485BPOS 1 d485bpos.txt METROPOLITIAN SEPARATE ACCOUNT UL As filed with the Securities and Exchange Commission on April 25, 2002 Registration No. 33-47927 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- Form S-6 POST-EFFECTIVE AMENDMENT No. 13 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. Foley & Lardner 3000 K Street, N.W. Washington, D.C. 20007 ----------------- It is proposed that the filing will become effective (check appropriate box) [_] immediately upon filing pursuant to paragraph (b) [X] on May 1, 2002 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 FUNDS 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 FUNDS 12(a)..................... Cover Page 12(b), 12(e).............. Inapplicable 12(c), 12(d).............. SEPARATE ACCOUNT UL; THE FUNDS
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Items of Form N-8B-2 Captions in Prospectuses ----------- ------------------------ 13(a), 13(b), 13(c), 13(d) SUMMARY; CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT UL; THE FUNDS; 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 FUNDS 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 FUNDS 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 FUNDS 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; DISTRIBUTION OF THE POLICIES 39.................. SUMMARY--METLIFE; SALES AND ADMINISTRATION OF THE POLICIES 40(a)............... Inapplicable 40(b)............... SEPARATE ACCOUNT UL; THE FUNDS; 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 FUNDS; 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 FUNDS 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 This registration statement incorporates by reference the prospectus dated May 1, 2001 for the UL II policies as filed on April 10, 2001 in Post-Effective Amendment No. 12 to the Registration Statement on Form S-6 (File No. 033-47927). PROSPECTUS FOR UL 2001, a Flexible Premium Multifunded Life Insurance Policy Issued by Metropolitan Life Insurance Company May 1, 2002 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 41 different investment divisions of Metropolitan Life Separate Account UL. Each investment division, in turn, invests solely in one of the corresponding fund "Portfolios": Metropolitan Series Fund, Inc. Portfolios: State Street Research Aggressive Growth Janus Growth State Street Research Diversified Neuberger Berman Partners Mid Cap Value State Street Research Investment Trust Scudder Global Equity State Street Research Aurora (formerly T. Rowe Price Large Cap Growth State Street Research Aurora Small Cap T. Rowe Price Small Cap Growth Value) Lehman Brothers(R) Aggregate Bond Index State Street Research Large Cap Value MetLife Stock Index Putnam International Stock MetLife Mid Cap Stock Index Putnam Large Cap Growth Morgan Stanley EAFE(R) Index Harris Oakmark Large Cap Value Russell 2000(R) Index Janus Mid Cap Franklin Templeton Small Cap Growth New England Zenith Fund Portfolios:* Davis Venture Value Salomon Brothers Strategic Bond Loomis Sayles Small Cap Opportunities MFS Investors Trust Salomon Brothers U.S. Government MFS Research Managers State Street Research Bond Income** Harris Oakmark Focused Value (formerly FI Structured Equity Harris Oakmark Mid Cap Value) FI Mid Cap Opportunities Met Investors Series Trust Portfolios: MFS Mid Cap Growth Lord Abbett Bond Debenture*** MFS Research International State Street Research Concentrated PIMCO Total Return International PIMCO Innovation Met/AIM Mid Cap Core Equity Met/AIM Small Cap Growth American Funds Insurance Series Portfolios:**** American Funds Growth American Funds Global Small American Funds Growth-Income Capitalization -------- * The New England Zenith Fund calls these "Series", but this Prospectus calls them "Portfolios." ** On April 29, 2002, the State Street Research Income Portfolio of the Metropolitan Series Fund was merged into the State Street Research Bond Income Portfolio of the New England Zenith Fund. ***On April 29, 2002, the Loomis Sayles High Yield Bond Portfolio of the Metropolitan Series Fund was merged into the Lord Abbett Debenture Portfolio of the Met Investors Series Trust. ****The American Funds Insurance Series calls these "Funds", but this Prospectus calls them "Portfolios." ----------------- Neither the Securities and Exchange Commission ("SEC") nor any state securities authority has approved or disapproved these securities, nor have they determined if this Prospectus is accurate or complete. This Prospectus does not constitute an offering in any jurisdiction where such offering may not lawfully be made. Any representation otherwise is a criminal offense. Interests in the Separate Account, the Fixed Account and the Portfolios are not deposits or obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency or entity or person. We do not authorize any representations about this offering other than as contained in this Prospectus or its supplements or in our authorized supplemental sales material. [SIDEBAR: A word about risk] This Prospectus discusses the risks associated with purchasing the Policy. Separate prospectuses for the Metropolitan Series Fund, Inc., the New England Zenith Fund, the Met Investors Series Trust and the American Funds Insurance Series (each a "Fund") discuss the risks associated with investment in the Portfolios listed above. This Prospectus is not valid unless you also receive or have received current Fund prospectuses. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. [SIDEBAR: How to learn more] Before purchasing a Policy, read the information in this Prospectus and in each Fund prospectus. Keep these prospectuses for future reference. TABLE OF CONTENTS
Page in this Subject Prospectus ------- ---------- Summary................................................................. 2 MetLife................................................................. 11 Separate Account UL..................................................... 13 The Fixed Account....................................................... 13 The Funds............................................................... 14 Issuing a Policy........................................................ 16 Policy Benefits......................................................... 17 Policy Rights........................................................... 24 Payment and Allocation of Premiums...................................... 28 Charges and Deductions.................................................. 30 Federal Tax Matters..................................................... 33 Showing Performance..................................................... 35 Rights We Reserve....................................................... 35 Other Policy Provisions................................................. 36 Sales and Administration of the Policies................................ 37 Voting Rights........................................................... 39 Reports................................................................. 39 Illustration of Policy Benefits......................................... 40 Getting More Information................................................ 40 Legal, Accounting, and Actuarial Matters................................ 41 Management.............................................................. 42 Appendix A: Illustrations of Death Benefits, Cash Values, Surrender Cash Values and Accumulated Premiums....................................... 44 Financial Statements.................................................... A-1
2 Summary This summary gives an overview of the Policy and is qualified by the more detailed information in the balance of this Prospectus and the Policy. Metropolitan Life Insurance Company ("MetLife") issues the Policy. The Policy is designed to meet your changing life insurance needs. In addition to the base Policy, optional insurance benefits may also be added to your coverage. Premiums The Policy allows flexibility in making premium payments. There are certain minimum premium requirements to keep the Policy in force during the first Policy year and, if you wish, to keep the guaranteed minimum death benefit in effect. Other than these minimum premium payment requirements, the Policy will remain in force as long as the cash surrender value is large enough to cover one monthly deduction, regardless of whether or not premium payments have been made. Cash Value Your cash value in the Policy reflects your premium payments, the charges we deduct, interest we credit if you have cash value in our fixed interest account, any investment experience you have in our Separate Account, as well as your loan and withdrawal activity. MetLife doesn't guarantee the investment performance of the Separate Account UL investment divisions and you should consider your risk tolerance before selecting any of these funding options. Transfers and Automated Investment Strategies You may transfer cash value among the funding options, subject to certain limits. You may also choose among five automated investment strategies: the Equity Generator /SM/, the Equalizer /SM/, the Allocator /SM/, the Rebalancer /SM/ and the Index Selector /SM/. Specified Face Amount of Insurance Within certain limits, you may choose your specified face amount of insurance when the Policy is issued. You may also change the amount once every 24 months, subject to our rules and procedures. The Guaranteed Minimum Death Benefit Generally, you may choose, in your Policy application, a period of time during which your Policy will include a guaranteed minimum death benefit. If you choose a guarantee, you will need to pay minimum premium amounts in order to keep it in force. You may later cancel or reduce the length of the guarantee. Death Benefit Options Generally, you have a choice among three options. These range from an amount equal to the specified face amount to an amount equal to the specified face amount plus the policy cash value at the date of death. Surrenders, Partial Withdrawals and Loans Within certain limits, you may take partial withdrawals and loans from the Policy. You may also surrender your Policy for its cash surrender value. 3 Tax Treatment In most cases, you will not pay income taxes on withdrawals or surrenders or at the Final Date of the Policy, until your cumulative withdrawn amounts exceed the cumulative premiums you have paid. If your Policy is a modified endowment contract, you will pay income taxes on loans and withdrawals to the extent of any gains (which is generally the excess of cash value over the premiums paid). In this case, an additional 10% tax may also apply. If the Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increases in cash value that are not due to premium payments may be taxed annually. The death benefit may be subject to Federal and state estate taxes, but your beneficiary will generally not be subject to income tax on the death benefit. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. Table of Charges and Expenses This table shows the charges and expenses that you pay under your Policy. See "Charges and Deductions," below for more information about your Policy's charges:
Amount of Charge or Type of Charge or Expense 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 1.25% of each premium to premiums: payment Total Expense Charge: 5.50% of each premium payment Monthly Deduction from your Policy's cash value Cost of term insurance charges: Amount varies depending on the specifics of your Policy/1/ Administration charge: First Policy year/2/: (a) $20 per month for insureds Age 25 and under (b) $30 per month for insureds Age 26-40 (c) $35 per month for insureds Age 41 and over. Second and later Policy years: $10 per month unless you pay the Required Administrative Premium shown on page 3 of your Policy. If you pay these premiums, the monthly charge will be: (a) $5 per month for a specified face amount of $250,000 or more
4 (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 for Policy years 1 through 10; .05% for Policy years 11 through 15 and .025% after Policy years 15. Underwriting charge: (applies only if you $5 per month for the first request an increase in your specified face twelve months after the amount) month you increase your specified face amount. Charge for optional benefits added by rider: As specified in the form of each rider. Surrender charge on certain transactions: Full surrender or termination of your Policy The lesser of (a) the first year during its 1st year: "Maximum Surrender Charge Premium"/3/ or (b) the amount of premiums you have actually paid Full surrender or termination of your Policy The lesser of (a) the second during its 2nd year: year "Maximum Surrender Charge Premium"/3/ or (b) the amount of all premiums you have actually paid Full surrender or termination of your Policy A declining percentage of the during its 3rd through 15th year: surrender charge at the end of Policy year 2, beginning with 90% during Policy year 3 and declining periodically until it is 0% during Policy years 16 and later./4/ (We also will deduct the amount of any surrender charge remaining for any specified face amount increase, as discussed immediately below.) Full surrender or termination of your Policy An amount of surrender during the 15 years after you have increased charge that we compute on your policy's specified face amount: essentially the same basis as if each such specified face amount increase had been a separate, newly issued UL 2001 Policy/5/
5 Reduction in specified face amount (i.e. A pro-rata portion of the "partial" surrender): surrender charge that would apply to a full surrender/6/ Partial withdrawals of up to 10% of the Policy's cash value/7/ each year: No surrender charge Partial withdrawal amounts in excess of the A pro-rata portion of the 10% free withdrawal limit: surrender charge that would apply to a full surrender/8/ -------- /1/See "Cost of Term Insurance" under "Charges and Deductions" for a more detailed discussion of factors affecting this charge. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. /2/We will deduct any amount of the first year's administration charges that remain unpaid at the time of any full surrender or other termination of your Policy during its first year. /3/The Maximum Surrender Charge Premium will not exceed, in the first Policy year 75%, and in the second Policy year and thereafter 100%, of the amount of the level premium you would need to pay each year for your policy based on the same assumptions as are used to determine the Smoker Federal Guideline Annual Premium for Death Benefit Option A and all applicable riders. These assumptions are discussed under "Charges and Deductions--Surrender Charge." /4/The precise timetable of how this percentage declines over this period is set forth under "Charges and Deductions--Surrender Charge." /5/For this purpose, however, premiums paid after the date you apply for the increase will be assumed to be attributable to the original specified face amount and each specified amount increase in the manner reflected below under "Changes and Deductions--Surrender Charge." /6/If there have been prior face amount increases, we take the reduction in face amount from each increase in reverse chronological order and then from the original specified amount. As we thus cancel each portion of specified face amount, we deduct the amount of any remaining surrender charge associated with that portion. /7/This limit applies as of the date of the requested withdrawal, which is aggregated for this purpose with all previous withdrawals during the same Policy year. /8/The amount deducted would be the same proportion of the full surrender charge as the excess withdrawal bears to the Policy's total cash value. If there have been prior face amount increases, this amount is assumed to represent the surrender charge attributable to the most recent increases in reverse chronological order and then to any remaining surrender charge on the Policy's original specified face amount. Fund Investment Management Fees and Direct Expenses Our affiliate, MetLife Advisers, LLC ("MetLife Advisers"), is the investment adviser for the Metropolitan Series Fund and the New England Zenith Fund. Our affiliate, Met Investors Advisory LLC. ("Met Investors Advisory"), is the investment manager for the Met Investors Series Trust. Capital Research and Management Company ("Capital Research") is the investment adviser for the American Funds Insurance Series. Each of the Funds pays investment management fees to its investment manager or adviser. Each of the Funds also incurs other direct expenses (see the Fund Prospectus and Statement of Additional Information referred to 6 therein for each Fund). You bear indirectly your proportionate share of the fees and expenses for the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The Funds offer various classes of shares, each of which has a different level of expenses and not all of which are available under the Policy. For the Portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust, we offer Class A shares only under the Policy. For the Portfolios of the American Funds Insurance Series, we offer Class 2 shares only under the Policy. Metropolitan Series Fund (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the Metropolitan Series Fund, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios except for the State Street Research Large Cap Value Portfolio, which commenced operations on May 1, 2002 and for which estimates of anticipated fees and expenses for the current year are used. The percentages in the tables are after taking into account the subsidies referred to in footnote (b) that follows the table.
Total Management Other Annual Portfolio Fee Expenses Expenses --------------------------------------------------------------------------- State Street Research Aggressive Growth .71% .06% .77%(a) --------------------------------------------------------------------------- State Street Research Diversified .43% .06% .49%(a) --------------------------------------------------------------------------- State Street Research Investment Trust .48% .05% .53%(a) --------------------------------------------------------------------------- State Street Research Aurora .85% .13% .98% --------------------------------------------------------------------------- State Street Research Large Cap Value .70% .15% .85%(b) --------------------------------------------------------------------------- Putnam International Stock .90% .26% 1.16%(a) --------------------------------------------------------------------------- Putnam Large Cap Growth .80% .20% 1.00%(b) --------------------------------------------------------------------------- Harris Oakmark Large Cap Value .75% .11% .86%(a) --------------------------------------------------------------------------- Janus Mid Cap .67% .07% .74% --------------------------------------------------------------------------- Janus Growth .80% .15% .95%(b) --------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value .69% .12% .81%(a) --------------------------------------------------------------------------- -Scudder Global Equity .62% .18% .80% --------------------------------------------------------------------------- T. Rowe Price Large Cap Growth .63% .13% .76%(a) --------------------------------------------------------------------------- T. Rowe Price Small Cap Growth .52% .09% .61% --------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index .25% .13% .38% --------------------------------------------------------------------------- MetLife Stock Index .25% .06% .31% --------------------------------------------------------------------------- MetLife Mid Cap Stock Index .25% .20% .45%(b) --------------------------------------------------------------------------- Morgan Stanley EAFE(R) Index .30% .45% .75%(b)(c) --------------------------------------------------------------------------- Russell 2000(R) Index .25% .30% .55%(b) --------------------------------------------------------------------------- Franklin Templeton Small Cap Growth .90% .15% 1.05%(b) ---------------------------------------------------------------------------
-------- (a) The Metropolitan Series Fund directed certain of the Portfolios' trades to brokers who paid a portion of the Portfolios' expenses and has entered into 7 arrangements with its custodian whereby credits realized as a result of this practice were used to reduce a portion of its Portfolios' custodian fees. If we included these reductions, Total Annual Expenses would have been: .76% for the State Street Research Aggressive Growth Portfolio, .47% for the State Street Research Diversified Portfolio, .50% for the State Street Research Investment Trust Portfolio, 1.14% for the Putnam International Stock Portfolio, .84% for the Harris Oakmark Large Cap Value Portfolio, .69% for the Neuberger Berman Partners Mid Cap Value Portfolio, and .75% for the T. Rowe Price Large Cap Growth Portfolio. (b) Without subsidies similar to the ones described below, Total Annual Expenses for the year ending December 31, 2002 would have been: 1.12% for the Putnam Large Cap Growth Portfolio, 2.26% for the Janus Growth Portfolio, .52% for the MetLife Mid Cap Stock Index Portfolio, .82% for the Morgan Stanley EAFE Index Portfolio, .56% for the Russell 2000 Index Portfolio and 2.69% for the Franklin Templeton Small Cap Growth Portfolio. Absent the Expense Agreement described below, anticipated Total Annual Expenses for the State Street Research Large Cap Value Portfolio would be 1.56%. MetLife Advisers and the Metropolitan Series Fund have entered into an Expense Agreement under which MetLife Advisers will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses ("Expenses") attributable to the Class A shares of certain Portfolios of the Metropolitan Series Fund, so that annualized Expenses of these Portfolios will not exceed, at any time prior to April 30, 2003, the following percentages: .85% for the State Street Research Large Cap Value Portfolio, 1.00% for the Putnam Large Cap Growth Portfolio, .95% for the Janus Growth Portfolio, .45% for the MetLife Mid Cap Stock Index Portfolio, .75% for the Morgan Stanley EAFE Index Portfolio, .55% for the Russell 2000 Index Portfolio, and 1.05% for the Franklin Templeton Small Cap Growth Portfolio. Under the agreement, if certain conditions are met, the State Street Research Large Cap Value Portfolio, the Janus Growth Portfolio and the Franklin Templeton Small Cap Growth Portfolio may reimburse MetLife Advisers for fees it waived and Expenses it paid if, in the future, actual Expenses of the Portfolios are less than the expense limits. (c) Total Annual Expenses for the Morgan Stanley EAFE Index Portfolio have been restated to reflect the arrangements described above. 8 New England Zenith Fund (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the New England Zenith Fund, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios except for the FI Mid Cap Opportunities Portfolio, which commenced operations on May 1, 2002 and for which estimates of anticipated fees and expenses for the current year are used. The percentages in the tables are after taking into account the subsidies referred to in footnote (b) that follows the table.
Total Management Other Annual Portfolio Fee Expenses Expenses --------------------------------------------------------------- Davis Venture Value .75% .08% .83%(a) --------------------------------------------------------------- Loomis Sayles Small Cap .90% .10% 1.00% --------------------------------------------------------------- MFS Investors Trust .75% .15% .90%(b) --------------------------------------------------------------- MFS Research Managers .75% .15% .90%(b) --------------------------------------------------------------- Harris Oakmark Focused Value .75% .12% .87%(a) --------------------------------------------------------------- Salomon Brothers Strategic Bond Opportunities .65% .19% .84% --------------------------------------------------------------- Salomon Brothers U.S. Government .55% .15% .70%(b) --------------------------------------------------------------- State Street Research Bond Income .40% .09% .49% --------------------------------------------------------------- FI Structured Equity .68% .10% .78%(a) --------------------------------------------------------------- FI Mid Cap Opportunities .80% .15% .95%(b) ---------------------------------------------------------------
-------- (a) Total Annual Expenses do not reflect certain expense reduction due to directed brokerage arrangements. If we included these reductions, Total Annual Expenses would have been: .82% for the Davis Venture Value Portfolio, .84% for the Harris Oakmark Focused Value Portfolio and .74% for the FI Structured Equity Portfolio. (b) Without subsidies similar to the ones described below, Total Annual Expenses for the year ending December 31, 2001 would have been: 1.37% for the MFS Investors Trust Portfolio, .73% for the Salomon Brothers U.S. Government Portfolio and 1.06% for the MFS Research Managers Portfolio. Absent the Expense Agreement described below, the anticipated Total Annual Expenses for the FI Mid Cap Opportunities Portfolio would be 1.30% MetLife Advisers and the Zenith Fund have entered into an Expense Agreement under which MetLife Advisers will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses) ("Expenses") attributable to the Class A shares of certain Portfolios of the Zenith Fund, so that annualized Expenses of these Portfolios will not exceed, at any time prior to April 30, 2003, the following percentages: .90% per annum of the average net assets for the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio, .70% per annum for the Salomon Brothers U.S. Government Portfolio and .95% for the FI MidCap Opportunities Portfolio. Under the agreement, if certain conditions are met, a Portfolio may reimburse MetLife Advisers for fees it waived or Expenses it paid, if in the future, actual Expenses of the Portfolio are less than its expense limit. 9 Met Investors Series Trust (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the Met Investors Series Trust, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios. The percentages in the tables are after taking into account the subsidies referred to in footnote (a) that follows the table.
Total Management Other Annual Portfolio Fee Expenses Expenses ------------------------------------------------------------------ MFS Mid Cap Growth .00% .80% .80%(a) ------------------------------------------------------------------ MFS Research International .00% 1.00% 1.00%(a) ------------------------------------------------------------------ PIMCO Total Return .00% .65% .65%(a) ------------------------------------------------------------------ PIMCO Innovation .00% 1.10% 1.10%(a) ------------------------------------------------------------------ Lord Abbett Bond Debenture .58% .12% .70%(a)(b) ------------------------------------------------------------------ State Street Research Concentrated International .00% 1.10% 1.10%(a) ------------------------------------------------------------------ Met/AIM Mid Cap Core Equity .00% .90% .90%(a) ------------------------------------------------------------------ Met/AIM Small Cap Growth .00% 1.05% 1.05%(a)
(a) Met Investors Advisory and Met Investors Series Trust have entered into an Expense Limitation Agreement under which Met Investors Advisory has agreed to waive or limit its fees and to assume other expenses so that the Total Annual Expenses of each Portfolio (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of each Portfolio's business) will not exceed, at any time prior to April 30, 2003, the following percentages: .80% for the MFS Mid Cap Growth Portfolio, 1.00% for the MFS Research International Portfolio, .65% for the PIMCO Total Return Portfolio, 1.10% for the PIMCO Innovation Portfolio, ..70% for the Lord Abbett Bond Debenture Portfolio, 1.10% for the State Street Research Concentrated International Portfolio, .90% for the Met/AIM Mid Cap Core Equity Portfolio and 1.05% for the Met/AIM Small Cap Growth Portfolio. Absent this Agreement, Total Annual Expenses (and Management Fees) for the year ending December 31, 2001 would have been: 2.35% (.65%) for the MFS Mid Cap Growth Portfolio, 5.08% (.80%) for the MFS Research International Portfolio, 1.15% (.50%) for the PIMCO Total Return Portfolio, 3.97% (1.05%) for the PIMCO Innovation Portfolio (annualized from the February 12, 2001 start date for the Class B shares of these Portfolios and excluding the 12b-1 fee that applies under that class); 5.44 (.85%) for the State Street Research Concentrated International Portfolio, 6.93% (.75%) for the Met/AIM Mid Cap Core Equity Portfolio, 4.97% (.90%) for the Met/AIM Small Cap Growth Portfolio (annualized from the October 9, 2001 start date for the Class B shares of these Portfolios and excluding the 12b-1 fee that applies under that class) and .75% (.63%) for the Lord Abbett Bond Debenture Portfolio. Under certain circumstances, any fees waived or expenses reimbursed by Met Investors Advisory may, with the approval of the Trust's Board of Trustee, be repaid by the applicable Portfolio to Met Investors Advisory. (b) Total Annual Expenses for the Lord Abbett Bond Debenture Portfolio have been restated as if the lower expense limitation adopted in February, 2001 had been in effect for the entire year. 10 American Funds Insurance Series (Class 2 shares) The following table sets forth the fees and expenses for each Portfolio of the American Funds Insurance Series, expressed as an annual percentage of average net assets, based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios.
Management Other Total Portfolio Fee 12b-1 fees Expenses Expenses -------------------------------------------------------------------- American Funds Growth .37% .25%(a) .01% .63% -------------------------------------------------------------------- American Funds Growth- Income .33% .25%(a) .02% .60% -------------------------------------------------------------------- American Funds Global Small Capitalization .80% .25%(a) .03% 1.08% --------------------------------------------------------------------
-------- (a) The American Funds Insurance Series has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. Under the Distribution Plan the Portfolios pay an annual fee to compensate certain other parties for promoting, selling and servicing the shares of the Portfolio. These other parties may include MetLife (or its affiliates) and other broker-dealers and financial intermediaries involved in the offer and sale of the contracts. The Distribution Plan is described in more detail in the American Funds Insurance Series prospectus. Other Please refer to "Federal Tax Matters--Our taxation" and "Policy Benefits--Cash Value Transfers" for a description of certain charges that we currently do not impose but may impose in the future. MetLife MetLife is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife was formed under the laws of New York State in 1868. MetLife Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and group customers. The MetLife companies serve approximately 9 million individual households in the United States and companies and institutions with over 33 million employees and members. It also has international insurance operations in 14 countries. We have listed our directors and certain key officers under "Management", and our financial information under "Financial Statements", below. For more information about MetLife, please visit our website at www.metlife.com. 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. Below is a list of our Designated Offices for various functions. We may name additional or alternate Designated Offices. If we do, we will notify you in 11 writing. You may also contact us at 1-800-MET-5000 for any function not listed below or for any other inquiry.
Function Designated Office -------------------------------------------------------------------------------- Premium Payments & Inquiries MetLife, P.O. Box 30074, Tampa FL 33630-3074 -------------------------------------------------------------------------------- Surrenders, Withdrawals, Loans, MetLife, P.O. Box 336, Investment Division Transfers, Warwick, R.I. 02887-0336 Premium Reallocation -------------------------------------------------------------------------------- Death Claims MetLife, P.O. Box 330, Warwick, R.I. 02887-0330 -------------------------------------------------------------------------------- Beneficiary & Assignment MetLife, P.O. Box 313, Warwick, R.I. 02887-0313 -------------------------------------------------------------------------------- Free Look MetLife, 500 Schoolhouse Road, Johnstown, PA 15904-1097 Attn: Free Look -------------------------------------------------------------------------------- Address Changes MetLife, 500 Schoolhouse Road, Johnstown, PA 15904-1097 Attn: Data Integrity -------------------------------------------------------------------------------- Reinstatements MetLife, P.O. Box 30074, Tampa FL 33630-3074 --------------------------------------------------------------------------------
When your requests, instructions and notifications become effective: .. Generally, requests, premium payments and other instructions and notifications are effective on the Date of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) . A Valuation Period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. . A Valuation Date is: . Each day on which the New York Stock Exchange is open for trading. . Other days, if we think that there has been a sufficient degree of trading in a Fund's portfolio securities that the current net asset value of its shares might be materially affected. .. Your Investment Start Date is the date the first net premium is applied to the Fixed Account and is the later of (A) the Date of Policy and (B) the Date of Receipt of your first premium payment. Your premium allocation instructions and transfer requests for investment in the separate account that you make in your Policy application, or within 20 days after your 12 Investment Start Date, will take effect on the end of the first Valuation Date that is 20 days after your Investment Start Date. .. The effective date of your Automated Investment Strategies will be that set forth in the strategy chosen. Separate Account UL We established the Separate Account under New York law on December 13, 1988. The Separate Account receives premium payments from the Policy described in this Prospectus and other variable life insurance policies that we issue. We have registered the Separate Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). The assets in the Separate Account legally belong to us, but they are held solely for the benefit of investors in the Separate Account and no one else, including our other creditors. We will keep an amount in the Separate Account that at least equals the value of our commitments to policy owners that are based on their investments in the Separate Account. We can also keep charges that we deduct and other excess amounts in the Separate Account or we can transfer the excess out of the Separate Account. [SIDEBAR: Each Separate Account investment division invests in a corresponding Portfolio of a Fund.] The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of a Fund. We can add new investment divisions to or eliminate investment divisions from the Separate Account. You can designate how you would like your net premiums and cash value to be allocated among the available investment divisions and our Fixed Account. Amounts you allocate to each investment division receive the investment experience of the investment division, and you bear this investment risk. The Fixed Account The Fixed Account is part of our general assets that are not in any legally-segregated separate accounts. Amounts in the Fixed Account are credited with interest at an effective annual rate of at least 3%. We may also credit excess interest on such amounts. Different excess interest rates may apply to different amounts based upon when such amounts were allocated to the Fixed Account and whether they were premium payments or transfers from the investment divisions. Any partial amounts we remove from the Fixed Account (such as any portion of your Policy's monthly deduction that is allocable to the Fixed Account) will be taken from the most recently allocated amounts first. Any excess interest rate will be credited for at least 12 months before a new rate is credited. We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. 13 The Funds [SIDEBAR: You should carefully review the investment objectives, practices, and risks of each Portfolio, which are described in the appropriate Fund prospectus that you have also received.] Each of the Funds is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. Each Fund is divided into Portfolios, each of which represents a different class of stock in which a corresponding investment division of the Separate Account invests. You should read the Fund prospectuses, which you have also received. They contain information about each Fund and its Portfolios, including the investment objectives, strategies, risks and sub-investment managers or advisers that are associated with each Portfolio. They also contain information on the different separate accounts that invest in each Fund (which may or may not be related to MetLife) and certain risks that may arise when diverse separate accounts, funding diverse types of insurance products, all invest in the same Fund. The Funds offer various classes of shares, each of which has a different level of expenses. The Fund prospectuses may provide information for share classes or Portfolios that are not available through the Policy. When you consult the Fund prospectus for a Portfolio, you should be careful to refer only to the information regarding the Portfolio and class of shares that is available through the Policy. The following classes of shares are available under the Policy: .. For the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust Portfolios, we offer Class A shares only. .. For the American Funds Insurance Series Portfolios, we offer Class 2 shares only. The investment objectives of the Portfolios that are available under the Policies are as follows: Metropolitan State Street Research Aggressive Growth Portfolio: maximum capital appreciation. Metropolitan State Street Research Diversified Portfolio: high total return while attempting to limit investment risk and preserve capital. Metropolitan State Street Research Investment Trust Portfolio: long-term growth of capital and income Metropolitan State Street Research Aurora Portfolio: high total return, consisting principally of capital appreciation. Metropolitan State Street Research Large Cap Value: long-term growth of capital. Metropolitan Putnam International Stock Portfolio: long-term growth of capital. Metropolitan Putnam Large Cap Growth Portfolio: capital appreciation. Metropolitan Harris Oakmark Large Cap Value Portfolio: long-term capital appreciation. Metropolitan Janus Mid Cap Portfolio: long-term growth of capital. Metropolitan Janus Growth Portfolio: long-term growth of capital. Metropolitan Neuberger Berman Partners Mid Cap Value Portfolio: capital growth. 14 Metropolitan Scudder Global Equity Portfolio: long-term growth of capital. Metropolitan T. Rowe Price Large Cap Growth Portfolio: long-term growth of capital and, secondarily, dividend income. Metropolitan T. Rowe Price Small Cap Growth Portfolio: long-term growth of capital. Metropolitan Lehman Brothers(R) Aggregate Bond Index Portfolio: to equal the performance of the Lehman Brothers Aggregate Bond Index. Metropolitan MetLife Stock Index Portfolio: to equal the performance of the Standard & Poor's 500 Composite Stock Price Index. Metropolitan MetLife Mid Cap Stock Index Portfolio: to equal the performance of the Standard & Poor's MidCap 400 Composite Stock Index. Metropolitan Morgan Stanley EAFE(R) Index Portfolio: to equal the performance of the MSCI EAFE Index. Metropolitan Russell 2000(R) Index Portfolio: to equal the return of the Russell 2000 Index. Metropolitan Franklin Templeton Small Cap Growth Portfolio: long-term growth of capital. Zenith Davis Venture Value Portfolio: long-term growth of capital. Zenith Loomis Sayles Small Cap Portfolio: long-term capital growth from investments in common stocks or other equity securities. Zenith MFS Investors Trust Portfolio: long-term growth of capital with a secondary objective to seek reasonable current income. Zenith MFS Research Managers Portfolio: long-term growth of capital. Zenith Harris Oakmark Focused Value Portfolio: long-term capital appreciation. Zenith Salomon Brothers Strategic Bond Opportunities Portfolio: a high level of total return consistent with preservation of capital. Zenith Salomon Brothers U.S. Government Portfolio: a high level of current income consistent with preservation of capital and maintenance of liquidity. Zenith State Street Research Bond Income Portfolio: a competitive total return primarily from investing in fixed-income securities. Zenith FI Structured Equity Portfolio: long-term growth of capital. Zenith FI Mid Cap Opportunities Portfolio: long-term growth of capital. Met Investors MFS Mid Cap Growth Portfolio: long-term growth of capital. Met Investors Research International Portfolio: capital appreciation. Met Investors PIMCO Total Return Portfolio: to seek maximum total return, consistent with the preservation of capital and prudent investment management. Met Investors PIMCO Innovation Portfolio: to seek capital appreciation; no consideration is given to income. Met Investors Lord Abbett Bond Debenture Portfolio: high current income and the opportunity for capital appreciation to produce a high total return. Met Investors State Street Research Concentrated International Portfolio: long-term growth of capital. 15 Met Investors Met/AIM Mid Cap Core Equity Portfolio: long-term growth of capital. Met Investors Met/AIM Small Cap Growth Portfolio: long-term growth of capital. American Funds Growth Portfolio: capital appreciation through stocks. American Fund Growth-Income Portfolio: capital appreciation and income. American Funds Global Small Capitalization Portfolio: capital appreciation through stocks. A Portfolio may have a name and/or objective that is very similar to that of a publicly available mutual fund that is managed by the same sub-investment manager or adviser. The Portfolios are not publicly available and will not have the same performance as those publicly available mutual funds. Different performance will result from differences in implementation of investment policies, cash flows, fees and size of the Portfolio. As of the end of each Valuation Period, we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: .. The allocation of net premiums to the Separate Account. .. Dividends and distributions on Fund shares, which are reinvested as of the dates paid (which reduces the value of each share of the Fund and increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). .. Policy loans and loan repayments allocated to the Separate Account. .. Transfers to and among investment divisions. .. Withdrawals and surrenders taken from the Separate Account. 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. (Under our current administrative rules, a Policy which would be dated the 28th day or later in a month will receive a Date of Policy of the 28th.) In certain situations when payroll deduction is being used for remittance of premiums, we may adjust the Date of Policy. We use the Date of Policy to 16 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. For applications submitted without an advance payment of the initial premium or if we have refunded an advance payment prior to the issuance of the Policy, the Policy will be redated upon delivery to you. The delivery date will be the new Date of Policy. Temporary insurance will be provided for up to 90 days from the date of the application (or a greater period of time that we may elect), provided that we receive a payment equal to at least one "check-o-matic" payment and any necessary medical examination has been completed. Even if the insured hasn't completed the medical examination, there will be coverage if the insured dies from an accident within 30 days of the date of the application. The temporary insurance does not cover death by suicide. The temporary insurance provided is equal to the specified face amount applied for up to a maximum of $500,000 (as may be increased by us). There will be no charge for the insurance protection under the temporary insurance. Insurance coverage under the Policy will begin, and any temporary insurance that is then in force will end, at the time the Policy is delivered and the Date of Receipt of the first premium payment has occurred. For coverage to be effective, the insured's health must be the same as stated in the application and, in most states, the insured must not have sought medical advice or treatment after the date of the application. As to when charges under this Policy begin, see "Charges Included in the Monthly Deduction." Policy Benefits This prospectus provides a general description of the Policy. Policies issued in your state may provide different features and benefits from, and impose different costs than, those described in this Prospectus. Your actual Policy and any endorsements are the controlling documents. You should read the Policy carefully for any variations in your state. Insurance Proceeds If the Policy is in force, we will pay your beneficiary the insurance proceeds as of the end of the Valuation Period that includes the insured's date of death. We will pay this amount after we receive documents that we request as due proof of the insured's death. The beneficiary can receive the death benefit in a single sum or under an income plan described below. You may make this choice during the insured's lifetime. If no selection is made we will place the amount in an account to which we will credit interest, and the beneficiary will have immediate access to all or part of that amount. The beneficiary has one year from the date the insurance proceeds are paid to change the selection from a single sum payment to an income plan, as long as we have made no payments from the interest-bearing account. If the terms of the income plan permit the beneficiary to withdraw the entire amount from the plan, the beneficiary can also name contingent beneficiaries. 17 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 [SIDEBAR: The Policy generally offers a choice of three death benefit options.] Generally, you can choose among three options, although the choice may be limited based upon the insured's age. You select which option you want in the Policy application. The three options are: .. Option A: The death benefit is a level amount and equals the specified face amount of the Policy. .. Option B: The death benefit varies and equals the specified face amount of the Policy plus the cash value on the date of death. .. Option C: The death benefit is one of two amounts and is available only if insured is age 60 or less when we issue the Policy: . The death benefit varies and equals the specified face amount plus the cash value on the date of death, until the insured is age 65 ("CI"). . At age 65, the death benefit becomes a level amount equal to the specified face amount under CI plus the cash value at the end of the Valuation Date immediately preceding the date on which the insured became age 65. This new amount then becomes the specified face amount ("CII"). There are issues that you should consider in choosing your death benefit option. For example, under Options B and CI, the cash value is added to the specified face amount. Therefore, the death benefit will generally be greater under these options than under Options A and CII, for Policies with the same specified face amount and premium payments. By the same token, the cost of insurance will generally be greater under Options B and CI than under Options A and CII. [SIDEBAR: You can generally change your death benefit option.] You can change your death benefit option after the second Policy year and, thereafter, once in any 12 month period, provided that: .. Your cash surrender value after the change would be enough to pay at least two monthly deductions. .. The specified face amount continues to be no less than the minimum we allow after a decrease. .. The total premiums you have paid do not exceed the then current maximum premium limitations permitted under Internal Revenue Service rules. .. If the change is to Option C, the insured is age 60 or less. Any change will be effective on the monthly anniversary on or immediately following the Date of Receipt of the request. A change in death benefit will have the following effects on your specified face amount: .. Change from A or CII to B or CI: The specified face amount will decrease to equal the death benefit less the cash value on the effective date of the change. 18 .. Change from B or CI to A: 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: The specified face amount will remain the same. Before you change your death benefit option you should consider the following: .. If the term insurance portion of your death benefit changes, as it may with a change from A or CII to B or CI and vice versa, the term insurance charge will also change. This will affect your cash value and, in some cases, the amount of the death benefit. .. The premium requirements for maintaining the guaranteed minimum death benefit may change, which could affect your ability to maintain it. .. If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; of an increase or decrease in the monthly administration charge; and of changes in the maximum premium amounts that you can pay. A specified face amount decrease resulting from a death benefit option change, however, will not result in deduction of a surrender charge. 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. Guaranteed Minimum Death Benefit [SIDEBAR: The Policy offers a guaranteed minimum death benefit.] You can choose to have a guaranteed minimum death benefit for one of several specified periods of time, if you meet certain requirements. Generally, the amount of guaranteed minimum death benefit equals the specified face amount of insurance, plus any additional death benefits provided by rider. Availability may be restricted in your state or by the insured's rating class, however. There is no additional charge for the guarantee, but in order to keep the guarantee in effect, you will need to pay certain minimum premiums, which vary based on many factors (see "Premiums" below). We test the Policy on each monthly anniversary or upon the Policy's lapse date (depending on state requirements)--the "testing date"--to make sure that you have paid the minimum premiums required to keep the guarantee for the duration you chose. If you haven't made the minimum premium payments, we will tell you and give you 61 days from the testing date to make any additional payment to keep the guarantee at the then current duration. If we do not receive the required payment, we will reduce the duration of the guarantee to one that 19 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. If no guarantee is in effect, your Policy will terminate under the circumstances described in "Policy Termination and Reinstatement." Each duration for the guaranteed minimum death benefit has its own premium requirement that supports it. The longer the duration, the greater the premiums required. At issue, we will look at the premium you plan to pay and give you which ever duration that premium supports. You can reduce the duration by reducing the premiums paid to an amount that will only support a shorter duration. A duration cannot be increased by subsequently paying additional premiums nor can a duration be reinstated once it is terminated. The durations for the guaranteed minimum death benefit are*: .. For the first five Policy years. .. To age 65, but only if the insured is age 60 or less when the Policy is issued. .. To age 75, but only if the insured is age 70 or less when the Policy is issued. .. To age 85, but only if the insured is age 80 or less when the Policy is issued. -------- *For Policies issued in New York, the guaranteed minimum death benefit guarantees payment of the specified face amount of insurance only (and not any rider benefits), and the options for the duration of the guarantee are generally: (i) for the first five Policy years; (ii) to age 55 (available only if the insured was between age 18 and age 50 on the date the Policy was issued) or for the first 20 Policy years (if the insured was less than age 18 on the date the Policy was issued); or (iii) to age 65 (available only if the insured was between age 18 and age 60 on the date the Policy was issued) or to age 60 (if the insured was less than age 18 on the date the Policy was issued). For Policies issued in Massachusetts, New Jersey and Texas, the only available duration of the guaranteed minimum death benefit is the first five Policy years. It is possible that other states may, in the future, require similar variations in the durations that are available. Specified Face Amount The specified face amount is the basic amount of insurance specified in your Policy. The Minimum Initial Specified Face amount is the smallest amount of specified face amount for which a Policy may be issued. Currently these amounts are generally: .. $100,000 for insureds in the preferred rate class .. $50,000 for most other insureds .. $25,000 for certain insureds over age 59. .. $250,000 for most Policies distributed through broker-dealers not affiliated with us. [SIDEBAR: You can generally increase or decrease your Policy's specified face amount.] Generally, you may change your specified face amount after the second Policy year, and thereafter, once in any 24 month period, as long as the insured is age 79 or under. Any change will be effective on the monthly anniversary on or next following (a) the Date of Receipt of your request; or (b) if we require evidence of insurability, the date we approve your request. You are permitted to decrease the specified face amount to as low as $25,000 except that no reduction may decrease the specified face amount below the Minimum Initial Specified Face Amount during the first five Policy years or one half that amount thereafter. The lowest available specified face amount requirements also apply to decreases that result from partial withdrawals or changes in death benefit option. If there have been previous specified face amount increases, any decreases in specified face amount will be made in the 20 following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if: (a) the guaranteed minimum death benefit is in effect; or (b) the cash surrender value after the change is large enough to cover at least two monthly deductions. Generally, the minimum specified face amount increase is $5,000 ($10,000 for Policies issued in New York). Any increase will require that we receive additional evidence of insurability that is satisfactory to us. We will also impose an underwriting charge. Before you change your specified face amount you should consider the following: .. The term insurance portion of your death benefit will likely change and so will the term insurance charge. This will affect the insurance charges, cash value and, in some cases, death benefit levels. .. Reducing your specified face amount in the first 15 Policy years may result in our returning an amount to you which could then be taxed on an income first basis. .. We will deduct a portion of any applicable surrender charge at the time of any decrease in specified face amount that you request. .. We will establish an additional amount of surrender charge at the time of any increase in the specified face amount, other than an increase resulting automatically from a change of death benefit option. .. The premium requirements for maintaining the guaranteed minimum death benefit will change, which could affect your ability to maintain it. .. The amount of additional premiums that the tax laws permit you to pay into your Policy may increase or decrease. The additional amount you can pay without causing your Policy to be a modified endowment contract for tax purposes may also increase or decrease. .. In some circumstances, the Policy could become a modified endowment contract. .. The monthly administration charge may change. Cash Value [SIDEBAR: Your Policy is designed to accumulate cash value.] Your Policy's cash value equals: .. The Fixed Account cash value, plus .. The Policy Loan Account cash value, plus .. The Separate Account cash value. Your Policy's cash surrender value equals your cash value minus: .. Any outstanding Policy loans (plus accrued interest); .. Any surrender charges; and .. The administration charge for any full Policy month remaining in the first Policy year. 21 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 carefully review their provisions to be sure the benefit is something that you want. You should also consider: .. That the premium requirements to maintain the guaranteed minimum death benefit may increase, which could affect your ability to maintain it. .. That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. .. That the amount of benefits provided under the rider is not based on investment performance of a separate account; but, if the Policy terminates because of poor investment performance or any other reason, the riders generally will also terminate. .. The tax consequences. You should also consult with your tax advisor before purchasing one of the riders. 22 Generally, we currently make the following benefits available by rider: ..Disability Waiver of Premium Benefit/1/ .Children's Term Insurance Benefit --------------------------------------------------------------------------- ..Disability Waiver of Monthly Deduction .Spouse Term Insurance Benefit Benefit/2/ --------------------------------------------------------------------------- ..Accidental Death Benefit .Accelerated Death Benefit/3/ --------------------------------------------------------------------------- ..Long Term Care Guaranteed Purchase Option/4/
-------- /1/This rider is designed for owners who seek to build cash value or maintain the guaranteed minimum death benefit during a period of disability. In order to qualify for this rider, you must maintain a premium level equal to that required under the rider. Otherwise, the rider will operate like the Disability Waiver of Monthly Deduction benefit rider, which in some cases could increase the cost of the rider. The selected premium level will not necessarily be sufficient to keep the Policy in force to the Final Date. Therefore, the Policy could terminate before the Final Date, although not while a guaranteed minimum death benefit is in effect. If your Policy was issued in New York and your Policy includes this rider, you may not add any other rider. /2/An increase in specified face amount may not be covered by this rider. If not, the portion of the monthly deduction associated with the increase will continue to be deducted from the cash value, which if insufficient, could result in the Policy's termination. For this reason, it may be advantageous for the owner, at the time of total disability, to reduce the specified face amount to that covered by this rider. /3/Payment under this rider may affect eligibility for benefits under state or federal law. /4/This rider gives the Policy owner the option to purchase long-term care insurance for the insured, at future specified Purchase Option Dates, without additional underwriting. The new long term care insurance policy will be offered by MetLife or by an affiliate designated by us on the Purchase Option Date, subject to rider specifications about plan benefits. This rider will be available only in states that have approved such long-term care insurance plans. [SIDEBAR: Generally, you can receive the Policy's insurance proceeds, amounts payable at the Final Date or amounts paid upon surrender under an income plan instead of in a lump sum.] Income Plans Before you purchase an income plan you should consider: .. The tax consequences associated with the Policy proceeds, which can vary considerably, depending on whether a plan is chosen. You or your beneficiary should consult with a qualified tax adviser about tax consequences. .. That your Policy will terminate at the time you purchase an income plan and you will receive a new contract, which describes the terms of the income plan. You should carefully review the terms of the new contract, because it contains important information about the terms and conditions of the income plan. .. That these plans do not have a variable investment return. Generally, we currently make the following income plans available: ..Interest income .Installment Income for a Stated Period ------------------------------------------------------------------------------- ..Installment Income for a Stated Amount .Single Life Income--Guaranteed Payment Period ------------------------------------------------------------------------------- ..Joint and Survivor Life Income .Single Life Income--Guaranteed Return
23 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. Each Fund may restrict or refuse certain transfers among, or purchases of shares in their Portfolios as a result of certain market timing activities. You should read each Fund's prospectus for more details. We reserve the right to refuse to accept any transaction request where the request would tend to disrupt the administration of the Policies or is not in the best interest of Policy owners or the Separate Account. .. Automated Investment Strategies: You can choose one of five currently available strategies. You can also change or cancel your choice at any time. . Equity Generator: allows you to transfer an amount equal to the interest earned in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. . Equalizer: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization each quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. . Rebalancer: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution each quarter. . Allocator: allows you to systematically transfer money from the Fixed Account to any investment division(s). You must have enough cash value in the Fixed Account to enable the election to be in effect for three months. The election can be to transfer each month: . A specific amount until the cash value in the Fixed Account is exhausted, . A specific amount for a specific number of months, or . 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 24 Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, MetLife Stock Index, Russell 2000 Index and MetLife Mid Cap Stock Index investment divisions and the Fixed Account. Each quarter we will redistribute amounts in the Fixed Account and investment divisions in the same proportion as you originally requested. We may, in the future, change the available models and allow you to allocate less than 100% to this strategy. Before electing this strategy, you should consider the fact that investment returns using this strategy may be more volatile than the other strategies. .. Transfers by Telephone: We may, if permitted by state law, allow you to make transfer requests, changes to Automated Investment Strategies and allocations of future net premiums by phone. We may also allow you to authorize your sales representative to make such requests. The following procedures apply: . We must have received your authorization in writing satisfactory to us, to act on instructions from any person that claims to be you or your sales representative, as applicable, as long as that person follows our procedures. . We will institute reasonable procedures to confirm that instructions we receive are genuine. Our procedures will include receiving from the caller your personalized data. . All telephone calls will be recorded. . You will receive a written confirmation of any transaction. . Neither the Separate Account nor we will be liable for any loss, expense or cost arising out of a telephone request if we reasonably believed the request to be genuine. . You should contact our Designated Office with any questions regarding the procedures. We do not currently offer Internet transfer capability, but may do so in the future. We will notify you if we begin to offer Internet transactions. 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 $500. .. No more than the cash surrender value less two monthly deductions (unless your Policy provides for a different amount required by state law) when added to all other outstanding Policy loans. As of your loan request's Date of Receipt, we will: .. Remove an amount equal to the loan first from your cash value in the Fixed Account. If an additional amount is required, we will remove it from the cash value in the investment divisions of the Separate Account in the same proportion as your cash value is then allocated. .. Transfer such cash value to the Policy loan account, where it will be credited with interest at the rate of 4% per year. At least once a year, we will transfer any interest earned in your Policy loan account to the Fixed Account and the investment divisions, according to the way that we allocate monthly deductions. 25 .. Charge you interest, which will accrue daily at a rate of 6% per year (which is the maximum rate we will ever charge). We will reduce this rate to 4.6% for Policy years 11 through 15, to 4.3% for Policy years 16 through 20 and to 4.0% after Policy year 20. Your interest payments are due at the end of each Policy year. If you don't pay the amount within 31 days after it is due, we will treat it as a new Policy loan. Repaying your loans (plus accrued interest) is done by sending in payments at least equal to your voluntary planned periodic premium, or $50, if less. Any payments we receive while a loan (plus accrued interest) is outstanding, will be applied first to repaying the loan, and, if any amounts remain after repayment, they will be considered premium. Even though we will repay the loan with these payments, the resulting reduction in outstanding loans will have the same effect as premium payments for purpose of maintaining your guaranteed minimum death benefit. We will allocate your repayment to the Fixed Account and the investment divisions, in the same proportion that any new net premiums would be allocated. Before taking a Policy loan you should consider the following: .. Interest payments on loans are generally not deductible for tax purposes. .. Under certain situations, Policy loans could be considered taxable distributions. .. If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. Generally, there will be federal income tax payable on the amount by which withdrawals and loans exceed the premiums paid to date. (See "Federal Tax Matters--The Policy--Loans" below.) In addition, the amounts borrowed and withdrawn reduce the Policy's cash value and any remaining cash value of the Policy may be insufficient to pay the income tax on your gains. .. A policy loan increases the chances of our terminating your policy due to insufficient cash value. Unless the guaranteed minimum death benefit is in effect, we will terminate your Policy with no value if: (A) on a monthly anniversary your loans (plus accrued interest) exceed your cash value minus the monthly deduction and minus any surrender charges; 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 insurance proceeds will be reduced by any unpaid loan (plus accrued interest). Surrender and Withdrawal Privileges We may ask you to return the Policy before we honor your request to surrender your Policy. You can choose to have the proceeds paid in a single sum, or under an income plan. If the insured dies after you surrender the Policy but before the end of the Policy month in which you surrendered the Policy, we will pay your beneficiary an amount equal to the difference between the Policy's death benefit and its cash value, computed as of the surrender date. You can make partial withdrawals at any time if: .. The withdrawal would not result in a reduction in your specified face amount during the first 2 Policy years, as described under "Specified Face Amount" above. 26 .. The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. .. The withdrawal is at least $500. .. The withdrawal would not result in your specified face amount falling below the minimum allowable amount, as described under "Specified Face Amount," above. .. The withdrawal would not result in total premiums paid exceeding the then current maximum premium limitation determined by the Internal Revenue Code rules. If you make a request for a partial withdrawal that is not permitted, we will tell you and you may then ask for a smaller withdrawal or surrender the Policy. We will deduct your withdrawal from the Fixed Account and the investment divisions in the same way we allocate the monthly deduction. Before surrendering your Policy or requesting a partial withdrawal you should consider the following: .. Surrender charges may apply. .. Amounts received may be taxable as income and, if your Policy is a modified endowment contract, subject to certain tax penalties. .. Your Policy could become a modified endowment contract. .. For partial withdrawals, your death benefit will decrease by the amount of the withdrawal. For Options A and CII, your specified face amount also will decrease, generally by the amount of the withdrawal, but this decrease will not cause any surrender charge to be deducted other than any surrender charge attributable to the amount withdrawn. .. Any withdrawal that causes the specified face amount to decrease could cause an increase in the monthly administrative charge. .. In some cases you may be better off taking a Policy loan, rather than a partial withdrawal. Exchange Privilege If you decide that you no longer want to take advantage of the investment divisions in the Separate Account, you may transfer all of your money into the Fixed Account. There is currently no charge on transfers. Even if we do have a transfer charge in the future, such charge will never be imposed on a transfer of your entire cash value (or the cash value attributable to a specified face amount increase) to the Fixed Account within the first 24 Policy months (or within 24 Policy months after a specified face amount increase you have requested, as applicable). In some states, in order to exercise your exchange privilege, you must transfer, without charge, the Policy cash value (or the portion attributable to a specified face amount increase) to a flexible premium fixed benefit life insurance policy, which we make available. Third Party Requests Generally, we accept requests for transactions or information only from you. Therefore, we reserve the right not to process transactions requested on your behalf by your agent with a power of attorney or any other authorization. This includes processing transactions by an agent you designate, through a power of attorney or other authorization, who has the ability to control the amount 27 and timing of transfers for a number of other Policy owners, and who simultaneously makes the same request or series of requests on behalf of other Policy owners. Restrictions on Financial Transactions If mandated under money laundering or anti-terrorist laws, or other applicable law, we may be required to reject a premium payment or refuse to honor any request for transfers, withdrawals, surrenders, loans, or death benefits, until we receive instructions from the appropriate regulator. 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 premium schedule. .. Unscheduled premium payment option: You can make premium payments at any time. We will hold a premium payment received before its due date in a non-interest bearing holding account until the due date, if necessary, to prevent a Policy becoming a modified endowment contract. (See "Modified Endowment Contracts" under "Federal Tax Matters" below.) We will send you an additional notice of this arrangement by letter immediately after receiving your payment. We will also give you the option to either have the money held until the due date or applied on our Date of Receipt of your instructions to apply the money (unless the due date has already passed). Paying Premiums to Maintain the Guaranteed Minimum Death Benefit You can pay certain levels of premiums that entitle you to a guaranteed minimum death benefit for a specified period of time. To keep the guarantee you will need to pay these premium levels for the entire duration of the guarantee. We will test your Policy on each monthly anniversary or upon the Policy lapse date (depending on state requirements) to verify that you have paid the minimum premium (after taking into account partial withdrawals and outstanding Policy loans) to keep the guarantee in force. If no guarantee is in force, your Policy will terminate under the circumstances described in "Policy Termination and Reinstatement". 28 The level of premium to keep the guaranteed minimum death benefit in effect varies based on several factors including: .. Duration of the guarantee (generally higher levels are required for longer durations). .. Specified face amount (generally higher levels are required for higher amounts). .. Smoking class and underwriting class (generally higher levels are required for classes that we consider to pose a greater mortality risk). .. Death benefit option (generally higher levels are required for death benefit options B and CI). .. Except for Policies issued in New York, Policy riders (generally higher levels are required if you have riders in force). Maximum and Minimum Premium Payments .. During the first Policy year you must pay an amount of premium that we call the minimum initial premium (after taking account of partial withdrawals and outstanding Policy loans) or we will terminate your Policy after the grace period. .. After the first Policy year, your voluntary planned periodic payments must be at least: . $200 annually (or, for some Policies distributed by certain brokers, $2,500 annually) . $100 semi-annually . $15 on a "check-o-matic" or other systematic payment schedule. .. Unscheduled premium payments must be at least $250 each. .. You may not pay premiums that exceed tax law premium limitations for life insurance policies. We will return any amounts that exceed these limits except that we will keep any amounts that are required to keep the Policy from terminating. We will let you make premium payments that would turn your Policy into a modified endowment contract, but we will tell you of this status not later than in your annual statement. If possible, we will tell you how to reverse the status. Allocating Net Premiums [SIDEBAR: Net premiums are your premiums minus the charges deducted from those premiums.] We will allocate your net premiums to the Fixed Account from the Investment Start Date until 20 days after such date. We will then allocate your cash value according to your net premium allocation instructions in your application. You can instruct us to allocate your net premiums among the Fixed Account and the investment divisions. The percentage of your net premium allocation into each of these investment options must be a minimum of 1% and in whole numbers. You can change your allocations (effective after the 20th day referred to above) at any time by giving us written notification at our Designated Office or in any other manner that we permit. Policy Termination and Reinstatement Termination: We will terminate your Policy without any cash surrender value if: .. The cash surrender value is less than the monthly deduction; 29 .. No minimum guaranteed death benefit is in effect; and .. We do not receive a sufficient premium payment within the 61-day grace period to cover two monthly deductions. We will mail you notice if any grace period starts. Reinstatement: Upon your request, we will reinstate your Policy (without reinstating the guaranteed minimum death benefit or any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request within 3 years (or any longer period provided by state law) after the end of the grace period and before the Final Date. You also must provide us: .. A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). .. Evidence of insurability that we find satisfactory. .. An additional premium amount that the Policy prescribes for this purpose. Charges and Deductions The Policy charges compensate us for our expenses and risks. Our revenues from any particular charge may be more or less than any costs or expenses that charge may be intended primarily to cover. We may use our revenues from one charge to pay other costs and expenses in connection with the Policies. We may also profit from our revenues from all the charges combined. The following sets forth additional information about some (but not all) of the Policy charges. [SIDEBAR: Carefully review the "Table of Charges and Expenses" in the "Summary", which sets forth the charges that you pay under your policy.] Charge for average expected state taxes attributable to premiums: We make this charge to reimburse us for the state premium taxes that we must pay on premiums we receive. Premium taxes vary from state to state and currently range from 0 to 3.5%. Our charge approximates the average tax rate we expect to pay on premiums we receive from all states. Charges included in the Monthly Deduction: At issue, or within 30 days of any Policy anniversary, you can choose to have the monthly deduction taken from either: (a) the Fixed Account and each investment division in which you have cash value in the same proportion as your cash value is allocated among these options at the beginning of the policy month; or (b) if there is sufficient cash value, entirely from your Fixed Account. If no election is made or if amounts in the Fixed Account are insufficient, we will take the monthly deduction in accordance with (a). We deduct the monthly deductions as of each monthly anniversary beginning as of the Date of Policy. .. Cost of term insurance: This charge varies monthly based on many factors. Each month, we determine the charge by multiplying your cost of insurance rates by the term insurance amount. . The term insurance amount is the death benefit at the beginning of the Policy month divided by a discount factor to account for an assumed return during the month; minus the cash value at the beginning 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). 30 . 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 also, in the first year, our underwriting and start-up expenses. .. Mortality and expense risk charge: We make this monthly charge primarily to compensate us for: . mortality risks that insureds may live for a shorter period than we expect; and . expense risks that our issuing and administrative expenses may be higher than we expect. Surrender charge [SIDEBAR: Your Policy sets forth the maximum surrender charges to which your cash value could be subject.] 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. 31 .. Increase Surrender Charge Measure, which is: . For the first year following the increase, the lesser of: (A)the amount by which the actual cumulative premiums paid within twelve months following the date of the application for the specified face amount increase exceeds the sum of: (i)the Surrender Charge Measure for the first Policy year, plus (ii)the Increase Surrender Charge Measure for the first year following any prior increases; and (B)the Maximum Surrender Charge Premium at the time of the increase. . For the second Policy year and later following the increase, the lesser of: (A)the amount by which actual cumulative premiums paid within twenty-four months following the date of the application for the specified face amount increase exceeds the sum of: (i)the Surrender Charge Measure for the second Policy year, plus (ii)the Increase Surrender Charge Measure for the second year following any prior increases; and (B)the Maximum Surrender Charge Premium for the second Policy year following the increase. .. 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 32 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 16 and Amount Increase) 1 2 3 4 5 6* 7 8 9 10 11 12 13 14 15 later -------------------------------------------------------------------------------------------- % of Measure 100 100 90 80 70 60 54 48 42 36 30 24 18 12 6 0
*After the fifth year, the surrender charges will decrease each Policy month. We deduct any surrender charge that results from a partial withdrawal or specified face amount decrease from the same sources as we take the monthly deduction. If the cash value is insufficient, we reduce the amount we pay you. Because of the surrender charge, your Policy will probably not have any cash surrender value for at least the first Policy year unless you pay significantly more than the Minimum Initial Premium. Since the Surrender Charge Measure and Increase Surrender Charge Measure are capped at the end of the first two Policy years after issue, and after increase in specified face amount, respectively, you may be able to limit your surrender charges by limiting your premium payments to levels necessary to keep the Policy and the guaranteed minimum death benefit in effect. 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. 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.] 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 33 Policy (which is generally when your cash value exceeds the cumulative premiums you paid). If your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed prior to a distribution. The IRS has recently issued guidance on split dollar insurance plans. A tax advisor should be consulted with respect to this new guidance if you have purchased or are considering the purchase of a Policy for a split dollar insurance plan. There may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the Federal corporate alternative minimum tax, if you are subject to that tax. Loans .. Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. .. Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. .. If your Policy terminates (upon surrender, cancellation lapse, the Final Date or, in most cases, exchange) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Since amounts borrowed reduce the cash value that will be distributed to you if the Policy is surrendered, cancelled or lapses, any cash value distributed to you in these circumstances may be insufficient to pay the income tax on any gain. 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. The IRS has promulgated a procedure for the correction of inadvertent modified endowment contracts. If your Policy is considered a modified endowment contract the following applies: .. The death benefit will generally be income tax free to your beneficiary, as discussed above. .. Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are (to the extent of any gains on your policy) treated as income first and subject to income tax. All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. .. An additional 10% income tax generally applies to the taxable portion of the amounts received before age 59 1/2, except generally if you are disabled or the distribution is part of a series of substantially equal periodic payments. 34 Diversification In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. Changes to tax rules and interpretations Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: .. Possible taxation of cash value transfers. .. Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. .. Possible limits on the number of investment funds available or the frequency of transfers among them. .. Possible changes in the tax treatment of Policy benefits and rights. Our taxation In general, we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the Policies' cash surrender value. If we do incur such taxes, we reserve the right to charge the cash value allocated to the Separate Account for these taxes. Showing Performance We may advertise or otherwise show: .. Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. .. 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 35 underlying investments in the investment divisions, and you will have a chance to transfer out of the affected division (without charge). Some of the changes we may make include: .. Operating the Separate Account in any other form that is permitted by applicable law. .. Changes to obtain or continue exemptions from the 1940 Act. .. Transferring assets among investment divisions or to other separate accounts, or our general account or combining or removing investment divisions from the Separate Account. .. Substituting Fund shares in an investment division for shares of another portfolio of a Fund or another fund or investment permitted by law. .. Changing the way we assess charges without exceeding the aggregate amount of the Policy's guaranteed maximum charges. .. Making any necessary technical changes to the Policy to conform it to the changes we have made. [SIDEBAR: Carefully review your Policy which contains a full discussion of all its provisions.] Other Policy Provisions You should read your Policy for a full discussion of its provisions. The following is a brief discussion of some of the provisions that you should consider: Free Look Period You can return the Policy during this period. The period is the later of: .. 10 days after you receive the Policy (unless state law requires your Policy to specify a longer specified period); and .. 45 days after the completed application is signed (in the case of tele-underwritten policies, 45 days after the preliminary application is signed). If you return your Policy, we will send you a complete refund of any premiums paid (or cash value plus any charges deducted if state law requires) within seven days. Incontestability We will not contest: .. Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). .. An increase in a death benefit after it has been in effect for two years. Suicide If the insured commits suicide within the first two Policy years (or any different period provided by state law), your beneficiary will receive all premiums paid (without interest), less any outstanding loans (plus accrued interest) and withdrawals taken. Similarly, we will pay the beneficiary only the cost of any increase in specified face amount if the insured commits suicide within two years of such increase. 36 Age and Sex We will adjust benefits to reflect the correct age and sex of the insured, if this information isn't correct in the Policy application. Assignment and Change in Ownership You can assign your Policy as collateral if you notify us in writing. The assignment or release of the assignment is effective when it is recorded at the Designated Office. We are not responsible for determining the validity of the assignment or its release. Also, there could be serious adverse tax consequences to you or your beneficiary, so you should consult with your tax adviser before making any change of ownership or other assignment. Payment and Deferment [SIDEBAR: Under certain situations, we may defer payments.] Generally, we will pay or transfer amounts from the Separate Account within seven days after the Date of Receipt of all necessary documentation required for such payment or transfer. We can defer this if: .. The New York Stock Exchange has an unscheduled closing. .. There is an emergency so that we could not reasonably determine the investment experience of a Policy. .. The Securities and Exchange Commission by order permits us to do so for the protection of Policy owners (provided that the delay is permitted under New York State insurance law and regulations). .. With respect to the insurance proceeds, if entitlement to a payment is being questioned or is uncertain. .. We are paying amounts attributable to a check. In that case we can wait for a reasonable time (15 days or less) to let the check clear. We currently pay interest on the amount of insurance proceeds at 3% per year (or higher if state law requires) from the date of death until the date we pay the benefit. Dividends The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. 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 a sub-investment manager to certain Portfolios of the Metropolitan Series Fund, Inc. and may also provide advisory services to other clients. Bonding Our directors, officers and employees are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. 37 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 1999, 2000 and 2001 totaled $28,275,367, $63,777,296 and $62,825,350 respectively. Maximum commissions are: .. First Policy Year (at one of the following rates depending on the circumstances): (1)50% of the lesser of: (A) Actual premiums paid in the first year; (B) The initial voluntary planned periodic premium for the first year; or (C) The annual premium necessary to keep the longest duration of the guaranteed minimum death benefit effective for a like Policy with Option A and the preferred nonsmoking rating class for standard risks (or the actual rating class for other risks) in place ("MCP"); or (2)50% of actual premiums paid in the first year up to the MCP, if: (A) Actual premiums paid in the first year are equal to or greater than three times the MCP; and (B) The initial voluntary planned periodic premium for the first year is equal to or greater than one-half of the MCP; or (3)50% of the lesser of : (A) the amount by which premiums paid in the first 12 months following the application to increase the specified face amount exceed the cumulative amount of premiums on which a 50% commission has previously been paid; or (B) the portion of (C) above, computed using the difference between the old and new specified face amounts and rating information of the insured at the time of the increase; plus . 3% of amounts not eligible for the above commission schedules. .. Policy Years 2-4: 5% of premiums paid in the Policy year. .. Policy Years 5-10: A servicing fee of 2% of premiums paid in the Policy year. .. Policy Years 11 and later: A servicing fee of 1% of premiums paid in the Policy year. 38 We also pay the sales manager of a sales representative employed by us an override commission based on many factors including the commissions paid to the representative who sold the Policy and to other representatives the sales manager supervises. There is a cap on commissions--a commission paid in any year will not exceed $40 per $1,000 current specified face amount. We may require all or part of the commissions to be returned to us if you do not continue your Policy for at least 2 years. Voting Rights [SIDEBAR: You can give us voting instructions on shares of each Portfolio of a Fund that are attributed to your Policy.] The Funds have shareholder meetings from time to time to, for example, elect directors and approve some changes in investment management arrangements. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in a Fund. If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: .. Your Policy's cash value in the corresponding investment division; by .. The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are held in separate accounts that are not registered under the 1940 Act in the same proportion as the aggregate of the shares for which we received voting instructions from all insurance and annuity owners. Reports Generally, you will promptly receive statements confirming your significant transactions such as: .. Change in specified face amount. .. Change in death benefit options. .. Changes in guarantees. 39 .. Transfers among investment divisions (including those through Automated Investment Strategies, which are confirmed quarterly). .. Partial withdrawals. .. Loan amounts you request. .. Loan repayments and premium payments. If your premium payments are made through check-o-matic or another systematic payment method, we will not send you any confirmation in addition to the one you receive from your bank or employer. We will also send you an annual statement within 30 days after a Policy year that will summarize the year's transactions and include information on: .. Deductions and charges. .. Status of the death benefit. .. Cash and cash surrender values. .. Amounts in the investment divisions and Fixed Account. .. Status of Policy loans. .. Automatic loans to pay interest. .. Information on your modified endowment contract status (if applicable). We will also send you a Fund's annual and semi-annual reports to shareholders. Illustration of Policy Benefits [SIDEBAR: Personalized illustrations can help you understand how your Policy values can vary.] 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 included an example of such an illustration as Appendix A to this prospectus. 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. 40 This Prospectus is part of a registration statement that we filed with the Securities and Exchange Commission under the Securities Act of 1933. The registration statement includes additional information, amendments and exhibits. You can get this information from the Securities and Exchange Commission (a copying fee may apply) by visiting or writing to its Public Reference Room or using its Internet site at: .. Securities and Exchange Commission Public Reference Room Washington, D.C. 20549 Call 1-800-SEC-0330 (for information about using the Public Reference Room) Internet site: http://www.sec.gov Legal, Accounting and Actuarial Matters Anne M. Goggin, Chief Counsel--Individual Business at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner, Washington, D.C., has advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, audited the financial statements included in this Prospectus, as stated in their reports appearing herein. The financial statements are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. Marian Zeldin, FSA, MAAA, Vice-President and Actuary of MetLife, has examined actuarial matters included in the registration statement, as stated in her opinion filed as an exhibit to the registration statement. 41 Management The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: Directors, Officers-Directors
Principal Occupation & Positions and Offices Name Business Address with MetLife ---------------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman Emeritus Director Bethlehem Steel Corp. 1170 Eighth Ave. -- Martin Tower 101 Bethlehem, PA 18016 ---------------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, President, Chief Executive Officer Chief Executive Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ---------------------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board and Vice Chairman of the Board, Chief Investment Officer Chief Investment Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ---------------------------------------------------------------------------------------------------- John C. Danforth Partner Director Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 ---------------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman of the Board Director Nellcor Puritan Bennett P.O. Box 208 Carlsbad, CA 92018 ---------------------------------------------------------------------------------------------------- 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 200 Park Avenue, Suite 5700 New York, NY 10010 ---------------------------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 ---------------------------------------------------------------------------------------------------- Catherine R. Kinney Group Executive Director Vice President New York Stock Exchange, Inc. 11 Wall Street, 6th floor New York, NY 10005 ---------------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. 51 Vaughn Hill Road Bolton, MA 01720 ----------------------------------------------------------------------------------------------------
42
Principal Occupation & Positions and Offices Name Business Address with MetLife ---------------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Board and Chief Financial Officer Chief Financial Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 ---------------------------------------------------------------------------------------------------- John J. Phelan, Jr. Retired Chairman and Director Chief Executive Officer New York Stock Exchange, Inc. P.O. Box 524 Locust Valley, NY 11560 ---------------------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 120 Wall Street New York, NY 10005 ---------------------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board Director Pfizer, Inc. 235 East 42nd Street New York, NY 10016 ----------------------------------------------------------------------------------------------------
Name of Officer* Position with Metropolitan Life ------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer ------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board, Chief Investment Officer and Director ------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board, Chief Financial Officer and Director ------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel ------------------------------------------------------------------------------------- James M. Benson President, Individual Business; Chairman, Chief Executive Officer and President, New England Life Insurance Company ------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice President ------------------------------------------------------------------------------------- Gwenn L. Carr Vice President and Secretary ------------------------------------------------------------------------------------- C. Robert Henrikson President, Institutional Business ------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice President ------------------------------------------------------------------------------------- Kernan F. King Executive Vice President ------------------------------------------------------------------------------------- Terence I. Lennon Executive Vice President ------------------------------------------------------------------------------------- Catherine A. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company ------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President and Chief Actuary ------------------------------------------------------------------------------------- William J. Toppeta President, International ------------------------------------------------------------------------------------- Lisa M. Weber Executive Vice-President ------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President ------------------------------------------------------------------------------------- Virginia M. Wilson Senior Vice President and Controller (Chief Accounting Officer) -------------------------------------------------------------------------------------
------------- *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. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 43 APPENDIX A ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, SURRENDER CASH VALUES AND ACCUMULATED PREMIUMS The tables in this Appendix A illustrate the way the Policies work. They show how the death benefit, cash surrender value and cash value could vary over an extended period of time assuming hypothetical gross rates of return (i.e., investment income and capital gains and losses, realized or unrealized) for the Separate Account equal to constant after tax annual rates of 0%, 6% and 12%. The tables are based on a specified face amount of $250,000 for a male aged 40. The insured is assumed to be in the nonsmoker preferred class. The tables assume no rider benefits and assume you made no allocations to the Fixed Account. The tables reflect deductions for all Policy charges that would apply under the assumptions illustrated. The cash surrender values reflect a Surrender Charge deducted from the cash value upon surrender, face reduction or lapse during the first 15 Policy years. See "Table of Charges and Expenses." Values are first given based on current cost of term insurance and other Policy charges and then based on the guaranteed maximums for such charges. Illustrations show Option A and Option B death benefits. The illustrated death benefits, cash surrender values and cash values for a Policy would be different, either higher or lower, from the amounts shown if the actual gross rates of return averaged 0%, 6% or 12%, but varied above and below that average during the period or, if premiums were paid in other amounts or at other than annual intervals. They would also be different depending on the allocation of cash value among the Separate Account's investment divisions, if the actual gross rate of return for all investment divisions averaged 0%, 6% or 12%, but varied above or below that average for individual investment divisions. They would also differ if a Policy loan or partial withdrawal were made during the period of time illustrated, if the insured were female or in another risk classification, or if the Policies were issued in situations where distinctions between male and female insureds are not permitted. For example, as a result of variations in actual returns, additional premium payments beyond those illustrated may be necessary to maintain the Policy in force for the periods shown or to realize the Policy values shown on particular illustrations even if the average rate of return is achieved. The illustrations reflect an arithmetic average of the investment advisory fees and operating expenses of the Portfolios, at an annual rate of .80% of the average daily net assets of the Portfolios. This average reflects expense reimbursements and subsidies by the investment advisers of certain Portfolios that may be voluntary and of limited duration. See "Fund Investment Management Fees and Direct Expenses." Taking account of the average investment advisory fee and operating expenses of the Portfolios, the gross annual rates of return of 0%, 6% and 12% correspond to net investment return at constant annual rates of -0.79%, 5.16% and 11.11%, respectively. The second column of each table shows the amount you would accumulate if you separately invested the annual premium in an account that earned interest, after taxes, of 5% per year, compounded annually. If you request, we will furnish a personalized illustration reflecting the proposed insured's age, sex, underwriting classification, and the face amount or premium schedule you request. Because these and other assumptions will differ, the values shown in the personalized illustrations can differ very substantially from those shown in the tables below. Therefore, you should carefully review the information that accompanies any personalized illustration. That information will disclose all the assumptions on which the personalized illustration is based. Where applicable, we will also furnish on request a personalized illustration for a Policy which is not affected by the sex of the insured. 44 Male Issue Age 40 $1,800 Annual Premium for NonSmoker Preferred Underwriting Risk $250,000 Specified Face Amount Option A Death Benefit This illustration is based on CURRENT Policy charges.
