,708 $ 1,010 $ 2 $ 9,716 States and political subdivisions......... 486 22 -- 508 Foreign governments....................... 3,420 371 52 3,739 Corporate................................. 41,012 2,337 291 43,058 Mortgage and asset-backed securities...... 22,370 579 21 22,928 Other..................................... 11,374 929 134 12,169 ------- ------- ---- -------- 87,370 5,248 500 92,118 Redeemable preferred stocks............... 494 19 1 512 ------- ------- ---- -------- $87,864 $ 5,267 $501 $ 92,630 ======= ======= ==== ======== Equity Securities: Common stocks............................. $ 2,444 $ 1,716 $105 $ 4,055 Nonredeemable preferred stocks............ 201 5 11 195 ------- ------- ---- -------- $ 2,645 $ 1,721 $116 $ 4,250 ======= ======= ==== ========
The Company held foreign currency derivatives with notional amounts of $716 and $408 to hedge the exchange rate risk associated with foreign bonds at December 31, 1998 and 1997, respectively. The Company also held options with fair values of $(11) and $33 to hedge the market value of common stocks at December 31, 1998 and 1997, respectively. 15 NOTES TO FINANCIAL STATEMENTS--(Continued) At December 31, 1998, fixed maturities held by the Company that were below investment grade or not rated by an independent rating agency totaled $8,289. At December 31, 1998, non-income producing fixed maturities were insignificant. The amortized cost and estimated fair value of bonds at December 31, 1998, by contractual maturity date, are shown below:
Estimated Amortized Fair Cost Value --------- --------- Due in one year or less............................... $ 2,380 $ 2,462 Due after one year through five years................. 17,062 17,527 Due after five years through 10 years................. 23,769 24,714 Due after 10 years.................................... 26,276 29,070 -------- -------- 69,487 73,773 Mortgage and asset-backed securities.................. 26,456 26,979 -------- -------- $ 95,943 $100,752 ======== ========
Fixed maturities not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of fixed maturities and equity securities were as follows:
Years ended December 31, ----------------------- 1998 1997 1996 ------- ------- ------- Fixed maturities classified as available-for- sale: Proceeds..................................... $43,828 $67,454 $67,239 Gross realized gains......................... $ 928 $ 672 $ 1,067 Gross realized losses........................ $ 355 $ 558 $ 842 Fixed maturities classified as held-to- maturity: Proceeds..................................... $ -- $ 352 $ 1,281 Gross realized gains......................... $ -- $ 5 $ 10 Gross realized losses........................ $ -- $ 1 $ 1 Equity securities: Proceeds..................................... $ 3,085 $ 1,821 $ 2,069 Gross realized gains......................... $ 1,125 $ 293 $ 150 Gross realized losses........................ $ 131 $ 69 $ 49
During 1997, fixed maturities with an amortized cost of $11,682 were transferred from held-to-maturity to available-for-sale. Other comprehensive income at the date of reclassification was increased by $198 excluding the effects of deferred income taxes and policyholder related amounts. Excluding investments in U.S. governments and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby large blocks of securities 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 $4,005 and $6,068 and estimated fair value of $4,552 and $6,653 were on loan under the program at December 31, 1998 and 1997, respectively. The Company is liable for cash collateral of $3,769 at December 31, 1998. This liability is included in other liabilities. Rebates of $266 were paid and accrued on the cash collateral for the year ended 16 NOTES TO FINANCIAL STATEMENTS--(Continued) December 31, 1998. The rebates paid and accrued during 1998 are included in other operating costs and expenses. Security collateral is returnable on short notice and is not reflected in the consolidated financial statements. Statutory Deposits The Company had investment assets on deposit with regulatory agencies of $466 and $4,695 as of December 31, 1998 and 1997, respectively. Mortgage Loans on Real Estate Mortgage loans were categorized as follows:
December 31, ---------------------------------- 1998 1997 ---------------- ---------------- Amount Percent Amount Percent ------- ------- ------- ------- Commercial mortgage loans.................... $12,503 74% $14,945 73% Agriculture mortgage loans................... 4,256 25% 3,753 18% Residential mortgage loans................... 241 1% 272 1% Other loans.................................. -- -- 1,512 8% ------- ------ ------- ----- 17,000 100% 20,482 100% ====== ===== Less: Valuation allowances................... 173 289 ------- ------- $16,827 $20,193 ======= ======= Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 1998, approximately 15%, 9% and 7% of the properties were located in California, New York and Florida, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $606 and $725 at December 31, 1998 and 1997, respectively. Changes in mortgage loan valuation allowances were as follows: Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1......................... $ 289 $ 469 $ 491 Additions.................................... 40 61 144 Deductions for writedowns and dispositions... (130) (241) (166) Deductions for disposition of affiliates..... (26) -- -- ------- ------ ------- Balance at December 31....................... $ 173 $ 289 $ 469 ======= ====== ======= A portion of the Company's mortgage loans on real estate was impaired and consisted of the following: December 31, ---------------- 1998 1997 ------- ------- Impaired mortgage loans with valuation allowances.................................. $ 823 $1,231 Impaired mortgage loans without valuation allowances.................................. 375 306 ------- ------ 1,198 1,537 Less: Valuation allowances................... 149 250 ------- ------ $ 1,049 $1,287 ======= ======
17 NOTES TO FINANCIAL STATEMENTS--(Continued) The average recorded investment in impaired mortgage loans on real estate was $1,282, $1,680 and $2,113 for the years ended December 31, 1998, 1997 and 1996, respectively. Interest income on impaired mortgages was $109, $110 and $119 for the years ended December 31, 1998, 1997 and 1996, respectively. Restructured mortgage loans on real estate were $1,036 and $1,207 at December 31, 1998 and 1997, respectively. Interest income of $74, $91 and $135 was recognized on restructured loans for the years ended December 31, 1998, 1997 and 1996, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $87, $116 and $198 for the years ended December 31, 1998, 1997 and 1996, respectively. Mortgage loans on real estate with scheduled payments 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $65 and $255 as of December 31, 1998 and 1997, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, --------------- 1998 1997 ------- ------ Real estate and real estate joint ventures held-for- investment............................................ $ 6,301 $6,731 Impairments............................................ (408) (407) ------- ------ 5,893 6,324 ------- ------ Real estate and real estate joint ventures held-for- sale.................................................. 546 915 Impairments............................................ (119) (49) Valuation allowance.................................... (33) (110) ------- ------ 394 756 ------- ------ $ 6,287 $7,080 ======= ======
Accumulated depreciation on real estate was $2,065 and $2,030 at December 31, 1998 and 1997, respectively. Related depreciation expense was $282, $338 and $348 for the years ended December 31, 1998, 1997 and 1996, respectively. Real estate and real estate joint ventures were categorized as follows:
December 31, ------------------------------ 1998 1997 --------------- -------------- Amount Percent Amount Percent ------- ------- ------ ------- Office..................................... $ 4,265 68% $4,730 67% Retail..................................... 640 10% 804 11% Apartments................................. 418 7% 406 6% Land....................................... 313 5% 346 5% Agriculture................................ 195 3% 214 3% Other...................................... 456 7% 580 8% ------- --- ------ --- $ 6,287 100% $7,080 100% ======= === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 1998, approximately 23%, 23% and 12% 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, ---------------------------- 1998 1997 1996 -------- -------- -------- Balance at January 1.... $ 110 $ 661 $ 924 Additions charged (credited) to operations............. (5) (76) 127 Deductions for writedowns and dispositions........... (72) (475) (390) -------- -------- -------- Balance at December 31.. $ 33 $ 110 $ 661 ======== ======== ========
18 NOTES TO FINANCIAL STATEMENTS--(Continued) Investment income (expense) relating to impaired real estate and real estate joint ventures held-for-investment was $105, $28 and $(10) for the years ended December 31, 1998, 1997 and 1996, respectively. Investment income relating to real estate and real estate joint ventures held-for-sale was $3, $11 and $70 for the years ended December 31, 1998, 1997 and 1996, respectively. The carrying value of non-income producing real estate and real estate joint ventures was insignificant at December 31, 1998 and 1997, respectively. The Company owned real estate acquired in satisfaction of debt of $154 and $218 at December 31, 1998 and 1997, respectively. Direct Financing and Leveraged Leases Direct financing and leveraged leases, included in other invested assets, consisted of the following:
