-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/UMAS81w80gR2FTI3oNmaFibsCcriZkTHQXcnHoM0HxmWWEhnygXgY6PkDuofAB 1mRNcLWuOiJtRBT3RIFGNA== 0001047469-98-016261.txt : 19980424 0001047469-98-016261.hdr.sgml : 19980424 ACCESSION NUMBER: 0001047469-98-016261 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19980423 EFFECTIVENESS DATE: 19980423 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-57320 FILM NUMBER: 98599661 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06025 FILM NUMBER: 98599662 BUSINESS ADDRESS: STREET 1: 1 MADISON AVE STREET 2: METROPOLITAN LIFE INSURANCE CO CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2125788717 MAIL ADDRESS: STREET 1: 1 MADISON AVENUE STREET 2: LAW DEPARTMENT AREA 7 G CITY: NEW YORK STATE: NY ZIP: 10010 485BPOS 1 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998 REGISTRATION NO. 33-57320 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- POST-EFFECTIVE AMENDMENT NO. 7 To FORM S-6 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 -------------- METROPOLITAN LIFE SEPARATE ACCOUNT UL (Exact name of trust) METROPOLITAN LIFE INSURANCE COMPANY (Name of depositor) 1 MADISON AVENUE, NEW YORK, NEW YORK 10010 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ GARY A. BELLER, ESQ. SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL METROPOLITAN LIFE INSURANCE COMPANY 1 MADISON AVENUE NEW YORK, NEW YORK 10010 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) ------------------------ COPIES TO: GARY O. COHEN, ESQ. AND THOMAS C. LAUERMAN, ESQ. FREEDMAN, LEVY, KROLL & SIMONDS 1050 CONNECTICUT AVENUE, N.W. WASHINGTON, D.C. 20036 ------------------- It is proposed that the filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b) of Rule 485 /X/ on May 1, 1998, pursuant to paragraph (b) of Rule 485 / / 60 days after filing pursuant to paragraph (a) 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 FORM N-8B-2 CAPTIONS IN PROSPECTUS ---------------- ----------------------------------------------------------------------------------------- 1................................... Cover Page 2................................... SUMMARY--Who is the Issuer of the Policies? 3................................... Inapplicable 4................................... SALES AND ADMINISTRATION OF THE POLICIES; SUMMARY--Who is the Issuer of the Policies? 5,6,7............................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account; STATE REGULATION 8................................... FINANCIAL STATEMENTS 9................................... Inapplicable 10................................... OTHER POLICY PROVISIONS--Owner; Beneficiary; Collateral Assignment 10(c), 10(d)......................... DEFINITIONS--Valuation Date; SUMMARY--May the Policy be Surrendered or the Cash Value Partially Withdrawn; Is There a "Free Look" Period?; POLICY BENEFITS--Benefit at Final Date; POLICY RIGHTS--Surrender and Withdrawal Privileges; Exchange Privilege; PAYMENT AND ALLOCATION OF PREMIUMS--Allocation of Premiums and Cash Value, Cash Value Transfers; THE FIXED ACCOUNT--Transfers, Withdrawals, Surrenders, and Policy Loans; OTHER POLICY PROVISIONS--Payment and Deferment 10(e)................................ PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement 10(f)................................ VOTING RIGHTS 10(g)(1)-(3), 10(h)(1)-(3)........... RIGHTS RESERVED BY METROPOLITAN LIFE 10(g)(4), 10(h)(4)................... Inapplicable 10(i)................................ POLICY BENEFITS--Death Benefits; Death Benefit Options; Cash Value; Optional Income Plans; Optional Insurance Benefits; PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Policy; Premiums; Allocation of Premiums and Cash Value; Policy Termination and Reinstatement 11................................... SUMMARY--What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund? SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund 12(a)................................ Cover Page 12(b), 12(e)......................... Inapplicable 12(c), 12(d)......................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND-- Metropolitan Series Fund 13(a), 13(b), 13(c), 13(d)........... SUMMARY--What are Separate Account UL, the Fixed Account and Metropolitan Series Fund?; What Charges are Assessed in Connection with the Policy? CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account; POLICY BENEFITS--Death Benefit Increases 13(e)................................ SALES AND ADMINISTRATION OF THE POLICIES 13(f), 13(g)......................... Inapplicable 14................................... PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Policy; SALES AND ADMINISTRATION OF THE POLICIES
I-1
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS ---------------- ----------------------------------------------------------------------------------------- 15................................... PAYMENT AND ALLOCATION OF PREMIUMS 16................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND-- Metropolitan Series Fund 17(a), 17(b)......................... Captions referenced under Items 10(c), 10(d), 10(e) and 10(i) above 17(c)................................ Inapplicable 18(a), 18(c)......................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND 18(b), 18(d)......................... Inapplicable 19................................... SALES AND ADMINISTRATION OF THE POLICIES; VOTING RIGHTS; REPORTS 20(a), 20(b)......................... RIGHTS RESERVED BY METROPOLITAN LIFE; SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account 20(a), 20(b)20(c), 20(d), 20(e), 20(f)................................ Inapplicable 21(a), 21(b)......................... POLICY RIGHTS--Loan Privileges; OTHER POLICY PROVISIONS-- Payment and Deferment 21(c), 22............................ Inapplicable 23................................... SALES AND ADMINISTRATION OF THE POLICIES 24................................... OTHER POLICY PROVISIONS 25................................... SUMMARY--Who is the Issuer of the Policies? 26................................... CHARGES AND DEDUCTIONS--Other Charges 27................................... SUMMARY--Who is the Issuer of the Policies? 28................................... MANAGEMENT 29................................... Inapplicable 30, 31, 32, 33, 34................... Inapplicable 35................................... STATE REGULATION 36, 37............................... Inapplicable 38................................... SALES AND ADMINISTRATION OF THE POLICIES; DISTRIBUTION OF THE POLICIES 39................................... SUMMARY--Who is the Issuer of the Policies?; SALES AND ADMINISTRATION OF THE POLICIES; DISTRIBUTION OF THE POLICIES 40(a)................................ Inapplicable 40(b)................................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND-- Metropolitan Series Fund; CHARGES AND DEDUCTIONS--Other Charges 41(a)................................ SUMMARY--Who is the Issuer of the Policies?; SALES AND ADMINISTRATION OF THE POLICIES 41(b), 41(c), 42, 43................. Inapplicable 44(a)................................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND-- Metropolitan Series Fund; POLICY BENEFITS--Cash Value 44(b)................................ Inapplicable 44(c)................................ CHARGES AND DEDUCTIONS--Monthly Deduction From Cash Value 45................................... Inapplicable 46................................... Captions referenced under Item 44 above 47................................... Captions referenced under Items 10(c) and 16 above 48, 49............................... Inapplicable 50................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account
I-2
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS ---------------- ----------------------------------------------------------------------------------------- 51(a), 51(b)......................... SUMMARY--Who is the Issuer of the Policies?; Cover Page; POLICY BENEFITS--Optional Insurance Benefits; POLICY RIGHTS--Exchange Privileges 51(c), 51(d), 51(e).................. Captions referenced under Item 10(i) above 51(f)................................ PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement 51(g)................................ Captions referenced under Items 10(i) and 13 above 51(h), 51(j)......................... Inapplicable 51(i)................................ DISTRIBUTION OF THE POLICIES 52(a), 52(c)......................... RIGHTS RESERVED BY METROPOLITAN LIFE 52(b), 52(d)......................... Inapplicable 53(a)................................ FEDERAL TAX MATTERS 53(b), 54 through 58................. Inapplicable 59................................... FINANCIAL STATEMENTS
I-3 FLEXIBLE PREMIUM VARIABLE LIFE PROSPECTUSES FOR - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY - METROPOLITAN SERIES FUND, INC. MAY 1, 1998 PROSPECTUS FOR FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES (Minimum Initial Specified Face Amount $100,000) Issued by METROPOLITAN LIFE INSURANCE COMPANY The individual flexible premium variable life insurance policies ("Policies") offered by this Prospectus are issued by Metropolitan Life Insurance Company ("Metropolitan Life") and are designed to provide lifetime insurance coverage on the insureds named in the Policies, as well as flexibility in connection with premium payments and death benefits. This flexibility allows an owner of a Policy to provide for changing insurance needs within the confines of a single insurance policy. The Policies are sold to employers, employer sponsored plans, or other organizations or individuals associated with such employers or other organizations and involve employer or organization ownership or sponsorship. The Policies may be used for financing non-qualified deferred compensation plans, other post-employment benefits, certain employer sponsored payroll deduction programs or for other purposes. Each Policy provides for a death benefit payable at the insured's death as long as the Policy is still in effect. The Policy owner may choose either Death Benefit Option A (the death benefit is fixed in amount), Death Benefit Option B (the death benefit includes the Policy's cash value in addition to a fixed insurance amount) or Death Benefit Option C (the death benefit includes the amount of Policy premiums paid that exceeds withdrawals made, in addition to a fixed insurance amount). If greater than the death benefit otherwise payable under Option A, B or C, a minimum death benefit equivalent to a percentage of the cash value will be paid. The premiums paid, less premium expense charges, will be allocated at the owner's discretion among one or more investment divisions of Metropolitan Life Separate Account UL ("Separate Account") and/or a fixed interest account ("Fixed Account") within the General Account of Metropolitan Life. The assets in each investment division are invested in shares of a corresponding portfolio of the Metropolitan Series Fund, Inc. ("Fund"). The accompanying prospectus for the Fund describes the investment objectives and certain attendant risks of the eleven currently available portfolios of the Fund: State Street Research Growth Portfolio, State Street Research Income Portfolio, State Street Research Money Market Portfolio, State Street Research Diversified Portfolio, State Street Research International Stock Portfolio, State Street Research Aggressive Growth Portfolio, MetLife Stock Index Portfolio, Loomis Sayles High Yield Bond Portfolio, T. Rowe Price Small Cap Growth Portfolio, Janus Mid Cap Portfolio, and Scudder Global Equity Portfolio. The Policy's cash value will vary with the investment experience of the Separate Account investment divisions to which amounts are allocated and the fixed rates of interest earned by allocations to the Fixed Account. The cash value will also be adjusted for other factors, including the amount of charges imposed and the premium payments made. The Policy owner may withdraw or borrow a portion of the Policy's cash surrender value, or the Policy may be fully surrendered, at any time, subject to certain limitations. The Policy owner has the flexibility to vary the frequency and amount of premium payments, subject to certain restrictions and conditions. Metropolitan Life is the investment manager of the Fund and the distributor of its shares. Metropolitan Life also distributes and administers the Policies. State Street Research & Management Company ("State Street Research") is the sub-investment manager with respect to the State Street Research International Stock, State Street Research Money Market, State Street Research Growth, State Street Research Income, State Street Research Diversified and State Street Research Aggressive Growth Portfolios of the Fund. GFM International Investors, Inc. ("GFM") is the sub-sub-investment manager with respect to the State Street Research International Stock Portfolio of the Fund. Loomis, Sayles & Company, L.P. ("Loomis Sayles") is the sub-investment manager with respect to the Loomis Sayles High Yield Bond Portfolio. Janus Capital Corporation ("Janus") is the sub-investment manager for the Janus Mid Cap Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price") is the sub-investment manager for the T. Rowe Price Small Cap Growth Portfolio. Scudder Kemper Investments, Inc. ("Scudder") is the sub-investment manager for the Scudder Global Equity Portfolio. As in the case of other life insurance policies, it may not be advantageous to purchase flexible premium variable life insurance as a replacement for an existing life insurance policy or in addition to an existing flexible premium variable life insurance policy. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. 1 Madison Avenue, New York, New York 10010 Telephone (732) 602-6400 TABLE OF CONTENTS
PAGE ----- DEFINITIONS............................................. 3 SUMMARY................................................. 5 Who is the Issuer of the Policies?.................... 5 What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?....................... 5 What Death Benefits are Available under the Policy?... 6 What is the Policy's Cash Value?...................... 6 What Flexibility Does a Policy Owner have to Adjust the Amount of the Death Benefit?.................... 6 What Flexibility Does a Policy Owner have in Connection with Premium Payments?................... 6 How Long Will the Policy Remain in Force?............. 7 How are Net Premiums Allocated?....................... 7 May the Policy be Surrendered or the Cash Value Partially Withdrawn?................................ 7 Is There a "Free Look" Period?........................ 8 What is the Loan Privilege?........................... 8 What Charges are Assessed in Connection with the Policy?............................................. 8 What is the Tax Treatment of Cash Value?.............. 9 Is the Beneficiary Subject to Federal Income Tax on the Death Benefit?.................................. 9 Is the Death Benefit or the Cash Value Subject to Federal Estate Tax?................................. 9 When are Premium Payments, Policy Owner Requests and Other Communications Deemed to be Received?......... 9 SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND........... 10 The Separate Account.................................. 10 Metropolitan Series Fund.............................. 10 POLICY BENEFITS......................................... 12 Death Benefits........................................ 12 Death Benefit Options................................. 12 Cash Value............................................ 17 Benefit at Final Date................................. 18 Optional Income Plans................................. 18 Optional Insurance Benefits........................... 19 PAYMENT AND ALLOCATION OF PREMIUMS...................... 19 Issuance of a Policy.................................. 19 Premiums.............................................. 19 PAGE ----- Allocation of Premiums and Cash Value................. 20 Policy Termination and Reinstatement.................. 22 CHARGES AND DEDUCTIONS.................................. 22 Premium Expense Charges............................... 22 Transfer Charge....................................... 23 Monthly Deduction From Cash Value..................... 23 Variations in Charges................................. 25 Charges Against the Separate Account.................. 25 Guarantee of Certain Charges.......................... 25 Other Charges......................................... 25 ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES AND ACCUMULATED PREMIUMS.................................. 25 POLICY RIGHTS........................................... 33 Loan Privileges....................................... 33 Surrender and Withdrawal Privileges................... 34 Exchange Privilege.................................... 35 THE FIXED ACCOUNT....................................... 35 General Description................................... 35 Fixed Account Benefits................................ 36 Fixed Account Cash Value.............................. 36 Transfers, Withdrawals, Surrenders and Policy Loans... 36 RIGHTS RESERVED BY METROPOLITAN LIFE.................... 36 OTHER POLICY PROVISIONS................................. 37 SALES AND ADMINISTRATION OF THE POLICIES................ 38 DISTRIBUTION OF THE POLICIES............................ 38 FEDERAL TAX MATTERS..................................... 39 Taxation of the Policy................................ 39 Taxation of Metropolitan Life......................... 41 MANAGEMENT.............................................. 42 VOTING RIGHTS........................................... 45 Right to Instruct Voting of Fund Shares............... 45 Disregard of Voting Instructions...................... 45 REPORTS................................................. 45 STATE REGULATION........................................ 46 REGISTRATION STATEMENT.................................. 46 LEGAL MATTERS........................................... 46 EXPERTS................................................. 46 FINANCIAL STATEMENTS.................................... 46 APPENDIX TO PROSPECTUS.................................. 47
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. METROPOLITAN LIFE DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY METROPOLITAN LIFE. 2 DEFINITIONS AGE--The age in full years of the insured at issue of the Policy, plus the number of full Policy years completed since issue. A full Policy year is completed upon the commencement of the next succeeding Policy year. BENEFICIARY--The beneficiary is the entity or entities and/or person or persons designated by the owner of the Policy to receive the insurance proceeds upon the death of the insured. CASH SURRENDER VALUE--The cash value less any indebtedness. CASH VALUE--The sum of the Policy cash values in the Fixed Account, the investment divisions of the Separate Account and the Policy Loan Account. DATE OF POLICY--The date set forth in the Policy that is used to determine Policy years and Policy months from issue. Policy anniversaries are measured from the Date of Policy. DELIVERY RECEIPT--The document signed by the Policy owner and sent to Metropolitan Life at its Designated Office which acknowledges receipt by the Policy owner of the Policy. DESIGNATED OFFICE--The home office of Metropolitan Life at 1 Madison Avenue, New York, New York 10010, to which all Policy owner communications are to be sent. Metropolitan Life may, by written notice, name other locations within the United States to serve as designated offices, in place of or in addition to the home office. FINAL DATE--The Policy anniversary on which the insured is age 95. In states where permitted, the Policy owner may elect to continue the Policy after the Final Date. FIXED ACCOUNT--An account which is part of the General Account and to which Metropolitan Life will allocate net premiums as directed by the owner of a Policy and credit certain fixed rates of interest. GENERAL ACCOUNT--The assets of Metropolitan Life other than those allocated to the Separate Account or any other legally segregated separate account. GROUP--An employer, employer sponsored plan or other organization. GUIDELINE ANNUAL PREMIUM--The level annual amount of premium that would be payable through the Final Date of a Policy for the specified face amount of the Policy if premiums were fixed by Metropolitan Life as to both timing and amount and were based on 1980 Commissioners Standard Ordinary Mortality Tables, net investment earnings at an annual effective rate of 5%, and fees and charges as set forth in the Policy and any Policy riders. INDEBTEDNESS--The total of any unpaid Policy loan and loan interest. INSURED--The person upon whose life the Policy is issued. INVESTMENT START DATE--The date the first premium is applied to the Fixed Account and/or the Separate Account. It is the later of (1) the Date of Policy and (2) the date the first premium for a Policy is received at the Designated Office. INVESTMENT DIVISION--A subdivision of the Separate Account. The assets in each investment division are invested exclusively in the shares of a specified portfolio. LARGE GROUP--A group that has a large number of individuals associated with it as determined by Metropolitan Life pursuant to administrative standards that Metropolitan Life will apply uniformly. However, Metropolitan Life reserves the right to change the standards for Policies issued subsequent to the change. LOAN VALUE--The maximum amount that may be borrowed under the Policy. The loan value equals the Policy's cash surrender value less two monthly deductions, or, if greater, 75% (90% in Virginia and Maryland) of the cash surrender value (or, in Texas, the Policy's cash surrender value less two monthly deductions or 100% of the cash surrender value in the Fixed Account and 75% of the cash surrender value in the Separate Account, if greater). MINIMUM INITIAL SPECIFIED FACE AMOUNT--The minimum specified face amount of insurance for which a Policy may be issued. Currently, the amount is $100,000. MONTHLY ANNIVERSARY--The same date in each month as the Date of Policy. For purposes of the Separate Account, whenever the monthly anniversary date falls on a date other than a Valuation Date, the next Valuation Date will be deemed to be the monthly anniversary. 3 MONTHLY DEDUCTION--Charges deducted monthly from the cash value of a Policy and which include the monthly cost of term insurance, the monthly cost of any benefits provided by riders (excluding the interim term insurance benefit rider), and the monthly mortality and expense risk charge and any underwriting expense charge. PLANNED PERIODIC PREMIUM--The Policy owner's self-determined level-amount premium planned to be paid at fixed intervals over a specified period of time. The Policy owner is not required to follow this schedule after the first premium payment. POLICY--The flexible premium variable life insurance policy offered by Metropolitan Life and described in this Prospectus. POLICY LOAN ACCOUNT--An account within the General Account to which cash value from the Separate Account and/or the Fixed Account in an amount equal to a Policy loan requested by a Policy owner is transferred. POLICY MONTH--The month beginning on a monthly anniversary. POLICY OWNER ("OWNER")--An employer, employer sponsored plan or other organization or an individual associated with such employer or organization, so designated in the application or as subsequently changed. The Policy owner may designate another person or entity to exercise rights under the Policy with the approval of Metropolitan Life. PORTFOLIO--A portfolio represents a different class (or series) of stock of Metropolitan Series Fund, Inc., a mutual fund in which the Separate Account assets are invested. SEPARATE ACCOUNT--Metropolitan Life Separate Account UL, a separate investment account of Metropolitan Life through which premiums paid under the Policy are invested to the extent allocated to the Separate Account by the Policy owner. SPECIFIED FACE AMOUNT--Amount of insurance specified on the face of the Policy. TARGET PREMIUM--Currently, for Policies issued prior to May 1, 1996 or issued to or in connection with large groups, fifty percent of the estimated annual amount which satisfies the 7-Pay test based on the initial specified face amount of insurance, as established as of the Date of Policy. For Policies issued on or after May 1, 1996, in connection with other than large groups, 100% of the estimated annual amount that satisfies the 7-Pay test based on the issue age of the insured and the specified face amount of insurance and standard underwriting class, as established as of the Date of Policy. For such Policies issued in connection with other than large groups, the target premium amount is increased and decreased proportionately for increases and decreases in the specified face amount. VALUATION DATE--Each day on which the New York Stock Exchange is open for trading or, on days other than when the New York Stock Exchange is open, on which it is determined that there is a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. Valuations for any date other than a Valuation Date will be determined as of the next Valuation Date. VALUATION PERIOD--The period between two successive Valuation Dates, commencing at the close of regular trading on the New York Stock Exchange on each Valuation Date and ending at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. This Prospectus describes only those aspects of the Policy that relate to the Separate Account since only interests in the Separate Account are being offered by this Prospectus. Aspects of the Fixed Account are briefly summarized in order to give a better understanding of how the Policy functions (see "The Fixed Account"). 4 SUMMARY Unless the context indicates otherwise, this summary and the discussion in the rest of this Prospectus assume that cash surrender values are sufficient to pay all charges deducted on monthly anniversaries, that no Policy loans have been made and that no riders are in effect (see "Loan Privileges--Effect of a Policy Loan," "Payment and Allocation of Premiums--Policy Termination and Reinstatement" and "Appendix to Prospectus"). WHO IS THE ISSUER OF THE POLICIES? Metropolitan Life, the issuer of the Policies, is a mutual life insurance company. It was incorporated under the laws of the State of New York in 1866 and since 1868 it has been engaged in the life insurance business under the name Metropolitan Life Insurance Company. Its Home Office is located at 1 Madison Avenue, New York, New York 10010. It is authorized to transact business in all states of the United States, the District of Columbia, Puerto Rico and all Provinces of Canada. Metropolitan Life, serving millions of people, is one of the largest financial services companies in the world with many of the largest United States corporations for its clients. On December 31, 1997, Metropolitan Life had total life insurance in force of approximately $1.7 trillion and total assets under management of approximately $330.3 billion. WHAT ARE SEPARATE ACCOUNT UL, THE FIXED ACCOUNT AND THE METROPOLITAN SERIES FUND? The owner of a Policy may allocate the net premiums paid under the Policy to one or more of the investment divisions of the Separate Account, a separate investment account of Metropolitan Life (see "The Separate Account" and/or to a Fixed Account established by Metropolitan Life). There are currently eleven investment divisions in the Separate Account. The assets in each division are invested in a separate class (or series) of stock of the Fund, a "series" type of mutual fund (see "Metropolitan Series Fund"). Each class of stock represents a separate portfolio within the Fund. The eleven portfolios of the Fund are the State Street Research Growth Portfolio, the State Street Research Income Portfolio, the State Street Research Money Market Portfolio, the State Street Research Diversified Portfolio, the State Street Research Aggressive Growth Portfolio, the State Street Research International Stock Portfolio, the MetLife Stock Index Portfolio, the Loomis Sayles High Yield Bond Portfolio, the T. Rowe Price Small Cap Growth Portfolio, the Janus Mid Cap Portfolio, and the Scudder Global Equity Portfolio. Some of the divisions may not be available in all states. Consult a sales representative registered with Metropolitan Life for more information. Net premiums allocated to the Fixed Account are held in the General Account of Metropolitan Life. Each Portfolio of the Fund has a different investment objective and is managed by Metropolitan Life. Metropolitan Life receives a fee from the Fund for providing investment management services to each Portfolio of the Fund. The following chart shows the fee and other Fund expenses for each Portfolio. METROPOLITAN SERIES FUND ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS(A))
OTHER EXPENSES MANAGEMENT FEES AFTER EXPENSE (B) REIMBURSEMENT (C) --------------- ----------------- MetLife Stock Index Portfolio............................................................ .25% .08% State Street Research Income Portfolio................................................... .33% .10% State Street Research Money Market Portfolio............................................. .25% .24% State Street Research Diversified Portfolio.............................................. .44% .06% State Street Research Growth Portfolio................................................... .49% .07% State Street Research Aggressive Growth Portfolio........................................ .71% .08% T. Rowe Price Small Cap Growth Portfolio................................................. .55% .18% Scudder Global Equity Portfolio.......................................................... .90% .22% Loomis Sayles High Yield Bond Portfolio.................................................. .70% .20% Janus Mid Cap Portfolio.................................................................. .75% .14% State Street Research International Stock Portfolio...................................... .75% .28% TOTAL --------- MetLife Stock Index Portfolio............................................................ .33% State Street Research Income Portfolio................................................... .43% State Street Research Money Market Portfolio............................................. .49% State Street Research Diversified Portfolio.............................................. .50% State Street Research Growth Portfolio................................................... .56% State Street Research Aggressive Growth Portfolio........................................ .79% T. Rowe Price Small Cap Growth Portfolio................................................. .73% Scudder Global Equity Portfolio.......................................................... 1.12% Loomis Sayles High Yield Bond Portfolio.................................................. .90% Janus Mid Cap Portfolio.................................................................. .89% State Street Research International Stock Portfolio...................................... 1.03%