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Gross Annual Gross Annual End of at 5% Rate of Return of Rate of Return of Rate of Return of Policy Interest Per -------------------------- ------------------------ ------------------------ Year Year 0% 6% 12% 0% 6% 12% 0% 6% 12% ------ ------------ -------- -------- -------- ------- ------- -------- ------- ------- -------- 1 1,890 $250,000 $250,000 $250,000 $ 0 $ 0 $ 0 $ 1,020 $ 1,100 $ 1,180 2 3,875 250,000 250,000 250,000 0 0 0 2,305 2,536 2,778 3 5,958 250,000 250,000 250,000 306 771 1,275 3,546 4,011 4,515 4 8,146 250,000 250,000 250,000 1,861 2,643 3,523 4,741 5,523 6,403 5 10,443 250,000 250,000 250,000 3,363 4,546 5,929 5,883 7,066 8,449 6 12,856 250,000 250,000 250,000 4,820 6,486 8,515 6,980 8,646 10,675 7 15,388 250,000 250,000 250,000 6,069 8,305 11,138 8,013 10,249 13,082 8 18,048 250,000 250,000 250,000 7,272 10,163 13,977 9,000 11,891 15,705 9 20,840 250,000 250,000 250,000 8,426 12,059 17,052 9,938 13,571 18,564 10 23,772 250,000 250,000 250,000 9,521 13,983 20,377 10,817 15,279 21,673 15 40,783 250,000 250,000 250,000 14,150 24,247 42,217 14,366 24,463 42,433 20 62,495 250,000 250,000 250,000 15,599 34,048 75,628 15,599 34,048 75,628 25 90,204 250,000 250,000 250,000 13,720 43,351 129,920 13,720 43,351 129,920 30 125,569 250,000 250,000 256,680 5,178 49,130 221,276 5,178 49,130 221,276 35 170,705 250,000 402,287 45,686 375,969 45,686 375,969
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE INVESTMENT DIVISIONS SELECTED FOR THE POLICY. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATION CAN BE MADE BY METLIFE OR THE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 45 Male Issue Age 40 $1,800 Annual Premium for NonSmoker Preferred Underwriting Risk $250,000 Specified Face Amount Option A Death Benefit This illustration is based on GUARANTEED Policy charges.
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Gross Annual Gross Annual End of at 5% Rate of Return of Rate of Return of Rate of Return of Policy Interest Per -------------------------- ---------------------- ---------------------- Year Year 0% 6% 12% 0% 6% 12% 0% 6% 12% ------ ------------ -------- -------- -------- ------ ------- ------- ------ ------- ------- 1 $ 1,890 $250,000 $250,000 $250,000 $ 0 $ 0 $ 0 $ 728 $ 798 $ 868 2 3,875 250,000 250,000 250,000 0 0 0 1,699 1,893 2,097 3 5,958 250,000 250,000 250,000 0 0 167 2,612 2,992 3,407 4 8,146 250,000 250,000 250,000 580 1,210 1,917 3,460 4,087 4,797 5 10,443 250,000 250,000 250,000 1,720 2,653 3,754 4,240 5,173 6,274 6 12,856 250,000 250,000 250,000 2,786 4,084 5,678 4,946 6,244 7,838 7 15,388 250,000 250,000 250,000 3,632 5,351 7,552 5,576 7,295 9,496 8 18,048 250,000 250,000 250,000 4,397 6,593 9,525 6,125 8,321 11,253 9 20,840 250,000 250,000 250,000 5,074 7,800 11,601 6,586 9,312 13,113 10 23,772 250,000 250,000 250,000 5,659 8,964 13,784 6,955 10,260 15,080 15 40,783 250,000 250,000 250,000 6,858 13,794 26,675 7,074 14,010 26,891 20 62,495 250,000 250,000 250,000 2,669 14,002 42,238 2,669 14,002 42,238 25 90,204 250,000 250,000 0 5,115 60,725 0 5,115 60,725 30 125,569 250,000 80,862 80,862 35 170,705 250,000 98,969 98,969
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE INVESTMENT DIVISIONS SELECTED FOR THE POLICY. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATION CAN BE MADE BY METLIFE OR THE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 46 Male Issue Age 40 $1,800 Annual Premium for NonSmoker Preferred Underwriting Risk $250,000 Specified Face Amount Option B Death Benefit This illustration is based on CURRENT Policy charges.
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Gross Annual Gross Annual End of at 5% Rate of Return of Rate of Return of Rate of Return of Policy Interest Per -------------------------- ------------------------ ------------------------ Year Year 0% 6% 12% 0% 6% 12% 0% 6% 12% ------ ------------ -------- -------- -------- ------- ------- -------- ------- ------- -------- 1 $ 1,890 $251,019 $251,098 $251,178 $ 0 $ 0 $ 0 $ 1,019 $ 1,098 $ 1,178 2 3,875 252,260 252,490 252,731 0 0 0 2,260 2,490 2,731 3 5,958 253,442 253,901 254,399 202 661 1,159 3,442 3,901 4,399 4 8,146 254,573 255,339 256,202 1,693 2,459 3,322 4,573 5,339 6,202 5 10,443 255,648 256,800 258,150 3,128 4,280 5,630 5,648 6,800 8,150 6 12,856 256,676 258,293 260,263 4,516 6,133 8,103 6,676 8,293 10,263 7 15,388 257,640 259,800 262,540 5,696 7,856 10,596 7,640 9,800 12,540 8 18,048 258,554 261,336 265,012 6,826 9,608 13,284 8,554 11,336 15,012 9 20,840 259,418 262,900 267,696 7,906 11,388 16,184 9,418 12,900 17,696 10 23,772 260,219 264,482 270,602 8,923 13,186 19,306 10,219 14,482 20,602 15 40,783 263,309 272,767 289,640 13,093 22,551 39,424 13,309 22,767 39,640 20 62,495 263,898 280,677 318,624 13,898 30,677 68,624 13,898 30,677 68,624 25 90,204 261,208 286,984 362,738 11,208 36,984 112,738 11,208 36,984 112,738 30 125,569 251,802 287,118 427,363 1,802 37,118 177,363 1,802 37,118 177,363 35 170,705 273,711 519,659 23,711 269,659 23,711 269,659
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE INVESTMENT DIVISIONS SELECTED FOR THE POLICY. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATION CAN BE MADE BY METLIFE OR THE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 47 Male Issue Age 40 $1,800 Annual Premium for NonSmoker Preferred Underwriting Risk $250,000 Specified Face Amount Option B Death Benefit This illustration is based on GUARANTEED Policy charges.
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical Accumulated Gross Annual Gross Annual Gross Annual End of at 5% Rate of Return of Rate of Return of Rate of Return of Policy Interest Per -------------------------- ---------------------- ---------------------- Year Year 0% 6% 12% 0% 6% 12% 0% 6% 12% ------ ------------ -------- -------- -------- ------ ------- ------- ------ ------- ------- 1 $ 1,890 $250,725 $250,795 $250,865 $ 0 $ 0 $ 0 $ 725 $ 795 $ 865 2 3,875 251,651 251,844 252,045 0 0 0 1,651 1,844 2,045 3 5,958 252,502 252,875 253,282 0 0 42 2,502 2,875 3,282 4 8,146 253,280 253,890 254,580 400 1,010 1,700 3,280 3,890 4,580 5 10,443 253,989 254,889 255,951 1,469 2,369 3,431 3,989 4,889 5,951 6 12,856 254,621 255,863 257,390 2,461 3,703 5,230 4,621 5,863 7,390 7 15,388 255,174 256,807 258,902 3,230 4,863 6,958 5,174 6,807 8,902 8 18,048 255,644 257,715 260,489 3,916 5,987 8,761 5,644 7,715 10,489 9 20,840 256,022 258,576 262,148 4,510 7,064 10,636 6,022 8,576 12,148 10 23,772 256,306 259,381 263,879 5,010 8,085 12,583 6,306 9,381 13,879 15 40,783 255,932 262,115 273,673 5,716 11,899 23,457 5,932 12,115 23,673 20 62,495 250,995 260,395 284,209 995 10,395 34,209 995 10,395 34,209 25 90,204 291,406 41,406 41,406 30 125,569 285,532 35,532 35,532 35 170,705
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE INVESTMENT DIVISIONS SELECTED FOR THE POLICY. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATION CAN BE MADE BY METLIFE OR THE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 48 INDEPENDENT AUDITORS' REPORT To the Policyholders of Metropolitan Life Separate Account UL, and the Board of Directors of Metropolitan Life Insurance Company: We have audited the accompanying statement of assets and liabilities of the Metropolitan Life Separate Account UL comprised of the State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Janus Growth, Franklin Templeton Small Cap Growth, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, Franklin Templeton Valuemark Small Cap, Davis Venture Value, Loomis Sayles Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, Alliance Growth & Income--Class B, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, JPM Enhanced Index, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios, (collectively the "Portfolios"), as of December 31, 2001, and the related statements (i) of operations for each of the three years in the period then ended, and the statements of changes in net assets for each of the three years in the period then ended of State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, and (ii) of operations and changes in net assets for each of the two years in the period then ended as well as for the period May 3, 1999 (commencement of operations) to December 31, 1999 of Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, and (iii) of operations and changes in net assets for the year then ended as well as for the period May 1, 2000 (commencement of operations) to December 31, 2000 of Putnam Large Cap Growth, and (iv) of operations and changes in net assets for the year then ended as well as for the period July 5, 2000 (commencement of operations) to December 31, 2000 of State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Davis Venture Value, Loomis Sayles Small Cap, and (v) of operations and changes in net assets for the years then ended as well as for the period September 30, 2000 (commencement of operations) to December 31, 2000 of Alliance Growth and Income--Class B, and (vi) of operations and changes in net assets for the year then ended (January 1, 2001--commencement of operations) of Franklin Templeton Valuemark Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, JPM Enhanced Index, and (vii) of operations and changes in net assets for the period May 1, 2001 (commencement of operations) to December 31, 2001 of Janus Growth, Franklin Templeton Small Cap Growth, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and the depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Life Separate Account UL including the State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Janus Growth, Franklin Templeton Small Cap Growth, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, Franklin Templeton Valuemark Small Cap, Davis Venture Value, Loomis Sayles Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, Alliance Growth & Income--Class B, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, JPM Enhanced Index, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios as of December 31, 2001, the results of its operations and the changes in its net assets for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida March 26, 2002 1 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
State Street State Street Research State Street Research State Street Investment Research Money Research Trust Income Market Diversified Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... $ 356,614,596 -- -- -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- $ 79,209,642 -- -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- -- $ 32,736,368 -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- -- -- $ 265,927,545 State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- -- -- -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- -- -- -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- -- -- -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- -- -- -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- -- -- -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- -- -- -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- -- -- -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- -- -- -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- -- -- -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- -- -- -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- -- -- -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- -- -- -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- -- -- -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- -- -- -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Investments..................................... 356,614,596 79,209,642 32,736,368 265,927,545 Cash and Accounts Receivable.......................... 86,718 -- -- -- ---------------- ---------------- ---------------- ---------------- Total Assets.......................................... 356,701,314 79,209,642 32,736,368 265,927,545 LIABILITIES........................................... -- 33,473 10,021 203,879 ---------------- ---------------- ---------------- ---------------- NET ASSETS............................................ $ 356,701,314 $ 79,176,169 $ 32,726,347 $ 265,723,666 ================ ================ ================ ================ Outstanding Units (In Thousands)...................... 13,264 4,175 2,156 11,138 Unit Value............................................ $10.98 to $35.04 $11.95 to $24.08 $14.88 to $15.85 $11.35 to $30.04
State Street Research Aggressive Growth Portfolio ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ $ 171,724,166 Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- ---------------- Total Investments..................................... 171,724,166 Cash and Accounts Receivable.......................... -- ---------------- Total Assets.......................................... 171,724,166 LIABILITIES........................................... 32,302 ---------------- NET ASSETS............................................ $ 171,691,864 ================ Outstanding Units (In Thousands)...................... 10,503 Unit Value............................................ $11.67 to $17.12
See Notes to Financial Statements.
Loomis Harris Putnam Sayles T. Rowe Price Oakmark MetLife International High Yield Janus Mid Small Cap Scudder Large Cap Stock Index Stock Bond Cap Growth Global Equity Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 346,552,451 -- -- -- -- -- -- -- $ 38,228,946 -- -- -- -- -- -- -- $ 8,762,265 -- -- -- -- -- -- -- $ 124,348,470 -- -- -- -- -- -- -- $ 44,592,236 -- -- -- -- -- -- -- $ 21,051,847 -- -- -- -- -- -- -- $ 14,312,754 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- 346,552,451 38,228,946 8,762,265 124,348,470 44,592,236 21,051,847 14,312,754 379,472 52,095 82,282 837,617 67,552 54,500 23,585 ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- 346,931,923 38,281,041 8,844,547 125,186,087 44,659,788 21,106,347 14,336,339 1,010 -- -- 946 -- -- -- ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- $ 346,930,913 $ 38,281,041 $ 8,844,547 $ 125,185,141 $ 44,659,788 $ 21,106,347 $ 14,336,339 ================ ================ ================= ================ ================= ================= ================= 17,015 3,106 774 8,481 3,509 2,000 1,242 $9.62 to $29.91 $9.47 to $13.35 $10.83 to $12.35 $5.95 to $17.08 $12.46 to $13.76 $11.79 to $12.88 $10.80 to $13.76
Neuberger T.Rowe Berman Price Partners Mid Large Cap Cap Value Growth Portfolio Portfolio ----------------- ---------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 14,106,655 -- -- $ 20,985,512 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ----------------- ---------------- 14,106,655 20,985,512 8,151 125,013 ----------------- ---------------- 14,114,806 21,110,525 -- -- ----------------- ---------------- $ 14,114,806 $ 21,110,525 ================= ================ 1,076 2,124 $11.44 to $15.63 $8.35 to $12.08
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Lehman Morgan Brothers Stanley Putnam Aggregate EAFE Russell Large Cap Bond Index Index 2000 Index Growth Portfolio Portfolio Portfolio Portfolio ---------------- -------------- --------------- -------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- -- -- -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- -- -- -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- -- -- -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- -- -- -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- -- -- -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- -- -- -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- -- -- -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- -- -- -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- -- -- -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. $ 37,336,052 -- -- -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- $ 10,740,075 -- -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- -- $ 10,618,847 -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- -- -- $ 3,942,761 State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- -- -- -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- -- -- -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- -- -- -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- -- -- -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- -- -- -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- -- -- -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- -- -- -- ---------------- -------------- --------------- -------------- Total Investments..................................... 37,336,052 10,740,075 10,618,847 3,942,761 Cash and Accounts Receivable.......................... -- 59,635 5,879 57,912 ---------------- -------------- --------------- -------------- Total Assets.......................................... 37,336,052 10,799,710 10,624,726 4,000,673 LIABILITIES........................................... 13,723 -- -- -- ---------------- -------------- --------------- -------------- NET ASSETS............................................ $ 37,322,329 $ 10,799,710 $ 10,624,726 $ 4,000,673 ================ ============== =============== ============== Outstanding Units (In Thousands)...................... 3,153 1,352 920 792 Unit Value............................................ $11.38 to $11.97 $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04
State Street Research Aurora Small Cap Value Portfolio ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. $ 20,017,164 Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- ---------------- Total Investments..................................... 20,017,164 Cash and Accounts Receivable.......................... -- ---------------- Total Assets.......................................... 20,017,164 LIABILITIES........................................... 11,930 ---------------- NET ASSETS............................................ $ 20,005,234 ================ Outstanding Units (In Thousands)...................... 1,317 Unit Value............................................ $13.09 to $14.29
See Notes to Financial Statements.
MetLife Franklin Franklin Franklin Mid Cap Templeton Janus Invesco VIF Invesco VIF Invesco VIF Templeton Templeton Stock Janus Small Cap Aspen High Equity Real Estate International Valuemark Index Growth Growth Growth Yield Income Opportunity Stock Small Cap Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- -------------- -------------- ---------- ----------- ----------- ----------- ------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 9,000,416 -- -- -- -- -- -- -- -- -- $ 951,689 -- -- -- -- -- -- -- -- -- $ 466,202 -- -- -- -- -- -- -- -- -- $1,958,752 -- -- -- -- -- -- -- -- -- $274,298 -- -- -- -- -- -- -- -- -- $122,478 -- -- -- -- -- -- -- -- -- $89,102 -- -- -- -- -- -- -- -- -- $1,766,655 -- -- -- -- -- -- -- -- -- $103,007 --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- 9,000,416 951,689 466,202 1,958,752 274,298 122,478 89,102 1,766,655 103,007 18,440 993 -- -- -- -- -- -- -- --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- 9,018,856 952,682 466,202 1,958,752 274,298 122,478 89,102 1,766,655 103,007 -- -- 9,070 -- -- -- -- -- -- --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- $ 9,018,856 $ 952,682 $ 457,132 $1,958,752 $274,298 $122,478 $89,102 $1,766,655 $103,007 =============== ============== ============== ========== ======== ======== ======= ========== ======== 867 122 52 236 37 12 7 189 16 $9.62 to $10.56 $7.73 to $7.82 $8.83 to $8.88 $ 8.30 $ 7.46 $ 9.81 $ 12.05 $ 9.27 $ 6.91
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Davis Venture Loomis Sayles Alger Equity MFS Investors Value Small Cap Income Trust Portfolio Portfolio Portfolio Portfolio --------------- ---------------- ------------ -------------- ASSETS: Investments at Value: Davis Venture Value Portfolio (319,613 shares; cost $7,885,673)........................... $ 7,475,741 -- -- -- Loomis Sayles Small Cap Portfolio (10,841 shares; cost $1,978,252)............................ -- $ 1,921,621 -- -- Alger Equity Income Portfolio (2,181 shares; cost $50,362)................................ -- -- $45,237 -- MFS Investors Trust Portfolio (65,756 shares; cost $559,000).............................. -- -- -- $ 563,527 MFS Research Managers Portfolio (31,459 shares; cost $284,733).............................. -- -- -- -- State Street Research Bond Income Portfolio (2,808 shares; cost $308,271)............................... -- -- -- -- Westpeak Growth & Income Equity Portfolio (161 shares; cost $27,685).................................. -- -- -- -- Harris Oakmark Mid Cap Value Portfolio (22,682 shares; cost $3,941,042)............................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (41,436 shares; cost $460,287).............................. -- -- -- -- Salomon Brothers U.S. Government Portfolio (711,002 shares; cost $851,459)............................. -- -- -- -- Alliance Growth & Income--Class B Portfolio (29,760 shares; cost $628,642).............................. -- -- -- -- Alliance Premier Growth--Class B Portfolio (3,933 shares; cost $97,019)................................ -- -- -- -- Alliance Technology--Class B Portfolio (732 shares; cost $15,230).................................. -- -- -- -- Fidelity VIP II Contrafund--Service Class Portfolio (1,193 shares; cost $24,113)................................ -- -- -- -- Fidelity VIP II Asset Manager Growth--Service Class Portfolio (7,603 shares; cost $96,105)................................ -- -- -- -- Fidelity VIP Growth--Service Class Portfolio (2,617 shares; cost $90,326)................................ -- -- -- -- American Funds Growth Portfolio (61,240 shares; cost $2,716,656)............................ -- -- -- -- American Funds Growth & Income Portfolio (72,838 shares; cost $2,244,842)............................ -- -- -- -- American Funds Global Small Cap Portfolio (51,803 shares; cost $548,121).............................. -- -- -- -- JPM Enhanced Index Portfolio (364 shares; cost $5,683)................................... -- -- -- -- MFS Mid Cap Growth Portfolio (37,952 shares; cost $306,416).............................. -- -- -- -- MFS Research International Portfolio (11,304 shares; cost $94,418)............................... -- -- -- -- PIMCO Total Return Portfolio (106,562 shares; cost $1,117,075)........................... -- -- -- -- PIMCO Innovations Portfolio (121,204 shares; cost $746,075)............................. -- -- -- -- --------------- ---------------- ------- -------------- Total Investments............................................ 7,475,741 1,921,621 45,237 563,527 Cash and Accounts Receivable................................. 21,799 4,792 -- -- --------------- ---------------- ------- -------------- Total Assets................................................. 7,497,540 1,926,413 45,237 563,527 LIABILITIES.................................................. -- -- -- 241,420 --------------- ---------------- ------- -------------- NET ASSETS................................................... $ 7,497,540 $ 1,926,413 $45,237 $ 322,107 =============== ================ ======= ============== Outstanding Units (In Thousands)............................. 297 11 6 43 Unit Value................................................... $8.94 to $25.95 $8.66 to $191.87 $ 7.57 $8.19 to $8.57
See Notes to Financial Statements.
State Street Alliance MFS Research Westpeak Salomon Brothers Premier Research Bond Growth & Harris Oakmark Strategic Bond Salomon Brothers Alliance Growth Growth-- Managers Income Income Mid Cap Value Opportunities U.S. Government & Income-- Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Class B Portfolio Portfolio --------- ------------ --------- ------------------ ---------------- ---------------- ----------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 284,387 -- -- -- -- -- -- -- -- $306,959 -- -- -- -- -- -- -- -- $25,218 -- -- -- -- -- -- -- -- $ 4,220,843 -- -- -- -- -- -- -- -- $ 464,908 -- -- -- -- -- -- -- -- $ 849,186 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $655,611 -- -- -- -- -- -- -- -- $98,318 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- 284,387 306,959 25,218 4,220,843 464,908 849,186 655,611 98,318 -- -- -- -- 40 153 -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- 284,387 306,959 25,218 4,220,843 464,948 849,339 655,611 98,318 132,924 -- -- 6,298 114 40 -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- $ 151,463 $306,959 $25,218 $ 4,214,545 $ 464,834 $ 849,299 $655,611 $98,318 ============== ======== ======= ================== ================ ================ ======== ======= 13 27 3 23 41 71 65 14 $6.97 to $9.04 $ 11.23 $ 8.19 $184.98 to $186.09 $11.15 to $11.22 $11.89 to $11.96 $ 10.19 $ 7.15
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Fidelity VIP II Asset Alliance Fidelity VIP II Manager Fidelity VIP Technology-- Contrafund-- Growth-- Growth-- Class B Service Class Service Class Service Class Portfolio Portfolio Portfolio Portfolio ------------ --------------- --------------- ------------- ASSETS: Investments at Value: Davis Venture Value Portfolio (319,613 shares; cost $7,885,673)..... -- -- -- -- Loomis Sayles Small Cap Portfolio (10,841 shares; cost $1,978,252).. -- -- -- -- Alger Equity Income Portfolio (2,181 shares; cost $50,362).......... -- -- -- -- MFS Investors Trust Portfolio (65,756 shares; cost $559,000)........ -- -- -- -- MFS Research Managers Portfolio (31,459 shares; cost $284,733)...... -- -- -- -- State Street Research Bond Income Portfolio (2,808 shares; cost $308,271).......................................................... -- -- -- -- Westpeak Growth & Income Equity Portfolio (161 shares; cost $27,685) -- -- -- -- Harris Oakmark Mid Cap Value Portfolio (22,682 shares; cost $3,941,042)........................................................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (41,436 shares; cost $460,287)............................................. -- -- -- -- Salomon Brothers U.S. Government Portfolio (711,002 shares; cost $851,459).......................................................... -- -- -- -- Alliance Growth & Income--Class B Portfolio (29,760 shares; cost $628,642).......................................................... -- -- -- -- Alliance Premier Growth--Class B Portfolio (3,933 shares; cost $97,019)........................................................... -- -- -- -- Alliance Technology--Class B Portfolio (732 shares; cost $15,230)... $12,549 -- -- -- Fidelity VIP II Contrafund--Service Class Portfolio (1,193 shares; cost $24,113)...................................................... -- $23,860 -- -- Fidelity VIP II Asset Manager Growth--Service Class Portfolio (7,603 shares; cost $96,105).............................................. -- -- $94,508 -- Fidelity VIP Growth--Service Class Portfolio (2,617 shares; cost $90,326)........................................................... -- -- -- $87,248 American Funds Growth Portfolio (61,240 shares; cost $2,716,656).... -- -- -- -- American Funds Growth & Income Portfolio (72,838 shares; cost $2,244,842)........................................................ -- -- -- -- American Funds Global Small Cap Portfolio (51,803 shares; cost $548,121).......................................................... -- -- -- -- JPM Enhanced Index Portfolio (364 shares; cost $5,683).............. -- -- -- -- MFS Mid Cap Growth Portfolio (37,952 shares; cost $306,416)......... -- -- -- -- MFS Research International Portfolio (11,304 shares; cost $94,418).. -- -- -- -- PIMCO Total Return Portfolio (106,562 shares; cost $1,117,075)...... -- -- -- -- PIMCO Innovations Portfolio (121,204 shares; cost $746,075)......... -- -- -- -- ------- ------- ------- ------- Total Investments................................................... 12,549 23,860 94,508 87,248 Cash and Accounts Receivable........................................ -- -- -- -- ------- ------- ------- ------- Total Assets........................................................ 12,549 23,860 94,508 87,248 LIABILITIES......................................................... -- -- -- -- ------- ------- ------- ------- NET ASSETS.......................................................... $12,549 $23,860 $94,508 $87,248 ======= ======= ======= ======= Outstanding Units (In Thousands).................................... 2 3 13 13 Unit Value.......................................................... $ 5.43 $ 7.96 $ 7.89 $ 6.77
See Notes to Financial Statements.
American American JPM MFS MFS American Funds Growth Funds Global Enhanced Mid Cap Research PIMCO Funds Growth & Income Small Cap Index Growth International Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- --------- -------------- -------------- ---------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 2,699,467 -- -- -- -- -- -- -- $ 2,300,239 -- -- -- -- -- -- -- $ 594,700 -- -- -- -- -- -- -- $5,363 -- -- -- -- -- -- $ 317,656 -- -- -- -- -- -- -- $ 95,862 -- -- -- -- -- -- $ 1,102,920 ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- 2,699,467 2,300,239 594,700 5,363 317,656 95,862 1,102,920 476,806 153,118 24,357 -- 246,761 141,651 -- ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- 3,176,273 2,453,357 619,057 5,363 564,417 237,513 1,102,920 -- -- -- -- -- -- 354 ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- $ 3,176,273 $ 2,453,357 $ 619,057 $5,363 $ 564,417 $ 237,513 $ 1,102,566 ================ ================ ================ ====== ============== ============== ================ 53 68 49 1 68 28 103 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 $ 8.12 $8.32 to $8.37 $8.44 to $8.50 $10.64 to $10.70
PIMCO Innovations Portfolio -------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 750,254 -------------- 750,254 -- -------------- 750,254 1,564 -------------- $ 748,690 ============== 121 $6.15 to $6.19 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
State Street Research Investment Trust State Street Research Income Portfolio Portfolio ----------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------- ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 51,437,166 $ 4,838,821 $ 44,038,080 $5,650,347 $ 3,139 $ 4,181,436 Expenses: Mortality and expense charges........... 3,136,115 3,798,303 3,209,889 570,796 557,064 499,462 ------------- ------------ ------------ ---------- ---------- ----------- Net investment income (loss).............. 48,301,051 1,040,518 40,828,191 5,079,551 (553,925) 3,681,974 ------------- ------------ ------------ ---------- ---------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. 731,187 5,846,334 3,593,964 400,181 (764,188) 15,187 Change in unrealized (depreciation) appreciation of investments.............. (122,469,738) (37,904,600) 116,515,105 (136,424) 8,375,071 (5,496,396) ------------- ------------ ------------ ---------- ---------- ----------- Net realized and unrealized (loss) gain on investments.............................. (121,738,551) (32,058,266) 120,109,069 263,757 7,610,883 (5,481,209) ------------- ------------ ------------ ---------- ---------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $ (73,437,500) $(31,017,748) $160,937,260 $5,343,308 $7,056,958 $(1,799,235) ============= ============ ============ ========== ========== ===========
See Notes to Financial Statements.
State Street Research Money Market State Street Research Diversified State Street Research Aggressive Growth Portfolio Portfolio Portfolio ------------------------------------- -------------------------------------- ---------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $1,134,017 $1,677,962 $1,538,117 $ 25,415,648 $ 1,174,688 $20,799,436 $ 46,776,659 $ 27,463,699 $ 4,466,938 215,488 291,782 241,265 2,231,404 2,258,802 1,973,981 1,493,070 1,992,343 1,429,076 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- 918,529 1,386,180 1,296,852 23,184,244 (1,084,114) 18,825,455 45,283,589 25,471,356 3,037,862 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- (499,341) 1,059,353 245,673 (111,095) 1,585,197 743,624 (1,536,972) 3,369,764 1,280,373 796,577 (454,099) (275,023) (42,080,714) (360,101) (2,237,161) (94,895,107) (48,026,970) 47,914,985 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- 297,236 605,254 (29,350) (42,191,809) 1,225,096 (1,493,537) (96,432,079) (44,657,206) 49,195,358 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- $1,215,765 $1,991,434 $1,267,502 $(19,007,565) $ 140,982 $17,331,918 $(51,148,490) $(19,185,850) $52,233,220 ========== ========== ========== ============ =========== =========== ============ ============ ===========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
MetLife Stock Index Putnam International Stock Portfolio Portfolio ---------------------------------------- -------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 3,858,667 $ 13,335,508 $12,076,347 $ 1,500,375 $ 274,114 $ 6,737,411 Expenses: Mortality and expense charges........... 2,645,594 2,457,289 1,722,924 327,499 377,435 334,318 ------------ ------------ ----------- ------------ ----------- ----------- Net investment income (loss).............. 1,213,073 10,878,219 10,353,423 1,172,876 (103,321) 6,403,093 ------------ ------------ ----------- ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. 4,130,927 6,159,583 3,899,836 (1,661,736) 309,181 528,185 Change in unrealized (depreciation) appreciation of investments.............. (48,985,481) (49,619,601) 24,029,258 (9,202,287) (5,241,506) (1,137,521) ------------ ------------ ----------- ------------ ----------- ----------- Net realized and unrealized (loss) gain on investments.............................. (44,854,554) (43,460,018) 27,929,094 (10,864,023) (4,932,325) (609,336) ------------ ------------ ----------- ------------ ----------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(43,641,481) $(32,581,799) $38,282,517 $ (9,691,147) $(5,035,646) $ 5,793,757 ============ ============ =========== ============ =========== ===========
See Notes to Financial Statements.
Loomis Sayles High Yield Bond Janus Mid Cap T. Rowe Price Small Cap Growth Portfolio Portfolio Portfolio ------------------------------------- ---------------------------------------- ------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 923,897 $ 2,401 $ 384,074 $ -- $ 11,303,876 $ 5,416,355 $ 3,542,193 $ -- $ -- 64,809 50,458 32,947 1,037,631 1,274,377 432,040 332,644 307,077 159,812 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- 859,088 (48,057) 351,127 (1,037,631) 10,029,499 4,984,315 3,209,549 (307,077) (159,812) ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- (134,223) (62,427) (159,077) (2,451,549) 3,280,184 1,140,427 (796,014) 759,159 41,394 (902,997) (65,158) 384,776 (53,291,667) (70,128,825) 44,344,823 (6,595,361) (4,955,737) 6,830,580 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- (1,037,220) (127,585) 225,699 (55,743,216) (66,848,641) 45,485,250 (7,391,375) (4,196,578) 6,871,974 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- $ (178,132) $(175,642) $ 576,826 $(56,780,847) $(56,819,142) $50,469,565 $(4,181,826) $(4,503,655) $6,712,162 =========== ========= ========= ============ ============ =========== =========== =========== ==========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Scudder Global Equity Harris Oakmark Large Cap Value Portfolio Portfolio -------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends........................................ $ 2,319,964 $ 64,757 $ 486,049 $ 12,105 $ 45,533 $ 2,973 Expenses: Mortality and expense charges.................... 164,713 142,655 86,933 68,617 8,356 615 ----------- --------- ---------- -------- -------- -------- Net investment income (loss)....................... 2,155,251 (77,898) 399,116 (56,512) 37,177 2,358 ----------- --------- ---------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions...................................... (71,082) 423,877 272,213 94,596 (27,497) (5,489) Change in unrealized (depreciation) appreciation of investments....................................... (5,825,339) (702,165) 1,937,990 810,284 217,646 (13,841) ----------- --------- ---------- -------- -------- -------- Net realized and unrealized (loss) gain on investments....................................... (5,896,421) (278,288) 2,210,203 904,880 190,149 (19,330) ----------- --------- ---------- -------- -------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $(3,741,170) $(356,186) $2,609,319 $848,368 $227,326 $(16,972) =========== ========= ========== ======== ======== ========
See Notes to Financial Statements.
Neuberger Berman Partners Mid Cap Value T.Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Portfolio Portfolio Portfolio --------------------------------------- -------------------------------------- ------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 196,293 $192,122 $13,508 $ 8,447 $ 212,097 $ 5,264 $ 366,468 $1,151,414 $ 24,999 89,772 16,357 627 103,226 28,064 4,482 154,225 51,779 2,156 --------- -------- ------- --------- --------- -------- ---------- ---------- -------- 106,521 175,765 12,881 (94,779) 184,033 782 212,243 1,099,635 22,843 --------- -------- ------- --------- --------- -------- ---------- ---------- -------- (68,863) 28,891 679 (100,488) 9,246 2,027 210,509 61,931 (1,189) (195,526) 444,118 16,713 (92,461) (515,437) 172,687 1,053,501 (39,445) (27,533) --------- -------- ------- --------- --------- -------- ---------- ---------- -------- (264,389) 473,009 17,392 (192,949) (506,191) 174,714 1,264,010 22,486 (28,722) --------- -------- ------- --------- --------- -------- ---------- ---------- -------- $(157,868) $648,774 $30,273 $(287,728) $(322,158) $175,496 $1,476,253 $1,122,121 $ (5,879) ========= ======== ======= ========= ========= ======== ========== ========== ========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Morgan Stanley EAFE Index Portfolio Russell 2000 Index Portfolio -------------------------------------- -------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 - ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 25,460 $ 90,887 $ 15,956 $ 21,244 $ 797,642 $13,398 Expenses: Mortality and expense charges........... 63,300 22,497 4,919 68,898 21,802 1,131 ----------- --------- -------- ----------- ----------- ------- Net investment income (loss).............. (37,840) 68,390 11,037 (47,654) 775,840 12,267 ----------- --------- -------- ----------- ----------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. (961,834) (86,470) 92,428 (1,016,179) (27,586) 10,610 Change in unrealized (depreciation) appreciation of investments.............. (729,479) (425,063) 160,288 1,215,383 (1,037,181) 41,036 ----------- --------- -------- ----------- ----------- ------- Net realized and unrealized (loss) gain on investments.............................. (1,691,313) (511,533) 252,716 199,204 (1,064,767) 51,646 ----------- --------- -------- ----------- ----------- ------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(1,729,153) $(443,143) $263,753 $ 151,550 $ (288,927) $63,913 =========== ========= ======== =========== =========== =======
See Notes to Financial Statements.
State Street Research Aurora Franklin Templeton Putnam Large Cap Growth Small Cap Value MetLife Mid Cap Stock Index Janus Growth Small Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------------------- ---------------------------- -------------------------- ------------- ------------------ For the For the For the For the For the For the Period May 1, For the Period July 5, For the Period July 5, Period May 1, Period May 1, Year Ended 2000 to Year Ended 2000 to Year Ended 2000 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 2001 2000 2001 2000 2001 2001 ------------ ------------- ------------ -------------- ------------ -------------- ------------- ------------------ $ -- $ -- $ 44,265 $ 20,669 $ 24,102 $ 8,945 $ -- $ -- 22,732 1,713 95,291 3,697 42,826 1,923 2,780 1,124 --------- --------- ---------- -------- -------- ------- -------- ------- (22,732) (1,713) (51,026) 16,972 (18,724) 7,022 (2,780) (1,124) --------- --------- ---------- -------- -------- ------- -------- ------- (113,353) (1,766) 155,882 3,082 (19,531) (300) (43,356) (3,651) (585,114) (173,356) 1,218,805 302,768 294,328 57,307 (11,854) 16,066 --------- --------- ---------- -------- -------- ------- -------- ------- (698,467) (175,122) 1,374,687 305,850 274,797 57,007 (55,210) 12,415 --------- --------- ---------- -------- -------- ------- -------- ------- $(721,199) $(176,835) $1,323,661 $322,822 $256,073 $64,029 $(57,990) $11,291 ========= ========= ========== ======== ======== ======= ======== =======
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Janus Aspen Growth Invesco VIF High Yield Portfolio Portfolio -------------------------------------- -------------------------------------- For the For the For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- INVESTMENT INCOME: Income: Dividends............................... $ 210,720 $ 191,433 $ -- $ 29,774 $ -- $-- Expenses: Mortality and expense charges........... 25,354 19,763 61 602 42 -- ----------- ----------- ------- -------- ------- --- Net investment income (loss).............. 185,366 171,670 (61) 29,172 (42) -- ----------- ----------- ------- -------- ------- --- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. (1,848,663) (11,878) 79 (3,798) (11) -- Change in unrealized (depreciation) appreciation of investments.............. 498,521 (1,038,841) 10,708 (33,395) (1,445) (6) ----------- ----------- ------- -------- ------- --- Net realized and unrealized (loss) gain on investments.............................. (1,350,142) (1,050,719) 10,787 (37,193) (1,456) (6) ----------- ----------- ------- -------- ------- --- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(1,164,776) $ (879,049) $10,726 $ (8,021) $(1,498) $(6) =========== =========== ======= ======== ======= ===
See Notes to Financial Statements.
Invesco VIF Equity Income Invesco VIF Real Estate Opportunity Franklin Templeton International Stock Portfolio Portfolio Portfolio --------------------------------------- -------------------------------------- -------------------------------------- For the For the For the For the For the Period May 3, For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- ------------ ------------ ------------- $ 1,779 $ 783 $-- $ 1,183 $ -- $-- $ 203,320 $ 34,323 $ -- 304 58 -- 531 288 1 5,484 3,352 5 ------- ----- --- ------- ------ --- --------- -------- ---- 1,475 725 -- 652 (288) (1) 197,836 30,971 (5) ------- ----- --- ------- ------ --- --------- -------- ---- (1,414) 18 -- 1,271 445 -- (18,952) (35,953) 32 (4,995) (596) 45 (3,692) 4,890 84 (287,060) (6,907) 481 ------- ----- --- ------- ------ --- --------- -------- ---- (6,409) (578) 45 (2,421) 5,335 84 (306,012) (42,860) 513 ------- ----- --- ------- ------ --- --------- -------- ---- $(4,934) $ 147 $45 $(1,769) $5,047 $83 $(108,176) $(11,889) $508 ======= ===== === ======= ====== === ========= ======== ====
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Franklin Templeton Valuemark Alger Equity Small Cap Davis Venture Value Loomis Sayles Small Cap Income Portfolio Portfolio Portfolio Portfolio ------------ -------------------------- -------------------------- ------------ For the For the For the For the Period July 5, For the Period July 5, For the Year Ended Year Ended 2000 to Year Ended 2000 to Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 2001 2000 2001 ------------ ------------ -------------- ------------ -------------- ------------ INVESTMENT INCOME: Income: Dividends.......................... $ 56 $ 192,850 $ -- $ 86,281 $ -- $ -- Expenses: Mortality and expense charges...... 177 39,662 1,697 11,207 629 121 ------ --------- ------- -------- ------ ------- Net investment income (loss)........ (121) 153,188 (1,697) 75,074 (629) (121) ------ --------- ------- -------- ------ ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions.............. (480) (46,987) (482) (35,645) (42) (175) Change in unrealized (depreciation) appreciation of investments........ 4,364 (437,523) 27,591 (62,611) 5,980 (5,126) ------ --------- ------- -------- ------ ------- Net realized and unrealized (loss) gain on investments................ 3,884 (484,510) 27,109 (98,256) 5,938 (5,301) ------ --------- ------- -------- ------ ------- NET (DECREASE) INCREASE ON NET ASSETS RESULTING FROM OPERATIONS... $3,763 $(331,322) $25,412 $(23,182) $5,309 $(5,422) ====== ========= ======= ======== ====== =======
See Notes to Financial Statements.
State Street MFS MFS Research Westpeak Harris Salomon Brothers Salomon Investors Research Bond Growth & Oakmark Mid Strategic Bond Brothers U.S. Alliance Growth & Trust Managers Income Income Cap Value Opportunities Government Income--Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------- ---------------- ------------- ---------------------------- For the For the For the For the For the For the For the Period May 1, Period May 1, Period May 1, For the For the Period Year Ended Year Ended Year Ended Year Ended 2001 to 2001 to 2001 to Year Ended September 30 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 2001 2001 2000 ------------ ------------ ------------ ------------ ------------- ---------------- ------------- ------------ --------------- $ -- $ 386 $17,303 $ -- $ -- $ -- $ -- $ 3,229 $ -- 1,179 749 1,255 69 9,775 894 1,841 1,034 -- ------- ------ ------- ------- -------- ------ ------- ------- ------ (1,179) (363) 16,048 (69) (9,775) (894) (1,841) 2,195 -- ------- ------ ------- ------- -------- ------ ------- ------- ------ (5,896) 1,304 (156) (77) (43) 117 5,065 (318) -- 4,527 (346) (1,312) (2,467) 279,801 4,621 (2,273) 24,267 2,702 ------- ------ ------- ------- -------- ------ ------- ------- ------ (1,369) 958 (1,468) (2,544) 279,758 4,738 2,792 23,949 2,702 ------- ------ ------- ------- -------- ------ ------- ------- ------ $(2,548) $ 595 $14,580 $(2,613) $269,983 $3,844 $ 951 $26,144 $2,702 ======= ====== ======= ======= ======== ====== ======= ======= ======
Metropolitan Life Separate Account UL STATEMENT OF OPERATIONS
Fidelity VIP II Alliance Alliance Fidelity VIP II Asset Manager Fidelity VIP American Premier Growth-- Technology-- Contrafund-- Growth-- Growth-- Funds Class B Class B Service Class Service Class Service Class Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ --------------- --------------- ------------- ------------- For the For the For the For the For the For the Period May 1, Year Ended Year Ended Year Ended Year Ended Year Ended 2001 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 ---------------- ------------ --------------- --------------- ------------- ------------- INVESTMENT INCOME: Income: Dividends........................ $ -- $ 782 $ -- $ -- $ -- $ 134,864 Expenses: Mortality and expense charges.... 104 121 57 233 243 6,807 ------ -------- ----- ------- ------- --------- Net investment income (loss)...... (104) 661 (57) (233) (243) 128,057 ------ -------- ----- ------- ------- --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............ (138) (19,763) (27) 113 (3,407) (95,342) Change in unrealized (depreciation) appreciation of investments...................... 1,299 (2,681) (253) (1,597) (3,078) (17,189) ------ -------- ----- ------- ------- --------- Net realized and unrealized (loss) gain on investments.............. 1,161 (22,444) (280) (1,484) (6,485) (112,531) ------ -------- ----- ------- ------- --------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. $1,057 $(21,783) $(337) $(1,717) $(6,728) $ 15,526 ====== ======== ===== ======= ======= =========
See Notes to Financial Statements.
American Funds American Funds JPM Enhanced MFS Mid Cap MFS Research PIMCO PIMCO Growth & Income Global Small Cap Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- ---------------- ------------ ------------- ------------- ------------- ------------- For the For the For the For the For the For the Period May 1, Period May 1, For the Period May 1, Period May 1, Period May 1, Period May 1, 2001 to 2001 to Year Ended 2001 to 2001 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 2001 --------------- ---------------- ------------ ------------- ------------- ------------- ------------- $ 20,236 $ 7,147 $ -- $ -- $ 174 $ 26,164 $ -- 5,104 1,216 13 940 525 2,322 1,528 -------- -------- ----- ------- ------- -------- ------- 15,132 5,931 (13) (940) (351) 23,842 (1,528) -------- -------- ----- ------- ------- -------- ------- (13,398) (18,714) (25) (1,372) (4,107) 1,564 (9,873) 55,397 46,579 (320) 11,239 1,444 (14,155) 4,179 -------- -------- ----- ------- ------- -------- ------- 41,999 27,865 (345) 9,867 (2,663) (12,591) (5,694) -------- -------- ----- ------- ------- -------- ------- $ 57,131 $ 33,796 $(358) $ 8,927 $(3,014) $ 11,251 $(7,222) ======== ======== ===== ======= ======= ======== =======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Investment Trust Portfolio ----------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss).......... $ 48,301,051 $ 1,040,518 $ 40,828,191 Net realized gain (loss) from security transactions................ 731,187 5,846,334 3,593,964 Change in unrealized (depreciation) appreciation of investments.......... (122,469,738) (37,904,600) 16,515,105 ------------- ------------ ------------ Net (decrease) increase in net assets resulting from operations..... (73,437,500) (31,017,748) 60,937,260 ------------- ------------ ------------ From capital transactions: Net premiums.......................... 80,046,712 78,775,448 76,267,713 Redemptions........................... (15,513,042) (15,714,936) (15,563,840) Net portfolio transfers............... 2,751,095 (7,049,932) 3,590,588 Other net transfers................... (40,534,492) (41,272,460) (38,125,701) ------------- ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions......................... 26,750,273 14,738,120 26,168,760 ------------- ------------ ------------ NET CHANGE IN NET ASSETS................. (46,687,227) (16,279,628) 87,106,020 NET ASSETS--BEGINNING OF PERIOD.......... 403,388,541 419,668,169 332,562,149 ------------- ------------ ------------ NET ASSETS--END OF PERIOD................ $ 356,701,314 $403,388,541 $419,668,169 ============= ============ ============
See Notes to Financial Statements.