December 31, ------------------------------------------------- Direct Financing Leveraged Leases Leases Total ----------------- -------------- -------------- 1998 1997 1998 1997 1998 1997 ----------------- ------ ------ ------ ------ Investment................... $ -- $ 1,137 $1,067 $ 851 $1,067 $1,988 Estimated residual values.... -- 183 607 641 607 824 ------- --------- ------ ------ ------ ------ -- 1,320 1,674 1,492 1,674 2,812 Unearned income.............. -- (261) (471) (428) (471) (689) ------- --------- ------ ------ ------ ------ Net investment............... $ -- $ 1,059 $1,203 $1,064 $1,203 $2,123 ======= ========= ====== ====== ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to eight years, but in certain circumstances are as long as 20 years. Average yields range from 7% to 12%. These receivables are generally collateralized by the related property. 3. DERIVATIVE INSTRUMENTS The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments (other than equity options) held at December 31, 1998 and 1997:
1998 1997 ------------------------------------- ------------------------------------- Current Market or Current Market or Fair Value Fair Value ------------------ ------------------ Carrying Notional Carrying Notional Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- Financial futures....... $ 3 $ 2,190 $ 8 $ 6 $ 10 $ 2,262 $ 17 $ 7 Foreign exchange contracts.............. -- 136 -- 2 -- 150 2 -- Interest rate swaps..... (9) 1,621 17 50 (11) 1,464 9 28 Foreign currency swaps.. (1) 580 3 62 -- 258 3 30 Caps.................... -- 8,391 -- -- -- 1,545 13 -- Options (fixed income).. -- -- -- -- 2 275 -- 2 -------- -------- ------ ----------- -------- -------- ------ ----------- Total contractual commitments............ $ (7) $ 12,918 $ 28 $ 120 $ 1 $ 5,954 $ 44 $ 67 ======== ======== ====== =========== ======== ======== ====== ===========
19 NOTES TO FINANCIAL STATEMENTS--(Continued) The following is a reconciliation of the notional amounts by derivative type and strategy as of December 31, 1998 and 1997:
December 31, 1997 Terminations/ December 31, 1998 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- BY DERIVATIVE TYPE Financial futures....... $2,262 $25,073 $(25,145) $ 2,190 Foreign exchange contracts.............. 150 1,231 (1,245) 136 Interest rate swaps..... 1,464 788 (631) 1,621 Foreign currency swaps.. 258 386 (64) 580 Caps.................... 1,545 8,250 (1,404) 8,391 Options (fixed income).. 275 -- (275) -- ------ ------- -------- ------- Total contractual commitments............ $5,954 $35,728 $(28,764) $12,918 ====== ======= ======== ======= BY STRATEGY Liability hedging....... $1,860 $ 8,419 $ (1,538) $ 8,741 Invested asset hedging.. 817 1,666 (1,619) 864 Portfolio hedging....... 2,787 25,643 (25,600) 2,830 Anticipated transaction hedging................ 490 -- (7) 483 ------ ------- -------- ------- Total contractual commitments............ $5,954 $35,728 $(28,764) $12,918 ====== ======= ======== =======
The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 1998:
Remaining Life --------------------------------------- After Five After One Years After One Year Year Through Through Ten Ten or Less Five Years Years Years Total -------- ------------ ----------- ----- ------- Financial futures.............. $2,190 $ -- $ -- $ -- $ 2,190 Foreign exchange contracts..... 136 -- -- -- 136 Interest rate swaps............ 470 774 162 215 1,621 Foreign currency swaps......... 39 182 343 16 580 Caps........................... 1,875 6,496 20 -- 8,391 -------- ------------ ----------- ----- ------- Total contractual commitments.. $4,710 $ 7,452 $ 525 $ 231 $12,918 ======== ============ =========== ===== =======
In addition to the derivative instruments above, the Company uses equity option contracts as invested asset hedges. There were 92 thousand and 7 million equity option contracts outstanding with carrying values of $(11) and $27 and market values of $(11) and $33, as of December 31, 1998 and 1997, respectively. The outstanding contracts have a remaining life of one year or less as of December 31, 1998. 4. REINSURANCE The Company assumes and cedes insurance with other insurance companies. The Company continually evaluates the financial condition of its reinsurers and monitors concentration of credit risk in an effort to minimize its exposure to significant losses from reinsurer insolvencies. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to material fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to diversify its risk portfolio. 20 NOTES TO FINANCIAL STATEMENTS--(Continued) The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Direct premiums............................... $12,763 $12,728 $12,452 Reinsurance assumed........................... 409 360 508 Reinsurance ceded............................. (1,669) (1,810) (1,615) ------- ------- ------- Net premiums.................................. $11,503 $11,278 $11,345 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits........................ $ 1,751 $ 1,648 $ 1,667 ======= ======= =======
Reinsurance recoverables, included in other receivables, were $2,956 and $1,511 at December 31, 1998 and 1997, respectively. Reinsurance and ceded commissions payables, included in other liabilities, were $105 and $158 at December 31, 1998 and 1997, respectively. 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, ------------------------- 1998 1997 1996 ------- ------- ------- Balance at January 1........................... $ 3,655 $ 3,345 $ 3,296 Reinsurance recoverables..................... (229) (215) (214) ------- ------- ------- Net balance at January 1....................... 3,426 3,130 3,082 ------- ------- ------- Incurred related to: Current year................................. 2,726 2,855 2,951 Prior years.................................. (245) 88 (114) ------- ------- ------- 2,481 2,943 2,837 ------- ------- ------- Paid related to: Current year................................. (1,967) (1,832) (1,998) Prior years.................................. (853) (815) (791) ------- ------- ------- (2,820) (2,647) (2,789) ------- ------- ------- Balance at December 31......................... 3,087 3,426 3,130 Add: Reinsurance recoverables................ 233 229 215 ------- ------- ------- Balance at December 31......................... $ 3,320 $ 3,655 $ 3,345 ======= ======= =======
5. INCOME TAXES The provision for income taxes was as follows:
Years ended December 31, ------------------ 1998 1997 1996 ------ ---- ---- Current: Federal............................................. $ 821 $424 $346 State and local..................................... 60 10 25 Foreign............................................. 99 26 27 ------ ---- ---- 980 460 398 ------ ---- ---- Deferred: Federal............................................. (178) (26) 66 State and local..................................... (8) 9 6 Foreign............................................. (54) 25 12 ------ ---- ---- (240) 8 84 ------ ---- ---- Provision for income taxes............................ $ 740 $468 $482 ====== ==== ====
21 NOTES TO 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, -------------------- 1998 1997 1996 ------ ------ ---- Tax provision at U.S. statutory rate................ $ 730 $ 585 $492 Tax effect of: Tax exempt investment income...................... (40) (30) (18) Goodwill.......................................... 5 9 -- Surplus tax....................................... 18 (40) 38 State and local income taxes...................... 31 15 23 Foreign operations................................ 12 7 (7) Tax credits....................................... (25) (15) (15) Prior year taxes.................................. 4 (2) (46) Sale of subsidiaries.............................. (19) (41) -- Other, net........................................ 24 (20) 15 ------ ------ ---- Provision for income taxes.......................... $ 740 $ 468 $482 ====== ====== ==== Deferred income taxes represent the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax liabilities consisted of the following: December 31, -------------- 1998 1997 ------ ------ Deferred income tax assets: Policyholder liabilities and receivables.......... $3,239 $3,174 Net operating losses.............................. 22 33 Employee benefits................................. 174 187 Non-deductible liabilities........................ 441 162 Other, net........................................ 158 223 ------ ------ 4,034 3,779 Less: Valuation allowance......................... 21 24 ------ ------ 4,013 3,755 ------ ------ Deferred income tax liabilities: Investments....................................... 1,417 1,118 Deferred policy acquisition costs................. 1,774 1,890 Net unrealized investment gains................... 864 1,119 Other, net........................................ 18 100 ------ ------ 4,073 4,227 ------ ------ Net deferred income tax liability................... $ (60) $ (472) ====== ======
Foreign net operating loss carryforwards generated a deferred income tax benefit of $21. The Company has recorded a valuation allowance related to these tax benefits. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for foreign net operating loss carryforwards will not be realized. The benefit will be recognized at such time management believes that it is more likely than not that the portion of the deferred income tax asset is realizable. 22 NOTES TO FINANCIAL STATEMENTS--(Continued) The sources of deferred income tax expense (benefit) and their tax effects were as follows:
Years ended December 31, ----------------- 1998 1997 1996 ----- ---- ---- Policyholder liabilities and receivables............... $ (65) $(93) $ 27 Net operating losses................................... 11 5 (19) Investments............................................ 230 245 (6) Deferred policy acquisition costs...................... (116) (51) 55 Employee benefits...................................... 13 (40) (4) Non-deductible liabilities............................. (279) (66) (24) Change in valuation allowances......................... (3) 10 4 Other, net............................................. (31) (2) 51 ----- ---- ---- $(240) $ 8 $ 84 ===== ==== ====
The Company has been audited by the Internal Revenue Service for the years through and including 1993. The Company is being audited for the years 1994, 1995 and 1996. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 23 NOTES TO FINANCIAL STATEMENTS--(Continued) 6. EMPLOYEE BENEFIT PLANS Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of MetLife and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company.