- ------------ (a) Except for the annual expenses for the Loomis Sayles High Yield Bond, T. Rowe Price Small Cap Growth, Scudder Global Equity and Janus Mid Cap Portfolios, which are expressed as a percentage of the year-end net assets. (b) The marginal fee rate for the State Street Research Income Portfolio, State Street Research Diversified Portfolio, State Street Research Growth Portfolio, State Street Research Aggressive Growth Portfolio, State Street Research International Stock Portfolio, T. Rowe Price Small Cap Growth Portfolio, Janus Mid Cap Portfolio, and Scudder Global Equity Portfolio will decrease when the dollar amount in each such Portfolio reaches certain threshold amounts. 5 (c) Expenses for the T. Rowe Price Small Cap Growth, Janus Mid Cap, Scudder Global Equity and Loomis Sayles High Yield Bond Portfolios are based on estimated amounts for 1998. Metropolitan Life agreed to bear all expenses (other than management fees, brokerage commissions, taxes, interest and any extraordinary or non-recurring expenses) in excess of .20% of the net assets for each of the Loomis Sayles High Yield Bond, T. Rowe Price Small Cap Growth, Janus Mid Cap and Scudder Global Equity Portfolios until a Portfolio's total net assets are at least $100 million, or March 2, 1999, whichever is earlier. Expenses for the Loomis Sayles High Yield Bond and the Scudder Global Equity Portfolios, absent the reimbursement, would have been .39% and .31%, respectively. Metropolitan Life ceased subsidizing expenses for the Janus Mid Cap Portfolio as of December 31, 1997 and the T. Rowe Price Small Cap Growth Portfolio as of January 23, 1998, when the particular Portfolio's assets exceeded $100 million. For a full description of the Fund, see the prospectus for the Fund, which is attached at the end of this Prospectus, and the Fund's Statement of Additional Information referred to therein. WHAT DEATH BENEFITS ARE AVAILABLE UNDER THE POLICY? The Policy provides for the payment of a benefit upon the death of the insured. The Policy contains three death benefit options. The Policy owner must select one of the options to be in effect at issue. The Policy owner can change options while the insured is living. Under Death Benefit Option A, the death benefit is the specified face amount of the Policy. Under Death Benefit Option B, the death benefit is the specified face amount of the Policy plus the cash value on the date of death. Under Death Benefit Option C, the death benefit is the specified face amount of the Policy plus the amount of premiums paid that exceeds withdrawals made (see "May the Policy be Surrendered or the Cash Value Partially Withdrawn?"). If greater than the death benefit otherwise payable under Option A, Option B or Option C, a minimum death benefit equivalent to a percentage, determined by age at death, of the cash value will be paid. The insurance proceeds payable will be reduced by any outstanding indebtedness and any due and unpaid charges accrued during the grace period (see "Policy Benefits--Death Benefits"). In addition, a Policy owner has the flexibility to add optional insurance benefits by rider. These include an accidental death benefit rider, a disability waiver benefit rider, an accelerated death benefit rider and an interim term insurance benefit rider (see "Policy Benefits--Optional Insurance Benefits"). The cost of the first two optional insurance benefits will be deducted from the cash value as part of the monthly deduction (see "Charges and Deductions--Monthly Deduction From Cash Value"). There is no charge for the accelerated death benefit rider. The cost of the interim term insurance benefit rider is paid for separately from any costs deducted from the Policy since it provides insurance for a period prior to the Date of Policy. In many states, the Policy owner has the flexibility to include a yearly renewable term rider when the Policy is issued, the cost of which will be deducted from the cash value as part of the monthly deduction. This may be more economical for certain Policies. The yearly renewable term rider is generally not available with Policies issued to or in connection with large groups. Proceeds under the Policy may be received in cash or under one of the optional income plans set forth in the Policy (see "Policy Benefits--Optional Income Plans"). WHAT IS THE POLICY'S CASH VALUE? The Policy's cash value in the Separate Account will reflect the amount and frequency of premium payments allocated to the Separate Account, transfers from the Fixed Account, loan repayments, the investment experience of the relevant investment divisions of the Separate Account, any partial withdrawals, any Policy indebtedness and any charges imposed in connection with the Policy (see "Policy Benefits--Cash Value"). There is no minimum guaranteed cash value with respect to amounts allocated to the Separate Account. The Policy's total cash value will also reflect any amounts allocated to the Fixed Account (see "The Fixed Account") and the Policy Loan Account (see "Loan Privileges--Effect of a Policy Loan"). WHAT FLEXIBILITY DOES A POLICY OWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT? Subject to certain limitations, the Policy owner may change the death benefit option or increase or decrease the specified face amount (see "Policy Benefits--Change in Death Benefit Option"). Any increases in the death benefit may require additional evidence of insurability satisfactory to Metropolitan Life (see "Policy Benefits--Change in Specified Face Amount"), and result in additional charges (see "Policy Benefits--Increases", and "Effect of Changes in Specified Face Amount on Charges"). An increase or decrease in the death benefit may have tax consequences (see "Federal Tax Matters"). WHAT FLEXIBILITY DOES A POLICY OWNER HAVE IN CONNECTION WITH PREMIUM PAYMENTS? A Policy owner has considerable flexibility concerning the amount and frequency of premium payments. The first premium must equal the planned periodic premium (see "Premiums--Premium Limitations"). After the first premium 6 payment, a Policy owner may, subject to certain restrictions, make premium payments in any amount and at any frequency. However, the Policy owner may be required to make an unscheduled premium payment in order to keep the Policy in force (see "Payment and Allocation of Premiums"). HOW LONG WILL THE POLICY REMAIN IN FORCE? The Policy will terminate only when its cash surrender value is insufficient to pay the monthly deduction (see "Charges and Deductions--Monthly Deduction from Cash Value"), and the grace period expires without a sufficient payment being made (see "Policy Termination and Reinstatement--Termination"). Therefore, the failure to pay a planned periodic premium will not automatically cause the Policy to terminate. Nevertheless, under the circumstances described above, the Policy can terminate, even if planned periodic premiums have been paid. Thus, the payment of planned periodic premiums does not guarantee that the Policy will remain in force until its final date. HOW ARE NET PREMIUMS ALLOCATED? The portion of the premium available for allocation ("net premium") equals the premium paid less premium expense charges (see "Charges and Deductions--Premium Expense Charges"). The Policy owner designates in the application (in the case where the Owner is an individual) or in the delivery receipt (in the case where the Owner is other than an individual), what portions, if any, of net premiums are to be allocated to the investment divisions of the Separate Account. The Policy owner designates in the application what portion, if any, of net premiums are to be allocated to the Fixed Account. Allocations with respect to the Fixed Account are effective as of the Investment Start Date. Allocations with respect to the investment divisions of the Separate Account are effective as of the end of the free-look period; prior to the end of the free-look period, net premium payments allocated to the investment divisions of the Separate Account will be invested in the State Street Research Money Market Portfolio as of the Investment Start Date (see "Is there a 'Free Look' Period?"). A Policy owner may change allocations of future net premiums at any time after the end of the free-look period without charge by notifying Metropolitan Life in writing, subject to certain limitations (see "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value"). The change will be effective as of the Date of Receipt at the Designated Office of the written notification. Because investment performance of a Separate Account investment division (unlike that of the Fixed Account) is not guaranteed by Metropolitan Life, allocation of net premiums to the Separate Account investment divisions increases the amount of investment risk to the Policy owner, and allocation to the Fixed Account decreases such risk. On the other hand, the potential benefit of the Fixed Account is limited to the return guaranteed by Metropolitan Life plus any discretionary return declared by Metropolitan Life from time to time. After the end of the free-look period (see "Is there a 'Free Look' Period?"), a Policy owner may transfer amounts among the investment divisions of the Separate Account or between the Separate Account and the Fixed Account up to six times a Policy year without charge (see "Charges and Deductions--Transfer Charge"). In the first 24 Policy months, a Policy owner may transfer the entire amount in the Separate Account to the Fixed Account without charge (see "Policy Rights--Exchange Privilege" and "The Fixed Account--Transfers, Withdrawals, Surrenders, and Policy Loans"). A Policy owner may also elect to participate in one of the systematic investment strategies (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). MAY THE POLICY BE SURRENDERED OR THE CASH VALUE PARTIALLY WITHDRAWN? The Policy owner may surrender the Policy at any time and receive the cash surrender value of the Policy. Subject to certain limitations, the Policy owner also may make partial withdrawals from the cash surrender value at any time prior to the final date. The Policy owner must notify Metropolitan Life in writing requesting a surrender or partial withdrawal (see "Policy Rights--Surrender and Withdrawal Privileges"). No charge will be imposed on partial withdrawals or a surrender. If Death Benefit Option A is in effect, partial withdrawals will reduce the Policy's specified face amount by the amount of the partial withdrawal. If Death Benefit Option B is in effect, partial withdrawals will not reduce the Policy's specified face amount. If Death Benefit Option C is in effect, partial withdrawals will only reduce the Policy's specified face amount by the excess of cumulative withdrawals over cumulative premiums paid (see "Death Benefits"). Payment of surrenders and withdrawals may be delayed under certain circumstances (see "Other Policy Provisions--Payment and Deferment," and "The Fixed Account--Transfers, Withdrawals, Surrenders, and Policy Loans"). Surrenders and withdrawals may have certain tax consequences (see "Federal Tax Matters"). 7 IS THERE A "FREE LOOK" PERIOD? The Policy provides for a free-look period. The Policy owner may return the Policy during the free-look period, which is the period ending on the later of 10 days after the Policy owner receives the Policy (except where state law requires a longer period for replacement policies or other reasons) or the date Metropolitan Life receives a signed delivery receipt. Metropolitan Life will send the Policy owner a complete refund of any premiums paid within 7 days. The refund of any premium paid by check, however, may be delayed until the check has cleared the Policy owner's bank. Net premium payments allocated to the Separate Account will be invested in the State Street Research Money Market Portfolio during the free-look period. Net premium payments will not be allocated to the Separate Account investment divisions designated by the Policy owner until Metropolitan Life receives a signed delivery receipt (or, if later, 10 days after receipt of the Policy by the Policy owner). In addition, no cash value transfers or participation in systematic investment strategies will be permitted until after the end of the free-look period. WHAT IS THE LOAN PRIVILEGE? A Policy owner may obtain a Policy loan at any time that the Policy has a loan value. The loan value equals the cash surrender value of the Policy less two monthly deductions, or if greater, 75% (90% for Policies issued in Virginia and Maryland) of the cash surrender value (or, for Policies issued in Texas, the Policy's cash surrender value less two monthly deductions or 100% of the cash surrender value in the Fixed Account and 75% of the cash surrender value in the Separate Account, if greater). Loan interest is charged daily at the rate Metropolitan Life sets from time to time. This rate will never be more than the maximum allowed by law and will not change more often than once a year on the anniversary of the date of the Policy. Loan interest is payable at the end of each Policy year. Loans and accrued interest may be repaid at any time prior to the Final Date (see "Loan Privileges"). WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE POLICY? PREMIUM EXPENSE CHARGES. Total premium expense charges of up to 13.5% in the first ten Policy years and up to 7.5% in Policy year eleven and later are deducted from all premium payments. These charges consist of an administrative charge of up to 1.05%, a charge of 1.2% to recover a portion of Metropolitan Life's federal income taxes that are based on premium payments, a state premium tax charge of 2.25% and a sales charge. For Policies issued prior to May 1, 1996 or to or in connection with large groups, the maximum sales charge is 1% of each premium. For Policies issued to or in connection with other groups on or after May 1, 1996, the maximum sales charge is 9% of premiums paid in each of the first ten Policy years and 3% of premiums paid in each Policy year thereafter until the total of such payments in each such Policy year equals the annual target premium for that year. For these Policies, the sales charge is reduced to 0% for payments made in excess of the annual target premium in any Policy year (See "Variations in Charges"). For all Policies, the administrative charge is reduced by 1% on the portion of any premiums paid in a Policy year which exceeds the annual target premium. (See "Charges and Deductions--Premium Expense Charges.") The administrative charge is used to compensate Metropolitan Life for expenses incurred in administering, issuing and underwriting of the Policy. These expenses include the cost of processing applications, conducting medical examinations, determining insurability and the insured's risk class, and establishing policy records. Metropolitan Life does not expect to derive a profit from this charge. TRANSFER CHARGES. At the present time, there is no charge assessed the first six times in a Policy year that amounts are transferred among the different investment divisions of the Separate Account and between the investment divisions and the Fixed Account. For each subsequent transfer in that Policy year, a charge of $25 is assessed (see "Charges and Deductions--Transfer Charge"). There is no charge for any transfer made pursuant to a systematic investment strategy. In addition, transfers made pursuant to any systematic investment strategy are not included in the six charge free transfers permitted each Policy year (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). MONTHLY DEDUCTION. Cash value will be reduced by a monthly deduction equal to the sum of (1) a monthly cost of term insurance charge, and (2) the cost of any optional insurance benefits added by rider (except for the interim term insurance benefit rider) (see "Charges and Deductions--Monthly Deduction from Cash Value"), and (3) a monthly charge currently equivalent to an effective annual rate of up to .60% (up to .39% after the ninth policy year) of the Policy cash value in the Separate Account. This charge is to compensate Metropolitan Life for its assumption of certain mortality and expense risks (see "Charges and Deductions--Charge for Mortality and Expense Risks") and is guaranteed not to exceed an effective annual rate of .90%. 8 Any increases in specified face amount requested by a Policy owner may result in a one-time underwriting expense charge of up to $3.00 per thousand dollars of increase (see "Policy Benefits--Increases"). The monthly deduction will vary in amount from month to month. SEPARATE ACCOUNT TAXES. No charges are currently made against the Separate Account for federal or state income taxes with respect to earnings or capital gains which may be attributable to the Separate Account. Should Metropolitan Life determine that such taxes will be imposed, Metropolitan Life may make deductions from the Separate Account to pay these taxes (see "Federal Tax Matters"). The imposition of such taxes would result in a reduction of the cash value in the Separate Account. REDUCED CHARGES. Metropolitan Life may reduce the charges in certain situations. These situations would involve Internal Revenue Code section 1035 exchanges from another Metropolitan Life policy to this Policy and corporate sales where the premium amount, number of lives, location, or other factors result in savings in sales, administrative or other costs. These reductions in charges will not be unfairly discriminatory to any Policy owners. WHAT IS THE TAX TREATMENT OF CASH VALUE? Cash value under a Policy is subject to the same federal income tax treatment as cash value under a conventional fixed benefit life insurance policy. Under existing tax law, if a Policy is not a modified endowment contract as discussed in the following paragraphs, a Policy owner generally will be taxed on cash value withdrawn from the Policy, the cash value received upon surrender of the Policy or the cash value distributed at the Final Date of a Policy only to the extent these amounts, when added to previous distributions, exceed the total premiums paid. Amounts received upon surrender, withdrawal or on the Final Date of a Policy in excess of premiums paid will be treated as ordinary income. Special rules govern pre-death withdrawals from life insurance contracts referred to as modified endowment contracts. In short, if your Policy fails the "7-pay test" described under "Federal Tax Matters--Taxation of the Policy" your Policy would be classified as a modified endowment contract. Pre-death withdrawals (including policy loans) from modified endowment contracts are treated differently than withdrawals from other life insurance contracts in the following ways: -- amounts withdrawn would be treated as income first and taxed accordingly; -- an additional 10% income tax penalty would generally be imposed on the taxable portion of amounts received before age 59 1/2. If a Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increase in cash value may be taxable annually. An individual should consult with and rely on the advice of a tax advisor with respect to any type of split dollar arrangement involving a Policy. For more information, see "Federal Tax Matters." IS THE BENEFICIARY SUBJECT TO FEDERAL INCOME TAX ON THE DEATH BENEFIT? Like death benefits payable under conventional fixed benefit life insurance policies, death benefit proceeds payable under the Policy under current law are generally completely excludable from the gross income of the beneficiary. As a result, the beneficiary generally will not be taxed on death benefit proceeds (see "Federal Tax Matters"). IS THE DEATH BENEFIT OR THE CASH VALUE SUBJECT TO FEDERAL ESTATE TAX? The death benefit under the Policy or the cash value may be subject to federal estate tax (see "Federal Tax Matters"). WHEN ARE PREMIUM PAYMENTS, POLICY OWNER REQUESTS AND OTHER COMMUNICATIONS DEEMED TO BE RECEIVED? Premium payments and other communications (such as transfer requests, loan requests, loan repayments, withdrawal requests, surrender requests, changes of beneficiary, changes of the specified face amount of insurance or death benefit option, or changes of premium allocation) should be sent to the Designated Office for the Policy. Metropolitan Life may name different Designated Offices for different transactions. Premium payments and communications will be deemed to be received at the Designated Office on the date they are actually received at such office ("Date of Receipt"), with two exceptions: (1) when they are received on any day that is not a Valuation Date and (2) when they are received by means other than U.S. mail after the close of regular trading on the New York Stock Exchange. Absent extraordinary circumstances, regular trading on the New York Stock Exchange ends at 4:00 p.m. New York City time. In these two 9 cases, the Date of Receipt will be deemed to be the next Valuation Date. In the future Metropolitan Life may permit transfer and withdrawal or other requests to be made by telephone. To exercise rights under a Policy, the owner must follow the procedures stated in the Policy. To request a payment, change the allocation among the investment divisions, change the beneficiary, change the specified face amount of insurance or death benefit option, change an address or request any other action by Metropolitan Life, the owner should utilize the forms prepared by Metropolitan Life for each purpose. The forms are available from the Designated Offices. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND THE SEPARATE ACCOUNT The Separate Account, which is a separate investment account of Metropolitan Life, was established by Metropolitan Life pursuant to the New York Insurance Law on December 13, 1988. The Separate Account also receives premium payments in connection with flexible premium multifunded life insurance policies and group variable universal life insurance policies issued by Metropolitan Life. The assets allocated to the Separate Account are the property of Metropolitan Life, and Metropolitan Life is not a trustee by reason of the Separate Account. Metropolitan Life may accumulate in the Separate Account charges, mortality gains and investment gains on those assets (which represent such charges) in the Separate Account and other amounts in excess of Metropolitan Life's liabilities and reserves with respect to the Separate Account. The Separate Account meets the definition of "separate account" under the federal securities laws. All income, gains and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of Metropolitan Life. Each Policy provides that such portion of the assets in the Separate Account as equals the liabilities (and reserves) of Metropolitan Life with respect to the Separate Account shall not be chargeable with liabilities arising out of any other business of Metropolitan Life. Metropolitan Life may from time to time transfer to its General Account any assets in the Separate Account in excess of such reserves and liabilities. The liabilities are Metropolitan Life's total commitments under the Policies; the reserves are the assets allocated to pay these commitments. Although the Separate Account is an integral part of Metropolitan Life, the Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"). Registration does not involve supervision of management or investment practices or policies of the Separate Account or of Metropolitan Life by the Commission. There currently are eleven investment divisions in the Separate Account. The assets in each investment division are invested in a separate class (or series) of stock issued by the Fund. Each class of stock represents a separate portfolio within the Fund. New investment divisions may be added as new portfolios are added to the Fund and made available to Policy owners. In addition, investment divisions may be eliminated from the Separate Account. The owner of a Policy may designate how the net premiums under the Policy are to be allocated among the then current investment divisions. METROPOLITAN SERIES FUND The Fund is a "series" type of mutual fund which is registered with the Securities and Exchange Commission as a diversified open-end management investment company under the 1940 Act. The Fund has served as the investment medium for the Separate Account since the Separate Account commenced operations. A brief summary of the investment objectives of each Fund portfolio presently available to Policy owners is set forth below. STATE STREET RESEARCH GROWTH PORTFOLIO: The investment objective of this portfolio is to achieve long-term growth of capital and income, and moderate current income, by investing primarily in common stocks that are believed to be of good quality or to have good growth potential or which are considered to be undervalued based on historical investment standards. STATE STREET RESEARCH INCOME PORTFOLIO: The investment objective of this portfolio is to achieve the highest possible total return, by combining current income with capital gains, consistent with prudent investment risk and the preservation of capital, by investing primarily in fixed-income, high-quality debt securities. STATE STREET RESEARCH MONEY MARKET PORTFOLIO: The investment objective of this portfolio is to achieve the highest possible current income consistent with the preservation of capital and maintenance of liquidity, by investing primarily in short-term money market instruments. STATE STREET RESEARCH DIVERSIFIED PORTFOLIO: The investment objective of this portfolio is to achieve a high total return while attempting to limit investment risk and preserve capital by investing in equity securities, fixed-income debt 10 securities, or short-term money market instruments, or any combination thereof, at the discretion of State Street Research. STATE STREET RESEARCH AGGRESSIVE GROWTH PORTFOLIO: The investment objective of this portfolio is to achieve maximum capital appreciation by investing primarily in common stocks (and equity and debt securities convertible into or carrying the right to acquire common stocks) of emerging growth companies, undervalued securities or special situations. STATE STREET RESEARCH INTERNATIONAL STOCK PORTFOLIO: The investment objective of this portfolio is to achieve long-term growth of capital by investing primarily in common stocks and equity-related securities of non-United States companies. METLIFE STOCK INDEX PORTFOLIO: The investment objective of this portfolio is to equal the performance of the Standard & Poor's 500 Composite Stock Price Index (adjusted to assume reinvestment of dividends) by investing in the common stock of companies which are included in the index. LOOMIS SAYLES HIGH YIELD BOND PORTFOLIO: The investment objective of this portfolio is to achieve high total investment return through a combination of current income and capital appreciation. The portfolio will normally invest at least 65% of its assets in fixed income securities of below investment grade quality. JANUS MID CAP PORTFOLIO: The investment objective of this non-diversified portfolio is to provide long-term growth of capital. It pursues this objective by investing primarily in securities issued by medium sized companies. T. ROWE PRICE SMALL CAP GROWTH PORTFOLIO: The investment objective of this portfolio is to achieve long-term capital growth by investing in small capitalization companies. SCUDDER GLOBAL EQUITY PORTFOLIO: The investment objective of this portfolio is to achieve long-term growth of capital through a diversified portfolio of marketable securities, primarly equity securities, including common stocks, preferred stocks and debt securities convertible into common stocks. The portfolio invests on a worldwide basis in equity securities of companies which are incorporated in the U.S. or in foreign countries. The Loomis Sayles High Yield Bond, T. Rowe Price Small Cap Growth, Janus Mid Cap, and Scudder Global Equity investment divisions and portfolios may not be available in all states. Consult a sales representative registered with Metropolitan Life for additional information. Metropolitan Life acts as the investment manager for the Fund; State Street Research, a wholly-owned subsidiary of Metropolitan Life, provides sub-investment management services with respect to the State Street Research International Stock, State Street Research Money Market, State Street Research Growth, State Street Research Income, State Street Research Diversified and State Street Research Aggressive Growth Portfolios; GFM, a subsidiary of State Street Research, provides sub-sub-investment management services with respect to the State Street Research International Stock Portfolio; Loomis Sayles is the sub-investment manager with respect to the Loomis Sayles High Yield Bond Portfolio. The general partner of Loomis Sayles is indirectly owned by Metropolitan Life. Janus is the sub-investment manager for the Janus Mid Cap Portfolio. T. Rowe Price is the sub-investment manager for the T. Rowe Price Small Cap Growth Portfolio. Scudder is the sub-investment manager for the Scudder Global Equity Portfolio. Metropolitan Life purchases and redeems Fund shares for the Separate Account at their net asset value without the imposition of any sales or redemption charges. Such shares represent an interest in one of the portfolios of the Fund which correspond to the investment divisions of the Separate Account. Any dividend or capital gain distributions received from the Fund are likewise reinvested in Fund shares at net asset value as of the dates paid. The distributions have the effect of reducing the value of each share of the Fund and increasing the number of Fund shares outstanding. However, the total cash value in the Separate Account does not change as a result of such distributions. On each Valuation Date, shares of each portfolio are purchased or redeemed by Metropolitan Life for the Separate Account, based on, among other things, the amounts of net premiums allocated to the Separate Account, dividends and distributions reinvested, transfers to and among investment divisions, Policy loans, loan repayments and benefit payments to be effected pursuant to the terms of the Policies as of that date. Such purchases and redemptions for the Separate Account are effected at the net asset value per share for each portfolio determined as of the end of that same Valuation Date. A full description of the Fund, its investment policies and restrictions, its charges and other aspects of its operation is contained in the prospectus for the Fund, which is attached at the end of this Prospectus, and in the Statement of Additional Information referred to therein. See "The Fund and its Purpose," in the prospectus for the Fund for a discussion of the different separate accounts for Metropolitan Life and its affiliates that invest in the Fund and the risks related thereto. 11 POLICY BENEFITS Unless otherwise stated, the discussion below assumes that no riders under the Policy are in effect. In particular, the discussion below does not take into account the effect of obtaining a portion of the desired insurance coverage under the yearly renewable term rider. Obtaining a portion of insurance coverage in this manner may be more economical than taking the full amount of insurance coverage under the Policy. In determining whether this option is more economical, a Policy owner must consider the amount of sales charge due under the Policy as well as the higher current cost of insurance charges due under the yearly renewable term rider. See the Appendix to Prospectus for a discussion of how this and certain other riders can affect benefits under the Policy. DEATH BENEFITS As long as the Policy remains in force (see "Policy Termination and Reinstatement--Termination"), Metropolitan Life will, upon due proof of the insured's death, pay the insurance proceeds of the Policy to the named beneficiary. The proceeds may be received by the beneficiary in a single sum or under one or more of the optional income plans set forth in the Policy (see "Optional Income Plans"). The amount of insurance proceeds is determined as of the end of the Valuation Period that includes the insured's date of death. The insurance proceeds are: The death benefit provided under Option A, Option B or Option C, whichever is elected and in effect on the date of death minus any outstanding indebtedness and any due and unpaid charges accruing during the grace period. DEATH BENEFIT OPTIONS The Policy provides three death benefit options: Option A, Option B and Option C as described below. The Policy owner designates the desired option in the application and can change the option by written request (see "Change in Death Benefit Option"). Option A--The death benefit is equal to the specified face amount of insurance. Option B--The death benefit is equal to the specified face amount of insurance plus the cash value. Option C--The death benefit is equal to the specified face amount of insurance plus the amount of premiums paid that exceeds withdrawals made. Minimum Death Benefit--Under either Option A, Option B or Option C, there is a minimum death benefit equal to the greater of (1) the death benefit under the option chosen, plus the amount of coverage under any yearly renewable term rider, and (2) a percentage of the cash value as computed pursuant to the Cash Value Accumulation test formula below and generally reflected in Table II below or, for Policies issued in connection with large groups and depending which form of Policy is elected, a percentage of cash value set forth in Table I below. For Policies issued in connection with large groups, the standard Policy contains a minimum death benefit determined under Table I. If the large group Policy owner elects a Policy with a special endorsement, the death benefit will be determined in accordance with the terms of the endorsement which are generally reflected in Table II. Any discussion of Table I in the Prospectus is applicable only to Policies issued in connection with large groups that have not elected the special endorsement. Sales representatives registered with Metropolitan Life will have more information as to whether Table II is available in a particular case. Once the Policy is issued the Policy owner may not change the table elected. The minimum death benefit is determined in accordance with federal income tax laws, to ensure that the Policy qualifies as a life insurance contract and that the insurance proceeds will be excluded from the gross income of the beneficiary. Table I ensures that the Policy qualifies under the Internal Revenue Code Guideline Premium/Cash Value Corridor test. The Cash Value Accumulation test formula as reflected generally in Table II ensures that the Policy qualifies under the Internal Revenue Code Cash Value Accumulation test. The Cash Value Accumulation test can be advantageous to a Policy owner who intends to pay a greater amount of premiums into the Policy. This is the case because the Policy will qualify as life insurance even though the Policy owner is paying a higher level of premium than allowed under the Guideline Premium/Cash Value Corridor test. However, the death benefit under the Cash Value Accumulation test (and thus the monthly cost of term insurance) could be higher. The advantage of the Cash Value Accumulation test may be eliminated if the Policy owner does not intend to exceed the 7-pay test limit. The 7-pay test sets a limit on the amount of premiums which may be paid under a Policy during any 7-pay testing period (usually the first 7 Policy years after issue or after a material modification of the Policy) without incurring possible adverse tax consequences. If premiums paid exceed such limit during any 7-pay testing period, any partial withdrawals, Policy loans and other distributions may be subject to adverse federal income tax consequences (see "Federal Tax Matters--Taxation of the Policy"). 12 TABLE I--GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
ATTAINED AGE AT BEGINNING PERCENTAGE OF OF POLICY YEAR CASH VALUE - ------------------------------------- --------------- 40 and less:......................... 250% 45:.................................. 215% 50:.................................. 185% 55:.................................. 150% 60:.................................. 130% 65:.................................. 120% 70:.................................. 115% ATTAINED AGE AT BEGINNING PERCENTAGE OF OF POLICY YEAR CASH VALUE - ------------------------------------- --------------- 75:.................................. 105% 80:.................................. 105% 85:.................................. 105% 90:.................................. 105% 94:.................................. 101% 95:.................................. 100% 100 and greater:..................... 100%