State Street Research Income Portfolio State Street Research Money Market Portfolio -------------------------------------- ------------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 5,079,551 $ (553,925) $ 3,681,974 $ 918,529 $ 1,386,180 $ 1,296,852 400,181 (764,188) 15,187 (499,341) 1,059,353 245,673 (136,424) 8,375,071 (5,496,396) 796,577 (454,099) (275,023) ------------ ----------- ----------- ----------- ------------ ------------ 5,343,308 7,056,958 (1,799,235) 1,215,765 1,991,434 1,267,502 ------------ ----------- ----------- ----------- ------------ ------------ 14,224,980 16,247,550 15,797,917 17,936,134 35,316,006 35,768,800 (3,623,665) (2,164,427) (1,719,595) (1,689,474) (18,249,957) (296,905) 3,006,543 (4,736,604) 2,922,342 (4,603,225) (27,922,080) (23,898,442) (15,758,248) (6,051,666) (6,009,960) (1,666,768) (2,674,970) (2,027,635) ------------ ----------- ----------- ----------- ------------ ------------ (2,150,390) 3,294,853 10,990,704 9,976,667 (13,531,001) 9,545,818 ------------ ----------- ----------- ----------- ------------ ------------ 3,192,918 10,351,811 9,191,469 11,192,432 (11,539,567) 10,813,320 75,983,251 65,631,440 56,439,971 21,533,915 33,073,482 22,260,162 ------------ ----------- ----------- ----------- ------------ ------------ $ 79,176,169 $75,983,251 $65,631,440 $32,726,347 $ 21,533,915 $ 33,073,482 ============ =========== =========== =========== ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Diversified Portfolio ------------------------------------------ For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 23,184,244 $ (1,084,114) $ 18,825,455 Net realized gain (loss) from security transactions........................ (111,095) 1,585,197 743,624 Change in unrealized (depreciation) appreciation of investments............ (42,080,714) (360,101) (2,237,161) ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations............ (19,007,565) 140,982 17,331,918 ------------ ------------ ------------ From capital transactions: Net premiums............................................................... 55,767,097 53,773,281 54,466,186 Redemptions................................................................ (8,333,720) (9,860,611) (8,542,813) Net portfolio transfers.................................................... 8,413,016 (3,492,574) 2,267,794 Other net transfers........................................................ (31,250,185) (28,128,760) (26,640,820) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions.. 24,596,208 12,291,336 21,550,347 ------------ ------------ ------------ NET CHANGE IN NET ASSETS...................................................... 5,588,643 12,432,318 38,882,265 NET ASSETS--BEGINNING OF PERIOD............................................... 260,135,023 247,702,705 208,820,440 ------------ ------------ ------------ NET ASSETS--END OF PERIOD..................................................... $265,723,666 $260,135,023 $247,702,705 ============ ============ ============
See Notes to Financial Statements.
State Street Research Aggressive Growth Portfolio MetLife Stock Index Portfolio ------------------------------------------------ ---------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 45,283,589 $ 25,471,356 $ 3,037,862 $ 1,213,073 $ 10,878,219 $ 10,353,423 (1,536,972) 3,369,764 1,280,373 4,130,927 6,159,583 3,899,836 (94,895,107) (48,026,970) 47,914,985 (48,985,481) (49,619,601) 24,029,258 ------------ ------------ ------------ ------------ ------------ ------------ (51,148,490) (19,185,850) 52,233,220 (43,641,481) (32,581,799) 38,282,517 ------------ ------------ ------------ ------------ ------------ ------------ 42,942,155 41,898,360 41,977,555 113,949,042 101,155,153 80,432,444 (6,486,474) (10,429,472) (6,935,090) (11,030,629) (8,709,802) (5,037,136) 1,097,789 (209,434) (8,586,687) 19,393,554 32,416,473 20,459,060 (19,697,556) (21,759,150) (18,101,172) (45,631,351) (39,683,105) (31,708,703) ------------ ------------ ------------ ------------ ------------ ------------ 17,855,914 9,500,304 8,354,606 76,680,616 85,178,719 864,145,665 ------------ ------------ ------------ ------------ ------------ ------------ (33,292,576) (9,685,546) 60,587,826 33,039,135 52,596,920 102,428,182 204,984,440 214,669,986 154,082,160 313,891,778 261,294,858 158,866,676 ------------ ------------ ------------ ------------ ------------ ------------ $171,691,864 $204,984,440 $214,669,986 $346,930,913 $313,891,778 $261,294,858 ============ ============ ============ ============ ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Putnam International Stock Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 - ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 1,172,876 $ (103,321) $ 6,403,093 Net realized gain (loss) from security transactions........................ (1,661,736) 309,181 528,185 Change in unrealized (depreciation) appreciation of investments............ (9,202,287) (5,241,506) (1,137,521) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations............ (9,691,147) (5,035,646) 5,793,757 ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 9,615,907 9,900,638 8,765,614 Redemptions................................................................ (1,289,983) (2,135,289) (1,805,287) Net portfolio transfers.................................................... 323,092 760,648 (1,507,125) Other net transfers........................................................ (4,148,436) (3,943,304) (3,575,131) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 4,500,580 4,582,693 1,878,071 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... (5,190,567) (452,953) 7,671,828 NET ASSETS--BEGINNING OF PERIOD............................................... 43,471,608 43,924,561 36,252,733 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $38,281,041 $43,471,608 $43,924,561 =========== =========== ===========
See Notes to Financial Statements.
Loomis Sayles High Yield Bond Portfolio Janus Mid Cap Portfolio -------------------------------------- ---------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 859,088 $ (48,057) $ 351,127 $ (1,037,631) $ 10,029,499 $ 4,984,315 (134,223) (62,427) (159,077) (2,451,549) 3,280,184 1,140,427 (902,997) (65,158) 384,776 (53,291,667) (70,128,825) 44,344,823 ---------- ---------- ---------- ------------ ------------ ------------ (178,132) (175,642) 576,826 (56,780,847) (56,819,142) 50,469,565 ---------- ---------- ---------- ------------ ------------ ------------ 2,653,126 2,272,880 1,766,270 74,363,749 64,927,917 31,140,404 (478,731) (256,031) (387,694) (3,144,623) (3,404,065) (1,283,943) 807,014 762,530 1,046,383 3,860,189 39,706,625 24,344,237 (872,472) (644,203) (587,488) (23,970,747) (26,632,666) (12,718,059) ---------- ---------- ---------- ------------ ------------ ------------ 2,108,937 2,135,176 1,837,471 51,108,568 74,597,811 41,482,639 ---------- ---------- ---------- ------------ ------------ ------------ 1,930,805 1,959,534 2,414,297 (5,672,279) 17,778,669 91,952,204 6,913,742 4,954,208 2,539,911 130,857,420 113,078,751 21,126,547 ---------- ---------- ---------- ------------ ------------ ------------ $8,844,547 $6,913,742 $4,954,208 $125,185,141 $130,857,420 $113,078,751 ========== ========== ========== ============ ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
T. Rowe Price Small Cap Growth Portfolio --------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 - ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss).......... $ 3,209,549 $ (307,077) $ (159,812) Net realized gain (loss) from security transactions................. (796,014) 759,159 41,394 Change in unrealized (depreciation) appreciation of investments........... (6,595,361) (4,955,737) 6,830,580 ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations..... (4,181,826) (4,503,655) 6,712,162 ----------- ----------- ----------- From capital transactions: Net premiums.......................... 15,023,523 13,173,661 10,707,741 Redemptions........................... (2,577,320) (960,930) (556,621) Net portfolio transfers............... (372,409) 7,018,243 5,288,531 Other net transfers................... (5,350,422) (4,758,398) (3,307,953) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions......................... 6,723,372 14,472,576 12,131,698 ----------- ----------- ----------- NET CHANGE IN NET ASSETS................. 2,541,546 9,968,921 18,843,860 NET ASSETS--BEGINNING OF PERIOD.......... 42,118,242 32,149,321 13,305,461 ----------- ----------- ----------- NET ASSETS--END OF PERIOD................ $44,659,788 $42,118,242 $32,149,321 =========== =========== ===========
See Notes to Financial Statements.
Scudder Global Equity Portfolio Harris Oakmark Large Cap Value Portfolio ------------------------------------- --------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 2,155,251 $ (77,898) $ 399,116 $ (56,512) $ 37,177 $ 2,358 (71,082) 423,877 272,213 94,596 (27,497) (5,489) (5,825,339) (702,165) 1,937,990 810,284 217,646 (13,841) ----------- ----------- ----------- ----------- ---------- -------- (3,741,170) (356,186) 2,609,319 848,368 227,326 (16,972) ----------- ----------- ----------- ----------- ---------- -------- 7,562,752 6,536,768 4,574,226 4,073,390 715,820 125,384 (630,613) (543,240) (541,665) (268,807) (22,511) (8,780) 603,395 1,878,567 985,125 9,043,603 1,142,472 224,137 (2,572,779) (2,129,044) (1,431,966) (1,466,228) (296,592) 15,729 ----------- ----------- ----------- ----------- ---------- -------- 4,962,755 5,743,051 3,585,720 11,381,958 1,539,189 356,470 ----------- ----------- ----------- ----------- ---------- -------- 1,221,585 5,386,865 6,195,039 12,230,326 1,766,515 339,498 19,884,762 14,497,897 8,302,858 2,106,013 339,498 -- ----------- ----------- ----------- ----------- ---------- -------- $21,106,347 $19,884,762 $14,497,897 $14,336,339 $2,106,013 $339,498 =========== =========== =========== =========== ========== ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Neuberger Berman Partners Mid Cap Value Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 106,521 $ 175,765 $ 12,881 Net realized gain (loss) from security transactions........................ (68,863) 28,891 679 Change in unrealized (depreciation) appreciation of investments............ (195,526) 444,118 16,713 ----------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ (157,868) 648,774 30,273 ----------- ---------- -------- From capital transactions: Net premiums............................................................... 5,746,048 1,424,997 162,181 Redemptions................................................................ (57,006) (48,928) -- Net portfolio transfers.................................................... 4,766,372 4,051,096 433,203 Other net transfers........................................................ (2,321,908) (529,061) (33,367) ----------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 8,133,506 4,898,104 562,017 ----------- ---------- -------- NET CHANGE IN NET ASSETS...................................................... 7,975,638 5,546,878 592,290 NET ASSETS--BEGINNING OF PERIOD............................................... 6,139,168 592,290 -- ----------- ---------- -------- NET ASSETS--END OF PERIOD..................................................... $14,114,806 $6,139,168 $592,290 =========== ========== ========
See Notes to Financial Statements.
T. Rowe Price Large Cap Lehman Brothers Aggregate Growth Portfolio Bond Index Portfolio ------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ (94,779) $ 184,033 $ 782 $ 212,243 $ 1,099,635 $ 22,843 (100,488) 9,246 2,027 210,509 61,931 (1,189) (92,461) (515,437) 172,687 1,053,501 (39,445) (27,533) ----------- ----------- ---------- ----------- ----------- -------- (287,728) (322,158) 175,496 1,476,253 1,122,121 (5,879) ----------- ----------- ---------- ----------- ----------- -------- 8,996,035 2,941,543 141,433 8,533,067 6,001,873 93,732 (60,227) (19,075) -- (1,024,276) (253,963) (1,012) 8,736,398 4,471,715 1,037,195 11,244,179 12,581,907 484,526 (3,536,498) (1,062,875) (100,729) (2,262,688) (657,185) (10,326) ----------- ----------- ---------- ----------- ----------- -------- 14,135,708 6,331,308 1,077,899 16,490,282 17,672,632 566,920 ----------- ----------- ---------- ----------- ----------- -------- 13,847,980 6,009,150 1,253,395 17,966,535 18,794,753 561,041 7,262,545 1,253,395 -- 19,355,794 561,041 -- ----------- ----------- ---------- ----------- ----------- -------- $21,110,525 $ 7,262,545 $1,253,395 $37,322,329 $19,355,794 $561,041 =========== =========== ========== =========== =========== ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Morgan Stanley EAFE Index Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ (37,840) $ 68,390 $ 11,037 Net realized gain (loss) from security transactions........................ (961,834) (86,470) 92,428 Change in unrealized (depreciation) appreciation of investments............ (729,479) (425,063) 160,288 ----------- ---------- ---------- Net (decrease) increase in net assets resulting from operations............ (1,729,153) (443,143) 263,753 ----------- ---------- ---------- From capital transactions: Net premiums............................................................... 4,890,376 1,984,111 139,276 Redemptions................................................................ (722,285) (25,611) (1,812) Net portfolio transfers.................................................... 4,395,203 3,730,891 862,477 Other net transfers........................................................ (1,819,787) (682,554) (42,032) ----------- ---------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 6,743,507 5,006,837 957,909 ----------- ---------- ---------- NET CHANGE IN NET ASSETS...................................................... 5,014,354 4,563,694 1,221,662 NET ASSETS--BEGINNING OF PERIOD............................................... 5,785,356 1,221,662 -- ----------- ---------- ---------- NET ASSETS--END OF PERIOD..................................................... $10,799,710 $5,785,356 $1,221,662 =========== ========== ==========
See Notes to Financial Statements.
Russell 2000 Putnam Large Cap State Street Research Aurora Index Portfolio Growth Portfolio Small Cap Value Portfolio ------------------------------------- ------------------------- --------------------------- For the For the For the For the For the For the Period May 1, For the Year Period July 5, Year Ended Year Ended Year Ended Year Ended 2000 to Ended 2000 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 2001 2000 ------------ ------------ ------------ ------------ ------------- ------------ -------------- $ (47,654) $ 775,840 $ 12,267 $ (22,732) $ (1,713) $ (51,026) $ 16,972 (1,016,179) (27,586) 10,610 (113,353) (1,766) 155,882 3,082 1,215,383 (1,037,181) 41,036 (585,114) (173,356) 1,218,805 302,768 ----------- ----------- -------- ---------- ---------- ----------- ---------- 151,550 (288,927) 63,913 (721,199) (176,835) 1,323,661 322,822 ----------- ----------- -------- ---------- ---------- ----------- ---------- 5,343,692 2,510,031 214,532 2,425,615 306,843 7,040,736 335,643 (375,673) (45,875) (1,472) (23,841) (5,695) (81,569) (11,356) 1,811,235 3,956,271 219,845 2,239,800 915,075 11,247,758 2,585,881 (2,007,235) (882,331) (44,830) (878,209) (80,881) (2,656,308) (102,034) ----------- ----------- -------- ---------- ---------- ----------- ---------- 4,772,019 5,538,096 388,075 3,763,365 1,135,342 15,550,617 2,808,134 ----------- ----------- -------- ---------- ---------- ----------- ---------- 4,923,569 5,249,169 451,988 3,042,166 958,507 16,874,278 3,130,956 5,701,157 451,988 -- 958,507 -- 3,130,956 -- ----------- ----------- -------- ---------- ---------- ----------- ---------- $10,624,726 $ 5,701,157 $451,988 $4,000,673 $ 958,507 $20,005,234 $3,130,956 =========== =========== ======== ========== ========== =========== ==========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Janus MetLife Mid Cap Stock Index Growth Portfolio Portfolio -------------------------- ------------- For the For the For the Period July 5, Period May 1, Year Ended 2000 to 2001 to December 31, December 31, December 31, 2001 2000 2001 ------------ -------------- ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ (18,724) $ 7,022 $ (2,780) Net realized gain (loss) from security transactions........................ (19,531) (300) (43,356) Change in unrealized (depreciation) appreciation of investments............ 294,328 57,307 (11,854) ----------- ---------- ---------- Net (decrease) increase in net assets resulting from operations............ 256,073 64,029 (57,990) ----------- ---------- ---------- From capital transactions: Net premiums............................................................... 4,147,919 240,407 311,526 Redemptions................................................................ (16,900) (8,675) -- Net portfolio transfers.................................................... 4,052,437 1,949,602 817,361 Other net transfers........................................................ (1,566,864) (99,172) (118,215) ----------- ---------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 6,616,592 2,082,162 1,010,672 ----------- ---------- ---------- NET CHANGE IN NET ASSETS...................................................... 6,872,665 2,146,191 952,682 NET ASSETS--BEGINNING OF PERIOD............................................... 2,146,191 -- -- ----------- ---------- ---------- NET ASSETS--END OF PERIOD..................................................... $ 9,018,856 $2,146,191 $ 952,682 =========== ========== ==========
See Notes to Financial Statements.
Franklin Templeton Small Cap Growth Portfolio Janus Aspen Growth Portfolio Invesco VIF High Yield Portfolio ------------- -------------------------------------- -------------------------------------- For the For the For the Period May 1, For the For the Period May 3, For the For the Period May 3, 2001 to Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 2000 1999 ------------- ------------ ------------ ------------- ------------ ------------ ------------- $ (1,124) $ 185,366 $ 171,670 $ (61) $ 29,172 $ (42) $ -- (3,651) (1,848,663) (11,878) 79 (3,798) (11) -- 16,066 498,521 (1,038,841) 10,708 (33,395) (1,445) (6) -------- ----------- ----------- ------- -------- ------- ------ 11,291 (1,164,776) (879,049) 10,726 (8,021) (1,498) (6) -------- ----------- ----------- ------- -------- ------- ------ 107,629 779,753 1,494,340 99 213,527 2,194 -- (802) (2,741,484) (102) -- -- -- -- 369,945 254,486 4,654,955 86,070 71,476 7,138 3,236 (30,931) (189,372) (346,372) (522) (13,506) (239) (3) -------- ----------- ----------- ------- -------- ------- ------ 445,841 (1,896,617) 5,802,821 85,647 271,497 9,093 3,233 -------- ----------- ----------- ------- -------- ------- ------ 457,132 (3,061,393) 4,923,772 96,373 263,476 7,595 3,227 -- 5,020,145 96,373 -- 10,822 3,227 -- -------- ----------- ----------- ------- -------- ------- ------ $457,132 $ 1,958,752 $ 5,020,145 $96,373 $274,298 $10,822 $3,227 ======== =========== =========== ======= ======== ======= ======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Invesco VIF Equity Income Portfolio --------------------------------------- For the For the For the Period May 3, Year Ended Year Ended 1999 to December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 1,475 $ 725 $ -- Net realized gain (loss) from security transactions........................ (1,414) 18 -- Change in unrealized (depreciation) appreciation of investments............ (4,995) (596) 45 -------- ------- ------ Net (decrease) increase in net assets resulting from operations............ (4,934) 147 45 -------- ------- ------ From capital transactions: Net premiums............................................................... 5,886 7,244 -- Redemptions................................................................ (780) -- -- Net portfolio transfers.................................................... 112,018 1,027 5,802 Other net transfers........................................................ (3,589) (413) 25 -------- ------- ------ Net increase (decrease) in net assets resulting from capital transactions.. 113,535 7,858 5,827 -------- ------- ------ NET CHANGE IN NET ASSETS...................................................... 108,601 8,005 5,872 NET ASSETS--BEGINNING OF PERIOD............................................... 13,877 5,872 -- -------- ------- ------ NET ASSETS--END OF PERIOD..................................................... $122,478 $13,877 $5,872 ======== ======= ======
See Notes to Financial Statements.
Invesco VIF Real Estate Opportunity Portfolio Franklin Templeton International Stock Portfolio -------------------------------------------- ----------------------------------------------- For the For the For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- $ 652 $ (288) $ (1) $ 197,836 $ 30,971 $ (5) 1,271 445 -- (18,952) (35,953) 32 (3,692) 4,890 84 (287,060) (6,907) 481 --------- -------- ------ ---------- ---------- ------ (1,769) 5,047 83 (108,176) (11,889) 508 --------- -------- ------ ---------- ---------- ------ 3,478 1,795 -- 461,547 199,820 1,166 -- -- -- (236,261) (1,160) -- (24,700) 107,017 1,524 589,847 922,250 5,208 (2,641) (709) (23) (39,531) (16,624) (50) --------- -------- ------ ---------- ---------- ------ (23,863) 108,103 1,501 775,602 1,104,286 6,324 --------- -------- ------ ---------- ---------- ------ (25,632) 113,150 1,584 667,426 1,092,397 6,832 114,734 1,584 -- 1,099,229 6,832 -- --------- -------- ------ ---------- ---------- ------ $ 89,102 $114,734 $1,584 $1,766,655 $1,099,229 $6,832 ========= ======== ====== ========== ========== ======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Franklin Templeton Valuemark Davis Small Cap Venture Value Portfolio Portfolio ------------ -------------------------- For the For the For the Period July 5, Year Ended Year Ended 2000 to December 31, December 31, December 31, 2001 2001 2000 ------------ ------------ -------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............... $ (121) $ 153,188 $ (1,697) Net realized gain (loss) from security transactions.............................. (480) (46,987) (482) Change in unrealized (depreciation) appreciation of investments............... 4,364 (437,523) 27,591 -------- ----------- ---------- Net (decrease) increase in net assets resulting from operations................. 3,763 (331,322) 25,412 -------- ----------- ---------- From capital transactions: Net premiums............................... 32,699 3,338,434 199,454 Redemptions................................ -- (44,938) (6,528) Net portfolio transfers.................... 69,587 4,710,785 973,687 Other net transfers........................ (3,042) (1,312,198) (55,246) -------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions....... 99,244 6,692,083 1,111,367 -------- ----------- ---------- NET CHANGE IN NET ASSETS...................... 103,007 6,360,761 1,136,779 NET ASSETS--BEGINNING OF PERIOD............... -- 1,136,779 -- -------- ----------- ---------- NET ASSETS--END OF PERIOD..................... $103,007 $ 7,497,540 $1,136,779 ======== =========== ==========
See Notes to Financial Statements.
MFS MFS State Street Loomis Sayles Alger Equity Investors Research Research Small Cap Income Trust Managers Bond Income Portfolio Portfolio Portfolio Portfolio Portfolio -------------------------- ------------ ------------ ------------ ------------ For the For the Period July 5, For the For the For the For the Year Ended 2000 to Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 2001 2001 2001 2001 ------------ -------------- ------------ ------------ ------------ ------------ $ 75,074 $ (629) $ (121) $ (1,179) $ (363) $ 16,048 (35,645) (42) (175) (5,896) 1,304 (156) (62,611) 5,980 (5,126) 4,527 (346) (1,312) ---------- -------- ------- --------- --------- -------- (23,182) 5,309 (5,422) (2,548) 595 14,580 ---------- -------- ------- --------- --------- -------- 909,510 62,643 -- 122,835 72,571 12,338 (7,864) (6,573) -- (1,444) (3,984) -- 960,425 403,213 52,468 486,210 231,621 282,738 (356,458) (20,610) (1,809) (282,946) (149,340) (2,697) ---------- -------- ------- --------- --------- -------- 1,505,613 438,673 50,659 324,655 150,868 292,379 ---------- -------- ------- --------- --------- -------- 1,482,431 443,982 45,237 322,107 151,463 306,959 443,982 -- -- -- -- -- ---------- -------- ------- --------- --------- -------- $1,926,413 $443,982 $45,237 $ 322,107 $ 151,463 $306,959 ========== ======== ======= ========= ========= ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Westpeak Salomon Brothers Growth & Harris Oakmark Strategic Bond Income Mid Cap Value Opportunities Portfolio Portfolio Portfolio ------------ -------------- ---------------- For the For the For the Period May 1, Period May 1, Year Ended 2001 to 2001 to December 31, December 31, December 31, 2001 2001 2001 ------------ -------------- ---------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............... $ (69) $ (9,775) $ (894) Net realized gain (loss) from security transactions.............................. (77) (43) 117 Change in unrealized (depreciation) appreciation of investments............... (2,467) 279,801 4,621 ------- ---------- -------- Net (decrease) increase in net assets resulting from operations................. (2,613) 269,983 3,844 ------- ---------- -------- From capital transactions: Net premiums............................... -- 999,657 97,914 Redemptions................................ -- (7,188) (566) Net portfolio transfers.................... 28,886 3,223,723 396,753 Other net transfers........................ (1,055) (271,630) (33,111) ------- ---------- -------- Net increase in net assets resulting from capital transactions...................... 27,831 3,944,562 460,990 ------- ---------- -------- NET CHANGE IN NET ASSETS...................... 25,218 4,214,545 464,834 NET ASSETS--BEGINNING OF PERIOD............... -- -- -- ------- ---------- -------- NET ASSETS--END OF PERIOD..................... $25,218 $4,214,545 $464,834 ======= ========== ========
See Notes to Financial Statements.
Alliance Fidelity VIP II Alliance Premier Alliance Fidelity VIP II Asset Manager Fidelity VIP Salomon Brothers Growth & Growth-- Technology-- Contrafund-- Growth-- Growth-- U.S. Government Income--Class B Class B Class B Service Class Service Class Service Class Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------------------- ------------ ------------ --------------- --------------- ------------- For the Period May 1, For the For the Period For the For the For the For the For the 2001 to Year Ended September 30 to Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 2001 2001 2001 2001 2001 ---------------- ------------ --------------- ------------ ------------ --------------- --------------- ------------- $ (1,841) $ 2,195 $ -- $ (104) $ 661 $ (57) $ (233) $ (243) 5,065 (318) -- (138) (19,763) (27) 113 (3,407) (2,273) 24,267 2,702 1,299 (2,681) (253) (1,597) (3,078) -------- -------- ------- ------- -------- ------- ------- ------- 951 26,144 2,702 1,057 (21,783) (337) (1,717) (6,728) -------- -------- ------- ------- -------- ------- ------- ------- 162,934 422,139 -- -- 463 3,356 16,990 22,338 (10,909) -- -- -- -- -- -- -- 755,686 160,474 54,402 97,128 36,082 21,462 84,590 74,755 (59,363) (11,019) 769 133 (2,213) (621) (5,355) (3,117) -------- -------- ------- ------- -------- ------- ------- ------- 848,348 571,594 55,171 97,261 34,332 24,197 96,225 93,976 -------- -------- ------- ------- -------- ------- ------- ------- 849,299 597,738 57,873 98,318 12,549 23,860 94,508 87,248 -- 57,873 -- -- -- -- -- -- -------- -------- ------- ------- -------- ------- ------- ------- $849,299 $655,611 $57,873 $98,318 $ 12,549 $23,860 $94,508 $87,248 ======== ======== ======= ======= ======== ======= ======= =======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
American American American Funds Growth Funds Global Funds Growth & Income Small Cap Portfolio Portfolio Portfolio ------------- ------------- ------------- For the For the For the Period May 1, Period May 1, Period May 1, 2001 to 2001 to 2001 to December 31, December 31, December 31, 2001 2001 2001 ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 128,057 $ 15,132 $ 5,931 Net realized gain (loss) from security transactions........................ (95,342) (13,398) (18,714) Change in unrealized (depreciation) appreciation of investments............ (17,189) 55,397 46,579 ---------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ 15,526 57,131 33,796 ---------- ---------- -------- From capital transactions: Net premiums............................................................... 700,197 553,810 138,839 Redemptions................................................................ (1,570) (6,270) -- Net portfolio transfers.................................................... 2,173,706 1,876,550 476,691 Other net transfers........................................................ 288,414 (27,864) (30,269) ---------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 3,160,747 2,396,226 585,261 ---------- ---------- -------- NET CHANGE IN NET ASSETS...................................................... 3,176,273 2,453,357 619,057 NET ASSETS--BEGINNING OF PERIOD............................................... -- -- -- ---------- ---------- -------- NET ASSETS--END OF PERIOD..................................................... $3,176,273 $2,453,357 $619,057 ========== ========== ========
See Notes to Financial Statements.
JPM MFS MFS Enhanced Mid Cap Research PIMCO PIMCO Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ------------- ------------- ------------- For the For the For the For the For the Period May 1, Period May 1, Period May 1, Period May 1, Year Ended 2001 to 2001 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 ------------ ------------- ------------- ------------- ------------- $ (13) $ (940) $ (351) $ 23,842 $ (1,528) (25) (1,372) (4,107) 1,564 (9,873) (320) 11,239 1,444 (14,155) 4,179 ------ -------- -------- ---------- -------- (358) 8,927 (3,014) 11,251 (7,222) ------ -------- -------- ---------- -------- -- 82,192 38,580 266,987 138,136 -- (543) -- (9,397) -- 5,908 264,649 77,076 902,199 661,537 (187) 209,192 124,871 (68,474) (43,761) ------ -------- -------- ---------- -------- 5,721 555,490 240,527 1,091,315 755,912 ------ -------- -------- ---------- -------- 5,363 564,417 237,513 1,102,566 748,690 -- -- -- -- -- ------ -------- -------- ---------- -------- $5,363 $564,417 $237,513 $1,102,566 $748,690 ====== ======== ======== ========== ========
Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 2001 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") a separate account of Metropolitan Life Insurance Company ("Metropolitan Life"), was established on December 13, 1988 to support Metropolitan Life's operations with respect to certain variable universal life contracts ("Contracts"). Metropolitan Life is a wholly owned subsidiary of MetLife Inc. ("MetLife"). The Separate Account was registered as a unit investment trust on January 5, 1990 under the Investment Company Act of 1940, as amended, and exist in accordance with the regulations of the New York Insurance Department. The Separate Account presently consists of fifty-two investment portfolios that support six variable universal life insurance Contracts (UL II, SBR Met Flex, GVUL, UL2001, VAI, and VABR). The assets in each Contract are invested in shares of the corresponding portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Series Funds, Inc., the Templeton Variable Product Series Funds, the Invesco Variable Investment Funds, Inc., the Janus Aspen Series Funds, the Fidelity Variable Insurance Products Funds, the Alliance Variable Product Series Funds, American Series Funds, and the MetLife Investors Trust Funds, collectively, (the "Funds"). The assets of the Separate Account are registered in the name of Metropolitan Life. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from Metropolitan Life's other assets and liabilities. The portion of the Separate Account's assets applicable to the variable life contracts is not chargeable with liabilities arising out of any other business Metropolitan Life may conduct. On May 3, 1999, operations commenced for five new investment portfolios added to the Separate Account on that date: Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, and Franklin Templeton International Stock. On May 1, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date: Putnam Large Cap Growth. On July 5, 2000, operations commenced for four new investment portfolios added to the Separate Account on that date: State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Davis Venture Value Series, and Loomis Sayles Small Cap Series. On September 30, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date: Alliance Growth and Income--Class B. On January 1, 2001, operations commenced for twelve new investment portfolios added to the Separate Account on that date: Franklin Templeton Valuemark Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, and JPM Enhanced Index. On May 1, 2001, operations commenced for twelve new investment portfolios added to the Separate Account on that date: Janus Growth, Franklin Templeton Small Cap Growth, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations. NOTES TO FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements included therein have been provided in accordance with accounting principles generally accepted in the United States of America for variable universal life separate accounts registered as unit investment trust. A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of these portfolios. The investments of the Funds are valued at fair value. Money market fund investments are valued utilizing the amortized cost method of valuation. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributed to the contracts. D. Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. F. Purchase Payments Purchase payments received by Metropolitan Life are credited as Accumulation Units as of the end of the valuation period in which received, as provided in the prospectus. NOTES TO FINANCIAL STATEMENTS--(Continued) 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of general administrative expenses and mortality and expense risks. This charge is equivalent to an effective annual rate of 0.45% of the average daily values of the assets in the Separate Account for GVUL contracts, 0.90% for UL II & UL2001 contracts, 0.60% for IVUL contracts, and 0.75% for VAI and VABR contracts less than $250K and 0.50% for VAI and VABR contracts $250K and greater. NOTES TO FINANCIAL STATEMENTS--(Continued) 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2001 are as follows:
Purchases Sales --------- -------- (In Thousands) State Street Research Investment Trust Portfolio........ $ 96,242 $ 21,727 State Street Research Income Portfolio.................. 22,719 19,396 State Street Research Money Market Portfolio............ 46,556 36,151 State Street Research Diversified Portfolio............. 55,179 7,704 State Street Research Aggressive Growth Portfolio....... 68,464 7,181 MetLife Stock Index Portfolio........................... 100,212 18,903 Putnam International Stock Portfolio.................... 16,647 12,709 Loomis Sayles High Yield Bond Portfolio................. 3,996 1,216 Janus Mid Cap Portfolio................................. 55,702 8,998 T. Rowe Price Small Cap Growth Portfolio................ 15,436 6,383 Scudder Global Equity Portfolio......................... 9,718 2,706 Harris Oakmark Large Cap Value Portfolio................ 12,038 614 Neuberger Berman Partners Mid Cap Value Portfolio....... 10,417 2,272 T. Rowe Price Large Cap Growth Portfolio................ 18,682 4,807 Lehman Brothers Aggregate Bond Index Portfolio.......... 27,056 10,138 Morgan Stanley EAFE Index Portfolio..................... 13,223 7,527 Russell 2000 Index Portfolio............................ 10,810 7,123 Putnam Large Cap Growth Portfolio....................... 3,815 238 State Street Research Aurora Small Cap Value Portfolio.. 16,324 659 MetLife Mid Cap Stock Index Portfolio................... 6,926 363 Janus Growth Portfolio.................................. 1,173 209 Franklin Templeton Small Cap Growth Portfolio........... 474 24 Janus Aspen Growth Portfolio............................ 1,222 4,782 Invesco VIF High Yield Portfolio........................ 377 80 Invesco VIF Equity Income Portfolio..................... 131 17 Invesco VIF Real Estate Opportunity Portfolio........... 8 30 Franklin Templeton International Stock Portfolio........ 1,257 303 Franklin Templeton Valuemark Small Cap Portfolio........ 102 4 Davis Venture Value Portfolio........................... 7,015 240 Loomis Sayles Small Cap Portfolio....................... 1,767 227 Alger Equity Income Portfolio........................... 52 1 MFS Investors Trust Portfolio........................... 614 55 MFS Research Managers Portfolio......................... 1,781 1,496 State Street Research Bond Income Portfolio............. 312 4 Westpeak Growth & Income Portfolio...................... 28 1 Harris Oakmark Mid Cap Value Portfolio.................. 4,129 188 Salomon Brothers Strategic Bond Opportunities Portfolio. 467 7 Salomon Brothers U.S. Government Portfolio.............. 1,190 338 Alliance Growth & Income--Class B Portfolio............. 585 14 Alliance Premier Growth--Class B Portfolio.............. 98 1 Alliance Technology--Class B Portfolio.................. 166 152 Fidelity VIP II Contrafund--Service Class Portfolio..... 25 1 Fidelity VIP II Asset Manager Growth--Service Class Portfolio.............................................. 101 5 Fidelity VIP Growth--Service Class Portfolio............ 119 28 American Funds Growth Portfolio......................... 3,423 707 American Funds Growth & Income Portfolio................ 2,482 248 American Funds Global Small Cap Portfolio............... 613 65 JPM Enhanced Index Portfolio............................ 7 1 MFS Mid Cap Growth Portfolio............................ 320 14 MFS Research International Portfolio.................... 381 287 PIMCO Total Return Portfolio............................ 1,337 220 PIMCO Innovations Portfolio............................. 787 41 -------- -------- Total................................................... $642,704 $186,605 ======== ========
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS The changes in units outstanding for the year ended December 31, 2001 are as follows:
State Street State Street State Street State Street Research State Street Research Research Research Money Research Aggressive Investment Trust Income Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ------------ ------------ ------------ (In thousands) Outstanding at January 1, 2001................. 11,054 3,980 1,479 9,234 9,254 Activity during 2001: Issued........................................ 2,828 1,170 2,983 2,200 1,392 Redeemed...................................... (618) (975) (2,306) (296) (143) ------ ----- ------ ------ ------ Outstanding at December 31, 2001............... 13,264 4,175 2,156 11,138 10,503 ====== ===== ====== ====== ======
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
MetLife Putnam Loomis Sayles T. Rowe Price Neuberger Stock International High Yield Janus Small Cap Scudder Harris Oakmark Berman Partners Index Stock Bond Mid Cap Growth Global Equity Large Cap Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ------------- ------------- --------- ------------- ------------- --------------- --------------- 11,689 2,709 601 5,367 2,995 1,848 220 456 6,525 1,578 246 3,701 864 209 1,076 790 (1,199) (1,181) (73) (587) (350) (57) (54) (170) ------ ------ --- ----- ----- ----- ----- ----- 17,015 3,106 774 8,481 3,509 2,000 1,242 1,076 ====== ====== === ===== ===== ===== ===== =====
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
T. Rowe Price Lehman Brothers Morgan Large Cap Aggregate Stanley Russell Putman Large Growth Bond Index EAFE Index 2000 Index Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------------- ---------- ---------- ------------ (In thousands) Outstanding at January 1, 2001.. 632 1,730 544 512 131 Activity during 2001: Issued........................ 2,004 2,267 1,865 1,181 704 Redeemed...................... (512) (844) (1,056) (773) (43) ----- ----- ------ ----- --- Outstanding at December 31, 2001 2,124 3,153 1,352 920 792 ===== ===== ====== ===== ===
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
State Street Franklin Janus Invesco VIF Invesco VIF Invesco VIF Research Aurora Metlife Mid Janus Templeton Aspen High Equity Real Estate Small Cap Value Cap Stock Index Growth Small Cap Growth Growth Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- --------- ---------------- --------- ----------- ----------- ----------- 164 210 -- -- 473 1 2 10 1,201 693 148 54 84 45 12 1 (48) (36) (26) (2) (321) (9) (2) (4) ----- --- --- -- ---- -- -- -- 1,317 867 122 52 236 37 12 7 ===== === === == ==== == == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Franklin Franklin Davis Loomis Templeton Templeton Venture Sayles Alger International Valuemark Value Small Cap Equity Stock Small Cap Series Series Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------- --------- --------- --------- (In thousands) Outstanding at January 1, 2001.. 99 -- 39 2 -- Activity during 2001: Issued........................ 118 17 267 10 6 Redeemed...................... (28) (1) (9) (1) (0) --- -- --- -- -- Outstanding at December 31, 2001 189 16 297 11 6 === == === == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Saloman Saloman Alliance MFS MFS Research State Street Westpeak Harris Brothers Brothers Growth & Investors Research Research Growth & Oakmark Strategic Bond U.S. Income-- Trust Managers Bond Income Income Mid Cap Value Opportunities Government Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ------------ ------------ --------- ------------- -------------- ---------- --------- -- -- -- -- -- -- -- 6 47 83 27 3 24 42 99 60 (4) (70) (0) (0) (1) (1) (28) (1) -- --- -- -- -- -- --- -- 43 13 27 3 23 41 71 65 == === == == == == === ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Fidelity VIP II Alliance Alliance Fidelity VIP II Asset Manager Fidelity VIP Premier Growth-- Technology-- Contrafund-- Growth--Service Growth--Service Class B Class B Service Class Class Class Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ --------------- --------------- --------------- (In thousands) Outstanding at January 1, 2001.. -- -- -- -- -- Activity during 2001: Issued........................ 14 26 3 14 17 Redeemed...................... (0) (24) (0) (1) (4) -- --- -- -- -- Outstanding at December 31, 2001 14 2 3 13 13 == === == == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
American JPM MFS MFS American American Funds Funds Global Enhanced Mid Cap Research PIMCO PIMCO Funds Growth Growth & Income Small Cap Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------------- ------------ --------- --------- ------------- ------------ ----------- -- -- -- -- -- -- -- -- 67 76 55 1 71 113 123 128 (14) (8) (6) (0) (3) (85) (20) (7) --- -- -- -- -- --- --- --- 53 68 49 1 68 28 103 121 === == == == == === === ===
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES A summary of unit values and units outstanding for the Contracts and the expenses as a percentage of average net assets, excluding expenses for the underlying funds, for the period ended December 31, 2001 or lesser time period if applicable.
State Street State Street State Street Research State Street Research Research Money Research Investment Trust Income Market Diversified Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- ---------------- 2001 Units (In thousands)............................... 13,264 4,175 2,156 11,138 Unit Value......................................... $10.98 to $35.04 $11.95 to $24.08 $14.88 to $15.85 $11.35 to $30.04 Net Assets (Dollars in thousands).................. $356,701 $79,176 $32,726 $265,724 Investment Income Ratio to Net Assets (1).......... 13.53% 7.28% 4.18% 9.67% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.45% to 0.90% Total Return (3)................................... -17% to -18% 7% to 8% 3% to 4% -6% to -7%
State Street Research Aggressive Growth Portfolio ---------------- 2001 Units (In thousands)............................... 10,503 Unit Value......................................... $11.67 to $17.12 Net Assets (Dollars in thousands).................. $171,692 Investment Income Ratio to Net Assets (1).......... 24.84% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% Total Return (3)................................... -24%
-------- (1) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net asset. These ratios excluded those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. (2) These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner account through the redemption of units and expense of the underlying fund are excluded. (3) These amounts represent the total return for the period indicated, including changes in the value of the underlying fund, and reflect deductions for all item included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return calculated for the period indicated or from the effective date through the end of the reporting period. NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Putnam Loomis Sayles T. Rowe Price MetLife International High Yield Janus Small Cap Stock Index Stock Bond Mid Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- ---------------- --------------- ---------------- 2001 Units (In thousands)........................... 17,015 3,106 774 8,481 3,509 Unit Value..................................... $9.62 to $29.91 $9.47 to $13.35 $10.83 to $12.35 $5.95 to $17.08 $12.46 to $13.76 Net Assets (Dollars in thousands).............. $346,931 $38,281 $8,845 $125,185 $44,660 Investment Income Ratio to Net Assets (1)...... 1.17% 3.67% 11.73% 0.00% 8.16% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return (3)............................... -12% to -13% -21% to -20% -1% to -2% -37% to -33% -10% to 2%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Harris Neuberger T. Rowe Price Scudder Oakmark Large Berman Partners Large Cap Global Equity Cap Value Mid Cap Value Growth Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- --------------- 2001 Units (In thousands)........................... 2,000 1,242 1,076 2,124 Unit Value..................................... $11.79 to $12.88 $10.80 to $13.76 $11.44 to $15.63 $8.35 to $12.08 Net Assets (Dollars in thousands).............. $21,106 $14,336 $14,115 $21,111 Investment Income Ratio to Net Assets (1)...... 11.32% 0.15% 1.94% 0.06% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return (3)............................... -16% to -15% 17% to 20% -3% to 0% -11% to -6%
Lehman Brothers Aggregate Bond Index Portfolio ---------------- 2001 Units (In thousands)........................... 3,153 Unit Value..................................... $11.38 to $11.97 Net Assets (Dollars in thousands).............. $37,322 Investment Income Ratio to Net Assets (1)...... 1.29% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% Total Return (3)............................... 7%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
State Street Research Morgan Stanley Russell 2000 Putman Large Aurora Small EAFE Index Index Cap Growth Cap Value Portfolio Portfolio Portfolio Portfolio -------------- --------------- -------------- ----------------- 2001 Units (In thousands)............................... 1,352 920 792 1,317 Unit Value......................................... $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04 $13.09 to $14.29 Net Assets (Dollars in thousands).................. $10,800 $10,625 $4,001 $ 20,005 Investment Income Ratio to Net Assets (1).......... 0.31% 0.26% 0.00% 0.38% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return (3)................................... -22% to -21% 0% to 6% -46% to -31% 16% to 19%
Metlife Mid Cap Stock Index Portfolio ---------------- 2001 Units (In thousands)............................... 867 Unit Value......................................... $9.62 to $10.56 Net Assets (Dollars in thousands).................. $ 9,019 Investment Income Ratio to Net Assets (1).......... 0.43% Expenses as a percent of Average Net Assets (2).... 0.60% to 0.90% Total Return (3)................................... -1% to 3%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Franklin Templeton Janus Invesco Invesco Invesco VIF Janus Small Cap Aspen VIF High VIF Equity Real Estate Growth Growth Growth Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- --------- --------- ---------- ----------- 2001 Units (In thousands)........................... 122 52 236 37 12 7 Unit Value..................................... $7.73 to $7.82 $8.83 to $8.88 $ 8.30 $ 7.46 $9.81 $12.05 Net Assets (Dollars in thousands).............. $ 953 $ 457 $1,959 $ 274 $122 $89 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 6.04% 20.89% 2.61% 1.16% Expenses as a percent of Average Net Assets (2) 0.90% 0.60% 0.60% 0.60% 0.60% 0.60% Total Return (3)............................... -22% to -23% -12% to -11% -19% -15% -7% 1%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Franklin Franklin Templeton Templeton Davis Loomis International Valuemark Venture Value Sayles Small Alger Stock Small Cap Series Cap Series Equity Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------- --------------- ---------------- ------------- 2001 Units (In thousands)........................... 189 16 297 11 6 Unit Value..................................... $9.27 $6.91 $8.94 to $25.95 $8.66 to $191.87 $7.57 Net Assets (Dollars in thousands).............. $1,767 $103 $7,498 $1,926 $45 Investment Income Ratio to Net Assets (1)...... 14.19% 0.05% 4.47% 7.28% 0.00% Expenses as a percent of Average Net Assets (2) 0.60% 0.60% 0.60% to 0.90% 0.60% to 0.90% 0.60% Total Return (3)............................... -16% -9% -11% to -9% -4% to -9% -16%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
MFS Research State Street Westpeak MFS Research Research Growth & Harris Oakmark Investors Trust Managers Bond Income Income Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio --------------- -------------- ------------ --------- ------------------ 2001 Units (In thousands)............................. 43 13 27 3 23 Unit Value....................................... $8.19 to $8.57 $6.97 to $9.04 $11.23 $8.19 $184.98 to $186.09 Net Assets (Dollars in thousands)................ $322 $151 $307 $25 $4,215 Investment Income Ratio to Net Assets (1)........ 0.00% 0.25% 5.64% 0.00% 0.00% Expenses as a percent of Average Net Assets (2).. 0.60% to 0.90% 0.60% to 0.90% 0.60% 0.60% 0.90% Total Return (3)................................. -14% to -3% -17% to -14% 8% -11% 12% to 13%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Alliance Saloman Brothers Growth & Alliance Alliance Strategic Bond Saloman Brothers Income-- Premier Growth-- Technology-- Opporunities U.S. Government Class B Class B Class B Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- --------- ---------------- ------------ 2001 Units (In thousands)........................... 41 71 65 14 2 Unit Value..................................... $11.15 to $11.22 $11.89 to $11.96 $10.19 $7.15 $5.43 Net Assets (Dollars in thousands).............. $465 $849 $656 $98 $13 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 0.91% 0.00% 6.23% Expenses as a percent of Average Net Assets (2) 0.90% 0.90% 0.60% 0.60% 0.60% Total Return (3)............................... 3% to 4% 4% 2% -14% -35%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Fidelity VIP II Fidelity Asset VIP II Manager Fidelity VIP American American Contrafund-- Growth-- Growth-- American Funds Funds Service Service Service Funds Growth & Global Class Class Class Growth Income Small Cap Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------- ------------ ---------------- ---------------- ---------------- 2001 Units (In thousands)......... 3 13 13 53 68 49 Unit Value................... $7.96 $7.89 $6.77 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 Net Assets (Dollars in thousands).................. $24 $95 $87 $3,176 $2,453 $619 Investment Income Ratio to Net Assets (1).............. 0.00% 0.00% 0.00% 4.25% 0.82% 1.15% Expenses as a percent of Average Net Assets (2)...... 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% Total Return (3)............. -12% -10% -20% -15% to -14% -3% -9% to -8%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
JPM MFS Enhanced MFS Mid Cap Research PIMCO Total PIMCO Index Growth International Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio --------- -------------- -------------- ---------------- -------------- 2001 Units (In thousands)........................... 1 68 28 103 121 Unit Value..................................... $8.12 $8.32 to $8.37 $8.44 to $8.50 $10.64 to $10.70 $6.15 to $6.19 Net Assets (Dollars in thousands).............. $5 $564 $238 $1,103 $749 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 0.07% 2.37% 0.00% Expenses as a percent of Average Net Assets (2) 0.60% 0.90% 0.90% 0.90% 0.90% Total Return (3)............................... -9% -16% to -15% -12% to -13% 6% -25%
NOTES TO FINANCIAL STATEMENTS--(Concluded) 7. CHANGE OF FUND NAME Effective January 24, 2000, Putnam became the sub-investment manager of the Putnam International Stock Portfolio (formerly Santander International Stock Portfolio) of the Metropolitan Series Fund, Inc. Effective February 15, 2000, Invesco VIF Realty Portfolio changed its name to Invesco VIF Real Estate Opportunity Portfolio and Invesco Industrial Income changed its name to Invesco Equity Income. Effective July 1, 2001, State Street Research became the sub-investment manager of the State Street Research Bond Income Portfolio (formerly Back Bay Advisers Bond Income Portfolio) of the New England Zenith Series Fund. Effective May 1, 2001, State Street Research Growth changed its name to State Street Research Investment Trust. Independent Auditors' Report The Board of Directors and Shareholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 12, 2002 F-1 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (Dollars in millions)
2001 2000 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value.................................... $110,601 $112,445 Equity securities, at fair value...................................................... 3,027 2,193 Mortgage loans on real estate......................................................... 24,626 21,951 Real estate and real estate joint ventures............................................ 4,925 5,504 Policy loans.......................................................................... 7,894 8,158 Other limited partnership interests................................................... 1,637 1,652 Short-term investments................................................................ 1,168 930 Other invested assets................................................................. 3,013 2,898 -------- -------- Total investments.................................................................... 156,891 155,731 Cash and cash equivalents............................................................... 3,932 3,419 Accrued investment income............................................................... 1,981 2,040 Premiums and other receivables.......................................................... 7,005 7,962 Deferred policy acquisition costs....................................................... 10,471 10,497 Other assets............................................................................ 4,750 3,823 Separate account assets................................................................. 62,714 70,250 -------- -------- Total assets......................................................................... $247,744 $253,722 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits................................................................ $ 83,493 $ 81,966 Policyholder account balances......................................................... 54,764 54,095 Other policyholder funds.............................................................. 5,880 5,029 Policyholder dividends payable........................................................ 1,042 1,082 Policyholder dividend obligation...................................................... 708 385 Short-term debt....................................................................... 345 1,085 Long-term debt........................................................................ 2,380 3,406 Current income taxes payable.......................................................... 162 127 Deferred income taxes payable......................................................... 1,893 742 Payables under securities loaned transactions......................................... 12,662 12,301 Other liabilities..................................................................... 6,981 7,120 Separate account liabilities.......................................................... 62,714 70,250 -------- -------- Total liabilities.................................................................... 233,024 237,588 -------- -------- Commitments and contingencies (Note 11) Company-obligated mandatorily redeemable securities of subsidiary trusts................ 276 118 -------- -------- Stockholder's Equity: Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding at December 31, 2001 and 2000.......................... 5 5 Additional paid-in capital............................................................ 12,825 14,549 Retained earnings..................................................................... -- 407 Accumulated other comprehensive income................................................ 1,614 1,055 -------- -------- Total stockholder's equity........................................................... 14,444 16,016 -------- -------- Total liabilities and stockholder's equity........................................... $247,744 $253,722 ======== ========
See accompanying notes to consolidated financial statements. F-2 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 ------- ------- ------- REVENUES Premiums................................................................................. $17,023 $16,263 $12,088 Universal life and investment-type product policy fees................................... 1,874 1,820 1,433 Net investment income.................................................................... 11,791 11,773 9,816 Other revenues........................................................................... 1,532 2,259 1,861 Net investment gains (losses) (net of amounts allocable to other accounts of $(33), $(54) and $(67), respectively)............................................................... 927 (418) (70) ------- ------- ------- Total revenues........................................................................ 33,147 31,697 25,128 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net investment gains and losses of $(54), $41 and $(21), respectively)................................ 18,265 16,935 13,100 Interest credited to policyholder account balances....................................... 3,035 2,935 2,441 Policyholder dividends................................................................... 2,060 1,913 1,690 Payments to former Canadian policyholders................................................ -- 327 -- Demutualization costs.................................................................... -- 230 260 Other expenses (excludes amounts directly related to net investment gains and losses of $21, $(95) and $(46), respectively).................................................... 7,464 7,931 6,462 ------- ------- ------- Total expenses........................................................................ 30,824 30,271 23,953 ------- ------- ------- Income before provision for income taxes................................................. 2,323 1,426 1,175 Provision for income taxes............................................................... 836 477 558 ------- ------- ------- Net income............................................................................... $ 1,487 $ 949 $ 617 ======= ======= ======= Net income after April 7, 2000 (date of demutualization) (Note 1)........................ $ 1,169 =======
See accompanying notes to consolidated financial statements. F-3 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
Accumulated Other Comprehensive Income (Loss) -------------------------------- Net Unrealized Foreign Minimum Additional Investment Currency Pension Common Paid-in Retained Gains Translation Liability Stock Capital Earnings (Losses) Adjustment Adjustment Total ------ ---------- -------- ---------- ----------- ---------- ------- Balance at January 1, 1999........................ $-- $ -- $ 13,483 $ 1,540 $(144) $(12) $14,867 Comprehensive loss:............................... Net income...................................... 617 617 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes.................................. (1,837) (1,837) Foreign currency translation adjustments....... 50 50 Minimum pension liability adjustment........... (7) (7) ------- Other comprehensive loss....................... (1,794) ------- Comprehensive loss.............................. (1,177) --- ------- -------- ------- ----- ---- ------- Balance at December 31, 1999...................... -- -- 14,100 (297) (94) (19) 13,690 Policy credits and cash payments to eligible policyholders.................................... (2,958) (2,958) Common stock issued in demutualization............ 5 10,917 (10,922) -- Capital contribution from Parent.................. 3,632 3,632 Dividends on common stock......................... (762) (762) Comprehensive income: Net loss before date of demutualization......... (220) (220) Net income after date of demutualization........ 1,169 1,169 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................. 1,480 1,480 Foreign currency translation adjustments....... (6) (6) Minimum pension liability adjustment........... (9) (9) ------- Other comprehensive income..................... 1,465 ------- Comprehensive income............................ 2,414 --- ------- -------- ------- ----- ---- ------- Balance at December 31, 2000...................... 5 14,549 407 1,183 (100) (28) 16,016 Sale of subsidiary to Holding Company............. 96 (109) 19 6 Issuance of warrants - by subsidiary.............. 40 40 Dividends on common stock......................... (1,860) (1,894) (3,754) Comprehensive income: Net income...................................... 1,487 1,487 Other comprehensive income: Cumulative effect of change in accounting for derivatives, net of income taxes and reclassification adjustment................... 22 22 Unrealized gains on derivative instruments, net of income taxes........................... 24 24 Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................. 679 679 Foreign currency translation adjustments....... (58) (58) Minimum pension liability adjustment........... (18) (18) ------- Other comprehensive income..................... 649 ------- Comprehensive income............................ 2,136 --- ------- -------- ------- ----- ---- ------- Balance at December 31, 2001...................... $ 5 $12,825 $ -- $ 1,799 $(139) $(46) $14,444 === ======= ======== ======= ===== ==== =======
See accompanying notes to consolidated financial statements. F-4 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities Net income........................................................................ $ 1,487 $ 949 $ 617 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses......................................... (40) (88) 173 Losses from sales of investments and businesses, net........................... (894) 472 137 Interest credited to other policyholder account balances....................... 3,035 2,935 2,441 Universal life and investment-type product policy fees......................... (1,874) (1,820) (1,433) Change in premiums and other receivables....................................... (14) (164) (619) Change in deferred policy acquisition costs, net............................... (553) (519) (389) Change in insurance-related liabilities........................................ 3,429 2,590 2,243 Change in income taxes payable................................................. 871 246 22 Change in other liabilities.................................................... (57) (2,193) 874 Other, net..................................................................... (1,147) (1,166) (183) -------- -------- -------- Net cash provided by operating activities......................................... 4,243 1,242 3,883 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................................................... 51,101 57,326 73,120 Equity securities.............................................................. 2,107 899 760 Mortgage loans on real estate.................................................. 1,910 2,163 1,992 Real estate and real estate joint ventures..................................... 1,090 655 1,062 Other limited partnership interests............................................ 463 422 469 Purchases of: Fixed maturities............................................................... (51,678) (63,779) (72,253) Equity securities.............................................................. (3,050) (863) (410) Mortgage loans on real estate.................................................. (3,412) (2,836) (4,395) Real estate and real estate joint ventures..................................... (592) (407) (341) Other limited partnership interests............................................ (497) (660) (465) Net change in short-term investments............................................. (303) 2,382 (1,577) Purchase of businesses, net of cash received..................................... -- (416) (2,972) Proceeds from sales of businesses................................................ 921 877 -- Net change in payable under securities loaned transactions....................... 361 5,840 2,692 Other, net....................................................................... (547) (925) (71) -------- -------- -------- Net cash (used in) provided by investing activities............................... $ (2,126) $ 678 $ (2,389) -------- -------- --------
See accompanying notes to consolidated financial statements. F-5 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits....................................................................... $ 29,012 $ 28,620 $ 18,428 Withdrawals.................................................................... (25,299) (28,235) (20,650) Net change in short-term debt.................................................... (740) (3,095) 608 Long-term debt issued............................................................ 353 1,224 42 Long-term debt repaid............................................................ (1,379) (124) (434) Capital contribution from Parent................................................. 6 3,632 Net proceeds from issuance of company-obligated mandatorily redeemable securities of subsidiary trust............................................................ 197 -- -- Cash payments to eligible policyholders.......................................... -- (2,550) -- Dividends on common stock........................................................ (3,754) (762) -- -------- -------- -------- Net cash used in financing activities............................................. (1,604) (1,290) (2,006) -------- -------- -------- Change in cash and cash equivalents............................................... 513 630 (512) Cash and cash equivalents, beginning of year...................................... 3,419 2,789 3,301 -------- -------- -------- Cash and cash equivalents, end of year............................................ $ 3,932 $ 3,419 $ 2,789 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................................................... $ 336 $ 448 $ 388 ======== ======== ======== Income taxes................................................................... $ 453 $ 256 $ 587 ======== ======== ======== Non-cash transactions during the year: Policy credits to eligible policyholders....................................... $ -- $ 408 $ -- ======== ======== ======== Business acquisitions--assets.................................................. $ -- $ 22,936 $ 5,328 ======== ======== ======== Business acquisitions--liabilities............................................. $ -- $ 22,437 $ 1,860 ======== ======== ======== Business dispositions--assets.................................................. $ 6,162 $ 1,184 $ -- ======== ======== ======== Business dispositions--liabilities............................................. $ 5,263 $ 1,014 $ -- ======== ======== ======== Real estate acquired in satisfaction of debt................................... $ 11 $ 22 $ 37 ======== ======== ======== Mortgage note on sale of real estate........................................... $ 1,530 $ -- $ -- ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of individual and institutional customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. Metropolitan Life is a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"). Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York 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 accompanying consolidated financial statements include the accounts of Metropolitan Life and its subsidiaries, partnerships and joint ventures in which the Company has a majority voting interest or general partner interest with limited removal rights by limited partners. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. Intercompany accounts and transactions have been eliminated. Metropolitan Insurance and Annuity Company ("MIAC"), which was sold to MetLife in 2001 is included in the accompanying consolidated financial statements until the date of sale. See note 12 "Acquisitions and Dispositions". The Company uses the equity method to account for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but has more than a minimal interest. Minority interest related to consolidated entities included in other liabilities was $442 million and $409 million at December 31, 2001 and 2000, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2001 presentation. Summary of Critical Accounting Policies The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies and related judgments underlying the Company's consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Investments The Company's principal investments are in fixed maturities, mortgage loans, and real estate, all of which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of income, impairments and the determination of fair values. In addition, the earnings on certain investments are dependent upon market conditions which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. F-7 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Derivatives The Company enters into freestanding derivative transactions to manage the risk associated with variability in cash flows related to the Company's financial assets and liabilities or to changing fair values. The Company also purchases investment securities and issues certain insurance policies with embedded derivatives. The associated financial statement risk is the volatility in net income, which can result from (i) changes in fair value of derivatives that are not designated as hedges, and (ii) ineffectiveness of designated hedges in an environment of changing interest rates or fair values. In addition, accounting for derivatives is complex, as evidenced by significant interpretations of the primary accounting standards which continue to evolve, as well as the significant judgements and estimates involved in determining fair value in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances; however, the use of different assumptions may have a material effect on the estimated fair value amounts. Deferred Policy Acquisition Costs The Company incurs significant costs in connection with acquiring new insurance business. These costs, which vary with, and are primarily related to, the production of new business, are deferred. The recovery of such costs is dependent on the future profitability of the related business. The amount of future profit is dependent principally on investment returns, mortality, morbidity, persistency, expenses to administer the business (and additional charges to the policyholders) and certain economic variables, such as inflation. These factors enter into management's estimates of gross margins and profits which generally are used to amortize certain of such costs. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross margins and profits are less than amounts deferred. Future Policy Benefits The Company also establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disabled lives. Generally, amounts are payable over an extended period of time and the profitability of the products is dependent on the pricing of the products. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. Differences between the actual experience and assumptions used in pricing the policies and in the establishment of liabilities result in variances in profit and could result in losses. The Company establishes liabilities for unpaid claims and claims expenses for property and casualty insurance. Pricing of this insurance takes into account the expected frequency and severity of losses, the costs of providing coverage, competitive factors, characteristics of the property covered and the insured, and profit considerations. Liabilities for property and casualty insurance are dependent on estimates of amounts payable for claims reported but not settled and claims incurred but not reported. These estimates are influenced by historical experience and actuarial assumptions of current developments, anticipated trends and risk management strategies. Reinsurance Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business. The Company periodically reviews actual and anticipated experience compared to the assumptions used to establish policy benefits. Additionally, for each of its reinsurance contracts, the Company must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract on a deposit method of accounting. F-8 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Litigation The Company is a party to a number of legal actions. Given the inherent unpredictability of litigation, it is difficult to estimate the impact of litigation on the Company's consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits are especially difficult to estimate due to the limitation of available data and uncertainty around numerous variables used to determine amounts recorded. It is possible that an adverse outcome in certain cases could have an adverse effect upon the Company's operating results or cash flows in particular quarterly or annual periods. See Note 11 "Commitments and Contingencies". General Accounting Policies Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are included in net investment gains and losses and are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. However, interest ceases to be accrued for loans on which interest is more than 60 days past due. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains and losses. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired 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. Other invested assets consist principally of leveraged leases and funds withheld at interest. The leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions which are diversified by geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed. Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned by the ceding company. Interest accrues to these funds withheld at rates defined by the treaty terms. F-9 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Structured Investment Transactions The Company participates in structured investment transactions, primarily asset securitizations and structured notes. These transactions enhance the Company's total return of the investment portfolio principally by generating management fee income on asset securitizations and by providing equity-based returns on debt securities through structured notes and similar type instruments. The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on the beneficial interests is recognized using the prospective method in accordance with Emerging Issues Task Force ("EITF") Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments. The SPEs used to securitize assets are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets including corporate equities, debt securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company's exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management strategy, including asset-liability management. These SPEs are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The beneficial interests in SPEs where the Company exercises significant influence over the operating and financial policies of the SPE are accounted for in accordance with the equity method of accounting. Impairments of these beneficial interests are included in investment gains and losses. The beneficial interests in SPEs where the Company does not exercise significant influence are accounted for based on the substance of the beneficial interest's rights and obligations. Beneficial interests are accounted for and are included in fixed maturities. These beneficial interests are generally structured notes, as defined by EITF Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes, and their income is recognized using the retrospective interest method or the level yield method, as appropriate. Derivative Instruments The Company uses derivative instruments to manage risk through one of four principal risk management strategies: the hedging of liabilities, invested assets, portfolios of assets or liabilities and anticipated transactions. Additionally, Metropolitan Life enters into income generation and replication derivative transactions as permitted by its derivatives use plan that was approved by the Department. The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate, credit and foreign currency swaps, foreign exchange contracts, and options, including caps and floors. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify as a hedge, according to Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), the derivative is recorded at fair value and changes in its fair value are reported in net investment gains or losses. F-10 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company generally determines hedge effectiveness based on total changes in fair value of a derivative instrument. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item, (ii) the derivative expires or is sold, terminated, or exercised, (iii) the derivative is de-designated as a hedge instrument, (iv) it is probable that the forecasted transaction will not occur, (v) a hedged firm commitment no longer meets the definition of a firm commitment, or (vi) management determines that designation of the derivative as a hedge instrument is no longer appropriate. The Company designates and accounts for the following as cash flow hedges, when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments, (ii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments, (iii) foreign currency forwards to hedge the exposure of future payments or receipts in foreign currencies, and (iv) other instruments to hedge the cash flows of various other anticipated transactions. For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported in other comprehensive income or loss. The ineffective portion of changes in fair value of the derivative instrument is reported in net investment gains or losses. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company designates and accounts for the following as fair value hedges when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert fixed rate investments to floating rate investments, (ii) receive U.S. dollar floating on foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments, and (iii) other instruments to hedge various other fair value exposures of investments. For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported as net investment gains or losses. In addition, changes in fair value attributable to the hedged portion of the underlying instrument are reported in net investment gains and losses. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried on the consolidated balance sheet at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheet and recognized as a net investment gain or loss in the current period. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried on the consolidated balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income or loss are recognized immediately in net investment gains or losses. When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in other comprehensive income or loss and is recognized when the transaction affects net income or loss; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value on the consolidated balance sheet, with changes in its fair value recognized in the current period as net investment gains or losses. The Company may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determines whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. F-11 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded on the consolidated balance sheet at fair value and changes in their fair value are recorded currently in net investment gains or losses. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the consolidated balance sheet at fair value, with changes in fair value recognized in the current period as net investment gains or losses. The Company also uses derivatives to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These securities, called replication synthetic asset transactions ("RSATs"), are a combination of a derivative and a cash security to synthetically create a third replicated security. These derivatives are not designated as hedges. As of December 31, 2001, 15 such RSATs, with notional amounts totaling $205 million, have been created through the combination of a credit default swap and a U.S. Treasury security. The Company records the premiums received on the credit default swaps in investment income over the life of the contract and changes in fair value are recorded in net investment gains and losses. The Company enters into written covered call options and net written covered collars to generate additional investment income on the underlying assets it holds. These derivatives are not designated as hedges. The Company records the premiums received as net investment income over the life of the contract and changes in fair value of such options and collars as net investment gains and losses. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment, Leasehold Improvements and Computer Software Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years-digits method over the estimated useful lives of the assets. Estimated lives range from ten to 40 years for leasehold improvements and three to 15 years for all other property and equipment. Accumulated depreciation of property and equipment and accumulated amortization on leasehold improvements was $1,349 million and $1,287 million at December 31, 2001 and 2000, respectively. Related depreciation and amortization expense was $94 million, $89 million and $106 million for the years ended December 31, 2001, 2000 and 1999, respectively. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a three-year period using the straight-line method. Accumulated amortization of capitalized software was $165 million and $86 million at December 31, 2001 and 2000, respectively. Related amortization expenses was $106 million, $45 million and $5 million for the years ended December 31, 2001, 2000 and 1999, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. F-12 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs related to internally replaced contracts are expensed at the date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. Value of business acquired, included as part of deferred policy acquisition costs, represents the present value of future profits generated from existing insurance contracts in force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. Information regarding deferred policy acquisition costs is as follows:
Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1...................... $10,497 $ 9,070 $ 7,028 Capitalization of policy acquisition costs 2,018 1,805 1,160 Value of business acquired................ -- 1,681 156 ------- ------- ------- Total.............................. 12,515 12,556 8,344 ------- ------- ------- Amortization allocated to: Net investment losses.................. 21 (95) (46) Unrealized investment losses........... 128 596 (1,628) Other expenses......................... 1,434 1,472 930 ------- ------- ------- Total amortization................. 1,583 1,973 (744) ------- ------- ------- Dispositions and other.................... (461) (86) (18) ------- ------- ------- Balance at December 31.................... $10,471 $10,497 $ 9,070 ======= ======= =======
Amortization of deferred policy acquisition costs is allocated to (i) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (ii) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been recognized, and (iii) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. F-13 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. Goodwill has been amortized on a straight-line basis over a period ranging from ten to 30 years through December 31, 2001. The Company reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments through 2001 were recognized in operating results when permanent diminution in value was deemed to have occurred.