December 31, ------------------------------------ Pension Benefits Other Benefits ------------------ ---------------- 1998 1997 1998 1997 -------- -------- ------- ------- Change in projected benefit obligation: Projected benefit obligation at beginning of year................................. $ 3,523 $ 3,268 $ 1,763 $ 1,773 Service cost............................. 88 73 31 30 Interest cost............................ 254 244 114 122 Actuarial gain........................... 205 160 (74) (57) Divestitures, curtailments and terminations............................ 24 (9) (13) 2 Change in benefits....................... 12 6 -- (2) Benefits paid............................ (245) (219) (113) (105) -------- -------- ------- ------- Projected benefit obligation at end of year.................................... 3,861 3,523 1,708 1,763 -------- -------- ------- ------- Change in plan assets: Contract value of plan assets at beginning of year....................... 3,982 3,628 1,004 897 Actual return on plan assets............. 671 566 171 128 Employer contribution.................... 15 7 61 84 Benefits paid............................ (245) (219) (113) (105) Other payments........................... (100) -- -- -- -------- -------- ------- ------- Contract value of plan assets at end of year.................................... 4,323 3,982 1,123 1,004 -------- -------- ------- ------- Over (under) funded...................... 462 459 (585) (759) Unrecognized net asset at transition..... (95) (140) -- -- Unrecognized net actuarial gains......... (81) (109) (322) (171) Unrecognized prior service cost.......... 144 150 (3) (2) -------- -------- ------- ------- Prepaid (accrued) benefit cost........... $ 430 $ 360 $ (910) $ (932) ======== ======== ======= ======= Qualified plan prepaid pension cost...... $ 546 $ 516 $ -- $ -- Non-qualified plan accrued pension cost.. (116) (156) -- -- -------- -------- ------- ------- Prepaid benefit cost..................... $ 430 $ 360 $ -- $ -- ======== ======== ======= =======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Qualified Plan Non-Qualified Plan Total --------------- ------------------ ------------- 1998 1997 1998 1997 1998 1997 ------- ------- --------- --------- ------ ------ Aggregate projected benefit obligation................ $ 3,638 $ 3,170 $ 223 $ 353 $3,861 $3,523 Aggregate contract value of plan assets (principally Company contracts)........ 4,323 3,831 -- 151 4,323 3,982 ------- ------- --------- --------- ------ ------ Over (under) funded........ $ 685 $ 661 $ (223) $ (202) $ 462 $ 459 ======= ======= ========= ========= ====== ======
24 NOTES TO FINANCIAL STATEMENTS--(Continued) The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
Pension Benefits Other Benefits --------------------- -------------------- Weighted average assumptions as of December 31, 1998 1997 1998 1997 - ---------------------------------- --------- ----------- -------- ----------- Discount rate...................... 7%-7.25% 7.25%-7.75% 7% 7.25%-7.75% Expected return on plan assets..... 8.5% 8.75% 7.25%-9% 8.75% Rate of compensation increase...... 4.5%-8.5% 4.5%-8.5% n/a n/a
The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was 6.5% per year for pre- Medicare eligible claims and 6% for Medicare eligible claims in 1998. The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was generally 9% in 1997, gradually decreasing to 5.25% over 5 years. 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 One Percent Percent Increase Decrease -------- -------- Effect on total of service and interest cost components........................................... $ 16 $ 18 Effect on accumulated postretirement benefit obligation........................................... $124 $183
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ---------------- 1998 1997 1996 1998 1997 1996 ----- ----- ----- ---- ---- ---- Service cost............................ $ 88 $ 73 $ 77 $ 31 $ 30 $ 41 Interest cost........................... 254 244 232 114 122 127 Expected return on plan assets.......... (330) (318) (273) (79) (66) (58) Amortization of prior actuarial (gain) loss................................... (11) (5) (12) (12) (4) 2 Curtailment (credit) cost............... (10) -- -- 4 -- -- ----- ----- ----- ---- ---- ---- Net periodic benefit cost (credit)...... $ (9) $ (6) $ 24 $ 58 $ 82 $112 ===== ===== ===== ==== ==== ====
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 $43, $44 and $42 for the years ended December 31, 1998, 1997 and 1996, respectively. 7. 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 ------ -------- -------- 1999...................................... $1,213 $10 $126 2000...................................... 1,150 11 109 2001...................................... 1,052 11 94 2002...................................... 942 10 72 2003...................................... 787 9 51 Thereafter................................ 2,636 35 242
25 NOTES TO FINANCIAL STATEMENTS--(Continued) 8. DEBT Debt consisted of the following:
December 31, -------------- 1998 1997 ------- ------ MetLife: 6.300% surplus notes due 2003.................................. $ 397 $ 397 7.000% surplus notes due 2005.................................. 249 249 7.700% surplus notes due 2015.................................. 198 198 7.450% surplus notes due 2023.................................. 296 296 7.875% surplus notes due 2024.................................. 148 148 7.800% surplus notes due 2025.................................. 248 248 Other.......................................................... 207 436 ------- ------ 1,743 1,972 ------- ------ Investment Related: Exchangeable subordinated debt, interest based on LIBOR plus factors, due 1999........................................... 212 374 Exchangeable subordinated debt, interest rates ranging from 4.90% to 6.18%, due 2001 and 2002.................................................... 371 -- ------- ------ 583 374 ------- ------ Total MetLife.................................................... 2,326 2,346 ------- ------ Nvest: 7.060% senior notes due 2003................................... 110 110 7.290% senior notes due 2007................................... 160 160 ------- ------ 270 270 ------- ------ Other Companies: Fixed rate notes, interest rates ranging from 6.96% to 8.51%, maturity dates ranging from 1999 to 2008 179 -- Floating rate notes, interest based on LIBOR plus factors...... -- 146 Other.......................................................... 128 122 ------- ------ 307 268 ------- ------ Total long-term debt............................................. 2,903 2,884 Total short-term debt............................................ 3,585 4,587 ------- ------ $ 6,488 $7,471 ======= ======
Short-term debt consisted of commercial paper with a weighted average interest rate of 5.31% and 5.75% and a weighted average maturity of 44 and 71 days as of December 31, 1998 and 1997, respectively. The Company maintains an unsecured credit facility of $2,000 under which bank loans and other short-term debt are drawn. This facility is maintained for general corporate purposes and to provide additional support to the Company's commercial paper program. At December 31, 1998 there were no outstanding borrowings under the 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 Superintendent. Subject to the prior approval of the Superintendent, the 7.45% surplus notes may be redeemed, in whole or in part, at the election of the Company at any time on or after November 1, 2003. The exchangeable subordinated debt is payable in cash or by the delivery of the underlying common stock collateral owned by the Company. The value ascribed to the common stock at the date of delivery is the greater of the market value at the date of the debt issuance or date of delivery. The debt provides for additional interest if the market value of the common stock appreciates above certain levels at the date of delivery as compared with the market value at the date of issuance. 26 NOTES TO FINANCIAL STATEMENTS--(Continued) The aggregate maturities of long-term debt are $413 in 1999, $45 in 2000, $191 in 2001, $221 in 2002, $527 in 2003 and $1,518 thereafter. Interest expense related to the Company's outstanding indebtedness was $333, $344 and $311, for the years ended December 31, 1998, 1997 and 1996, respectively. 9. COMMITMENTS AND CONTINGENCIES Litigation The Company and certain of its subsidiaries are currently defendants in approximately 400 lawsuits, including over 40 putative or certified class action lawsuits, raising allegations of improper marketing and sales of individual life insurance or annuities (hereafter "sales practices claims"). Two of these putative class actions are filed in Canada and the remainder are filed in the United States. These cases are brought by or on behalf of policyholders and others and allege, among other claims, that individual life insurance policies were improperly sold in replacement transactions or with inadequate or inaccurate disclosure concerning the period for which premiums would be payable, or were misleadingly sold as savings or retirement plans. The classes proposed in the pending class actions are defined broadly enough, in the aggregate, to include a substantial number of active and lapsed policyholders who purchased individual life insurance policies from the Company during the 1980's and 1990's. In California, Ohio and West Virginia, courts have certified or deemed certifiable classes on behalf of policyholders in those states who allegedly did not receive proper notice of replacement. A Federal Court in Massachusetts has certified a mandatory class involving certain former policyholders of New England Mutual Life Insurance Company which merged into the Company in 1996. The United States Court of Appeals remanded the case to the trial court for further consideration. A number of the sales practices claims pending in federal courts have been consolidated as a multidistrict proceeding for pre-trial purposes in the United States District Court for the Western District of Pennsylvania and, as to former New England Mutual Life Insurance Company policyholders, in the United States District Court in Massachusetts. In another case, a New York federal court has certified or conditionally certified some subclasses of purchasers of the Company's policies and annuity contracts outside the United States. While most of these cases are in the early stages of litigation, they seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sale of individual life insurance may be commenced in the future. Regulatory authorities in a small number of states, including both insurance departments and attorneys general, have ongoing investigations of the Company's sales of individual life insurance or annuities, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures as to the period for which premiums would be payable. Over the past several years, a number of investigations by other regulatory authorities have been resolved by the Company for monetary payments and certain other relief. The Company 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. The Company 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 the Company's employees during the period from the 1920's through approximately the 1950's and alleging that the Company 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 the Company have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While the Company believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect thereof, most of the cases have been resolved by settlements. The Company intends to continue to exercise its best judgment regarding settlement or defense of such cases. The number of such cases that may be brought or the aggregate amount of any liability that may ultimately be incurred by the Company is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously resolved dispute with its primary, umbrella and first level excess liability insurance carriers. The Company is presently in litigation with several of its excess liability insurers regarding amounts payable under the Company's policies with respect to coverage for these claims. 