For the ages not listed, the percentage generally decreases by a ratable portion for each full year. 13 CASH VALUE ACCUMULATION TEST FORMULA Using the Cash Value Accumulation test, the death benefit shall never be less than (a) divided by (b), where (a) = the Cash Value immediately before the death of the insured, and (b) = the net single premium immediately before the death of the insured (computed on the basis of the 1980 CSO mortality table and on the basis of interest at the greater of an annual effective rate of 4% or the rate or rates guaranteed on issuance of the policy and as otherwise required under section 7702 of the Internal Revenue Code) for one dollar of death benefit. Generally this means that the death benefit will never be less than the percentage of cash value shown below. TABLE II--CASH VALUE ACCUMULATION TEST
AGE ON PERCENTAGE OF CASH VALUE DATE OF ---------------------------------- DEATH MALE FEMALE UNISEX - ---------------- ---------- ---------- ---------- 20 661.64% 787.90% 683.29% 21 642.51% 762.72% 663.26% 22 623.75% 738.28% 643.58% 23 605.25% 714.54% 624.22% 24 587.03% 691.42% 605.18% 25 569.05% 669.03% 586.48% 26 551.33% 647.29% 568.12% 27 533.93% 626.21% 550.12% 28 516.96% 605.77% 532.51% 29 500.35% 585.96% 515.36% 30 484.14% 566.76% 498.65% 31 468.43% 548.19% 482.42% 32 453.17% 530.22% 466.68% 33 438.38% 512.82% 451.45% 34 424.11% 495.98% 436.72% 35 410.29% 479.71% 422.46% 36 396.95% 464.02% 408.71% 37 384.10% 448.89% 395.48% 38 371.73% 434.33% 382.72% 39 359.83% 420.38% 370.45% 40 348.37% 406.98% 358.67% 41 337.37% 394.12% 347.35% 42 326.80% 381.78% 336.49% 43 316.66% 369.93% 326.04% 44 306.90% 358.53% 316.01% 45 297.53% 347.55% 306.35% 46 288.52% 336.97% 297.07% 47 279.86% 326.77% 288.15% 48 271.53% 316.94% 279.56% 49 263.51% 307.46% 271.30% 50 255.81% 298.31% 263.35% 51 248.39% 289.50% 255.71% 52 241.28% 281.01% 248.37% 53 234.47% 272.84% 241.32% 54 227.94% 264.98% 234.58% 55 221.70% 257.40% 228.12% 56 215.72% 250.09% 221.94% 57 210.00% 243.02% 216.00% AGE ON PERCENTAGE OF CASH VALUE DATE OF ---------------------------------- DEATH MALE FEMALE UNISEX - ---------------- ---------- ---------- ---------- 58 204.52% 236.17% 210.30% 59 199.25% 229.51% 204.81% 60 194.20% 223.05% 199.55% 61 189.35% 216.79% 194.48% 62 184.72% 210.75% 189.63% 63 180.29% 204.94% 184.99% 64 176.07% 199.39% 180.56% 65 172.04% 194.07% 176.34% 66 168.21% 188.99% 172.31% 67 164.55% 184.10% 168.46% 68 161.05% 179.40% 164.78% 69 157.70% 174.86% 161.24% 70 154.50% 170.47% 157.85% 71 151.44% 166.23% 154.60% 72 148.53% 162.18% 151.51% 73 145.78% 158.31% 148.58% 74 143.20% 154.66% 145.82% 75 140.77% 151.21% 143.21% 76 138.49% 147.96% 140.76% 77 136.34% 144.89% 138.45% 78 134.31% 141.98% 136.25% 79 132.37% 139.21% 134.15% 80 130.51% 136.58% 132.14% 81 128.73% 134.09% 130.21% 82 127.03% 131.72% 128.37% 83 125.42% 129.50% 126.62% 84 123.90% 127.41% 124.97% 85 122.47% 125.44% 123.40% 86 121.10% 123.58% 121.90% 87 119.77% 121.80% 120.45% 88 118.46% 120.07% 119.02% 89 117.12% 118.35% 117.56% 90 115.71% 116.60% 116.03% 91 114.15% 114.75% 114.37% 92 112.35% 112.72% 112.49% 93 110.19% 110.38% 110.26% 94 107.46% 107.54% 107.49% 95 and over 100.00% 100.00% 100.00%
14 Option A, Option B and Option C each provide insurance protection as well as possible build-up of cash value. Under Option A, the insurance protection remains level unless the minimum death benefit applies. Under Option B, the insurance protection varies as the cash value changes. Under Option C, the insurance protection varies as the (i) sum of premiums paid, and (ii) the amount of cash value withdrawn, changes. For any specified face amount, assuming there have been no withdrawals from the Policy, the amount of the death benefit will be greater under Option B and Option C, than under Option A, since the cash value or premiums paid is added to the specified face amount and included in the death benefit under Option B and Option C, respectively, but not under Option A. By the same token, the cost of term insurance included in the monthly deduction (see "Charges and Deductions--Cost of Term Insurance") will be greater, and thus the accumulation of cash value will be lower, under Option B and Option C than under Option A, assuming the same specified face amount and the same actual premiums paid. Since under Option C, the death benefit includes the sum of premiums paid (less any withdrawals), this Option would be desirable in those situations where recovery of premiums paid is an important consideration. The cost of term insurance under Option C would generally be lower than under Option B, when the sum of premiums paid (less any withdrawals) is less than the cash value. However, the cost of term insurance under Option C would be higher when the cash value is less than the sum of premiums paid (less any withdrawals). ILLUSTRATION OF OPTION A. For purposes of this illustration, assume that the insured is male and is exactly age 40, that under Table II the male column applies and that there is no outstanding indebtedness and that the insured has not died during a grace period (see "Policy Termination and Reinstatement--Termination"). Under Option A, a Policy with a $100,000 specified face amount will generally pay $100,000 in death benefits. However, because the death benefit must be equal to or be greater than 250% of cash value under Table I (348.37% of cash value under Table II), any time the cash value of this Policy exceeds $40,000 under Table I ($28,705 under Table II), the death benefit will exceed the $100,000 specified face amount. Each additional dollar of cash value above $40,000 under Table I ($28,705 under Table II) will increase the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I ($3.48 under Table II). Thus a Policy with a cash value of $50,000 will have a death benefit of $125,000 (250% X $50,000) under Table I or $174,185 (348.37% X $50,000) under Table II; a cash value of $60,000 will yield a death benefit of $150,000 (250% X $60,000) under Table I or $209,022 (348.37% X $60,000) under Table II; and a cash value of $100,000 will yield a death benefit of $250,000 (250% X $100,000) under Table I or $348,370 (348.37% X $100,000) under Table II. Similarly, so long as cash value exceeds $40,000 under Table I ($28,705 under Table II), each dollar reduction in cash value will reduce the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I ($3.48 under Table II). If at any time, however, the cash value multiplied by the applicable percentage is less than the specified face amount, the death benefit will equal the specified face amount of the Policy. ILLUSTRATION OF OPTION B. For purposes of this illustration, assume that the insured is male and is exactly age 40, that under Table II the male column applies and that there is no outstanding indebtedness and that the insured has not died during a grace period. Under Option B, a Policy with a specified face amount of $100,000 will generally pay a death benefit of $100,000 plus the cash value. Thus, for example, a Policy with a cash value of $25,000 will have a death benefit of $125,000 ($100,000 + $25,000); a cash value of $50,000 will yield a death benefit of $150,000 ($100,000 + $50,000); and a cash value of $65,000 will yield a death benefit of $165,000 ($100,000 + $65,000). The death benefit, however, must be at least 250% of cash value under Table I (348.37% of cash value under Table II). As a result, if the cash value of the Policy exceeds $66,666.67 under Table I ($40,262.51 under Table II), the death benefit will be greater than the specified face amount plus cash value. Each additional dollar of cash value above $66,666.67 under Table I ($40,262.51 under Table II) will increase the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I (by $3.48 under Table II). A Policy with a cash value of $75,000 will therefore have a death benefit of $187,500 (250% X $75,000) under Table I or $261,278 (348.37% X $75,000) under Table II; a cash value of $85,000 will yield a death benefit of $212,500 (250% X $85,000) under Table I or $296,115 (348.37% X $85,000) under Table II; a cash value of $100,000 will yield a death benefit of $250,000 (250% X $100,000) under Table I or $348,370 (348.37% X 100,000) under Table II. Similarly, any time cash value exceeds $66,666.67 under Table I ($40,262.51 under Table II), each dollar reduction in cash value will reduce the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I and $3.48 under Table II. Whenever cash value is less than $66,666.67 under Table I ($40,262.51 under Table II) each dollar taken out of cash value will reduce the death benefit by one dollar and the death benefit will be the specified face amount plus the cash value of the Policy. 15 ILLUSTRATION OF OPTION C. For purposes of this illustration, assume that the insured is male and is exactly age 40, that under Table II the male column applies and that there is no outstanding indebtedness and that the insured has not died during a grace period. Under Option C, a Policy with a specified face amount of $100,000 will generally pay a death benefit of $100,000 plus the total amount of premiums paid that exceeds withdrawals made. Thus, for example, assuming there have been no withdrawals from the Policy, a Policy with premiums paid of $25,000 will have a death benefit of $125,000 ($100,000 + $25,000); premiums paid of $50,000 will yield a death benefit of $150,000 ($100,000 + $50,000); and premiums paid of $65,000 will yield a death benefit of $165,000 ($100,000 + $65,000). The death benefit, however, must be at least 250% of cash value under Table I (348.37% of cash value under Table II). For example, if the premiums paid under the Policy are not greater than $25,000, the death benefit will be greater than the specified face amount plus premiums paid whenever the cash value exceeds $50,000 under Table I ($35,881.39 under Table II). Each additional dollar of cash value above $50,000 under Table I ($35,881.39 under Table II) will increase the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I ($3.48 under Table II). A policy with cash value of $75,000 will therefore have a death benefit of $187,500 (250% X $75,000) under Table I or $261,278 (348.37% X $75,000) under Table II; a cash value of $85,000 will yield a death benefit of $212,500 (250% X $85,000) under Table I or $296,115 (348.37% X $85,000) under Table II, a cash value of $100,000 will yield a death benefit of $250,000 (250% X $100,000) under Table I or $348,370 (348.37% X $100,000) under Table II. Similarly, assume the premiums paid under the Policy are equal to $25,000 under Table I ($40,000 under Table II) and the cash value is equal to $60,000. Each dollar taken out of the cash value will reduce the death benefit (assuming the insured is exactly age 40) by $2.50 under Table I ($3.48 under Table II) until $16,668 under Table I ($27,791 under Table II) is withdrawn from the cash value. Then the death benefit would be $108,332 ($100,000 + $25,000 - $16,668) under Table 1 or $112,209 ($100,000 + $40,000 - $27,791) under Table II since this exceeds $108,330 (250% X ($60,000 - $16,668) under Table I or $112,206 (348.37% X ($60,000 - $27,791)) under Table II). Then, each dollar withdrawn will reduce the death benefit by one dollar. Note generally that the total of premiums paid are limited by Internal Revenue Service rules (see "Premiums-- Premium Limitations"). Thus, these examples are contingent on satisfying these rules. Under any of the Options, if the insured dies on a date that is not a Valuation Date, the amount of death benefit proceeds payable will be determined as of the next Valuation Date. CHANGE IN SPECIFIED FACE AMOUNT. Subject to certain limitations, a Policy owner may increase or decrease the specified face amount of a Policy (see "Decreases" and "Increases"). Any increase or decrease in the specified face amount requested by the Policy owner will become effective on the monthly anniversary on or next following the Date of Receipt of the request, or, if evidence of insurability is required, the date of approval of the request. DECREASES. The specified face amount remaining in force after any requested decrease may not be less than the Minimum Initial Specified Face Amount during the first five Policy years nor less than one-half the Minimum Initial Specified Face Amount thereafter. No decrease in the specified face amount will be permitted if it would result in total premiums paid exceeding the then current maximum premium limitations determined by Internal Revenue Code rules (see "Premiums--Premium Limitations"). For purposes of determining the cost of term insurance charge (see "Charges and Deductions--Cost of Term Insurance"; "Cost of Term Insurance Rate"; and "Rate Class"), a decrease in the specified face amount will reduce the specified face amount in the following order: (a) the specified face amount provided by the most recent increase; (b) the next most recent increases successively; and (c) the specified face amount when the Policy was issued. INCREASES. Any change in the specified face amount requested by the Policy owner which results in an increase in the death benefit may be made only if the cash surrender value after the change is large enough to cover at least two monthly deductions based on the most recent cost of term insurance charge deducted. Any such change may require that additional evidence of insurability be submitted to Metropolitan Life and may be subject to a one-time underwriting charge at a rate of up to $3.00 for each $1,000 of specified face amount increase. Metropolitan Life will deduct this charge from the existing cash value in the Fixed Account and the investment divisions of the Separate Account in the same proportion that the Policy's cash value in the Fixed Account and the Policy's cash value in each investment division bear to the Policy's total cash value (except for the cash value in the Policy Loan Account) as of the date deducted (this method hereinafter referred to as the "Pro Rata Basis"). EFFECT OF CHANGES IN SPECIFIED FACE AMOUNT ON CHARGES. A change in the specified face amount may affect the cost of term insurance and the net amount at risk, both of which may affect a Policy owner's cost of term insurance charge 16 (see "Charges and Deductions--Cost of Term Insurance"; "Cost of Term Insurance Rate" and "Rate Class"). This in turn can affect the level of subsequent cash values and death benefits. A change in the specified face amount or death benefit may also affect the Policy's status as a modified endowment contract for tax purposes (see "Federal Tax Matters"). CHANGE IN DEATH BENEFIT OPTION. Generally, the death benefit option in effect may be changed at any time after the first Policy year while the insured is alive by sending a written request for change to the Designated Office. A change in death benefit option will not be permitted unless the cash surrender value of a Policy after the change is effected would be sufficient to pay at least two monthly deductions. Changing death benefit options may require evidence of insurability satisfactory to Metropolitan Life and the effective date of any such change will be the monthly anniversary on or following the Date of Receipt of the request. If the death benefit option is changed, the specified face amount will be increased or decreased such that the death benefit is not altered at the time of the change. However, the change in death benefit option will affect the determination of the death benefit from that point on. This will mean that the cost of term insurance may be higher or lower than it otherwise would have been (see "Charges and Deductions--Cost of Term Insurance"). For example, if the death benefit option is changed from Option C to Option A, the specified face amount will be increased by the amount of premiums paid that exceeds withdrawals made. This ensures that the death benefit is not altered at the time of the change. However, the change in the death benefit option will affect the determination of the death benefit from that point on since the premiums paid less withdrawals made will no longer be added to the specified face amount in determining the death benefit. From that point on, the death benefit will equal the new specified face amount (or, if higher, the minimum death benefit). This will mean that the cost of term insurance may be higher or lower than it otherwise would have been since any increases or decreases in cash values will, respectively, reduce or increase the term of insurance amount under Option A (See "Charges and Deductions--Cost of Term Insurance"). As a second example, if the death benefit option is changed from Option A to Option B, the specified face amount will be decreased to equal the death benefit less the cash value on the effective date of the change. This change may not be made if it would result in a specified face amount which is less than the Minimum Initial Specified Face Amount during the first five Policy years and one-half the Minimum Initial Specified Face Amount thereafter. As with any option change, a change from Option A to Option B will not alter the death benefit at the time of the change, but will affect the determination of the death benefit from that point on. Since, from that point on, the cash value will be added to the new specified face amount, the death benefit will vary with the cash value. Moreover, under Option B, the term insurance amount will not vary unless the minimum death benefit is in effect. Therefore, the cost of term insurance may be higher or lower than it otherwise would have been without the change in death benefit option (see "Charges and Deductions--Cost of Term Insurance"). A change in death benefit option will not be permitted if it results in total premiums paid exceeding the then current maximum premium limitations determined by Internal Revenue Service Rules (see "Premiums--Premium Limitations"). Under Option A, Option B and Option C, cost of term insurance rates generally increase as the insured's age increases. Nevertheless, assuming a positive cumulative net investment return with respect to any amounts in the Separate Account, changing the death benefit option from Option B or Option C to Option A will generally reduce the term insurance amount and therefore the cost of term insurance charge for all subsequent monthly deductions compared to what such charge would have been if no such change were made. CASH VALUE The total cash value of a Policy at any time is the sum of the Policy's cash values in the Fixed Account (see "The Fixed Account"), the Policy Loan Account (see "Policy Right--Loan Privileges"), and the investment divisions of the Separate Account at such time. The Policy's cash value in the Separate Account may increase or decrease on each Valuation Date depending on the investment return of the chosen investment divisions of the Separate Account (see "Separate Account Net Investment Return"). There is no guaranteed minimum cash value in the Separate Account. CALCULATION OF SEPARATE ACCOUNT CASH VALUE. On the Investment Start Date, the Policy's cash value in an investment division will equal the portion of any net premium allocated to the investment division, reduced by the portion of any monthly deductions allocated to the Policy's cash value in that investment division (see "Is there a 'Free Look' Period?" and "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value"). Thereafter, on each Valuation Date, the Policy's cash value in an investment division of the Separate Account will equal: (1) The cumulative net premium payments allocated to the investment division; plus 17 (2) All cash values transferred to the investment division from the Fixed Account, from the Policy Loan Account upon loan repayment (including all interest credited on loaned amounts) or from another investment division; minus (3) Any cash value transferred from the investment division to the Fixed Account, to the Policy Loan Account upon taking out a loan or to another investment division; minus (4) Any partial cash withdrawal from the investment division; minus (5) The portion of the cumulative monthly deductions allocated to the Policy's cash value in the investment division (see "Charges and Deductions--Monthly Deduction from Cash Value"); minus (6) The portion of any transfer charge allocated to the Policy's cash value in the investment division (see "Charges and Deductions--Transfer Charge"); plus (7) The cumulative net investment return (discussed below) on the net amount of cash value in the investment division. The Policy's total cash value in the Separate Account equals the sum of the Policy's cash value in each investment division. SEPARATE ACCOUNT NET INVESTMENT RETURN. A Separate Account investment division's net investment return is determined as of the end of each Valuation Period. All transactions and calculations with respect to the Policies as of any Valuation Date are determined as of such time. Each Separate Account division is credited with a rate of net investment return equal to its gross rate of investment return during the Valuation Period less a charge for Metropolitan Life's taxes, if any such tax charge becomes necessary in the future (see "Charges and Deductions--Charges Against the Separate Account"). The investment division's gross rate of investment return is equal to the rate of increase or decrease in the net asset value per share of the underlying Fund portfolio over the Valuation Period, adjusted upward to take appropriate account of any dividends paid by the portfolio during the period. Depending primarily on the investment experience of the underlying Fund portfolio, a Separate Account investment division's net investment return may be either positive or negative during a Valuation Period. From time to time the Separate Account may advertise performance ranking information among similar investments as compiled by Lipper Analytical Services Inc., Morningstar, Inc. and other independent organizations. From time to time the Separate Account may compare the performance of its investment divisions with the performance of common stocks, long-term government bonds, long-term corporate bonds, intermediate-term government bonds, Treasury Bills, certificates of deposit and savings accounts. The Separate Account may use the Consumer Price Index in its advertisements as a measure of inflation for comparison purposes. In addition, Metropolitan Life may advertise ratings assigned by independent rating agencies that are relevant when considering the guarantees provided by Metropolitan Life. BENEFIT AT FINAL DATE If the insured is living, and unless otherwise notified, Metropolitan Life will pay to the Policy owner the cash value of the Policy on the Final Date, reduced by any outstanding indebtedness (see "Policy Benefits--Cash Value"). The Final Date of a Policy is the Policy anniversary on which the insured is 95 (see "Federal Tax Matters"). The Policy owner may request in writing to continue the Policy after the Final Date. If the Policy owner so requests, the death benefit will be equal to the cash value on the date of death of the insured. The insurance proceeds will equal the death benefit reduced by any outstanding indebtedness. OPTIONAL INCOME PLANS During the insured's lifetime, the Policy owner may arrange for the insurance proceeds to be paid in a single sum, in an account that earns interest or under one or more of the available optional income plans. For more specifics regarding optional income plans, see the Appendix to Prospectus. These choices are also available at the Final Date and if the Policy is surrendered. If no election is made, Metropolitan Life will place the amount in an account that earns interest. The payee will have immediate access to all or any part of the account. When the insurance proceeds are payable in a single sum, or if no choice was in effect on the date of death, the beneficiary may, within one year of the insured's death, select one or more of the optional income plans, if no payments have yet been made. If the insurance proceeds become payable under an optional income plan and the beneficiary has the right to withdraw the entire amount, the beneficiary may name and change contingent beneficiaries. 18 OPTIONAL INSURANCE BENEFITS Subject to certain requirements, one or more of the optional insurance benefits described in the Appendix to Prospectus, may be included with a Policy by rider. The cost of any accidental death benefit rider, disability waiver benefit rider or yearly renewable term rider will be deducted as part of the monthly deduction (see "Charges and Deductions-- Monthly Deduction From Cash Value"). There is no charge for the accelerated death benefit rider. The cost of the interim term insurance benefit rider is paid for separately since it provides insurance for a period prior to the Date of Policy. See the Appendix to Prospectus, for a discussion of how certain riders affect the benefits under the Policy. PAYMENT AND ALLOCATION OF PREMIUMS ISSUANCE OF A POLICY Entities wishing to purchase a Policy must complete an application with respect to each individual to be insured which will be sent to the Designated Office. A Policy will not be issued with a specified face amount less than the Minimum Initial Specified Face Amount. A Policy will generally be issued only on insureds 70 years of age or under who supply evidence of insurability satisfactory to Metropolitan Life. Metropolitan Life may, however, at its sole discretion, issue a Policy for an individual above the age of 70. Acceptance is subject to Metropolitan Life's underwriting rules, and Metropolitan Life reserves the right to reject an application for any reason permitted by law. If required by state law, the insured must consent to any insurance purchased on his or her life. Metropolitan Life, at its discretion, may use one of three types of underwriting when selling Policies, depending on the total number of eligible prospective insureds for whom an entity can purchase a Policy and the percentage of such prospective insureds on which a Policy is actually purchased. The three types of underwriting are: Guaranteed Issue, Simplified Underwriting and Full Underwriting. Generally Full Underwriting requires more evidence of insurability and rating classification than Simplified Underwriting. Guaranteed Issue requires the least evidence of insurability. An insured person who is a standard risk under Simplified Underwriting or Guaranteed Issue may be subject to a higher cost of term insurance rate than would apply to the same insured person under Full Underwriting (see "Monthly Deduction from Cash Value--Underwriting Class"). The Date of Policy is the date used to determine Policy years and Policy months regardless of when the Policy is delivered. The Date of Policy and the date insurance protection begins will ordinarily be the date the application is approved. Within limits, Metropolitan Life may establish an earlier Date of Policy if desired to preserve a younger age at issue for the insured. Entities may also request that the Date of Policy be the date the planned periodic premium is received. In these instances, the Policy owner will incur a charge for insurance protection prior to the time that insurance coverage under the Policy is in force. However, an earlier Date of Policy has the potential advantage, to the Policy owner, of an earlier Investment Start Date if a payment is received. Metropolitan Life will allocate net premiums to the Separate Account and/or the Fixed Account on the Investment Start Date (see "Allocation of Premiums and Cash Value"). The Investment Start Date is the later of (i) the Date of Policy and (ii) the date the first premium for a Policy is received at the Designated Office. PREMIUMS PAYMENT OF PREMIUMS. Each Policy owner will determine a planned periodic premium schedule that provides for the payment of a level premium at fixed intervals for a specified period of time. After payment of the first planned periodic premium, the Policy owner is not required to pay premiums in accordance with the planned periodic premium schedule. MOREOVER THE PAYMENT OF PLANNED PERIODIC PREMIUMS WILL NOT GUARANTEE THAT THE POLICY REMAINS IN FORCE. Instead, the duration of the Policy depends upon the Policy's cash value (see "Policy Termination and Reinstatement--Termination"). The Policy owner must designate in the application one of the following ways to pay the planned periodic premium. The Policy owner may elect to pay the planned periodic premium annually, semi-annually or through a payroll deduction plan as permitted by Metropolitan Life. Subject to the minimum and maximum premium limitations described below, a Policy owner may make unscheduled premium payments at any time in any amount. The Policy, therefore, provides the owner with the flexibility to vary the frequency and amount of premium payments to reflect changing financial conditions. All premium payments after the initial premium payment are credited to the Separate Account or Fixed Account as of the Date of Receipt. 19 PREMIUM LIMITATIONS. Except as described below, the total of all premiums paid, both planned and unplanned, can never exceed the then current maximum premium limitation determined by Internal Revenue Code rules relating to the definition of life insurance. If at any time a premium is paid that would result in total premiums exceeding the then current maximum premium limitations, Metropolitan Life will accept only that portion of the premium that will make total premiums equal the limit. Any part of the premium in excess of that amount will be refunded, and no further premiums will be accepted until allowed by the maximum premium limitations. Premium payments that cause the minimum death benefit as described under "Policy Benefits--Minimum Death Benefit" above to exceed the death benefit then in effect under the death benefit option chosen may require evidence of insurability satisfactory to Metropolitan Life, in order to be accepted. These limitations will not apply to any premium that is required to be paid in order to prevent the Policy from terminating. There may be cases where the total of all premiums paid could cause the Policy to be classified as a modified endowment contract (see "Federal Tax Matters"). The annual statement (see "Reports") sent to each Policy owner will include information regarding the modified endowment contract status of a Policy. In cases where a Policy is not an irrevocable modified endowment contract, the annual statement will indicate what action the Policy owner can take to reverse the modified endowment contract status of the Policy. The first premium may not be less than the planned premium. Every planned premium payment after the first Policy year must be at least $100 on an annual basis or a semi-annual basis. Every unplanned premium payment must be at least $100. Premium payments less than these minimum amounts will be refunded to the Policy owner. These minimum premium limits can be increased by Metropolitan Life. No increase will take effect until 90 days after notice is sent to the Policy owner. Metropolitan Life reserves the right not to extend an offer to sell the Policies to any group or individual associated with such group if the total amount of annual premium that is expected to be paid in connection with all Policies sold to the group or individuals associated with such group is less than $250,000. This annual premium limitation applies in addition to the individual Policy premium minimum described in the prior paragraph. ALLOCATION OF PREMIUMS AND CASH VALUE NET PREMIUMS. The net premium equals the premium paid less premium expense charges (see "Charges and Deductions--Premium Expense Charges"). ALLOCATION OF NET PREMIUMS. In the application (in the case where the Owner is an individual) or in the delivery receipt (in the case where the Owner is other than an individual) for a Policy, the Policy owner indicates the initial allocation of net premiums among the investment divisions of the Separate Account. The Policy owner determines in the application what portion, if any, of net premiums is to be allocated to the Fixed Account. Allocation percentages must be in whole numbers; for example, 33 1/3% may not be chosen. Allocations with respect to the Fixed Account are effective as of the Investment Start Date. Allocations with respect to the investment divisions of the Separate Account are effective as of the end of the free-look period; prior to the end of the free-look period, net premium payments allocated to the investment divisions of the Separate Account will be invested in the MetLife Money Market Portfolio as of the Investment Start Date (see "Is there a 'Free Look' Period?").The Policy owner may change the allocation of future net premiums without charge at any time, after the end of the free-look period, by providing Metropolitan Life with written notification at the Designated Office. The change will be effective as of the Date of Receipt of the notice at the Designated Office. The Policy's cash value in the investment divisions of the Separate Account will vary with the investment experience of these investment divisions, and the Policy owner bears this investment risk. Policy owners should periodically review their allocations of net premiums and cash values in light of market conditions and their overall financial planning requirements. CASH VALUE TRANSFERS. After the end of the free-look period (see "Is there a 'Free Look' Period?"), the Policy owner may transfer cash value between the Fixed Account and the investment divisions of the Separate Account and among the investment divisions of the Separate Account. At the present time, there is no charge for the first six transfers in any Policy year. A charge of $25 will be assessed when any additional amounts are transferred in the same Policy year (see "Charges and Deductions--Transfer Charge"). Metropolitan Life reserves the right in the future to assess a charge against all transfers. There is no charge for any transfer made pursuant to a systematic investment strategy. In addition, transfers made pursuant to any systematic investment strategy are not included in the six charge-free transfers permitted each Policy year (see "Systematic Investment Strategies"). A