Years ended December 31, ----------------------- 2001 2000 1999 ----- ----- ---- (Dollars in millions) Net Balance at January 1......................... $ 703 $ 611 $404 Acquisitions..................................... 20 286 237 Amortization..................................... (47) (69) (30) Dispositions..................................... (101) (125) -- ----- ----- ---- Net Balance at December 31....................... $ 575 $ 703 $611 ===== ===== ====
December 31, --------------------- 2001 2000 ---- ---- (Dollars in millions) Accumulated Amortization......................... $108 $81 ==== ===
See "--Application of Accounting Pronouncements" below regarding changes in amortization and impairment testing effective January 1, 2002. Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 2% to 11%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (ii) the liability for terminal dividends, and (iii) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 11%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 2% to 17%, less expenses, mortality charges, and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. F-14 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Policyholder Dividends Policyholder dividends are approved annually by the boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 18% and 22% of the Company's life insurance in-force, and 82% and 81% of the number of life insurance policies in-force, at December 31, 2001 and 2000, respectively. Participating policies represented approximately 44% and 46%, 47% and 50%, and 50% and 54% of gross and net life insurance premiums for the years ended December 31, 2001, 2000 and 1999, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes Metropolitan Life, the Holding Company and 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 of 1986, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. Metropolitan Life has not been subject to the equity tax since the date of demutualization. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. F-15 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and recognized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. Stock Based Compensation The Company accounts for the stock-based compensation plans using the accounting method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and has included in the notes to consolidated financial statements the pro forma disclosures required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") in Note 17. Foreign Currency Translation Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income or loss. Gains and losses from foreign currency transactions are reported in earnings. Demutualization On April 7, 2000 (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife. The conversion was pursuant to an order by the New York Superintendent of Insurance (the "Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, policyholders' membership interests in Metropolitan Life were extinguished and eligible policyholders received, in exchange for their interests, trust interests representing 494,466,664 shares of common stock of MetLife to be held in a trust, cash payments aggregating $2,550 million and adjustments to their policy values in the form of policy credits aggregating $408 million, as provided in the plan. In addition, Metropolitan Life's Canadian branch made cash payments of $327 million in the second quarter of 2000 to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale. Application of Accounting Pronouncements Effective January 1, 2001, the Company adopted SFAS 133 which established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of SFAS 133, as of January 1, 2001, resulted in a $33 million increase in other comprehensive income, net of income taxes of $18 million, and had no material impact on net income. F-16 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The increase to other comprehensive income is attributable to net gains on cash flow-type hedges at transition. Also at transition, the amortized cost of fixed income securities decreased and other invested assets increased by $22 million, representing the fair value of certain interest rate swaps that were accounted for prior to SFAS 133 using fair value-type settlement accounting. During the year ended December 31, 2001, $18 million of the pre-tax gain reported in accumulated other comprehensive income at transition was reclassified into net investment income. The Financial Accounting Standards Board ("FASB") continues to issue additional guidance relating to the accounting for derivatives under SFAS 133, which may result in further adjustments to the Company's treatment of derivatives in subsequent accounting periods. Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The adoption of these requirements had no material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted EITF 99-20. This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 had no material impact on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141, which was generally effective July 1, 2001, requires the purchase method of accounting for all business combinations and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. SFAS 142, effective for fiscal years beginning after December 15, 2001, eliminates the systematic amortization and establishes criteria for measuring the impairment of goodwill and certain other intangible assets by reporting unit. Amortization of goodwill and other intangible assets was $48 million, $101 million and $65 million for the years ended December 31, 2001, 2000 and 1999, respectively. These amounts are not necessarily indicative of the amortization that will not be recorded in future periods in accordance with SFAS 142. The Company is in the process of developing an estimate of the impact of the adoption of SFAS 142, if any, on its consolidated financial statements. The Company has tentatively determined that there will be no significant reclassifications between goodwill and other intangible asset balances, and no significant impairment of other intangible assets as of January 1, 2002. The Company will complete the first step of the impairment test, the comparison of the reporting units' fair value to carrying value, by June 30, 2002 and, if necessary, will complete the second step, the estimate of goodwill impairment, by December 31, 2002. In July 2001, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. The application of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of by superceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less costs to sell, rather than on a net realizable value basis. Future operating losses relating to discontinued operations also are no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business). SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the F-17 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) presentation of discontinued operations in the statements of income, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets (other than goodwill) and (iii) SFAS 121 relating to the measurement of long-lived assets classified as held for sale. SFAS 144 must be adopted beginning January 1, 2002. The adoption of SFAS 144 by the Company is not expected to have a material impact on the Company's consolidated financial statements at the date of adoption. Effective October 1, 2000, the Company adopted SAB No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying GAAP to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position ("SOP") No. 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. 2. September 11, 2001 Tragedies On September 11, 2001 a terrorist attack occurred in New York, Washington D.C. and Pennsylvania (collectively, the "tragedies") triggering a significant loss of life and property which had an adverse impact on certain of the Company's businesses. The Company has direct exposures to this event with claims arising from its Individual, Institutional, Reinsurance and Auto & Home insurance coverages, although it believes the majority of such claims have been reported or otherwise analyzed by the Company. As of December 31, 2001, the Company's estimate of the total insurance losses related to the tragedies is $208 million, net of income tax of $117 million. This estimate is subject to revision in subsequent periods as claims are received from insureds and claims to reinsurers are identified and processed. Any revision to the estimate of gross losses and reinsurance recoveries in subsequent periods will affect net income in such periods. Reinsurance recoveries are dependent on the continued creditworthiness of the reinsurers, which may be adversely affected by their other reinsured losses in connection with the tragedies. The long-term effects of the tragedies on the Company's businesses cannot be assessed at this time. The tragedies have had significant adverse effects on the general economic, market and political conditions, increasing many of the Company's business risks. In particular, the declines in share prices experienced after the reopening of the United States equity markets following the tragedies have contributed, and may continue to contribute, to a decline in separate account assets, which in turn could have an adverse effect on fees earned in the Company's businesses. In addition, the Institutional segment may receive disability claims from individuals suffering from mental and nervous disorders resulting from the tragedies. This may lead to a revision in the Company's estimated insurance losses related to the tragedies. The majority of the Company's disability policies include the provision that such claims be submitted within two years of the traumatic event. The Company's general account investment portfolios include investments, primarily comprised of fixed income securities, in industries that were affected by the tragedies, including airline, other travel and lodging and insurance. Exposures to these industries also exist through mortgage loans and investments in real estate. The market value of the Company's investment portfolio exposed to industries affected by the tragedies was approximately $3.0 billion at December 31, 2001. F-18 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2001 were as follows:
Gross Cost or Unrealized Amortized ------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 7,875 $1,004 $ 42 $ 8,837 States and political subdivisions........................... 1,486 48 10 1,524 Foreign governments......................................... 4,206 401 41 4,566 Corporate................................................... 45,547 1,647 996 46,198 Mortgage- and asset-backed securities....................... 32,628 870 261 33,237 Other....................................................... 15,104 925 553 15,476 -------- ------ ------ -------- Total bonds............................................... 106,846 4,895 1,903 109,838 Redeemable preferred stocks................................. 784 12 33 763 -------- ------ ------ -------- Total fixed maturities.................................... $107,630 $4,907 $1,936 $110,601 ======== ====== ====== ======== Equity Securities: Common stocks................................................. $ 1,938 $ 655 $ 75 $ 2,518 Nonredeemable preferred stocks................................ 483 28 2 509 -------- ------ ------ -------- Total equity securities................................... $ 2,421 $ 683 $ 77 $ 3,027 ======== ====== ====== ========
Fixed maturities and equity securities at December 31, 2000 were as follows:
Gross Cost or Unrealized Amortized ------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 8,443 $1,188 $ 16 $ 9,615 States and political subdivisions........................... 1,563 79 3 1,639 Foreign governments......................................... 5,153 341 153 5,341 Corporate................................................... 47,338 1,124 1,451 47,011 Mortgage- and asset-backed securities....................... 32,996 697 165 33,528 Other....................................................... 14,935 436 381 14,990 -------- ------ ------ -------- Total bonds............................................... 110,428 3,865 2,169 112,124 Redeemable preferred stocks................................. 321 -- -- 321 -------- ------ ------ -------- Total fixed maturities.................................... $110,749 $3,865 $2,169 $112,445 ======== ====== ====== ======== Equity Securities: Common stocks................................................. $ 872 $ 785 $ 55 $ 1,602 Nonredeemable preferred stocks................................ 577 19 5 591 -------- ------ ------ -------- Total equity securities................................... $ 1,449 $ 804 $ 60 $ 2,193 ======== ====== ====== ========
The Company held foreign currency derivatives with notional amounts of $1,925 million and $1,449 million to hedge the exchange rate risk associated with foreign bonds at December 31, 2001 and 2000, respectively. F-19 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company held fixed maturities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $9,618 million and $9,864 million at December 31, 2001 and 2000, respectively. Non-income producing fixed maturities were insignificant. The cost or amortized cost and estimated fair value of bonds at December 31, 2001, by contractual maturity date, are shown below:
Cost or Estimated Amortized Fair Cost Value --------- --------- (Dollars in millions) Due in one year or less............... $ 3,929 $ 3,976 Due after one year through five years. 19,500 20,147 Due after five years through ten years 21,661 21,944 Due after ten years................... 29,128 30,534 -------- -------- Total.............................. 74,218 76,601 Mortgage- and asset-backed securities. 32,628 33,237 -------- -------- Total bonds........................ $106,846 $109,838 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of securities classified as available-for-sale were as follows:
Years ended December 31, ------------------------ 2001 2000 1999 ------- ------- ------- (Dollars in millions) Proceeds............... $27,576 $46,205 $59,852 Gross investment gains. $ 634 $ 599 $ 605 Gross investment losses $ 934 $ 1,520 $ 911
Gross investment losses above exclude writedowns recorded during 2001, 2000 and 1999 for other than temporarily impaired available-for-sale securities of $278 million, $324 million and $133 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $13,471 million and $11,746 million and an estimated fair value of $14,404 million and $12,289 million were on loan under the program at December 31, 2001 and 2000, respectively. The Company was liable for cash collateral under its control of $12,662 million and $12,301 million at December 31, 2001 and 2000, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Structured Investment Transactions The Company securitizes high yield debt securities, investment grade bonds and structured finance securities. The Company has sponsored four securitizations with a total of approximately $1.5 billion in financial assets as of December 31, 2001. Two of these transactions included the transfer of assets totaling approximately $289 million from which F-20 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) investment gains, recognized by the Company, were insignificant. The Company's beneficial interests in these SPEs and the related investment income were insignificant as of and for the year ended December 31, 2001. The Company invests in structured notes and similar type instruments which generally provide equity-based returns on debt securities. The carrying value of such investments was approximately $1.6 billion and $1.3 billion at December 31, 2001 and 2000, respectively. The related income recognized was $44 million and $62 million for the years ended December 31, 2001 and 2000, respectively. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $835 million and $932 million at December 31, 2001 and 2000, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,218 million and $1,234 million at December 31, 2001 and 2000, respectively. Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31, ------------------------------ 2001 2000 -------------- -------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.. $19,502 79% $16,944 77% Agricultural mortgage loans 5,267 21% 4,980 22% Residential mortgage loans. 1 0% 110 1% ------- --- ------- --- Total................... 24,770 100% 22,034 100% === === Less: Valuation allowances. 144 83 ------- ------- Mortgage loans.......... $24,626 $21,951 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2001, approximately 16%, 14% 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. In 2001, the Company entered into a commercial loan for $1,530 million with MIAC, a related party, in connection with MIAC's purchase of real estate from the Company. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $644 million and $540 million at December 31, 2001 and 2000, respectively. Changes in mortgage loan valuation allowances were as follows:
Years ended December 31, --------------------- 2001 2000 1999 ---- ---- ----- (Dollars in millions) Balance at January 1...................... $ 83 $ 90 $ 173 Additions................................. 106 38 40 Deductions for writedowns and dispositions (45) (74) (123) Acquisitions of affiliates................ -- 29 -- ---- ---- ----- Balance at December 31.................... $144 $ 83 $ 90 ==== ==== =====
F-21 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, --------------------- 2001 2000 ------ ---- (Dollars in millions) Impaired mortgage loans with valuation allowances... $ 816 $592 Impaired mortgage loans without valuation allowances 315 330 ------ ---- Total............................................ 1,131 922 Less: Valuation allowances.......................... 140 77 ------ ---- Impaired mortgage loans.......................... $ 991 $845 ====== ====
The average investment in impaired mortgage loans on real estate was $938 million, $912 million and $1,134 million for the years ended December 31, 2001, 2000 and 1999, respectively. Interest income on impaired mortgage loans was $92 million, $76 million and $101 million for the years ended December 31, 2001, 2000 and 1999, respectively. The investment in restructured mortgage loans on real estate was $684 million and $784 million at December 31, 2001 and 2000, respectively. Interest income of $52 million, $62 million and $80 million was recognized on restructured loans for the years ended December 31, 2001, 2000 and 1999, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $60 million, $74 million and $92 million for the years ended December 31, 2001, 2000 and 1999, respectively. Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $43 million and $40 million at December 31, 2001 and 2000, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, --------------------- 2001 2000 ------ ------ (Dollars in millions) Real estate and real estate joint ventures held-for-investment $5,088 $5,495 Impairments................................................... (244) (272) ------ ------ Total...................................................... 4,844 5,223 ------ ------ Real estate and real estate joint ventures held-for-sale...... 204 417 Impairments................................................... (88) (97) Valuation allowance........................................... (35) (39) ------ ------ Total...................................................... 81 281 ------ ------ Real estate and real estate joint ventures............. $4,925 $5,504 ====== ======
Accumulated depreciation on real estate was $1,882 million and $2,337 million at December 31, 2001 and 2000, respectively. Related depreciation expense was $217 million, $224 million and $247 million for the years ended December 31, 2001, 2000 and 1999, respectively. F-22 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Real estate and real estate joint ventures were categorized as follows:
December 31, ---------------------------- 2001 2000 ------------- ------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office......................................... $3,079 63% $3,635 66% Retail......................................... 779 16% 586 10% Apartments..................................... 495 10% 558 10% Land........................................... 184 4% 202 4% Agriculture.................................... 14 0% 84 2% Other.......................................... 374 7% 439 8% ------ --- ------ --- Total....................................... $4,925 100% $5,504 100% ====== === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 2001, approximately 27%, 15% and 13% of the Company's real estate holdings were located in California, New York and Texas, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years ended December 31, -------------------- 2001 2000 1999 ---- ---- ---- (Dollars in millions) Balance at January 1................................... $ 39 $ 34 $ 33 Additions charged to operations........................ 16 17 36 Deductions for writedowns and dispositions............. (20) (12) (35) ---- ---- ---- Balance at December 31................................. $ 35 $ 39 $ 34 ==== ==== ====
Investment income related to impaired real estate and real estate joint ventures held-for-investment was $57 million, $45 million and $61 million for the years ended December 31, 2001, 2000 and 1999, respectively. Investment (expense) income related to impaired real estate and real estate joint ventures held-for-sale was $(4) million, $18 million and $14 million for the years ended December 31, 2001, 2000 and 1999, respectively. The carrying value of non-income producing real estate and real estate joint ventures was $9 million and $15 million at December 31, 2001 and 2000, respectively. The Company owned real estate acquired in satisfaction of debt of $49 million and $66 million at December 31, 2001 and 2000, respectively. Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, -------------------- 2001 2000 ------ ------ (Dollars in millions) Investment............................................. $1,070 $1,002 Estimated residual values.............................. 505 546 ------ ------ Total............................................... 1,575 1,548 Unearned income........................................ (404) (384) ------ ------ Leveraged leases.................................... $1,171 $1,164 ====== ======
F-23 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from two to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. The Company's deferred tax provision related to leveraged leases is $1,077 million and $1,040 million at December 31, 2001 and 2000, respectively. Net Investment Income The components of net investment income were as follows:
Years ended December 31, ------------------------ 2001 2000 1999 ------- ------- ------- (Dollars in millions) Fixed maturities................................ $ 8,462 $ 8,529 $ 7,171 Equity securities............................... 48 41 40 Mortgage loans on real estate................... 1,838 1,693 1,484 Real estate and real estate joint ventures...... 1,332 1,407 1,426 Policy loans.................................... 527 515 340 Other limited partnership interests............. 48 142 199 Cash, cash equivalents and short-term investment 264 271 173 Other........................................... 268 192 91 ------- ------- ------- Total........................................ 12,787 12,790 10,924 Less: Investment expenses....................... 996 1,017 1,108 ------- ------- ------- Net investment income........................ $11,791 $11,773 $ 9,816 ======= ======= =======
Net Investment Gains (Losses) Net investment gains (losses), including changes in valuation allowances, were as follows:
Years ended December 31, ----------------------- 2001 2000 1999 ------ ------- ----- (Dollars in millions) Fixed maturities.......................... $ (644) $(1,437) $(538) Equity securities......................... 66 192 99 Mortgage loans on real estate............. (91) (18) 28 Real estate and real estate joint ventures 1,626 101 265 Other limited partnership interests....... (161) (7) 33 Sales of businesses....................... 25 632 -- Other..................................... 73 65 (24) ------ ------- ----- Total.................................. 894 (472) (137) Amounts allocable to: Deferred policy acquisition costs...... (21) 95 46 Participating contracts................ (105) (126) 21 Policyholder dividend obligation....... 159 85 -- ------ ------- ----- Net realized investment losses..... $ 927 $ (418) $ (70) ====== ======= =====
Investment gains and losses have been reduced by (i) deferred policy acquisition amortization to the extent that such amortization results from investment gains and losses, (ii) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholder's accounts, and (iii) adjustments to the policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Real estate and real estate joint ventures net investment gains for 2001 include $1,630 million related to the sale of real estate to MIAC. F-24 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Unrealized Investment Gains (Losses) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Fixed maturities...................................... $ 2,971 $ 1,696 $(1,828) Equity securities..................................... 606 744 875 Derivatives........................................... 71 -- -- Other invested assets................................. 58 58 153 ------- ------- ------- Total.............................................. 3,706 2,498 (800) ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition............. (30) (284) (249) Deferred policy acquisition costs.................. (6) 113 709 Participating contracts............................ (127) (133) (118) Policyholder dividend obligation................... (707) (385) -- Deferred income taxes................................. (1,037) (626) 161 ------- ------- ------- Total.............................................. (1,907) (1,315) 503 ------- ------- ------- Net unrealized investment gains (losses)....... $ 1,799 $ 1,183 $ (297) ======= ======= ======= The changes in net unrealized investment gains Years ended December 31, (losses) were as follows: ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1.................................. $ 1,183 $ (297) $ 1,540 Unrealized investment gains (losses) during the year.. 1,390 3,298 (6,583) Unrealized investment gains (losses) relating to: Future policy benefit gain (loss) recognition...... 254 (35) 1,999 Deferred policy acquisition costs.................. (128) (596) 1,628 Participating contracts............................ 6 (15) 94 Policyholder dividend obligation................... (322) (385) -- Deferred income taxes................................. (475) (787) 1,025 Unrealized investment gains of subsidiary at date of sale, net of deferred income taxes.................. (109) -- -- ------- ------- ------- Balance at December 31................................ $ 1,799 $ 1,183 $ (297) ======= ======= ======= Net change in unrealized investment gains (losses).... $ 616 $ 1,480 $(1,837) ======= ======= =======
F-25 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Derivative Instruments The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments held at December 31, 2001 and 2000:
2001 2000 ------------------------------------ ------------------------------------ Current Market or Current Market or Fair Value Fair Value Carrying Notional ------------------ Carrying Notional ------------------ Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- (Dollars in millions) Financial futures............ $ -- $ -- $ -- $-- $23 $ 254 $ 23 $-- Interest rate swaps.......... 70 1,849 79 9 41 1,450 41 1 Floors....................... 11 325 11 -- -- 325 3 -- Caps......................... 5 8,010 5 -- -- 10,070 -- -- Foreign currency swaps....... 162 1,925 188 26 (1) 1,449 114 44 Exchange traded options...... (12) 1,857 -- 12 1 9 1 -- Forward exchange contracts... 4 33 4 -- -- -- -- -- Written covered call options. -- 40 -- -- -- 40 -- -- Credit default swaps......... -- 270 -- -- -- -- -- -- ---- ------- ---- --- --- ------- ---- --- Total contractual commitments $240 $14,309 $287 $47 $64 $13,597 $182 $45 ==== ======= ==== === === ======= ==== ===
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2001 and 2000:
December 31, 2000 Terminations/ December 31, 2001 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures.............. $ 254 $ 507 $ 761 $ -- Interest rate swaps............ 1,450 1,166 767 1,849 Floors......................... 325 -- -- 325 Caps........................... 10,070 150 2,210 8,010 Foreign currency swaps......... 1,449 659 183 1,925 Exchange traded options........ 9 1,861 13 1,857 Forward exchange contracts..... -- 495 462 33 Written covered call options... 40 1,097 1,097 40 Credit default swaps........... -- 270 -- 270 ------- ------ ------ ------- Total contractual commitments.. $13,597 $6,205 $5,493 $14,309 ======= ====== ====== ======= BY STRATEGY Liability hedging.............. $11,736 $ 270 $2,972 $ 9,034 Invested asset hedging......... 1,607 5,046 1,378 5,275 Portfolio hedging.............. 254 507 761 -- Anticipated transaction hedging -- 382 382 -- ------- ------ ------ ------- Total contractual commitments.. $13,597 $6,205 $5,493 $14,309 ======= ====== ====== =======
F-26 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2001:
Remaining Life ------------------------------------------------------- One Year After One Year After Five Years After or Less Through Five Years Through Ten Years Ten Years Total -------- ------------------ ----------------- --------- ------- (Dollars in millions) Interest rate swaps.............................. $ 95 $ 627 $ 955 $172 $ 1,849 Floors........................................... -- -- 325 -- 325 Caps............................................. 3,720 4,270 20 -- 8,010 Foreign currency swaps........................... 81 863 707 274 1,925 Exchange traded options.......................... 1,857 -- -- -- 1,857 Forward exchange contracts....................... 33 -- -- -- 33 Written covered call options..................... 40 -- -- -- 40 Credit default swaps............................. 15 255 -- -- 270 ------ ------ ------ ---- ------- Total contractual commitments.................... $5,841 $6,015 $2,007 $446 $14,309 ====== ====== ====== ==== =======
The following table presents the notional amounts and fair values of derivatives by type of hedge designation at December 31, 2001 and 2000:
2001 2000 --------------------------- --------------------------- Current Market Current Market or or Fair Value Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) BY TYPE OF HEDGE Fair Value...... $ 228 $ 23 $ 1 $ 212 $ 14 $ 8 Cash Flow....... 585 62 21 442 32 27 Not designated.. 13,496 202 25 12,943 136 10 ------- ---- --- ------- ---- --- Total........ $14,309 $287 $47 $13,597 $182 $45 ======= ==== === ======= ==== ===
For the year ended December 31, 2001, the amount related to fair value and cash flow hedge ineffectiveness was insignificant and there were no discontinued fair value or cash flow hedges. For the years ended December 31, 2001, 2000 and 1999, the Company recognized net investment income of $32 million, $13 million and $0.3 million, respectively, from the periodic settlement of interest rate and foreign currency swaps. For the years ended December 31, 2001, the Company recognized other comprehensive income of $39 million relating to the effective portion of cash flow hedges. At December 31, 2001, the accumulated amount in other comprehensive income relating to cash flow hedges was $71 million. During the year ended December 31, 2001, $19 million of other comprehensive income was reclassified into net investment income primarily due to the SFAS No. 133 transition adjustment. During the next year, other comprehensive income of $17 million related to cash flow hedges is expected to be reclassified into net investment income. The reclassifications are recognized over the life of the hedged item. For the year ended December 31, 2001, the Company recognized net investment income of $24 million and net investment gains of $100 million from derivatives not designated as accounting hedges. The use of these non-speculative derivatives is permitted by the Department. F-27 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated December 31, 2001 Amount Value Fair Value ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $110,601 $110,601 Equity securities................................................. 3,027 3,027 Mortgage loans on real estate..................................... 24,626 25,815 Policy loans...................................................... 7,894 7,894 Short-term investments............................................ 1,168 1,168 Cash and cash equivalents......................................... 3,932 3,932 Mortgage loan commitments......................................... $532 -- (4) Liabilities: Policyholder account balances..................................... 47,494 47,833 Short-term debt................................................... 345 345 Long-term debt.................................................... 2,380 2,442 Payable under securities loaned transactions...................... 12,662 12,662 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... 276 276
Notional Carrying Estimated December 31, 2000 Amount Value Fair Value ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $112,445 $112,445 Equity securities................................................. 2,193 2,193 Mortgage loans on real estate..................................... 21,951 22,847 Policy loans...................................................... 8,158 8,158 Short-term investments............................................ 930 930 Cash and cash equivalents......................................... 3,419 3,419 Mortgage loan commitments......................................... $534 -- 17 Liabilities: Policyholder account balances..................................... 43,196 42,958 Short-term debt................................................... 1,085 1,085 Long-term debt.................................................... 3,406 3,306 Payable under securities loaned transactions...................... 12,301 12,301 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... 118 118
F-28 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities in which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate and Mortgage Loan Commitments Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Policy Loans The carrying values for policy loans approximate fair value. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances are estimated by discounting expected future cash flows, based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. Short-term and Long-term Debt, Payables Under Securities Loaned Transactions and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts The fair values of short-term and long-term debt, payables under securities loaned transactions and Company-obligated mandatorily redeemable securities of subsidiary trusts are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. Derivative Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, floors, foreign exchange contracts, caps, exchange-traded options and written covered call options are based upon quotations obtained from dealers or other reliable sources. See Note 4 for derivative fair value disclosures. 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 Metropolitan Life and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. F-29 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, ------------------------------ Pension Benefits Other Benefits -------------- -------------- 2001 2000 2001 2000 ------ ------ ------ ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year. $4,145 $3,737 $1,542 $1,483 Service cost................................... 104 98 34 29 Interest cost.................................. 308 291 115 113 Acquisitions and divestitures.................. (12) 107 -- 37 Actuarial losses............................... 169 176 66 59 Curtailments and terminations.................. (49) (3) 9 2 Change in benefits............................. 29 (2) -- (86) Benefits paid.................................. (268) (259) (97) (95) ------ ------ ------ ------ Projected benefit obligation at end of year....... 4,426 4,145 1,669 1,542 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year 4,619 4,726 1,318 1,199 Actual return on plan assets................... (201) 54 (49) 179 Acquisitions and divestitures.................. (12) 79 -- -- Employer and participant contributions......... 23 19 1 3 Benefits paid.................................. (268) (259) (101) (63) ------ ------ ------ ------ Contract value of plan assets at end of year...... 4,161 4,619 1,169 1,318 ------ ------ ------ ------ (Under) over funded............................... (265) 474 (500) (224) Unrecognized net asset at transition.............. -- (31) -- -- Unrecognized net actuarial losses (gains)......... 693 2 (258) (478) Unrecognized prior service cost................... 116 109 (49) (89) ------ ------ ------ ------ Prepaid (accrued) benefit cost.................... $ 544 $ 554 $ (807) $ (791) ====== ====== ====== ====== Qualified plan prepaid pension cost............... $ 805 $ 775 Non-qualified plan accrued pension cost........... (323) (263) Unamortized prior service cost.................... 16 14 Accumulated other comprehensive income............ 46 28 ------ ------ Prepaid benefit cost.............................. $ 544 $ 554 ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Non-Qualified Qualified Plans Plans Total ---------------- ------------ ---------------- 2001 2000 2001 2000 2001 2000 ------- ------- ----- ----- ------- ------- (Dollars in millions) Aggregate projected benefit obligation...................... $(4,006) $(3,775) $(420) $(370) $(4,426) $(4,145) Aggregate contract value of plan assets (principally Company contracts)................................................ 4,161 4,619 -- -- 4,161 4,619 ------- ------- ----- ----- ------- ------- Over (under) funded......................................... $ 155 $ 844 $(420) $(370) $ (265) $ 474 ======= ======= ===== ===== ======= =======
F-30 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 -------------------- --------------- 2001 2000 2001 2000 --------- ---------- ------- ------- Weighted average assumptions at December 31: Discount rate............................... 6.9%-7.4% 6.9%-7.75% 6%-7.4% 6%-7.5% Expected rate of return on plan assets...... 8%-9% 8%-9% 6%-9% 6%-9% Rate of compensation increase............... 4%-6% 4%-6% N/A N/A
The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were as follows:
December 31, ----------------------------------- 2001 2000 ------------------------------ ---- Pre-Medicare eligible benefits 9.5% down to 5% over 10 years 6.5% Medicare eligible benefits.... 11.5% down to 5% over 10 years 6%
Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components $ 15 $ 12 Effect on accumulated postretirement benefit obligation $137 $114
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ----------------- 2001 2000 1999 2001 2000 1999 ----- ----- ----- ----- ---- ---- (Dollars in millions) Service cost......................... $ 104 $ 98 $ 100 $ 34 $ 29 $ 28 Interest cost........................ 308 291 271 115 113 107 Expected return on plan assets....... (402) (420) (363) (108) (97) (89) Amortization of prior actuarial gains (2) (19) (6) (27) (22) (11) Curtailment (credit) cost............ 21 (3) (17) 6 2 10 ----- ----- ----- ----- ---- ---- Net periodic benefit (credit) cost... $ 29 $ (53) $ (15) $ 20 $ 25 $ 45 ===== ===== ===== ===== ==== ====
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 $64 million, $65 million and $45 million for the years ended December 31, 2001, 2000 and 1999, respectively. 7. Closed Block On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales F-31 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. Amounts reported for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transactions from April 1, 2000 through April 6, 2000 are not considered material). F-32 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Closed block liabilities and assets designated to the closed block are as follows:
December 31, --------------------- 2001 2000 ------- ------- (Dollars in millions) CLOSED BLOCK LIABILITIES Future policy benefits................................................................. $40,325 $39,415 Other policyholder funds............................................................... 321 278 Policyholder dividends payable......................................................... 757 740 Policyholder dividend obligation....................................................... 708 385 Payables under securities loaned transactions.......................................... 3,350 3,268 Other.................................................................................. 90 78 ------- ------- Total closed block liabilities...................................................... 45,551 44,164 ------- ------- ASSETS DESIGNATED TO THE CLOSED BLOCK Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $25,761 and $25,657, respectively)............................................................ 26,331 25,634 Equity securities, at fair value (amortized cost: $240 and $52, respectively)....... 282 54 Mortgage loans on real estate....................................................... 6,358 5,801 Policy loans........................................................................ 3,898 3,826 Short-term investments.............................................................. 170 223 Other invested assets (amortized cost: $137 and $250, respectively)................. 159 248 ------- ------- Total investments............................................................... 37,198 35,786 Cash and cash equivalents.............................................................. 1,119 661 Accrued investment income.............................................................. 550 557 Deferred income tax receivable......................................................... 1,060 1,234 Premiums and other receivables......................................................... 244 158 ------- ------- Total assets designated to the closed block......................................... 40,171 38,396 ------- ------- Excess of closed block liabilities over assets designated to to the closed block....... 5,380 5,768 ------- ------- Amounts included in accumulated other comprehensive income: Net unrealized investment gains (losses), net of deferred income tax expense (benefit) of $219 and $(9), respectively.......................................... 389 (14) Unrealized derivative gains, net of deferred income taxes of $9..................... 17 -- Allocated to policyholder dividend obligation, net of deferred income taxes of $255 and $143, respectively............................................................ (453) (242) ------- ------- (47) (256) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities...... $ 5,333 $ 5,512 ======= =======
F-33 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding the policyholder dividend obligation is as follows:
For the Period For the April 7, 2000 Year Ended through December 31, December 31, 2001 2000 ------------ -------------- (Dollars in millions) Balance at beginning of period (1)............................................... $ 385 $ -- Change in policyholder dividend obligation before allocable net investment losses 159 85 Net investment losses............................................................ (159) (85) Change in unrealized investment and derivative gains............................. 323 385 ----- ---- Balance at end of period......................................................... $ 708 $385 ===== ====
-------- (1) For the period ended at December 31, 2000, the beginning of the period is April 7, 2000. See Note 1 "Summary of Significant Accounting Policies--Demutualization." Closed block revenues and expenses were as follows:
For the Period April 7, 2000 For the Year Ended through December 31, December 31, 2001 2000 ------------------ -------------- (Dollars in millions) REVENUES Premiums............................................................. $3,658 $2,900 Net investment income................................................ 2,711 1,949 Net investment losses (net of amounts allocable to the policyholder dividend obligation of $(159) and $(85), respectively)............. (20) (150) ------ ------ Total revenues.................................................... 6,349 4,699 ------ ------ EXPENSES Policyholder benefits and claims..................................... 3,862 2,874 Policyholder dividends............................................... 1,544 1,132 Change in policyholder dividend obligation (excludes amounts directly related to net investment losses of $(159) and $(85), respectively) 159 85 Other expenses....................................................... 508 425 ------ ------ Total expenses.................................................... 6,073 4,516 ------ ------ Revenues net of expenses before income taxes......................... 276 183 Income taxes......................................................... 97 67 ------ ------ Revenues net of expenses and income taxes............................ $ 179 $ 116 ====== ======
The change in maximum future earnings of the closed block was as follows:
For the Period April 7, 2000 For the Year Ended through December 31, December 31, 2001 2000 ------------------ -------------- (Dollars in millions) Beginning of period..... $5,512 $5,628 End of period........... 5,333 5,512 ------ ------ Change during the period $ (179) $ (116) ====== ======
F-34 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company charges the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of reorganization. The Company also charges the closed block for expenses of maintaining the policies included in the closed block. Many of the derivative instrument strategies used by the Company are also used for the closed block. The cumulative effect of the adoption of SFAS 133 and SFAS 138, as of January 1, 2001, resulted in $11 million of other comprehensive income, net of income taxes of $6 million. For the year ended December 31, 2001, the closed block recognized net investment gains of $5 million primarily relating to non-speculative derivative uses that are permitted by the Department but that have not met the requirements of SFAS 133 to qualify for hedge accounting. Excluding the adoption adjustment, the changes in other comprehensive income were $6 million, net of taxes of $3 million, for the year ended December 31, 2001. 8. Separate Accounts Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $48,912 million and $53,656 million at December 31, 2001 and 2000, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $13,802 million and $16,594 million at December 31, 2001 and 2000, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $564 million, $667 million and $485 million for the years ended December 31, 2001, 2000 and 1999, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 7.0% and 6.9% at December 31, 2001 and 2000, respectively. The assets that support these liabilities were comprised of $11,888 million and $15,708 million in fixed maturities at December 31, 2001 and 2000, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 9. Debt Debt consisted of the following:
December 31, --------------------- 2001 2000 ------ ------ (Dollars in millions) Surplus notes, interest rates ranging from 6.30% to 7.80%, maturity dates ranging from 2003 to 2025.................................................................. $1,630 $1,630 Capital note, interest rate of 8% due 2005........................................... -- 1,006 Investment-related exchangeable debt, interest rate of 4.90% due 2002................ 195 271 Fixed rate notes, interest rates ranging from 3.47% to 12.00%, maturity dates ranging from 2002 to 2019.................................................................. 87 316 Senior notes, interest rates ranging from 6.75% to 7.25%, maturity dates ranging from 2006 to 2011....................................................................... 298 98 Capital lease obligations............................................................ 23 42 Other notes with varying interest rates.............................................. 147 43 ------ ------ Total long-term debt................................................................. 2,380 3,406 Total short-term debt................................................................ 345 1,085 ------ ------ Total............................................................................. $2,725 $4,491 ====== ======
F-35 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Life and certain of its subsidiaries maintain committed and unsecured credit facilities aggregating $2,250 million (five-year facility of $1,000 million expiring in April 2003 and a 364-day facility of $1,250 million expiring in April of 2002). If these facilities are drawn upon, they would bear interest at rates stated in the agreements. The facilities can be used for general corporate purposes and also provide backup for the Company's commercial paper program. At December 31, 2001, there were no outstanding borrowings under either of the facilities. At December 31, 2001, $72 million in letters of credit from various banks were outstanding between Metropolitan Life and certain of its subsidiaries. Reinsurance Group of America, Incorporated ("RGA"), a subsidiary of the Company, maintains committed and unsecured credit facilities aggregating $180 million (one facility of $140 million, one facility of $18 million and one facility of $22 million all expiring in 2005). At December 31, 2001 RGA had drawn approximately $24 million under these facilities at interest rates ranging from 4.40% to 4.97%. At December 31, 2001 $376 million in letters of credit from various banks were outstanding between the subsidiaries of RGA. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. Subject to the prior approval of the Superintendent, the $300 million 7.45% surplus notes due 2023 may be redeemed, in whole or in part, at the election of Metropolitan Life at any time on or after November 1, 2003. In 2001, the Company retired a $1,006 million long-term debt capital note payable to the Holding Company. The issue of investment-related exchangeable debt is payable in cash or by delivery of an underlying security owned by the Company. The amount of the debt payable at maturity is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. At December 31, 2001, the underlying security pledged as collateral had a market value of $240 million. The aggregate maturities of long-term debt for the Company are $208 million in 2002, $441 million in 2003, $27 million in 2004, $272 million in 2005, $110 million in 2006 and $1,322 million thereafter. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 2.1% and 6.6% and a weighted average maturity of 87 days and 44 days at December 31, 2001 and 2000, respectively. The Company also has other secured borrowings with a weighted average coupon rate of 7.25% and a weighted average maturity of 30 days at December 31, 2001. Interest expense related to the Company's indebtedness included in other expenses was $313 million, $417 million and $358 million for the years ended December 31, 2001, 2000 and 1999, respectively. 10. Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts GenAmerica Capital I. In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding were $118 million, net of unamortized discount of $7 million at December 31, 2001 and 2000. Interest expense on these instruments is included in other expenses and was $11 million for both the years ended December 31, 2001 and 2000, respectively. RGA Capital Trust I. In December 2001, a subsidiary of the Company, RGA, through its wholly-owned trust RGA Capital Trust I (the "Trust") issued 4,500,000 Preferred Income Equity Redeemable Securities ("PIERS") Units. Each PIERS unit consists of (i) a preferred security issued by the Trust, having a stated liquidation amount of $50 per F-36 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) unit, representing an undivided beneficial ownership interest in the assets of the Trust, which consist solely of junior subordinated debentures issued by RGA which have a principal amount at maturity of $50 and a stated maturity of March 18, 2051, and (ii) a warrant to purchase, at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an exercise price of $50. The fair market value of the warrant on the issuance date was $14.87 and is detachable from the preferred security. RGA fully and unconditionally guarantees, on a subordinated basis, the obligations of the Trust under the preferred securities. The preferred securities and subordinated debentures were issued at a discounted (original issue discount) to the face or liquidation value of $14.87 per security. The securities will accrete to their $50 face/liquidation value over the life of the security on a level yield basis. The weighted average effective interest rate on the preferred securities and the subordinated debentures is 8.25% per annum. Capital securities outstanding at December 31, 2001 were $158 million, net of unamortized discount of $67 million. 11. Commitments and Contingencies Litigation Sales Practices Claims Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." In December 1999, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving litigation against Metropolitan Life involving certain alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. Implementation of the settlement is substantially completed. Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, have been settled. The New England Mutual case, approved by the United States District Court for the District of Massachusetts in October 2000, involves approximately 600,000 life insurance policies sold during the period January 1, 1983 through August 31, 1996. Implementation of the New England Mutual class action settlement is substantially completed. The General American case, approved by the United States District Court for the Eastern District of Missouri, and affirmed by the appellate court in October 2001, involves approximately 250,000 life insurance policies sold during the period January 1, 1982 through December 31, 1996. A petition for writ of certiorari to the United States Supreme Court has been filed by objectors to the settlement. Implementation of the General American class action settlement is proceeding. Metropolitan Life expects that the total cost of its class action settlement will be approximately $957 million. It is expected that the total cost of the New England Mutual class action settlement will be approximately $160 million. General American expects that the total cost of its class action settlement will be approximately $68 million. Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices lawsuits. As of December 31, 2001, there are approximately 420 sales practices lawsuits pending against Metropolitan Life, approximately 40 sales practices lawsuits pending against New England Mutual and approximately 40 sales practices lawsuits pending against General American. Metropolitan Life, New England Mutual and General American continue to vigorously defend themselves against these lawsuits. Some individual sales practices claims have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. F-37 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada, and these actions remain pending. In October 2001, the United States District Court for the Southern District of New York approved the settlement of a class action alleging improper sales abroad that was brought against Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants. No appeal was filed and the settlement is being implemented. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for sales practices claims against Metropolitan Life, New England Mutual and General American. During 1998, Metropolitan Life purchased excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. The premium for the excess of loss reinsurance agreements was $529 million. These reinsurance agreements had a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. The coverage was in excess of an aggregate self-insured retention of $385 million with respect to sales practices claims and $506 million, plus the Company's statutory policy reserves released upon the death of insureds, with respect to life mortality losses. The excess of loss reinsurance agreements were amended in 2000 to transfer mortality risks under the Metropolitan Life class action settlement agreement. Recoveries have been made under the reinsurance agreements for the sales practices claims. Although there is no assurance that other reinsurance claim submissions will be paid, the Company believes payment is likely to occur. The Company accounts for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on the Company's consolidated financial statements in 2001, 2000 and 1999 would not be significant. Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Asbestos-Related Claims Metropolitan Life is also a defendant in thousands of lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. The number of such cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. F-38 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth the total number of asbestos personal injury claims pending against Metropolitan Life as of the dates indicated, the number of new claims during the years ended on those dates and the total settlement payments made to resolve asbestos personal injury claims during those years:
At or for the Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- Asbestos personal injury claims at year end (approximate) 89,000 73,000 60,000 Number of new claims during year (approximate)........... 59,500 54,500 35,500 Settlement payments during year (dollars in millions)(1). $ 90.7 $ 71.1 $ 113.3
-------- (1) Settlement payments represent payments made during the year in connection with settlements made in that year and in prior years. Amounts do not include Metropolitan Life's attorneys' fees and expenses and do not reflect amounts received from insurance carriers. Prior to the fourth quarter of 1998, Metropolitan Life established a liability for asbestos-related claims based on settlement costs for claims that Metropolitan Life had settled, estimates of settlement costs for claims pending against Metropolitan Life and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which management believes are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386 million. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against Metropolitan Life, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty as to the number of claims that may be brought against Metropolitan Life. During 1998, Metropolitan Life decided to pursue the purchase of excess insurance to limit its exposure to asbestos-related claims noted above. In connection with the negotiations with the casualty insurers to obtain this insurance, Metropolitan Life obtained information that caused management to reassess the accruals for asbestos-related claims. This information included: . Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against Metropolitan Life in the future was significantly greater than it had assumed in its accruals. The number of claims brought against Metropolitan Life is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which Metropolitan Life is included as a defendant. The information provided to Metropolitan Life relating to other insureds indicated that Metropolitan Life had been included as a defendant for a significant percentage of total asbestos-related claims and that it may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. . Information derived from actuarial calculations Metropolitan Life made in the fourth quarter of 1998 in connection with these negotiations, which helped to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding Metropolitan Life's claims and settlement experience (which reflected Metropolitan Life's decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, Metropolitan Life concluded that certain claims that previously were considered as only reasonably possible of assertion were probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, Metropolitan Life increased its liability for asbestos-related claims to $1,278 million at December 31, 1998. F-39 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During 1998, Metropolitan Life paid $878 million in premiums for excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention. The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. As a result of the excess insurance policies, $878 million was recorded as a recoverable at December 31, 2001, 2000 and 1999. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in the Company's operating cash flows for that year, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. It is likely that a claim will be made under the excess insurance policies in 2003 for a portion of the amounts paid with respect to asbestos litigation in 2002. If at some point in the future, the Company believes the liability for probable and estimable losses for asbestos-related claims should be increased, an expense would be recorded and the insurance recoverable would be adjusted subject to the terms, conditions and limits of the excess insurance policies. Portions of the change in the insurance recoverable would be deferred and amortized into income over the estimated remaining settlement period of the insurance policies. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for asbestos-related claims. Estimates of the Company's asbestos exposure are very difficult to predict due to the limitations of available data and the substantial difficulty of predicting with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation, as well as advertising by plaintiffs' asbestos lawyers, may be resulting in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of such recent bankruptcies by certain other defendants. Metropolitan Life is studying its recent claims experience, published literature regarding asbestos claims experience in the United States and numerous variables that can affect its asbestos liability exposure, including the recent bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the previously recorded asbestos liability. It is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. Property and Casualty Actions A purported class action suit involving policyholders in four states was filed in a Rhode Island state court against a Metropolitan Life subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. After the court denied plaintiffs' motion for class certification, the plaintiffs dismissed the lawsuit with prejudice. Similar "diminished value" purported class action suits have been filed in Texas and Tennessee against Metropolitan Property and Casualty Insurance Company; a Texas trial court recently denied plaintiffs' motion for class certification and a hearing on plaintiffs' motion in Tennessee for class certification is to be scheduled. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida. The complaint alleges breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. Discovery is ongoing and a motion for class certification is pending. A two-plaintiff individual lawsuit brought in Alabama alleges that Metropolitan Property and Casualty Insurance Company and CCC, a valuation company, violated state law by failing to pay the proper valuation amount for a total loss. Total loss valuation methods also are the subject of national class actions involving other insurance companies. A Pennsylvania state court purported class action lawsuit filed in August 2001 alleges that F-40 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Property and Casualty Insurance Company improperly took depreciation on partial homeowner losses where the insured replaced the covered item. In addition, in Florida, Metropolitan Property and Casualty Insurance Company has been named in a class action alleging that it improperly established preferred provider organizations (hereinafter "PPO"). Other insurers have been named in both the Pennsylvania and the PPO cases. Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company are vigorously defending themselves against these lawsuits. Demutualization Actions Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the Supreme Court of the State of New York for New York County have been consolidated within the commercial part. Metropolitan Life has moved to dismiss these consolidated cases on a variety of grounds. In addition, there remains a separate purported class action in New York state court in New York County that Metropolitan Life also has moved to dismiss. Another purported class action in New York state court in Kings County has been voluntarily held in abeyance by plaintiffs. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting and, in some instances, punitive damages. Some of the plaintiffs in the above described actions also have brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the New York Superintendent of Insurance that approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. This case also is being held in abeyance by plaintiffs. Another purported class action is pending in the Supreme Court of the State of New York for New York County and has been brought on behalf of a purported class of beneficiaries of Metropolitan Life annuities purchased to fund structured settlements claiming that the class members should have received common stock or cash in connection with the demutualization. Metropolitan Life has moved to dismiss this case on a variety of grounds. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied on July 23, 2001. A purported class action also was filed in the United States District Court for the Southern District of New York seeking damages from Metropolitan Life and the Holding Company for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. On July 9, 2001, pursuant to a motion to dismiss filed by Metropolitan Life, this case was dismissed by the District Court. Plaintiffs have appealed to the United States Court of Appeals for the Second Circuit. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario, Canada on behalf of a proposed class of certain former Canadian policyholders against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance Company of Canada. Plaintiffs' allegations concern the way that their policies were treated in connection with the demutualization of Metropolitan Life; they seek damages, declarations, and other non-pecuniary relief. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest vigorously all of plaintiffs' claims in this matter. Race-Conscious Underwriting Claims Insurance Departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its subsidiaries. The New York Insurance Department has commenced examinations of certain domestic life insurance companies, including Metropolitan Life, concerning F-41 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) possible past race-conscious underwriting practices. Metropolitan Life is cooperating fully with that inquiry, which is ongoing. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies have been consolidated in the United States District Court for the Southern District of New York. The plaintiffs seek unspecified monetary damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. At the outset of discovery, Metropolitan Life moved for summary judgment on statute of limitations grounds. On June 27, 2001, the District Court denied that motion, citing, among other things, ongoing discovery on relevant subjects. The ruling does not prevent Metropolitan Life from continuing to pursue a statute of limitations defense. Plaintiffs have moved for certification of a class consisting of all non-Caucasian policyholders purportedly harmed by the practices alleged in the complaint. Metropolitan Life has opposed the class certification motion. Metropolitan Life has been involved in settlement discussions to resolve the regulatory examinations and the actions pending in the United States District Court for the Southern District of New York. In that connection, Metropolitan Life has recorded a $250 million pre-tax charge in the fourth quarter of 2001 as probable and estimable costs associated with the anticipated resolution of these matters. In the fall of 2001, 12 lawsuits were filed against Metropolitan Life on behalf of approximately 109 non-Caucasian plaintiffs in their individual capacities in state court in Tennessee. The complaints allege under state common law theories that Metropolitan Life discriminated against non-Caucasians in the sale, formation and administration of life insurance policies. The plaintiffs have stipulated that they do not seek and will not accept more than $74,000 per person if they prevail on their claims. Early in 2002, two individual actions were filed against Metropolitan Life in federal court in Alabama alleging both federal and state law claims of racial discrimination in connection with the sale of life insurance policies issued. Metropolitan Life is contesting vigorously plaintiffs' claims in the Tennessee and Alabama actions. Other In March 2001, a putative class action was filed against Metropolitan Life in the United States District Court for the Southern District of New York alleging gender discrimination and retaliation in the MetLife Financial Services unit of the Individual segment. The plaintiffs seek unspecified compensatory damages, punitive damages, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices, an order restoring class members to their rightful positions (or appropriate compensation in lieu thereof), and other relief. Metropolitan Life is vigorously defending itself against these allegations. A lawsuit has been filed against Metropolitan Life in Ontario, Canada by Clarica Life Insurance Company regarding the sale of the majority of Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that Metropolitan Life breached certain representations and warranties contained in the sale agreement, that Metropolitan Life made misrepresentations upon which Clarica relied during the negotiations and that Metropolitan Life was negligent in the performance of certain of its obligations and duties under the sale agreement. Metropolitan Life is vigorously defending itself against this lawsuit. General American has received and responded to subpoenas for documents and other information from the office of the U.S. Attorney for the Eastern District of Missouri with respect to certain administrative services provided by its former Medicare Unit during the period January 1, 1988 through December 31, 1998, which services ended and which unit was disbanded prior to Metropolitan Life's acquisition of General American. The subpoenas were issued as part of the Government's criminal investigation alleging that General American's former Medicare Unit engaged in improper billing and claims payment practices. The Government is also conducting a civil investigation under the federal False Claims Act. General American is cooperating fully with the Government's investigations. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's F-42 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. The Company has recorded, in other expenses, charges of $250 million, $15 million and $499 million for the years ended December 31, 2001, 2000 and 1999, respectively. The charge in 2001 relates to race-conscious underwriting and the charges in 2000 and 1999 relate to sales practice claims. The charge in 1999 was principally related to the settlement of the multi-district litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. Summary It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular quarterly or annual periods. Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and sublease income, and minimum gross rental payments relating to these lease agreements were as follows:
Gross Rental Sublease Rental Income Income Payments ------ -------- -------- (Dollars in millions) 2002............................................. $ 759 $11 $129 2003............................................. 650 11 112 2004............................................. 594 10 91 2005............................................. 521 10 75 2006............................................. 439 10 59 Thereafter....................................... 1,669 16 134
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,898 million and $1,311 million at December 31, 2001 and 2000, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. 12. Acquisitions and Dispositions Dispositions In December 2001, the Company completed its sale of MIAC to the Holding Company. The amount received in excess of book value was recorded as a capital contribution from the Holding Company. Total assets and total liabilities F-43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of MIAC at the date of sale were $6,240 million and $5,219 million, respectively. Total revenues of MIAC included in the consolidated statements of income were $391 million, $509 million and $494 million for the years ended December 31, 2001, 2000 and 1999, respectively. On July 2, 2001, the Company completed its sale of Conning Corporation ("Conning"), an affiliate acquired in the acquisition of GenAmerica Financial Corporation ("GenAmerica"). Conning specializes in asset management for insurance company investment portfolios and investment research. The Company received $108 million in the transaction and reported a gain of approximately $16 million, net of income taxes of $9 million, in the third quarter of 2001. During the fourth quarter of 2000, the Company completed the sale of its 48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P. This transaction resulted in an investment gain of $663 million. Acquisitions On January 6, 2000, Metropolitan Life completed its acquisition of GenAmerica for $1.2 billion. As part of the GenAmerica acquisition, General American Life Insurance Company paid Metropolitan Life a fee of $120 million in connection with the assumption of certain funding agreements. The fee was considered part of the purchase price of GenAmerica. GenAmerica is a holding company which included General American Life Insurance Company, approximately 49% of the outstanding shares of RGA common stock and 61.0% of the outstanding shares of Conning common stock. Metropolitan Life owned 9% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. At December 31, 2001 Metropolitan Life's ownership percentage of the outstanding shares of RGA common stock was approximately 58%. On January 30, 2002, MetLife, Inc. and its affiliated companies announced their intention to purchase up to an additional $125 million of RGA's outstanding common stock, over an unspecified period of time. These purchases are intended to offset potential future dilution of the Company's holding of RGA's common stock arising from the issuance by RGA of company-obligated mandatorily redeemable securities of a subsidiary trust on December 10, 2001. In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73 million. The shares of Conning were subsequently sold in their entirety in July 2001. The Company's total revenues and net income for the year ended December 31, 1999 on both a historical and pro forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999 were as follows:
Total Revenues Net Income -------------- ---------- (Dollars in millions) Historical....................................... $25,128 $617 Pro forma (unaudited)............................ $28,973 $403
The pro forma results include adjustments to give effect to the amortization of discounts on fixed maturities, goodwill and value of business acquired, adjustments to liabilities for future policy benefits, and certain other adjustments, together with related income tax effects. The pro forma information is not necessarily indicative of the results that would have occurred had the purchase been made on January 1, 1999 or the future results of the combined operations. F-44 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Business Realignment Initiatives During the fourth quarter of 2001, the Company implemented several business realignment initiatives, which resulted from a strategic review of operations and an ongoing commitment to reduce expenses. The impact of these actions on a segment basis are as follows:
For the year ended December 31, 2001 --------------------- Net of Amount Income Tax ------ ---------- (Dollars in millions) Institutional.......................... $399 $267 Individual............................. 97 61 Auto & Home............................ 3 2 ---- ---- Total............................... $499 $330 ==== ====
Institutional The charges to this segment include costs associated with exiting a business, including the write-off of goodwill, severance, severance-related expenses, and facility consolidation costs. These expenses are the result of the discontinuance of certain 401(k) recordkeeping services and externally-managed guaranteed index separate accounts. These initiatives will result in the elimination of approximately 450 positions. These actions resulted in charges to policyholder benefits and claims and other expenses of $215 million and $184 million, respectively. Individual The charges to this segment include facility consolidation costs, severance and severance-related expenses, which predominately stem from the elimination of approximately 560 non-sales positions and 190 operations and technology positions supporting this segment. The costs were recorded in other expenses. Auto & Home The charges to this segment include severance and severance-related costs associated with the elimination of approximately 200 positions. The costs were recorded in other expenses. Although many of the underlying business initiatives were completed in 2001, a portion of the activity will continue into 2002. The liability as of December 31, 2001 was $295 million. 14. Income Taxes The provision for income taxes was as follows:
Years ended December 31 , --------------------- 2001 2000 1999 ---- ----- ---- (Dollars in millions) Current: Federal............................. $(22) $(131) $608 State and local..................... (4) 34 24 Foreign............................. 15 5 4 ---- ----- ---- (11) (92) 636 ---- ----- ---- Deferred: Federal............................. 814 555 (78) State and local..................... 32 8 2 Foreign............................. 1 6 (2) ---- ----- ---- 847 569 (78) ---- ----- ---- Provision for income taxes............. $836 $ 477 $558 ==== ===== ====
F-45 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
Years ended December 31, --------------------- 2001 2000 1999 ---- ----- ---- (Dollars in millions) Tax provision at U.S. statutory rate........ $813 $ 499 $411 Tax effect of: Tax exempt investment income............. (82) (52) (39) Surplus tax.............................. -- (145) 125 State and local income taxes............. 32 30 18 Prior year taxes......................... 36 (37) (31) Demutualization costs.................... -- 21 56 Payment to former Canadian policyholders. -- 114 -- Sales of businesses...................... 5 31 -- Other, net............................... 32 16 18 ---- ----- ---- Provision for income taxes.................. $836 $ 477 $558 ==== ===== ====
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
December 31, --------------------- 2001 2000 ------- ------ (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables. $ 3,033 $3,034 Net operating losses..................... 318 258 Employee benefits........................ 123 167 Litigation related....................... 279 232 Other.................................... 438 350 ------- ------ 4,191 4,041 Less: Valuation allowance................ 114 78 ------- ------ 4,077 3,963 ------- ------ Deferred income tax liabilities: Investments.............................. 2,053 1,329 Deferred policy acquisition costs........ 2,756 2,713 Net unrealized investment gains.......... 1,037 626 Other.................................... 124 37 ------- ------ 5,970 4,705 ------- ------ Net deferred income tax liability........... $(1,893) $ (742) ======= ======
Domestic net operating loss carryforwards amount to $481 million at December 31, 2001 and expire in 2021. Foreign net operating loss carryforwards amount to $401 million at December 31, 2001 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is F-46 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 15. Reinsurance The Company's life insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. Risks in excess of $25 million on single survivorship policies and $30 million on joint survivorship policies are 100 percent coinsured. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. In addition, the Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The Company is engaged in life reinsurance whereby it indemnifies other insurance companies for all or a portion of the insurance risk underwritten by the ceding companies. See Note 11 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Direct premiums......................... $16,257 $15,661 $13,249 Reinsurance assumed..................... 2,786 2,858 484 Reinsurance ceded....................... (2,020) (2,256) (1,645) ------- ------- ------- Net premiums............................ $17,023 $16,263 $12,088 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits...... $ 1,816 $ 1,934 $ 1,626 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,260 million and $3,304 million at December 31, 2001 and 2000, respectively, including $1,356 million and $1,359 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $286 million and $225 million at December 31, 2001 and 2000, respectively. Premiums and other receivables includes reinsurance receivables due from Exeter Reassurance Company, Limited, a related party, of $644 million and $470 million at December 31, 2001 and 2000, respectively. Other policyholder funds includes reinsurance assumed from MIAC, a related party, of $778 million at December 31, 2001. F-47 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1............................................................. $ 4,185 $ 3,789 $ 3,320 Reinsurance recoverables...................................................... (413) (415) (382) ------- ------- ------- Net balance at January 1......................................................... 3,772 3,374 2,938 ------- ------- ------- Acquisition of business.......................................................... -- 2 204 ------- ------- ------- Incurred related to: Current year.................................................................. 4,213 3,766 3,129 Prior years................................................................... (34) (111) (16) ------- ------- ------- 4,179 3,655 3,113 ------- ------- ------- Paid related to: Current year.................................................................. (2,567) (2,237) (2,012) Prior years................................................................... (1,239) (1,022) (869) ------- ------- ------- (3,806) (3,259) (2,881) ------- ------- ------- Net Balance at December 31....................................................... 4,145 3,772 3,374 Add: Reinsurance recoverables................................................. 423 413 415 ------- ------- ------- Balance at December 31........................................................... $ 4,568 $ 4,185 $ 3,789 ======= ======= =======
16. Other Expenses Other expenses were comprised of the following:
Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Compensation...................................................................... $ 2,447 $ 2,712 $ 2,590 Commissions....................................................................... 1,649 1,638 872 Interest and debt issue costs..................................................... 312 436 405 Amortization of policy acquisition costs (excludes amortization of $21, $(95), and $(46), respectively, related to realized investment losses)..................... 1,434 1,472 930 Capitalization of policy acquisition costs........................................ (2,018) (1,805) (1,160) Rent, net of sublease income...................................................... 280 230 172 Minority interest................................................................. 57 115 55 Other............................................................................. 3,303 3,133 2,598 ------- ------- ------- Total other expenses........................................................... $ 7,464 $ 7,931 $ 6,462 ======= ======= =======
17. Stockholder's Equity Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding calendar year and (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). Metropolitan Life will be permitted to pay a stockholder dividend to the Holding Company in F-48 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. For the year ended December 31, 2001, Metropolitan Life paid the Holding Company $721 million in dividends for which prior insurance regulatory clearance was not required and $3,033 million in special dividends, as approved by the Superintendent. Of the total dividend paid, $1,894 million (retained earnings from date of demutualization through the month the dividend was paid) was charged to retained earnings and $1,860 million was charged to additional paid-in-capital. For the year ended December 31, 2000, Metropolitan Life paid to the Holding Company $762 million in dividends for which prior insurance regulatory clearance was not required. At December 31, 2001, Metropolitan Life could pay the Holding Company a dividend of $546 million without prior approval of the Superintendent. Stock Compensation Plans Under the MetLife, Inc. 2000 Stock Incentive Plan (the "Stock Incentive Plan"), awards granted may be in the form of non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code. Under the MetLife, Inc. 2000 Directors Stock Plan, (the "Directors Stock Plan") awards granted may be in the form of stock awards or non-qualified stock options or a combination of the foregoing to outside Directors of the Company. The aggregate number of shares of MetLife common stock that may be awarded under the Stock Incentive Plan is subject to a maximum limit of 37,823,333 shares for the duration of the plan. The Directors Stock Plan has a maximum limit of 500,000 share awards. All options granted have an exercise price equal to the fair market value price of MetLife's common stock on the date of grant, and an option's maximum term is ten years. Certain options under the Stock Incentive Plan become exercisable over a three-year period commencing with date of grant, while other options become exercisable three years after the date of grant. Options issued under the Directors Stock Plan are exercisable at any time after April 7, 2002. The Company applies APB 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, in the measurement of compensation expense, the Company utilizes the excess of market price over exercise price on the first date that both the number of shares and award price are known. For the year ended December 31, 2001, compensation expense for non-employees related to MetLife's Stock Incentive Plan and Directors Stock Plan was $1 million, which was recorded by the Company. Had compensation cost for the MetLife, Inc. Stock Incentive Plan and Directors Stock Plan been determined based on fair value at the grant date for awards under those plans consistent with the method of SFAS No. 123, the Company's net income for the year ended December 31, 2001 would have been reduced to a pro forma amount of $1,468 million. The pro forma net income is not necessarily representative of the effects on net income in future years. The pro forma net income includes the Company's ownership share of compensation costs related to RGA's incentive stock plan determined in accordance with SFAS 123. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2001: dividend yield of 0.68%, expected price variability of 31.60%, risk-free interest rate of 5.72% and expected duration ranging from 4 to 6 years. Statutory Equity and Income Applicable insurance department regulations require that the insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to F-49 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt, and valuing securities on a different basis. In addition, New York State Statutory Accounting Practices do not provide for deferred income taxes. Statutory net income of Metropolitan Life, as filed with the Department, was $2,782 million, $1,027 million and $789 million for the years ended December 31, 2001, 2000 and 1999, respectively; statutory capital and surplus, as filed, was $5,358 million and $7,213 million at December 31, 2001 and 2000, respectively.