27 NOTES TO FINANCIAL STATEMENTS--(Continued) The Company believes that the claims and the amount of damages asserted in the aforementioned sales practices and asbestos personal injury litigations are without merit, and it intends to continue to defend its interests vigorously. During 1998, the Company obtained certain excess reinsurance and insurance policies providing coverage for risks associated primarily with sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. In 1998, the Company recorded a charge of $1,715, included in other expenses, for related insurance and reinsurance premiums and for potential liabilities related to certain of these claims. Various litigation, claims and assessments against the Company, in addition to the aforementioned and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including in connection with its activities as an insurer, employer, investor and taxpayer. Further, state insurance regulatory authorities and other authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. In certain of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings, it is the opinion of the Company's management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in the Company's consolidated financial statements, are not likely to have a material adverse effect on the Company's financial position. However, given the large and/or indeterminable 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 in particular quarterly or annual periods. Year 2000 The Year 2000 issue is the result of the widespread use of computer programs written using two digits (rather than four) to define the applicable year. Such programming was a common industry practice designed to avoid the significant costs associated with additional mainframe capacity necessary to accommodate a four-digit year field. As a result, any of the Company's computer systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failures or miscalculations. The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 issue and has developed and implemented a plan to resolve the issue. The Company currently believes that, with modifications to existing software and converting to new software, the Year 2000 issue will not pose significant operational problems for the Company's computer systems. However, if such modifications and conversions are not completed on a timely basis, the Year 2000 issue may have a material impact on the operations of the Company. Furthermore, even if the Company completes such modifications and conversions on a timely basis, there can be no assurance that the failure by vendors or other third parties to solve the Year 2000 issue will not have a material impact on the operations of the Company. The Company estimates the total cost to resolve its Year 2000 problem to be approximately $210 (unaudited) of which approximately $149 has been incurred through December 31, 1998. Guaranty Funds Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Recent regulatory actions against certain large life insurers encountering financial difficulty have prompted various state insurance guaranty associations to begin assessing life insurance companies for the deemed losses. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments. A large part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the Company's premium taxes. The Company paid guaranty fund assessments of $35, $23 and $25 in 1998, 1997 and 1996, respectively, of which $24, $20 and $19 were estimated to be credited against future premium taxes. 28 NOTES TO FINANCIAL STATEMENTS--(Continued) 10. OTHER EXPENSES Other expenses were comprised of the following:
Years ended December 31, ------------------------ 1998 1997 1996 ------- ------ ------- Compensation.................................. $ 2,478 $2,072 $ 1,813 Commissions................................... 902 766 722 Interest and debt issue costs................. 379 453 311 Amortization of policy acquisition costs...... 587 771 633 Capitalization of policy acquisition costs.... (1,025) (1,000) (1,028) Rent, net of sublease......................... 155 179 183 Minority interest............................. 67 56 30 Restructuring charge.......................... 81 -- -- Other......................................... 4,494 2,637 2,091 ------- ------ ------- $ 8,118 $5,934 $ 4,755 ======= ====== =======
11. DISCONTINUED OPERATIONS The 1996 loss from discontinued operations resulted from the finalization of the transfer of certain group medical contracts in connection with the Company's disposal of its group medical benefits business during 1995. The components of discontinued operations for the year ended December 31, 1996 were as follows: Loss from discontinued operations, net of income tax benefit of $18........................................ $ 52 Loss on disposal of discontinued operations, net of income tax benefit of $11........................................ 19 ---- Loss from discontinued operations................................. $ 71 ====
12. CONSOLIDATED CASH FLOW INFORMATION During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial financing company) and substantially all of its Canadian and Mexican insurance operations, which resulted in realized investment gains of $531. During 1997, the Company sold its United Kingdom insurance operations, which resulted in a realized investment gain of $139. Such sales caused a reduction in assets by $10,663 and $4,342 and liabilities by $3,691 and $4,207 in 1998 and 1997, respectively. In 1997, the Company also acquired assets of $3,777 and assumed liabilities of $3,347, through the acquisition of certain insurance and noninsurance companies. The aggregate purchase prices were allocated to the assets and liabilities acquired based upon their estimated fair values. Real estate of $69, $151 and $189 was acquired in satisfaction of debt for the years ended December 31, 1998, 1997 and 1996, respectively. 13. 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. 29 NOTES TO FINANCIAL STATEMENTS--(Continued) Amounts related to the Company's financial instruments were as follows:
Estimated Notional Carrying Fair Amount Value Value December 31, 1998 -------- -------- --------- Assets: Fixed maturities.................................. $ $100,767 $100,767 Equity securities................................. 2,340 2,340 Mortgage loans on real estate..................... 16,827 17,793 Policy loans...................................... 5,600 6,143 Short-term investments............................ 1,369 1,369 Cash and cash equivalents......................... 3,301 3,301 Mortgage loan commitments......................... 472 -- 14 Liabilities: Policyholder account balances..................... 37,088 37,304 Short-term debt................................... 3,585 3,585 Long-term debt.................................... 2,903 2,995 Estimated Notional Carrying Fair Amount Value Value December 31, 1997 -------- -------- --------- Assets: Fixed maturities.................................. $ $ 92,630 $ 92,630 Equity securities................................. 4,250 4,250 Mortgage loans on real estate..................... 20,193 21,084 Policy loans...................................... 5,846 6,110 Short-term investments............................ 679 679 Cash and cash equivalents......................... 2,911 2,911 Mortgage loan commitments......................... 334 -- 4 Liabilities: Policyholder account balances..................... 37,034 37,265 Short-term debt................................... 4,587 4,587 Long-term debt.................................... 2,884 2,939
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 and mortgage loan commitments are estimated by discounting expected future cash flows using current interest rates for similar loans with similar credit risk. 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. 30 NOTES TO FINANCIAL STATEMENTS--(Continued) 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 The fair values of short-term and long-term debt 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. 14. STATUTORY FINANCIAL INFORMATION The reconciliation of MetLife's statutory surplus and net change in statutory surplus, determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities, with equity and net income determined in conformity with generally accepted accounting principles were as follows:
December 31, ---------------- 1998 1997 ------- ------- Statutory surplus..................................... $ 7,388 $ 7,378 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... (6,830) (6,807) Deferred policy acquisition costs................... 6,560 6,438 Deferred income taxes............................... 295 (242) Valuation of investments............................ 3,981 3,474 Statutory asset valuation reserves.................. 3,381 3,854 Statutory interest maintenance reserve.............. 1,486 1,261 Surplus notes....................................... (1,595) (1,555) Other, net.......................................... 201 206 ------- ------- Equity................................................ $14,867 $14,007 ======= ======= Years ended December 31, ----------------------- 1998 1997 1996 ------- ------- ----- Net change in statutory surplus....................... $ 10 $ 227 $ 366 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... 127 (38) (165) Deferred policy acquisition costs................... 224 149 391 Deferred income taxes............................... 234 62 (74) Valuation of investments............................ 1,158 (387) (84) Statutory asset valuation reserves.................. (461) 1,136 599 Statutory interest maintenance reserve.............. 312 53 19 Other, net.......................................... (261) 1 (199) ------- ------- ----- Net income............................................ $ 1,343 $ 1,203 $ 853 ======= ======= =====