free transfer will be permitted for a transfer of the entire amount in the Separate Account to the Fixed Account at any time during the first 24 Policy months (see "Policy Rights-- Exchange Privilege"). The minimum amount that may be transferred, other than pursuant to a systematic investment 20 strategy, is the lesser of $50 or the total amount in an investment division or the Fixed Account. The maximum amount that may be transferred or withdrawn from the Fixed Account in any Policy year is the greater of $50 or 25% of the largest amount in the Fixed Account over the last four Policy years. This limit does not apply to a full surrender, to any loans taken or to any transfers made under a systematic investment strategy (see "Systematic Investment Strategies"). Transferring cash value from one or more investment divisions and/or the Fixed Account into one or more other investment divisions and/or the Fixed Account counts as one transfer. Metropolitan Life reserves the right to delay the transfer, withdrawal, surrender and payment of policy loans of amounts from the Fixed Account for up to six months (see "The Fixed Account--Transfers, Withdrawals, Surrenders, and Policy Loans"). Metropolitan Life will effectuate transfers and determine all values in connection with transfers as of the Date of Receipt of written notice at the Designated Office. There is no charge for transfers resulting from Policy loans and loan repayments and they will not count against the six charge-free transfers in a Policy year. Transfers are not taxable transactions under current law. Transfer requests must be in writing in a form acceptable to Metropolitan Life. SYSTEMATIC INVESTMENT STRATEGIES. Metropolitan Life may permit the Policy owner to submit a written authorization directing Metropolitan Life to make transfers on a continuing periodic basis from one investment division to another or to the Fixed Account. Metropolitan Life offers four such investment strategies: the "Equity Generator," the "Equalizer," the "Allocator," and the "Rebalancer." Only one systematic investment strategy may be in effect at any one time. The Owner may submit a written request electing a strategy or directing Metropolitan Life to cancel a strategy at any time. Under the "Equity Generator," Policy owners may have the interest earned on amounts in the Fixed Account transferred to the MetLife Stock Index Division or the State Street Research Aggressive Growth Division, as elected by the Policy owner. Any such transfer from the Fixed Account to the MetLife Stock Index Division or the State Street Research Aggressive Growth Division will be made at the beginning of each Policy month following the Policy month in which the interest is earned. The transfer will only be made for a month during which at least $20.00 in interest is earned. Amounts earned during a month in which less than $20.00 in interest is earned will remain in the Fixed Account. Under the "Equalizer," at the beginning of each Policy quarter, a transfer is made from the MetLife Stock Index Division or the State Street Research Aggressive Growth Division, as elected by the Policy owner, to the Fixed Account or from the Fixed Account to such elected investment division in order to make the Fixed Account and such elected investment division equal in value. While the "Equalizer" is in effect, any cash value transfer out of the MetLife Stock Index Division or the State Street Research Aggressive Growth Division that is not part of this systematic investment strategy will automatically terminate the "Equalizer" election. The Policy owner may then reelect the "Equalizer" strategy. Under the "Allocator," at the beginning of each Policy month, an amount designated by the Policy owner is transferred from the State Street Research Money Market Division to the Fixed Account and/or any investment division(s) specified by the Owner. The Policy owner may choose to do this in one of the following three ways: (1) designating an amount to be transferred from the State Street Research Money Market Division each month until amounts in that investment division are exhausted; (2) designating an amount to be transferred from the State Street Research Money Market Division for a certain number of months; or (3) designating a total amount to be transferred from the State Street Research Money Market Division in equal monthly installments over a certain number of months. The Policy owner's designations must allow the "Allocator" to remain in effect for at least three months. Under the "Rebalancer," Policy owners may elect the periodic redistribution of cash value so that the cash value is allocated among the Fixed Account and the investment divisions of the Separate Account in the same proportion as the net premiums are allocated. Metropolitan Life will redistribute the cash value at the beginning of each Policy quarter. TELEPHONIC TRANSACTIONS. Metropolitan Life reserves the right, if permitted by state law, to allow Policy owners to make transfer requests, changes to the Systematic Investment Strategies and reallocation of future net premiums by telephone and to allow Policy owners to authorize their sales representatives to make such requests on behalf of the Policy owners by telephone. The Policy owner must authorize these types of transactions in the manner prescribed by Metropolitan Life. If Metropolitan Life decides to permit any of these procedures, and a Policy owner elects to participate in any of them, the following will apply: the Policy owner will authorize Metropolitan Life to act upon the telephone instructions of any person purporting to be the Policy owner (or, if applicable, the Policy owner's sales representative), assuming Metropolitan Life's procedures have been followed, to do the transactions both regarding amounts in the Policy's Fixed Account and in the Separate Account. Metropolitan Life will institute reasonable procedures to confirm that any instructions communicated by telephone are genuine. All telephone calls will be recorded, and the Policy owner (or, if applicable, the Policy owner's sales representative) will be asked to produce the Policy owner's personalized data prior to Metropolitan Life honoring any requests by telephone. Additionally, as with other transactions, the Policy owner will receive a written confirmation of each telephonically requested transaction. Neither Metropolitan Life nor the Separate 21 Account will be liable for any loss, expense or cost arising out of any requests that Metropolitan Life or the Separate Account reasonably believe to be genuine. In the event that these procedures are instituted and in the further event that the Policy owner who has elected to use such procedures encounters difficulty with them, such Policy owner should make inquiry to the Designated Office. POLICY TERMINATION AND REINSTATEMENT TERMINATION. If the cash surrender value on any monthly anniversary is insufficient to cover the monthly deduction, Metropolitan Life will notify the Policy owner and any assignee of record of that shortfall. In either case, the Policy owner will then have a grace period of 61 days, measured from the monthly anniversary, to make sufficient payment. The minimum necessary payment must be an amount sufficient to keep the Policy in force for two months after the premium expense charges have been deducted. Failure to make a sufficient payment within the grace period will result in termination of the Policy. The Policy terminates without any cash surrender value. If the insured dies during the grace period, the insurance proceeds will still be payable, but any due and unpaid monthly deductions will be deducted from the proceeds. REINSTATEMENT. A terminated Policy may be reinstated anytime within 3 years (5 years in Missouri) after the end of the grace period and before the Final Date by submitting the following items to Metropolitan Life: (1) a written application for reinstatement; (2) evidence of insurability satisfactory to Metropolitan Life; and (3) a premium that, after the deduction of the premium expense charges (see "Charges and Deductions--Premium Expense Charges"), is large enough to cover the monthly deductions for at least the two Policy months commencing with the effective date of reinstatement. Indebtedness on the date of termination will be cancelled and need not be repaid and will not be reinstated. The amount of cash surrender value on the date of reinstatement will be equal to two monthly deductions plus any amount of net premiums paid at reinstatement in excess of the amount of premium required above to reinstate the Policy. The date of reinstatement will be the date of approval of the application for reinstatement. The terms of the original Policy, including the insurance rates provided therein, will apply to the reinstated Policy. A reinstated Policy is subject to a new two year period of contestability (see "Other Policy Provisions--Incontestability"). CHARGES AND DEDUCTIONS Metropolitan Life incurs many expenses and risks in connection with the Policies. It is compensated for these out of all of the charges discussed below. Although different purposes are ascribed to different charges, such distinctions are imprecise. Metropolitan Life is free to retain any and all revenues or profits that result from any of these charges or to apply such revenues or profits to any other purposes, including any costs and expenses in connection with the Policies. PREMIUM EXPENSE CHARGES SALES LOAD. A charge (which may be deemed to be a sales load as defined in the 1940 Act) is deducted from each premium payment received by Metropolitan Life as described below. For Policies issued prior to May 1, 1996 or to or in connection with a large group, the sales charge is up to 1% of premiums paid. For Policies issued to or in connection with other groups on or after May 1, 1996, the sales charge may be up to 9% of premiums paid in each of the first ten Policy years and up to 3% of premiums paid in each Policy year thereafter until the total of such payments in each such Policy year equals the annual target premium for that year. For these Policies, the sales charge is reduced to 0% for payments made in excess of the annual target premium in any Policy year. The actual sales charge varies based upon factors described under "Variations in Charges." For Policies issued in connection with groups other than large groups, if a Policy is surrendered at any time during the first three Policy years, any sales load deducted within 365 days prior to the date the request for surrender is received at Metropolitan Life's Designated Office will be refunded. The amount of the sales load from the premium expense charge in any Policy year cannot be specifically related to actual sales expenses for that year, which include any sales compensation and costs of prospectuses, other sales material and advertising. To the extent that sales expenses are not recovered from the charges for sales load, such expenses will be recovered from other sources, including any excess accumulated charges for mortality and expense risks under the Policies, any other gains attributable to operations with respect to the Policies and Metropolitan Life's general assets and surplus. Metropolitan Life does not anticipate that all its total sales expenses will be recovered from the sales charges. In no case will the premium expense charge exceed any maximum imposed by state insurance law including that of New York State. This may necessitate reduced premium expense charges, particularly at certain higher issue ages. 22 ADMINISTRATIVE CHARGE. An administrative charge of up to 1.05% of premiums paid is deducted from all premium payments. The administrative charge is used to compensate Metropolitan Life for expenses incurred in administering, issuing and underwriting the Policy. These expenses include the cost of processing applications, conducting medical examinations, determining insurability and the insured's risk class, and establishing policy records. The administrative charge is reduced by 1% on the portion of any premiums paid in a Policy year which exceeds the target premium (see "Definitions"). TAX CHARGES. Two charges are currently made for taxes related to premiums. These taxes include any federal, state or local taxes measured by or based on the amount of premiums received by Metropolitan Life. A charge of 1.2% of each premium payment is made to compensate Metropolitan Life for its increased federal income tax as a result of premiums received in connection with the Policy ("DAC tax charge"). An additional charge is made for state premium taxes of 2.25% of each premium payment. Premium taxes vary from state to state, and may be zero in some cases. The 2.25% rate approximates the average tax rate expected to be paid on premiums from all states. TRANSFER CHARGE At the present time, a charge of $25 will be assessed against the cash value of a Policy when amounts are transferred among the investment divisions of the Separate Account and between the investment divisions and the Fixed Account more than six times in any Policy year. There is no charge for any transfer made pursuant to a systematic investment strategy. In addition transfers made pursuant to any systematic investment strategy are not included in the six charge-free transfers permitted each Policy year (see "Systematic Investment Strategies"). Metropolitan Life reserves the right in the future to assess a charge against all transfers. The charge will be allocated among the Fixed Account and each investment division of the Separate Account from which amounts are transferred in the same proportion that the amounts transferred from the Fixed Account and the amounts transferred from each investment division bear to the total amount transferred, when the requested transfer is effected. Thus, for example, if a request is received for a transfer of $100, cash value in the amount of $100 will be deducted from the particular investment division(s), with $100 being transferred to the requested new investment division(s). The $25 would be deducted based on the cash value in each investment division from which amounts are transferred at the time of the transfer. Transfers resulting from Policy loans and loan repayments will not be charged and will not count against the six charge-free transfers in a Policy year. In addition, during the first 24 Policy months, a complete transfer of all amounts in the investment divisions of the Separate Account to the Fixed Account will not be charged and will not count as one of the six charge-free transfers in a Policy year (see "Policy Rights--Exchange Privilege"). MONTHLY DEDUCTION FROM CASH VALUE The monthly deduction from cash value includes the cost of term insurance charge, the charge for any accidental death benefit rider, disability waiver rider or the yearly renewable term rider (see "Policy Benefits--Optional Insurance Benefits") and the charge for mortality and expense risks. The cost of term insurance charge and the charge for mortality and expense risks are discussed separately in the paragraphs that follow. The monthly deduction will also include a charge for requested increases in the death benefit for the month in which the increase occurs, as discussed more fully under "Policy Benefits--Increases". The monthly deduction will be deducted as of each monthly anniversary commencing with the Date of Policy. The monthly deduction (excluding the monthly mortality and expense risk charge) will be allocated among the Fixed Account and each investment division of the Separate Account on a Pro Rata Basis. The monthly mortality and expense risk charge will be allocated proportionally to values in each investment division of the Separate Account. See "Payment and Allocation of Premiums-Issuance of a Policy", regarding when insurance coverage starts under a newly issued Policy. COST OF TERM INSURANCE. Because the cost of term insurance depends upon a number of variables, it can vary from month to month. Metropolitan Life will determine the monthly cost of term insurance charge by multiplying the applicable cost of term insurance rate or rates by the term insurance amount for each Policy month. The term insurance amount for a Policy month is (a) the death benefit at the beginning of the Policy month divided by 1.0032737 (a discount factor to account for return deemed to be earned during the month), less (b) the cash value at the beginning of the Policy month, after the deduction of applicable charges. The term insurance amount may be affected by changes in the cash value or in the specified face amount of the Policy and will be greater for owners who have selected Death Benefit Option B or C than for those who have selected Death Benefit Option A (see "Policy Benefits--Death Benefits"), assuming the same specified face amount in each case, 23 assuming no withdrawals have been made and assuming that the minimum death benefit is not in effect. Since the death benefit under Option A remains constant while the death benefit under Options B and C vary with the cash value and premiums paid, respectively (assuming no withdrawals have been made from the Policy), all cash value increases will generally reduce the term insurance amount under Option A but not under Option B or C. However, the term insurance amount under Option C will generally be reduced by cash value increases resulting from investment experience or interest credited. If the term insurance amount is greater, the cost of insurance will be greater. If the minimum death benefit is in effect (see "Death Benefit Options--Minimum Death Benefit"), then the cost of term insurance may vary directly with the cash value under all death benefit options. The cost of term insurance is zero after the Final Date. If more than one rate class is in effect under a Policy (see "Rate Class"), the cost of term insurance will decrease if a Policy owner converts from Option A to Option B or C and will increase if a Policy owner converts from Option B or C to Option A. COST OF TERM INSURANCE RATE. Cost of term insurance rates are based on the sex (except in Montana and Massachusetts, and in the case of Policies sold in connection with certain corporate sponsored plans), age, underwriting and rate class of the insured. The actual monthly cost of term insurance rates will be based on Metropolitan Life's expectations as to future experience. They will not, however, be greater than the guaranteed cost of term insurance rates set forth in the Policy. These guaranteed rates are based on certain of the 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex (except where unisex is required, as noted above), and age. The Tables used for this purpose set forth different mortality estimates for males and females (except as qualified above). Any change in the cost of term insurance rates will apply to all persons of the same insuring age, sex (except as qualified above), underwriting and rate class whose Policies have been in force for the same length of time. Metropolitan Life reviews its cost of term insurance rates periodically and may adjust the rates from time to time. UNDERWRITING CLASS. The underwriting class of an insured affects the cost of term insurance rate. There are three underwriting classes: Guaranteed Issue, Simplified Underwriting, and Full Underwriting. Generally, Guaranteed Issue rates are greater than or equal to Simplified Issue rates. Simplified Issue rates are greater than or equal to Full Underwriting rates. Because only limited underwriting information is obtained in Guaranteed Issue and Simplified Underwriting, issuances of Policies under these underwriting classes may present additional mortality cost to Metropolitan Life relative to those issued under Full Underwriting and therefore result in higher cost of term insurance rates for the Policy. RATE CLASS. The rate class of an insured affects the cost of term insurance rate. Metropolitan Life currently places insureds into a standard rate class or rate classes involving a higher mortality risk. For Ages 20 and over, each such rate class may be further divided into a smoker division and a nonsmoker division. In an otherwise identical Policy, insureds in the standard rate class will have a lower cost of term insurance than those in the rate class with the higher mortality risk. Also, those insureds in the nonsmoker division of a rate class will have a lower cost of term insurance than those in the smoker division of the same rate class. In addition, females will have a lower cost of term insurance than males in the same rate class (except in Montana and Massachusetts, and in the case of Policies sold in connection with certain corporate sponsored plans). If a Policy owner requests a specified face amount increase at a time when the insured is in a less favorable rate class or division than previously, a correspondingly higher cost of insurance rate will apply to that portion of the underwritten term insurance amount attributable to the increase. On the other hand, if the insured's rate class or division improves, the lower cost of insurance rate will apply to the entire underwritten term insurance amount. CHARGE FOR MORTALITY AND EXPENSE RISKS. A monthly charge currently equivalent to an effective annual rate of up to .60% (up to .39% after the ninth policy year) of the monthly Policy cash value in the Separate Account is imposed to compensate Metropolitan Life for its assumption of certain mortality and expense risks and is guaranteed not to exceed an effective annual rate of .90%. Because the Policies have been offered only since 1993, the reduced current mortality and expense risk charge after the ninth Policy year has not yet taken effect as to any Policy. The mortality risk assumed is that insureds may live for a shorter period of time than estimated (i.e., the period of time based on the appropriate 1980 Commissioners Standard Ordinary Mortality Table) and, thus, a greater amount of death benefits than expected will be payable. The expense risk assumed is that expenses incurred in selling and administering the Policies will be greater than estimated. Metropolitan Life will realize a gain if the revenues from all the charges under the Policies prove ultimately to be more than sufficient to cover the actual costs of all of its mortality and expense commitments in connection with the Policies. If the charges are not sufficient, the loss will fall on Metropolitan Life. If its 24 estimates of future mortality and expense experience are accurate, Metropolitan Life anticipates that it will realize a profit from the mortality and expense risk charge; however if such estimates are inaccurate, Metropolitan Life could incur a loss. Accordingly, all or a part of the mortality and expense risk charge may represent profit to Metropolitan Life. Metropolitan Life may use such profits to pay any expenses in connection with the Policies (regardless of the extent to which specific charges also are made for these expenses) or for any other purpose. VARIATIONS IN CHARGES Sales and/or administrative charges may vary by group. Variations will depend upon the anticipated sales and/or administrative costs, respectively, associated with the sale of the Policy to the group or individuals associated with the group. Similarly, the charge for mortality and expense risks may vary by group. Variations in this charge will depend upon the nature of the group and individuals associated with the group. For example, if Metropolitan Life anticipates that, because of the nature of the group and individuals associated with the group, there is a greater risk that the mortality and administrative expense charges that could be made under the Policies would be insufficient to cover actual mortality and administrative expense costs, the mortality and expense risk charge would be higher. Variations in the charges will be made in accordance with Metropolitan Life's established and uniformly applied administrative procedures that are in effect at the time of the application for the Policy. Factors considered by Metropolitan Life in determining charges include, but are not limited to, the following: the nature of the group and its organizational framework; the method by which sales will be made to the individuals associated with the group; the facility with which premiums will be paid; the group's capabilities with respect to administrative tasks; the anticipated persistency of the Policies; the size of the group and the number of years it has been in existence; and the aggregate amount of premiums expected to be paid on Policies owned by the group or individuals associated with the group. Any variations in charges will be reasonable and will not be unfairly discriminatory to the interests of any Policy owner. CHARGES AGAINST THE SEPARATE ACCOUNT CHARGE FOR INCOME TAXES. Currently, no charge is made against the Separate Account for income taxes. However, Metropolitan Life may decide to make such a charge in the future (see "Federal Tax Matters-Taxation of Metropolitan Life"). GUARANTEE OF CERTAIN CHARGES Metropolitan Life guarantees, and may not increase, the charges deducted from premiums with respect to the Policies. The other charges may be increased, but not above limits specified in the Policy, if Metropolitan Life considers such increases appropriate in relation to its actual or expected costs or risks the charges were designed to cover, or its actual or expected costs, risks or profitability objectives in connection with the Policies generally. OTHER CHARGES FUND INVESTMENT MANAGEMENT FEE AND OTHER EXPENSES. Shares of the Fund are purchased for the Separate Account at their net asset value. The net asset value of Fund shares is determined after deduction of the fee for investment management services and the deduction of direct expenses from the assets of the Fund as more fully described under "What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?" on page 5 and in the attached prospectus for the Fund. ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES AND ACCUMULATED PREMIUMS The tables in this section illustrate the way in which a Policy's death benefit and cash value could vary over an extended period of time assuming that all premiums are allocated to and remain in the Separate Account for the entire period shown and hypothetical gross investment rates of return for the Fund (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross (after tax) annual rates of 0%, 6% and 12%. The tables are based on the payment of annual planned premiums (see "Premiums--Premium Limitations"), for a specified face amount of $100,000 for males aged 35 and 50. Each illustration assumes that the insured is in Metropolitan Life's standard nonsmoker full underwriting risk classification. Illustrations for an insured in Metropolitan Life's standard smoker full underwriting risk classification would show, for the same age and premium payments, lower cash values and, therefore, for the minimum death benefit and death benefit Option B, lower death benefits. Illustrations for an insured in Metropolitan Life's Simplified Issue or Guaranteed Issue classifications would generally show, for the same age, smoking class, rating class and premium payments, lower cash values than the corresponding full underwriting illustration. In 25 addition, these illustrations do not reflect the refund of sales load discussed under "Charges and Deductions--Sales Load." The death benefits and cash values would be different from those shown if the actual gross investment rates of return averaged 0%, 6% or 12% over a period of years, but fluctuated above or below such averages for individual policy years. The values would also be different depending on the allocation of a Policy's total cash value among the investment divisions of the Separate Account, if the actual rates of return averaged 0%, 6% or 12% but the rates for each portfolio of the Fund varied above and below such averages. The amounts shown for the death benefits and cash values take into account the deductions from premiums and the monthly deduction from cash value and the daily charge to the Fund for investment management services equivalent to an annual rate of .56% of the average daily value of the aggregate net assets of the Fund (which represents a simple average of the maximum management fees applicable to the eleven available portfolios of the Fund) and .15% for other direct Fund expenses (the average of the expenses indicated in the chart of "Metropolitan Series Fund Annual Expenses", under "What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?"). The amounts do not reflect proposed management fee revisions expected to take effect August 1, 1997. If such revisions were reflected, the death benefit and cash value amounts would be lower. The guaranteed charges illustrations assume: (1) a cost of insurance rate equal to 100% of the maximum rates that could be charged based on the 1980 Commissioners Standard Ordinary Mortality tables; (2) a sales charge of 9% of premiums paid up to one target premium in each of the first ten Policy years and 3% of premiums paid up to one target premium in each Policy year thereafter; (3) an administrative charge of 1.05% of premiums paid up to one target premium and .05% for amounts in excess of one target premium in all Policy years; (4) a 1.2% DAC tax charge; (5) a 2.25% state premium tax charge; and (6) a mortality and expense risk charge of .90% of the average daily value of the assets in the Separate Account attributable to the Policies. The current charges illustrations assume: (1) the current cost of insurance rate; (2) a sales charge of 9% of premiums paid up to one target premium in each of the first ten Policy years and 3% of premiums paid up to one target premium in each Policy year thereafter; (3) an administrative charge of 1.05% of premiums paid up to one target premium and .05% of premiums paid in excess of one target premium in Policy years one through ten; and .05% of all premiums paid in Policy years eleven and after; (4) a 1.2% DAC tax charge; (5) a 2.25% state premium tax charge; and (6) a mortality and expense risk charge of .60% (.39% after the ninth Policy year) of the average daily value of the assets in the Separate Account attributable to the Policies. The tables are based on a minimum death benefit calculation using the Guideline Premium/Cash Value Corridor test. Certain tables have been footnoted to indicate differences in total cash value and total death benefit that arise when the Cash Value Accumulation test rather than the Guideline Premium/Cash Value Corridor test is used to determine minimum death benefit (see "Death Benefit Options--Minimum Death Benefit"). In general the death benefit calculated using the Cash Value Accumulation test will be equal to or greater than the death benefit calculated using the Guideline Premium/ Cash Value Corridor test. Taking account of the investment management fees and other Fund expenses, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -.71%, 5.25% and 11.27%, respectively. The hypothetical returns shown in the tables do not reflect any charges for income taxes against the Separate Account since no such charges are currently made. However, if in the future such charges are made, in order to produce the death benefits and cash values illustrated, the gross annual investment rate of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. (See "Federal Tax Matters--Taxation of Metropolitan Life".) The second column of the tables shows the amount which would accumulate if an amount equal to the annual planned premium were invested to earn interest, after taxes, at 5% compounded annually. Upon request, Metropolitan Life will furnish an illustration reflecting the proposed insured's age, sex, the specified face amount or premium amount requested, frequency of planned periodic premium payments, death benefit option selected and any available rider requested. When the yearly renewable term rider is available, an additional illustration may be requested showing the effect on Policy benefits of obtaining a portion of the coverage under such rider. 26 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST --------------------------------- ------------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- --------- --------- ----------- ----------- ----------- ----------- 1 ..................... 2,100 1,241 1,328 1,416 100,000 100,000 100,000 2 ..................... 4,305 2,429 2,681 2,944 100,000 100,000 100,000 3 ..................... 6,620 3,566 4,059 4,595 100,000 100,000 100,000 4 ..................... 9,051 4,648 5,462 6,381 100,000 100,000 100,000 5 ..................... 11,604 5,674 6,887 8,314 100,000 100,000 100,000 6 ..................... 14,284 6,641 8,332 10,406 100,000 100,000 100,000 7 ..................... 17,098 7,540 9,792 12,670 100,000 100,000 100,000 8 ..................... 20,053 8,368 11,261 15,120 100,000 100,000 100,000 9 ..................... 23,156 9,117 12,736 17,773 100,000 100,000 100,000 10 ..................... 26,414 9,782 14,210 20,649 100,000 100,000 100,000 15 ..................... 45,315 12,166 22,020 40,050 100,000 100,000 100,000 20 ..................... 69,439 11,476 29,424 71,803* 100,000 100,000 100,000* 25 ..................... 100,227 5,321 34,905 125,308* 100,000 100,000 145,358*(3) 30 ..................... 139,522 0(4) 35,536 210,363* 0(4) 100,000 225,088*(3)
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. (3) Minimum death benefit applies; see "Death Benefit Options--Minimum Death Benefit" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
YR. CASH YR. DEATH -- VALUE -- BENEFIT --------- --------- 20 ........................ 70,960 20 ........................ 124,939 25 ........................ 115,603 25 ........................ 182,306 30 ........................ 177,275 30 ........................ 253,857