December 31, --------------------- 2001 2000 ------- ------- (Dollars in millions) Statutory capital and surplus of insurance subsidiaries..... $ 5,358 $ 7,213 GAAP adjustments for: Future policy benefits and policyholder account balances. (3,909) (4,012) Deferred policy acquisition costs........................ 10,169 10,061 Deferred income taxes.................................... (1,800) (381) Valuation of investments................................. 2,821 1,038 Statutory asset valuation reserves....................... 3,870 3,347 Statutory interest maintenance reserves.................. 392 547 Surplus notes............................................ (1,655) (1,650) Other, net............................................... (802) (147) ------- ------- Stockholder's Equity........................................ $14,444 $16,016 ======= =======
Years ended December 31, ----------------------- 2001 2000 1999 ------- ------ ----- (Dollars in millions) Net change in statutory capital and surplus of insurance subsidiaries $(1,855) $ (417) $ 242 GAAP adjustments for: Future policy benefits and policyholder account balances.......... 899 152 556 Deferred policy acquisition costs................................. 549 320 379 Deferred income taxes............................................. (848) (614) 154 Valuation of investments.......................................... 149 1,339 473 Statutory asset valuation reserves................................ 551 88 (226) Statutory interest maintenance reserves........................... (200) (571) (368) Dividends......................................................... 3,754 762 -- Sale of subsidiary................................................ (808) -- -- Other, net........................................................ (704) (110) (593) ------- ------ ----- Net income........................................................... $ 1,487 $ 949 $ 617 ======= ====== =====
The National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments, and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Department required adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. The adoption of the Codification in accordance with NAIC guidance would have increased Metropolitan Life's statutory capital and surplus by approximately $1.5 billion. The adoption of the Codification, as modified by the Department, increased Metropolitan Life's statutory capital and surplus by approximately $84 million, as of January 1, 2001. Further modifications by state insurance departments may impact the effect of the Codification on Metropolitan Life's statutory surplus and capital. F-50 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 18. Other Comprehensive Income (Loss) The following table sets forth the reclassification adjustments required for the years ended December 31, 2001, 2000 and 1999 to avoid double-counting in other comprehensive income (loss) items that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
December 31, ----------------------- 2001 2000 1999 ------ ------ ------- (Dollars in millions) Holding gains (losses) on investments arising during the year............................. $1,284 $2,807 $(6,314) Income tax effect of holding gains or losses.............................................. (509) (975) 2,262 Reclassification adjustments: Recognized holding losses included in current year income.............................. 579 989 38 Amortization of premium and discount on investments.................................... (475) (498) (307) Recognized holding losses allocated to other policyholder amounts...................... (33) (54) (67) Income tax effect...................................................................... (28) (152) 120 Allocation of holding (gains) losses on investments relating to other policyholder amounts (154) (977) 3,788 Income tax effect of allocation of holding gains or losses to other policyholder amounts.. 61 340 (1,357) Unrealized investment gain of subsidiary at date of sale.................................. (173) -- -- Deferred income taxes on unrealized investment gains of subsidiary at date of sale........ 64 -- -- ------ ------ ------- Net unrealized investment gains (losses).................................................. 616 1,480 (1,837) ------ ------ ------- Foreign currency translation adjustments arising during the year.......................... (58) (6) 50 Foreign currency translation of subsidiary at date of sale................................ 19 -- -- ------ ------ ------- Foreign currency translation adjustment................................................... (39) (6) 50 ------ ------ ------- Minimum pension liability adjustment...................................................... (18) (9) (7) ------ ------ ------- Other comprehensive income (loss)......................................................... $ 559 $1,465 $(1,794) ====== ====== =======
19. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Individual, Institutional, Reinsurance, Auto & Home, Asset Management and International. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care, and dental insurance, and other insurance products and services. Reinsurance provides life reinsurance and international life and disability on a direct and reinsurance basis. Auto & Home provides insurance coverages, including private passenger automobile, homeowners and personal excess liability insurance. Asset Management provides a broad variety of asset management products and services to individuals and institutions. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. F-51 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Set forth in the tables below is certain financial information with respect to the Company's operating segments as of or for the years ended December 31, 2001, 2000 and 1999. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation and the accounting for gains and losses from inter-company sales which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates non-recurring items (primarily consisting of expenses associated with the anticipated resolution of proceedings alleging race-conscious underwriting practices, sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products and demutualization costs) to Corporate & Other.
Auto Corporate At or for the year ended & Asset & December 31, 2001 Individual Institutional Reinsurance Home Management International Other Total ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums......................... $ 4,559 $ 7,288 $1,680 $2,755 $ -- $ 788 $ (47) $ 17,023 Universal life and investment- type product policy fees....... 1,245 592 -- -- -- 38 (1) 1,874 Net investment income............ 6,455 4,161 349 200 71 256 299 11,791 Other revenues................... 495 649 35 22 198 16 117 1,532 Net investment gains (losses).... 826 (15) (10) (17) 25 (16) 134 927 Policyholder benefits and claims. 5,228 8,924 1,386 2,121 -- 632 (26) 18,265 Interest credited to policyholder account balances............... 1,850 1,012 122 -- -- 51 -- 3,035 Policyholder dividends........... 1,767 259 -- -- -- 34 -- 2,060 Other expenses................... 3,004 1,907 481 800 252 315 705 7,464 Income (loss) before provision for income taxes............... 1,731 573 65 39 42 50 (177) 2,323 Net income (loss)................ 1,086 383 39 41 27 16 (105) 1,487 Total assets..................... 126,655 89,620 7,036 4,581 256 3,385 16,211 247,744 Deferred policy acquisition costs 8,451 509 1,052 179 -- 263 17 10,471 Separate account assets.......... 31,261 31,177 13 -- -- 277 (14) 62,714 Policyholder liabilities......... 83,783 52,035 4,626 2,610 -- 1,987 846 145,887 Separate account liabilities..... 31,261 31,177 13 -- -- 277 (14) 62,714
Auto Corporate At or for the year ended & Asset & December 31, 2000 Individual Institutional Reinsurance Home Management International Other Total ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums........................ $ 4,673 $ 6,900 $1,396 $2,636 $ -- $ 660 $ (2) $ 16,263 Universal life and investment- type product policy fees...... 1,221 547 -- -- -- 53 (1) 1,820 Net investment income........... 6,475 3,959 368 194 90 254 433 11,773 Other revenues.................. 650 650 29 40 760 9 121 2,259 Net investment gains (losses)... 227 (475) (2) (20) -- 18 (166) (418) Policyholder benefits and claims 5,054 8,178 1,045 2,005 -- 562 91 16,935 Interest credited to policyholder account balances. 1,680 1,090 109 -- -- 56 -- 2,935 Policyholder dividends.......... 1,742 124 15 -- -- 32 -- 1,913 Payments to former Canadian policyholders................. -- -- -- -- -- 327 -- 327 Demutualization costs........... -- -- -- -- -- -- 230 230 Other expenses.................. 3,323 1,730 506 827 784 292 469 7,931 Income (loss) before provision for income taxes.............. 1,447 459 116 18 66 (275) (405) 1,426 Net income (loss)............... 920 307 68 30 34 (285) (125) 949 Total assets.................... 132,433 89,725 6,386 4,511 418 5,119 15,130 253,722 Deferred policy acquisition costs......................... 8,610 446 910 176 -- 354 1 10,497 Separate account assets......... 34,860 33,918 28 -- -- 1,491 (47) 70,250 Policyholder liabilities........ 84,049 49,669 4,389 2,559 -- 2,435 (544) 142,557 Separate account liabilities.... 34,860 33,918 28 -- -- 1,491 (47) 70,250
F-52 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Auto Corporate For the year ended & Asset & December 31, 1999 Individual Institutional Reinsurance Home Management International Other Total -------------- ---------- ------------- ----------- ------ ---------- ------------- --------- ------- (Dollars in millions) Premiums.......................... $4,289 $5,525 $-- $1,751 $ -- $523 $ -- $12,088 Universal life and investment-- type product policy fees........ 888 502 -- -- -- 43 -- 1,433 Net investment income............. 5,346 3,755 -- 103 80 206 326 9,816 Other revenues.................... 381 609 -- 21 803 12 35 1,861 Net investment (losses) gains..... (14) (31) -- 1 -- 1 (27) (70) Policyholder benefits and claims.. 4,625 6,712 -- 1,301 -- 458 4 13,100 Interest credited to policyholder account balances................ 1,359 1,030 -- -- -- 52 -- 2,441 Policyholder dividends............ 1,509 159 -- -- -- 22 -- 1,690 Demutualization costs............. -- -- -- -- -- -- 260 260 Other expenses.................... 2,542 1,569 -- 514 795 248 794 6,462 Income (loss) before provision for income taxes.................... 855 890 -- 61 88 5 (724) 1,175 Net income (loss)................. 555 567 -- 56 51 21 (633) 617
For the year ended December 31, 2001 the Institutional, Individual, Reinsurance and Auto & Home segments include $287 million, $24 million, $9 million and $5 million, respectively, of pre-tax losses associated with the September 11, 2001 tragedies. See Note 2. The Institutional, Individual and Auto & Home segments include $399 million, $97 million and $3 million, respectively, in pre-tax charges associated with business realignment initiatives for the year ended December 31, 2001. See Note 13. For the year ended December 31, 2001, the Individual segment includes $118 million of pre-tax expenses associated with the establishment of a policyholder liability for certain group annuity policies. For the year ended December 31, 2001, pre-tax gross investment gains of $1,027 million, $142 million and $357 million resulting from the sale of certain real estate properties to MIAC are included in the Individual segment, the Institutional segment and Corporate & Other, respectively. The Individual segment included an equity ownership interest in Nvest under the equity method of accounting. Nvest was included within the Asset Management segment due to the types of products and strategies employed by the entity. The Individual segment's equity in earnings of Nvest, which is included in net investment income, was $30 million and $48 million for the years ended December 31, 2000 and 1999, respectively. The Individual segment includes $538 million (after allocating $118 million to participating contracts) of the pre-tax gross investment gain on the sale of Nvest in 2000. As part of the GenAmerica acquisition in 2000, the Company acquired General American Life Insurance Company, the results of which are included primarily in the Individual segment. The Reinsurance segment includes the life reinsurance business of RGA, acquired in 2000, combined with Exeter, an ancillary life reinsurance business of the Company. Exeter has been reported as a component of the Individual segment rather than as a separate segment for periods prior to January 1, 2000 due to its immateriality. The Auto & Home segment includes the standard personal lines property and casualty insurance operations of The St. Paul Companies which were acquired in September 1999. As part of the GenAmerica acquisition in 2000, the Company acquired Conning, the results of which are included in the Asset Management segment due to the types of products and strategies employed by the entity from its acquisition date to July 2001, the date of its disposition. The Company sold Conning, receiving $108 million in the transaction and reported a gain of approximately $16 million, net of income taxes of $9 million, in the third quarter of 2001. F-53 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Corporate & Other segment consists of various start-up entities and run-off entities, as well as the elimination of all intersegment amounts. In addition, the elimination of the Individual segment's ownership interest in Nvest is included for the years ended December 31, 2000 and 1999. The principal component of the intersegment amounts relates to intersegment loans, which bear interest rates commensurate with related borrowings. Net investment income and net investment gains and losses are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $32,065 million, $30,703 million and $24,343 million for the years ended December 31, 2001, 2000 and 1999, respectively, which represented 97% each year, of consolidated revenues. F-54 METROPOLITAN LIFE INSURANCE COMPANY UL II -- Flexible Premium Multifunded Life Insurance Policies Supplement Dated May 1, 2002 to Prospectus Dated May 1, 2001 and to Prospectus Dated May 1, 1993 This supplement updates certain information contained in the last prospectus you received. For some of you, the last prospectus you received was dated May 1, 2001. For others, the last prospectus you received was dated May 1, 1993 and was supplemented on May 1, 1994, May 1, 1997 and May 1, 1998. You should read and retain this supplement with your Policy. We will send you an additional copy of your most recent prospectus (and any previous supplements thereto), without charge, on written request sent to MetLife, P.O. Box 336, Warwick, RI 02887-0336. New UL II Policies are no longer available for sale. Prospectuses for the Metropolitan Series Fund, Inc., the New England Zenith Fund, the Met Investors Series Trust and the American Funds Insurance Series are attached. Please read them and keep them for reference. 1 Funding Options Below are the funding options added on May 1, 2002 and any changes in existing funding options made during the past year. The variable options for allocating premium payments and transferring cash value now consist of our fixed interest account and 42 different investment divisions of the Metropolitan Life Separate Account UL. Each investment division, in turn, invests solely in one of the corresponding fund "Portfolios". Metropolitan Series Fund, Inc. The State Street Research Large Cap Value Portfolio has been added as a new funding option. The State Street Research Aurora Small Cap Value Portfolio is now called the State Street Research Aurora Portfolio. New England Zenith Fund The FI Structured Equity Portfolio and the FI Mid Cap Opportunities Portfolio have been added as new funding options. On April 29, 2002, the State Street Research Money Market Portfolio and the State Street Research Income Bond Portfolio of the Metropolitan Series Fund were merged into the State Street Research Money Market Portfolio and the State Street Research Bond Income Portfolio, respectively, of the New England Zenith Fund. These two Portfolios have been added as new funding options. The Harris Oakmark Mid Cap Value Portfolio is now called the Harris Oakmark Focused Value Portfolio. Met Investors Series Trust The State Street Research Concentrated International Portfolio, the Met/AIM Mid Cap Core Equity Portfolio and the Met/AIM Small Cap Growth Portfolio have been added as new funding options. On April 29, 2002, the Loomis Sayles High Yield Bond Portfolio of the Metropolitan Series Fund was merged into the Lord Abbett Debenture Portfolio of the Met Investors Series Trust. This Portfolio has been added as a new funding option. See "Funds" below for a list of all Portfolios available under the Policy. Fund Investment Management Fees and Direct Expenses Our affiliate, MetLife Advisers, LLC ("MetLife Advisers") is the investment adviser for the Metropolitan Series Fund and the New England Zenith Fund. Our affiliate, Met Investors Advisory LLC ("Met Investors Advisory"), is the investment manager for the Met Investors Series Trust. Capital Research and Management Company ("Capital Research") is the investment adviser for the American Funds Insurance Series. Each of the Funds pays investment management fees to its investment manager or adviser. Each of the Funds also incurs other direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses for the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The Funds offer various classes of shares, each of which has a different level of expenses and not all of which are available under the Policy. For the Portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust, we offer Class A shares only under the Policy. For the Portfolios of the American Funds Insurance Series, we offer Class 2 shares only under the Policy. 2 Metropolitan Series Fund (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the Metropolitan Series Fund, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios except for the State Street Research Large Cap Value Portfolio, which commenced operations on May 1, 2002 and for which estimates of anticipated fees and expenses for the current year are used. The percentages in the tables are after taking into account the subsidies referred to in footnote (b) that follows the table.
Total Management Other Annual Portfolio Fee Expenses Expenses ------------------------------------------------------------------------- Metropolitan Series Fund (Class A shares) ------------------------------------------------------------------------- State Street Research Aggressive Growth .71% .06% .77%(a) ------------------------------------------------------------------------- State Street Research Diversified .43% .06% .49%(a) ------------------------------------------------------------------------- State Street Research Investment Trust .48% .05% .53%(a) ------------------------------------------------------------------------- State Street Research Aurora .85% .13% .98% ------------------------------------------------------------------------- State Street Research Large Cap Value .70% .15% .85%(b) ------------------------------------------------------------------------- Putnam International Stock .90% .26% 1.16%(a) ------------------------------------------------------------------------- Putnam Large Cap Growth .80% .20% 1.00%(b) ------------------------------------------------------------------------- Harris Oakmark Large Cap Value .75% .11% .86%(a) ------------------------------------------------------------------------- Janus Mid Cap .67% .07% .74% ------------------------------------------------------------------------- Janus Growth .80% .15% .95%(b) ------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value .69% .12% .81%(a) ------------------------------------------------------------------------- Scudder Global Equity .62% .18% .80% ------------------------------------------------------------------------- T. Rowe Price Large Cap Growth .63% .13% .76%(a) ------------------------------------------------------------------------- T. Rowe Price Small Cap Growth .52% .09% .61% ------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index .25% .13% .38% ------------------------------------------------------------------------- MetLife Stock Index .25% .06% .31% ------------------------------------------------------------------------- MetLife Mid Cap Stock Index .25% .20% .45%(b) ------------------------------------------------------------------------- Morgan Stanley EAFE(R) Index .30% .45% .75%(b)(c) ------------------------------------------------------------------------- Russell 2000(R) Index .25% .30% .55%(b) ------------------------------------------------------------------------- Franklin Templeton Small Cap Growth .90% .15% 1.05%(b) -------------------------------------------------------------------------
-------- (a) The Metropolitan Series Fund directed certain of the Portfolios' trades to brokers who paid a portion of the Portfolios' expenses and has entered into arrangements with its custodian whereby credits realized as a result of this practice were used to reduce a portion of its Portfolios' custodian fees. If we included these reductions, Total Annual Expenses would have been: .76% for the State Street Research Aggressive Growth Portfolio, .47% for the State Street Research Diversified Portfolio, .50% for the State Street Research Investment Trust Portfolio, 1.14% for the Putnam International Stock Portfolio, .84% for the Harris Oakmark Large Cap Value Portfolio, .69% for the Neuberger Berman Partners Mid Cap Value Portfolio, and .75% for the T. Rowe Price Large Cap Growth Portfolio. (b) Without subsidies similar to the ones described below, Total Annual Expenses for the year ending December 31, 2002 would have been: 1.12% for the Putnam Large Cap Growth Portfolio, 2.26% for the Janus Growth Portfolio, .52% for the MetLife Mid Cap Stock Index Portfolio, .82% for the Morgan Stanley EAFE Index Portfolio, .56% for the Russell 2000 Index Portfolio and 2.69% for the Franklin Templeton Small Cap Growth Portfolio. Absent the Expense Agreement described below, anticipated Total Annual Expenses for the State Street Research Large Cap Value Portfolio would be 1.56%. 3 MetLife Advisers and the Metropolitan Series Fund have entered into an Expense Agreement under which MetLife Advisers will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses ("Expenses") attributable to the Class A shares of certain Portfolios of the Metropolitan Series Fund, so that annualized Expenses of these Portfolios will not exceed, at any time prior to April 30, 2003, the following percentages: .85% for the State Street Research Large Cap Value Portfolio, 1.00% for the Putnam Large Cap Growth Portfolio, .95% for the Janus Growth Portfolio, .45% for the MetLife Mid Cap Stock Index Portfolio, .75% for the Morgan Stanley EAFE Index Portfolio, .55% for the Russell 2000 Index Portfolio, and 1.05% for the Franklin Templeton Small Cap Growth Portfolio. Under the agreement, if certain conditions are met, the State Street Research Large Cap Value Portfolio, the Janus Growth Portfolio and the Franklin Templeton Small Cap Growth Portfolio may reimburse MetLife Advisers for fees it waived and Expenses it paid if, in the future, actual Expenses of the Portfolios are less than the expense limits. (c) Total Annual Expenses for the Morgan Stanley EAFE Index Portfolio have been restated to reflect the arrangements described above. New England Zenith Fund (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the New England Zenith Fund, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios except for the FI Mid Cap Opportunities Portfolio, which commenced operations on May 1, 2002 and for which estimates of anticipated fees and expenses for the current year are used. The percentages in the tables are after taking into account the subsidies referred to in footnote (b) that follows the table.
---------------------------------------------------------------------------- Total Management Other Annual Portfolio Fee Expenses Expenses ---------------------------------------------------------------------------- Davis Venture Value .75% .08% .83%(a) ---------------------------------------------------------------------------- Loomis Sayles Small Cap .90% .10% 1.00% ---------------------------------------------------------------------------- MFS Investors Trust .75% .15% .90%(b) ---------------------------------------------------------------------------- MFS Research Managers .75% .15% .90%(b) ---------------------------------------------------------------------------- Harris Oakmark Focused Value .75% .12% .87%(a) ---------------------------------------------------------------------------- Salomon Brothers Strategic Bond Opportunities .65% .19% .84% ---------------------------------------------------------------------------- Salomon Brothers U.S. Government .55% .15% .70%(b) ---------------------------------------------------------------------------- State Street Research Money Market .35% .07% .42% ---------------------------------------------------------------------------- State Street Research Bond Income .40% .09% .49% ---------------------------------------------------------------------------- FI Structured Equity .68% .10% .78%(a) ---------------------------------------------------------------------------- FI Mid Cap Opportunities .80% .15% .95%(b) ----------------------------------------------------------------------------
-------- (a) Total Annual Expenses do not reflect certain expense reduction due to directed brokerage arrangements. If we included these reductions, Total Annual Expenses would have been: .82% for the Davis Venture Value Portfolio, .84% for the Harris Oakmark Focused Value Portfolio and .74% for the FI Structured Equity Portfolio. (b) Without subsidies similar to the ones described below, Total Annual Expenses for the year ending December 31, 2001 would have been: 1.37% for the MFS Investors Trust Portfolio, .73% for the Salomon Brothers U.S. Government Portfolio and 1.06% for the MFS Research Managers Portfolio. Absent the Expense Agreement described below, the anticipated Total Annual Expenses for the FI Mid Cap Opportunities Portfolio would be 1.30% MetLife Advisers and the Zenith Fund have entered into an Expense Agreement under which MetLife Advisers will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses) ("Expenses") attributable to the Class A shares of certain Portfolios of the Zenith Fund, so that annualized Expenses of these Portfolios will not exceed, at any time prior to April 30, 2003, the following percentages: .90% per annum of the average net assets for the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio, .70% per 4 annum for the Salomon Brothers U.S. Government Portfolio and .95% for the FI MidCap Opportunities Portfolio. Under the agreement, if certain conditions are met, a Portfolio may reimburse MetLife Advisers for fees it waived or Expenses it paid, if in the future, actual Expenses of the Portfolio are less than its expense limit. Met Investors Series Trust (Class A shares) The following table sets forth the fees and expenses for each Portfolio of the Met Investors Series Trust, expressed as an annual percentage of average net assets. The table is based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios. The percentages in the tables are after taking into account the subsidies referred to in footnote (a) that follows the table.
Total Management Other Annual Portfolio Fee Expenses Expenses --------------------------------------------------------------------------------- MFS Mid Cap Growth .00% .80% .80%(a) --------------------------------------------------------------------------------- MFS Research International .00% 1.00% 1.00%(a) --------------------------------------------------------------------------------- PIMCO Total Return .00% .65% .65%(a) --------------------------------------------------------------------------------- PIMCO Innovation .00% 1.10% 1.10%(a) --------------------------------------------------------------------------------- Lord Abbett Bond Debenture .58% .12% .70%(a)(b) --------------------------------------------------------------------------------- State Street Research Concentrated International .00% 1.10% 1.10%(a) --------------------------------------------------------------------------------- Met/AIM Mid Cap Core Equity .00% .90% .90%(a) --------------------------------------------------------------------------------- Met/AIM Small Cap Growth .00% 1.05% 1.05%(a) ---------------------------------------------------------------------------------
-------- (a) Met Investors Advisory and Met Investors Series Trust have entered into an Expense Limitation Agreement under which Met Investors Advisory has agreed to waive or limit its fees and to assume other expenses so that the Total Annual Expenses of each Portfolio (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of each Portfolio's business) will not exceed, at any time prior to April 30, 2003, the following percentages: .80% for the MFS Mid Cap Growth Portfolio, 1.00% for the MFS Research International Portfolio, .65% for the PIMCO Total Return Portfolio, 1.10% for the PIMCO Innovation Portfolio, ..70% for the Lord Abbett Bond Debenture Portfolio, 1.10% for the State Street Research Concentrated International Portfolio, .90% for the Met/AIM Mid Cap Core Equity Portfolio and 1.05% for the Met/AIM Small Cap Growth Portfolio. Absent this Agreement, Total Annual Expenses (and Management Fees) for the year ending December 31, 2001 would have been: 2.35% (.65%) for the MFS Mid Cap Growth Portfolio, 5.08% (.80%) for the MFS Research International Portfolio, 1.15% (.50%) for the PIMCO Total Return Portfolio, 3.97% (1.05%) for the PIMCO Innovation Portfolio (annualized from the February 12, 2001 start date for the Class B shares of these Portfolios and excluding the 12b-1 fee that applies under that class); 5.44 (.85%) for the State Street Research Concentrated International Portfolio, 6.93% (.75%) for the Met/AIM Mid Cap Core Equity Portfolio and 4.97% (.90%) for the Met/AIM Small Cap Growth Portfolio (annualized from the October 9, 2001 start date for the Class B shares of these Portfolios and excluding the 12b-1 fee that applies under that class) and .75% (63%) for the Lord Abbett Bond Debenture Portfolio. Under certain circumstances, any fees waived or expenses reimbursed by Met Investors Advisory may, with the approval of the Trust's Board of Trustee, be repaid by the applicable Portfolio to Met Investors Advisory. (b) Total Annual Expenses for the Lord Abbett Bond Debenture Portfolio have been restated as if the lower expense limitation adopted in February, 2001 had been in effect for the entire year. 5 American Funds Insurance Series (Class 2 shares) The following table sets forth the fees and expenses for each Portfolio of the American Funds Insurance Series, expressed as an annual percentage of average net assets, based on actual fees and expenses for the year ending December 31, 2001, for all available Portfolios.
Management Other Total Portfolio Fee 12b-1 fees Expenses Expenses ---------------------------------------------------------------------------------- American Funds Growth .37% .25%(a) .01% .63% ---------------------------------------------------------------------------------- American Funds Growth-Income .33% .25%(a) .02% .60% ---------------------------------------------------------------------------------- American Funds Global Small Capitalization .80% .25%(a) .03% 1.08% ----------------------------------------------------------------------------------
-------- (a) The American Funds Insurance Series has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. Under the Distribution Plan the Portfolios pay an annual fee to compensate certain other parties for promoting, selling and servicing the shares of the Portfolio. These other parties may include MetLife (or its affiliates) and other broker-dealers and financial intermediaries involved in the offer and sale of the contracts. The Distribution Plan is described in more detail in the American Funds Insurance Series prospectus. The Funds The investment objectives of the Portfolios that are available under the Policies are as follows: Metropolitan State Street Research Aggressive Growth Portfolio: maximum capital appreciation. Metropolitan State Street Research Diversified Portfolio: high total return while attempting to limit investment risk and preserve capital. Metropolitan State Street Research Investment Trust Portfolio: long-term growth of capital and income. Metropolitan State Street Research Aurora Portfolio: high total return, consisting principally of capital appreciation. Metropolitan State Street Research Large Cap Value: long-term growth of capital. Metropolitan Putnam International Stock Portfolio: long-term growth of capital. Metropolitan Putnam Large Cap Growth Portfolio: capital appreciation. Metropolitan Harris Oakmark Large Cap Value Portfolio: long-term capital appreciation. Metropolitan Janus Mid Cap Portfolio: long-term growth of capital. Metropolitan Janus Growth Portfolio: long-term growth of capital. Metropolitan Neuberger Berman Partners Mid Cap Value Portfolio: capital growth. Metropolitan Scudder Global Equity Portfolio: long-term growth of capital. Metropolitan T. Rowe Price Large Cap Growth Portfolio: long-term growth of capital and, secondarily, dividend income. Metropolitan T. Rowe Price Small Cap Growth Portfolio: long-term growth of capital. Metropolitan Lehman Brothers(R) Aggregate Bond Index Portfolio: to equal the performance of the Lehman Brothers Aggregate Bond Index. Metropolitan MetLife Stock Index Portfolio: to equal the performance of the Standard & Poor's 500 Composite Stock Price Index. Metropolitan MetLife Mid Cap Stock Index Portfolio: to equal the performance of the Standard & Poor's MidCap 400 Composite Stock Index. Metropolitan Morgan Stanley EAFE(R) Index Portfolio: to equal the performance of the MSCI EAFE Index. 6 Metropolitan Russell 2000(R) Index Portfolio: to equal the return of the Russell 2000 Index. Metropolitan Franklin Templeton Small Cap Growth Portfolio: long-term growth of capital. Zenith Davis Venture Value Portfolio: long-term growth of capital. Zenith Loomis Sayles Small Cap Portfolio: long-term capital growth from investments in common stocks or other equity securities. Zenith MFS Investors Trust Portfolio: long-term growth of capital with a secondary objective to seek reasonable current income. Zenith MFS Research Managers Portfolio: long-term growth of capital. Zenith Harris Oakmark Focused Value Portfolio: long-term capital appreciation. Zenith Salomon Brothers Strategic Bond Opportunities Portfolio: a high level of total return consistent with preservation of capital. Zenith Salomon Brothers U.S. Government Portfolio: a high level of current income consistent with preservation of capital and maintenance of liquidity. Zenith State Street Research Money Market Portfolio: a high level of current income consistent with preservation of capital. An investment in the Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Portfolio seeks to maintain a net asset value of $100 per share, it is possible to lose money by investing in the Money Market Portfolio. During extended periods of low interest rates, the yields of the investment division investing in the Money Market Portfolio may become extremely low and possibly negative. Zenith State Street Research Bond Income Portfolio: a competitive total return primarily from investing in fixed-income securities. Zenith FI Structured Equity Portfolio: long-term growth of capital. Zenith FI Mid Cap Opportunities Portfolio: long-term growth of capital. Met Investors MFS Mid Cap Growth Portfolio: long-term growth of capital. Met Investors Research International Portfolio: capital appreciation. Met Investors PIMCO Total Return Portfolio: to seek maximum total return, consistent with the preservation of capital and prudent investment management. Met Investors PIMCO Innovation Portfolio: to seek capital appreciation; no consideration is given to income. Met Investors Lord Abbett Bond Debenture Portfolio: high current income and the opportunity for capital appreciation to produce a high total return. Met Investors State Street Research Concentrated International Portfolio: long-term growth of capital. Met Investors Met/AIM Mid Cap Core Equity Portfolio: long-term growth of capital. Met Investors Met/AIM Small Cap Growth Portfolio: long-term growth of capital. American Funds Growth Portfolio: capital appreciation through stocks. American Fund Growth-Income Portfolio: capital appreciation and income. American Funds Global Small Capitalization Portfolio: capital appreciation through stocks. 7 Policy Matters Giving us requests, instructions or notifications 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. Below is a list of our Designated Offices for various functions. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. You may also contact us at 1-800-MET-5000 for information on where to direct communication regarding any function not listed below.
Function Designated Office Address ------------------------------------------------------------------------------- Premium Payments & Inquiries MetLife, P.O. Box 30074, Tampa, FL 33630-3074 ------------------------------------------------------------------------------- Surrenders, Withdrawals, Loans, MetLife, P.O. Box 336, Warwick, R.I. Investment Division Transfers, 02887-0336 Premium Reallocation ------------------------------------------------------------------------------- Death Claims MetLife, P.O. Box 330, Warwick, R.I. 02887-0330 ------------------------------------------------------------------------------- Beneficiary & Assignment MetLife, P.O. Box 313, Warwick, R.I. 02887-0313 ------------------------------------------------------------------------------- Free Look MetLife, 500 Schoolhouse Road, Johnstown, PA 15904-1097 Attn: Free Look ------------------------------------------------------------------------------- Address Changes MetLife, 500 Schoolhouse Road, Johnstown, PA 15904-1097 Attn: Data Integrity ------------------------------------------------------------------------------- Reinstatements MetLife, P.O. Box 30074, Tampa, FL 33630-3074 -------------------------------------------------------------------------------
Restrictions on Financial Transactions If mandated under money laundering or anti-terrorist laws, or other applicable law, we may be required to reject a premium payment or refuse to honor any request for transfers, withdrawals, surrenders, loans, or death benefits, until we receive instructions from the appropriate regulator. Paying Premiums We will hold a premium payment received before its due date in a non-interest bearing holding account until the due date, if necessary, to prevent a Policy becoming a modified endowment contract. (See "Modified Endowment Contract" under "Federal Tax Matters" below.) We will send you an additional notice of this arrangement by letter immediately after receiving your payment. We will also give you the option to either have the money held until the due date or applied on our Date of Receipt of your instructions to apply the money (unless the due date has already passed). Mortality and Expense Risk Charge Notwithstanding anything to the contrary in your last prospectus, the mortality and expense risk charge is taken daily rather than monthly. This affects only the timing and not the amount of the charge. 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. 8 The Policy Insurance proceeds .. Generally excludable from your beneficiary's gross income. .. The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. .. If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. .. Whether or not any federal estate tax is due is based on a number of factors including the estate size. Cash value (if your Policy is not a modified endowment contract) .. You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution on the Final Date. In these cases, you are generally permitted to take withdrawals up to the amount of premiums paid without any tax consequences. However, withdrawals will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules apply in the first 15 Policy years, when a distribution may be subject to tax if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). If your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed prior to a distribution. The IRS has recently issued guidance on split dollar insurance plans. A tax advisor should be consulted with respect to this new guidance if you have purchased or are considering the purchase of a Policy for a split dollar insurance plan. There may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the Federal corporate alternative minimum tax, if you are subject to that tax. Loans .. Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. .. Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. .. If your Policy terminates (upon surrender, cancellation, lapse, the Final Date or, in most cases, exchange) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Since amounts borrowed reduce the cash value that will be distributed to you if the Policy is surrendered, canceled or lapses, any cash value distributed to you in these circumstances may be insufficient to pay the income tax on any gain. 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. The IRS has promulgated a procedure for the correction of inadvertent modified endowment contracts. If your Policy is considered a modified endowment contract the following applies: .. The death benefit will generally be income tax free to your beneficiary, as discussed above. .. Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are (to the extent of any gains in your policy) treated as income first and subject to income 9 tax. All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. .. An additional 10% income tax generally applies to the taxable portion of the amounts received before age 59 1/2, except generally if you are disabled or the distribution is part of a series of substantially equal periodic payments. Diversification In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. Changes to tax rules and interpretations Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: .. Possible taxation of cash value transfers. .. Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. .. Possible limits on the number of investment funds available or the frequency of transfers among them. .. Possible changes in the tax treatment of Policy benefits and rights. Our taxation In general, we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the Policies' cash surrender value. If we do incur such taxes, we reserve the right to charge the cash value allocated to the Separate Account for these taxes. Legal, Accounting and Actuarial Matters Anne M. Goggin, Chief Counsel--Individual Business at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner, Washington, D.C., has advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, audited the financial statements included in this Supplement to the 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. 10 Management The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: Directors, Officers-Directors
Principal Occupation & Positions and Offices Name Business Address with MetLife --------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman Emeritus Director Bethlehem Steel Corp. 1170 Eighth Ave. -- Martin Tower 101 Bethlehem, PA 18016 --------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, Chairman of the Board, President and Chief Executive President, Chief Executive Officer Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 --------------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board Vice Chairman of the Board, and Chief Investment Officer Chief Investment Officer and MetLife, Inc. and Director Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 --------------------------------------------------------------------------------------------- John C. Danforth Partner Director Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 --------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman Director Nellcor Puritan Bennett P.O. Box 208 Pauma Valley, CA 92061 --------------------------------------------------------------------------------------------- James R. Houghton Chairman of the Board Director Emeritus 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 ---------------------------------------------------------------------------------------------
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Principal Occupation & Positions and Offices Name Business Address with MetLife ----------------------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 ----------------------------------------------------------------------------------------------- Catherine R. Kinney Group Executive Director Vice President New York Stock Exchange, Inc. 11 Wall Street, 6th floor New York, NY 10005 ----------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. 51 Vaughn Hill Road Bolton, MA 01740 ----------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board Vice Chairman of the Board and and Chief Financial Officer Chief Financial Officer and MetLife, Inc. and Director Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 ----------------------------------------------------------------------------------------------- John J. Phelan, Jr. Retired Chairman and Director Chief Executive Officer New York Stock Exchange, Inc. P.O. Box 524 Locust Valley, NY 11560 ----------------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Director Officer National Urban League, Inc. 120 Wall Street New York, NY 10005 ----------------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board Director Pfizer, Inc. 235 East 42nd Street New York, NY 10017 -----------------------------------------------------------------------------------------------
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Name of Officer* Position with Metropolitan Life --------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer --------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board, Chief Investment Officer and Director --------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board, Chief Financial Officer and Director --------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel --------------------------------------------------------------------------------------- James M. Benson President, Individual Business; Chairman, Chief Executive Officer and President, New England Life Insurance Company --------------------------------------------------------------------------------------- Gwenn L. Carr Vice President and Secretary --------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice President --------------------------------------------------------------------------------------- C. Robert Henrikson President, Institutional Business --------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice President --------------------------------------------------------------------------------------- Kernan F. King Executive Vice President --------------------------------------------------------------------------------------- Terence Lennon Executive Vice President --------------------------------------------------------------------------------------- William J. Toppeta President, International --------------------------------------------------------------------------------------- Catherine A. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company --------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President and Chief Actuary --------------------------------------------------------------------------------------- Lisa M. Weber Executive Vice-President --------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President and Chief Actuary --------------------------------------------------------------------------------------- Virginia M. Wilson Senior Vice President and Controller (Chief Accounting Officer) ---------------------------------------------------------------------------------------
-------- * 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. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 13 INDEPENDENT AUDITORS' REPORT To the Policyholders of Metropolitan Life Separate Account UL, and the Board of Directors of Metropolitan Life Insurance Company: We have audited the accompanying statement of assets and liabilities of the Metropolitan Life Separate Account UL comprised of the State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Janus Growth, Franklin Templeton Small Cap Growth, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, Franklin Templeton Valuemark Small Cap, Davis Venture Value, Loomis Sayles Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, Alliance Growth & Income--Class B, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, JPM Enhanced Index, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios, (collectively the "Portfolios"), as of December 31, 2001, and the related statements (i) of operations for each of the three years in the period then ended, and the statements of changes in net assets for each of the three years in the period then ended of State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, and (ii) of operations and changes in net assets for each of the two years in the period then ended as well as for the period May 3, 1999 (commencement of operations) to December 31, 1999 of Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, and (iii) of operations and changes in net assets for the year then ended as well as for the period May 1, 2000 (commencement of operations) to December 31, 2000 of Putnam Large Cap Growth, and (iv) of operations and changes in net assets for the year then ended as well as for the period July 5, 2000 (commencement of operations) to December 31, 2000 of State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Davis Venture Value, Loomis Sayles Small Cap, and (v) of operations and changes in net assets for the years then ended as well as for the period September 30, 2000 (commencement of operations) to December 31, 2000 of Alliance Growth and Income--Class B, and (vi) of operations and changes in net assets for the year then ended (January 1, 2001--commencement of operations) of Franklin Templeton Valuemark Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, JPM Enhanced Index, and (vii) of operations and changes in net assets for the period May 1, 2001 (commencement of operations) to December 31, 2001 of Janus Growth, Franklin Templeton Small Cap Growth, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and the depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Life Separate Account UL including the State Street Research Investment Trust, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Janus Growth, Franklin Templeton Small Cap Growth, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Franklin Templeton International Stock, Franklin Templeton Valuemark Small Cap, Davis Venture Value, Loomis Sayles Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, Alliance Growth & Income--Class B, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, JPM Enhanced Index, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations Portfolios as of December 31, 2001, the results of its operations and the changes in its net assets for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida March 26, 2002 1 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
State Street State Street Research State Street Research State Street Investment Research Money Research Trust Income Market Diversified Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... $ 356,614,596 -- -- -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- $ 79,209,642 -- -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- -- $ 32,736,368 -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- -- -- $ 265,927,545 State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- -- -- -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- -- -- -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- -- -- -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- -- -- -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- -- -- -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- -- -- -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- -- -- -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- -- -- -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- -- -- -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- -- -- -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- -- -- -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- -- -- -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- -- -- -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- -- -- -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total Investments..................................... 356,614,596 79,209,642 32,736,368 265,927,545 Cash and Accounts Receivable.......................... 86,718 -- -- -- ---------------- ---------------- ---------------- ---------------- Total Assets.......................................... 356,701,314 79,209,642 32,736,368 265,927,545 LIABILITIES........................................... -- 33,473 10,021 203,879 ---------------- ---------------- ---------------- ---------------- NET ASSETS............................................ $ 356,701,314 $ 79,176,169 $ 32,726,347 $ 265,723,666 ================ ================ ================ ================ Outstanding Units (In Thousands)...................... 13,264 4,175 2,156 11,138 Unit Value............................................ $10.98 to $35.04 $11.95 to $24.08 $14.88 to $15.85 $11.35 to $30.04
State Street Research Aggressive Growth Portfolio ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ $ 171,724,166 Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- ---------------- Total Investments..................................... 171,724,166 Cash and Accounts Receivable.......................... -- ---------------- Total Assets.......................................... 171,724,166 LIABILITIES........................................... 32,302 ---------------- NET ASSETS............................................ $ 171,691,864 ================ Outstanding Units (In Thousands)...................... 10,503 Unit Value............................................ $11.67 to $17.12
See Notes to Financial Statements.
Loomis Harris Putnam Sayles T. Rowe Price Oakmark MetLife International High Yield Janus Mid Small Cap Scudder Large Cap Stock Index Stock Bond Cap Growth Global Equity Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 346,552,451 -- -- -- -- -- -- -- $ 38,228,946 -- -- -- -- -- -- -- $ 8,762,265 -- -- -- -- -- -- -- $ 124,348,470 -- -- -- -- -- -- -- $ 44,592,236 -- -- -- -- -- -- -- $ 21,051,847 -- -- -- -- -- -- -- $ 14,312,754 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- 346,552,451 38,228,946 8,762,265 124,348,470 44,592,236 21,051,847 14,312,754 379,472 52,095 82,282 837,617 67,552 54,500 23,585 ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- 346,931,923 38,281,041 8,844,547 125,186,087 44,659,788 21,106,347 14,336,339 1,010 -- -- 946 -- -- -- ---------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- $ 346,930,913 $ 38,281,041 $ 8,844,547 $ 125,185,141 $ 44,659,788 $ 21,106,347 $ 14,336,339 ================ ================ ================= ================ ================= ================= ================= 17,015 3,106 774 8,481 3,509 2,000 1,242 $9.62 to $29.91 $9.47 to $13.35 $10.83 to $12.35 $5.95 to $17.08 $12.46 to $13.76 $11.79 to $12.88 $10.80 to $13.76
Neuberger T.Rowe Berman Price Partners Mid Large Cap Cap Value Growth Portfolio Portfolio ----------------- ---------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 14,106,655 -- -- $ 20,985,512 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ----------------- ---------------- 14,106,655 20,985,512 8,151 125,013 ----------------- ---------------- 14,114,806 21,110,525 -- -- ----------------- ---------------- $ 14,114,806 $ 21,110,525 ================= ================ 1,076 2,124 $11.44 to $15.63 $8.35 to $12.08
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Lehman Morgan Brothers Stanley Putnam Aggregate EAFE Russell Large Cap Bond Index Index 2000 Index Growth Portfolio Portfolio Portfolio Portfolio ---------------- -------------- --------------- -------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- -- -- -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- -- -- -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- -- -- -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- -- -- -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- -- -- -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- -- -- -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- -- -- -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- -- -- -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- -- -- -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. $ 37,336,052 -- -- -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- $ 10,740,075 -- -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- -- $ 10,618,847 -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- -- -- $ 3,942,761 State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. -- -- -- -- Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- -- -- -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- -- -- -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- -- -- -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- -- -- -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- -- -- -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- -- -- -- ---------------- -------------- --------------- -------------- Total Investments..................................... 37,336,052 10,740,075 10,618,847 3,942,761 Cash and Accounts Receivable.......................... -- 59,635 5,879 57,912 ---------------- -------------- --------------- -------------- Total Assets.......................................... 37,336,052 10,799,710 10,624,726 4,000,673 LIABILITIES........................................... 13,723 -- -- -- ---------------- -------------- --------------- -------------- NET ASSETS............................................ $ 37,322,329 $ 10,799,710 $ 10,624,726 $ 4,000,673 ================ ============== =============== ============== Outstanding Units (In Thousands)...................... 3,153 1,352 920 792 Unit Value............................................ $11.38 to $11.97 $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04
State Street Research Aurora Small Cap Value Portfolio ---------------- ASSETS: Investments at Value: State Street Research Investment Trust Portfolio (13,710,673 shares; cost $429,735,142)............... -- State Street Research Income Portfolio (6,111,855 shares; cost $76,248,405)................. -- State Street Research Money Market Portfolio (3,230,669 shares; cost $33,348,078)................. -- State Street Research Diversified Portfolio (17,145,554 shares; cost $286,166,235)............... -- State Street Research Aggressive Growth Portfolio (9,598,891 shares; cost $249,196,196)................ -- Metlife Stock Index Portfolio (11,325,243 shares; cost $380,566,329)............... -- Putnam International Stock Portfolio (4,032,589 shares; cost $49,917,330)................. -- Loomis Sayles High Yield Bond Portfolio (1,123,367 shares; cost $9,844,073).................. -- Janus Mid Cap Portfolio (8,482,160 shares; cost $198,900,936)................ -- T. Rowe Price Small Cap Growth Portfolio (3,753,555 shares; cost $48,810,474)................. -- Scudder Global Equity Portfolio (1,938,476 shares; cost $25,092,970)................. -- Harris Oakmark Large Cap Value Portfolio (1,238,128 shares; cost $13,298,665)................. -- Neuberger Berman Partners Mid Cap Value Portfolio (996,233 shares; cost $13,841,350)................... -- T. Rowe Price Large Cap Growth Portfolio (1,802,879 shares; cost $21,420,724)................. -- Lehman Brothers Aggregate Bond Index Portfolio (3,569,412 shares; cost $36,349,528)................. -- Morgan Stanley EAFE Index Portfolio (1,227,437 shares; cost $11,734,328)................. -- Russell 2000 Index Portfolio (1,018,106 shares; cost $10,399,608)................. -- Putnam Large Cap Growth Portfolio (780,745 shares; cost $4,701,231).................... -- State Street Research Aurora Small Cap Value Portfolio (1,416,643 shares; cost $18,495,591)................. $ 20,017,164 Metlife Mid Cap Stock Index Portfolio (860,460 shares; cost $8,648,781).................... -- Janus Growth Portfolio (121,699 shares; cost $963,543)...................... -- Franklin Templeton Small Cap Growth Portfolio (52,500 shares; cost $450,136)....................... -- Janus Aspen Growth Portfolio (98,529 shares; cost $2,488,365)..................... -- Invesco VIF High Yield Portfolio (35,903 shares; cost $309,144)....................... -- Invesco VIF Equity Income Portfolio (6,592 shares; cost $128,024)........................ -- Invesco VIF Real Estate Opportunity Portfolio (8,937 shares; cost $87,820)......................... -- Franklin Templeton International Stock Portfolio (149,085 shares; cost $2,060,141).................... -- Franklin Templeton Valuemark Small Cap Portfolio (5,771 shares; cost $98,642)......................... -- ---------------- Total Investments..................................... 20,017,164 Cash and Accounts Receivable.......................... -- ---------------- Total Assets.......................................... 20,017,164 LIABILITIES........................................... 11,930 ---------------- NET ASSETS............................................ $ 20,005,234 ================ Outstanding Units (In Thousands)...................... 1,317 Unit Value............................................ $13.09 to $14.29
See Notes to Financial Statements.