31 NOTES TO FINANCIAL STATEMENTS--(Continued) 15. SEPARATE ACCOUNTS Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $39,490 and $32,893 at December 31, 1998 and 1997, respectively, in which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $18,578 and $15,445 at December 31, 1998 and 1997, respectively, in which MetLife contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $413, $287 and $216 in 1998, 1997 and 1996, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rate credited on these contracts was 7% at December 31, 1998. The assets that support these liabilities were comprised of $16,639 in fixed maturities as of December 31, 1998. 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. 16. OTHER COMPREHENSIVE INCOME The following tables set forth the reclassification adjustments required for the years ended December 31, 1998, 1997 and 1996 to avoid double-counting in comprehensive income items that are included as part of net income for the current year that have been reported as a part of other comprehensive income in the current or prior year:
1998 1997 1996 ------- ------- ------- Holding gains (losses) on investments arising during the year........................................... $ 1,556 $ 4,479 $(1,494) Income tax effect of holding gains or losses........ (646) (1,698) 550 Transfer of securities from held-to-maturity to available-for-sale: Holding gains on investments...................... -- 198 -- Income tax effect................................. -- (75) -- Reclassification adjustments: Realized holding gains included in current year net income....................................... (2,043) (868) (367) Amortization of premium and discount on investments...................................... (411) (406) (631) Realized holding gains (losses) allocated to other policyholder amounts............................. 608 231 227 Income tax effect................................. 766 394 285 Allocation of holding (gains) losses on investments relating to other policyholder amounts............................... (322) (2,231) 1,286 Income tax effect of allocation of holding gains and losses to other policyholder amounts............................... 134 846 (474) ------- ------- ------- Net unrealized investment (losses) gains............ (358) 870 (618) ------- ------- ------- Foreign currency translation adjustments arising during the year.................................... (115) (46) (6) Reclassification adjustment for sale of investment in foreign operation............................... 2 (3) -- ------- ------- ------- Foreign currency translation adjustment............. (113) (49) (6) ------- ------- ------- Minimum pension liability adjustment................ (12) -- -- ------- ------- ------- Other comprehensive (loss) income................... $ (483) $ 821 $ (624) ======= ======= =======
32 NOTES TO FINANCIAL STATEMENTS--(Continued) 17. RESTRUCTURING During 1998, the Company restructured headquarters operations and consolidated certain agencies and other operations. The impacts of these actions on a segment basis are as follows:
Severance and Related Facility Number of Termination Consolidation Positions Costs Costs Total --------- ----------- ------------- ----- Individual............................ 488 $15 $16 $31 Institutional......................... 320 8 2 10 Auto & Home........................... 357 4 -- 4 Corporate and Other................... 1,102 30 6 36 ----- --- --- --- 2,267 $57 $24 $81 ===== === === ===
These programs are expected to be completed by the third quarter of 1999. As of December 31, 1998, $28 of these restructuring costs had been paid and the unpaid balance was $53. 18. BUSINESS SEGMENT INFORMATION The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe and Asia. The Company's business is divided into six segments: Individual, Institutional, Auto & Home, International, Asset Management and Corporate. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care and dental insurance and other insurance products and services. Auto & Home provides insurance coverages including private passenger automobile, homeowners and personnel excess liability insurance. 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. Asset Management provides a broad variety of asset management products and services to individuals and institutions such as mutual funds for savings and retirement needs, commercial real estate advisory and management services, and institutional and retail investment management. Through its Corporate segment, the Company reports items that are not allocated to any of the business segments. Set forth in the tables below is certain financial information with respect to the Company's operating segments for the years ended December 31, 1998, 1997 and 1996. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company has divested operations that did not meet targeted rates of return, including its medical insurance operations, commercial leasing business, and insurance operations in the United Kingdom and substantially all of its Canadian operations. 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 to the Corporate segment. 33 NOTES TO FINANCIAL STATEMENTS--(Continued)
Auto At or for the year ended & Asset Consolidation/ December 31, 1998 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,381 $ 5,101 $1,403 $ 618 $ -- $ -- $ -- $11,503 Universal life and investment-type product policy fees 817 475 -- 68 -- -- -- 1,360 Net investment income... 5,501 3,864 81 343 76 808 (445) 10,228 Other revenues.......... 523 574 36 33 814 35 (50) 1,965 Net realized investment gains.................. 663 552 122 117 -- 683 (116) 2,021 Policyholder benefits and claims............. 4,659 6,373 869 597 -- (10) -- 12,488 Interest credited to policyholder account balances............... 1,443 1,199 -- 89 -- -- -- 2,731 Policyholder dividends.. 1,447 142 -- 64 -- -- -- 1,653 Other expenses.......... 2,609 1,592 546 352 799 2,632 (412) 8,118 Income before provision for income taxes....... 1,727 1,260 227 77 91 (1,096) (199) 2,087 Income after provision for income taxes....... 1,091 833 161 56 47 (675) (166) 1,347 Total assets............ 103,974 88,356 2,771 3,432 1,165 20,652 (5,004) 215,346 Deferred policy acquisition costs...... 6,255 43 57 205 -- -- -- 6,560 Separate account assets. 23,038 35,286 -- 26 -- -- -- 58,350 Policyholder liabilities............ 71,989 49,045 1,477 2,043 -- 1 (352) 124,203 Separate account liabilities............ $23,013 $35,029 $ -- $ 26 $ -- $ -- $ -- $58,068
Auto At or for the year ended & Asset Consolidation/ December 31, 1997 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $11,278 Universal life and investment-type product policy fees............ 855 426 -- 137 -- -- -- 1,418 Net investment income... 4,754 3,754 71 504 87 895 (574) 9,491 Other revenues.......... 338 357 25 54 682 19 16 1,491 Net realized investment gains.................. 356 45 9 142 -- 326 (91) 787 Policyholder benefits and claims............. 4,597 5,934 834 869 -- -- -- 12,234 Interest credited to policyholder account balances............... 1,428 1,319 -- 137 -- -- -- 2,884 Policyholder dividends.. 1,340 305 -- 97 -- -- -- 1,742 Other expenses.......... 2,384 1,178 520 497 679 1,118 (442) 5,934 Income before provision for income taxes....... 881 535 105 145 90 122 (207) 1,671 Income after provision for income taxes....... 603 339 74 126 52 210 (201) 1,203 Total assets............ 95,990 83,481 2,542 7,412 1,147 18,494 (6,290) 202,776 Deferred policy acquisition costs...... 5,912 40 56 428 -- -- -- 6,436 Separate account assets. 17,368 30,732 -- 520 -- -- -- 48,620 Policyholder liabilities............ 70,686 49,550 1,509 5,615 -- 1 (3) 127,358 Separate account liabilities............ $17,345 $30,473 $ -- $ 520 $ -- $ -- $ -- $48,338
34 NOTES TO FINANCIAL STATEMENTS--(Continued)
Auto At or for the year ended & Asset Consolidation/ December 31, 1996 Individual Institutional Home International Management Corporate Elimination Total - ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- ------- Premiums................ $ 4,559 $ 4,676 $1,316 $ 794 $-- $ -- $ -- $11,345 Universal life and investment-type product policy fees............ 729 375 -- 139 -- -- -- 1,243 Net investment income... 4,604 3,446 71 523 60 761 (487) 8,978 Other revenues.......... 74 475 26 37 495 89 50 1,246 Net realized investment gains (losses) ....... 282 28 24 13 -- (112) (4) 231 Policyholder benefits and claims............. 4,690 6,006 891 700 -- (1) -- 12,286 Interest credited to policyholder account balances 1,354 1,358 -- 156 -- -- -- 2,868 Policyholder dividends.. 1,333 284 -- 111 -- -- -- 1,728 Other expenses.......... 2,019 1,008 490 418 498 706 (384) 4,755 Income before provision for income taxes....... 852 344 56 121 57 33 (57) 1,406 Income after provision for income taxes....... 511 217 34 86 47 85 (56) 924 Total assets............ 86,042 75,872 2,801 11,714 901 18,900 (6,954) 189,276 Deferred policy acquisition costs...... 6,495 29 56 647 -- -- -- 7,227 Separate account assets. 12,403 27,715 -- 3,645 -- -- -- 43,763 Policyholder liabilities............ 67,220 48,253 1,562 6,045 -- 1 (55) 123,026 Separate account liabilities............ $12,386 $27,368 $ -- $3,645 $-- $ -- $ -- $43,399
The individual segment includes an equity ownership interest in Nvest Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has been included within the asset management segment due to the types of products and strategies employed by the entity. The individual segment's equity in earnings of Nvest, which is included in net investment income, was $49, $45 and $43 for the years ended December 31, 1998, 1997 and 1996, respectively. The investment in Nvest was $252, $216 and $152 at December 31, 1998, 1997 and 1996, respectively. Net investment income and net realized investment gains are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. The consolidation/elimination column includes the elimination of all intersegment amounts and the individual segment's ownership interest in Nvest. The principal component of the intersegment amounts related to intersegment loans, which bore interest at rates commensurate with related borrowings. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $25,643, $22,664 and $21,762 for the years ended December 31, 1998, 1997 and 1996, respectively, which represented 96%, 93% and 94%, respectively, of consolidated revenues. 35 PART II CONTENTS OF REGISTRATION STATEMENT REPRESENTATION WITH RESPECT TO FEES AND CHARGES Metropolitan Life represents that the fees and charges deducted under the Policies offered and sold pursuant to this amended Registration Statement, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred, and the risks assumed by Metropolitan Life under the Policies. Metropolitan Life bases its representation on its assessment of all of the facts and circumstances, including such relevant factors as: the nature and extent of such services, expenses and risks, the need for Metropolitan Life to earn a profit, the degree to which the Policies include innovative features, and regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all policies issued pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectuses contained herein, or any variations therein based on supplements, amendments, endorsements or other riders to such policies or prospectuses, or otherwise. This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. UL2001 Prospectus consisting of 85 pages. UL11 Prospectus consisting of 81 pages. Undertaking to File Reports (filed with the initial filing of this Registration Statement on May 14, 1992.) Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933 (filed with the initial filing of this Registration Statement on May 14, 1992.) Representation with respect to fees and charges. The signatures. Written Consents of the following persons: Company Actuary (filed with Exhibit 6 below). Independent Auditors The following exhibits: 1.A (1) --Resolution of Board of Directors of Metropolitan Life effecting the establishment of Metropolitan Life Separate Account UL................................................. ++++ (2) --Not Applicable (3) --(a) Not Applicable --(b) Form of Selected Broker Agreement..................... ++++ --(c) Schedule of Sales Commissions......................... ++ (4) --Not applicable (5) --(a) (i) Specimen Old Product Flexible Premium Multifunded Life Insurance Policy (including application and any alternate pages as required by state law) with form of riders, if any.................................... ++++ (ii) Specimen New Product Flexible Premium Multifunded Life Insurance Policy (including application and any alternate pages required by state law) with form of riders............................................... * --(b) Riders for Disability Waiver Rider, and Accidental Death Benefit............................................... ++++