(4) Zero values in cash value and death benefit indicate termination of coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination" for further details. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 27 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST ------------------------------- ------------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- --------- --------- --------- ----------- ----------- ----------- 1 .......................... 2,100 1,234 1,321 1,408 101,234 101,321 101,408 2 .......................... 4,305 2,408 2,658 2,918 102,408 102,658 102,918 3 .......................... 6,620 3,524 4,011 4,540 103,524 104,011 104,540 4 .......................... 9,051 4,578 5,377 6,281 104,578 105,377 106,281 5 .......................... 11,604 5,566 6,752 8,147 105,566 106,752 108,147 6 .......................... 14,284 6,485 8,131 10,147 106,485 108,131 110,147 7 .......................... 17,098 7,327 9,504 12,285 107,327 109,504 112,285 8 .......................... 20,053 8,085 10,864 14,567 108,085 110,864 114,567 9 .......................... 23,156 8,751 12,201 16,997 108,751 112,201 116,997 10 .......................... 26,414 9,319 13,505 19,582 109,319 113,505 119,582 15 .......................... 45,315 10,967 19,757 35,782 110,967 119,757 135,782 20 .......................... 69,439 9,077 23,584 57,691 109,077 123,584 157,691 25 .......................... 100,227 1,587 21,700 85,723 101,587 121,700 185,723 30 .......................... 139,522 0(3) 8,682 119,072 0(3) 108,682 219,072
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. (3) Zero values in cash value and death benefit indicate termination of insurance coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination" for further details. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 28 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST ------------------------ ---------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- ------ ------- ------- -------- -------- -------- 1 .................... 2,100 1,231 1,319 1,406 102,000 102,000 102,000 2 .................... 4,305 2,399 2,650 2,911 104,000 104,000 104,000 3 .................... 6,620 3,503 3,992 4,523 106,000 106,000 106,000 4 .................... 9,051 4,539 5,343 6,251 108,000 108,000 108,000 5 .................... 11,604 5,502 6,695 8,101 110,000 110,000 110,000 6 .................... 14,284 6,386 8,045 10,082 112,000 112,000 112,000 7 .................... 17,098 7,182 9,380 12,196 114,000 114,000 114,000 8 .................... 20,053 7,879 10,691 14,453 116,000 116,000 116,000 9 .................... 23,156 8,468 11,966 16,856 118,000 118,000 118,000 10 .................... 26,414 8,937 13,193 19,416 120,000 120,000 120,000 15 .................... 45,315 9,610 18,712 35,664 130,000 130,000 130,000 20 .................... 69,439 5,097 20,588 58,974 140,000 140,000 140,000 25 .................... 100,227 0(3) 13,102 93,915 0(3) 150,000 150,000 30 .................... 139,522 0(3) 0(3) 153,738* 0(3) 0(3) 164,499*
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. (3) Zero values in cash value and death benefit indicate termination of insurance coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
CASH DEATH YR. VALUE YR. BENEFIT - --- ------- --- ------- 30 ......................... 146,130 30 ......................... 209,259
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 29 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A CURRENT CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST -------------------------- ---------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- ------- ------- -------- -------- -------- -------- 1 .................... 2,100 1,567 1,665 1,763 100,000 100,000 100,000 2 .................... 4,305 3,107 3,400 3,706 100,000 100,000 100,000 3 .................... 6,620 4,618 5,207 5,844 100,000 100,000 100,000 4 .................... 9,051 6,101 7,090 8,202 100,000 100,000 100,000 5 .................... 11,604 7,552 9,048 10,796 100,000 100,000 100,000 6 .................... 14,284 8,970 11,082 13,653 100,000 100,000 100,000 7 .................... 17,098 10,355 13,197 16,799 100,000 100,000 100,000 8 .................... 20,053 11,703 15,394 20,264 100,000 100,000 100,000 9 .................... 23,156 13,020 17,681 24,088 100,000 100,000 100,000 10 .................... 26,414 14,302 20,060 28,309 100,000 100,000 100,000 15 .................... 45,315 20,818 34,356 58,278* 100,000 100,000 100,000* 20 .................... 69,439 26,347 52,230 108,851* 100,000 100,000 132,798*(3) 25 .................... 100,227 30,332 74,768* 192,512* 100,000 100,000* 223,314*(3) 30 .................... 139,522 31,498 104,074* 330,544* 100,000 111,359 (3) 353,682*(3)
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. (3) Minimum death benefit applies; see "Death Benefit Options--Minimum Death Benefit" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
YEAR CV DB INT - ---- ------- ------- ---- 25 74,383 117,302 6% 30 100,428 143,813 6% 15 58,224 116,010 12% 20 107,061 188,503 12% 25 185,162 292,001 12% 30 307,574 440,446 12%
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 30 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B CURRENT CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST --------------------------------- ------------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- --------- --------- ----------- ----------- ----------- ----------- 1 ....................... 2,100 1,565 1,663 1,761 101,565 101,663 101,761 2 ....................... 4,305 3,100 3,393 3,697 103,100 103,393 103,697 3 ....................... 6,620 4,603 5,190 5,825 104,603 105,190 105,825 4 ....................... 9,051 6,076 7,059 8,166 106,076 107,059 108,166 5 ....................... 11,604 7,513 8,998 10,736 107,513 108,998 110,736 6 ....................... 14,284 8,912 11,007 13,556 108,912 111,007 113,556 7 ....................... 17,098 10,272 13,087 16,653 110,272 113,087 116,653 8 ....................... 20,053 11,592 15,239 20,051 111,592 115,239 120,051 9 ....................... 23,156 12,873 17,470 23,786 112,873 117,470 123,786 10 ....................... 26,414 14,115 19,779 27,889 114,115 119,779 127,889 15 ....................... 45,315 20,281 33,383 56,503 120,281 133,383 156,503 20 ....................... 69,439 25,076 49,441 102,920 125,076 149,441 202,920 25 ....................... 100,227 27,634 67,508 177,747* 127,634 167,508 277,747* 30 ....................... 139,522 26,010 85,777 297,315* 126,010 185,777 397,315*
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. * If the Cash Value Accumulation test had been used, the following changes would apply:
CASH DEATH YR. VALUE YR. BENEFIT - ------------------------------ --------- ------------------------------ --------- 25............................ 177,741 25............................ 280,297 30............................ 295,737 30............................ 423,495
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 31 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000--DEATH BENEFIT OPTION C CURRENT CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL PREMIUMS GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF ACCUMULATED RATES OF RETURN RATES OF RETURN OF POLICY AT 5% INTEREST --------------------------------- ------------------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% ------- -------------- --------- --------- ----------- ----------- ----------- ----------- 1 ....................... 2,100 1,564 1,662 1,760 102,000 102,000 102,000 2 ....................... 4,305 3,098 3,391 3,696 104,000 104,000 104,000 3 ....................... 6,620 4,599 5,187 5,823 106,000 106,000 106,000 4 ....................... 9,051 6,069 7,054 8,163 108,000 108,000 108,000 5 ....................... 11,604 7,501 8,991 10,733 110,000 110,000 110,000 6 ....................... 14,284 8,894 10,996 13,556 112,000 112,000 112,000 7 ....................... 17,098 10,247 13,074 16,657 114,000 114,000 114,000 8 ....................... 20,053 11,556 15,222 20,064 116,000 116,000 116,000 9 ....................... 23,156 12,825 17,450 23,814 118,000 118,000 118,000 10 ....................... 26,414 14,050 19,757 27,941 120,000 120,000 120,000 15 ....................... 45,315 20,064 33,382 56,990 130,000 130,000 130,000 20 ....................... 69,439 24,476 49,661 105,496* 140,000 140,000 140,000* 25 ....................... 100,227 26,066 68,592 186,878* 150,000 150,000 216,778*(3) 30 ....................... 139,522 21,692 89,664 321,240* 160,000 160,000 343,727*(3)
- --------- (1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy year. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. (3) Minimum death benefit applies; see "Death Benefit Options--Minimum Death Benefit" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
CASH DEATH YR. VALUE YR. BENEFIT - ------------------------------ --------- ------------------------------ --------- 20............................ 104,939 20............................ 184,766 25............................ 181,738 25............................ 286,601 30............................ 302,114 30............................ 432,627
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 32 POLICY RIGHTS The description of rights under the Policy set forth below assumes that no riders are in effect. See the Appendix to Prospectus for a discussion of how these rights may be affected by certain riders under the Policy. LOAN PRIVILEGES POLICY LOAN. At any time, the Policy owner may borrow money from Metropolitan Life using the Policy as the only security for the loan. The smallest amount the Policy owner can borrow at any one time is $250. The maximum amount that may be borrowed at any time is the loan value. The loan value equals the cash surrender value less two monthly deductions or, if greater, 75% (90% for Policies issued in Virginia or Maryland) of the cash surrender value (or, in Texas, the Policy's cash surrender value less two monthly deductions or 100% of the cash surrender value in the Fixed Account and 75% of the cash surrender value in the separate account, if greater). For situations where a Policy loan may be treated as a taxable distribution, see "Federal Tax Matters." ALLOCATION OF POLICY LOAN. Metropolitan Life will allocate a Policy loan among the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. INTEREST. Loan interest is charged daily at the rate Metropolitan Life sets from time to time. This rate will never be more than the maximum allowed by law and will not change more often than once a year on the anniversary of the date of the Policy. The rate of interest Metropolitan Life sets for a Policy year may not be more than the higher of: (a) The Published Monthly Average for the calendar month ending 2 months before the start of the Policy year; and (b) The rate Metropolitan Life uses to compute the guaranteed cash value of the Policy for the Policy year, plus no more than 1%. The Published Monthly Average means: (a) Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc. or any successor to that service; (b) If that average is no longer published, a substantially similar average, established by regulation issued by the Insurance Supervisory official of the state in which the Policy is delivered. If the maximum limit for a Policy year is at least 1/2% higher than the rate set for the prior Policy year, Metropolitan Life may increase the rate to no more than that limit. If the maximum limit for a Policy year is at least 1/2% lower than the rate set for the prior Policy year, Metropolitan Life will reduce the rate to at least that limit. When a loan is made, Metropolitan Life will inform the Policy owner of the initial rate applicable to that loan. Metropolitan Life will mail the Policy owner advance notice if there is to be an increase in the rate applicable to an existing loan. The interest charged on a Policy loan accrues daily. Interest payments are due at the end of each Policy year. If unpaid within 31 days after it is due, interest will be treated as a new loan subject to the interest rates applicable at that time and an amount equal to such interest due will be transferred from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis to the Policy Loan Account. The Tax Reform Act of 1986 phased out the consumer interest deduction for federal income tax purposes. Thus, for individuals, interest paid to Metropolitan Life in connection with Policy loans used for consumer purposes is no longer deductible. Generally, pursuant to legislation enacted in 1997, no deduction is allowed for interest on loans on life insurance policies, subject to certain exceptions for key person insurance covering a limited number of individuals. The 1997 legislation also generally disallows in part an interest deduction to businesses which own cash value life insurance issued after June 8, 1997 for debt unrelated to the contract, subject to certain exceptions for contracts covering employees and certain other individuals. Counsel and other competent advisors should be consulted with respect to the deductibility of Policy loan interest for income tax purposes. See "Federal Tax Matters." EFFECT OF A POLICY LOAN. As of the Date of Receipt of the loan request, cash value equal to the portion of the Policy loan allocated to the Fixed Account and to each investment division will be transferred from the Fixed Account and/or such investment divisions to a Policy Loan Account within the General Account, reducing the Policy's cash value in the accounts from which the transfer was made. Cash value in the Policy Loan Account equal to indebtedness will be credited with interest at a rate equal to the loan rate charged less a percentage charge, based on expenses associated with Policy loans, determined by Metropolitan Life. This percentage charge will not exceed 2%. In any event the minimum rate credited to the Policy Loan Account will be 4% per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO THE CASH VALUE IN THE POLICY LOAN ACCOUNT, NOR WILL THE CASH VALUE IN THE POLICY LOAN ACCOUNT PARTICIPATE IN ANY INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT. 33 The Policy's cash value in the Policy Loan Account will be the outstanding indebtedness on the valuation date plus any interest credited to the Policy Loan Account which has not yet been allocated to the Fixed Account or the investment divisions of the Separate Account as of the Valuation Date. Interest credited to amounts in the Policy Loan Account will be allocated at least once a year among the Fixed Account and the investment divisions of the Separate Account in the same proportion as the net premiums are then being allocated. INDEBTEDNESS. Indebtedness equals the outstanding Policy loan plus accrued interest thereon. If, on a monthly anniversary, indebtedness exceeds the cash value minus the monthly deduction, Metropolitan Life will notify the Policy owner and any assignee of record. If a sufficient payment is not made to Metropolitan Life within 61 days from the monthly anniversary, the Policy will terminate without value. The Policy may, however, later be reinstated, subject to certain conditions (see "Policy Termination and Reinstatement.") REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the Final Date while the insured is living. The minimum repayment is $25. If not repaid, Metropolitan Life will deduct indebtedness from any amount payable under the Policy. As of the Date of Receipt of the repayment, the Policy's cash value in the Policy Loan Account securing indebtedness will be allocated among the Fixed Account and the investment divisions of the Separate Account in the same proportion that net premiums are being allocated to those accounts at the time of repayment, except any amount borrowed from the Fixed Account will be repaid to the Fixed Account first. The Policy owner should designate whether a payment is intended as a loan repayment or a premium payment. Any payment for which no designation is made will be treated as a premium payment. SURRENDER AND WITHDRAWAL PRIVILEGES Subject to the limitations set forth below, at any time before the earlier of the death of the insured and the Final Date, the Policy owner may make a partial withdrawal or totally surrender the Policy by sending a written request to Metropolitan Life. The maximum amount available for surrenders or withdrawal is the cash surrender value on the Date of Receipt of the request. For any tax consequences in connection with a partial withdrawal or surrender, see "Federal Tax Matters." SURRENDERS. The Policy owner may surrender the Policy for its cash surrender value. If the Policy is being surrendered, Metropolitan Life may require that the Policy itself be returned along with the request. A Policy owner may elect to have the proceeds paid in a single sum or applied under an optional income plan (see "Appendix to Prospectus.") If the insured dies after the surrender of the Policy and payment to the Policy owner of the cash surrender value but before the end of the Policy month in which the surrender occurred, a death benefit will be payable to the beneficiary in an amount equal to the difference between the Policy's death benefit and cash value, both computed as of the surrender date. PARTIAL WITHDRAWALS. The Policy owner may make a partial withdrawal from the Policy's cash surrender value. The minimum partial withdrawal is $250. There is no charge for a partial withdrawal. The amount withdrawn will be deducted from the Policy's cash value as of the Date of Receipt. The amount will be deducted from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. When death benefit Option A is in effect, any partial withdrawal will reduce the specified face amount, and thus the death benefit, by the amount withdrawn. When death benefit Option B is in effect, the amount withdrawn will not reduce the specified face amount. When death benefit Option C is in effect, the amount withdrawn will not reduce the specified face amount, except by the amount that cumulative withdrawals exceed cumulative premiums paid. The death benefit will be reduced under Option B or C by the amount withdrawn. If increases in the specified face amount previously have occurred, a partial withdrawal when Death Benefit Option A is in effect will reduce the specified face amount in the same manner as would a direct request by the Policy owner to reduce the specified face amount (see "Policy Benefits-- Decreases"). A decrease in the specified face amount may affect the Policy's status as a modified endowment contract for tax purposes (see "Federal Tax Matters"). A Policy owner will not be permitted to make any partial withdrawal that would reduce the specified face amount of the Policy below the Minimum Initial Specified Face Amount in the first five Policy years or one-half the Minimum Initial Specified Face Amount thereafter (see "Policy Benefits--Decreases"), or that would result in total premiums paid exceeding the then current maximum premium limitation determined by Internal Revenue Code Rules (see "Premiums-- Premium Limitations"). A partial withdrawal will also not be permitted unless the resulting cash surrender value would be sufficient to pay at least two monthly deductions. Any time a request for a partial withdrawal is received that would reduce the specified face amount below the minimum face amount, result in total premiums paid exceeding maximum premium limitations, or reduce the cash surrender value below two monthly deductions, Metropolitan Life will not implement the partial withdrawal request, but will contact the Policy owner as to whether the request should be withdrawn or reduced to a smaller amount or changed to a request for the full cash surrender value. 34 EXCHANGE PRIVILEGE During the first 24 Policy months following the issuance of the Policy, the Policy owner may exercise the Policy exchange privilege, which results in the transfer at any one time of the entire amount in the Separate Account to the Fixed Account, notwithstanding any charges on transfers described in "Allocation of Premiums and Cash Value--Cash Value Transfers", and the allocation of all future net premiums to the Fixed Account. This will, in effect, serve as an exchange of the Policy for the equivalent of a flexible premium fixed benefit life insurance policy. No charge will be imposed on such transfer in exercising this exchange privilege. Moreover, the Policy owner may subsequently transfer amounts back to one or more of the investment divisions of the Separate Account at any time, within the limitations described in "Allocation of Premiums and Cash Value--Cash Value Transfers". In those states which require it, the Policy owner may also, during the first 24 Policy months following the issuance of the Policy, without charge, on one occasion exchange any Policy still in force for a flexible premium fixed benefit life insurance policy issued by Metropolitan Life. Upon such exchange, the Policy's cash value will be transferred to the General Account of Metropolitan Life. THE FIXED ACCOUNT A Policy owner may allocate net premiums and transfer cash value to the Fixed Account, which is part of the General Account of Metropolitan Life. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933 and neither the Fixed Account nor the General Account has been registered as an investment company under the 1940 Act. Accordingly, neither the General Account, the Fixed Account nor any interests therein are generally subject to the provisions of these Acts and Metropolitan Life has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and completeness of statements made in prospectuses. GENERAL DESCRIPTION This Prospectus is generally intended to serve as a disclosure document only for the aspects of the Policy involving the Separate Account and contains only selected information regarding the Fixed Account. For complete details regarding the Fixed Account, see the Policy itself. The General Account consists of all assets owned by Metropolitan Life other than those in the Separate Account and other legally-segregated separate accounts. Subject to applicable law, Metropolitan Life has sole discretion over the investment of the assets of the General Account, including those in the Fixed Account. Unlike the assets of the Separate Account, the assets in the Fixed Account, as a part of the General Account, are chargeable with liabilities arising out of any other business of Metropolitan Life. A Policy owner may elect to allocate net premiums to the Fixed Account or to transfer cash value from the investment divisions of the Separate Account to the Fixed Account. The allocation or transfer of funds to the Fixed Account does not entitle a Policy owner to share in the investment experience of the General Account. Instead, Metropolitan Life guarantees that cash value in the Fixed Account will accrue interest at an effective annual rate of at least 4%, independent of the actual investment experience of the General Account. Metropolitan Life is not obligated to credit interest at any higher rate, although Metropolitan Life may, in its sole discretion, do so. Any allocation of net premium or cash value transfers to the Fixed Account will be subject to Metropolitan Life's prior approval for each Owner whose cash value in the Fixed Account is at least $60,000,000 in the aggregate for all of the Owner's Policies. Without such approval, no further net premium may be allocated to the Fixed Account and no cash value transfers to the Fixed Account will be permitted. FIXED ACCOUNT BENEFITS The Policy owner may select death benefit Option A, B or C under the Policy and may change such option or the Policy's specified face amount, subject to satisfactory evidence of insurability where required and subject to all the conditions and limitations applicable to such transactions generally (see "Policy Benefits--Death Benefits"). FIXED ACCOUNT CASH VALUE Net premiums allocated to the Fixed Account are credited to the Policy. Metropolitan Life guarantees that interest credited to each Policy owner's cash value in the Fixed Account will not be less than an effective annual rate of at least 4% per year. Metropolitan Life may declare any rate of interest in excess of 4% at any time to be credited to amounts of cash value in the Fixed Account subject to the following conditions: Metropolitan Life will not change the rate of excess interest on any premiums paid during any month of the year before the first day of the same month of the subsequent year; thereafter, Metropolitan Life will not change the rate of excess interest for a period of twelve months from the date declared. Different rates of excess interest may apply to premium payments made in different months of the year and at the end of each twelve-month period, and different rates of excess interest may apply to cash value related to premiums 35 received in a given month of each prior year. Transfers made into the Fixed Account will be treated as new premium payments for these purposes. The guaranteed and excess interest are credited each Valuation Date. Once credited, that interest will be guaranteed and become part of the Policy's cash value in the Fixed Account. The monthly deduction will be charged against the most recent premiums paid and interest credited thereto. ANY INTEREST METROPOLITAN LIFE CREDITS ON THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT IN EXCESS OF THE GUARANTEED RATE OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF METROPOLITAN LIFE. THE POLICY OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO AMOUNTS OF CASH VALUE IN THE FIXED ACCOUNT MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 4% PER YEAR. The cash value in the Fixed Account will be calculated on each Valuation Date. The Policy's cash value in the Fixed Account will reflect the amount and frequency of premium payments allocated to the Fixed Account, the amount of interest credited to amounts in the Fixed Account, any partial withdrawals, any transfers from or to the investment divisions of the Separate Account, any Policy indebtedness and any charges imposed on amounts in the Fixed Account in connection with the Policy. The portion of the monthly deduction attributable to the Fixed Account will be determined as of the actual monthly anniversary, even if the monthly anniversary does not fall on a Valuation Date. TRANSFERS, WITHDRAWALS, SURRENDERS, AND POLICY LOANS Amounts in the Fixed Account are subject to the same rights and limitations as are amounts allocated to the investment divisions of the Separate Account with respect to transfers, withdrawals, surrenders and Policy loans, except that the maximum amount that may be transferred or withdrawn from the Fixed Account in any Policy year is the greater of $50.00 or 25% of the largest amount in the Fixed Account over the last four Policy years. This limit does not apply to a full surrender, or to any loans taken. See "Allocation of Premiums and Cash Value--Cash Value Transfers;" "Loan Privileges," "Surrender and Withdrawal Privileges." Metropolitan Life reserves the right to delay transfers, withdrawals, surrenders and the payment of the Policy loans allocated to the Fixed Account for up to six months (see "Other Policy Provisions--Payment and Deferment"). Payments to pay premiums on another policy with Metropolitan Life will not be delayed. RIGHTS RESERVED BY METROPOLITAN LIFE Metropolitan Life reserves the right to make certain changes if, in its judgment, they would best serve the interests of the Policy owners or would be appropriate in carrying out the purposes of the Policies. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when required by law, Metropolitan Life will obtain Policy owner approval of the changes and approval from any appropriate regulatory authority. Examples of the changes Metropolitan Life may make include: - To operate the Separate Account in any form permitted under the 1940 Act or in any other form permitted by law. - To take any action necessary to comply with or obtain and continue any exemptions from the 1940 Act. - To transfer any assets in any investment division to another investment division, or to one or more separate accounts, or to the Fixed Account; or to add, combine or remove investment divisions in the Separate Account. - To substitute, for the Fund shares held in any investment division, the shares of another portfolio of the Fund or the shares of another investment company or any other investment permitted by law. - To change the way Metropolitan Life assesses charges, but without increasing the aggregate amount charged to the Fixed Account and the Separate Account in connection with the Policies. - To make any other necessary technical changes in the Policy in order to conform with any action the above provisions permit Metropolitan Life to take. If any of these changes result in a material change in the underlying investments of an investment division to which the net premiums of a Policy are allocated, Metropolitan Life will notify the Policy owner of such change, and the owner may then make a new choice of investment divisions or the Fixed Account without charge. OTHER POLICY PROVISIONS OWNER. The Owner of a Policy is an employer, employer sponsored plan, or other organization or an individual associated with such employer or organization so designated in the application or as subsequently changed, unless another Owner has been named in the application for the Policy. The Owner is entitled to exercise all rights under a Policy while the insured is alive, including the right to name a new Owner or a contingent Owner who would become the Policy owner if the Owner should cease to exist before the insured dies. The Policy owner may also designate another person or entity to exercise rights under the Policy with the approval of Metropolitan Life. BENEFICIARY. The beneficiary is the entity or entities and/or person or persons to whom the insurance proceeds are payable upon the insured's death. The owner may name a contingent beneficiary to become the beneficiary if all the 36 beneficiaries cease to exist while the insured is alive. If no beneficiary or contingent beneficiary exists when the insured dies, the owner (or the owner's estate, if applicable) will be the beneficiary. While the insured is alive, the owner may change any beneficiary or contingent beneficiary. If more than one beneficiary exists when the insured dies, they will be paid in equal shares, unless the owner has chosen otherwise. INCONTESTABILITY. Metropolitan Life will not contest the validity of a Policy after it has been in force during the insured's lifetime for two years from the Date of Policy (or date of reinstatement if a terminated Policy is reinstated). Metropolitan Life will not contest the validity of any increase in the death benefit after such increase has been in force during the insured's lifetime for two years from its effective date. SUICIDE. The insurance proceeds will not be paid if the insured commits suicide, while sane or insane, within two years (one year in Colorado and North Dakota) from the Date of Policy. Instead, Metropolitan Life will pay the beneficiary an amount equal to all premiums paid for the Policy, without interest, less any outstanding Policy loan and accrued loan interest and less any partial cash withdrawal. If the insured commits suicide, while sane or insane, more than two years after the Date of Policy but within two years (one year in Colorado and North Dakota) from the effective date of any increase in the death benefit, Metropolitan Life's liability with respect to such increase will be limited to the cost thereof. AGE AND SEX. If the insured's age or sex as stated in the application for a Policy is not correct, benefits under a Policy will be adjusted to reflect the correct age and sex. ASSIGNMENT. The owner may assign a Policy as collateral. All rights under the Policy will be transferred to the extent of the assignee's interest. Metropolitan Life is not bound by an assignment or release thereof, unless it is in writing and is recorded at the Designated Office. Metropolitan Life is not responsible for the validity of any assignment or release thereof. Any assignment or other transfer of rights under a Policy may have adverse tax consequences, causing the death benefit to become taxable to the beneficiary, or causing all or part of any value assigned to be taxed as a distribution to the owner. PAYMENT AND DEFERMENT. With respect to amounts in the investment divisions of the Separate Account, payment of the death benefit, all or a portion of the cash surrender value, free look proceeds or a loan will ordinarily be made within seven days after the Date of Receipt of all documents required for such payment. Metropolitan Life will pay interest on the amount of death benefit at a rate which is currently 4% per year (or such higher rate as may be required by state law) from the date of death until the date of payment of the death benefit. However, Metropolitan Life may defer the determination, application or payment of any such amount or any transfer of cash value for any period during which the New York Stock Exchange is closed (other than customary weekend and holiday closings), for any period during which any emergency exists as a result of which it is not reasonably practicable for Metropolitan Life to determine the investment experience for a Policy or for such other periods as the Securities and Exchange Commission may by order permit for the protection of Policy owners, provided the delay is permitted under New York State Insurance Law and regulations. Metropolitan Life will not defer a loan used to pay premiums on other policies issued by it. As with traditional life insurance, Metropolitan Life can delay payment of the entire insurance proceeds or other Policy benefits if entitlement to payment is being questioned or is uncertain. Metropolitan Life may also defer payment of any amounts attributable to a check for a reasonable time (not more than 15 days) to allow the check to clear. DIVIDENDS. The Policies are nonparticipating. This means that they are not eligible for dividends, and they do not participate in any distribution of Metropolitan Life's surplus. The description throughout this Prospectus of the features of the Policies is subject to the specific terms of the Policies. SALES AND ADMINISTRATION OF THE POLICIES Metropolitan Life performs the sales and administrative services relating to the Policies. The offices of Metropolitan Life which may administer the Policies are located in New York and Iselin, New Jersey. Each Policy owner will be notified which office will be the Designated Office for servicing the Policy. Metropolitan Life may name different Designated Offices for different transactions. Metropolitan Life acts as the principal underwriter (distributor) of the Policies as defined in the 1940 Act (see "Distribution of the Policies"). In addition to selling insurance and annuities, Metropolitan Life also serves as investment adviser to certain other advisory clients, and is also principal underwriter for Metropolitan Tower Separate Accounts One and Two of Metropolitan Tower Life Insurance Company, a wholly-owned subsidiary of Metropolitan Life, and Metropolitan Life Separate Account E of Metropolitan Life, each of which is registered as a unit investment trust under the 1940 Act. Finally, Metropolitan Life acts as principal underwriter for its flexible premium multifunded life insurance policies and group variable universal life insurance policies, premiums for which may also be allocated to the Separate Account. 