MetLife Franklin Franklin Franklin Mid Cap Templeton Janus Invesco VIF Invesco VIF Invesco VIF Templeton Templeton Stock Janus Small Cap Aspen High Equity Real Estate International Valuemark Index Growth Growth Growth Yield Income Opportunity Stock Small Cap Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- -------------- -------------- ---------- ----------- ----------- ----------- ------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 9,000,416 -- -- -- -- -- -- -- -- -- $ 951,689 -- -- -- -- -- -- -- -- -- $ 466,202 -- -- -- -- -- -- -- -- -- $1,958,752 -- -- -- -- -- -- -- -- -- $274,298 -- -- -- -- -- -- -- -- -- $122,478 -- -- -- -- -- -- -- -- -- $89,102 -- -- -- -- -- -- -- -- -- $1,766,655 -- -- -- -- -- -- -- -- -- $103,007 --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- 9,000,416 951,689 466,202 1,958,752 274,298 122,478 89,102 1,766,655 103,007 18,440 993 -- -- -- -- -- -- -- --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- 9,018,856 952,682 466,202 1,958,752 274,298 122,478 89,102 1,766,655 103,007 -- -- 9,070 -- -- -- -- -- -- --------------- -------------- -------------- ---------- -------- -------- ------- ---------- -------- $ 9,018,856 $ 952,682 $ 457,132 $1,958,752 $274,298 $122,478 $89,102 $1,766,655 $103,007 =============== ============== ============== ========== ======== ======== ======= ========== ======== 867 122 52 236 37 12 7 189 16 $9.62 to $10.56 $7.73 to $7.82 $8.83 to $8.88 $ 8.30 $ 7.46 $ 9.81 $ 12.05 $ 9.27 $ 6.91
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Davis Venture Loomis Sayles Alger Equity MFS Investors Value Small Cap Income Trust Portfolio Portfolio Portfolio Portfolio --------------- ---------------- ------------ -------------- ASSETS: Investments at Value: Davis Venture Value Portfolio (319,613 shares; cost $7,885,673)........................... $ 7,475,741 -- -- -- Loomis Sayles Small Cap Portfolio (10,841 shares; cost $1,978,252)............................ -- $ 1,921,621 -- -- Alger Equity Income Portfolio (2,181 shares; cost $50,362)................................ -- -- $45,237 -- MFS Investors Trust Portfolio (65,756 shares; cost $559,000).............................. -- -- -- $ 563,527 MFS Research Managers Portfolio (31,459 shares; cost $284,733).............................. -- -- -- -- State Street Research Bond Income Portfolio (2,808 shares; cost $308,271)............................... -- -- -- -- Westpeak Growth & Income Equity Portfolio (161 shares; cost $27,685).................................. -- -- -- -- Harris Oakmark Mid Cap Value Portfolio (22,682 shares; cost $3,941,042)............................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (41,436 shares; cost $460,287).............................. -- -- -- -- Salomon Brothers U.S. Government Portfolio (711,002 shares; cost $851,459)............................. -- -- -- -- Alliance Growth & Income--Class B Portfolio (29,760 shares; cost $628,642).............................. -- -- -- -- Alliance Premier Growth--Class B Portfolio (3,933 shares; cost $97,019)................................ -- -- -- -- Alliance Technology--Class B Portfolio (732 shares; cost $15,230).................................. -- -- -- -- Fidelity VIP II Contrafund--Service Class Portfolio (1,193 shares; cost $24,113)................................ -- -- -- -- Fidelity VIP II Asset Manager Growth--Service Class Portfolio (7,603 shares; cost $96,105)................................ -- -- -- -- Fidelity VIP Growth--Service Class Portfolio (2,617 shares; cost $90,326)................................ -- -- -- -- American Funds Growth Portfolio (61,240 shares; cost $2,716,656)............................ -- -- -- -- American Funds Growth & Income Portfolio (72,838 shares; cost $2,244,842)............................ -- -- -- -- American Funds Global Small Cap Portfolio (51,803 shares; cost $548,121).............................. -- -- -- -- JPM Enhanced Index Portfolio (364 shares; cost $5,683)................................... -- -- -- -- MFS Mid Cap Growth Portfolio (37,952 shares; cost $306,416).............................. -- -- -- -- MFS Research International Portfolio (11,304 shares; cost $94,418)............................... -- -- -- -- PIMCO Total Return Portfolio (106,562 shares; cost $1,117,075)........................... -- -- -- -- PIMCO Innovations Portfolio (121,204 shares; cost $746,075)............................. -- -- -- -- --------------- ---------------- ------- -------------- Total Investments............................................ 7,475,741 1,921,621 45,237 563,527 Cash and Accounts Receivable................................. 21,799 4,792 -- -- --------------- ---------------- ------- -------------- Total Assets................................................. 7,497,540 1,926,413 45,237 563,527 LIABILITIES.................................................. -- -- -- 241,420 --------------- ---------------- ------- -------------- NET ASSETS................................................... $ 7,497,540 $ 1,926,413 $45,237 $ 322,107 =============== ================ ======= ============== Outstanding Units (In Thousands)............................. 297 11 6 43 Unit Value................................................... $8.94 to $25.95 $8.66 to $191.87 $ 7.57 $8.19 to $8.57
See Notes to Financial Statements.
State Street Alliance MFS Research Westpeak Salomon Brothers Premier Research Bond Growth & Harris Oakmark Strategic Bond Salomon Brothers Alliance Growth Growth-- Managers Income Income Mid Cap Value Opportunities U.S. Government & Income-- Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Class B Portfolio Portfolio --------- ------------ --------- ------------------ ---------------- ---------------- ----------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 284,387 -- -- -- -- -- -- -- -- $306,959 -- -- -- -- -- -- -- -- $25,218 -- -- -- -- -- -- -- -- $ 4,220,843 -- -- -- -- -- -- -- -- $ 464,908 -- -- -- -- -- -- -- -- $ 849,186 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $655,611 -- -- -- -- -- -- -- -- $98,318 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- 284,387 306,959 25,218 4,220,843 464,908 849,186 655,611 98,318 -- -- -- -- 40 153 -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- 284,387 306,959 25,218 4,220,843 464,948 849,339 655,611 98,318 132,924 -- -- 6,298 114 40 -- -- -------------- -------- ------- ------------------ ---------------- ---------------- -------- ------- $ 151,463 $306,959 $25,218 $ 4,214,545 $ 464,834 $ 849,299 $655,611 $98,318 ============== ======== ======= ================== ================ ================ ======== ======= 13 27 3 23 41 71 65 14 $6.97 to $9.04 $ 11.23 $ 8.19 $184.98 to $186.09 $11.15 to $11.22 $11.89 to $11.96 $ 10.19 $ 7.15
Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At DECEMBER 31, 2001
Fidelity VIP II Asset Alliance Fidelity VIP II Manager Fidelity VIP Technology-- Contrafund-- Growth-- Growth-- Class B Service Class Service Class Service Class Portfolio Portfolio Portfolio Portfolio ------------ --------------- --------------- ------------- ASSETS: Investments at Value: Davis Venture Value Portfolio (319,613 shares; cost $7,885,673)..... -- -- -- -- Loomis Sayles Small Cap Portfolio (10,841 shares; cost $1,978,252).. -- -- -- -- Alger Equity Income Portfolio (2,181 shares; cost $50,362).......... -- -- -- -- MFS Investors Trust Portfolio (65,756 shares; cost $559,000)........ -- -- -- -- MFS Research Managers Portfolio (31,459 shares; cost $284,733)...... -- -- -- -- State Street Research Bond Income Portfolio (2,808 shares; cost $308,271).......................................................... -- -- -- -- Westpeak Growth & Income Equity Portfolio (161 shares; cost $27,685) -- -- -- -- Harris Oakmark Mid Cap Value Portfolio (22,682 shares; cost $3,941,042)........................................................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (41,436 shares; cost $460,287)............................................. -- -- -- -- Salomon Brothers U.S. Government Portfolio (711,002 shares; cost $851,459).......................................................... -- -- -- -- Alliance Growth & Income--Class B Portfolio (29,760 shares; cost $628,642).......................................................... -- -- -- -- Alliance Premier Growth--Class B Portfolio (3,933 shares; cost $97,019)........................................................... -- -- -- -- Alliance Technology--Class B Portfolio (732 shares; cost $15,230)... $12,549 -- -- -- Fidelity VIP II Contrafund--Service Class Portfolio (1,193 shares; cost $24,113)...................................................... -- $23,860 -- -- Fidelity VIP II Asset Manager Growth--Service Class Portfolio (7,603 shares; cost $96,105).............................................. -- -- $94,508 -- Fidelity VIP Growth--Service Class Portfolio (2,617 shares; cost $90,326)........................................................... -- -- -- $87,248 American Funds Growth Portfolio (61,240 shares; cost $2,716,656).... -- -- -- -- American Funds Growth & Income Portfolio (72,838 shares; cost $2,244,842)........................................................ -- -- -- -- American Funds Global Small Cap Portfolio (51,803 shares; cost $548,121).......................................................... -- -- -- -- JPM Enhanced Index Portfolio (364 shares; cost $5,683).............. -- -- -- -- MFS Mid Cap Growth Portfolio (37,952 shares; cost $306,416)......... -- -- -- -- MFS Research International Portfolio (11,304 shares; cost $94,418).. -- -- -- -- PIMCO Total Return Portfolio (106,562 shares; cost $1,117,075)...... -- -- -- -- PIMCO Innovations Portfolio (121,204 shares; cost $746,075)......... -- -- -- -- ------- ------- ------- ------- Total Investments................................................... 12,549 23,860 94,508 87,248 Cash and Accounts Receivable........................................ -- -- -- -- ------- ------- ------- ------- Total Assets........................................................ 12,549 23,860 94,508 87,248 LIABILITIES......................................................... -- -- -- -- ------- ------- ------- ------- NET ASSETS.......................................................... $12,549 $23,860 $94,508 $87,248 ======= ======= ======= ======= Outstanding Units (In Thousands).................................... 2 3 13 13 Unit Value.......................................................... $ 5.43 $ 7.96 $ 7.89 $ 6.77
See Notes to Financial Statements.
American American JPM MFS MFS American Funds Growth Funds Global Enhanced Mid Cap Research PIMCO Funds Growth & Income Small Cap Index Growth International Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- --------- -------------- -------------- ---------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 2,699,467 -- -- -- -- -- -- -- $ 2,300,239 -- -- -- -- -- -- -- $ 594,700 -- -- -- -- -- -- -- $5,363 -- -- -- -- -- -- $ 317,656 -- -- -- -- -- -- -- $ 95,862 -- -- -- -- -- -- $ 1,102,920 ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- 2,699,467 2,300,239 594,700 5,363 317,656 95,862 1,102,920 476,806 153,118 24,357 -- 246,761 141,651 -- ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- 3,176,273 2,453,357 619,057 5,363 564,417 237,513 1,102,920 -- -- -- -- -- -- 354 ---------------- ---------------- ---------------- ------ -------------- -------------- ---------------- $ 3,176,273 $ 2,453,357 $ 619,057 $5,363 $ 564,417 $ 237,513 $ 1,102,566 ================ ================ ================ ====== ============== ============== ================ 53 68 49 1 68 28 103 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 $ 8.12 $8.32 to $8.37 $8.44 to $8.50 $10.64 to $10.70
PIMCO Innovations Portfolio -------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $ 750,254 -------------- 750,254 -- -------------- 750,254 1,564 -------------- $ 748,690 ============== 121 $6.15 to $6.19 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
State Street Research Investment Trust State Street Research Income Portfolio Portfolio ----------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------- ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 51,437,166 $ 4,838,821 $ 44,038,080 $5,650,347 $ 3,139 $ 4,181,436 Expenses: Mortality and expense charges........... 3,136,115 3,798,303 3,209,889 570,796 557,064 499,462 ------------- ------------ ------------ ---------- ---------- ----------- Net investment income (loss).............. 48,301,051 1,040,518 40,828,191 5,079,551 (553,925) 3,681,974 ------------- ------------ ------------ ---------- ---------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. 731,187 5,846,334 3,593,964 400,181 (764,188) 15,187 Change in unrealized (depreciation) appreciation of investments.............. (122,469,738) (37,904,600) 116,515,105 (136,424) 8,375,071 (5,496,396) ------------- ------------ ------------ ---------- ---------- ----------- Net realized and unrealized (loss) gain on investments.............................. (121,738,551) (32,058,266) 120,109,069 263,757 7,610,883 (5,481,209) ------------- ------------ ------------ ---------- ---------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $ (73,437,500) $(31,017,748) $160,937,260 $5,343,308 $7,056,958 $(1,799,235) ============= ============ ============ ========== ========== ===========
See Notes to Financial Statements.
State Street Research Money Market State Street Research Diversified State Street Research Aggressive Growth Portfolio Portfolio Portfolio ------------------------------------- -------------------------------------- ---------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $1,134,017 $1,677,962 $1,538,117 $ 25,415,648 $ 1,174,688 $20,799,436 $ 46,776,659 $ 27,463,699 $ 4,466,938 215,488 291,782 241,265 2,231,404 2,258,802 1,973,981 1,493,070 1,992,343 1,429,076 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- 918,529 1,386,180 1,296,852 23,184,244 (1,084,114) 18,825,455 45,283,589 25,471,356 3,037,862 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- (499,341) 1,059,353 245,673 (111,095) 1,585,197 743,624 (1,536,972) 3,369,764 1,280,373 796,577 (454,099) (275,023) (42,080,714) (360,101) (2,237,161) (94,895,107) (48,026,970) 47,914,985 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- 297,236 605,254 (29,350) (42,191,809) 1,225,096 (1,493,537) (96,432,079) (44,657,206) 49,195,358 ---------- ---------- ---------- ------------ ----------- ----------- ------------ ------------ ----------- $1,215,765 $1,991,434 $1,267,502 $(19,007,565) $ 140,982 $17,331,918 $(51,148,490) $(19,185,850) $52,233,220 ========== ========== ========== ============ =========== =========== ============ ============ ===========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
MetLife Stock Index Putnam International Stock Portfolio Portfolio ---------------------------------------- -------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 3,858,667 $ 13,335,508 $12,076,347 $ 1,500,375 $ 274,114 $ 6,737,411 Expenses: Mortality and expense charges........... 2,645,594 2,457,289 1,722,924 327,499 377,435 334,318 ------------ ------------ ----------- ------------ ----------- ----------- Net investment income (loss).............. 1,213,073 10,878,219 10,353,423 1,172,876 (103,321) 6,403,093 ------------ ------------ ----------- ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. 4,130,927 6,159,583 3,899,836 (1,661,736) 309,181 528,185 Change in unrealized (depreciation) appreciation of investments.............. (48,985,481) (49,619,601) 24,029,258 (9,202,287) (5,241,506) (1,137,521) ------------ ------------ ----------- ------------ ----------- ----------- Net realized and unrealized (loss) gain on investments.............................. (44,854,554) (43,460,018) 27,929,094 (10,864,023) (4,932,325) (609,336) ------------ ------------ ----------- ------------ ----------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(43,641,481) $(32,581,799) $38,282,517 $ (9,691,147) $(5,035,646) $ 5,793,757 ============ ============ =========== ============ =========== ===========
See Notes to Financial Statements.
Loomis Sayles High Yield Bond Janus Mid Cap T. Rowe Price Small Cap Growth Portfolio Portfolio Portfolio ------------------------------------- ---------------------------------------- ------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 923,897 $ 2,401 $ 384,074 $ -- $ 11,303,876 $ 5,416,355 $ 3,542,193 $ -- $ -- 64,809 50,458 32,947 1,037,631 1,274,377 432,040 332,644 307,077 159,812 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- 859,088 (48,057) 351,127 (1,037,631) 10,029,499 4,984,315 3,209,549 (307,077) (159,812) ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- (134,223) (62,427) (159,077) (2,451,549) 3,280,184 1,140,427 (796,014) 759,159 41,394 (902,997) (65,158) 384,776 (53,291,667) (70,128,825) 44,344,823 (6,595,361) (4,955,737) 6,830,580 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- (1,037,220) (127,585) 225,699 (55,743,216) (66,848,641) 45,485,250 (7,391,375) (4,196,578) 6,871,974 ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- ---------- $ (178,132) $(175,642) $ 576,826 $(56,780,847) $(56,819,142) $50,469,565 $(4,181,826) $(4,503,655) $6,712,162 =========== ========= ========= ============ ============ =========== =========== =========== ==========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Scudder Global Equity Harris Oakmark Large Cap Value Portfolio Portfolio -------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends........................................ $ 2,319,964 $ 64,757 $ 486,049 $ 12,105 $ 45,533 $ 2,973 Expenses: Mortality and expense charges.................... 164,713 142,655 86,933 68,617 8,356 615 ----------- --------- ---------- -------- -------- -------- Net investment income (loss)....................... 2,155,251 (77,898) 399,116 (56,512) 37,177 2,358 ----------- --------- ---------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions...................................... (71,082) 423,877 272,213 94,596 (27,497) (5,489) Change in unrealized (depreciation) appreciation of investments....................................... (5,825,339) (702,165) 1,937,990 810,284 217,646 (13,841) ----------- --------- ---------- -------- -------- -------- Net realized and unrealized (loss) gain on investments....................................... (5,896,421) (278,288) 2,210,203 904,880 190,149 (19,330) ----------- --------- ---------- -------- -------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $(3,741,170) $(356,186) $2,609,319 $848,368 $227,326 $(16,972) =========== ========= ========== ======== ======== ========
See Notes to Financial Statements.
Neuberger Berman Partners Mid Cap Value T.Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Portfolio Portfolio Portfolio --------------------------------------- -------------------------------------- ------------------------------------- For the For the For the For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 196,293 $192,122 $13,508 $ 8,447 $ 212,097 $ 5,264 $ 366,468 $1,151,414 $ 24,999 89,772 16,357 627 103,226 28,064 4,482 154,225 51,779 2,156 --------- -------- ------- --------- --------- -------- ---------- ---------- -------- 106,521 175,765 12,881 (94,779) 184,033 782 212,243 1,099,635 22,843 --------- -------- ------- --------- --------- -------- ---------- ---------- -------- (68,863) 28,891 679 (100,488) 9,246 2,027 210,509 61,931 (1,189) (195,526) 444,118 16,713 (92,461) (515,437) 172,687 1,053,501 (39,445) (27,533) --------- -------- ------- --------- --------- -------- ---------- ---------- -------- (264,389) 473,009 17,392 (192,949) (506,191) 174,714 1,264,010 22,486 (28,722) --------- -------- ------- --------- --------- -------- ---------- ---------- -------- $(157,868) $648,774 $30,273 $(287,728) $(322,158) $175,496 $1,476,253 $1,122,121 $ (5,879) ========= ======== ======= ========= ========= ======== ========== ========== ========
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Morgan Stanley EAFE Index Portfolio Russell 2000 Index Portfolio -------------------------------------- -------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 - ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends............................... $ 25,460 $ 90,887 $ 15,956 $ 21,244 $ 797,642 $13,398 Expenses: Mortality and expense charges........... 63,300 22,497 4,919 68,898 21,802 1,131 ----------- --------- -------- ----------- ----------- ------- Net investment income (loss).............. (37,840) 68,390 11,037 (47,654) 775,840 12,267 ----------- --------- -------- ----------- ----------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. (961,834) (86,470) 92,428 (1,016,179) (27,586) 10,610 Change in unrealized (depreciation) appreciation of investments.............. (729,479) (425,063) 160,288 1,215,383 (1,037,181) 41,036 ----------- --------- -------- ----------- ----------- ------- Net realized and unrealized (loss) gain on investments.............................. (1,691,313) (511,533) 252,716 199,204 (1,064,767) 51,646 ----------- --------- -------- ----------- ----------- ------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(1,729,153) $(443,143) $263,753 $ 151,550 $ (288,927) $63,913 =========== ========= ======== =========== =========== =======
See Notes to Financial Statements.
State Street Research Aurora Franklin Templeton Putnam Large Cap Growth Small Cap Value MetLife Mid Cap Stock Index Janus Growth Small Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------------------- ---------------------------- -------------------------- ------------- ------------------ For the For the For the For the For the For the Period May 1, For the Period July 5, For the Period July 5, Period May 1, Period May 1, Year Ended 2000 to Year Ended 2000 to Year Ended 2000 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 2001 2000 2001 2000 2001 2001 ------------ ------------- ------------ -------------- ------------ -------------- ------------- ------------------ $ -- $ -- $ 44,265 $ 20,669 $ 24,102 $ 8,945 $ -- $ -- 22,732 1,713 95,291 3,697 42,826 1,923 2,780 1,124 --------- --------- ---------- -------- -------- ------- -------- ------- (22,732) (1,713) (51,026) 16,972 (18,724) 7,022 (2,780) (1,124) --------- --------- ---------- -------- -------- ------- -------- ------- (113,353) (1,766) 155,882 3,082 (19,531) (300) (43,356) (3,651) (585,114) (173,356) 1,218,805 302,768 294,328 57,307 (11,854) 16,066 --------- --------- ---------- -------- -------- ------- -------- ------- (698,467) (175,122) 1,374,687 305,850 274,797 57,007 (55,210) 12,415 --------- --------- ---------- -------- -------- ------- -------- ------- $(721,199) $(176,835) $1,323,661 $322,822 $256,073 $64,029 $(57,990) $11,291 ========= ========= ========== ======== ======== ======= ======== =======
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Janus Aspen Growth Invesco VIF High Yield Portfolio Portfolio -------------------------------------- -------------------------------------- For the For the For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- INVESTMENT INCOME: Income: Dividends............................... $ 210,720 $ 191,433 $ -- $ 29,774 $ -- $-- Expenses: Mortality and expense charges........... 25,354 19,763 61 602 42 -- ----------- ----------- ------- -------- ------- --- Net investment income (loss).............. 185,366 171,670 (61) 29,172 (42) -- ----------- ----------- ------- -------- ------- --- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. (1,848,663) (11,878) 79 (3,798) (11) -- Change in unrealized (depreciation) appreciation of investments.............. 498,521 (1,038,841) 10,708 (33,395) (1,445) (6) ----------- ----------- ------- -------- ------- --- Net realized and unrealized (loss) gain on investments.............................. (1,350,142) (1,050,719) 10,787 (37,193) (1,456) (6) ----------- ----------- ------- -------- ------- --- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(1,164,776) $ (879,049) $10,726 $ (8,021) $(1,498) $(6) =========== =========== ======= ======== ======= ===
See Notes to Financial Statements.
Invesco VIF Equity Income Invesco VIF Real Estate Opportunity Franklin Templeton International Stock Portfolio Portfolio Portfolio --------------------------------------- -------------------------------------- -------------------------------------- For the For the For the For the For the Period May 3, For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- ------------ ------------ ------------- $ 1,779 $ 783 $-- $ 1,183 $ -- $-- $ 203,320 $ 34,323 $ -- 304 58 -- 531 288 1 5,484 3,352 5 ------- ----- --- ------- ------ --- --------- -------- ---- 1,475 725 -- 652 (288) (1) 197,836 30,971 (5) ------- ----- --- ------- ------ --- --------- -------- ---- (1,414) 18 -- 1,271 445 -- (18,952) (35,953) 32 (4,995) (596) 45 (3,692) 4,890 84 (287,060) (6,907) 481 ------- ----- --- ------- ------ --- --------- -------- ---- (6,409) (578) 45 (2,421) 5,335 84 (306,012) (42,860) 513 ------- ----- --- ------- ------ --- --------- -------- ---- $(4,934) $ 147 $45 $(1,769) $5,047 $83 $(108,176) $(11,889) $508 ======= ===== === ======= ====== === ========= ======== ====
Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Franklin Templeton Valuemark Alger Equity Small Cap Davis Venture Value Loomis Sayles Small Cap Income Portfolio Portfolio Portfolio Portfolio ------------ -------------------------- -------------------------- ------------ For the For the For the For the Period July 5, For the Period July 5, For the Year Ended Year Ended 2000 to Year Ended 2000 to Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 2001 2000 2001 ------------ ------------ -------------- ------------ -------------- ------------ INVESTMENT INCOME: Income: Dividends.......................... $ 56 $ 192,850 $ -- $ 86,281 $ -- $ -- Expenses: Mortality and expense charges...... 177 39,662 1,697 11,207 629 121 ------ --------- ------- -------- ------ ------- Net investment income (loss)........ (121) 153,188 (1,697) 75,074 (629) (121) ------ --------- ------- -------- ------ ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions.............. (480) (46,987) (482) (35,645) (42) (175) Change in unrealized (depreciation) appreciation of investments........ 4,364 (437,523) 27,591 (62,611) 5,980 (5,126) ------ --------- ------- -------- ------ ------- Net realized and unrealized (loss) gain on investments................ 3,884 (484,510) 27,109 (98,256) 5,938 (5,301) ------ --------- ------- -------- ------ ------- NET (DECREASE) INCREASE ON NET ASSETS RESULTING FROM OPERATIONS... $3,763 $(331,322) $25,412 $(23,182) $5,309 $(5,422) ====== ========= ======= ======== ====== =======
See Notes to Financial Statements.
State Street MFS MFS Research Westpeak Harris Salomon Brothers Salomon Investors Research Bond Growth & Oakmark Mid Strategic Bond Brothers U.S. Alliance Growth & Trust Managers Income Income Cap Value Opportunities Government Income--Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------- ---------------- ------------- ---------------------------- For the For the For the For the For the For the For the Period May 1, Period May 1, Period May 1, For the For the Period Year Ended Year Ended Year Ended Year Ended 2001 to 2001 to 2001 to Year Ended September 30 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 2001 2001 2000 ------------ ------------ ------------ ------------ ------------- ---------------- ------------- ------------ --------------- $ -- $ 386 $17,303 $ -- $ -- $ -- $ -- $ 3,229 $ -- 1,179 749 1,255 69 9,775 894 1,841 1,034 -- ------- ------ ------- ------- -------- ------ ------- ------- ------ (1,179) (363) 16,048 (69) (9,775) (894) (1,841) 2,195 -- ------- ------ ------- ------- -------- ------ ------- ------- ------ (5,896) 1,304 (156) (77) (43) 117 5,065 (318) -- 4,527 (346) (1,312) (2,467) 279,801 4,621 (2,273) 24,267 2,702 ------- ------ ------- ------- -------- ------ ------- ------- ------ (1,369) 958 (1,468) (2,544) 279,758 4,738 2,792 23,949 2,702 ------- ------ ------- ------- -------- ------ ------- ------- ------ $(2,548) $ 595 $14,580 $(2,613) $269,983 $3,844 $ 951 $26,144 $2,702 ======= ====== ======= ======= ======== ====== ======= ======= ======
Metropolitan Life Separate Account UL STATEMENT OF OPERATIONS
Fidelity VIP II Alliance Alliance Fidelity VIP II Asset Manager Fidelity VIP American Premier Growth-- Technology-- Contrafund-- Growth-- Growth-- Funds Class B Class B Service Class Service Class Service Class Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ --------------- --------------- ------------- ------------- For the For the For the For the For the For the Period May 1, Year Ended Year Ended Year Ended Year Ended Year Ended 2001 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 ---------------- ------------ --------------- --------------- ------------- ------------- INVESTMENT INCOME: Income: Dividends........................ $ -- $ 782 $ -- $ -- $ -- $ 134,864 Expenses: Mortality and expense charges.... 104 121 57 233 243 6,807 ------ -------- ----- ------- ------- --------- Net investment income (loss)...... (104) 661 (57) (233) (243) 128,057 ------ -------- ----- ------- ------- --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............ (138) (19,763) (27) 113 (3,407) (95,342) Change in unrealized (depreciation) appreciation of investments...................... 1,299 (2,681) (253) (1,597) (3,078) (17,189) ------ -------- ----- ------- ------- --------- Net realized and unrealized (loss) gain on investments.............. 1,161 (22,444) (280) (1,484) (6,485) (112,531) ------ -------- ----- ------- ------- --------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. $1,057 $(21,783) $(337) $(1,717) $(6,728) $ 15,526 ====== ======== ===== ======= ======= =========
See Notes to Financial Statements.
American Funds American Funds JPM Enhanced MFS Mid Cap MFS Research PIMCO PIMCO Growth & Income Global Small Cap Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- ---------------- ------------ ------------- ------------- ------------- ------------- For the For the For the For the For the For the Period May 1, Period May 1, For the Period May 1, Period May 1, Period May 1, Period May 1, 2001 to 2001 to Year Ended 2001 to 2001 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 2001 2001 --------------- ---------------- ------------ ------------- ------------- ------------- ------------- $ 20,236 $ 7,147 $ -- $ -- $ 174 $ 26,164 $ -- 5,104 1,216 13 940 525 2,322 1,528 -------- -------- ----- ------- ------- -------- ------- 15,132 5,931 (13) (940) (351) 23,842 (1,528) -------- -------- ----- ------- ------- -------- ------- (13,398) (18,714) (25) (1,372) (4,107) 1,564 (9,873) 55,397 46,579 (320) 11,239 1,444 (14,155) 4,179 -------- -------- ----- ------- ------- -------- ------- 41,999 27,865 (345) 9,867 (2,663) (12,591) (5,694) -------- -------- ----- ------- ------- -------- ------- $ 57,131 $ 33,796 $(358) $ 8,927 $(3,014) $ 11,251 $(7,222) ======== ======== ===== ======= ======= ======== =======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Investment Trust Portfolio ----------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss).......... $ 48,301,051 $ 1,040,518 $ 40,828,191 Net realized gain (loss) from security transactions................ 731,187 5,846,334 3,593,964 Change in unrealized (depreciation) appreciation of investments.......... (122,469,738) (37,904,600) 16,515,105 ------------- ------------ ------------ Net (decrease) increase in net assets resulting from operations..... (73,437,500) (31,017,748) 60,937,260 ------------- ------------ ------------ From capital transactions: Net premiums.......................... 80,046,712 78,775,448 76,267,713 Redemptions........................... (15,513,042) (15,714,936) (15,563,840) Net portfolio transfers............... 2,751,095 (7,049,932) 3,590,588 Other net transfers................... (40,534,492) (41,272,460) (38,125,701) ------------- ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions......................... 26,750,273 14,738,120 26,168,760 ------------- ------------ ------------ NET CHANGE IN NET ASSETS................. (46,687,227) (16,279,628) 87,106,020 NET ASSETS--BEGINNING OF PERIOD.......... 403,388,541 419,668,169 332,562,149 ------------- ------------ ------------ NET ASSETS--END OF PERIOD................ $ 356,701,314 $403,388,541 $419,668,169 ============= ============ ============
See Notes to Financial Statements.
State Street Research Income Portfolio State Street Research Money Market Portfolio -------------------------------------- ------------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 5,079,551 $ (553,925) $ 3,681,974 $ 918,529 $ 1,386,180 $ 1,296,852 400,181 (764,188) 15,187 (499,341) 1,059,353 245,673 (136,424) 8,375,071 (5,496,396) 796,577 (454,099) (275,023) ------------ ----------- ----------- ----------- ------------ ------------ 5,343,308 7,056,958 (1,799,235) 1,215,765 1,991,434 1,267,502 ------------ ----------- ----------- ----------- ------------ ------------ 14,224,980 16,247,550 15,797,917 17,936,134 35,316,006 35,768,800 (3,623,665) (2,164,427) (1,719,595) (1,689,474) (18,249,957) (296,905) 3,006,543 (4,736,604) 2,922,342 (4,603,225) (27,922,080) (23,898,442) (15,758,248) (6,051,666) (6,009,960) (1,666,768) (2,674,970) (2,027,635) ------------ ----------- ----------- ----------- ------------ ------------ (2,150,390) 3,294,853 10,990,704 9,976,667 (13,531,001) 9,545,818 ------------ ----------- ----------- ----------- ------------ ------------ 3,192,918 10,351,811 9,191,469 11,192,432 (11,539,567) 10,813,320 75,983,251 65,631,440 56,439,971 21,533,915 33,073,482 22,260,162 ------------ ----------- ----------- ----------- ------------ ------------ $ 79,176,169 $75,983,251 $65,631,440 $32,726,347 $ 21,533,915 $ 33,073,482 ============ =========== =========== =========== ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Diversified Portfolio ------------------------------------------ For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 23,184,244 $ (1,084,114) $ 18,825,455 Net realized gain (loss) from security transactions........................ (111,095) 1,585,197 743,624 Change in unrealized (depreciation) appreciation of investments............ (42,080,714) (360,101) (2,237,161) ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations............ (19,007,565) 140,982 17,331,918 ------------ ------------ ------------ From capital transactions: Net premiums............................................................... 55,767,097 53,773,281 54,466,186 Redemptions................................................................ (8,333,720) (9,860,611) (8,542,813) Net portfolio transfers.................................................... 8,413,016 (3,492,574) 2,267,794 Other net transfers........................................................ (31,250,185) (28,128,760) (26,640,820) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions.. 24,596,208 12,291,336 21,550,347 ------------ ------------ ------------ NET CHANGE IN NET ASSETS...................................................... 5,588,643 12,432,318 38,882,265 NET ASSETS--BEGINNING OF PERIOD............................................... 260,135,023 247,702,705 208,820,440 ------------ ------------ ------------ NET ASSETS--END OF PERIOD..................................................... $265,723,666 $260,135,023 $247,702,705 ============ ============ ============
See Notes to Financial Statements.
State Street Research Aggressive Growth Portfolio MetLife Stock Index Portfolio ------------------------------------------------ ---------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 45,283,589 $ 25,471,356 $ 3,037,862 $ 1,213,073 $ 10,878,219 $ 10,353,423 (1,536,972) 3,369,764 1,280,373 4,130,927 6,159,583 3,899,836 (94,895,107) (48,026,970) 47,914,985 (48,985,481) (49,619,601) 24,029,258 ------------ ------------ ------------ ------------ ------------ ------------ (51,148,490) (19,185,850) 52,233,220 (43,641,481) (32,581,799) 38,282,517 ------------ ------------ ------------ ------------ ------------ ------------ 42,942,155 41,898,360 41,977,555 113,949,042 101,155,153 80,432,444 (6,486,474) (10,429,472) (6,935,090) (11,030,629) (8,709,802) (5,037,136) 1,097,789 (209,434) (8,586,687) 19,393,554 32,416,473 20,459,060 (19,697,556) (21,759,150) (18,101,172) (45,631,351) (39,683,105) (31,708,703) ------------ ------------ ------------ ------------ ------------ ------------ 17,855,914 9,500,304 8,354,606 76,680,616 85,178,719 864,145,665 ------------ ------------ ------------ ------------ ------------ ------------ (33,292,576) (9,685,546) 60,587,826 33,039,135 52,596,920 102,428,182 204,984,440 214,669,986 154,082,160 313,891,778 261,294,858 158,866,676 ------------ ------------ ------------ ------------ ------------ ------------ $171,691,864 $204,984,440 $214,669,986 $346,930,913 $313,891,778 $261,294,858 ============ ============ ============ ============ ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Putnam International Stock Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 - ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 1,172,876 $ (103,321) $ 6,403,093 Net realized gain (loss) from security transactions........................ (1,661,736) 309,181 528,185 Change in unrealized (depreciation) appreciation of investments............ (9,202,287) (5,241,506) (1,137,521) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations............ (9,691,147) (5,035,646) 5,793,757 ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 9,615,907 9,900,638 8,765,614 Redemptions................................................................ (1,289,983) (2,135,289) (1,805,287) Net portfolio transfers.................................................... 323,092 760,648 (1,507,125) Other net transfers........................................................ (4,148,436) (3,943,304) (3,575,131) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 4,500,580 4,582,693 1,878,071 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... (5,190,567) (452,953) 7,671,828 NET ASSETS--BEGINNING OF PERIOD............................................... 43,471,608 43,924,561 36,252,733 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $38,281,041 $43,471,608 $43,924,561 =========== =========== ===========
See Notes to Financial Statements.
Loomis Sayles High Yield Bond Portfolio Janus Mid Cap Portfolio -------------------------------------- ---------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 859,088 $ (48,057) $ 351,127 $ (1,037,631) $ 10,029,499 $ 4,984,315 (134,223) (62,427) (159,077) (2,451,549) 3,280,184 1,140,427 (902,997) (65,158) 384,776 (53,291,667) (70,128,825) 44,344,823 ---------- ---------- ---------- ------------ ------------ ------------ (178,132) (175,642) 576,826 (56,780,847) (56,819,142) 50,469,565 ---------- ---------- ---------- ------------ ------------ ------------ 2,653,126 2,272,880 1,766,270 74,363,749 64,927,917 31,140,404 (478,731) (256,031) (387,694) (3,144,623) (3,404,065) (1,283,943) 807,014 762,530 1,046,383 3,860,189 39,706,625 24,344,237 (872,472) (644,203) (587,488) (23,970,747) (26,632,666) (12,718,059) ---------- ---------- ---------- ------------ ------------ ------------ 2,108,937 2,135,176 1,837,471 51,108,568 74,597,811 41,482,639 ---------- ---------- ---------- ------------ ------------ ------------ 1,930,805 1,959,534 2,414,297 (5,672,279) 17,778,669 91,952,204 6,913,742 4,954,208 2,539,911 130,857,420 113,078,751 21,126,547 ---------- ---------- ---------- ------------ ------------ ------------ $8,844,547 $6,913,742 $4,954,208 $125,185,141 $130,857,420 $113,078,751 ========== ========== ========== ============ ============ ============
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
T. Rowe Price Small Cap Growth Portfolio --------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 - ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss).......... $ 3,209,549 $ (307,077) $ (159,812) Net realized gain (loss) from security transactions................. (796,014) 759,159 41,394 Change in unrealized (depreciation) appreciation of investments........... (6,595,361) (4,955,737) 6,830,580 ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations..... (4,181,826) (4,503,655) 6,712,162 ----------- ----------- ----------- From capital transactions: Net premiums.......................... 15,023,523 13,173,661 10,707,741 Redemptions........................... (2,577,320) (960,930) (556,621) Net portfolio transfers............... (372,409) 7,018,243 5,288,531 Other net transfers................... (5,350,422) (4,758,398) (3,307,953) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions......................... 6,723,372 14,472,576 12,131,698 ----------- ----------- ----------- NET CHANGE IN NET ASSETS................. 2,541,546 9,968,921 18,843,860 NET ASSETS--BEGINNING OF PERIOD.......... 42,118,242 32,149,321 13,305,461 ----------- ----------- ----------- NET ASSETS--END OF PERIOD................ $44,659,788 $42,118,242 $32,149,321 =========== =========== ===========
See Notes to Financial Statements.
Scudder Global Equity Portfolio Harris Oakmark Large Cap Value Portfolio ------------------------------------- --------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ 2,155,251 $ (77,898) $ 399,116 $ (56,512) $ 37,177 $ 2,358 (71,082) 423,877 272,213 94,596 (27,497) (5,489) (5,825,339) (702,165) 1,937,990 810,284 217,646 (13,841) ----------- ----------- ----------- ----------- ---------- -------- (3,741,170) (356,186) 2,609,319 848,368 227,326 (16,972) ----------- ----------- ----------- ----------- ---------- -------- 7,562,752 6,536,768 4,574,226 4,073,390 715,820 125,384 (630,613) (543,240) (541,665) (268,807) (22,511) (8,780) 603,395 1,878,567 985,125 9,043,603 1,142,472 224,137 (2,572,779) (2,129,044) (1,431,966) (1,466,228) (296,592) 15,729 ----------- ----------- ----------- ----------- ---------- -------- 4,962,755 5,743,051 3,585,720 11,381,958 1,539,189 356,470 ----------- ----------- ----------- ----------- ---------- -------- 1,221,585 5,386,865 6,195,039 12,230,326 1,766,515 339,498 19,884,762 14,497,897 8,302,858 2,106,013 339,498 -- ----------- ----------- ----------- ----------- ---------- -------- $21,106,347 $19,884,762 $14,497,897 $14,336,339 $2,106,013 $339,498 =========== =========== =========== =========== ========== ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Neuberger Berman Partners Mid Cap Value Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 106,521 $ 175,765 $ 12,881 Net realized gain (loss) from security transactions........................ (68,863) 28,891 679 Change in unrealized (depreciation) appreciation of investments............ (195,526) 444,118 16,713 ----------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ (157,868) 648,774 30,273 ----------- ---------- -------- From capital transactions: Net premiums............................................................... 5,746,048 1,424,997 162,181 Redemptions................................................................ (57,006) (48,928) -- Net portfolio transfers.................................................... 4,766,372 4,051,096 433,203 Other net transfers........................................................ (2,321,908) (529,061) (33,367) ----------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 8,133,506 4,898,104 562,017 ----------- ---------- -------- NET CHANGE IN NET ASSETS...................................................... 7,975,638 5,546,878 592,290 NET ASSETS--BEGINNING OF PERIOD............................................... 6,139,168 592,290 -- ----------- ---------- -------- NET ASSETS--END OF PERIOD..................................................... $14,114,806 $6,139,168 $592,290 =========== ========== ========
See Notes to Financial Statements.
T. Rowe Price Large Cap Lehman Brothers Aggregate Growth Portfolio Bond Index Portfolio ------------------------------------- ------------------------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ $ (94,779) $ 184,033 $ 782 $ 212,243 $ 1,099,635 $ 22,843 (100,488) 9,246 2,027 210,509 61,931 (1,189) (92,461) (515,437) 172,687 1,053,501 (39,445) (27,533) ----------- ----------- ---------- ----------- ----------- -------- (287,728) (322,158) 175,496 1,476,253 1,122,121 (5,879) ----------- ----------- ---------- ----------- ----------- -------- 8,996,035 2,941,543 141,433 8,533,067 6,001,873 93,732 (60,227) (19,075) -- (1,024,276) (253,963) (1,012) 8,736,398 4,471,715 1,037,195 11,244,179 12,581,907 484,526 (3,536,498) (1,062,875) (100,729) (2,262,688) (657,185) (10,326) ----------- ----------- ---------- ----------- ----------- -------- 14,135,708 6,331,308 1,077,899 16,490,282 17,672,632 566,920 ----------- ----------- ---------- ----------- ----------- -------- 13,847,980 6,009,150 1,253,395 17,966,535 18,794,753 561,041 7,262,545 1,253,395 -- 19,355,794 561,041 -- ----------- ----------- ---------- ----------- ----------- -------- $21,110,525 $ 7,262,545 $1,253,395 $37,322,329 $19,355,794 $561,041 =========== =========== ========== =========== =========== ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Morgan Stanley EAFE Index Portfolio ------------------------------------- For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ (37,840) $ 68,390 $ 11,037 Net realized gain (loss) from security transactions........................ (961,834) (86,470) 92,428 Change in unrealized (depreciation) appreciation of investments............ (729,479) (425,063) 160,288 ----------- ---------- ---------- Net (decrease) increase in net assets resulting from operations............ (1,729,153) (443,143) 263,753 ----------- ---------- ---------- From capital transactions: Net premiums............................................................... 4,890,376 1,984,111 139,276 Redemptions................................................................ (722,285) (25,611) (1,812) Net portfolio transfers.................................................... 4,395,203 3,730,891 862,477 Other net transfers........................................................ (1,819,787) (682,554) (42,032) ----------- ---------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 6,743,507 5,006,837 957,909 ----------- ---------- ---------- NET CHANGE IN NET ASSETS...................................................... 5,014,354 4,563,694 1,221,662 NET ASSETS--BEGINNING OF PERIOD............................................... 5,785,356 1,221,662 -- ----------- ---------- ---------- NET ASSETS--END OF PERIOD..................................................... $10,799,710 $5,785,356 $1,221,662 =========== ========== ==========
See Notes to Financial Statements.
Russell 2000 Putnam Large Cap State Street Research Aurora Index Portfolio Growth Portfolio Small Cap Value Portfolio ------------------------------------- ------------------------- --------------------------- For the For the For the For the For the For the Period May 1, For the Year Period July 5, Year Ended Year Ended Year Ended Year Ended 2000 to Ended 2000 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 2001 2000 ------------ ------------ ------------ ------------ ------------- ------------ -------------- $ (47,654) $ 775,840 $ 12,267 $ (22,732) $ (1,713) $ (51,026) $ 16,972 (1,016,179) (27,586) 10,610 (113,353) (1,766) 155,882 3,082 1,215,383 (1,037,181) 41,036 (585,114) (173,356) 1,218,805 302,768 ----------- ----------- -------- ---------- ---------- ----------- ---------- 151,550 (288,927) 63,913 (721,199) (176,835) 1,323,661 322,822 ----------- ----------- -------- ---------- ---------- ----------- ---------- 5,343,692 2,510,031 214,532 2,425,615 306,843 7,040,736 335,643 (375,673) (45,875) (1,472) (23,841) (5,695) (81,569) (11,356) 1,811,235 3,956,271 219,845 2,239,800 915,075 11,247,758 2,585,881 (2,007,235) (882,331) (44,830) (878,209) (80,881) (2,656,308) (102,034) ----------- ----------- -------- ---------- ---------- ----------- ---------- 4,772,019 5,538,096 388,075 3,763,365 1,135,342 15,550,617 2,808,134 ----------- ----------- -------- ---------- ---------- ----------- ---------- 4,923,569 5,249,169 451,988 3,042,166 958,507 16,874,278 3,130,956 5,701,157 451,988 -- 958,507 -- 3,130,956 -- ----------- ----------- -------- ---------- ---------- ----------- ---------- $10,624,726 $ 5,701,157 $451,988 $4,000,673 $ 958,507 $20,005,234 $3,130,956 =========== =========== ======== ========== ========== =========== ==========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Janus MetLife Mid Cap Stock Index Growth Portfolio Portfolio -------------------------- ------------- For the For the For the Period July 5, Period May 1, Year Ended 2000 to 2001 to December 31, December 31, December 31, 2001 2000 2001 ------------ -------------- ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ (18,724) $ 7,022 $ (2,780) Net realized gain (loss) from security transactions........................ (19,531) (300) (43,356) Change in unrealized (depreciation) appreciation of investments............ 294,328 57,307 (11,854) ----------- ---------- ---------- Net (decrease) increase in net assets resulting from operations............ 256,073 64,029 (57,990) ----------- ---------- ---------- From capital transactions: Net premiums............................................................... 4,147,919 240,407 311,526 Redemptions................................................................ (16,900) (8,675) -- Net portfolio transfers.................................................... 4,052,437 1,949,602 817,361 Other net transfers........................................................ (1,566,864) (99,172) (118,215) ----------- ---------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 6,616,592 2,082,162 1,010,672 ----------- ---------- ---------- NET CHANGE IN NET ASSETS...................................................... 6,872,665 2,146,191 952,682 NET ASSETS--BEGINNING OF PERIOD............................................... 2,146,191 -- -- ----------- ---------- ---------- NET ASSETS--END OF PERIOD..................................................... $ 9,018,856 $2,146,191 $ 952,682 =========== ========== ==========
See Notes to Financial Statements.
Franklin Templeton Small Cap Growth Portfolio Janus Aspen Growth Portfolio Invesco VIF High Yield Portfolio ------------- -------------------------------------- -------------------------------------- For the For the For the Period May 1, For the For the Period May 3, For the For the Period May 3, 2001 to Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 1999 2001 2000 1999 ------------- ------------ ------------ ------------- ------------ ------------ ------------- $ (1,124) $ 185,366 $ 171,670 $ (61) $ 29,172 $ (42) $ -- (3,651) (1,848,663) (11,878) 79 (3,798) (11) -- 16,066 498,521 (1,038,841) 10,708 (33,395) (1,445) (6) -------- ----------- ----------- ------- -------- ------- ------ 11,291 (1,164,776) (879,049) 10,726 (8,021) (1,498) (6) -------- ----------- ----------- ------- -------- ------- ------ 107,629 779,753 1,494,340 99 213,527 2,194 -- (802) (2,741,484) (102) -- -- -- -- 369,945 254,486 4,654,955 86,070 71,476 7,138 3,236 (30,931) (189,372) (346,372) (522) (13,506) (239) (3) -------- ----------- ----------- ------- -------- ------- ------ 445,841 (1,896,617) 5,802,821 85,647 271,497 9,093 3,233 -------- ----------- ----------- ------- -------- ------- ------ 457,132 (3,061,393) 4,923,772 96,373 263,476 7,595 3,227 -- 5,020,145 96,373 -- 10,822 3,227 -- -------- ----------- ----------- ------- -------- ------- ------ $457,132 $ 1,958,752 $ 5,020,145 $96,373 $274,298 $10,822 $3,227 ======== =========== =========== ======= ======== ======= ======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Invesco VIF Equity Income Portfolio --------------------------------------- For the For the For the Period May 3, Year Ended Year Ended 1999 to December 31, December 31, December 31, 2001 2000 1999 ------------ ------------ ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 1,475 $ 725 $ -- Net realized gain (loss) from security transactions........................ (1,414) 18 -- Change in unrealized (depreciation) appreciation of investments............ (4,995) (596) 45 -------- ------- ------ Net (decrease) increase in net assets resulting from operations............ (4,934) 147 45 -------- ------- ------ From capital transactions: Net premiums............................................................... 5,886 7,244 -- Redemptions................................................................ (780) -- -- Net portfolio transfers.................................................... 112,018 1,027 5,802 Other net transfers........................................................ (3,589) (413) 25 -------- ------- ------ Net increase (decrease) in net assets resulting from capital transactions.. 113,535 7,858 5,827 -------- ------- ------ NET CHANGE IN NET ASSETS...................................................... 108,601 8,005 5,872 NET ASSETS--BEGINNING OF PERIOD............................................... 13,877 5,872 -- -------- ------- ------ NET ASSETS--END OF PERIOD..................................................... $122,478 $13,877 $5,872 ======== ======= ======
See Notes to Financial Statements.
Invesco VIF Real Estate Opportunity Portfolio Franklin Templeton International Stock Portfolio -------------------------------------------- ----------------------------------------------- For the For the For the For the Period May 3, For the For the Period May 3, Year Ended Year Ended 1999 to Year Ended Year Ended 1999 to December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------- ------------ ------------ ------------- $ 652 $ (288) $ (1) $ 197,836 $ 30,971 $ (5) 1,271 445 -- (18,952) (35,953) 32 (3,692) 4,890 84 (287,060) (6,907) 481 --------- -------- ------ ---------- ---------- ------ (1,769) 5,047 83 (108,176) (11,889) 508 --------- -------- ------ ---------- ---------- ------ 3,478 1,795 -- 461,547 199,820 1,166 -- -- -- (236,261) (1,160) -- (24,700) 107,017 1,524 589,847 922,250 5,208 (2,641) (709) (23) (39,531) (16,624) (50) --------- -------- ------ ---------- ---------- ------ (23,863) 108,103 1,501 775,602 1,104,286 6,324 --------- -------- ------ ---------- ---------- ------ (25,632) 113,150 1,584 667,426 1,092,397 6,832 114,734 1,584 -- 1,099,229 6,832 -- --------- -------- ------ ---------- ---------- ------ $ 89,102 $114,734 $1,584 $1,766,655 $1,099,229 $6,832 ========= ======== ====== ========== ========== ======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Franklin Templeton Valuemark Davis Small Cap Venture Value Portfolio Portfolio ------------ -------------------------- For the For the For the Period July 5, Year Ended Year Ended 2000 to December 31, December 31, December 31, 2001 2001 2000 ------------ ------------ -------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............... $ (121) $ 153,188 $ (1,697) Net realized gain (loss) from security transactions.............................. (480) (46,987) (482) Change in unrealized (depreciation) appreciation of investments............... 4,364 (437,523) 27,591 -------- ----------- ---------- Net (decrease) increase in net assets resulting from operations................. 3,763 (331,322) 25,412 -------- ----------- ---------- From capital transactions: Net premiums............................... 32,699 3,338,434 199,454 Redemptions................................ -- (44,938) (6,528) Net portfolio transfers.................... 69,587 4,710,785 973,687 Other net transfers........................ (3,042) (1,312,198) (55,246) -------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions....... 99,244 6,692,083 1,111,367 -------- ----------- ---------- NET CHANGE IN NET ASSETS...................... 103,007 6,360,761 1,136,779 NET ASSETS--BEGINNING OF PERIOD............... -- 1,136,779 -- -------- ----------- ---------- NET ASSETS--END OF PERIOD..................... $103,007 $ 7,497,540 $1,136,779 ======== =========== ==========
See Notes to Financial Statements.
MFS MFS State Street Loomis Sayles Alger Equity Investors Research Research Small Cap Income Trust Managers Bond Income Portfolio Portfolio Portfolio Portfolio Portfolio -------------------------- ------------ ------------ ------------ ------------ For the For the Period July 5, For the For the For the For the Year Ended 2000 to Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2001 2000 2001 2001 2001 2001 ------------ -------------- ------------ ------------ ------------ ------------ $ 75,074 $ (629) $ (121) $ (1,179) $ (363) $ 16,048 (35,645) (42) (175) (5,896) 1,304 (156) (62,611) 5,980 (5,126) 4,527 (346) (1,312) ---------- -------- ------- --------- --------- -------- (23,182) 5,309 (5,422) (2,548) 595 14,580 ---------- -------- ------- --------- --------- -------- 909,510 62,643 -- 122,835 72,571 12,338 (7,864) (6,573) -- (1,444) (3,984) -- 960,425 403,213 52,468 486,210 231,621 282,738 (356,458) (20,610) (1,809) (282,946) (149,340) (2,697) ---------- -------- ------- --------- --------- -------- 1,505,613 438,673 50,659 324,655 150,868 292,379 ---------- -------- ------- --------- --------- -------- 1,482,431 443,982 45,237 322,107 151,463 306,959 443,982 -- -- -- -- -- ---------- -------- ------- --------- --------- -------- $1,926,413 $443,982 $45,237 $ 322,107 $ 151,463 $306,959 ========== ======== ======= ========= ========= ========
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Westpeak Salomon Brothers Growth & Harris Oakmark Strategic Bond Income Mid Cap Value Opportunities Portfolio Portfolio Portfolio ------------ -------------- ---------------- For the For the For the Period May 1, Period May 1, Year Ended 2001 to 2001 to December 31, December 31, December 31, 2001 2001 2001 ------------ -------------- ---------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............... $ (69) $ (9,775) $ (894) Net realized gain (loss) from security transactions.............................. (77) (43) 117 Change in unrealized (depreciation) appreciation of investments............... (2,467) 279,801 4,621 ------- ---------- -------- Net (decrease) increase in net assets resulting from operations................. (2,613) 269,983 3,844 ------- ---------- -------- From capital transactions: Net premiums............................... -- 999,657 97,914 Redemptions................................ -- (7,188) (566) Net portfolio transfers.................... 28,886 3,223,723 396,753 Other net transfers........................ (1,055) (271,630) (33,111) ------- ---------- -------- Net increase in net assets resulting from capital transactions...................... 27,831 3,944,562 460,990 ------- ---------- -------- NET CHANGE IN NET ASSETS...................... 25,218 4,214,545 464,834 NET ASSETS--BEGINNING OF PERIOD............... -- -- -- ------- ---------- -------- NET ASSETS--END OF PERIOD..................... $25,218 $4,214,545 $464,834 ======= ========== ========
See Notes to Financial Statements.
Alliance Fidelity VIP II Alliance Premier Alliance Fidelity VIP II Asset Manager Fidelity VIP Salomon Brothers Growth & Growth-- Technology-- Contrafund-- Growth-- Growth-- U.S. Government Income--Class B Class B Class B Service Class Service Class Service Class Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------------------- ------------ ------------ --------------- --------------- ------------- For the Period May 1, For the For the Period For the For the For the For the For the 2001 to Year Ended September 30 to Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2001 2001 2000 2001 2001 2001 2001 2001 ---------------- ------------ --------------- ------------ ------------ --------------- --------------- ------------- $ (1,841) $ 2,195 $ -- $ (104) $ 661 $ (57) $ (233) $ (243) 5,065 (318) -- (138) (19,763) (27) 113 (3,407) (2,273) 24,267 2,702 1,299 (2,681) (253) (1,597) (3,078) -------- -------- ------- ------- -------- ------- ------- ------- 951 26,144 2,702 1,057 (21,783) (337) (1,717) (6,728) -------- -------- ------- ------- -------- ------- ------- ------- 162,934 422,139 -- -- 463 3,356 16,990 22,338 (10,909) -- -- -- -- -- -- -- 755,686 160,474 54,402 97,128 36,082 21,462 84,590 74,755 (59,363) (11,019) 769 133 (2,213) (621) (5,355) (3,117) -------- -------- ------- ------- -------- ------- ------- ------- 848,348 571,594 55,171 97,261 34,332 24,197 96,225 93,976 -------- -------- ------- ------- -------- ------- ------- ------- 849,299 597,738 57,873 98,318 12,549 23,860 94,508 87,248 -- 57,873 -- -- -- -- -- -- -------- -------- ------- ------- -------- ------- ------- ------- $849,299 $655,611 $57,873 $98,318 $ 12,549 $23,860 $94,508 $87,248 ======== ======== ======= ======= ======== ======= ======= =======
Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
American American American Funds Growth Funds Global Funds Growth & Income Small Cap Portfolio Portfolio Portfolio ------------- ------------- ------------- For the For the For the Period May 1, Period May 1, Period May 1, 2001 to 2001 to 2001 to December 31, December 31, December 31, 2001 2001 2001 ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS From operations: Net investment income (loss)............................................... $ 128,057 $ 15,132 $ 5,931 Net realized gain (loss) from security transactions........................ (95,342) (13,398) (18,714) Change in unrealized (depreciation) appreciation of investments............ (17,189) 55,397 46,579 ---------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ 15,526 57,131 33,796 ---------- ---------- -------- From capital transactions: Net premiums............................................................... 700,197 553,810 138,839 Redemptions................................................................ (1,570) (6,270) -- Net portfolio transfers.................................................... 2,173,706 1,876,550 476,691 Other net transfers........................................................ 288,414 (27,864) (30,269) ---------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 3,160,747 2,396,226 585,261 ---------- ---------- -------- NET CHANGE IN NET ASSETS...................................................... 3,176,273 2,453,357 619,057 NET ASSETS--BEGINNING OF PERIOD............................................... -- -- -- ---------- ---------- -------- NET ASSETS--END OF PERIOD..................................................... $3,176,273 $2,453,357 $619,057 ========== ========== ========
See Notes to Financial Statements.