II-1 --(c) Riders for Accelerated Death Benefit, Children's Term Insurance Benefit and Spouse Term Insurance Benefit..... ++++ --(d) New York Endorsement for Old Product to Flexible Premium Multifunded Life Insurance Policy............... ++++ --(e) Additional alternate pages for Old Product required by state law................................................... ++++ --(f) Endorsement adding death benefit Option C for Old Product..................................................... ++++ --(g) Form of illustration.................................. + (6) --(a) Charter and By-Laws of Metropolitan Life.............. +++ --(b) Amendment to By-laws.................................. +++ (7) --Not Applicable (8) --Not Applicable (9) --Not Applicable 2. --See Exhibit 1.A(5) above 3. --Opinion and consent of Counsel as to the legality of the securities being registered................................ ++++++ 4. --Not Applicable 5. --Not Applicable 6.a --Opinion and consent of Marian Zeldin relating to the Flexible Premium Multifunded Life Insurance Policies ...... + 8. --Powers of Attorney........................................ +++++ 9. --Method of Computing Exchange pursuant to Rule 6e- 3(T)(b)(13)(v)(B) under the Investment Company Act of 1940 (not required because there will be no cash value adjustments) 11. --Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)................................... ++++ 27. --Financial Data Schedule (inapplicable)
- -------- + Filed herewith. ++ Incorporated by reference from "Distribution of the Policies" in the Prospectus included herein. +++ Incorporated by reference to the filing of Post-Effective Amendment No. 4 to the Registration Statement of Separate Account UL (File No. 33- 57320) on March 1, 1996. ++++ Included in the filing of Post-Effective Amendment No. 5 to this Registration Statement on April 30, 1997. +++++ Included in the filing of Post-Effective Amendment No. 5 to this Registration Statement on April 30, 1997 except for Robert H. Benmosche's power of attorney, which is incorporated by reference to the Registration Statement of Separate Account UL (File No. 333-40161) filed on November 13, 1997, Stewart G. Nagler's power of attorney which is included in the filing of Post-Effective Amendment No. 6 to this Registration Statement on December 23, 1997, and Jon F. Danski's power of attorney, which is incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Separate Account UL (File No. 333-40161) filed on April 2, 1998. ++++++ Included in the filing of Post-Effective Amendment No. 6 to this Registration Statement on December 23, 1997. * Included in the filing of Post-Effective Amendment No. 7 to this Registration Statement on February 27, 1998. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, METROPOLITAN LIFE INSURANCE COMPANY, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of New York, State of New York, this 1st day of April, 1999. METROPOLITAN LIFE INSURANCE COMPANY (Seal) /s/ Gary A. Beller By: _________________________________ Gary A. Beller Senior Executive Vice-President & General Counsel /s/ Cheryl D. Martino Attest: _____________________________ Cheryl D. Martino Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date * Chairman of the - ------------------------------------- Board, President Robert H. Benmosche and Chief Executive Officer and Director (Principal Executive Officer) * Vice-Chairman of the - ------------------------------------- Board and Chief Gerald Clark Investment Officer and Director * Vice-Chairman of the - ------------------------------------- Board and Chief Stewart G. Nagler Financial Officer (Principal Financial Officer) * Senior Vice- - ------------------------------------- President and Jon F. Danski Controller (Principal Accounting Officer) * Director - ------------------------------------- Curtis H. Barnette * Director - ------------------------------------- Joan Ganz Cooney /s/ Christopher P. Nicholas April 1, 1999 *By _________________________________ Christopher P. Nicholas, Esq. Attorney-in-fact II-3 Signature Title Date * Director - ------------------------------------ Burton A. Dole, Jr. * Director - ------------------------------------ James R. Houghton * Director - ------------------------------------ Helene L. Kaplan * Director - ------------------------------------ Charles M. Leighton * Director - ------------------------------------ Allen E. Murray * Director - ------------------------------------ John J. Phelan, Jr. * Director - ------------------------------------ Hugh B. Price * Director - ------------------------------------ Robert G. Schwartz * Director - ------------------------------------ Ruth J. Simmons, Ph.D. Director - ------------------------------------ William C. Steere, Jr. /s/ Christopher P. Nicholas April 1, 1999 *By ________________________________ Christopher P. Nicholas, Esq. Attorney-in-fact II-4 Pursuant to the requirements of the Securities Act of 1933, the Registrant, METROPOLITAN LIFE SEPARATE ACCOUNT UL, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed, on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of New York, State of New York this 1st day of April, 1999. METROPOLITAN LIFE SEPARATE ACCOUNT UL (Registrant) By: METROPOLITAN LIFE INSURANCE COMPANY (Depositor) (Seal) /s/ Gary A. Beller By: _____________________________ Gary A. Beller Senior Executive Vice-President and General Counsel /s/ Cheryl D. Martino Attest: _____________________________ Cheryl D. Martino Assistant Secretary II-5 INDEPENDENT AUDITORS' CONSENT Metropolitan Life Insurance Company: We consent to the use in this Post-Effective Amendment No. 10 to the Registration Statement No. 33-47927 of Metropolitan Life Separate Account UL on Form S-6 of our report dated March 15, 1999 relating to Metropolitan Life Separate Account UL appearing in the Prospectus, which is a part of such Registration Statement and our report dated February 4, 1999, relating to Metropolitan Life Insurance Company also appearing in the Prospectus, and to the reference to us under the heading "Legal, Accounting and Actuarial Matters" in such Prospectus. Deloitte & Touche LLP New York, New York April 1, 1999 II-6 EX-99.1(A)(5)(G) 2 FORM OF PERSONALIZED ILLUSTRATION EXHIBIT 1(a)(5)(g) Hypothetical Illustrations: The following illustrations use hypothetical examples to show the way a Policy works. The illustrations are illustrative only and are not a representation of past or future investment rates of return. Actual investment rates of return will be different from those shown depending on a number of factors including: premium and cash value allocations or transfers among the investment divisions and the Fixed Account made by an owner; different rates of returns of the various Fund portfolios (which would include variations due to differences in annual rates of return, even if the rates of return averaged 0%, 6% and 12% over a period of years). Neither we nor the Fund makes any representation that the hypothetical rates of return shown in these illustrations can be achieved in any one year or sustained over any period of time. Upon request, we will furnish an illustration reflecting the proposed insured's age, sex, the specified face amount or premium amount requested, frequency of planned periodic premium payments, death benefit option selected and any available rider requested. UL2001(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A GUARANTEED INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE (4) SURRENDER VALUE (4) TOTAL DEATH BENEFIT (4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ----------------------- -------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ---------- ---- ---- ---- ---- ---- ----- ------ ------ ------ 1........ 1050 403 442 481 0(5) 0(5) 0(5) 100000 100000 100000 2........ 2153 1029 1140 1256 0(5) 0(5) 0(5) 100000 100000 100000 3........ 3310 1635 1857 2099 369 591 833 100000 100000 100000 4........ 4526 2219 2594 3017 1094 1469 1891 100000 100000 100000 5........ 5802 2783 3351 4017 1798 2367 3032 100000 100000 100000 6........ 7142 3322 4125 5104 2478 3281 4259 100000 100000 100000 7........ 8549 3837 4917 6287 3077 4158 5527 100000 100000 100000 8........ 10027 4327 5728 7576 3652 5053 6901 100000 100000 100000 9........ 11578 4791 6556 8981 4200 5965 8390 100000 100000 100000 10....... 13207 5227 7400 10513 4721 6894 10006 100000 100000 100000 15....... 22657 6932 11827 20532 6848 11742 20448 100000 100000 100000 20....... 34719 7567 16377 36177 7567 16377 36177 100000 100000 100000 25....... 50113 6432 20424 61143 6432 20424 61143 100000 100000 100000 40....... 126840 0(5) 9443 272641 0(5) 9443 272641 0(5) 100000 291726(6) 45....... 167685 0(5) 0(5) 440984 0(5) 0(5) 440984 0(5) 0(5) 463033(6) 50....... 219815 0(5) 0(5) 701828 0(5) 0(5) 701828 0(5) 0(5) 736919(6)
- ---------------------------- (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary and the monthly administration charge is $30 per month in the first Policy year and $10 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans ar partial withdrawals. (5) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the earlier Policy years because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. (6) Alternative death benefit applies. UL20001(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B GUARANTEED INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE (4) SURRENDER VALUE (4) TOTAL DEATH BENEFIT (4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ----------------------- ---------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1....... 1050 402 441 480 0(5) 0(5) 0(5) 100000 100000 100000 2....... 2153 1026 1136 1252 0(5) 0(5) 0(5) 100000 100000 100000 3....... 3310 1628 1850 2090 362 584 824 101628 101850 102090 4....... 4526 2208 2581 3000 1082 1455 1875 102208 102581 103000 5....... 5802 2765 3329 3990 1780 2345 3005 102765 103329 103990 6....... 7142 3296 4092 5061 2452 3248 4217 103296 104092 105061 7....... 8549 3801 4870 6223 3041 4110 5464 103801 104870 106223 8....... 10027 4279 5662 7485 3604 4987 6810 104279 105662 107485 9....... 11578 4729 6467 8854 4138 5876 8263 104729 106467 108854 10...... 13207 5149 7283 10338 4643 6777 9831 105149 107283 110338 15...... 22657 6729 11455 19848 6645 11371 19764 106729 111455 119848 20...... 34719 7143 15412 33953 7143 15412 33953 107143 115412 133953 25...... 50113 5671 18173 54463 5671 18173 54463 105671 118173 154463 40...... 126840 0(5) 0(5) 178587 0(5) 0(5) 178587 0(5) 0(5) 278587 45...... 167685 0(5) 0(5) 246947 0(5) 0(5) 246947 0(5) 0(5) 346947 50...... 219815 0(5) 0(5) 328095 0(5) 0(5) 328095 0(5) 0(5) 428095