37 Certain computer systems Metropolitan Life uses to process Policy transactions and valuations need to be adjusted to be able to continue to administer the Policies beginning January 1, 2000. As is the case with most system conversion projects, risks and uncertainties exist, due in part to reliance on third-party vendors, and a project could be delayed. Metropolitan Life is, however, devoting substantial resources necessary to make these systems modifications and expects that the necessary changes will be completed on time and in a way that will result in no disruption to Policy servicing operations. BONDING. The directors, officers and employees of Metropolitan Life are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTION OF THE POLICIES The Policies will be sold by individuals who are licensed life insurance sales representatives, including salaried employees, who are also registered representatives of Metropolitan Life, the principal underwriter of the Policies. Metropolitan Life is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. The Policies may also be sold through other registered broker-dealers, including MetLife Securities, Inc., a wholly owned broker-dealer subsidiary of Metropolitan Life. Maximum commissions payable in Policy years one through ten will be 10% of premiums paid up to the target premium and 3% of premiums paid above the target premium in each of those Policy years. Maximum commissions payable in policy years eleven and later will be 3% of premiums paid in each of those Policy years. In addition, beginning in Policy year 8, additional compensation may be paid at a maximum annual rate of .15% of cash value. In particular circumstances, Metropolitan Life may also pay these individuals for their administrative expenses. In no case will total compensation exceed any maximum imposed by state insurance law, including that of New York State. This may necessitate reduced commissions, particularly at certain higher issue ages. The compensation of the individuals is paid by Metropolitan Life and does not result in any charges against the Policy in addition to those set forth under "Charges and Deductions." FEDERAL TAX MATTERS The following description is a brief summary of some of the tax rules, primarily related to federal income and estate taxes, which in the opinion of Metropolitan Life are currently in effect. TAXATION OF THE POLICY The Policy receives the same federal income and estate tax treatment as fixed benefit life insurance. The death benefit payable under any death benefit option in the Policy is generally excludable from the gross income of the beneficiary under Section 101 of the Internal Revenue Code ("Code") and the Policy owner is not deemed to be in constructive receipt of the cash values under the Policy until actual withdrawal or surrender or upon the Final Date. The tax results are unclear if the Policy is continued beyond the Final Date. It is possible that the Policy owner will be treated as being in constructive receipt of the Policy cash surrender value after the Final Date and subject to tax. Policy owners should consult with and rely on advice of a tax advisor if considering continuing the Policy beyond the Final Date. Under existing tax law, unless a Policy is a modified endowment contract as discussed below, a Policy owner generally will be taxed on cash value withdrawn from the Policy and cash value received upon surrender of the Policy or on the Final Date. Under most circumstances, unless the distribution occurs during the first 15 Policy years, only the amount withdrawn, received upon surrender or distributed at the Final Date of a Policy that exceeds the total premiums paid (less previous non-taxable withdrawals) will be treated as ordinary income. During the first 15 Policy years, cash distributions from a Policy, made as a result of a Policy change that reduces death benefits or other benefits under a Policy, will be taxable to the Policy owner, under a complex formula, to the extent that cash value exceeds premiums paid (less previous non-taxable withdrawals). Notwithstanding the foregoing, if a Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increase in cash value may be taxable annually. This type of arrangement involves premium advances by an employer which are secured through a collateral assignment of the Policy. An individual should consult with and rely on the advice of a tax advisor with respect to any type of split dollar arrangement involving the Policy. The United States Treasury Department has adopted regulations which set diversification rules for the investments underlying the Policies, in order for the Policies to be treated as life insurance. Metropolitan Life believes that these diversification rules will be satisfied. There is a provision in the regulations which allows for the correction of an inadvertent failure to diversify. Failure to comply with the rules found in the regulations would result in immediate taxation to Policy owners of all positive investment experience credited to a Policy. There is a possibility that regulations may be proposed or that a controlling ruling may be issued in the future describing the extent to which Policy owner control over allocation of cash value may cause Policy owners to be treated as the owners of Separate Account assets for tax purposes. Such regulations or ruling could limit the number of investment funds or the frequency of transfers among such funds. It is not known whether any such regulations or ruling 38 would have a retroactive effect. Metropolitan Life reserves the right to amend the Policies in any way necessary to avoid any such result. As of the date of this Prospectus, no regulations or ruling have been issued. Metropolitan Life also believes that loans received under the Policy will be treated as indebtedness of an owner for federal tax purposes, and, unless the Policy is totally surrendered, becomes a modified endowment contract as described below or terminates, that no part of any loan received under a Policy will constitute income to the Owner. Generally, interest on Policy loans is not deductible. Legislation in 1997 and effective for policies issued after June 8, 1997 generally disallows, in part, interest deductions to businesses which own cash value life insurance for debt unrelated to the policy. There are exceptions for policies which insure employees and certain other individuals. The rules are complex. A Policy owner should consult a tax advisor to determine how the rules governing the deductibility of interest would apply in the Policy owner's situation. A total surrender, cancellation of the Policy or distribution at the Final Date of the Policy where there is an outstanding loan may have tax consequences depending on the amount of gain in the Policy. Special rules govern the federal income tax treatment of pre-death withdrawals from a class of life insurance contracts referred to as modified endowment contracts. Unlike under other life insurance contracts, amounts received before death from a modified endowment contract, including policy loans, assignments, and pledges, are treated first as income (to the extent of gain) and then as recovered investment. For purposes of determining the amount includible in income, all modified endowment contracts issued by the same company (or affiliate) to the same policyholder during any calendar year will be treated as one modified endowment contract. Finally, an additional 10% income tax is generally imposed on the taxable portion of pre-death amounts received before age 59 1/2 under a modified endowment contract. In general, a modified endowment contract is a life insurance contract entered into or materially changed after June 20, 1988 that fails to meet a "7-pay test". Under the 7-pay test, if the amount of premiums paid under the life insurance contract at any time during the first 7 policy years exceeds the sum of the net level premiums which would have been paid if the contract provided for paid-up future benefits after the payment of 7 level annual payments, the contract is a modified endowment contract. A policy may have to be reviewed under the 7-pay test even after the first seven policy years in the case of certain events such as a material modification of the policy as discussed below. If there is a reduction in benefits under the contract during any 7-pay testing period, the 7-pay test is applied using the reduced benefits level. Any distribution made within two Policy years before a policy fails the 7-pay test is treated as made in anticipation of such failure. Whether or not a particular policy meets these definitional requirements is dependent on the date the contract was entered into, premium payments made and the periodic premium payments to be made, the level of death benefits, any changes in the level of death benefits, the extent of any prior cash withdrawals, and other factors. A life insurance policy which is received in exchange for a modified endowment contract will also be considered a modified endowment contract. A Policy should be reviewed upon issuance, upon making a cash withdrawal, upon making a change in future benefits and upon making a material modification to the Policy to determine to what extent, if any, these tax rules apply. A material modification to a Policy includes, but is not limited to, any increase in the future benefits provided under the Policy. However, in general, increases that are attributable to the payment of premiums necessary to fund the lowest death benefit payable in the first 7 Policy years will not be considered material modifications. The annual statement sent to each Policy owner will include information regarding the modified endowment contract status of a Policy (see "Premiums--Premium Limitations"). Counsel and other competent advisors should be consulted to determine how these rules apply to an individual situation and before making unplanned premium payments, increasing or decreasing the specified face amount, or adding or removing a rider. Congress may, in the future, consider other legislation that, if enacted, could adversely affect the tax treatment of life insurance policies. For example, legislation could be enacted that could adversely impact transfers of cash value within the Policy. In addition, the Treasury Department may by regulation or interpretation modify the above described tax effects. Any legislative or administrative action could be applied retroactively. The death benefit payable under the Policy is includable in the insured's gross estate for federal estate tax purposes if the death benefit is paid to the insured's estate or if the death benefit is paid to a beneficiary other than the estate and the insured either possessed incidents of ownership in the Policy at the time of death or transferred incidents of ownership in the Policy to another person within three years of death. Whether or not any federal estate tax is payable with respect to the death benefit of the Policy which is included in the insured's gross estate depends on a variety of factors including the following. A smaller size estate may be exempt from federal estate tax because of a current estate tax credit which generally is equivalent to an exemption of $625,000 in 1998, gradually increasing to $1 million in 2006 and thereafter. In addition, a death benefit paid to a surviving spouse may not be taxable because of a 100% estate tax marital deduction. Furthermore, a death benefit paid to a tax-exempt charity may not be taxable because of the allowance of an estate tax charitable deduction. 39 If the owner of the Policy is not the insured, and the owner dies before the insured, the value of the Policy, as determined under Internal Revenue Service regulations, is includable in the federal gross estate of the owner for federal estate tax purposes. Whether a federal estate tax is payable depends on a variety of factors, including those listed in the preceding paragraph. State and local income, estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each insured, owner or beneficiary. If the Policy is issued as a result of an IRC Section 1035 exchange, Metropolitan Life may waive state premium tax charges on the amount of the cash value rollover (see "Premium Expense Charges"). In no event will the death benefit be lower than the minimum amount required to maintain the Policy as life insurance under federal income tax law and applicable Internal Revenue Service rules. The foregoing summary does not purport to be complete or to cover all situations. Counsel and other competent advisors should be consulted for more complete information. TAXATION OF METROPOLITAN LIFE Metropolitan Life does not initially expect to incur any federal income tax upon the earnings or the realized capital gains attributable to the Separate Account. Based upon these expectations, no charge is currently being made against the Separate Account for federal income taxes with respect to earnings or capital gains which may be attributable to the Separate Account. If, however, Metropolitan Life determines that it may incur such taxes, it may assess a charge against or make provisions in the Separate Account for those taxes. There is a 1.2% charge imposed on premiums paid for the purpose of recovering a portion of the federal income taxes imposed on Metropolitan Life based on the amount of premiums received in connection with the Policies. Under present laws, Metropolitan Life may incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, Metropolitan Life may decide to make charges for such taxes against or provisions for such taxes in the Separate Account. However, there is a 2.25% charge imposed on premiums paid for state premium taxes. MANAGEMENT The present directors and the senior officers and secretary of Metropolitan Life are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE - ------------------------------------------ ------------------------------------------- ------------------------------------------- Curtis H. Barnette........................ Chairman and Chief Executive Officer, Director Bethlehem Steel Corp., 1170 Eighth Avenue, Martin Tower 2118, Bethlehem, PA 18016-7699. Robert H. Benmosche....................... President and Chief Executive Officer, President, Chief Operating Officer and Metropolitan Life Insurance Company, Director One Madison Avenue, New York, NY 10010 Gerald Clark.............................. Senior Executive Vice-President and Chief Senior Executive Vice-President, Chief Investment Officer, Investment Officer and Director Metropolitan Life Insurance Company, One Madison Avenue, New York, NY 10010. Joan Ganz Cooney.......................... Chairman, Executive Committee, Director Children's Television Workshop, One Lincoln Plaza, New York, NY 10023.
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PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE - ------------------------------------------ ------------------------------------------- ------------------------------------------- Burton A. Dole, Jr........................ Chairman of the Board Director Nellcor Puritan Bennett, 2000 Faraday Avenue, Carlsbad, CA 92008-7208. James R. Houghton......................... Retired Chairman of the Board, Director Corning Incorporated, 80 East Market Street, 2nd Floor, Corning, NY 14830. Harry P. Kamen............................ Chairman and Chief Executive Officer, Chairman, Chief Executive Officer and Metropolitan Life Insurance Company, Director One Madison Avenue, New York, NY 10010. Helene L. Kaplan.......................... Of Counsel, Skadden, Arps, Director Slate, Meagher & Flom, 919 Third Avenue, New York, NY 10022. Charles M. Leighton....................... Retired Chairman, Director CML Group, Inc., 524 Main Street, Acton, MA 01720. Allen E. Murray........................... Retired Chairman of the Board and Chief Director Executive Officer, Mobil Corporation, 375 Park Avenue, Suite 2901, New York, NY 10163. Stewart Nagler............................ Senior Executive Vice-President and Chief Senior Executive Vice-President, Chief Financial Officer, Financial Officer and Director Metropolitan Life Insurance Company, One Madison Avenue, New York, NY 10010 John J. Phelan, Jr........................ Retired Chairman and Chief Executive Director Officer, New York Stock Exchange, Inc., P.O. Box 312, Mill Neck, NY 11765. Hugh B. Price............................. President and Chief Executive Officer, Director National Urban League, Inc., 500 East 62nd Street, New York, NY 10021. Robert G. Schwartz........................ Retired Chairman of the Board, President Director and Chief Executive Officer, Metropolitan Life Insurance Company, 200 Park Avenue, Suite 5700, New York, NY 10166.
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PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE - ------------------------------------------ ------------------------------------------- ------------------------------------------- Ruth J. Simmons, Ph.D..................... President, Director Smith College, College Hall 20, North Hampton, MA 01063. William C. Steere, Jr..................... Chairman of the Board Director and Chief Executive Officer, Pfizer, Inc., 235 E. 42nd Street, New York, NY 10017
OFFICERS*
NAME OF OFFICER POSITION WITH METROPOLITAN LIFE - ----------------------------------------- ---------------------------------------------------------------------- Harry P. Kamen........................... Chairman of the Board and Chief Executive Officer Robert H. Benmosche...................... President and Chief Operating Officer Gerald Clark............................. Senior Executive Vice-President and Chief Investment Officer Stewart G. Nagler........................ Senior Executive Vice-President and Chief Financial Officer Gary A. Beller........................... Senior Executive Vice-President and General Counsel Catherine A. Rein........................ Senior Executive Vice-President C. Robert Henrikson...................... Senior Executive Vice-President William J. Toppeta....................... Senior Executive Vice-President Jeffrey J. Hodgman....................... Executive Vice-President Terence I. Lennon........................ Executive Vice-President David A. Levene.......................... Executive Vice-President John H. Tweedie.......................... Executive Vice-President Judy E. Weiss............................ Executive Vice-President and Chief Actuary Alexander D. Brunini..................... Senior Vice-President Richard M. Blackwell..................... Senior Vice-President James B. Digney.......................... Senior Vice-President Jon F. Danski............................ Senior Vice-President and Controller William T. Friedewald.................... Senior Vice-President Ira Friedman............................. Senior Vice-President Anne E. Hayden........................... Senior Vice-President Sibyl C. Jacobson........................ Senior Vice-President Joseph W. Jordan......................... Senior Vice-President Kernan F. King........................... Senior Vice-President Nicholas D. Latrenta..................... Senior Vice-President Leland C. Launer, Jr..................... Senior Vice-President Gary E. Lineberry........................ Senior Vice-President James L. Lipscomb........................ Senior Vice-President William Livesey.......................... Senior Vice-President James M. Logan........................... Senior Vice-President Eugene Marks, Jr......................... Senior Vice-President Dominick A. Prezzano..................... Senior Vice-President Joseph A. Reali.......................... Senior Vice-President Vincent P. Reusing....................... Senior Vice-President Felix Schirripa.......................... Senior Vice-President Robert E. Sollmann, Jr................... Senior Vice-President Thomas L. Stapleton...................... Senior Vice-President & Tax Director James F. Stenson......................... Senior Vice-President Stanley J. Talbi......................... Senior Vice-President Richard R. Tartre........................ Senior Vice-President James A. Valentino....................... Senior Vice-President Lisa Weber............................... Senior Vice-President William J. Wheeler....................... Senior Vice-President and Treasurer
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NAME OF OFFICER POSITION WITH METROPOLITAN LIFE - ----------------------------------------- ---------------------------------------------------------------------- Anthony J. Williamson.................... Senior Vice-President Louis J. Ragusa.......................... Vice-President and Secretary
- --------- * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Gary A. Beller has been an officer of Metropolitan Life since November, 1994; prior thereto, he was a Consultant and Executive Vice- President and General Counsel of the American Express Company. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice-President of Paine Webber. Terence I. Lennon has been an officer of Metropolitan Life since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. Richard R. Tartre has been an officer of Metropolitan Life since January 13, 1997, prior thereto he was President and CEO of Astra Management Corp. William J. Wheeler has been an officer of Metropolitan Life since October 13, 1997; prior thereto he was Senior Vice-President, Investment Banking of Donaldson, Lufkin and Jenrette. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto she was a Director of Diversity Strategy and Development and an Associate Director of Human Resources at PaineWebber. Jon F. Danski has been an officer of Metropolitan Life since March 25, 1998; prior thereto he was Senior Vice-President, Controller and General Auditor at ITT Corporation. The business address of each officer is 1 Madison Avenue, New York, New York 10010. VOTING RIGHTS RIGHT TO INSTRUCT VOTING OF FUND SHARES In accordance with its view of present applicable law, Metropolitan Life will vote the shares of each of the portfolios of the Fund which are deemed attributable to Policies at regular and special meetings of the shareholders of the Fund based on instructions received from entities having the voting interest in corresponding investment divisions of the Separate Account. However, if the 1940 Act or any rules thereunder should be amended or if the present interpretation thereof should change, and as a result Metropolitan Life determines that it is permitted to vote such shares of the Fund in its own right, it may elect to do so. Accordingly, the Policy owner will have a voting interest under a Policy. The number of shares held in each Separate Account investment division deemed attributable to each owner is determined by dividing a Policy's cash value in that division, if any, by the net asset value of one share in the corresponding Fund portfolio in which the assets in that Separate Account investment division are invested. Fractional votes will be counted. The number of shares concerning which a Policy owner has the right to give instructions will be determined as of the record date for the meeting. Fund shares held in each registered separate account of Metropolitan Life or any affiliate that are or are not attributable to life insurance policies (including the Policies) or annuity contracts and for which no timely instructions are received will be voted in the same proportion as the shares for which voting instructions are received by that separate account. Fund shares held in the general accounts or unregistered separate accounts of Metropolitan Life or its affiliates will be voted in the same proportion as the aggregate of (i) the shares for which voting instructions are received and (ii) the shares that are voted in proportion to such voting instructions. However, if Metropolitan Life or an affiliate determines that it is permitted to vote any such shares of the Fund in its own right, it may elect to do so subject to the then current interpretation of the 1940 Act or any rules thereunder. The Policy owners may give instructions regarding, among other things, the election of the Board of Directors of the Fund, ratification of the selection of the Fund's independent auditors, and the approval of the Fund's investment manager and sub-investment manager. Each Policy owner having a voting interest will be sent voting instruction soliciting material and a form for giving voting instructions to Metropolitan Life. DISREGARD OF VOTING INSTRUCTIONS Notwithstanding contrary Policy owner voting instructions, Metropolitan Life may vote Fund shares in any manner necessary to enable the Fund to (1) make or refrain from making any change in the investments or investment policies for any portfolio of the Fund, if required by any insurance regulatory authority; (2) refrain from making any change in the investment policies or any investment adviser or principal underwriter of any portfolio which may be initiated by Policy owners or the Fund's Board of Directors, provided Metropolitan Life's disapproval of the change is reasonable and, in the case of a change in investment policies or investment adviser, based on a good faith determination that such change would be contrary to state law or otherwise inappropriate in light of the portfolio's objective and purposes; or (3) enter into or refrain from entering into any advisory agreement or underwriting contract, if required by any insurance regulatory authority. In the event that Metropolitan Life does disregard voting instructions, a summary of the action and the reasons for such action will be included in the next semiannual report to Policy owners. 43 REPORTS Policy owners will receive promptly statements of significant transactions such as change in specified face amount, change in death benefit option, transfers among investment divisions, partial withdrawals, increases in loan principal by the Policy owner, loan repayments, termination for any reason, reinstatement and premium payments. Transactions pursuant to systematic investment strategies (see "Payment and Allocation of Premiums") may be confirmed quarterly. Policy owners whose premiums are automatically remitted under certain payroll deduction plans do not receive individual confirmations of those premium payments from Metropolitan Life apart from that provided by their employers. An annual statement will also be sent to the Policy owner within thirty days after a Policy year (or at such other time to which Metropolitan Life and the Policy owner agree and as permitted by law) summarizing all of the above transactions and deductions of charges occurring during that Policy year and setting forth the status of the death benefit, cash and cash surrender values, amounts in the investment divisions and Fixed Account, any policy loan and unpaid loan interest added to loan principal. The annual statement will also discuss the modified endowment contract status of a Policy (see "Premiums--Premium Limitations"). In addition, an owner will be sent semiannual reports containing financial statements for the Fund, as required by the 1940 Act. STATE REGULATION Metropolitan Life is subject to regulation and supervision by the Insurance Department of the State of New York, which periodically examines its affairs. It is also subject to the insurance laws and regulations of all jurisdictions where it is authorized to do business. Where required, a copy of the form of Policy has been filed with, and approved by, insurance officials in each jurisdiction where the Policies are sold. Metropolitan Life intends to satisfy the necessary requirements to sell the Policies in all fifty states and the District of Columbia as soon as possible. Metropolitan Life is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which is does business, for the purposes of determining solvency and compliance with local insurance laws and regulations. Such statements are available for public inspection at state insurance department offices. REGISTRATION STATEMENT A registration statement under the Securities Act of 1933 has been filed with the Securities and Exchange Commission relating to the offering described in this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for additional information concerning the Separate Account, Metropolitan Life and the Policies. The additional information may be obtained at the Commission's main office in Washington, D.C., upon payment of the prescribed fees. LEGAL MATTERS The legality of the Policies described in this Prospectus has been passed upon by Christopher P. Nicholas, Associate General Counsel of Metropolitan Life. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised Metropolitan Life on certain matters relating to the federal securities laws. EXPERTS The financial statements included in this Prospectus have been audited by Deliotte & Touche LLP, independent auditors, as stated in their reports appearing herein, and have been so included in reliance upon such reports given upon the authority of such firm as experts in auditing and accounting. Actuarial matters included in this Prospectus have been examined by Rocco A. Mariano, Jr., FSA, MAAA, Assistant Vice-President and Actuary of Metropolitan Life, as stated in his opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS The financial statements of Metropolitan Life included in this Prospectus should be considered only as bearing upon the ability of Metropolitan Life to meet its obligations under the Policies. 44 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, State Street Research International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1997, and the related statements (i) of operations for the year then ended and of changes in net assets for the years ended December 31, 1997 and 1996 of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index and State Street Research International Stock Divisions and (ii) of operations and of changes in net assets for the period March 3, 1997 (commencement of operations) to December 31, 1997 of the Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997 by correspondence with the custodian and depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, State Street Research International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL at December 31, 1997 and the results of their operations and the changes in their net assets for the respective stated periods, in conformity with generally accepted accounting principles. As discussed in Note 4, the accompanying 1996 financial statements have been restated. DELOITTE & TOUCHE LLP New York, New York March 31, 1998 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
STATE STREET STATE STREET STATE STREET STATE STREET STATE STREET RESEARCH STATE STREET RESEARCH METLIFE RESEARCH RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------ ------------ ------------ ------------ ------------ ----------- ------------- ASSETS: Investments in Metropol- itan Series Fund, Inc. at Value (Note 1A): State Street Research Growth Portfolio (7,500,517 shares; cost $207,140,190).......... $239,416,510 -- -- -- -- -- -- State Street Research Income Portfolio (3,451,828 shares; cost $43,468,874)........... -- $43,700,145 -- -- -- -- -- State Street Research Money Market Portfolio (770,408 shares; cost $8,291,617)............ -- -- $7,996,630 -- -- -- -- State Street Research Diversified Portfolio (9,161,690 shares; cost $143,847,786).......... -- -- -- $155,565,502 -- -- -- State Street Research Aggressive Growth Port- folio (4,299,153 shares; cost $110,480,495).......... -- -- -- -- $181,699,529 -- -- MetLife Stock Index Portfolio (2,992,597 shares; cost $67,138,007)........... -- -- -- -- -- $86,126,949 -- State Street Research International Stock Portfolio (2,324,516 shares; cost $28,974,736)........... -- -- -- -- -- -- $27,127,110 Loomis Sayles High Yield Bond Portfolio (146,279 shares; cost $1,553,369)............ -- -- -- -- -- -- -- Janus Mid Cap Portfolio (302,556 shares; cost $3,640,229)............ -- -- -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (383,687 shares; cost $4,511,133)............ -- -- -- -- -- -- -- Scudder Global Equity Portfolio (278,937 shares; cost $3,035,018)............ -- -- -- -- -- -- -- ------------ ----------- ---------- ------------ ------------ ----------- ----------- Total Assets........... 239,416,510 43,700,145 7,996,630 155,565,502 118,699,529 86,126,949 27,127,110 LIABILITIES............. 530,268 (749) 395 165,745 43,493 30,337 1,155 ------------ ----------- ---------- ------------ ------------ ----------- ----------- NET ASSETS.............. $238,886,242 $43,700,894 $7,996,235 $155,399,757 $118,656,036 $86,096,612 $27,125,955 ============ =========== ========== ============ ============ =========== ===========
See Notes to Financial Statements.