JPM MFS MFS Enhanced Mid Cap Research PIMCO PIMCO Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ------------- ------------- ------------- For the For the For the For the For the Period May 1, Period May 1, Period May 1, Period May 1, Year Ended 2001 to 2001 to 2001 to 2001 to December 31, December 31, December 31, December 31, December 31, 2001 2001 2001 2001 2001 ------------ ------------- ------------- ------------- ------------- $ (13) $ (940) $ (351) $ 23,842 $ (1,528) (25) (1,372) (4,107) 1,564 (9,873) (320) 11,239 1,444 (14,155) 4,179 ------ -------- -------- ---------- -------- (358) 8,927 (3,014) 11,251 (7,222) ------ -------- -------- ---------- -------- -- 82,192 38,580 266,987 138,136 -- (543) -- (9,397) -- 5,908 264,649 77,076 902,199 661,537 (187) 209,192 124,871 (68,474) (43,761) ------ -------- -------- ---------- -------- 5,721 555,490 240,527 1,091,315 755,912 ------ -------- -------- ---------- -------- 5,363 564,417 237,513 1,102,566 748,690 -- -- -- -- -- ------ -------- -------- ---------- -------- $5,363 $564,417 $237,513 $1,102,566 $748,690 ====== ======== ======== ========== ========
Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 2001 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") a separate account of Metropolitan Life Insurance Company ("Metropolitan Life"), was established on December 13, 1988 to support Metropolitan Life's operations with respect to certain variable universal life contracts ("Contracts"). Metropolitan Life is a wholly owned subsidiary of MetLife Inc. ("MetLife"). The Separate Account was registered as a unit investment trust on January 5, 1990 under the Investment Company Act of 1940, as amended, and exist in accordance with the regulations of the New York Insurance Department. The Separate Account presently consists of fifty-two investment portfolios that support six variable universal life insurance Contracts (UL II, SBR Met Flex, GVUL, UL2001, VAI, and VABR). The assets in each Contract are invested in shares of the corresponding portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Series Funds, Inc., the Templeton Variable Product Series Funds, the Invesco Variable Investment Funds, Inc., the Janus Aspen Series Funds, the Fidelity Variable Insurance Products Funds, the Alliance Variable Product Series Funds, American Series Funds, and the MetLife Investors Trust Funds, collectively, (the "Funds"). The assets of the Separate Account are registered in the name of Metropolitan Life. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from Metropolitan Life's other assets and liabilities. The portion of the Separate Account's assets applicable to the variable life contracts is not chargeable with liabilities arising out of any other business Metropolitan Life may conduct. On May 3, 1999, operations commenced for five new investment portfolios added to the Separate Account on that date: Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, and Franklin Templeton International Stock. On May 1, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date: Putnam Large Cap Growth. On July 5, 2000, operations commenced for four new investment portfolios added to the Separate Account on that date: State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Davis Venture Value Series, and Loomis Sayles Small Cap Series. On September 30, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date: Alliance Growth and Income--Class B. On January 1, 2001, operations commenced for twelve new investment portfolios added to the Separate Account on that date: Franklin Templeton Valuemark Small Cap, Alger Equity Income, MFS Investors Trust, MFS Research Managers, State Street Research Bond Income, Westpeak Growth & Income, Alliance Premier Growth--Class B, Alliance Technology--Class B, Fidelity VIP II Contrafund--Service Class, Fidelity VIP II Asset Manager Growth--Service Class, Fidelity VIP Growth--Service Class, and JPM Enhanced Index. On May 1, 2001, operations commenced for twelve new investment portfolios added to the Separate Account on that date: Janus Growth, Franklin Templeton Small Cap Growth, Harris Oakmark Mid Cap Value, Salomon Brothers Strategic Bond Opportunities, Salomon Brothers U.S. Government, American Funds Growth, American Funds Growth & Income, American Funds Global Small Cap, MFS Mid Cap Growth, MFS Research International, PIMCO Total Return, and PIMCO Innovations. NOTES TO FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements included therein have been provided in accordance with accounting principles generally accepted in the United States of America for variable universal life separate accounts registered as unit investment trust. A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of these portfolios. The investments of the Funds are valued at fair value. Money market fund investments are valued utilizing the amortized cost method of valuation. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributed to the contracts. D. Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. F. Purchase Payments Purchase payments received by Metropolitan Life are credited as Accumulation Units as of the end of the valuation period in which received, as provided in the prospectus. NOTES TO FINANCIAL STATEMENTS--(Continued) 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of general administrative expenses and mortality and expense risks. This charge is equivalent to an effective annual rate of 0.45% of the average daily values of the assets in the Separate Account for GVUL contracts, 0.90% for UL II & UL2001 contracts, 0.60% for IVUL contracts, and 0.75% for VAI and VABR contracts less than $250K and 0.50% for VAI and VABR contracts $250K and greater. NOTES TO FINANCIAL STATEMENTS--(Continued) 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2001 are as follows:
Purchases Sales --------- -------- (In Thousands) State Street Research Investment Trust Portfolio........ $ 96,242 $ 21,727 State Street Research Income Portfolio.................. 22,719 19,396 State Street Research Money Market Portfolio............ 46,556 36,151 State Street Research Diversified Portfolio............. 55,179 7,704 State Street Research Aggressive Growth Portfolio....... 68,464 7,181 MetLife Stock Index Portfolio........................... 100,212 18,903 Putnam International Stock Portfolio.................... 16,647 12,709 Loomis Sayles High Yield Bond Portfolio................. 3,996 1,216 Janus Mid Cap Portfolio................................. 55,702 8,998 T. Rowe Price Small Cap Growth Portfolio................ 15,436 6,383 Scudder Global Equity Portfolio......................... 9,718 2,706 Harris Oakmark Large Cap Value Portfolio................ 12,038 614 Neuberger Berman Partners Mid Cap Value Portfolio....... 10,417 2,272 T. Rowe Price Large Cap Growth Portfolio................ 18,682 4,807 Lehman Brothers Aggregate Bond Index Portfolio.......... 27,056 10,138 Morgan Stanley EAFE Index Portfolio..................... 13,223 7,527 Russell 2000 Index Portfolio............................ 10,810 7,123 Putnam Large Cap Growth Portfolio....................... 3,815 238 State Street Research Aurora Small Cap Value Portfolio.. 16,324 659 MetLife Mid Cap Stock Index Portfolio................... 6,926 363 Janus Growth Portfolio.................................. 1,173 209 Franklin Templeton Small Cap Growth Portfolio........... 474 24 Janus Aspen Growth Portfolio............................ 1,222 4,782 Invesco VIF High Yield Portfolio........................ 377 80 Invesco VIF Equity Income Portfolio..................... 131 17 Invesco VIF Real Estate Opportunity Portfolio........... 8 30 Franklin Templeton International Stock Portfolio........ 1,257 303 Franklin Templeton Valuemark Small Cap Portfolio........ 102 4 Davis Venture Value Portfolio........................... 7,015 240 Loomis Sayles Small Cap Portfolio....................... 1,767 227 Alger Equity Income Portfolio........................... 52 1 MFS Investors Trust Portfolio........................... 614 55 MFS Research Managers Portfolio......................... 1,781 1,496 State Street Research Bond Income Portfolio............. 312 4 Westpeak Growth & Income Portfolio...................... 28 1 Harris Oakmark Mid Cap Value Portfolio.................. 4,129 188 Salomon Brothers Strategic Bond Opportunities Portfolio. 467 7 Salomon Brothers U.S. Government Portfolio.............. 1,190 338 Alliance Growth & Income--Class B Portfolio............. 585 14 Alliance Premier Growth--Class B Portfolio.............. 98 1 Alliance Technology--Class B Portfolio.................. 166 152 Fidelity VIP II Contrafund--Service Class Portfolio..... 25 1 Fidelity VIP II Asset Manager Growth--Service Class Portfolio.............................................. 101 5 Fidelity VIP Growth--Service Class Portfolio............ 119 28 American Funds Growth Portfolio......................... 3,423 707 American Funds Growth & Income Portfolio................ 2,482 248 American Funds Global Small Cap Portfolio............... 613 65 JPM Enhanced Index Portfolio............................ 7 1 MFS Mid Cap Growth Portfolio............................ 320 14 MFS Research International Portfolio.................... 381 287 PIMCO Total Return Portfolio............................ 1,337 220 PIMCO Innovations Portfolio............................. 787 41 -------- -------- Total................................................... $642,704 $186,605 ======== ========
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS The changes in units outstanding for the year ended December 31, 2001 are as follows:
State Street State Street State Street State Street Research State Street Research Research Research Money Research Aggressive Investment Trust Income Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ------------ ------------ ------------ (In thousands) Outstanding at January 1, 2001................. 11,054 3,980 1,479 9,234 9,254 Activity during 2001: Issued........................................ 2,828 1,170 2,983 2,200 1,392 Redeemed...................................... (618) (975) (2,306) (296) (143) ------ ----- ------ ------ ------ Outstanding at December 31, 2001............... 13,264 4,175 2,156 11,138 10,503 ====== ===== ====== ====== ======
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
MetLife Putnam Loomis Sayles T. Rowe Price Neuberger Stock International High Yield Janus Small Cap Scudder Harris Oakmark Berman Partners Index Stock Bond Mid Cap Growth Global Equity Large Cap Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ------------- ------------- --------- ------------- ------------- --------------- --------------- 11,689 2,709 601 5,367 2,995 1,848 220 456 6,525 1,578 246 3,701 864 209 1,076 790 (1,199) (1,181) (73) (587) (350) (57) (54) (170) ------ ------ --- ----- ----- ----- ----- ----- 17,015 3,106 774 8,481 3,509 2,000 1,242 1,076 ====== ====== === ===== ===== ===== ===== =====
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
T. Rowe Price Lehman Brothers Morgan Large Cap Aggregate Stanley Russell Putman Large Growth Bond Index EAFE Index 2000 Index Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------------- ---------- ---------- ------------ (In thousands) Outstanding at January 1, 2001.. 632 1,730 544 512 131 Activity during 2001: Issued........................ 2,004 2,267 1,865 1,181 704 Redeemed...................... (512) (844) (1,056) (773) (43) ----- ----- ------ ----- --- Outstanding at December 31, 2001 2,124 3,153 1,352 920 792 ===== ===== ====== ===== ===
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
State Street Franklin Janus Invesco VIF Invesco VIF Invesco VIF Research Aurora Metlife Mid Janus Templeton Aspen High Equity Real Estate Small Cap Value Cap Stock Index Growth Small Cap Growth Growth Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- --------- ---------------- --------- ----------- ----------- ----------- 164 210 -- -- 473 1 2 10 1,201 693 148 54 84 45 12 1 (48) (36) (26) (2) (321) (9) (2) (4) ----- --- --- -- ---- -- -- -- 1,317 867 122 52 236 37 12 7 ===== === === == ==== == == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Franklin Franklin Davis Loomis Templeton Templeton Venture Sayles Alger International Valuemark Value Small Cap Equity Stock Small Cap Series Series Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------- --------- --------- --------- (In thousands) Outstanding at January 1, 2001.. 99 -- 39 2 -- Activity during 2001: Issued........................ 118 17 267 10 6 Redeemed...................... (28) (1) (9) (1) (0) --- -- --- -- -- Outstanding at December 31, 2001 189 16 297 11 6 === == === == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Saloman Saloman Alliance MFS MFS Research State Street Westpeak Harris Brothers Brothers Growth & Investors Research Research Growth & Oakmark Strategic Bond U.S. Income-- Trust Managers Bond Income Income Mid Cap Value Opportunities Government Class B Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------- ------------ ------------ --------- ------------- -------------- ---------- --------- -- -- -- -- -- -- -- 6 47 83 27 3 24 42 99 60 (4) (70) (0) (0) (1) (1) (28) (1) -- --- -- -- -- -- --- -- 43 13 27 3 23 41 71 65 == === == == == == === ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
Fidelity VIP II Alliance Alliance Fidelity VIP II Asset Manager Fidelity VIP Premier Growth-- Technology-- Contrafund-- Growth--Service Growth--Service Class B Class B Service Class Class Class Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ --------------- --------------- --------------- (In thousands) Outstanding at January 1, 2001.. -- -- -- -- -- Activity during 2001: Issued........................ 14 26 3 14 17 Redeemed...................... (0) (24) (0) (1) (4) -- --- -- -- -- Outstanding at December 31, 2001 14 2 3 13 13 == === == == ==
NOTES TO FINANCIAL STATEMENTS--(Continued) 5. CHANGES IN OUTSTANDING UNITS--(Continued)
American JPM MFS MFS American American Funds Funds Global Enhanced Mid Cap Research PIMCO PIMCO Funds Growth Growth & Income Small Cap Index Growth International Total Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------------- ------------ --------- --------- ------------- ------------ ----------- -- -- -- -- -- -- -- -- 67 76 55 1 71 113 123 128 (14) (8) (6) (0) (3) (85) (20) (7) --- -- -- -- -- --- --- --- 53 68 49 1 68 28 103 121 === == == == == === === ===
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES A summary of unit values and units outstanding for the Contracts and the expenses as a percentage of average net assets, excluding expenses for the underlying funds, for the period ended December 31, 2001 or lesser time period if applicable.
State Street State Street State Street Research State Street Research Research Money Research Investment Trust Income Market Diversified Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- ---------------- 2001 Units (In thousands)............................... 13,264 4,175 2,156 11,138 Unit Value......................................... $10.98 to $35.04 $11.95 to $24.08 $14.88 to $15.85 $11.35 to $30.04 Net Assets (Dollars in thousands).................. $356,701 $79,176 $32,726 $265,724 Investment Income Ratio to Net Assets (1).......... 13.53% 7.28% 4.18% 9.67% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.45% to 0.90% Total Return (3)................................... -17% to -18% 7% to 8% 3% to 4% -6% to -7%
State Street Research Aggressive Growth Portfolio ---------------- 2001 Units (In thousands)............................... 10,503 Unit Value......................................... $11.67 to $17.12 Net Assets (Dollars in thousands).................. $171,692 Investment Income Ratio to Net Assets (1).......... 24.84% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% Total Return (3)................................... -24%
-------- (1) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net asset. These ratios excluded those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. (2) These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner account through the redemption of units and expense of the underlying fund are excluded. (3) These amounts represent the total return for the period indicated, including changes in the value of the underlying fund, and reflect deductions for all item included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return calculated for the period indicated or from the effective date through the end of the reporting period. NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Putnam Loomis Sayles T. Rowe Price MetLife International High Yield Janus Small Cap Stock Index Stock Bond Mid Cap Growth Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- ---------------- --------------- ---------------- 2001 Units (In thousands)........................... 17,015 3,106 774 8,481 3,509 Unit Value..................................... $9.62 to $29.91 $9.47 to $13.35 $10.83 to $12.35 $5.95 to $17.08 $12.46 to $13.76 Net Assets (Dollars in thousands).............. $346,931 $38,281 $8,845 $125,185 $44,660 Investment Income Ratio to Net Assets (1)...... 1.17% 3.67% 11.73% 0.00% 8.16% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return (3)............................... -12% to -13% -21% to -20% -1% to -2% -37% to -33% -10% to 2%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Harris Neuberger T. Rowe Price Scudder Oakmark Large Berman Partners Large Cap Global Equity Cap Value Mid Cap Value Growth Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- --------------- 2001 Units (In thousands)........................... 2,000 1,242 1,076 2,124 Unit Value..................................... $11.79 to $12.88 $10.80 to $13.76 $11.44 to $15.63 $8.35 to $12.08 Net Assets (Dollars in thousands).............. $21,106 $14,336 $14,115 $21,111 Investment Income Ratio to Net Assets (1)...... 11.32% 0.15% 1.94% 0.06% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return (3)............................... -16% to -15% 17% to 20% -3% to 0% -11% to -6%
Lehman Brothers Aggregate Bond Index Portfolio ---------------- 2001 Units (In thousands)........................... 3,153 Unit Value..................................... $11.38 to $11.97 Net Assets (Dollars in thousands).............. $37,322 Investment Income Ratio to Net Assets (1)...... 1.29% Expenses as a percent of Average Net Assets (2) 0.45% to 0.90% Total Return (3)............................... 7%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
State Street Research Morgan Stanley Russell 2000 Putman Large Aurora Small EAFE Index Index Cap Growth Cap Value Portfolio Portfolio Portfolio Portfolio -------------- --------------- -------------- ----------------- 2001 Units (In thousands)............................... 1,352 920 792 1,317 Unit Value......................................... $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04 $13.09 to $14.29 Net Assets (Dollars in thousands).................. $10,800 $10,625 $4,001 $ 20,005 Investment Income Ratio to Net Assets (1).......... 0.31% 0.26% 0.00% 0.38% Expenses as a percent of Average Net Assets (2).... 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return (3)................................... -22% to -21% 0% to 6% -46% to -31% 16% to 19%
Metlife Mid Cap Stock Index Portfolio ---------------- 2001 Units (In thousands)............................... 867 Unit Value......................................... $9.62 to $10.56 Net Assets (Dollars in thousands).................. $ 9,019 Investment Income Ratio to Net Assets (1).......... 0.43% Expenses as a percent of Average Net Assets (2).... 0.60% to 0.90% Total Return (3)................................... -1% to 3%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Franklin Templeton Janus Invesco Invesco Invesco VIF Janus Small Cap Aspen VIF High VIF Equity Real Estate Growth Growth Growth Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------------- --------- --------- ---------- ----------- 2001 Units (In thousands)........................... 122 52 236 37 12 7 Unit Value..................................... $7.73 to $7.82 $8.83 to $8.88 $ 8.30 $ 7.46 $9.81 $12.05 Net Assets (Dollars in thousands).............. $ 953 $ 457 $1,959 $ 274 $122 $89 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 6.04% 20.89% 2.61% 1.16% Expenses as a percent of Average Net Assets (2) 0.90% 0.60% 0.60% 0.60% 0.60% 0.60% Total Return (3)............................... -22% to -23% -12% to -11% -19% -15% -7% 1%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Franklin Franklin Templeton Templeton Davis Loomis International Valuemark Venture Value Sayles Small Alger Stock Small Cap Series Cap Series Equity Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------- --------- --------------- ---------------- ------------- 2001 Units (In thousands)........................... 189 16 297 11 6 Unit Value..................................... $9.27 $6.91 $8.94 to $25.95 $8.66 to $191.87 $7.57 Net Assets (Dollars in thousands).............. $1,767 $103 $7,498 $1,926 $45 Investment Income Ratio to Net Assets (1)...... 14.19% 0.05% 4.47% 7.28% 0.00% Expenses as a percent of Average Net Assets (2) 0.60% 0.60% 0.60% to 0.90% 0.60% to 0.90% 0.60% Total Return (3)............................... -16% -9% -11% to -9% -4% to -9% -16%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
MFS Research State Street Westpeak MFS Research Research Growth & Harris Oakmark Investors Trust Managers Bond Income Income Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio --------------- -------------- ------------ --------- ------------------ 2001 Units (In thousands)............................. 43 13 27 3 23 Unit Value....................................... $8.19 to $8.57 $6.97 to $9.04 $11.23 $8.19 $184.98 to $186.09 Net Assets (Dollars in thousands)................ $322 $151 $307 $25 $4,215 Investment Income Ratio to Net Assets (1)........ 0.00% 0.25% 5.64% 0.00% 0.00% Expenses as a percent of Average Net Assets (2).. 0.60% to 0.90% 0.60% to 0.90% 0.60% 0.60% 0.90% Total Return (3)................................. -14% to -3% -17% to -14% 8% -11% 12% to 13%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Alliance Saloman Brothers Growth & Alliance Alliance Strategic Bond Saloman Brothers Income-- Premier Growth-- Technology-- Opporunities U.S. Government Class B Class B Class B Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- --------- ---------------- ------------ 2001 Units (In thousands)........................... 41 71 65 14 2 Unit Value..................................... $11.15 to $11.22 $11.89 to $11.96 $10.19 $7.15 $5.43 Net Assets (Dollars in thousands).............. $465 $849 $656 $98 $13 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 0.91% 0.00% 6.23% Expenses as a percent of Average Net Assets (2) 0.90% 0.90% 0.60% 0.60% 0.60% Total Return (3)............................... 3% to 4% 4% 2% -14% -35%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
Fidelity VIP II Fidelity Asset VIP II Manager Fidelity VIP American American Contrafund-- Growth-- Growth-- American Funds Funds Service Service Service Funds Growth & Global Class Class Class Growth Income Small Cap Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------- ------------ ---------------- ---------------- ---------------- 2001 Units (In thousands)......... 3 13 13 53 68 49 Unit Value................... $7.96 $7.89 $6.77 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 Net Assets (Dollars in thousands).................. $24 $95 $87 $3,176 $2,453 $619 Investment Income Ratio to Net Assets (1).............. 0.00% 0.00% 0.00% 4.25% 0.82% 1.15% Expenses as a percent of Average Net Assets (2)...... 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% Total Return (3)............. -12% -10% -20% -15% to -14% -3% -9% to -8%
NOTES TO FINANCIAL STATEMENTS--(Continued) 6. UNIT VALUES--(Continued)
JPM MFS Enhanced MFS Mid Cap Research PIMCO Total PIMCO Index Growth International Return Innovations Portfolio Portfolio Portfolio Portfolio Portfolio --------- -------------- -------------- ---------------- -------------- 2001 Units (In thousands)........................... 1 68 28 103 121 Unit Value..................................... $8.12 $8.32 to $8.37 $8.44 to $8.50 $10.64 to $10.70 $6.15 to $6.19 Net Assets (Dollars in thousands).............. $5 $564 $238 $1,103 $749 Investment Income Ratio to Net Assets (1)...... 0.00% 0.00% 0.07% 2.37% 0.00% Expenses as a percent of Average Net Assets (2) 0.60% 0.90% 0.90% 0.90% 0.90% Total Return (3)............................... -9% -16% to -15% -12% to -13% 6% -25%
NOTES TO FINANCIAL STATEMENTS--(Concluded) 7. CHANGE OF FUND NAME Effective January 24, 2000, Putnam became the sub-investment manager of the Putnam International Stock Portfolio (formerly Santander International Stock Portfolio) of the Metropolitan Series Fund, Inc. Effective February 15, 2000, Invesco VIF Realty Portfolio changed its name to Invesco VIF Real Estate Opportunity Portfolio and Invesco Industrial Income changed its name to Invesco Equity Income. Effective July 1, 2001, State Street Research became the sub-investment manager of the State Street Research Bond Income Portfolio (formerly Back Bay Advisers Bond Income Portfolio) of the New England Zenith Series Fund. Effective May 1, 2001, State Street Research Growth changed its name to State Street Research Investment Trust. Independent Auditors' Report The Board of Directors and Shareholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 12, 2002 F-1 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (Dollars in millions)
2001 2000 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value.................................... $110,601 $112,445 Equity securities, at fair value...................................................... 3,027 2,193 Mortgage loans on real estate......................................................... 24,626 21,951 Real estate and real estate joint ventures............................................ 4,925 5,504 Policy loans.......................................................................... 7,894 8,158 Other limited partnership interests................................................... 1,637 1,652 Short-term investments................................................................ 1,168 930 Other invested assets................................................................. 3,013 2,898 -------- -------- Total investments.................................................................... 156,891 155,731 Cash and cash equivalents............................................................... 3,932 3,419 Accrued investment income............................................................... 1,981 2,040 Premiums and other receivables.......................................................... 7,005 7,962 Deferred policy acquisition costs....................................................... 10,471 10,497 Other assets............................................................................ 4,750 3,823 Separate account assets................................................................. 62,714 70,250 -------- -------- Total assets......................................................................... $247,744 $253,722 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits................................................................ $ 83,493 $ 81,966 Policyholder account balances......................................................... 54,764 54,095 Other policyholder funds.............................................................. 5,880 5,029 Policyholder dividends payable........................................................ 1,042 1,082 Policyholder dividend obligation...................................................... 708 385 Short-term debt....................................................................... 345 1,085 Long-term debt........................................................................ 2,380 3,406 Current income taxes payable.......................................................... 162 127 Deferred income taxes payable......................................................... 1,893 742 Payables under securities loaned transactions......................................... 12,662 12,301 Other liabilities..................................................................... 6,981 7,120 Separate account liabilities.......................................................... 62,714 70,250 -------- -------- Total liabilities.................................................................... 233,024 237,588 -------- -------- Commitments and contingencies (Note 11) Company-obligated mandatorily redeemable securities of subsidiary trusts................ 276 118 -------- -------- Stockholder's Equity: Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding at December 31, 2001 and 2000.......................... 5 5 Additional paid-in capital............................................................ 12,825 14,549 Retained earnings..................................................................... -- 407 Accumulated other comprehensive income................................................ 1,614 1,055 -------- -------- Total stockholder's equity........................................................... 14,444 16,016 -------- -------- Total liabilities and stockholder's equity........................................... $247,744 $253,722 ======== ========
See accompanying notes to consolidated financial statements. F-2 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 ------- ------- ------- REVENUES Premiums................................................................................. $17,023 $16,263 $12,088 Universal life and investment-type product policy fees................................... 1,874 1,820 1,433 Net investment income.................................................................... 11,791 11,773 9,816 Other revenues........................................................................... 1,532 2,259 1,861 Net investment gains (losses) (net of amounts allocable to other accounts of $(33), $(54) and $(67), respectively)............................................................... 927 (418) (70) ------- ------- ------- Total revenues........................................................................ 33,147 31,697 25,128 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net investment gains and losses of $(54), $41 and $(21), respectively)................................ 18,265 16,935 13,100 Interest credited to policyholder account balances....................................... 3,035 2,935 2,441 Policyholder dividends................................................................... 2,060 1,913 1,690 Payments to former Canadian policyholders................................................ -- 327 -- Demutualization costs.................................................................... -- 230 260 Other expenses (excludes amounts directly related to net investment gains and losses of $21, $(95) and $(46), respectively).................................................... 7,464 7,931 6,462 ------- ------- ------- Total expenses........................................................................ 30,824 30,271 23,953 ------- ------- ------- Income before provision for income taxes................................................. 2,323 1,426 1,175 Provision for income taxes............................................................... 836 477 558 ------- ------- ------- Net income............................................................................... $ 1,487 $ 949 $ 617 ======= ======= ======= Net income after April 7, 2000 (date of demutualization) (Note 1)........................ $ 1,169 =======
See accompanying notes to consolidated financial statements. F-3 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
Accumulated Other Comprehensive Income (Loss) -------------------------------- Net Unrealized Foreign Minimum Additional Investment Currency Pension Common Paid-in Retained Gains Translation Liability Stock Capital Earnings (Losses) Adjustment Adjustment Total ------ ---------- -------- ---------- ----------- ---------- ------- Balance at January 1, 1999........................ $-- $ -- $ 13,483 $ 1,540 $(144) $(12) $14,867 Comprehensive loss:............................... Net income...................................... 617 617 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes.................................. (1,837) (1,837) Foreign currency translation adjustments....... 50 50 Minimum pension liability adjustment........... (7) (7) ------- Other comprehensive loss....................... (1,794) ------- Comprehensive loss.............................. (1,177) --- ------- -------- ------- ----- ---- ------- Balance at December 31, 1999...................... -- -- 14,100 (297) (94) (19) 13,690 Policy credits and cash payments to eligible policyholders.................................... (2,958) (2,958) Common stock issued in demutualization............ 5 10,917 (10,922) -- Capital contribution from Parent.................. 3,632 3,632 Dividends on common stock......................... (762) (762) Comprehensive income: Net loss before date of demutualization......... (220) (220) Net income after date of demutualization........ 1,169 1,169 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................. 1,480 1,480 Foreign currency translation adjustments....... (6) (6) Minimum pension liability adjustment........... (9) (9) ------- Other comprehensive income..................... 1,465 ------- Comprehensive income............................ 2,414 --- ------- -------- ------- ----- ---- ------- Balance at December 31, 2000...................... 5 14,549 407 1,183 (100) (28) 16,016 Sale of subsidiary to Holding Company............. 96 (109) 19 6 Issuance of warrants - by subsidiary.............. 40 40 Dividends on common stock......................... (1,860) (1,894) (3,754) Comprehensive income: Net income...................................... 1,487 1,487 Other comprehensive income: Cumulative effect of change in accounting for derivatives, net of income taxes and reclassification adjustment................... 22 22 Unrealized gains on derivative instruments, net of income taxes........................... 24 24 Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................. 679 679 Foreign currency translation adjustments....... (58) (58) Minimum pension liability adjustment........... (18) (18) ------- Other comprehensive income..................... 649 ------- Comprehensive income............................ 2,136 --- ------- -------- ------- ----- ---- ------- Balance at December 31, 2001...................... $ 5 $12,825 $ -- $ 1,799 $(139) $(46) $14,444 === ======= ======== ======= ===== ==== =======
See accompanying notes to consolidated financial statements. F-4 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities Net income........................................................................ $ 1,487 $ 949 $ 617 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses......................................... (40) (88) 173 Losses from sales of investments and businesses, net........................... (894) 472 137 Interest credited to other policyholder account balances....................... 3,035 2,935 2,441 Universal life and investment-type product policy fees......................... (1,874) (1,820) (1,433) Change in premiums and other receivables....................................... (14) (164) (619) Change in deferred policy acquisition costs, net............................... (553) (519) (389) Change in insurance-related liabilities........................................ 3,429 2,590 2,243 Change in income taxes payable................................................. 871 246 22 Change in other liabilities.................................................... (57) (2,193) 874 Other, net..................................................................... (1,147) (1,166) (183) -------- -------- -------- Net cash provided by operating activities......................................... 4,243 1,242 3,883 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................................................... 51,101 57,326 73,120 Equity securities.............................................................. 2,107 899 760 Mortgage loans on real estate.................................................. 1,910 2,163 1,992 Real estate and real estate joint ventures..................................... 1,090 655 1,062 Other limited partnership interests............................................ 463 422 469 Purchases of: Fixed maturities............................................................... (51,678) (63,779) (72,253) Equity securities.............................................................. (3,050) (863) (410) Mortgage loans on real estate.................................................. (3,412) (2,836) (4,395) Real estate and real estate joint ventures..................................... (592) (407) (341) Other limited partnership interests............................................ (497) (660) (465) Net change in short-term investments............................................. (303) 2,382 (1,577) Purchase of businesses, net of cash received..................................... -- (416) (2,972) Proceeds from sales of businesses................................................ 921 877 -- Net change in payable under securities loaned transactions....................... 361 5,840 2,692 Other, net....................................................................... (547) (925) (71) -------- -------- -------- Net cash (used in) provided by investing activities............................... $ (2,126) $ 678 $ (2,389) -------- -------- --------
See accompanying notes to consolidated financial statements. F-5 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in millions)
2001 2000 1999 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits....................................................................... $ 29,012 $ 28,620 $ 18,428 Withdrawals.................................................................... (25,299) (28,235) (20,650) Net change in short-term debt.................................................... (740) (3,095) 608 Long-term debt issued............................................................ 353 1,224 42 Long-term debt repaid............................................................ (1,379) (124) (434) Capital contribution from Parent................................................. 6 3,632 Net proceeds from issuance of company-obligated mandatorily redeemable securities of subsidiary trust............................................................ 197 -- -- Cash payments to eligible policyholders.......................................... -- (2,550) -- Dividends on common stock........................................................ (3,754) (762) -- -------- -------- -------- Net cash used in financing activities............................................. (1,604) (1,290) (2,006) -------- -------- -------- Change in cash and cash equivalents............................................... 513 630 (512) Cash and cash equivalents, beginning of year...................................... 3,419 2,789 3,301 -------- -------- -------- Cash and cash equivalents, end of year............................................ $ 3,932 $ 3,419 $ 2,789 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................................................... $ 336 $ 448 $ 388 ======== ======== ======== Income taxes................................................................... $ 453 $ 256 $ 587 ======== ======== ======== Non-cash transactions during the year: Policy credits to eligible policyholders....................................... $ -- $ 408 $ -- ======== ======== ======== Business acquisitions--assets.................................................. $ -- $ 22,936 $ 5,328 ======== ======== ======== Business acquisitions--liabilities............................................. $ -- $ 22,437 $ 1,860 ======== ======== ======== Business dispositions--assets.................................................. $ 6,162 $ 1,184 $ -- ======== ======== ======== Business dispositions--liabilities............................................. $ 5,263 $ 1,014 $ -- ======== ======== ======== Real estate acquired in satisfaction of debt................................... $ 11 $ 22 $ 37 ======== ======== ======== Mortgage note on sale of real estate........................................... $ 1,530 $ -- $ -- ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of individual and institutional customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. Metropolitan Life is a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"). Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York 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 accompanying consolidated financial statements include the accounts of Metropolitan Life and its subsidiaries, partnerships and joint ventures in which the Company has a majority voting interest or general partner interest with limited removal rights by limited partners. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. Intercompany accounts and transactions have been eliminated. Metropolitan Insurance and Annuity Company ("MIAC"), which was sold to MetLife in 2001 is included in the accompanying consolidated financial statements until the date of sale. See note 12 "Acquisitions and Dispositions". The Company uses the equity method to account for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but has more than a minimal interest. Minority interest related to consolidated entities included in other liabilities was $442 million and $409 million at December 31, 2001 and 2000, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2001 presentation. Summary of Critical Accounting Policies The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies and related judgments underlying the Company's consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Investments The Company's principal investments are in fixed maturities, mortgage loans, and real estate, all of which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of income, impairments and the determination of fair values. In addition, the earnings on certain investments are dependent upon market conditions which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. F-7 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Derivatives The Company enters into freestanding derivative transactions to manage the risk associated with variability in cash flows related to the Company's financial assets and liabilities or to changing fair values. The Company also purchases investment securities and issues certain insurance policies with embedded derivatives. The associated financial statement risk is the volatility in net income, which can result from (i) changes in fair value of derivatives that are not designated as hedges, and (ii) ineffectiveness of designated hedges in an environment of changing interest rates or fair values. In addition, accounting for derivatives is complex, as evidenced by significant interpretations of the primary accounting standards which continue to evolve, as well as the significant judgements and estimates involved in determining fair value in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances; however, the use of different assumptions may have a material effect on the estimated fair value amounts. Deferred Policy Acquisition Costs The Company incurs significant costs in connection with acquiring new insurance business. These costs, which vary with, and are primarily related to, the production of new business, are deferred. The recovery of such costs is dependent on the future profitability of the related business. The amount of future profit is dependent principally on investment returns, mortality, morbidity, persistency, expenses to administer the business (and additional charges to the policyholders) and certain economic variables, such as inflation. These factors enter into management's estimates of gross margins and profits which generally are used to amortize certain of such costs. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross margins and profits are less than amounts deferred. Future Policy Benefits The Company also establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disabled lives. Generally, amounts are payable over an extended period of time and the profitability of the products is dependent on the pricing of the products. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. Differences between the actual experience and assumptions used in pricing the policies and in the establishment of liabilities result in variances in profit and could result in losses. The Company establishes liabilities for unpaid claims and claims expenses for property and casualty insurance. Pricing of this insurance takes into account the expected frequency and severity of losses, the costs of providing coverage, competitive factors, characteristics of the property covered and the insured, and profit considerations. Liabilities for property and casualty insurance are dependent on estimates of amounts payable for claims reported but not settled and claims incurred but not reported. These estimates are influenced by historical experience and actuarial assumptions of current developments, anticipated trends and risk management strategies. Reinsurance Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business. The Company periodically reviews actual and anticipated experience compared to the assumptions used to establish policy benefits. Additionally, for each of its reinsurance contracts, the Company must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract on a deposit method of accounting. F-8 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Litigation The Company is a party to a number of legal actions. Given the inherent unpredictability of litigation, it is difficult to estimate the impact of litigation on the Company's consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits are especially difficult to estimate due to the limitation of available data and uncertainty around numerous variables used to determine amounts recorded. It is possible that an adverse outcome in certain cases could have an adverse effect upon the Company's operating results or cash flows in particular quarterly or annual periods. See Note 11 "Commitments and Contingencies". General Accounting Policies Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are included in net investment gains and losses and are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. However, interest ceases to be accrued for loans on which interest is more than 60 days past due. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains and losses. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired 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. Other invested assets consist principally of leveraged leases and funds withheld at interest. The leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions which are diversified by geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed. Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned by the ceding company. Interest accrues to these funds withheld at rates defined by the treaty terms. F-9 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Structured Investment Transactions The Company participates in structured investment transactions, primarily asset securitizations and structured notes. These transactions enhance the Company's total return of the investment portfolio principally by generating management fee income on asset securitizations and by providing equity-based returns on debt securities through structured notes and similar type instruments. The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on the beneficial interests is recognized using the prospective method in accordance with Emerging Issues Task Force ("EITF") Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments. The SPEs used to securitize assets are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets including corporate equities, debt securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company's exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management strategy, including asset-liability management. These SPEs are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The beneficial interests in SPEs where the Company exercises significant influence over the operating and financial policies of the SPE are accounted for in accordance with the equity method of accounting. Impairments of these beneficial interests are included in investment gains and losses. The beneficial interests in SPEs where the Company does not exercise significant influence are accounted for based on the substance of the beneficial interest's rights and obligations. Beneficial interests are accounted for and are included in fixed maturities. These beneficial interests are generally structured notes, as defined by EITF Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes, and their income is recognized using the retrospective interest method or the level yield method, as appropriate. Derivative Instruments The Company uses derivative instruments to manage risk through one of four principal risk management strategies: the hedging of liabilities, invested assets, portfolios of assets or liabilities and anticipated transactions. Additionally, Metropolitan Life enters into income generation and replication derivative transactions as permitted by its derivatives use plan that was approved by the Department. The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate, credit and foreign currency swaps, foreign exchange contracts, and options, including caps and floors. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify as a hedge, according to Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), the derivative is recorded at fair value and changes in its fair value are reported in net investment gains or losses. F-10 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company generally determines hedge effectiveness based on total changes in fair value of a derivative instrument. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item, (ii) the derivative expires or is sold, terminated, or exercised, (iii) the derivative is de-designated as a hedge instrument, (iv) it is probable that the forecasted transaction will not occur, (v) a hedged firm commitment no longer meets the definition of a firm commitment, or (vi) management determines that designation of the derivative as a hedge instrument is no longer appropriate. The Company designates and accounts for the following as cash flow hedges, when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments, (ii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments, (iii) foreign currency forwards to hedge the exposure of future payments or receipts in foreign currencies, and (iv) other instruments to hedge the cash flows of various other anticipated transactions. For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported in other comprehensive income or loss. The ineffective portion of changes in fair value of the derivative instrument is reported in net investment gains or losses. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company designates and accounts for the following as fair value hedges when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert fixed rate investments to floating rate investments, (ii) receive U.S. dollar floating on foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments, and (iii) other instruments to hedge various other fair value exposures of investments. For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported as net investment gains or losses. In addition, changes in fair value attributable to the hedged portion of the underlying instrument are reported in net investment gains and losses. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried on the consolidated balance sheet at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheet and recognized as a net investment gain or loss in the current period. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried on the consolidated balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income or loss are recognized immediately in net investment gains or losses. When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in other comprehensive income or loss and is recognized when the transaction affects net income or loss; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value on the consolidated balance sheet, with changes in its fair value recognized in the current period as net investment gains or losses. The Company may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determines whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. F-11 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded on the consolidated balance sheet at fair value and changes in their fair value are recorded currently in net investment gains or losses. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the consolidated balance sheet at fair value, with changes in fair value recognized in the current period as net investment gains or losses. The Company also uses derivatives to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These securities, called replication synthetic asset transactions ("RSATs"), are a combination of a derivative and a cash security to synthetically create a third replicated security. These derivatives are not designated as hedges. As of December 31, 2001, 15 such RSATs, with notional amounts totaling $205 million, have been created through the combination of a credit default swap and a U.S. Treasury security. The Company records the premiums received on the credit default swaps in investment income over the life of the contract and changes in fair value are recorded in net investment gains and losses. The Company enters into written covered call options and net written covered collars to generate additional investment income on the underlying assets it holds. These derivatives are not designated as hedges. The Company records the premiums received as net investment income over the life of the contract and changes in fair value of such options and collars as net investment gains and losses. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment, Leasehold Improvements and Computer Software Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years-digits method over the estimated useful lives of the assets. Estimated lives range from ten to 40 years for leasehold improvements and three to 15 years for all other property and equipment. Accumulated depreciation of property and equipment and accumulated amortization on leasehold improvements was $1,349 million and $1,287 million at December 31, 2001 and 2000, respectively. Related depreciation and amortization expense was $94 million, $89 million and $106 million for the years ended December 31, 2001, 2000 and 1999, respectively. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a three-year period using the straight-line method. Accumulated amortization of capitalized software was $165 million and $86 million at December 31, 2001 and 2000, respectively. Related amortization expenses was $106 million, $45 million and $5 million for the years ended December 31, 2001, 2000 and 1999, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. F-12 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs related to internally replaced contracts are expensed at the date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. Value of business acquired, included as part of deferred policy acquisition costs, represents the present value of future profits generated from existing insurance contracts in force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. Information regarding deferred policy acquisition costs is as follows:
Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1...................... $10,497 $ 9,070 $ 7,028 Capitalization of policy acquisition costs 2,018 1,805 1,160 Value of business acquired................ -- 1,681 156 ------- ------- ------- Total.............................. 12,515 12,556 8,344 ------- ------- ------- Amortization allocated to: Net investment losses.................. 21 (95) (46) Unrealized investment losses........... 128 596 (1,628) Other expenses......................... 1,434 1,472 930 ------- ------- ------- Total amortization................. 1,583 1,973 (744) ------- ------- ------- Dispositions and other.................... (461) (86) (18) ------- ------- ------- Balance at December 31.................... $10,471 $10,497 $ 9,070 ======= ======= =======
Amortization of deferred policy acquisition costs is allocated to (i) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (ii) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been recognized, and (iii) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. F-13 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. Goodwill has been amortized on a straight-line basis over a period ranging from ten to 30 years through December 31, 2001. The Company reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments through 2001 were recognized in operating results when permanent diminution in value was deemed to have occurred.
Years ended December 31, ----------------------- 2001 2000 1999 ----- ----- ---- (Dollars in millions) Net Balance at January 1......................... $ 703 $ 611 $404 Acquisitions..................................... 20 286 237 Amortization..................................... (47) (69) (30) Dispositions..................................... (101) (125) -- ----- ----- ---- Net Balance at December 31....................... $ 575 $ 703 $611 ===== ===== ====
December 31, --------------------- 2001 2000 ---- ---- (Dollars in millions) Accumulated Amortization......................... $108 $81 ==== ===
See "--Application of Accounting Pronouncements" below regarding changes in amortization and impairment testing effective January 1, 2002. Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 2% to 11%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (ii) the liability for terminal dividends, and (iii) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 11%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 2% to 17%, less expenses, mortality charges, and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. F-14 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Policyholder Dividends Policyholder dividends are approved annually by the boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 18% and 22% of the Company's life insurance in-force, and 82% and 81% of the number of life insurance policies in-force, at December 31, 2001 and 2000, respectively. Participating policies represented approximately 44% and 46%, 47% and 50%, and 50% and 54% of gross and net life insurance premiums for the years ended December 31, 2001, 2000 and 1999, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes Metropolitan Life, the Holding Company and 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 of 1986, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. Metropolitan Life has not been subject to the equity tax since the date of demutualization. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. F-15 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and recognized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. Stock Based Compensation The Company accounts for the stock-based compensation plans using the accounting method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and has included in the notes to consolidated financial statements the pro forma disclosures required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") in Note 17. Foreign Currency Translation Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income or loss. Gains and losses from foreign currency transactions are reported in earnings. Demutualization On April 7, 2000 (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife. The conversion was pursuant to an order by the New York Superintendent of Insurance (the "Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, policyholders' membership interests in Metropolitan Life were extinguished and eligible policyholders received, in exchange for their interests, trust interests representing 494,466,664 shares of common stock of MetLife to be held in a trust, cash payments aggregating $2,550 million and adjustments to their policy values in the form of policy credits aggregating $408 million, as provided in the plan. In addition, Metropolitan Life's Canadian branch made cash payments of $327 million in the second quarter of 2000 to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale. Application of Accounting Pronouncements Effective January 1, 2001, the Company adopted SFAS 133 which established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of SFAS 133, as of January 1, 2001, resulted in a $33 million increase in other comprehensive income, net of income taxes of $18 million, and had no material impact on net income. F-16 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The increase to other comprehensive income is attributable to net gains on cash flow-type hedges at transition. Also at transition, the amortized cost of fixed income securities decreased and other invested assets increased by $22 million, representing the fair value of certain interest rate swaps that were accounted for prior to SFAS 133 using fair value-type settlement accounting. During the year ended December 31, 2001, $18 million of the pre-tax gain reported in accumulated other comprehensive income at transition was reclassified into net investment income. The Financial Accounting Standards Board ("FASB") continues to issue additional guidance relating to the accounting for derivatives under SFAS 133, which may result in further adjustments to the Company's treatment of derivatives in subsequent accounting periods. Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The adoption of these requirements had no material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted EITF 99-20. This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 had no material impact on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141, which was generally effective July 1, 2001, requires the purchase method of accounting for all business combinations and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. SFAS 142, effective for fiscal years beginning after December 15, 2001, eliminates the systematic amortization and establishes criteria for measuring the impairment of goodwill and certain other intangible assets by reporting unit. Amortization of goodwill and other intangible assets was $48 million, $101 million and $65 million for the years ended December 31, 2001, 2000 and 1999, respectively. These amounts are not necessarily indicative of the amortization that will not be recorded in future periods in accordance with SFAS 142. The Company is in the process of developing an estimate of the impact of the adoption of SFAS 142, if any, on its consolidated financial statements. The Company has tentatively determined that there will be no significant reclassifications between goodwill and other intangible asset balances, and no significant impairment of other intangible assets as of January 1, 2002. The Company will complete the first step of the impairment test, the comparison of the reporting units' fair value to carrying value, by June 30, 2002 and, if necessary, will complete the second step, the estimate of goodwill impairment, by December 31, 2002. In July 2001, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. The application of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of by superceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less costs to sell, rather than on a net realizable value basis. Future operating losses relating to discontinued operations also are no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business). SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the F-17 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) presentation of discontinued operations in the statements of income, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets (other than goodwill) and (iii) SFAS 121 relating to the measurement of long-lived assets classified as held for sale. SFAS 144 must be adopted beginning January 1, 2002. The adoption of SFAS 144 by the Company is not expected to have a material impact on the Company's consolidated financial statements at the date of adoption. Effective October 1, 2000, the Company adopted SAB No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying GAAP to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position ("SOP") No. 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. 2. September 11, 2001 Tragedies On September 11, 2001 a terrorist attack occurred in New York, Washington D.C. and Pennsylvania (collectively, the "tragedies") triggering a significant loss of life and property which had an adverse impact on certain of the Company's businesses. The Company has direct exposures to this event with claims arising from its Individual, Institutional, Reinsurance and Auto & Home insurance coverages, although it believes the majority of such claims have been reported or otherwise analyzed by the Company. As of December 31, 2001, the Company's estimate of the total insurance losses related to the tragedies is $208 million, net of income tax of $117 million. This estimate is subject to revision in subsequent periods as claims are received from insureds and claims to reinsurers are identified and processed. Any revision to the estimate of gross losses and reinsurance recoveries in subsequent periods will affect net income in such periods. Reinsurance recoveries are dependent on the continued creditworthiness of the reinsurers, which may be adversely affected by their other reinsured losses in connection with the tragedies. The long-term effects of the tragedies on the Company's businesses cannot be assessed at this time. The tragedies have had significant adverse effects on the general economic, market and political conditions, increasing many of the Company's business risks. In particular, the declines in share prices experienced after the reopening of the United States equity markets following the tragedies have contributed, and may continue to contribute, to a decline in separate account assets, which in turn could have an adverse effect on fees earned in the Company's businesses. In addition, the Institutional segment may receive disability claims from individuals suffering from mental and nervous disorders resulting from the tragedies. This may lead to a revision in the Company's estimated insurance losses related to the tragedies. The majority of the Company's disability policies include the provision that such claims be submitted within two years of the traumatic event. The Company's general account investment portfolios include investments, primarily comprised of fixed income securities, in industries that were affected by the tragedies, including airline, other travel and lodging and insurance. Exposures to these industries also exist through mortgage loans and investments in real estate. The market value of the Company's investment portfolio exposed to industries affected by the tragedies was approximately $3.0 billion at December 31, 2001. F-18 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2001 were as follows:
Gross Cost or Unrealized Amortized ------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 7,875 $1,004 $ 42 $ 8,837 States and political subdivisions........................... 1,486 48 10 1,524 Foreign governments......................................... 4,206 401 41 4,566 Corporate................................................... 45,547 1,647 996 46,198 Mortgage- and asset-backed securities....................... 32,628 870 261 33,237 Other....................................................... 15,104 925 553 15,476 -------- ------ ------ -------- Total bonds............................................... 106,846 4,895 1,903 109,838 Redeemable preferred stocks................................. 784 12 33 763 -------- ------ ------ -------- Total fixed maturities.................................... $107,630 $4,907 $1,936 $110,601 ======== ====== ====== ======== Equity Securities: Common stocks................................................. $ 1,938 $ 655 $ 75 $ 2,518 Nonredeemable preferred stocks................................ 483 28 2 509 -------- ------ ------ -------- Total equity securities................................... $ 2,421 $ 683 $ 77 $ 3,027 ======== ====== ====== ========
Fixed maturities and equity securities at December 31, 2000 were as follows:
Gross Cost or Unrealized Amortized ------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies................................. $ 8,443 $1,188 $ 16 $ 9,615 States and political subdivisions........................... 1,563 79 3 1,639 Foreign governments......................................... 5,153 341 153 5,341 Corporate................................................... 47,338 1,124 1,451 47,011 Mortgage- and asset-backed securities....................... 32,996 697 165 33,528 Other....................................................... 14,935 436 381 14,990 -------- ------ ------ -------- Total bonds............................................... 110,428 3,865 2,169 112,124 Redeemable preferred stocks................................. 321 -- -- 321 -------- ------ ------ -------- Total fixed maturities.................................... $110,749 $3,865 $2,169 $112,445 ======== ====== ====== ======== Equity Securities: Common stocks................................................. $ 872 $ 785 $ 55 $ 1,602 Nonredeemable preferred stocks................................ 577 19 5 591 -------- ------ ------ -------- Total equity securities................................... $ 1,449 $ 804 $ 60 $ 2,193 ======== ====== ====== ========
The Company held foreign currency derivatives with notional amounts of $1,925 million and $1,449 million to hedge the exchange rate risk associated with foreign bonds at December 31, 2001 and 2000, respectively. F-19 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company held fixed maturities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $9,618 million and $9,864 million at December 31, 2001 and 2000, respectively. Non-income producing fixed maturities were insignificant. The cost or amortized cost and estimated fair value of bonds at December 31, 2001, by contractual maturity date, are shown below:
Cost or Estimated Amortized Fair Cost Value --------- --------- (Dollars in millions) Due in one year or less............... $ 3,929 $ 3,976 Due after one year through five years. 19,500 20,147 Due after five years through ten years 21,661 21,944 Due after ten years................... 29,128 30,534 -------- -------- Total.............................. 74,218 76,601 Mortgage- and asset-backed securities. 32,628 33,237 -------- -------- Total bonds........................ $106,846 $109,838 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of securities classified as available-for-sale were as follows:
Years ended December 31, ------------------------ 2001 2000 1999 ------- ------- ------- (Dollars in millions) Proceeds............... $27,576 $46,205 $59,852 Gross investment gains. $ 634 $ 599 $ 605 Gross investment losses $ 934 $ 1,520 $ 911
Gross investment losses above exclude writedowns recorded during 2001, 2000 and 1999 for other than temporarily impaired available-for-sale securities of $278 million, $324 million and $133 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $13,471 million and $11,746 million and an estimated fair value of $14,404 million and $12,289 million were on loan under the program at December 31, 2001 and 2000, respectively. The Company was liable for cash collateral under its control of $12,662 million and $12,301 million at December 31, 2001 and 2000, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Structured Investment Transactions The Company securitizes high yield debt securities, investment grade bonds and structured finance securities. The Company has sponsored four securitizations with a total of approximately $1.5 billion in financial assets as of December 31, 2001. Two of these transactions included the transfer of assets totaling approximately $289 million from which F-20 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) investment gains, recognized by the Company, were insignificant. The Company's beneficial interests in these SPEs and the related investment income were insignificant as of and for the year ended December 31, 2001. The Company invests in structured notes and similar type instruments which generally provide equity-based returns on debt securities. The carrying value of such investments was approximately $1.6 billion and $1.3 billion at December 31, 2001 and 2000, respectively. The related income recognized was $44 million and $62 million for the years ended December 31, 2001 and 2000, respectively. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $835 million and $932 million at December 31, 2001 and 2000, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,218 million and $1,234 million at December 31, 2001 and 2000, respectively. Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31, ------------------------------ 2001 2000 -------------- -------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.. $19,502 79% $16,944 77% Agricultural mortgage loans 5,267 21% 4,980 22% Residential mortgage loans. 1 0% 110 1% ------- --- ------- --- Total................... 24,770 100% 22,034 100% === === Less: Valuation allowances. 144 83 ------- ------- Mortgage loans.......... $24,626 $21,951 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2001, approximately 16%, 14% 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. In 2001, the Company entered into a commercial loan for $1,530 million with MIAC, a related party, in connection with MIAC's purchase of real estate from the Company. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $644 million and $540 million at December 31, 2001 and 2000, respectively. Changes in mortgage loan valuation allowances were as follows:
Years ended December 31, --------------------- 2001 2000 1999 ---- ---- ----- (Dollars in millions) Balance at January 1...................... $ 83 $ 90 $ 173 Additions................................. 106 38 40 Deductions for writedowns and dispositions (45) (74) (123) Acquisitions of affiliates................ -- 29 -- ---- ---- ----- Balance at December 31.................... $144 $ 83 $ 90 ==== ==== =====
F-21 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, --------------------- 2001 2000 ------ ---- (Dollars in millions) Impaired mortgage loans with valuation allowances... $ 816 $592 Impaired mortgage loans without valuation allowances 315 330 ------ ---- Total............................................ 1,131 922 Less: Valuation allowances.......................... 140 77 ------ ---- Impaired mortgage loans.......................... $ 991 $845 ====== ====
The average investment in impaired mortgage loans on real estate was $938 million, $912 million and $1,134 million for the years ended December 31, 2001, 2000 and 1999, respectively. Interest income on impaired mortgage loans was $92 million, $76 million and $101 million for the years ended December 31, 2001, 2000 and 1999, respectively. The investment in restructured mortgage loans on real estate was $684 million and $784 million at December 31, 2001 and 2000, respectively. Interest income of $52 million, $62 million and $80 million was recognized on restructured loans for the years ended December 31, 2001, 2000 and 1999, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $60 million, $74 million and $92 million for the years ended December 31, 2001, 2000 and 1999, respectively. Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $43 million and $40 million at December 31, 2001 and 2000, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, --------------------- 2001 2000 ------ ------ (Dollars in millions) Real estate and real estate joint ventures held-for-investment $5,088 $5,495 Impairments................................................... (244) (272) ------ ------ Total...................................................... 4,844 5,223 ------ ------ Real estate and real estate joint ventures held-for-sale...... 204 417 Impairments................................................... (88) (97) Valuation allowance........................................... (35) (39) ------ ------ Total...................................................... 81 281 ------ ------ Real estate and real estate joint ventures............. $4,925 $5,504 ====== ======
Accumulated depreciation on real estate was $1,882 million and $2,337 million at December 31, 2001 and 2000, respectively. Related depreciation expense was $217 million, $224 million and $247 million for the years ended December 31, 2001, 2000 and 1999, respectively. F-22 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Real estate and real estate joint ventures were categorized as follows:
December 31, ---------------------------- 2001 2000 ------------- ------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office......................................... $3,079 63% $3,635 66% Retail......................................... 779 16% 586 10% Apartments..................................... 495 10% 558 10% Land........................................... 184 4% 202 4% Agriculture.................................... 14 0% 84 2% Other.......................................... 374 7% 439 8% ------ --- ------ --- Total....................................... $4,925 100% $5,504 100% ====== === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 2001, approximately 27%, 15% and 13% of the Company's real estate holdings were located in California, New York and Texas, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years ended December 31, -------------------- 2001 2000 1999 ---- ---- ---- (Dollars in millions) Balance at January 1................................... $ 39 $ 34 $ 33 Additions charged to operations........................ 16 17 36 Deductions for writedowns and dispositions............. (20) (12) (35) ---- ---- ---- Balance at December 31................................. $ 35 $ 39 $ 34 ==== ==== ====
Investment income related to impaired real estate and real estate joint ventures held-for-investment was $57 million, $45 million and $61 million for the years ended December 31, 2001, 2000 and 1999, respectively. Investment (expense) income related to impaired real estate and real estate joint ventures held-for-sale was $(4) million, $18 million and $14 million for the years ended December 31, 2001, 2000 and 1999, respectively. The carrying value of non-income producing real estate and real estate joint ventures was $9 million and $15 million at December 31, 2001 and 2000, respectively. The Company owned real estate acquired in satisfaction of debt of $49 million and $66 million at December 31, 2001 and 2000, respectively. Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, -------------------- 2001 2000 ------ ------ (Dollars in millions) Investment............................................. $1,070 $1,002 Estimated residual values.............................. 505 546 ------ ------ Total............................................... 1,575 1,548 Unearned income........................................ (404) (384) ------ ------ Leveraged leases.................................... $1,171 $1,164 ====== ======
F-23 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from two to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. The Company's deferred tax provision related to leveraged leases is $1,077 million and $1,040 million at December 31, 2001 and 2000, respectively. Net Investment Income The components of net investment income were as follows:
Years ended December 31, ------------------------ 2001 2000 1999 ------- ------- ------- (Dollars in millions) Fixed maturities................................ $ 8,462 $ 8,529 $ 7,171 Equity securities............................... 48 41 40 Mortgage loans on real estate................... 1,838 1,693 1,484 Real estate and real estate joint ventures...... 1,332 1,407 1,426 Policy loans.................................... 527 515 340 Other limited partnership interests............. 48 142 199 Cash, cash equivalents and short-term investment 264 271 173 Other........................................... 268 192 91 ------- ------- ------- Total........................................ 12,787 12,790 10,924 Less: Investment expenses....................... 996 1,017 1,108 ------- ------- ------- Net investment income........................ $11,791 $11,773 $ 9,816 ======= ======= =======
Net Investment Gains (Losses) Net investment gains (losses), including changes in valuation allowances, were as follows:
Years ended December 31, ----------------------- 2001 2000 1999 ------ ------- ----- (Dollars in millions) Fixed maturities.......................... $ (644) $(1,437) $(538) Equity securities......................... 66 192 99 Mortgage loans on real estate............. (91) (18) 28 Real estate and real estate joint ventures 1,626 101 265 Other limited partnership interests....... (161) (7) 33 Sales of businesses....................... 25 632 -- Other..................................... 73 65 (24) ------ ------- ----- Total.................................. 894 (472) (137) Amounts allocable to: Deferred policy acquisition costs...... (21) 95 46 Participating contracts................ (105) (126) 21 Policyholder dividend obligation....... 159 85 -- ------ ------- ----- Net realized investment losses..... $ 927 $ (418) $ (70) ====== ======= =====
Investment gains and losses have been reduced by (i) deferred policy acquisition amortization to the extent that such amortization results from investment gains and losses, (ii) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholder's accounts, and (iii) adjustments to the policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Real estate and real estate joint ventures net investment gains for 2001 include $1,630 million related to the sale of real estate to MIAC. F-24 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Unrealized Investment Gains (Losses) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Fixed maturities...................................... $ 2,971 $ 1,696 $(1,828) Equity securities..................................... 606 744 875 Derivatives........................................... 71 -- -- Other invested assets................................. 58 58 153 ------- ------- ------- Total.............................................. 3,706 2,498 (800) ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition............. (30) (284) (249) Deferred policy acquisition costs.................. (6) 113 709 Participating contracts............................ (127) (133) (118) Policyholder dividend obligation................... (707) (385) -- Deferred income taxes................................. (1,037) (626) 161 ------- ------- ------- Total.............................................. (1,907) (1,315) 503 ------- ------- ------- Net unrealized investment gains (losses)....... $ 1,799 $ 1,183 $ (297) ======= ======= ======= The changes in net unrealized investment gains Years ended December 31, (losses) were as follows: ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1.................................. $ 1,183 $ (297) $ 1,540 Unrealized investment gains (losses) during the year.. 1,390 3,298 (6,583) Unrealized investment gains (losses) relating to: Future policy benefit gain (loss) recognition...... 254 (35) 1,999 Deferred policy acquisition costs.................. (128) (596) 1,628 Participating contracts............................ 6 (15) 94 Policyholder dividend obligation................... (322) (385) -- Deferred income taxes................................. (475) (787) 1,025 Unrealized investment gains of subsidiary at date of sale, net of deferred income taxes.................. (109) -- -- ------- ------- ------- Balance at December 31................................ $ 1,799 $ 1,183 $ (297) ======= ======= ======= Net change in unrealized investment gains (losses).... $ 616 $ 1,480 $(1,837) ======= ======= =======