- ------------------------- (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary and the monthly administration charge is $30 per month in the first Policy year and $10 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans ar partial withdrawals. (5) Zero values indicate termination of insurance coverage except for zero values in the cash surrender value column in the earlier Policy years because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. UL2001(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C GUARANTEED INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE (4) SURRENDER VALUE (4) TOTAL DEATH BENEFIT (4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ----------------------- -------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ---- -------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1....... 1050 402 441 480 0(5) 0(5) 0(5) 100000 100000 100000 2....... 2153 1026 1136 1252 0(5) 0(5) 0(5) 100000 100000 100000 3....... 3310 1628 1850 2090 362 584 824 101628 101850 102090 4....... 4526 2208 2581 3000 1082 1455 1875 102208 102581 103000 5....... 5802 2765 3329 3990 1780 2345 3005 102765 103329 103990 6....... 7142 3296 4092 5061 2452 3248 4217 103296 104092 105061 7....... 8549 3801 4870 6223 3041 4110 5464 103801 104870 106223 8....... 10027 4279 5662 7485 3604 4987 6810 104279 105662 107485 9....... 11578 4729 6467 8854 4138 5876 8263 104729 106467 108854 10...... 13207 5149 7283 10338 4643 6777 9831 105149 107283 110338 15...... 22657 6729 11455 19848 6645 11371 19764 106729 111455 119848 20...... 34719 7143 15412 33953 7143 15412 33953 107143 115412 133953 25...... 50113 5671 18173 54463 5671 18173 54463 105671 118173 154463 40...... 126840 0(5) 0(5) 205605 0(5) 0(5) 205605 0(5) 0(5) 219998(6) 45...... 167685 0(5) 0(5) 333919 0(5) 0(5) 333919 0(5) 0(5) 350615(6) 50...... 219815 0(5) 0(5) 532768 0(5) 0(5) 532768 0(5) 0(5) 559406(6)
- ------------------------ (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary and the monthly administration charge is $30 per month in the first Policy year and $10 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans ar partial withdrawals. (5) Zero values indicate termination of insurance coverage except for zero values in the cash surrender value column in the earlier Policy years because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. (6) Alternative death benefit applies. UL2001(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A CURRENT INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE(4) SURRENDER VALUE(4) TOTAL DEATH BENEFIT(4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ---------------------- -------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ---- -------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1........ 1050 442 482 523 0(5) 0(5) 0(5) 100000 100000 100000 2........ 2153 1159 1276 1398 0(5) 0(5) 0(5) 100000 100000 100000 3........ 3310 1859 2099 2359 593 833 1093 100000 100000 100000 4........ 4526 2543 2952 3412 1417 1827 2286 100000 100000 100000 5........ 5802 3207 3834 4565 2222 2849 3580 100000 100000 100000 6........ 7142 3855 4748 5830 3011 3904 4986 100000 100000 100000 7........ 8549 4483 5692 7216 3723 4932 6456 100000 100000 100000 8........ 10027 5094 6670 8737 4418 5995 8062 100000 100000 100000 9........ 11578 5686 7682 10407 5095 7091 9817 100000 100000 100000 10....... 13207 6261 8732 12243 5755 8225 11737 100000 100000 100000 15....... 22657 8902 14689 24832 8818 14605 24747 100000 100000 100000 20....... 34719 10780 21606 45300 10780 21606 45300 100000 100000 100000 25....... 50113 11334 29263 79062 11334 29263 79062 100000 100000 105943 40....... 126840 0(5) 55449 371726 0(5) 55449 371726 0(5) 100000 397746(6) 45....... 167685 0(5) 63857 612821 0(5) 63857 612821 0(5) 100000 643463(6) 50....... 219815 0(5) 71355 999448 0(5) 71355 999448 0(5) 100000 1049421(6)
- ------------------------ (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary in each of the first 10 Policy years and .05% in subsequent years and the monthly administration charge is $30 per month in the first Policy year and $ 6 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans ar partial withdrawals. (5) Zero values indicate termination of insurance coverage except for zero values in the cash surrender value column in the earlier Policy years, because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. (6) Alternative death benefit applies. UL2001(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B CURRENT INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE(4) SURRENDER VALUE(4) TOTAL DEATH BENEFIT(4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ------------------------ ----------------------- -------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1....... 1050 441 481 522 0(5) 0(5) 0(5) 100000 100000 100000 2....... 2153 1156 1273 1395 0(5) 0(5) 0(5) 100000 100000 100000 3....... 3310 1854 2093 2352 588 827 1086 101854 102093 102352 4....... 4526 2533 2941 3399 1408 1816 2273 102533 102941 103399 5....... 5802 3193 3816 4543 2208 2831 3558 103193 103816 104543 6....... 7142 3834 4721 5796 2990 3877 4952 103834 104721 105796 7....... 8549 4454 5653 7165 3694 4894 6405 104454 105653 107165 8....... 10027 5055 6617 8664 4380 5942 7989 105055 106617 108664 9....... 11578 5637 7612 10306 5046 7021 9715 105637 107612 110306 10...... 13207 6199 8639 12106 5693 8133 11599 106199 108639 112106 15...... 22657 8741 14396 24298 8656 14312 24214 108741 114396 124298 20...... 34719 10422 20818 43524 10422 20818 43524 110422 120818 143524 25...... 50113 10605 27272 73446 10605 27272 73446 110605 127272 173446 40...... 126840 0(5) 34434 306241 0(5) 34434 306241 0(5) 134434 406241 45...... 167685 0(5) 21160 481016 0(5) 21160 481016 0(5) 121160 581016 50...... 219815 0(5) 0(5) 751220 0(5) 0(5) 751220 0(5) 0(5) 851220
- --------------------------- (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, for the minimum death benefit, death benefits under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary in each of the first 10 Policy years and .05% in subsequent years and the monthly administration charge is $30 per monoth in the first Policy year and $ 6 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans ar partial withdrawals. (5) Zero values indicate termination of insurance coverage except for zero values in the cash surrender value column in the earlier Policy years, because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. UL2001(1) MALE ISSUE AGE 35(2) STANDARD NONSMOKER UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C CURRENT INSURANCE POLICY CHARGES(3)
TOTAL CASH TOTAL CASH VALUE(4) SURRENDER VALUE(4) TOTAL DEATH BENEFIT(4) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ------------------------ ----------------------- ------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ---------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1....... 1050 441 481 522 0(5) 0(5) 0(5) 100000 100000 100000 2....... 2153 1156 1273 1395 0(5) 0(5) 0(5) 100000 100000 100000 3....... 3310 1854 2093 2352 588 827 1086 101854 102093 102352 4....... 4526 2533 2941 3399 1408 1816 2273 102533 102941 103399 5....... 5802 3193 3816 4543 2208 2831 3558 103193 103816 104543 6....... 7142 3834 4721 5796 2990 3877 4952 103834 104721 105796 7....... 8549 4454 5653 7165 3694 4894 6405 104454 105653 107165 8....... 10027 5055 6617 8664 4380 5942 7989 105055 106617 108664 9....... 11578 5637 7612 10306 5046 7021 9715 105637 107612 110306 10...... 13207 6199 8639 12106 5693 8133 11599 106199 108639 112106 15...... 22657 8741 14396 24298 8656 14312 24214 108741 114396 124298 20...... 34719 10422 20818 43524 10422 20818 43524 110422 120818 143524 25...... 50113 10605 27272 73446 10605 27272 73446 110605 127272 173446 40...... 126840 0(5) 35415 326393 0(5) 35415 326393 0(5) 133096 349241(6) 45...... 167685 0(5) 21663 538811 0(5) 21663 538811 0(5) 133096 565751(6) 50...... 219815 0(5) 0(5) 879458 0(5) 0(5) 879458 0(5) 0(5) 923430(6)
- ---------------------- (1) Assumes annual planned premium payments of $1,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Illustrations for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments, lower cash values and cash surrender values and, therefore, for the minimum death benefit, death benefits under Option B and Option CI, lower death benefits. (3) The monthly rate for mortality and expense risks is .075% of the cash value in the Separate Account on the monthly anniversary in each of the first 10 Policy years and .05% in subsequent years and the monthly administration charge is $30 per month in the first Policy year and $ 6 per month in the second Policy year and later. (4) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .16% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of:-0.70%, 5.26% and 11.22%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans are partial withdrawals. (5) Zero values indicate termination of insurance coverage except for zero values in the cash surrender value column in the earlier Policy years, because coverage will not terminate since the illustration assumes payment of the premium required for a five year Guaranteed Minimum Death Benefit. (6) Alternative death benefit applies. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A GUARANTEED COST OF TERM INSURANCE CHARGES
TOTAL CASH Premiums TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Accumulated Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical End of at 5% Gross Annual Investment Gross Annual Investment Gross Annual Investment Policy Interest Rates of Return of Rates of Return of Rates of Return of Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ----- ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 474 522 570 0(4) 0(4) 0(4) 100000 100000 100000 2...... 2691 1319 1457 1601 719 857 1001 100000 100000 100000 3...... 4138 2137 2419 2724 1537 1819 2124 100000 100000 100000 4...... 5657 2926 3406 3945 2326 2806 3345 100000 100000 100000 5...... 7252 3684 4418 5274 3184 3918 4774 100000 100000 100000 6...... 8928 4409 5452 6719 3909 4952 6219 100000 100000 100000 7...... 10686 5100 6510 8291 4600 6010 7791 100000 100000 100000 8...... 12533 5754 7589 10001 5354 7189 9601 100000 100000 100000 9...... 14472 6372 8690 11865 5972 8290 11465 100000 100000 100000 10...... 16508 6950 9811 13896 6650 9511 13596 100000 100000 100000 15...... 23822 9216 15721 27268 9116 15621 27168 100000 100000 100000 20...... 43399 10116 21946 48520 10116 21946 48520 100000 100000 100000 25...... 62642 8900 27990 83429 8900 27990 83429 100000 100000 111794 40...... 158550 0(4) 31784 369921 0(4) 31784 369921 0(4) 100000 395815(5) 45...... 209606 0(4) 10283 598266 0(4) 10283 598266 0(4) 100000 628180(5) 50...... 274769 0(4) 0(4) 952494 0(4) 0(4) 952494 0(4) 0(4) 1000118(5)