LOOMIS T. ROWE SAYLES PRICE SCUDDER HIGH YIELD JANUS SMALL CAP GLOBAL BOND MID CAP GROWTH EQUITY DIVISION DIVISION DIVISION DIVISION ---------- ---------- ---------- ---------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $1,483,275 -- -- -- -- $3,863,631 -- -- -- -- $4,558,201 -- -- -- -- $3,026,461 ---------- ---------- ---------- ---------- 1,483,275 3,863,631 4,558,201 3,026,461 150 393 89 3,120 ---------- ---------- ---------- ---------- $1,483,125 $3,863,238 $4,558,112 $3,023,341 ========== ========== ========== ==========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------------------- STATE STATE STATE STATE STATE STREET STATE STREET STREET STREET STREET RESEARCH STREET RESEARCH METLIFE RESEARCH RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ----------- ---------- -------- ----------- ---------- ----------- ------------- INVESTMENT INCOME: Income: Dividends (Note 2)..... $42,138,867 $2,922,583 $421,931 $23,433,922 $4,355,881 $ 1,696,231 -- Expenses: Mortality and expense charges (Note 3)...... 1,720,073 304,795 68,737 1,130,927 885,075 509,584 $ 232,079 ----------- ---------- -------- ----------- ---------- ----------- ----------- Net investment income (loss)................. 40,418,794 2,617,788 353,194 22,302,995 3,470,806 1,186,647 (232,079) ----------- ---------- -------- ----------- ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1B) Net realized gain (loss) from security transac- tions.................. 1,080,724 32,950 68,458 418,723 136,827 1,210,648 (84,952) Change in unrealized ap- preciation (deprecia- tion) of investments... 6,378,588 748,796 (49,717) 1,103,869 2,615,059 13,344,725 (691,181) ----------- ---------- -------- ----------- ---------- ----------- ----------- Net realized and unrealized gain (loss) on investments......... 7,459,312 781,746 18,741 1,522,592 2,751,886 14,555,373 (776,133) ----------- ---------- -------- ----------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $47,878,106 $3,399,534 $371,935 $23,825,587 $6,222,692 $15,742,020 $(1,008,212) =========== ========== ======== =========== ========== =========== ===========
See Notes to Financial Statements.
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997 ----------------------------------------------------------------------------------- T. ROWE LOOMIS SAYLES PRICE SCUDDER HIGH YIELD JANUS SMALL CAP GLOBAL BOND MID CAP GROWTH EQUITY DIVISION DIVISION DIVISION DIVISION ------------- ------------ ------------ ----------- $ 63,593 $ 14,490 $ 471 $ 30,685 4,044 8,553 9,261 7,271 ------------ ------------ ----------- ----------- 59,549 5,937 (8,790) 23,414 ------------ ------------ ----------- ----------- 9,361 26,779 47,764 21,982 (70,093) 223,402 47,067 (8,556) ------------ ------------ ----------- ----------- (60,732) 250,181 94,831 13,426 ------------ ------------ ----------- ----------- $ (1,183) $ 256,118 $ 86,041 $ 36,840 ============ ============ =========== ===========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (AS RESTATED--SEE NOTE 4)
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH GROWTH DIVISION INCOME DIVISION MONEY MARKET DIVISION -------------------------- ------------------------ ------------------------- AS RESTATED AS RESTATED AS RESTATED 1997 1996 1997 1996 1997 1996 ------------ ------------ ----------- ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 40,418,794 $ 14,318,113 $ 2,617,788 $ 1,769,924 $ 353,194 $ 340,213 Net realized gain (loss) from security transactions.......... 1,080,724 3,249,072 32,950 13,127 68,458 21,159 Change in unrealized appreciation (depreci- ation) of invest- ments................. 6,378,588 9,530,521 748,796 (824,310) (49,717) (111,136) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets result- ing from operations... 47,878,106 27,097,706 3,399,534 958,741 371,935 250,236 ------------ ------------ ----------- ----------- ------------ ----------- From capital transactions: Net premiums........... 59,834,638 51,991,970 13,090,983 11,838,904 13,691,749 13,703,314 Redemptions............ (7,416,220) (5,657,523) (1,082,695) (1,098,660) (357,692) (370,938) Net portfolio trans- fers.................. 3,569,720 (676,324) 1,296,485 (342,990) (12,877,177) (8,370,773) Other net transfers.... (29,309,077) (23,203,846) (4,895,666) (4,686,537) (887,059) (1,089,670) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets result- ing from capital transactions.......... 26,679,061 22,454,277 8,409,107 5,710,717 (430,179) 3,871,933 ------------ ------------ ----------- ----------- ------------ ----------- NET CHANGE IN NET ASSETS................. 74,557,167 49,551,983 11,808,641 6,669,458 (58,244) 4,122,169 ------------ ----------- ----------- NET ASSETS--BEGINNING OF YEAR, AS PREVIOUSLY RE- PORTED................. 112,440,622 22,311,472 2,974,740 ADJUSTMENT FOR EXCLUDED CONTRACTS (NOTE 4)............... 2,336,470 2,911,323 957,570 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--BEGINNING OF YEAR, AS RESTATED............ 164,329,075 114,777,092 31,892,253 25,222,795 8,054,479 3,932,310 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--END OF YEAR................... $238,886,242 $164,329,075 $43,700,894 $31,892,253 $ 7,996,235 $ 8,054,479 ============ ============ =========== =========== ============ ===========
See Notes to Financial Statements.
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH DIVERSIFIED AGGRESSIVE METLIFE STOCK INDEX INTERNATIONAL DIVISION GROWTH DIVISION DIVISION STOCK DIVISION ---------------------------- ------------------------- ------------------------- ------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED 1997 1996 1997 1996 1997 1996 1997 1996 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- $ 22,302,995 $ 9,021,710 $ 3,470,806 $ 1,735,559 $ 1,186,647 $ 668,041 $ (232,079) $ 26,852 418,723 626,567 136,827 356,580 1,210,648 992,755 (84,952) 7,882 1,103,869 3,195,414 2,615,059 1,727,152 13,344,725 3,305,639 (691,181) (643,946) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 23,825,587 12,843,691 6,222,692 3,819,291 15,742,020 4,966,435 (1,008,212) (609,212) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 41,236,061 34,685,709 52,235,040 47,883,634 38,059,853 18,825,744 11,240,912 12,149,313 (4,829,385) (4,063,905) (3,613,975) (2,963,448) (1,198,193) (754,780) (1,139,393) (680,851) 1,557,340 444,154 (5,941,719) 2,977,777 9,580,428 6,207,785 (3,084,541) (323,788) (19,209,913) (16,290,905) (20,670,473) (18,671,965) (13,547,536) (6,979,516) (5,008,528) (2,938,187) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 18,754,103 14,775,053 22,008,873 29,225,998 32,894,552 17,299,233 2,008,450 8,206,487 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 42,579,690 27,618,744 28,231,565 33,045,289 48,636,572 22,265,668 1,000,238 7,597,275 ------------ ----------- ----------- ----------- 84,180,741 54,331,797 13,425,770 17,296, 137 1,020,582 3,047,385 1,768,602 1,232,305 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 112,820,067 85,201,323 90,424,471 57,379,182 37,460,040 15,194,372 26,125,717 18,528,442 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- $155,399,757 $112,820,067 $118,656,036 $90,424,471 $ 86,096,612 $37,460,040 $27,125,955 $26,125,717 ============ ============ ============ =========== ============ =========== =========== ===========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997 -------------------------------------------------------------- LOOMIS SAYLES T. ROWE PRICE HIGH YIELD JANUS SMALL CAP SCUDDER GLOBAL BOND DIVISION MID CAP DIVISION GROWTH DIVISION EQUITY DIVISION ------------- ---------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 59,549 $ 5,937 $ (8,790) $ 23,414 Net realized gain from security transac- tions................. 9,361 26,779 47,764 21,982 Change in unrealized appreciation (depreci- ation) of investments........ (70,093) 223,402 47,067 (8,556) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets result- ing from operations............ (1,183) 256,118 86,041 36,840 ---------- ---------- ---------- ---------- From capital transactions: Net premiums........... 590,158 2,676,784 1,816,732 1,425,649 Redemptions............ (1,126) (46,974) (40,707) (7,873) Net portfolio trans- fers.................. 1,002,454 1,554,471 3,110,800 1,855,028 Other net transfers.... (107,178) (577,161) (414,754) (286,303) ---------- ---------- ---------- ---------- Net increase in net as- sets resulting from capital transactions.......... 1,484,308 3,607,120 4,472,071 2,986,501 ---------- ---------- ---------- ---------- NET CHANGE IN NET ASSETS................. 1,483,125 3,863,238 4,558,112 3,023,341 NET ASSETS--BEGINNING OF PERIOD................. -- -- -- -- ---------- ---------- ---------- ---------- NET ASSETS--END OF PERI- OD..................... $1,483,125 $3,863,238 $4,558,112 $3,023,341 ========== ========== ========== ==========
See Notes to Financial Statements. METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940 and presently consists of eleven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund'). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life") on December 13, 1988, and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On March 3, 1997, operations commenced for the four new investment divisions added to the Separate Account on that date: the Loomis Sayles High Yield Bond Division, the Janus Mid Cap Division, the T. Rowe Price Small Cap Growth Division and the Scudder Global Equity Division. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the eleven designated portfolios of the Fund in which the eleven investment divisions of the Separate Account invests as of December 31, 1997 is included as Note 5. B. SECURITY TRANSACTIONS Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C. FEDERAL INCOME TAXES In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed separately as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes, or reserves for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any Federal income taxes against the Separate Account arising from the earnings or realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D. NET PREMIUMS Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain of the policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain of the policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2. DIVIDENDS On April 16, 1997 and December 18, 1997, the Fund declared dividends for all shareholders of record on April 25, 1997 and December 30, 1997, respectively. The amount of dividends received by the Separate Account was $75,078,657. The dividends were paid to Metropolitan Life on April 25, 1997 and December 30, 1997, respectively, and were immediately reinvested in additional shares of the portfolios in which the investment divisions invest. As a NOTES TO FINANCIAL STATEMENTS--(CONTINUED) result of this reinvestment, the number of shares of the Fund held by each of the eleven investment divisions increased by the following: State Street Research Growth Portfolio, 1,371,274 shares; State Street Research Income Portfolio, 231,057 shares; State Street Research Money Market Portfolio, 40,663 shares; State Street Research Diversified Portfolio, 1,404,733 shares; State Street Research Aggressive Growth Portfolio, 182,267 shares; MetLife Stock Index Portfolio, 60,453 shares; State Street Research International Stock Portfolio, 0 shares; Loomis Sayles High Yield Bond Portfolio, 6,294 shares; Janus Mid Cap Portfolio, 1,175 shares; T. Rowe Price Small Cap Growth Portfolio, 41 shares; and Scudder Global Equity Portfolio, 2,836 shares. 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will not be higher than an effective annual rate of .90% of the average daily value of the net assets or the monthly anniversary value of the net assets in the Separate Account which are attributable to such policies. 4. RESTATEMENT FOR EXCLUDED CONTRACTS Subsequent to the issuance of the Separate Account 1996 financial statements, Metropolitan Life management determined that the 1996 and prior year financial statements inadvertently excluded amounts related to two groups of insurance contracts included in subsidiary accounting records applicable to the Separate Account. As a result the 1996 financial statements have been restated from the amounts previously reported to include such amounts. A summary of the effects of the restatement on net increase (decrease) in net assets resulting from operations ("Operations") and net increase in net assets resulting from capital transactions ("Capital Transactions") for the year ended December 31, 1996 is as follows:
OPERATIONS CAPITAL TRANSACTIONS ------------------------ ----------------------- AS AS PREVIOUSLY PREVIOUSLY AS RESTATED REPORTED AS RESTATED REPORTED ----------- ----------- ----------- ----------- State Street Research Growth Division.................... $27,097,706 $26,165,771 $22,454,277 $20,291,179 State Street Research Income Division.................... 958,741 789,262 5,710,717 4,157,019 State Street Research Money Market Division............. 250,236 162,166 3,871,933 2,982,949 State Street Research Diver- sified Division............. 12,843,691 12,559,668 14,775,053 13,727,050 State Street Research Aggres- sive Growth Division........ 3,819,291 3,487,444 29,225,998 25,921,962 MetLife Stock Index Divi- sion........................ 4,966,435 4,138,300 17,299,233 14,469,444 State Street Research Inter- national Stock Division..... (609,212) (550,732) 8,206,487 6,923,935
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997 Below are summarized information of the investments of the portfolios of the Fund in which each of the investment divisions invest. METROPOLITAN SERIES FUND, INC.
STATE STREET STATE STREET STATE STREET STATE STREET RESEARCH RESEARCH RESEARCH RESEARCH GROWTH INCOME MONEY MARKET DIVERSIFIED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- ------------ ------------ -------------- COMMON STOCK Aerospace.............. $ 55,477,881 (2.4%) $ 25,844,668 (1.3%) Automotive............. 43,379,027 (1.8%) 20,079,121 (1.0%) Banking................ 205,479,175 (8.7%) 95,552,627 (4.8%) Broadcasting........... 124,133,525 (5.3%) 56,726,174 (2.9%) Business Services...... 25,546,853 (1.1%) 11,853,663 (0.6%) Chemicals.............. 105,409,887 (4.5%) 48,725,475 (2.5%) Drugs & Health Care.... 150,504,102 (6.4%) 70,602,148 (3.6%) Electrical Equipment... 94,815,937 (4.0%) 43,986,787 (2.2%) Electronics............ 77,962,605 (3.3%) 36,467,790 (1.8%) Entertainment & Leisure............... 22,431,812 (1.0%) 10,385,217 (0.5%) Financial Services..... 35,764,865 (1.5%) 16,588,059 (0.8%) Food & Beverages....... 74,536,480 (3.2%) 34,639,368 (1.7%) Forest Products & Paper................. 45,897,963 (2.0%) 21,753,294 (1.1%) Hospital Management.... 16,383,625 (0.7%) 7,608,812 (0.4%) Household Products..... 36,627,032 (1.6%) 17,004,594 (0.9%) Insurance.............. 101,332,113 (4.3%) 47,329,837 (2.4%) Machinery.............. 16,361,400 (0.7%) 7,592,400 (0.4%) Medical Supply......... 45,413,162 (1.9%) 21,172,712 (1.1%) Metals--Steel & Iron... 23,359,400 (1.0%) 10,840,668 (0.5%) Miscellaneous.......... 68,513,025 (2.9%) 31,886,225 (1.6% Office & Business Equipment............. 111,018,537 (4.7%) 51,900,043 (2.6%) Oil.................... 40,733,670 (1.7%) 19,133,347 (1.0%) Oil & Gas Exploration.. 54,241,001 (2.3%) 25,252,861 (1.3%) Oil--Domestic.......... 47,151,675 (2.0%) 20,900,250 (1.1%) Oil--International..... 23,614,913 (1.0%) 10,994,644 (0.6%) Retail Grocery......... 74,417,500 (3.2%) 34,970,447 (1.8%) Retail Trade........... 183,384,019 (7.8%) 85,473,643 (4.3%) Software............... 25,740,375 (1.1%) 12,118,958 (0.6%) Tobacco................ 47,328,906 (2.0%) 22,112,500 (1.1%) Transportation-- Trucking.............. 0 (0.0%) 63 (0.0%) Utilities--Electric.... 91,202,222 (3.9%) 25,835,899 (1.3%) Utilities--Telephone... 43,652,700 (1.9%) 36,947,828 (1.8%) -------------- -------------- Total Common Stock..... 2,111,815,387 (89.9%) 982,280,122 (49.6%) -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Asset Backed........... $ 12,067,182 (2.9%) 29,417,837 (1.5%) Banking................ 23,128,825 (5.6%) 42,344,898 (2.1%) Broadcasting........... 3,944,733 (1.0%) 7,737,746 (0.4%) Collateralized Mortgage Obligations........... 24,819,316 (6.0%) 49,612,357 (2.5%) Financial Services..... 60,775,829 (14.8%) 129,445,268 (6.5%) Government Sponsored : Federally Chartered... 5,506,656 (1.3%) 6,323,235 (0.3%) Government Sponsored : State Chartered....... 2,042,474 (0.5%) 4,057,347 (0.2%) Healthcare Services.... 10,036,465 (2.4%) 15,063,888 (0.8%) Household Products..... 3,962,600 (1.0%) 7,724,563 (0.4%) Industrials............ 24,078,102 (5.9%) 66,622,264 (3.4%) Newspapers............. 4,677,541 (1.1%) 7,990,940 (0.4%) Restaurant............. 3,362,275 (0.8%) 4,226,860 (0.2%) Utilities--Electric.... 12,459,882 (3.0%) 13,174,510 (0.7%) Utilities--Telephone... 0 (0.0%) 5,119,400 (0.2%) ------------ -------------- Total Corporate Bonds.. 190,861,880 (46.3%) 388,861,113 (19.6%) ------------ -------------- Federal Agency Obligations........... 21,608,734 (5.2%) 32,463,133 (1.6%) Federal Treasury Obligations........... 121,993,026 (29.6%) 296,514,139 (15.0%) Foreign Obligations.... 29,919,864 (7.3%) 64,010,479 (3.2%) Yankee Bonds........... 22,911,597 (5.6%) 40,757,635 (2.1%) ------------ -------------- Total Bonds............ 387,295,101 (94.0%) 822,606,499 (41.5%) ------------ -------------- SHORT-TERM OBLIGATIONS Banker's Acceptance.... $ 1,999,504 (5.1%) Commercial Paper....... 35,110,031 (88.9%) Federal Agency Obligations........... 1,999,174 (5.1%) Financial Services..... 260,576,843 (11.1%) 18,926,000 (4.6%) 175,117,291 (8.8%) -------------- ------------ ----------- -------------- Total Short-Term Obligations........... 260,576,843 (11.1%) 18,926,000 (4.6%) 39,108,709 (99.1%) 175,117,291 (8.8%) -------------- ------------ ----------- -------------- TOTAL INVESTMENTS....... 2,372,392,230 (101.0%) 406,221,101 (98.6%) 39,108,709 (99.1%) 1,980,003,912 (99.9%) Other Assets Less Liabilities........... (23,330,647) (-1.0%) 5,969,530 (1.4%) 371,130 (0.9%) 2,227,802 (0.1%) -------------- ------------ ----------- -------------- NET ASSETS.............. $2,349,061,583 (100.0%) $412,190,631 (100.0%) $39,479,839 (100.0%) $1,982,231,714 (100.0%) ============== ============ =========== ==============
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
STATE STREET STATE STREET RESEARCH RESEARCH METLIFE AGGRESSIVE INTERNATIONAL STOCK INDEX GROWTH STOCK PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- ------------- COMMON STOCK Aerospace............... $ 40,637,466 (2.0%) $ 11,289,881 (0.8%) $ 2,387,852 (0.9%) Automotive.............. 45,456,508 (2.3%) 28,967,250 (2.1%) 5,015,967 (1.9%) Banking................. 184,244,814 (9.1%) 29,889,600 (2.1%) 40,150,993 (15.0%) Broadcasting............ 34,958,314 (1.7%) 34,642,109 (2.5%) 3,027,948 (1.1%) Building & Construction............ 13,042,869 (0.7%) 1,588,198 (0.6%) Business Services....... 25,038,859 (1.2%) 264,032,617 (19.0%) 5,966,734 (2.2%) Chemicals............... 55,137,636 (2.7%) 4,039,673 (1.5%) Computer Equipment & Service................. 34,881,231 (2.5%) Construction Materials.. 7,498,217 (2.8%) Construction & Mining Equipment............... 8,304,900 (0.6%) Consumer Products....... 1,829,846 (0.7%) Containers & Glass...... 5,472,575 (0.3%) 1,006,387 (0.4%) Cosmetics............... 5,512,025 (0.3%) 11,648,975 (0.8%) Drugs & Health Care..... 157,334,686 (7.8%) 42,144,363 (3.0%) 21,570,856 (8.1%) Education............... 7,437,875 (0.5%) Electrical Equipment.... 82,536,849 (4.1%) 2,041,231 (0.7%) Electronics............. 84,752,427 (4.2%) 123,061,789 (8.8%) 7,720,814 (2.9%) Energy.................. 1,160,064 (0.4%) Entertainment & Leisure................. 18,716,901 (0.9%) 46,907,107 (3.4%) 3,136,901 (1.2%) Financial Services...... 84,711,977 (4.2%) 72,052,419 (5.2%) 982,925 (0.4%) Food & Beverages........ 114,340,308 (5.7%) 9,929,888 (0.7%) 11,047,677 (4.1%) Forest Products & Paper................... 22,113,212 (1.1%) 4,201,571 (1.6%) General Business........ 588,933 (0.2%) Healthcare Services..... 43,554 (0.0%) Hospital Management..... 11,028,388 (0.5%) 14,045,000 (1.0%) Hotel & Motel........... 5,444,538 (0.3%) 23,227,899 (1.7%) Household Appliances & Home Furnishings........ 4,813,163 (0.2%) 2,290,994 (0.9%) Household Products...... 64,582,375 (3.2%) 1,266,205 (0.5%) Insurance............... 79,897,474 (4.0%) 35,200,306 (2.5%) 19,743,473 (7.4%) Liquor.................. 2,688,400 (0.1%) Machinery............... 21,529,430 (1.1%) 5,393,875 (2.0%) Medical Supply.......... 52,060,343 (2.6%) 21,603,563 (1.6%) Metals--Aluminum........ 4,689,262 (0.2%) Metals--Gold............ 4,638,780 (0.2%) Metals--Non-Ferrous..... 2,126,308 (0.1%) 5,000,016 (1.9%) Metals--Steel & Iron.... 3,137,730 (0.2%) 1,647,825 (0.1%) 2,926,945 (1.1%) Mining.................. 2,634,900 (0.1%) 1,189,500 (0.1%) 620,596 (0.2%) Miscellaneous........... 12,701,499 (0.6%) 22,837,675 (1.6%) 1,002,644 (0.4%) Multi-Industry.......... 12,758,726 (0.6%) 9,623,993 (3.6%) Newspapers.............. 13,177,443 (0.7%) 789,576 (0.3%) Office & Business Equipment............... 108,801,022 (5.4%) 120,385,619 (8.7%) Oil & Gas Exploration... 905,738 (0.0%) 3,386,080 (1.3%) Oil--Domestic........... 34,654,774 (1.7%) Oil--International...... 107,077,494 (5.3%) 14,022,941 (5.2%) Oil--Services........... 24,773,387 (1.2%) 12,017,500 (0.9%) Personal Care........... 618,289 (0.2%) Photography............. 6,809,362 (0.3%) Pollution Control....... 4,725,750 (0.2%) 3,842,575 (0.3%) Printing & Publishing... 6,863,863 (0.3%) 10,278,600 (0.7%) 1,324,259 (0.5%) Real Estate............. 3,294,667 (1.2%) Restaurant.............. 9,458,756 (0.5%) 2,436,537 (0.2%) Retail Grocery.......... 10,371,392 (0.5%) 21,435,425 (1.5%) Retail Trade............ 85,410,978 (4.2%) 130,225,513 (9.4%) 9,107,736 (3.4%)[ Software................ 59,131,545 (2.9%) 68,992,501 (5.0%) Telecommunications Equipment & Services.... 15,880,518 (1.1%) 4,694,678 (1.8%) Textiles & Apparel...... 6,077,783 (0.3%) 26,273,281 (1.9%) 954,522 (0.4%) Tires & Rubber.......... 5,458,800 (0.3%) 1,191,661 (0.4%) Tobacco................. 29,937,401 (1.5%) 14,880,625 (1.1%) Toys & Amusements....... 4,075,259 (0.2%) 3,087,999 (1.2%) Transportation-- Airlines................ 11,143,931 (0.6%) 2,799,020 (1.0%) Transportation-- Railroad................ 13,732,100 (0.7%) 3,894,818 (1.5%) Transportation-- Trucking................ 1,172,450 (0.1%) Utilities--Electric..... 59,636,673 (3.0%) 4,866,641 (1.8%) Utilities--Gas Distribution & Pipelines............... 14,279,257 (0.7%) 1,658,516 (0.6%) Utilities-- Miscellaneous........... 8,432,787 (3.2%) Utilities--Telephone.... 130,153,229 (6.4%) 27,899,850 (2.0%) 11,476,736 (4.3%) -------------- -------------- ------------ Total Common Stock...... 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 248,432,454 (93.0%) -------------- -------------- ------------ PREFERRED STOCK Banking................. $ 1,885,762 (0.7%) Chemicals............... 706,634 (0.3%) Retail Trade............ 484,538 (0.2%) Software................ 808,024 (0.3%) -------------- -------------- ------------ Total Preferred Stock... 0 (0.0%) 0 (0.0%) 3,884,958 (1.5%) -------------- -------------- ------------ Total Equity Securities.............. 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 252,317,412 (94.5%) SHORT-TERM OBLIGATIONS Federal Treasury Obligations............. 947,146 (0.1%) Financial Services...... 82,499,000 (5.9%) Finance................. 8,748,846 (0.4%) Time Deposit............ 11,000,000 (4.1%) -------------- -------------- ------------ Total Short-Term Obligations............. 9,695,992 (0.5%) 82,499,000 (5.9%) 11,000,000 (4.1%) -------------- -------------- ------------ TOTAL INVESTMENTS....... 2,016,263,121 (99.8%) 1,382,032,870 (99.3%) 263,317,412 (98.6%) Other Assets Less Liabilities............. 4,216,915 (0.2%) 9,922,742 (0.7%) 3,771,397 (1.4%) -------------- -------------- ------------ NET ASSETS.............. $2,020,480,036 (100.0%) $1,391,955,612 (100.0%) $267,088,809 (100.0%) ============== ============== ============
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
LOOMIS SAYLES HIGH YIELD BOND PORTFOLIO --------------- COMMON STOCK Banking............................................... $ 29,699 (0.1%) Forest Products & Paper............................... 171,511 (0.6%) Real Estate........................................... 299,587 (1.1%) Utilities--Electric................................... 105,000 (0.4%) Utilities--Telephone.................................. 8,409 (0.0%) ----------- Total Common Stock.................................... 614,206 (2.2%) ----------- PREFERRED STOCK Metals--Steel & Iron.................................. 269,750 (1.0%) Oil--Services......................................... 30,400 (0.1%) Transportation--Trucking.............................. 66,800 (0.2%) Utilities--Electric................................... 87,336 (0.3%) ----------- Total Preferred Stock................................. 454,286 (1.6%) ----------- LONG-TERM DEBT SECURITIES Convertible Bonds: Broadcasting.......................................... 96,750 (0.4%) Business Services..................................... 152,250 (0.6%) Computer Equipment & Service.......................... 1,038,775 (3.7%) Electrical Equipment.................................. 32,800 (0.1%) Electronics........................................... 638,250 (2.3%) Entertainment & Leisure............................... 234,750 (0.9%) Foreign Obligations................................... 1,350,438 (4.9%) Industrials........................................... 633,650 (2.3%) Medical Supply........................................ 298,500 (1.1%) Metals--Steel & Iron.................................. 2,000 (0.0%) Mining................................................ 522,250 (1.9%) Miscellaneous......................................... 452,050 (1.6%) Oil--International.................................... 37,167 (0.1%) Pollution Control..................................... 255,469 (0.9%) Real Estate........................................... 96,000 (0.3%) Restaurant............................................ 682,625 (2.5%) Retail Trade.......................................... 84,250 (0.3%) Textiles & Apparel.................................... 317,000 (1.1%) Transportation--Trucking.............................. 116,800 (0.4%) Utilities--Telephone.................................. 310,000 (1.1%) ----------- Total Convertible Bonds............................... 7,351,774 (26.5%) ----------- Corporate Bonds: Automotive............................................ 177,500 (0.6%) Broadcasting.......................................... 1,445,555 (5.2%) Collateralized Mortgage Obligations................... 98,000 (0.4%) Computer Equipment & Service.......................... 1,017,754 (3.7%) Electronics........................................... 275,525 (1.0%) Financial Services.................................... 793,750 (2.9%) Food & Beverages...................................... 997,719 (3.6%) Industrials........................................... 525,236 (1.9%) Metals--Steel & Iron.................................. 152,004 (0.5%) Pollution Control..................................... 120,000 (0.4%) Real Estate........................................... 247,500 (0.9%) Retail Grocery........................................ 169,500 (0.6%) Retail Trade.......................................... 526,625 (1.9%) Telecommunications Equipment & Services............... 525,825 (1.9%) Utilities--Electric................................... 778,000 (2.8%) Utilities--Telephone.................................. 2,393,688 (8.6%) ----------- Total Corporate Bonds................................. 10,244,181 (36.9%) ----------- Foreign Obligations................................... 4,150,064 (14.9%) Yankee Bonds.......................................... 3,152,009 (11.3%) ----------- Total Bonds........................................... 24,898,028 (89.6%) TOTAL SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.... 1,782,000 (6.4%) ----------- TOTAL INVESTMENTS...................................... 27,748,520 (99.8%) Other Assets Less Liabilities......................... 55,146 (0.2%) ----------- NET ASSETS............................................. $27,803,666 (100.0%) ===========