F-25 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Derivative Instruments The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments held at December 31, 2001 and 2000:
2001 2000 ------------------------------------ ------------------------------------ Current Market or Current Market or Fair Value Fair Value Carrying Notional ------------------ Carrying Notional ------------------ Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- (Dollars in millions) Financial futures............ $ -- $ -- $ -- $-- $23 $ 254 $ 23 $-- Interest rate swaps.......... 70 1,849 79 9 41 1,450 41 1 Floors....................... 11 325 11 -- -- 325 3 -- Caps......................... 5 8,010 5 -- -- 10,070 -- -- Foreign currency swaps....... 162 1,925 188 26 (1) 1,449 114 44 Exchange traded options...... (12) 1,857 -- 12 1 9 1 -- Forward exchange contracts... 4 33 4 -- -- -- -- -- Written covered call options. -- 40 -- -- -- 40 -- -- Credit default swaps......... -- 270 -- -- -- -- -- -- ---- ------- ---- --- --- ------- ---- --- Total contractual commitments $240 $14,309 $287 $47 $64 $13,597 $182 $45 ==== ======= ==== === === ======= ==== ===
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2001 and 2000:
December 31, 2000 Terminations/ December 31, 2001 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures.............. $ 254 $ 507 $ 761 $ -- Interest rate swaps............ 1,450 1,166 767 1,849 Floors......................... 325 -- -- 325 Caps........................... 10,070 150 2,210 8,010 Foreign currency swaps......... 1,449 659 183 1,925 Exchange traded options........ 9 1,861 13 1,857 Forward exchange contracts..... -- 495 462 33 Written covered call options... 40 1,097 1,097 40 Credit default swaps........... -- 270 -- 270 ------- ------ ------ ------- Total contractual commitments.. $13,597 $6,205 $5,493 $14,309 ======= ====== ====== ======= BY STRATEGY Liability hedging.............. $11,736 $ 270 $2,972 $ 9,034 Invested asset hedging......... 1,607 5,046 1,378 5,275 Portfolio hedging.............. 254 507 761 -- Anticipated transaction hedging -- 382 382 -- ------- ------ ------ ------- Total contractual commitments.. $13,597 $6,205 $5,493 $14,309 ======= ====== ====== =======
F-26 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2001:
Remaining Life ------------------------------------------------------- One Year After One Year After Five Years After or Less Through Five Years Through Ten Years Ten Years Total -------- ------------------ ----------------- --------- ------- (Dollars in millions) Interest rate swaps.............................. $ 95 $ 627 $ 955 $172 $ 1,849 Floors........................................... -- -- 325 -- 325 Caps............................................. 3,720 4,270 20 -- 8,010 Foreign currency swaps........................... 81 863 707 274 1,925 Exchange traded options.......................... 1,857 -- -- -- 1,857 Forward exchange contracts....................... 33 -- -- -- 33 Written covered call options..................... 40 -- -- -- 40 Credit default swaps............................. 15 255 -- -- 270 ------ ------ ------ ---- ------- Total contractual commitments.................... $5,841 $6,015 $2,007 $446 $14,309 ====== ====== ====== ==== =======
The following table presents the notional amounts and fair values of derivatives by type of hedge designation at December 31, 2001 and 2000:
2001 2000 --------------------------- --------------------------- Current Market Current Market or or Fair Value Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) BY TYPE OF HEDGE Fair Value...... $ 228 $ 23 $ 1 $ 212 $ 14 $ 8 Cash Flow....... 585 62 21 442 32 27 Not designated.. 13,496 202 25 12,943 136 10 ------- ---- --- ------- ---- --- Total........ $14,309 $287 $47 $13,597 $182 $45 ======= ==== === ======= ==== ===
For the year ended December 31, 2001, the amount related to fair value and cash flow hedge ineffectiveness was insignificant and there were no discontinued fair value or cash flow hedges. For the years ended December 31, 2001, 2000 and 1999, the Company recognized net investment income of $32 million, $13 million and $0.3 million, respectively, from the periodic settlement of interest rate and foreign currency swaps. For the years ended December 31, 2001, the Company recognized other comprehensive income of $39 million relating to the effective portion of cash flow hedges. At December 31, 2001, the accumulated amount in other comprehensive income relating to cash flow hedges was $71 million. During the year ended December 31, 2001, $19 million of other comprehensive income was reclassified into net investment income primarily due to the SFAS No. 133 transition adjustment. During the next year, other comprehensive income of $17 million related to cash flow hedges is expected to be reclassified into net investment income. The reclassifications are recognized over the life of the hedged item. For the year ended December 31, 2001, the Company recognized net investment income of $24 million and net investment gains of $100 million from derivatives not designated as accounting hedges. The use of these non-speculative derivatives is permitted by the Department. F-27 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated December 31, 2001 Amount Value Fair Value ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $110,601 $110,601 Equity securities................................................. 3,027 3,027 Mortgage loans on real estate..................................... 24,626 25,815 Policy loans...................................................... 7,894 7,894 Short-term investments............................................ 1,168 1,168 Cash and cash equivalents......................................... 3,932 3,932 Mortgage loan commitments......................................... $532 -- (4) Liabilities: Policyholder account balances..................................... 47,494 47,833 Short-term debt................................................... 345 345 Long-term debt.................................................... 2,380 2,442 Payable under securities loaned transactions...................... 12,662 12,662 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... 276 276
Notional Carrying Estimated December 31, 2000 Amount Value Fair Value ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $112,445 $112,445 Equity securities................................................. 2,193 2,193 Mortgage loans on real estate..................................... 21,951 22,847 Policy loans...................................................... 8,158 8,158 Short-term investments............................................ 930 930 Cash and cash equivalents......................................... 3,419 3,419 Mortgage loan commitments......................................... $534 -- 17 Liabilities: Policyholder account balances..................................... 43,196 42,958 Short-term debt................................................... 1,085 1,085 Long-term debt.................................................... 3,406 3,306 Payable under securities loaned transactions...................... 12,301 12,301 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... 118 118
F-28 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities in which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate and Mortgage Loan Commitments Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Policy Loans The carrying values for policy loans approximate fair value. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances are estimated by discounting expected future cash flows, based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. Short-term and Long-term Debt, Payables Under Securities Loaned Transactions and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts The fair values of short-term and long-term debt, payables under securities loaned transactions and Company-obligated mandatorily redeemable securities of subsidiary trusts are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. Derivative Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, floors, foreign exchange contracts, caps, exchange-traded options and written covered call options are based upon quotations obtained from dealers or other reliable sources. See Note 4 for derivative fair value disclosures. 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 Metropolitan Life and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. F-29 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, ------------------------------ Pension Benefits Other Benefits -------------- -------------- 2001 2000 2001 2000 ------ ------ ------ ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year. $4,145 $3,737 $1,542 $1,483 Service cost................................... 104 98 34 29 Interest cost.................................. 308 291 115 113 Acquisitions and divestitures.................. (12) 107 -- 37 Actuarial losses............................... 169 176 66 59 Curtailments and terminations.................. (49) (3) 9 2 Change in benefits............................. 29 (2) -- (86) Benefits paid.................................. (268) (259) (97) (95) ------ ------ ------ ------ Projected benefit obligation at end of year....... 4,426 4,145 1,669 1,542 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year 4,619 4,726 1,318 1,199 Actual return on plan assets................... (201) 54 (49) 179 Acquisitions and divestitures.................. (12) 79 -- -- Employer and participant contributions......... 23 19 1 3 Benefits paid.................................. (268) (259) (101) (63) ------ ------ ------ ------ Contract value of plan assets at end of year...... 4,161 4,619 1,169 1,318 ------ ------ ------ ------ (Under) over funded............................... (265) 474 (500) (224) Unrecognized net asset at transition.............. -- (31) -- -- Unrecognized net actuarial losses (gains)......... 693 2 (258) (478) Unrecognized prior service cost................... 116 109 (49) (89) ------ ------ ------ ------ Prepaid (accrued) benefit cost.................... $ 544 $ 554 $ (807) $ (791) ====== ====== ====== ====== Qualified plan prepaid pension cost............... $ 805 $ 775 Non-qualified plan accrued pension cost........... (323) (263) Unamortized prior service cost.................... 16 14 Accumulated other comprehensive income............ 46 28 ------ ------ Prepaid benefit cost.............................. $ 544 $ 554 ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Non-Qualified Qualified Plans Plans Total ---------------- ------------ ---------------- 2001 2000 2001 2000 2001 2000 ------- ------- ----- ----- ------- ------- (Dollars in millions) Aggregate projected benefit obligation...................... $(4,006) $(3,775) $(420) $(370) $(4,426) $(4,145) Aggregate contract value of plan assets (principally Company contracts)................................................ 4,161 4,619 -- -- 4,161 4,619 ------- ------- ----- ----- ------- ------- Over (under) funded......................................... $ 155 $ 844 $(420) $(370) $ (265) $ 474 ======= ======= ===== ===== ======= =======
F-30 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 -------------------- --------------- 2001 2000 2001 2000 --------- ---------- ------- ------- Weighted average assumptions at December 31: Discount rate............................... 6.9%-7.4% 6.9%-7.75% 6%-7.4% 6%-7.5% Expected rate of return on plan assets...... 8%-9% 8%-9% 6%-9% 6%-9% Rate of compensation increase............... 4%-6% 4%-6% N/A N/A
The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were as follows:
December 31, ----------------------------------- 2001 2000 ------------------------------ ---- Pre-Medicare eligible benefits 9.5% down to 5% over 10 years 6.5% Medicare eligible benefits.... 11.5% down to 5% over 10 years 6%
Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components $ 15 $ 12 Effect on accumulated postretirement benefit obligation $137 $114
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ----------------- 2001 2000 1999 2001 2000 1999 ----- ----- ----- ----- ---- ---- (Dollars in millions) Service cost......................... $ 104 $ 98 $ 100 $ 34 $ 29 $ 28 Interest cost........................ 308 291 271 115 113 107 Expected return on plan assets....... (402) (420) (363) (108) (97) (89) Amortization of prior actuarial gains (2) (19) (6) (27) (22) (11) Curtailment (credit) cost............ 21 (3) (17) 6 2 10 ----- ----- ----- ----- ---- ---- Net periodic benefit (credit) cost... $ 29 $ (53) $ (15) $ 20 $ 25 $ 45 ===== ===== ===== ===== ==== ====
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 $64 million, $65 million and $45 million for the years ended December 31, 2001, 2000 and 1999, respectively. 7. Closed Block On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales F-31 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. Amounts reported for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transactions from April 1, 2000 through April 6, 2000 are not considered material). F-32 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Closed block liabilities and assets designated to the closed block are as follows:
December 31, --------------------- 2001 2000 ------- ------- (Dollars in millions) CLOSED BLOCK LIABILITIES Future policy benefits................................................................. $40,325 $39,415 Other policyholder funds............................................................... 321 278 Policyholder dividends payable......................................................... 757 740 Policyholder dividend obligation....................................................... 708 385 Payables under securities loaned transactions.......................................... 3,350 3,268 Other.................................................................................. 90 78 ------- ------- Total closed block liabilities...................................................... 45,551 44,164 ------- ------- ASSETS DESIGNATED TO THE CLOSED BLOCK Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $25,761 and $25,657, respectively)............................................................ 26,331 25,634 Equity securities, at fair value (amortized cost: $240 and $52, respectively)....... 282 54 Mortgage loans on real estate....................................................... 6,358 5,801 Policy loans........................................................................ 3,898 3,826 Short-term investments.............................................................. 170 223 Other invested assets (amortized cost: $137 and $250, respectively)................. 159 248 ------- ------- Total investments............................................................... 37,198 35,786 Cash and cash equivalents.............................................................. 1,119 661 Accrued investment income.............................................................. 550 557 Deferred income tax receivable......................................................... 1,060 1,234 Premiums and other receivables......................................................... 244 158 ------- ------- Total assets designated to the closed block......................................... 40,171 38,396 ------- ------- Excess of closed block liabilities over assets designated to to the closed block....... 5,380 5,768 ------- ------- Amounts included in accumulated other comprehensive income: Net unrealized investment gains (losses), net of deferred income tax expense (benefit) of $219 and $(9), respectively.......................................... 389 (14) Unrealized derivative gains, net of deferred income taxes of $9..................... 17 -- Allocated to policyholder dividend obligation, net of deferred income taxes of $255 and $143, respectively............................................................ (453) (242) ------- ------- (47) (256) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities...... $ 5,333 $ 5,512 ======= =======
F-33 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding the policyholder dividend obligation is as follows:
For the Period For the April 7, 2000 Year Ended through December 31, December 31, 2001 2000 ------------ -------------- (Dollars in millions) Balance at beginning of period (1)............................................... $ 385 $ -- Change in policyholder dividend obligation before allocable net investment losses 159 85 Net investment losses............................................................ (159) (85) Change in unrealized investment and derivative gains............................. 323 385 ----- ---- Balance at end of period......................................................... $ 708 $385 ===== ====
-------- (1) For the period ended at December 31, 2000, the beginning of the period is April 7, 2000. See Note 1 "Summary of Significant Accounting Policies--Demutualization." Closed block revenues and expenses were as follows:
For the Period April 7, 2000 For the Year Ended through December 31, December 31, 2001 2000 ------------------ -------------- (Dollars in millions) REVENUES Premiums............................................................. $3,658 $2,900 Net investment income................................................ 2,711 1,949 Net investment losses (net of amounts allocable to the policyholder dividend obligation of $(159) and $(85), respectively)............. (20) (150) ------ ------ Total revenues.................................................... 6,349 4,699 ------ ------ EXPENSES Policyholder benefits and claims..................................... 3,862 2,874 Policyholder dividends............................................... 1,544 1,132 Change in policyholder dividend obligation (excludes amounts directly related to net investment losses of $(159) and $(85), respectively) 159 85 Other expenses....................................................... 508 425 ------ ------ Total expenses.................................................... 6,073 4,516 ------ ------ Revenues net of expenses before income taxes......................... 276 183 Income taxes......................................................... 97 67 ------ ------ Revenues net of expenses and income taxes............................ $ 179 $ 116 ====== ======
The change in maximum future earnings of the closed block was as follows:
For the Period April 7, 2000 For the Year Ended through December 31, December 31, 2001 2000 ------------------ -------------- (Dollars in millions) Beginning of period..... $5,512 $5,628 End of period........... 5,333 5,512 ------ ------ Change during the period $ (179) $ (116) ====== ======
F-34 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company charges the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of reorganization. The Company also charges the closed block for expenses of maintaining the policies included in the closed block. Many of the derivative instrument strategies used by the Company are also used for the closed block. The cumulative effect of the adoption of SFAS 133 and SFAS 138, as of January 1, 2001, resulted in $11 million of other comprehensive income, net of income taxes of $6 million. For the year ended December 31, 2001, the closed block recognized net investment gains of $5 million primarily relating to non-speculative derivative uses that are permitted by the Department but that have not met the requirements of SFAS 133 to qualify for hedge accounting. Excluding the adoption adjustment, the changes in other comprehensive income were $6 million, net of taxes of $3 million, for the year ended December 31, 2001. 8. Separate Accounts Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $48,912 million and $53,656 million at December 31, 2001 and 2000, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $13,802 million and $16,594 million at December 31, 2001 and 2000, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $564 million, $667 million and $485 million for the years ended December 31, 2001, 2000 and 1999, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 7.0% and 6.9% at December 31, 2001 and 2000, respectively. The assets that support these liabilities were comprised of $11,888 million and $15,708 million in fixed maturities at December 31, 2001 and 2000, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 9. Debt Debt consisted of the following:
December 31, --------------------- 2001 2000 ------ ------ (Dollars in millions) Surplus notes, interest rates ranging from 6.30% to 7.80%, maturity dates ranging from 2003 to 2025.................................................................. $1,630 $1,630 Capital note, interest rate of 8% due 2005........................................... -- 1,006 Investment-related exchangeable debt, interest rate of 4.90% due 2002................ 195 271 Fixed rate notes, interest rates ranging from 3.47% to 12.00%, maturity dates ranging from 2002 to 2019.................................................................. 87 316 Senior notes, interest rates ranging from 6.75% to 7.25%, maturity dates ranging from 2006 to 2011....................................................................... 298 98 Capital lease obligations............................................................ 23 42 Other notes with varying interest rates.............................................. 147 43 ------ ------ Total long-term debt................................................................. 2,380 3,406 Total short-term debt................................................................ 345 1,085 ------ ------ Total............................................................................. $2,725 $4,491 ====== ======
F-35 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Life and certain of its subsidiaries maintain committed and unsecured credit facilities aggregating $2,250 million (five-year facility of $1,000 million expiring in April 2003 and a 364-day facility of $1,250 million expiring in April of 2002). If these facilities are drawn upon, they would bear interest at rates stated in the agreements. The facilities can be used for general corporate purposes and also provide backup for the Company's commercial paper program. At December 31, 2001, there were no outstanding borrowings under either of the facilities. At December 31, 2001, $72 million in letters of credit from various banks were outstanding between Metropolitan Life and certain of its subsidiaries. Reinsurance Group of America, Incorporated ("RGA"), a subsidiary of the Company, maintains committed and unsecured credit facilities aggregating $180 million (one facility of $140 million, one facility of $18 million and one facility of $22 million all expiring in 2005). At December 31, 2001 RGA had drawn approximately $24 million under these facilities at interest rates ranging from 4.40% to 4.97%. At December 31, 2001 $376 million in letters of credit from various banks were outstanding between the subsidiaries of RGA. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. Subject to the prior approval of the Superintendent, the $300 million 7.45% surplus notes due 2023 may be redeemed, in whole or in part, at the election of Metropolitan Life at any time on or after November 1, 2003. In 2001, the Company retired a $1,006 million long-term debt capital note payable to the Holding Company. The issue of investment-related exchangeable debt is payable in cash or by delivery of an underlying security owned by the Company. The amount of the debt payable at maturity is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. At December 31, 2001, the underlying security pledged as collateral had a market value of $240 million. The aggregate maturities of long-term debt for the Company are $208 million in 2002, $441 million in 2003, $27 million in 2004, $272 million in 2005, $110 million in 2006 and $1,322 million thereafter. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 2.1% and 6.6% and a weighted average maturity of 87 days and 44 days at December 31, 2001 and 2000, respectively. The Company also has other secured borrowings with a weighted average coupon rate of 7.25% and a weighted average maturity of 30 days at December 31, 2001. Interest expense related to the Company's indebtedness included in other expenses was $313 million, $417 million and $358 million for the years ended December 31, 2001, 2000 and 1999, respectively. 10. Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts GenAmerica Capital I. In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding were $118 million, net of unamortized discount of $7 million at December 31, 2001 and 2000. Interest expense on these instruments is included in other expenses and was $11 million for both the years ended December 31, 2001 and 2000, respectively. RGA Capital Trust I. In December 2001, a subsidiary of the Company, RGA, through its wholly-owned trust RGA Capital Trust I (the "Trust") issued 4,500,000 Preferred Income Equity Redeemable Securities ("PIERS") Units. Each PIERS unit consists of (i) a preferred security issued by the Trust, having a stated liquidation amount of $50 per F-36 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) unit, representing an undivided beneficial ownership interest in the assets of the Trust, which consist solely of junior subordinated debentures issued by RGA which have a principal amount at maturity of $50 and a stated maturity of March 18, 2051, and (ii) a warrant to purchase, at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an exercise price of $50. The fair market value of the warrant on the issuance date was $14.87 and is detachable from the preferred security. RGA fully and unconditionally guarantees, on a subordinated basis, the obligations of the Trust under the preferred securities. The preferred securities and subordinated debentures were issued at a discounted (original issue discount) to the face or liquidation value of $14.87 per security. The securities will accrete to their $50 face/liquidation value over the life of the security on a level yield basis. The weighted average effective interest rate on the preferred securities and the subordinated debentures is 8.25% per annum. Capital securities outstanding at December 31, 2001 were $158 million, net of unamortized discount of $67 million. 11. Commitments and Contingencies Litigation Sales Practices Claims Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." In December 1999, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving litigation against Metropolitan Life involving certain alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. Implementation of the settlement is substantially completed. Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, have been settled. The New England Mutual case, approved by the United States District Court for the District of Massachusetts in October 2000, involves approximately 600,000 life insurance policies sold during the period January 1, 1983 through August 31, 1996. Implementation of the New England Mutual class action settlement is substantially completed. The General American case, approved by the United States District Court for the Eastern District of Missouri, and affirmed by the appellate court in October 2001, involves approximately 250,000 life insurance policies sold during the period January 1, 1982 through December 31, 1996. A petition for writ of certiorari to the United States Supreme Court has been filed by objectors to the settlement. Implementation of the General American class action settlement is proceeding. Metropolitan Life expects that the total cost of its class action settlement will be approximately $957 million. It is expected that the total cost of the New England Mutual class action settlement will be approximately $160 million. General American expects that the total cost of its class action settlement will be approximately $68 million. Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices lawsuits. As of December 31, 2001, there are approximately 420 sales practices lawsuits pending against Metropolitan Life, approximately 40 sales practices lawsuits pending against New England Mutual and approximately 40 sales practices lawsuits pending against General American. Metropolitan Life, New England Mutual and General American continue to vigorously defend themselves against these lawsuits. Some individual sales practices claims have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. F-37 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada, and these actions remain pending. In October 2001, the United States District Court for the Southern District of New York approved the settlement of a class action alleging improper sales abroad that was brought against Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants. No appeal was filed and the settlement is being implemented. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for sales practices claims against Metropolitan Life, New England Mutual and General American. During 1998, Metropolitan Life purchased excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. The premium for the excess of loss reinsurance agreements was $529 million. These reinsurance agreements had a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. The coverage was in excess of an aggregate self-insured retention of $385 million with respect to sales practices claims and $506 million, plus the Company's statutory policy reserves released upon the death of insureds, with respect to life mortality losses. The excess of loss reinsurance agreements were amended in 2000 to transfer mortality risks under the Metropolitan Life class action settlement agreement. Recoveries have been made under the reinsurance agreements for the sales practices claims. Although there is no assurance that other reinsurance claim submissions will be paid, the Company believes payment is likely to occur. The Company accounts for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on the Company's consolidated financial statements in 2001, 2000 and 1999 would not be significant. Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Asbestos-Related Claims Metropolitan Life is also a defendant in thousands of lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. The number of such cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. F-38 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth the total number of asbestos personal injury claims pending against Metropolitan Life as of the dates indicated, the number of new claims during the years ended on those dates and the total settlement payments made to resolve asbestos personal injury claims during those years:
At or for the Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- Asbestos personal injury claims at year end (approximate) 89,000 73,000 60,000 Number of new claims during year (approximate)........... 59,500 54,500 35,500 Settlement payments during year (dollars in millions)(1). $ 90.7 $ 71.1 $ 113.3
-------- (1) Settlement payments represent payments made during the year in connection with settlements made in that year and in prior years. Amounts do not include Metropolitan Life's attorneys' fees and expenses and do not reflect amounts received from insurance carriers. Prior to the fourth quarter of 1998, Metropolitan Life established a liability for asbestos-related claims based on settlement costs for claims that Metropolitan Life had settled, estimates of settlement costs for claims pending against Metropolitan Life and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which management believes are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386 million. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against Metropolitan Life, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty as to the number of claims that may be brought against Metropolitan Life. During 1998, Metropolitan Life decided to pursue the purchase of excess insurance to limit its exposure to asbestos-related claims noted above. In connection with the negotiations with the casualty insurers to obtain this insurance, Metropolitan Life obtained information that caused management to reassess the accruals for asbestos-related claims. This information included: . Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against Metropolitan Life in the future was significantly greater than it had assumed in its accruals. The number of claims brought against Metropolitan Life is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which Metropolitan Life is included as a defendant. The information provided to Metropolitan Life relating to other insureds indicated that Metropolitan Life had been included as a defendant for a significant percentage of total asbestos-related claims and that it may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. . Information derived from actuarial calculations Metropolitan Life made in the fourth quarter of 1998 in connection with these negotiations, which helped to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding Metropolitan Life's claims and settlement experience (which reflected Metropolitan Life's decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, Metropolitan Life concluded that certain claims that previously were considered as only reasonably possible of assertion were probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, Metropolitan Life increased its liability for asbestos-related claims to $1,278 million at December 31, 1998. F-39 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During 1998, Metropolitan Life paid $878 million in premiums for excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention. The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. As a result of the excess insurance policies, $878 million was recorded as a recoverable at December 31, 2001, 2000 and 1999. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in the Company's operating cash flows for that year, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. It is likely that a claim will be made under the excess insurance policies in 2003 for a portion of the amounts paid with respect to asbestos litigation in 2002. If at some point in the future, the Company believes the liability for probable and estimable losses for asbestos-related claims should be increased, an expense would be recorded and the insurance recoverable would be adjusted subject to the terms, conditions and limits of the excess insurance policies. Portions of the change in the insurance recoverable would be deferred and amortized into income over the estimated remaining settlement period of the insurance policies. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for asbestos-related claims. Estimates of the Company's asbestos exposure are very difficult to predict due to the limitations of available data and the substantial difficulty of predicting with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation, as well as advertising by plaintiffs' asbestos lawyers, may be resulting in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of such recent bankruptcies by certain other defendants. Metropolitan Life is studying its recent claims experience, published literature regarding asbestos claims experience in the United States and numerous variables that can affect its asbestos liability exposure, including the recent bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the previously recorded asbestos liability. It is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. Property and Casualty Actions A purported class action suit involving policyholders in four states was filed in a Rhode Island state court against a Metropolitan Life subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. After the court denied plaintiffs' motion for class certification, the plaintiffs dismissed the lawsuit with prejudice. Similar "diminished value" purported class action suits have been filed in Texas and Tennessee against Metropolitan Property and Casualty Insurance Company; a Texas trial court recently denied plaintiffs' motion for class certification and a hearing on plaintiffs' motion in Tennessee for class certification is to be scheduled. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida. The complaint alleges breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. Discovery is ongoing and a motion for class certification is pending. A two-plaintiff individual lawsuit brought in Alabama alleges that Metropolitan Property and Casualty Insurance Company and CCC, a valuation company, violated state law by failing to pay the proper valuation amount for a total loss. Total loss valuation methods also are the subject of national class actions involving other insurance companies. A Pennsylvania state court purported class action lawsuit filed in August 2001 alleges that F-40 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Property and Casualty Insurance Company improperly took depreciation on partial homeowner losses where the insured replaced the covered item. In addition, in Florida, Metropolitan Property and Casualty Insurance Company has been named in a class action alleging that it improperly established preferred provider organizations (hereinafter "PPO"). Other insurers have been named in both the Pennsylvania and the PPO cases. Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company are vigorously defending themselves against these lawsuits. Demutualization Actions Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the Supreme Court of the State of New York for New York County have been consolidated within the commercial part. Metropolitan Life has moved to dismiss these consolidated cases on a variety of grounds. In addition, there remains a separate purported class action in New York state court in New York County that Metropolitan Life also has moved to dismiss. Another purported class action in New York state court in Kings County has been voluntarily held in abeyance by plaintiffs. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting and, in some instances, punitive damages. Some of the plaintiffs in the above described actions also have brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the New York Superintendent of Insurance that approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. This case also is being held in abeyance by plaintiffs. Another purported class action is pending in the Supreme Court of the State of New York for New York County and has been brought on behalf of a purported class of beneficiaries of Metropolitan Life annuities purchased to fund structured settlements claiming that the class members should have received common stock or cash in connection with the demutualization. Metropolitan Life has moved to dismiss this case on a variety of grounds. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied on July 23, 2001. A purported class action also was filed in the United States District Court for the Southern District of New York seeking damages from Metropolitan Life and the Holding Company for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. On July 9, 2001, pursuant to a motion to dismiss filed by Metropolitan Life, this case was dismissed by the District Court. Plaintiffs have appealed to the United States Court of Appeals for the Second Circuit. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario, Canada on behalf of a proposed class of certain former Canadian policyholders against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance Company of Canada. Plaintiffs' allegations concern the way that their policies were treated in connection with the demutualization of Metropolitan Life; they seek damages, declarations, and other non-pecuniary relief. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest vigorously all of plaintiffs' claims in this matter. Race-Conscious Underwriting Claims Insurance Departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its subsidiaries. The New York Insurance Department has commenced examinations of certain domestic life insurance companies, including Metropolitan Life, concerning F-41 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) possible past race-conscious underwriting practices. Metropolitan Life is cooperating fully with that inquiry, which is ongoing. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies have been consolidated in the United States District Court for the Southern District of New York. The plaintiffs seek unspecified monetary damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. At the outset of discovery, Metropolitan Life moved for summary judgment on statute of limitations grounds. On June 27, 2001, the District Court denied that motion, citing, among other things, ongoing discovery on relevant subjects. The ruling does not prevent Metropolitan Life from continuing to pursue a statute of limitations defense. Plaintiffs have moved for certification of a class consisting of all non-Caucasian policyholders purportedly harmed by the practices alleged in the complaint. Metropolitan Life has opposed the class certification motion. Metropolitan Life has been involved in settlement discussions to resolve the regulatory examinations and the actions pending in the United States District Court for the Southern District of New York. In that connection, Metropolitan Life has recorded a $250 million pre-tax charge in the fourth quarter of 2001 as probable and estimable costs associated with the anticipated resolution of these matters. In the fall of 2001, 12 lawsuits were filed against Metropolitan Life on behalf of approximately 109 non-Caucasian plaintiffs in their individual capacities in state court in Tennessee. The complaints allege under state common law theories that Metropolitan Life discriminated against non-Caucasians in the sale, formation and administration of life insurance policies. The plaintiffs have stipulated that they do not seek and will not accept more than $74,000 per person if they prevail on their claims. Early in 2002, two individual actions were filed against Metropolitan Life in federal court in Alabama alleging both federal and state law claims of racial discrimination in connection with the sale of life insurance policies issued. Metropolitan Life is contesting vigorously plaintiffs' claims in the Tennessee and Alabama actions. Other In March 2001, a putative class action was filed against Metropolitan Life in the United States District Court for the Southern District of New York alleging gender discrimination and retaliation in the MetLife Financial Services unit of the Individual segment. The plaintiffs seek unspecified compensatory damages, punitive damages, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices, an order restoring class members to their rightful positions (or appropriate compensation in lieu thereof), and other relief. Metropolitan Life is vigorously defending itself against these allegations. A lawsuit has been filed against Metropolitan Life in Ontario, Canada by Clarica Life Insurance Company regarding the sale of the majority of Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that Metropolitan Life breached certain representations and warranties contained in the sale agreement, that Metropolitan Life made misrepresentations upon which Clarica relied during the negotiations and that Metropolitan Life was negligent in the performance of certain of its obligations and duties under the sale agreement. Metropolitan Life is vigorously defending itself against this lawsuit. General American has received and responded to subpoenas for documents and other information from the office of the U.S. Attorney for the Eastern District of Missouri with respect to certain administrative services provided by its former Medicare Unit during the period January 1, 1988 through December 31, 1998, which services ended and which unit was disbanded prior to Metropolitan Life's acquisition of General American. The subpoenas were issued as part of the Government's criminal investigation alleging that General American's former Medicare Unit engaged in improper billing and claims payment practices. The Government is also conducting a civil investigation under the federal False Claims Act. General American is cooperating fully with the Government's investigations. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's F-42 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. The Company has recorded, in other expenses, charges of $250 million, $15 million and $499 million for the years ended December 31, 2001, 2000 and 1999, respectively. The charge in 2001 relates to race-conscious underwriting and the charges in 2000 and 1999 relate to sales practice claims. The charge in 1999 was principally related to the settlement of the multi-district litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. Summary It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular quarterly or annual periods. Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and sublease income, and minimum gross rental payments relating to these lease agreements were as follows:
Gross Rental Sublease Rental Income Income Payments ------ -------- -------- (Dollars in millions) 2002............................................. $ 759 $11 $129 2003............................................. 650 11 112 2004............................................. 594 10 91 2005............................................. 521 10 75 2006............................................. 439 10 59 Thereafter....................................... 1,669 16 134
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,898 million and $1,311 million at December 31, 2001 and 2000, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. 12. Acquisitions and Dispositions Dispositions In December 2001, the Company completed its sale of MIAC to the Holding Company. The amount received in excess of book value was recorded as a capital contribution from the Holding Company. Total assets and total liabilities F-43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of MIAC at the date of sale were $6,240 million and $5,219 million, respectively. Total revenues of MIAC included in the consolidated statements of income were $391 million, $509 million and $494 million for the years ended December 31, 2001, 2000 and 1999, respectively. On July 2, 2001, the Company completed its sale of Conning Corporation ("Conning"), an affiliate acquired in the acquisition of GenAmerica Financial Corporation ("GenAmerica"). Conning specializes in asset management for insurance company investment portfolios and investment research. The Company received $108 million in the transaction and reported a gain of approximately $16 million, net of income taxes of $9 million, in the third quarter of 2001. During the fourth quarter of 2000, the Company completed the sale of its 48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P. This transaction resulted in an investment gain of $663 million. Acquisitions On January 6, 2000, Metropolitan Life completed its acquisition of GenAmerica for $1.2 billion. As part of the GenAmerica acquisition, General American Life Insurance Company paid Metropolitan Life a fee of $120 million in connection with the assumption of certain funding agreements. The fee was considered part of the purchase price of GenAmerica. GenAmerica is a holding company which included General American Life Insurance Company, approximately 49% of the outstanding shares of RGA common stock and 61.0% of the outstanding shares of Conning common stock. Metropolitan Life owned 9% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. At December 31, 2001 Metropolitan Life's ownership percentage of the outstanding shares of RGA common stock was approximately 58%. On January 30, 2002, MetLife, Inc. and its affiliated companies announced their intention to purchase up to an additional $125 million of RGA's outstanding common stock, over an unspecified period of time. These purchases are intended to offset potential future dilution of the Company's holding of RGA's common stock arising from the issuance by RGA of company-obligated mandatorily redeemable securities of a subsidiary trust on December 10, 2001. In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73 million. The shares of Conning were subsequently sold in their entirety in July 2001. The Company's total revenues and net income for the year ended December 31, 1999 on both a historical and pro forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999 were as follows:
Total Revenues Net Income -------------- ---------- (Dollars in millions) Historical....................................... $25,128 $617 Pro forma (unaudited)............................ $28,973 $403
The pro forma results include adjustments to give effect to the amortization of discounts on fixed maturities, goodwill and value of business acquired, adjustments to liabilities for future policy benefits, and certain other adjustments, together with related income tax effects. The pro forma information is not necessarily indicative of the results that would have occurred had the purchase been made on January 1, 1999 or the future results of the combined operations. F-44 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Business Realignment Initiatives During the fourth quarter of 2001, the Company implemented several business realignment initiatives, which resulted from a strategic review of operations and an ongoing commitment to reduce expenses. The impact of these actions on a segment basis are as follows:
For the year ended December 31, 2001 --------------------- Net of Amount Income Tax ------ ---------- (Dollars in millions) Institutional.......................... $399 $267 Individual............................. 97 61 Auto & Home............................ 3 2 ---- ---- Total............................... $499 $330 ==== ====
Institutional The charges to this segment include costs associated with exiting a business, including the write-off of goodwill, severance, severance-related expenses, and facility consolidation costs. These expenses are the result of the discontinuance of certain 401(k) recordkeeping services and externally-managed guaranteed index separate accounts. These initiatives will result in the elimination of approximately 450 positions. These actions resulted in charges to policyholder benefits and claims and other expenses of $215 million and $184 million, respectively. Individual The charges to this segment include facility consolidation costs, severance and severance-related expenses, which predominately stem from the elimination of approximately 560 non-sales positions and 190 operations and technology positions supporting this segment. The costs were recorded in other expenses. Auto & Home The charges to this segment include severance and severance-related costs associated with the elimination of approximately 200 positions. The costs were recorded in other expenses. Although many of the underlying business initiatives were completed in 2001, a portion of the activity will continue into 2002. The liability as of December 31, 2001 was $295 million. 14. Income Taxes The provision for income taxes was as follows:
Years ended December 31 , --------------------- 2001 2000 1999 ---- ----- ---- (Dollars in millions) Current: Federal............................. $(22) $(131) $608 State and local..................... (4) 34 24 Foreign............................. 15 5 4 ---- ----- ---- (11) (92) 636 ---- ----- ---- Deferred: Federal............................. 814 555 (78) State and local..................... 32 8 2 Foreign............................. 1 6 (2) ---- ----- ---- 847 569 (78) ---- ----- ---- Provision for income taxes............. $836 $ 477 $558 ==== ===== ====
F-45 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
Years ended December 31, --------------------- 2001 2000 1999 ---- ----- ---- (Dollars in millions) Tax provision at U.S. statutory rate........ $813 $ 499 $411 Tax effect of: Tax exempt investment income............. (82) (52) (39) Surplus tax.............................. -- (145) 125 State and local income taxes............. 32 30 18 Prior year taxes......................... 36 (37) (31) Demutualization costs.................... -- 21 56 Payment to former Canadian policyholders. -- 114 -- Sales of businesses...................... 5 31 -- Other, net............................... 32 16 18 ---- ----- ---- Provision for income taxes.................. $836 $ 477 $558 ==== ===== ====
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
December 31, --------------------- 2001 2000 ------- ------ (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables. $ 3,033 $3,034 Net operating losses..................... 318 258 Employee benefits........................ 123 167 Litigation related....................... 279 232 Other.................................... 438 350 ------- ------ 4,191 4,041 Less: Valuation allowance................ 114 78 ------- ------ 4,077 3,963 ------- ------ Deferred income tax liabilities: Investments.............................. 2,053 1,329 Deferred policy acquisition costs........ 2,756 2,713 Net unrealized investment gains.......... 1,037 626 Other.................................... 124 37 ------- ------ 5,970 4,705 ------- ------ Net deferred income tax liability........... $(1,893) $ (742) ======= ======
Domestic net operating loss carryforwards amount to $481 million at December 31, 2001 and expire in 2021. Foreign net operating loss carryforwards amount to $401 million at December 31, 2001 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is F-46 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 15. Reinsurance The Company's life insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. Risks in excess of $25 million on single survivorship policies and $30 million on joint survivorship policies are 100 percent coinsured. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. In addition, the Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The Company is engaged in life reinsurance whereby it indemnifies other insurance companies for all or a portion of the insurance risk underwritten by the ceding companies. See Note 11 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Direct premiums......................... $16,257 $15,661 $13,249 Reinsurance assumed..................... 2,786 2,858 484 Reinsurance ceded....................... (2,020) (2,256) (1,645) ------- ------- ------- Net premiums............................ $17,023 $16,263 $12,088 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits...... $ 1,816 $ 1,934 $ 1,626 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,260 million and $3,304 million at December 31, 2001 and 2000, respectively, including $1,356 million and $1,359 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $286 million and $225 million at December 31, 2001 and 2000, respectively. Premiums and other receivables includes reinsurance receivables due from Exeter Reassurance Company, Limited, a related party, of $644 million and $470 million at December 31, 2001 and 2000, respectively. Other policyholder funds includes reinsurance assumed from MIAC, a related party, of $778 million at December 31, 2001. F-47 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Balance at January 1............................................................. $ 4,185 $ 3,789 $ 3,320 Reinsurance recoverables...................................................... (413) (415) (382) ------- ------- ------- Net balance at January 1......................................................... 3,772 3,374 2,938 ------- ------- ------- Acquisition of business.......................................................... -- 2 204 ------- ------- ------- Incurred related to: Current year.................................................................. 4,213 3,766 3,129 Prior years................................................................... (34) (111) (16) ------- ------- ------- 4,179 3,655 3,113 ------- ------- ------- Paid related to: Current year.................................................................. (2,567) (2,237) (2,012) Prior years................................................................... (1,239) (1,022) (869) ------- ------- ------- (3,806) (3,259) (2,881) ------- ------- ------- Net Balance at December 31....................................................... 4,145 3,772 3,374 Add: Reinsurance recoverables................................................. 423 413 415 ------- ------- ------- Balance at December 31........................................................... $ 4,568 $ 4,185 $ 3,789 ======= ======= =======
16. Other Expenses Other expenses were comprised of the following:
Years Ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (Dollars in millions) Compensation...................................................................... $ 2,447 $ 2,712 $ 2,590 Commissions....................................................................... 1,649 1,638 872 Interest and debt issue costs..................................................... 312 436 405 Amortization of policy acquisition costs (excludes amortization of $21, $(95), and $(46), respectively, related to realized investment losses)..................... 1,434 1,472 930 Capitalization of policy acquisition costs........................................ (2,018) (1,805) (1,160) Rent, net of sublease income...................................................... 280 230 172 Minority interest................................................................. 57 115 55 Other............................................................................. 3,303 3,133 2,598 ------- ------- ------- Total other expenses........................................................... $ 7,464 $ 7,931 $ 6,462 ======= ======= =======
17. Stockholder's Equity Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding calendar year and (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). Metropolitan Life will be permitted to pay a stockholder dividend to the Holding Company in F-48 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. For the year ended December 31, 2001, Metropolitan Life paid the Holding Company $721 million in dividends for which prior insurance regulatory clearance was not required and $3,033 million in special dividends, as approved by the Superintendent. Of the total dividend paid, $1,894 million (retained earnings from date of demutualization through the month the dividend was paid) was charged to retained earnings and $1,860 million was charged to additional paid-in-capital. For the year ended December 31, 2000, Metropolitan Life paid to the Holding Company $762 million in dividends for which prior insurance regulatory clearance was not required. At December 31, 2001, Metropolitan Life could pay the Holding Company a dividend of $546 million without prior approval of the Superintendent. Stock Compensation Plans Under the MetLife, Inc. 2000 Stock Incentive Plan (the "Stock Incentive Plan"), awards granted may be in the form of non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code. Under the MetLife, Inc. 2000 Directors Stock Plan, (the "Directors Stock Plan") awards granted may be in the form of stock awards or non-qualified stock options or a combination of the foregoing to outside Directors of the Company. The aggregate number of shares of MetLife common stock that may be awarded under the Stock Incentive Plan is subject to a maximum limit of 37,823,333 shares for the duration of the plan. The Directors Stock Plan has a maximum limit of 500,000 share awards. All options granted have an exercise price equal to the fair market value price of MetLife's common stock on the date of grant, and an option's maximum term is ten years. Certain options under the Stock Incentive Plan become exercisable over a three-year period commencing with date of grant, while other options become exercisable three years after the date of grant. Options issued under the Directors Stock Plan are exercisable at any time after April 7, 2002. The Company applies APB 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, in the measurement of compensation expense, the Company utilizes the excess of market price over exercise price on the first date that both the number of shares and award price are known. For the year ended December 31, 2001, compensation expense for non-employees related to MetLife's Stock Incentive Plan and Directors Stock Plan was $1 million, which was recorded by the Company. Had compensation cost for the MetLife, Inc. Stock Incentive Plan and Directors Stock Plan been determined based on fair value at the grant date for awards under those plans consistent with the method of SFAS No. 123, the Company's net income for the year ended December 31, 2001 would have been reduced to a pro forma amount of $1,468 million. The pro forma net income is not necessarily representative of the effects on net income in future years. The pro forma net income includes the Company's ownership share of compensation costs related to RGA's incentive stock plan determined in accordance with SFAS 123. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2001: dividend yield of 0.68%, expected price variability of 31.60%, risk-free interest rate of 5.72% and expected duration ranging from 4 to 6 years. Statutory Equity and Income Applicable insurance department regulations require that the insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to F-49 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt, and valuing securities on a different basis. In addition, New York State Statutory Accounting Practices do not provide for deferred income taxes. Statutory net income of Metropolitan Life, as filed with the Department, was $2,782 million, $1,027 million and $789 million for the years ended December 31, 2001, 2000 and 1999, respectively; statutory capital and surplus, as filed, was $5,358 million and $7,213 million at December 31, 2001 and 2000, respectively.
December 31, --------------------- 2001 2000 ------- ------- (Dollars in millions) Statutory capital and surplus of insurance subsidiaries..... $ 5,358 $ 7,213 GAAP adjustments for: Future policy benefits and policyholder account balances. (3,909) (4,012) Deferred policy acquisition costs........................ 10,169 10,061 Deferred income taxes.................................... (1,800) (381) Valuation of investments................................. 2,821 1,038 Statutory asset valuation reserves....................... 3,870 3,347 Statutory interest maintenance reserves.................. 392 547 Surplus notes............................................ (1,655) (1,650) Other, net............................................... (802) (147) ------- ------- Stockholder's Equity........................................ $14,444 $16,016 ======= =======
Years ended December 31, ----------------------- 2001 2000 1999 ------- ------ ----- (Dollars in millions) Net change in statutory capital and surplus of insurance subsidiaries $(1,855) $ (417) $ 242 GAAP adjustments for: Future policy benefits and policyholder account balances.......... 899 152 556 Deferred policy acquisition costs................................. 549 320 379 Deferred income taxes............................................. (848) (614) 154 Valuation of investments.......................................... 149 1,339 473 Statutory asset valuation reserves................................ 551 88 (226) Statutory interest maintenance reserves........................... (200) (571) (368) Dividends......................................................... 3,754 762 -- Sale of subsidiary................................................ (808) -- -- Other, net........................................................ (704) (110) (593) ------- ------ ----- Net income........................................................... $ 1,487 $ 949 $ 617 ======= ====== =====
The National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments, and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Department required adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. The adoption of the Codification in accordance with NAIC guidance would have increased Metropolitan Life's statutory capital and surplus by approximately $1.5 billion. The adoption of the Codification, as modified by the Department, increased Metropolitan Life's statutory capital and surplus by approximately $84 million, as of January 1, 2001. Further modifications by state insurance departments may impact the effect of the Codification on Metropolitan Life's statutory surplus and capital. F-50 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 18. Other Comprehensive Income (Loss) The following table sets forth the reclassification adjustments required for the years ended December 31, 2001, 2000 and 1999 to avoid double-counting in other comprehensive income (loss) items that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
December 31, ----------------------- 2001 2000 1999 ------ ------ ------- (Dollars in millions) Holding gains (losses) on investments arising during the year............................. $1,284 $2,807 $(6,314) Income tax effect of holding gains or losses.............................................. (509) (975) 2,262 Reclassification adjustments: Recognized holding losses included in current year income.............................. 579 989 38 Amortization of premium and discount on investments.................................... (475) (498) (307) Recognized holding losses allocated to other policyholder amounts...................... (33) (54) (67) Income tax effect...................................................................... (28) (152) 120 Allocation of holding (gains) losses on investments relating to other policyholder amounts (154) (977) 3,788 Income tax effect of allocation of holding gains or losses to other policyholder amounts.. 61 340 (1,357) Unrealized investment gain of subsidiary at date of sale.................................. (173) -- -- Deferred income taxes on unrealized investment gains of subsidiary at date of sale........ 64 -- -- ------ ------ ------- Net unrealized investment gains (losses).................................................. 616 1,480 (1,837) ------ ------ ------- Foreign currency translation adjustments arising during the year.......................... (58) (6) 50 Foreign currency translation of subsidiary at date of sale................................ 19 -- -- ------ ------ ------- Foreign currency translation adjustment................................................... (39) (6) 50 ------ ------ ------- Minimum pension liability adjustment...................................................... (18) (9) (7) ------ ------ ------- Other comprehensive income (loss)......................................................... $ 559 $1,465 $(1,794) ====== ====== =======
19. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Individual, Institutional, Reinsurance, Auto & Home, Asset Management and International. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care, and dental insurance, and other insurance products and services. Reinsurance provides life reinsurance and international life and disability on a direct and reinsurance basis. Auto & Home provides insurance coverages, including private passenger automobile, homeowners and personal excess liability insurance. Asset Management provides a broad variety of asset management products and services to individuals and institutions. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. F-51 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Set forth in the tables below is certain financial information with respect to the Company's operating segments as of or for the years ended December 31, 2001, 2000 and 1999. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation and the accounting for gains and losses from inter-company sales which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates non-recurring items (primarily consisting of expenses associated with the anticipated resolution of proceedings alleging race-conscious underwriting practices, sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products and demutualization costs) to Corporate & Other.
Auto Corporate At or for the year ended & Asset & December 31, 2001 Individual Institutional Reinsurance Home Management International Other Total ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums......................... $ 4,559 $ 7,288 $1,680 $2,755 $ -- $ 788 $ (47) $ 17,023 Universal life and investment- type product policy fees....... 1,245 592 -- -- -- 38 (1) 1,874 Net investment income............ 6,455 4,161 349 200 71 256 299 11,791 Other revenues................... 495 649 35 22 198 16 117 1,532 Net investment gains (losses).... 826 (15) (10) (17) 25 (16) 134 927 Policyholder benefits and claims. 5,228 8,924 1,386 2,121 -- 632 (26) 18,265 Interest credited to policyholder account balances............... 1,850 1,012 122 -- -- 51 -- 3,035 Policyholder dividends........... 1,767 259 -- -- -- 34 -- 2,060 Other expenses................... 3,004 1,907 481 800 252 315 705 7,464 Income (loss) before provision for income taxes............... 1,731 573 65 39 42 50 (177) 2,323 Net income (loss)................ 1,086 383 39 41 27 16 (105) 1,487 Total assets..................... 126,655 89,620 7,036 4,581 256 3,385 16,211 247,744 Deferred policy acquisition costs 8,451 509 1,052 179 -- 263 17 10,471 Separate account assets.......... 31,261 31,177 13 -- -- 277 (14) 62,714 Policyholder liabilities......... 83,783 52,035 4,626 2,610 -- 1,987 846 145,887 Separate account liabilities..... 31,261 31,177 13 -- -- 277 (14) 62,714
Auto Corporate At or for the year ended & Asset & December 31, 2000 Individual Institutional Reinsurance Home Management International Other Total ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums........................ $ 4,673 $ 6,900 $1,396 $2,636 $ -- $ 660 $ (2) $ 16,263 Universal life and investment- type product policy fees...... 1,221 547 -- -- -- 53 (1) 1,820 Net investment income........... 6,475 3,959 368 194 90 254 433 11,773 Other revenues.................. 650 650 29 40 760 9 121 2,259 Net investment gains (losses)... 227 (475) (2) (20) -- 18 (166) (418) Policyholder benefits and claims 5,054 8,178 1,045 2,005 -- 562 91 16,935 Interest credited to policyholder account balances. 1,680 1,090 109 -- -- 56 -- 2,935 Policyholder dividends.......... 1,742 124 15 -- -- 32 -- 1,913 Payments to former Canadian policyholders................. -- -- -- -- -- 327 -- 327 Demutualization costs........... -- -- -- -- -- -- 230 230 Other expenses.................. 3,323 1,730 506 827 784 292 469 7,931 Income (loss) before provision for income taxes.............. 1,447 459 116 18 66 (275) (405) 1,426 Net income (loss)............... 920 307 68 30 34 (285) (125) 949 Total assets.................... 132,433 89,725 6,386 4,511 418 5,119 15,130 253,722 Deferred policy acquisition costs......................... 8,610 446 910 176 -- 354 1 10,497 Separate account assets......... 34,860 33,918 28 -- -- 1,491 (47) 70,250 Policyholder liabilities........ 84,049 49,669 4,389 2,559 -- 2,435 (544) 142,557 Separate account liabilities.... 34,860 33,918 28 -- -- 1,491 (47) 70,250
F-52 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Auto Corporate For the year ended & Asset & December 31, 1999 Individual Institutional Reinsurance Home Management International Other Total -------------- ---------- ------------- ----------- ------ ---------- ------------- --------- ------- (Dollars in millions) Premiums.......................... $4,289 $5,525 $-- $1,751 $ -- $523 $ -- $12,088 Universal life and investment-- type product policy fees........ 888 502 -- -- -- 43 -- 1,433 Net investment income............. 5,346 3,755 -- 103 80 206 326 9,816 Other revenues.................... 381 609 -- 21 803 12 35 1,861 Net investment (losses) gains..... (14) (31) -- 1 -- 1 (27) (70) Policyholder benefits and claims.. 4,625 6,712 -- 1,301 -- 458 4 13,100 Interest credited to policyholder account balances................ 1,359 1,030 -- -- -- 52 -- 2,441 Policyholder dividends............ 1,509 159 -- -- -- 22 -- 1,690 Demutualization costs............. -- -- -- -- -- -- 260 260 Other expenses.................... 2,542 1,569 -- 514 795 248 794 6,462 Income (loss) before provision for income taxes.................... 855 890 -- 61 88 5 (724) 1,175 Net income (loss)................. 555 567 -- 56 51 21 (633) 617
For the year ended December 31, 2001 the Institutional, Individual, Reinsurance and Auto & Home segments include $287 million, $24 million, $9 million and $5 million, respectively, of pre-tax losses associated with the September 11, 2001 tragedies. See Note 2. The Institutional, Individual and Auto & Home segments include $399 million, $97 million and $3 million, respectively, in pre-tax charges associated with business realignment initiatives for the year ended December 31, 2001. See Note 13. For the year ended December 31, 2001, the Individual segment includes $118 million of pre-tax expenses associated with the establishment of a policyholder liability for certain group annuity policies. For the year ended December 31, 2001, pre-tax gross investment gains of $1,027 million, $142 million and $357 million resulting from the sale of certain real estate properties to MIAC are included in the Individual segment, the Institutional segment and Corporate & Other, respectively. The Individual segment included an equity ownership interest in Nvest under the equity method of accounting. Nvest was included within the Asset Management segment due to the types of products and strategies employed by the entity. The Individual segment's equity in earnings of Nvest, which is included in net investment income, was $30 million and $48 million for the years ended December 31, 2000 and 1999, respectively. The Individual segment includes $538 million (after allocating $118 million to participating contracts) of the pre-tax gross investment gain on the sale of Nvest in 2000. As part of the GenAmerica acquisition in 2000, the Company acquired General American Life Insurance Company, the results of which are included primarily in the Individual segment. The Reinsurance segment includes the life reinsurance business of RGA, acquired in 2000, combined with Exeter, an ancillary life reinsurance business of the Company. Exeter has been reported as a component of the Individual segment rather than as a separate segment for periods prior to January 1, 2000 due to its immateriality. The Auto & Home segment includes the standard personal lines property and casualty insurance operations of The St. Paul Companies which were acquired in September 1999. As part of the GenAmerica acquisition in 2000, the Company acquired Conning, the results of which are included in the Asset Management segment due to the types of products and strategies employed by the entity from its acquisition date to July 2001, the date of its disposition. The Company sold Conning, receiving $108 million in the transaction and reported a gain of approximately $16 million, net of income taxes of $9 million, in the third quarter of 2001. F-53 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Corporate & Other segment consists of various start-up entities and run-off entities, as well as the elimination of all intersegment amounts. In addition, the elimination of the Individual segment's ownership interest in Nvest is included for the years ended December 31, 2000 and 1999. The principal component of the intersegment amounts relates to intersegment loans, which bear interest rates commensurate with related borrowings. Net investment income and net investment gains and losses are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $32,065 million, $30,703 million and $24,343 million for the years ended December 31, 2001, 2000 and 1999, respectively, which represented 97% each year, of consolidated revenues. F-54 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING PURSUANT TO RULE 484(B)(1) UNDER THE SECURITIES ACT OF 1933 Directors, officers and employees of Metropolitan Life are indemnified by Metropolitan Life and insured under its Directors and Officers Liability Policy in the amount of $50,000,000, subject to a $5,000,000 deductible. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Metropolitan Life pursuant to the foregoing provisions, or otherwise, Metropolitan Life has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Metropolitan Life of expenses incurred or paid by a director, officer or controlling person of Metropolitan Life in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Metropolitan Life will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 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. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. UL2001 Prospectus consisting of 170 pages. ULII Prospectus supplement consisting of 135 pages. Undertaking to File Reports. Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933. II-1 Representation with respect to fees and charges. The signatures. Written Consents of the following persons: Anne M. Goggin, Esq. 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..... ++++ --(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)Forms of illustrations............................................... ** --(h)Participation Agreement with New England Zenith Fund................. **** --(i)Endorsement--Long Term care guaranteed purchase...................... + --(j)Participation Agreement with Met Investors Series Trust.............. ******* --(k)Participation Agreement with American Funds.......................... ****** (6) --(a)Restated Charter and By-Laws of Metropolitan Life.................... *** (b) Amended & Restated Charter & By-Laws of Metropolitan Life........... ******* (7) --Not Applicable (8) --Not Applicable (9) --Not Applicable (10) Form of Application (included in Exhibit 1.A.(5)(a) above) (11) Registrant is not required to have a code of ethics under Rule 17j-1, because its only assets are shares of registered open-end management investment companies. 2. --See Exhibit 1.A(5) above 3.a --Opinion and consent of Christopher P. Nicholas as to the legality of the securities being registered............................................. ++++++
II-2 .b --Opinion and consent of Anne M. Goggin as to the legality of the securities being registered.......................................................... ***** .c --Consent of Anne M. Goggin, Esq............................................ + 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.a --Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)....................................................... ++++ .b --Addendum to 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 Prospectuses 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, Virginia M. Wilson's power of attorney, which is incorporated by reference to Pre-Effective Amendment No. 2 to the Registration Statement of Metropolitan Life Separate Account E (File No. 333-80547) filed on November 1, 1999, and William C. Steere's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 8 of Separate Account UL (File no. 33-57320) on April 23, 1999, and John C. Danforth's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 27 of Separate Account E (File No. 2-90380) on April 3, 2001. ++++++ 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. ** Included in the filing of Post-Effective Amendment No. 10 to this Registration Statement on April 2, 1999. *** Included in the filing of Post-Effective Amendment No. 11 to this Registration Statement on April 6, 2000. **** Including in the filing of Post-Effective Amendment No. 10 of Separate Account UL (File No. 33-57320) on September 18, 2000. ***** Included in the filing of Post-Effective Amendment No. 12 of Separate Account UL (File No. 033-47927) on April 10, 2001. ****** Included in the filing of Pre-Effective Amendment No. 1 of MetLife Separate Account E (File No. 333-52366) on August 3, 2001. *******Included in the filing of the N-4 Registration Statement of MetLife Separate Account E (File No. 333-83716) on March 5, 2002. II-3 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 24th day of April, 2002. METROPOLITAN LIFE INSURANCE COMPANY (SEAL) By: /S/ GARY A. BELLER --------------------------------- Gary A. Beller Senior Executive Vice-President & General Counsel Attest: /S/ JAMES D. GAUGHAN ------------------------- James D. Gaughan 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 and Chief Robert H. Benmosche 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 ---------------------------------- Controller (Principal Virginia M. Wilson Accounting Officer) * Director ---------------------------------- Curtis H. Barnette *By /S/ CHRISTOPHER P. NICHOLAS April 24, 2002 --------------------------------- Christopher P. Nicholas, Esq. Attorney-in-fact
II-4
Signature Title Date --------- ----- ---- * Director ---------------------------------- John C. Danforth * Director ---------------------------------- Burton A. Dole, Jr. * Director ---------------------------------- James R. Houghton * Director ---------------------------------- Harry P. Kamen * Director ---------------------------------- Helene L. Kaplan ---------------------------------- Director Catherine R. Kinney * Director ---------------------------------- Charles M. Leighton * Director ---------------------------------- John J. Phelan, Jr. * Director ---------------------------------- Hugh B. Price * Director ---------------------------------- William C. Steere, Jr. *By /S/ CHRISTOPHER P. NICHOLAS April 24, 2002 --------------------------------- Christopher P. Nicholas, Esq. Attorney-in-fact
II-5 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 24th day of April, 2002. METROPOLITAN LIFE SEPARATE ACCOUNT UL (Registrant) By: METROPOLITAN LIFE INSURANCE COMPANY (Depositor) (SEAL) By: /S/ GARY A. BELLER --------------------------------- Gary A. Beller Senior Executive Vice-President & General Counsel Attest: /S/ JAMES D. GAUGHAN ------------------------- James D. Gaughan Assistant Secretary II-6 INDEPENDENT AUDITORS' CONSENT METROPOLITAN LIFE SEPARATE ACCOUNT UL: We consent to the use in this Post-Effective Amendment No. 13 to Registration Statement No. 33-47927 of Metropolitan Life Separate Account UL on Form S-6 of our report dated March 26, 2002, relating to Metropolitan Life Separate Account UL, and our report dated February 12, 2002, relating to Metropolitan Life Insurance Company, both appearing in the Prospectus and Prospectus Supplement, which are a part of such Registration Statement, and to the reference to us under the heading "Legal, Accounting and Actuarial Matters" in such Prospectus and Prospectus Supplement. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP New York, New York April 22, 2002 II-7