- ------------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments. lower cash values and cash surrender values and, therefore, benefits under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. (5) Alternative death benefit applies. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B GUARANTEED COST OF TERM INSURANCE CHARGES
TOTAL CASH TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ------------------------ ----------------------- ------------------------ Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 472 520 568 0(4) 0(4) 0(4) 100472 100520 100568 2...... 2691 1314 1451 1595 114 251 395 101314 101451 101595 3...... 4138 2127 2407 2710 1027 1307 1610 102127 102407 102710 4...... 5657 2907 3384 3919 1907 2384 2919 102907 103384 103919 5...... 7252 3654 4381 5229 2654 3381 4229 103654 104381 105229 6...... 8928 4365 5396 6647 3465 4496 5747 104365 105396 106647 7...... 10686 5038 6428 8183 4238 5628 7383 105038 106428 108183 8...... 12533 5672 7475 9844 4972 6775 9144 105672 107475 109844 9...... 14472 6264 8535 11643 5664 7935 11043 106264 108535 111643 10...... 16508 6813 9606 13590 6313 9106 13090 106813 109606 113590 15...... 23822 8851 15053 26043 8751 14953 25943 108851 115053 126043 20...... 43399 9354 20209 44518 9354 20209 44518 109354 120209 144518 25...... 62642 7544 23969 71611 7544 23969 71611 107544 123969 171611 40...... 158550 0(4) 809 248457 0(4) 809 248457 0(4) 100809 348457 45...... 209606 0(4) 0(4) 359514 0(4) 0(4) 359514 0(4) 0(4) 459514 50...... 274769 0(4) 0(4) 511135 0(4) 0(4) 511135 0(4) 0(4) 611135
- -------------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments. lower cash values and cash surrender values and, therefore, benefits under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C GUARANTEED COST OF TERM INSURANCE CHARGES
TOTAL CASH TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ----------------------- ------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ---------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 472 520 568 0(4) 0(4) 0(4) 100472 100520 100568 2...... 2691 1314 1451 1595 414 551 695 101314 101451 101595 3...... 4138 2127 2407 2710 1227 1507 1810 102127 102407 102710 4...... 5657 2907 3384 3919 2107 2584 3119 102907 103384 103919 5...... 7252 3654 4381 5229 2854 3581 4429 103654 104381 105229 6...... 8928 4365 5396 6647 3665 4696 5947 104365 105396 106647 7...... 10686 5038 6428 8183 4338 5728 7483 105038 106428 108183 8...... 12533 5672 7475 9844 5072 6875 9244 105672 107475 109844 9...... 14472 6264 8535 11643 5764 8035 11143 106264 108535 111643 10...... 16508 6813 9606 13590 6413 9206 13190 106813 109606 113590 15...... 23822 8851 15053 26043 8751 14953 25943 108851 115053 126043 20...... 43399 9354 20209 44518 9354 20209 44518 109354 120209 144518 25...... 62642 7544 23969 71611 7544 23969 71611 107544 123969 171611 40...... 158550 0(4) 0(4) 282769 0(4) 0(4) 282769 0(4) 0(4) 302562(5) 45...... 209606 0(4) 0(4) 459048 0(4) 0(4) 459048 0(4) 0(4) 482000(5) 50...... 274769 0(4) 0(4) 732543 0(4) 0(4) 732543 0(4) 0(4) 769170(5)
- -------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments. lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. (5) Alternative death benefit applies. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A CURRENT COST OF TERM INSURANCE CHARGES
TOTAL CASH TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ------------------------- ------------------------ -------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ---------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 598 649 701 0(4) 0(4) 1 100000 100000 100000 2...... 2691 1579 1733 1893 979 1133 1293 100000 100000 100000 3...... 4138 2532 2850 3193 1932 2250 2593 100000 100000 100000 4...... 5657 3472 4017 4628 2872 3417 4028 100000 100000 100000 5...... 7252 4397 5236 6212 3897 4736 5712 100000 100000 100000 6...... 8928 5295 6494 7944 4795 5994 7444 100000 100000 100000 7...... 10686 6179 7809 9857 5679 7309 9357 100000 100000 100000 8...... 12533 7038 9169 11955 6638 8769 11555 100000 100000 100000 9...... 14472 7870 10576 14257 7470 10176 13857 100000 100000 100000 10...... 16508 8677 12032 16785 8377 11732 16485 100000 100000 100000 15...... 23822 12338 20149 33769 12238 20049 33669 100000 100000 100000 20...... 43399 15228 29773 61312 15228 29773 61312 100000 100000 100000 25...... 62642 17003 41042 106074 17003 41042 106074 100000 100000 142139 40...... 158550 4513 89469 477363 4513 89469 477363 100000 100000 510779(5) 45...... 209606 0(4) 115204 774547 0(4) 115204 774547 0(4) 120964 813274(5) 50...... 274769 0(4) 145443 1240566 0(4) 145443 1240566 0(4) 152715 1302595(5)
- ------------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show for the same age and premium payments. lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. (5) Alternative death benefit applies. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B CURRENT COST OF TERM INSURANCE CHARGES
TOTAL CASH TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ----------------------- ----------------------- --------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 597 648 700 0(4) 0(4) 0(4) 100597 100648 100700 2...... 2691 1577 1730 1890 377 530 690 101577 101730 101890 3...... 4138 2527 2844 3186 1427 1744 2086 102527 102844 103186 4...... 5657 3463 4007 4616 2463 3007 3616 103463 104007 104616 5...... 7252 4384 5220 6192 3384 4220 5192 104384 105220 106192 6...... 8928 5275 6469 7913 4375 5569 7013 105275 106469 107913 7...... 10686 6153 7773 9810 5353 6973 9010 106153 107773 109810 8...... 12533 7002 9119 11887 6302 8419 11187 107002 109119 111887 9...... 14472 7823 10508 14160 7223 9908 13560 107823 110508 114160 10...... 16508 8615 11941 16650 8115 1441 16150 108615 111941 116650 15...... 23822 12164 19839 33209 12064 9739 33109 112164 119839 133209 20...... 43399 14827 28904 59383 14827 8904 59383 114827 128904 159383 25...... 62642 16164 38820 100526 16164 8820 100526 116164 138820 200526 40...... 158550 272 59733 420741 272 9733 420741 100272 159733 520741 45...... 209606 0(4) 48263 656859 0(4) 8263 656859 0(4) 148263 756859 50...... 274769 0(4) 11996 1017146 0(4) 1996 1017146 0(4) 111996 1117146
- ---------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments. lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. (5) Alternative death benefit applies. ULII(1) MALE ISSUE AGE 35 STANDARD NONSMOKER UNDERWRITING RISK(2) SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C CURRENT COST OF TERM INSURANCE CHARGES
TOTAL CASH TOTAL CASH VALUE(3) SURRENDER VALUE(3) TOTAL DEATH BENEFIT(3) Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment End of at 5% Rates of Return of Rates of Return of Rates of Return of Policy Interest ---------------------- ---------------------- --------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% - ------ ----------- ---- ---- ---- ---- ---- ---- ------ ------ ------ 1...... 1313 597 648 700 0(4) 0(4) 0(4) 100597 100648 100700 2...... 2691 1577 1730 1890 677 830 990 101577 101730 101890 3...... 4138 2527 2844 3186 1627 1944 2286 102527 102844 103186 4...... 5657 3463 4007 4616 2663 3207 3816 103463 104007 104616 5...... 7252 4384 5220 6192 3584 4420 5392 104384 105220 106192 6...... 8928 5275 6469 7913 4575 5769 7213 105275 106469 107913 7...... 10686 6153 7773 9810 5453 7073 9110 106153 107773 109810 8...... 12533 7002 9119 11887 6402 8519 11287 107002 109119 111887 9...... 14472 7823 10508 14160 7323 10008 13660 107823 110508 114160 10...... 16508 8615 11941 16650 8215 11541 16250 108615 111941 116650 15...... 23822 12164 19839 33209 12064 19739 33109 112164 119839 133209 20...... 43399 14827 28904 59383 14827 28904 59383 114827 128904 159383 25...... 62642 16164 38820 100526 16164 38820 100526 116164 138820 200526 40...... 158550 0(4) 62605 440815 0(4) 62605 440815 0(4) 149226 471673(5) 45...... 209606 0(4) 55590 715811 0(4) 55590 715811 0(4) 149226 751602(5) 50...... 274769 0(4) 16336 1147047 0(4) 16336 1147047 0(4) 149226 1204399(5)
- ---------------------------------------- (1) Assumes annual planned premium payments of $1,250 paid in full at beginning of each Policy year. The values would vary from those shown if the amount of frequency of payments varies. (2) Illustration for an insured in MetLife's standard smoker underwriting risk classification would show, for the same age and premium payments. lower cash values and cash surrender values and, therefore, under Option B and Option CI, lower death benefits. (3) The amounts shown take into account: . deductions from premiums; . the monthly deduction from cash value; . the daily charge to the Fund for investment management services equivalent to an annual rate of .54% of the average daily value of the aggregate net assets of the Fund and .14% for other direct Fund expenses (which represent the simple average of the management fees and direct expenses (including the applicable expense reimbursements), respectively, indicated in the chart under "Fund Investment Management Fees and Direct Expenses" chart in the prospectus). If these fees and expenses were taken into account, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.56%, 4.34% and 10.25%, respectively. The table does not reflect: . Any charges for income taxes against the Separate Account because no such charges are currently made. If any such charges were made, the rates of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. . Any Policy loans or partial withdrawals. (4) Zero values indicate termination of insurance coverage, except for zero values in the cash surrender value column in the first Policy year because coverage will not terminate since the illustration assumes payment of the minimum allowable premium. (5) Alternative death benefit applies. EX-99.6A 3 OPINION AND CONSENT OF MARIAN ZELDIN EXHIBIT 6(a) March 31, 1999 Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Dear Sirs: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 10 to Registration Statement No. 33-47927 on Form S-6 ("Registration Statement") which covers premiums received under the Flexible Premium Multifunded Life Insurance policies (FPMLI) offered by Metropolitan Life Insurance Company ("MLIC") in each State where they have been approved by appropriate State insurance authorities. As a Vice-President and Actuary of MLIC, I have reviewed the FPMLI forms and I am familiar with the Registration Statement and Exhibits thereto. In my opinion the illustrations of FPMLI death benefits, cash values and cash surrender values in Exhibit 1(A)(5)(g) included in the Registration Statement, based on the assumptions stated therein, are consistent with the provisions of the FPMLI forms. The rate structure of each FPMLI form has not been designed so as to make the relationship between premiums and benefits, as shown in these illustrations appear to be correspondingly more favorable to a prospective purchaser of the FPMLI for males age 35, than to prospective purchasers of FPMLI for a male at other ages or for a female. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Legal, Accounting and Actuarial Matters" in the Prospectuses. Very truly yours, /s/ Marian Zeldin ----------------- Marian Zeldin Vice-President and Actuary -----END PRIVACY-ENHANCED MESSAGE-----