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
JANUS T. ROWE PRICE SCUDDER MID CAP SMALL CAP GROWTH GLOBAL EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ------------ ---------------- ------------- COMMON STOCK Aerospace............... $ 1,929,398 2.1%) $ 582,356 (1.0%) Automotive.............. $ 868,848 (0.8%) 1,535,550 (1.6%) 334,050 (0.6%) Banking................. 2,514,292 (2.4%) 3,793,175 (4.0%) 2,528,176 (4.2%) Biotechnology........... 737,930 (0.8%) 109,238 (0.2%) Broadcasting............ 9,592,084 (9.2%) 2,176,161 (2.3%) 668,014 (1.1%) Building & Construction........... 1,339,459 (1.4%) Business Services....... 8,259,757 (8.0%) 9,108,644 (9.7%) 473,850 (0.8%) Chemicals............... 488,150 (0.5%) 4,301,881 (7.1%) Computer Equipment & Service................ 1,355,650 (1.3%) 4,896,551 (5.2%) Construction Materials.. 5,772,605 (5.6%) 911,288 (1.0%) 511,486 (0.8%) Construction & Mining Equipment.............. 512,742 (0.5%) Consumer Products....... 327,816 (0.4%) 1,038,234 (1.7%) Consumer Services....... 230,503 (0.4%) Cosmetics............... 269,325 (0.3%) Drugs & Health Care..... 9,479,980 (9.1%) 7,326,342 (7.8%) 1,893,125 (3.1%) Education............... 4,412,464 (4.3%) 985,719 (1.0%) Electrical Equipment.... 3,993,096 (3.9%) 2,149,376 (2.3%) 1,121,131 (1.7%) Electronics............. 5,015,736 (4.8%) 6,660,654 (7.1%) 850,606 (1.4%) Energy.................. 605,906 (0.6%) Entertainment & Leisure................ 2,498,617 (2.4%) 2,547,108 (2.7%) Financial Services...... 9,266,979 (8.9%) 1,936,243 (2.1%) 1,252,399 (2.1%) Food & Beverages........ 1,822,511 (1.8%) 552,782 (0.6%) 1,693,834 (2.8%) Forest Products & Paper.................. 52,594 (0.1%) 261,625 (0.4%) Healthcare Services..... 1,858,959 (1.8%) 2,159,197 (2.3%) Hotel & Motel........... 981,770 (1.0%) Household Appliances & Home Furnishings....... 617,587 (0.7%) Insurance............... 2,665,512 (2.6%) 3,326,513 (3.5%) 7,298,843 (12.0%) Machinery............... 69,400 (0.1%) 584,593 (1.0%) Medical Supply.......... 1,846,006 (2.0%) 1,113,861 (1.8%) Metals--Gold............ 14,688 (0.0%) 247,458 (0.4%) Metals--Non-Ferrous..... 364,000 (0.4%) 213,760 (0.4%) Metals--Steel & Iron.... 458,394 (0.8%) Mining.................. 443,368 (0.7%) Miscellaneous........... 1,842,291 (2.0%) Multi-Industry.......... 1,319,463 (1.3%) 1,727,416 (2.8%) Office & Business Equipment.............. 1,772,944 (1.7%) 2,371,144 (2.5%) 1,768,470 (2.9%) Oil & Gas Exploration... 1,892,111 (2.0%) Oil--Domestic........... 46,575 (0.0%) Oil--International...... 1,329,968 (2.2%) Oil--Services........... 1,363,250 (1.4%) 523,959 (0.9%) Plastics................ 1,356,956 (1.3%) 333,450 (0.4%) Pollution Control....... 448,322 (0.5%) Printing & Publishing... 38,375 (0.0%) 148,548 (0.2%) Real Estate............. 2,574,758 (2.5%) 453,506 (0.5%) 326,281 (0.5%) Restaurant.............. 9,003,672 (8.7%) 956,133 (1.0%) Retail Grocery.......... 323,275 (0.3%) 565,025 (0.6%) Retail Trade............ 3,673,828 (3.5%) 6,760,914 (7.2%) 264,075 (0.4%) Shipbuilding............ 416,500 (0.4%) Software................ 3,020,850 (2.9%) 6,090,820 (6.5%) 1,565,031 (2.6%) Technology.............. 16,949 (0.0%) Telecommunications Equipment & Services... 4,621,813 (4.9%) 521,314 (0.9%) Textiles & Apparel...... 1,289,919 (1.4%) Tires & Rubber.......... 458,339 (0.8%) Transportation.......... 327,750 (0.3%) Transportation-- Airlines............... 1,388,156 (1.3%) 567,225 (0.6%) 1,067,700 (1.8%) Transportation-- Railroad............... 494,413 (0.5%) 711,123 (1.2%) Transportation-- Trucking............... 346,544 (0.4%) Utilities--Electric..... 2,729,894 (2.6%) 3,366,089 (5.5%) Utilities--Gas Distribution & Pipelines.............. 619,281 (1.0%) Utilities-- Miscellaneous.......... 552,834 (0.5%) Utilities--Telephone.... 1,637,908 (1.6%) 1,031,758 (1.1%) 963,189 (1.6%) ------------ ----------- ----------- Total Common Stock...... 99,244,370 (95.6%) 91,984,119 (97.8%) 43,571,568 (71.8%) ------------ ----------- ----------- PREFERRED STOCK Food & Beverages........ 369,607 (0.6%) Metals--Steel & Iron.... 651,921 (1.1%) Oil--International...... 950,554 (1.6%) Software................ 686,984 (1.1%) ------------ ----------- ----------- Total Preferred Stock... -- (0.0%) -- (0.0%) 2,659,066 (4.4%) ------------ ----------- ----------- Total Equity Securities............. 99,244,370 (95.6%) 91,984,119 (97.8%) 46,230,634 (76.2%) LONG-TERM DEBT SECURITIES Federal Treasury Obligations............ 8,051,582 (13.2%) Foreign Obligations..... 1,873,970 (3.1%) ------------ ----------- ----------- Total Long-Term Debt Securities............. -- (0.0%) -- (0.0%) 9,925,552 (16.3%) SHORT-TERM OBLIGATIONS Commercial Paper........ 1,879,000 (3.1%) Banking................. 410,282 (0.4%) Federal Agency Obligations............ 4,999,167 (4.8%) 1,518,800 (1.6%) 3,999,472 (6.6%) Financial Services...... 4,899,088 (4.7%) 1,657,167 (1.8%) ------------ ----------- ----------- Total Short-Term Obligations............ 9,898,255 (9.5%) 3,586,249 (3.8%) 5,878,472 (9.7%) ------------ ----------- ----------- TOTAL INVESTMENTS....... 109,142,625 (105.1%) 95,570,368 (101.6%) 62,034,658 (102.2%) Other Assets Less Liabilities............ (5,290,984) (-5.1%) (1,550,362) (-1.6%) (1,322,516) (-2.2%) ------------ ----------- ----------- NET ASSETS.............. $103,851,641 (100.0%) $94,020,006 (100.0%) $60,712,142 (100.0%) ============ =========== ===========
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONCLUDED) The value of the investments of the Fund's portfolios are determined using the following valuation techniques. Portfolio securities that are traded on domestic stock exchanges are valued at the last price as of the close of business on the day the securities are being valued, or, lacking any sales, at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which in the latter case would value such securities at the last bid price). Securities trading primarily on non- domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or, in the case of the Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued by using the mean between the last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio which second values such securities at the last current bid, and third by using the last available price). Domestic securities traded in the over-the-counter market are valued at the mean between the bid and asked prices or yield equivalent as obtained from two or more dealers that make markets in the securities (except for the Loomis Sayles High Yield Bond Portfolio, which, in the latter case, would value such security at the last bid price; or the Scudder Global Equity Portfolio which would value such security first at the last sale, and second at the bid price). All non-U.S. securities traded in the over-the-counter securities market are valued at the last sale quote, if market quotations are available, or the last closing bid price, if there is no active trading in a particular security for a given day. Where market quotations are not readily available such non-domestic over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors, or it delegates, believe accurately reflects fair value. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long-term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost, method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same methods as securities having a maturity of more than sixty days. Options, whether on securities, indices, or futures contracts, are valued at the last sales price available as of the close of business on the day of valuation or, if no sale, at the mean between the bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to-market daily. The value of futures contracts will be the sum of the margin deposit plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated, value being that established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. INDEPENDENT AUDITORS' REPORT Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company (the "company") as of December 31, 1997 and 1996 and the related consolidated statements of earnings, equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the company at December 31, 1997 and 1996 and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the company has changed the method of accounting for investment income on certain structured securities. Deloitte & Touche LLP New York, New York February 12, 1998, except for Note 17, as to which the date is March 12, 1998 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN MILLIONS)
NOTES 1997 1996 ----- -------- -------- ASSETS Investments: Fixed Maturities:.................................... 2,15 Available for Sale, at Estimated Fair Value........ $ 92,630 $ 75,039 Held to Maturity, at Amortized Cost................ -- 11,322 Equity Securities.................................... 2,15 4,250 2,816 Mortgage Loans on Real Estate........................ 2,15 20,247 18,964 Policy Loans......................................... 15 5,846 5,842 Real Estate.......................................... 2 6,111 7,498 Real Estate Joint Ventures........................... 4 680 851 Other Limited Partnership Interests.................. 4 855 1,004 Leases and Leveraged Leases.......................... 2 2,123 1,763 Short-Term Investments............................... 15 705 741 Other Invested Assets................................ 2,338 2,692 -------- -------- Total Investments.................................. 135,785 128,532 Cash and Cash Equivalents.............................. 15 2,871 2,325 Deferred Policy Acquisition Costs...................... 6,436 7,227 Accrued Investment Income.............................. 1,860 1,611 Premiums and Other Receivables......................... 5 3,280 2,916 Deferred Income Taxes Recoverable...................... 6 -- 37 Other Assets........................................... 3,055 2,340 Separate Account Assets................................ 48,620 43,763 -------- -------- Total Assets........................................... $201,907 $188,751 ======== ======== LIABILITIES AND EQUITY Liabilities Future Policy Benefits................................. 5 $ 72,125 $ 69,115 Policyholder Account Balances.......................... 15 48,533 47,674 Other Policyholder Funds............................... 4,681 4,758 Policyholder Dividends Payable......................... 1,373 1,348 Short- and Long-Term Debt.............................. 9,15 7,203 5,257 Income Taxes Payable:.................................. 6 Current.............................................. 480 599 Deferred............................................. 472 -- Other Liabilities...................................... 4,695 4,618 Separate Account Liabilities........................... 48,338 43,399 -------- -------- Total Liabilities...................................... 187,900 176,768 -------- -------- Commitments and Contingencies (Notes 2 and 10) Equity Retained Earnings...................................... 12,140 10,937 Net Unrealized Investment Gains........................ 3 1,898 1,028 Foreign Currency Translation Adjustments............... (31) 18 -------- -------- Total Equity........................................... 16 14,007 11,983 -------- -------- Total Liabilities and Equity........................... $201,907 $188,751 ======== ========
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996 AND 1995 (IN MILLIONS)
NOTES 1997 1996 1995 ----- ------- ------- ------- REVENUES Premiums...................................... 5 $11,299 $11,462 $11,178 Universal Life and Investment-Type Product Policy Fee Income............................ 1,458 1,243 1,177 Net Investment Income......................... 3 9,475 8,993 8,837 Investment Gains (Losses), Net................ 3 798 231 (157) Commissions, Fees and Other Income............ 1,344 1,256 834 ------- ------- ------- Total Revenues............................ 24,374 23,185 21,869 ------- ------- ------- BENEFITS AND OTHER DEDUCTIONS Policyholder Benefits......................... 5 12,328 12,399 11,915 Interest Credited to Policyholder Account Bal- ances........................................ 2,874 2,868 3,143 Policyholder Dividends........................ 1,720 1,728 1,786 Other Operating Costs and Expenses............ 11 5,759 4,784 4,281 ------- ------- ------- Total Benefits and Other Deductions....... 22,681 21,779 21,125 ------- ------- ------- Earnings from Continuing Operations Before In- come Taxes................................... 1,693 1,406 744 Income Taxes.................................. 6 476 482 407 ------- ------- ------- Earnings from Continuing Operations........... 1,217 924 337 ------- ------- ------- Discontinued Operations: 13 Loss from Discontinued Operations (Net of Income Tax (Benefit) Expense of $(8) in 1997, $(18) in 1996 and $32 in 1995)....... (14) (52) (54) (Loss) Gain on Disposal of Discontinued Op- erations (Net of Income Tax (Benefit) Ex- pense of $(11) in 1996 and $106 in 1995)... -- (19) 416 ------- ------- ------- (Loss) Earnings from Discontinued Operations.. (14) (71) 362 ------- ------- ------- Net Earnings.................................. 16 $ 1,203 $ 853 $ 699 ======= ======= =======
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
NOTES 1997 1996 1995 ----- ------- ------- ------- Retained Earnings, Beginning of Year.......... $10,937 $10,084 $ 9,385 Net Earnings.................................. 1,203 853 699 ------- ------- ------- Retained Earnings, End of Year................ 12,140 10,937 10,084 ------- ------- ------- Net Unrealized Investment Gains (Losses), Be- ginning of Year.............................. 1,028 1,646 (955) Change in Unrealized Investment Gains (Loss- es).......................................... 3 870 (618) 2,601 ------- ------- ------- Net Unrealized Investment Gains, End of Year.. 1,898 1,028 1,646 ------- ------- ------- Foreign Currency Translation Adjustments, Be- ginning of Year.............................. 18 24 (2) Change in Foreign Currency Translation Adjust- ments........................................ (49) (6) 26 ------- ------- ------- Foreign Currency Translation Adjustments, End of Year...................................... (31) 18 24 ------- ------- ------- Total Equity, End of Year..................... 16 $14,007 $11,983 $11,754 ======= ======= =======
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
1997 1996 1995 -------- -------- -------- Net Earnings $ 1,203 $ 853 $ 699 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Change in Deferred Policy Acquisition Costs, Net. (159) (391) (376) Change in Accrued Investment Income.............. (215) 350 (191) Change in Premiums and Other Receivables......... (819) (106) (29) Change in Undistributed Income of Real Estate Joint Ventures and Other Limited Partnership Interests................... 163 (45) (221) Gains from Sales of Investments and Businesses, Net............................................. (1,029) (428) (595) Depreciation and Amortization Expenses........... 516 (18) 30 Interest Credited to Policyholder Account Bal- ances........................................... 2,874 2,868 3,143 Universal Life and Investment-Type Product Policy Fee Income...................................... (1,458) (1,243) (1,177) Change in Future Policy Benefits................. 1,641 2,149 2,332 Change in Other Policyholder Funds............... 88 181 (66) Change in Income Taxes Payable................... (99) (134) 327 Other, Net....................................... 512 (348) 947 -------- -------- -------- Net Cash Provided by Operating Activities.......... 3,218 3,688 4,823 -------- -------- -------- Cash Flows from Investing Activities Sales, Maturities and Repayments of: Fixed Maturities................................ 75,346 76,117 64,372 Equity Securities............................... 1,821 2,069 694 Mortgage Loans on Real Estate................... 2,381 2,380 3,182 Real Estate..................................... 1,875 1,948 1,193 Real Estate Joint Ventures...................... 205 410 387 Other Limited Partnership Interests............. 166 178 42 Leases and Leveraged Leases..................... 192 102 123 Purchases of: Fixed Maturities................................ (76,603) (76,225) (66,693) Equity Securities............................... (2,121) (2,742) (781) Mortgage Loans on Real Estate................... (4,119) (4,225) (2,491) Real Estate..................................... (387) (859) (904) Real Estate Joint Ventures...................... (72) (130) (285) Other Limited Partnership Interests............. (338) (307) (87) Assets to be Leased............................. (738) (585) (383) Net Change in Short-Term Investments.............. 37 1,028 (634) Net Change in Policy Loans........................ 17 (128) (112) Other, Net........................................ 442 45 (308) -------- -------- -------- Net Cash Used by Investing Activities.............. (1,896) (924) (2,685) -------- -------- -------- Cash Flows from Financing Activities Policyholder Account Balances: Deposits....................................... 16,061 17,167 16,017 Withdrawals.................................... (18,831) (19,321) (19,142) Additions to Long-Term Debt....................... 828 -- 692 Repayments of Long-Term Debt...................... (99) (284) (389) Net Increase (Decrease) in Short-Term Debt........ 1,265 69 (78) -------- -------- -------- Net Cash Used by Financing Activities.............. (776) (2,369) (2,900) -------- -------- -------- Change in Cash and Cash Equivalents................ 546 395 (762) Cash and Cash Equivalents, Beginning of Year....... 2,325 1,930 2,692 -------- -------- -------- Cash and Cash Equivalents, End of Year............. $ 2,871 $ 2,325 $ 1,930 ======== ======== ======== Supplemental Cash Flow Information Interest Paid.................................... $ 422 $ 310 $ 280 ======== ======== ======== Income Taxes Paid................................ $ 589 $ 497 $ 283 ======== ======== ========
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE IN MILLIONS OF DOLLARS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (collectively, the "company") provide life insurance and annuity products and pension, pension-related and investment-related products and services to individuals, corporations and other institutions. The company also provides nonmedical health, disability and property and casualty insurance and offers investment management, investment advisory and commercial finance services. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The consolidated financial statements include the accounts of MetLife and its subsidiaries, partnerships and joint venture interests in which MetLife has control. Other equity investments in affiliated companies, partnerships and joint ventures are generally reported on the equity basis. Minority interest relating to certain consolidated entities amounted to $277 and $149 at December 31, 1997 and 1996, respectively, and is included in other liabilities. Significant intercompany transactions and balances have been eliminated in consolidation. Prior years' amounts have been reclassified to conform to the 1997 presentation. On December 31, 1995, the company reclassified (under one-time accounting implementation guidance) to available for sale certain held to maturity securities. On July 1, 1997, the company reclassified to available for sale all securities classified as held to maturity on that date as management concluded that all securities are now available for sale. As a result, consolidated equity at July 1, 1997 and December 31, 1995 increased by $198 and $135, respectively, excluding the effects of deferred income taxes, amounts attributable to participating pension contracts, and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. During 1997 management changed to the retrospective interest method of accounting for investment income on structured note securities in accordance with authoritative guidance issued in late 1996. As a result, net investment income increased by $175. The cumulative effect of this accounting change on prior years' income is not material. VALUATION OF INVESTMENTS SECURITIES--As mentioned above, during 1997 management reclassified all of the company's fixed maturity securities to available for sale. Accordingly, as of December 31, 1997, all of the company's investment securities are carried at estimated fair value. Prior to this reclassification, certain fixed maturity securities (principally bonds and redeemable preferred stock) were carried at amortized cost. Unrealized investment gains and losses on investment securities are recorded directly as a separate component of equity net of related deferred income taxes, amounts attributable to participating pension contracts and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. Costs of securities are adjusted for impairments in value considered other than temporary. Such adjustments are recorded as realized investment losses. All security transactions are recorded on a trade date basis. MORTGAGE LOANS in good standing are carried at amortized cost. A provision is made for a realized investment loss (and a corresponding allowance is established) when it becomes probable that the company will be unable to collect all amounts due under the terms of the loan agreement. The provision generally is equal to the excess of the carrying value of the mortgage loan over its estimated fair value. Estimated fair value is based on either the present value of NOTES TO FINANCIAL STATEMENTS--(CONTINUED) expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral. Mortgage loans considered to be uncollectible are charged against the allowance and subsequent recoveries are credited to the allowance. Interest income earned on loans where the collateral value is used to measure impairment is recorded on a cash basis. Interest income earned on loans where the present value method is used to measure impairment is accrued on the net carrying value amount of the loan at the interest rate used to discount the cash flows. POLICY LOANS are stated at unpaid principal balances. INVESTMENT REAL ESTATE is generally stated at depreciated cost. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. If events or changes in circumstances indicate that the carrying amount of the investment exceeds its expected future cash flows, a realized investment loss is recorded for the impairment. Real estate investments that management intends to sell in the near term are reported at the lower of cost or estimated fair market value less allowances for the estimated cost of sales. Changes in the allowance relating to real estate to be disposed of and impairments of real estate are reported as realized investment gains or losses. Depreciation of real estate is computed evenly over the estimated useful lives of the properties (20 to 40 years). LEASES AND LEVERAGED LEASES--The company is the lessor of equipment in both direct financing and operating lease transactions. At lease commencement, the company records the aggregate future minimum lease payments due and the estimated residual value of the leased equipment less the unearned lease income for direct financing leases. The unearned lease income represents the excess of aggregate future minimum lease receipts plus the estimated residual value over the cost of the leased equipment. Lease income is recognized over the term of the lease in a manner which reflects a level yield on the net investment in the lease. Certain origination fees and costs are deferred and recognized over the term of the lease using the interest method. For operating lease transactions, the cost of equipment or its net realizable value is depreciated evenly over its estimated economic life. The company participates in leasing transactions in which it supplies only a portion of the purchase price, but generally has the entire equity interest in the equipment and rentals receivable (leveraged leases). These interests, however, are subordinated to the interests of the lenders supplying the nonequity portion of the purchase price. The financing is generally in the form of long-term debt that provides for no recourse against the company and is collateralized by the property. The investment in leveraged leases is recorded net of the nonrecourse debt. Revenue, including related tax benefits, is recorded over the term of the lease at a level rate of return. Management regularly reviews residual values and writes down residuals to expected values as needed. SHORT-TERM INVESTMENTS are stated at amortized cost, which approximates fair value. INVESTMENT RESULTS Realized investment gains and losses are determined by specific identification and are presented as a component of revenues. Valuation allowances are deducted from asset categories to which they apply and provisions for losses for investments are included in investment gains and losses. Investment gains and losses are reduced by amounts attributable to participating pension contracts and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less. PROPERTY AND EQUIPMENT Property and equipment and leasehold improvements are included in other assets, and are stated at cost, less accumulated depreciation and amortization. Depreciation, including charges relating to capitalized leases, is provided evenly or using sum of the years digits method over the lesser of estimated useful lives of the assets or, where NOTES TO FINANCIAL STATEMENTS--(CONTINUED) appropriate, the term of the lease. Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for all other property and equipment. Amortization of leasehold improvements is provided evenly over the lesser of the term of the lease or the estimated useful life of the improvements. DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business that vary with and are primarily related to the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized over 40 years for participating traditional life and 30 years for universal life and investment-type products. Amortization is recorded based on a constant percentage of estimated gross margins or profits (arising principally from surrender charges and interest, mortality and expense margins based on historical and anticipated future experience). Changes to amounts previously amortized are reflected in earnings in the period related estimates are revised. For nonparticipating traditional life and annuity policies with life contingencies, deferred policy acquisition costs are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings when they occur. For these contracts, the amortization periods generally are for the estimated life of the policy. For nonmedical health insurance contracts, deferred policy acquisition costs are amortized over the estimated life of the contracts (generally 10 years) in proportion to anticipated premium revenue at the time of issue. For property and liability insurance, deferred policy acquisition costs are amortized over the terms of policies or reinsurance treaties. OTHER INTANGIBLE ASSETS The value of insurance acquired and the excess of purchase price over the fair value of net assets acquired are included in other assets. The value of insurance acquired is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. The excess of purchase price over the fair value of net assets acquired is amortized evenly over 10 years. FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (a) net level premium reserves for death and endowment policy benefits (calculated based on the nonforfeiture interest rate, ranging from 2.5 percent to 7.0 percent, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (b) the liability for terminal dividends, and (c) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 6.0 percent to 8.25 percent. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest less expense and mortality charges and withdrawals. Benefit liabilities for nonmedical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) For property and liability insurance, the liability for unpaid reported losses is based on a case by case or overall estimate using the company's past experience. A provision is also made for losses incurred but not reported on the basis of estimates and past experience. Revisions of estimates are reflected in net earnings in the year such refinements are made. RECOGNITION OF INCOME AND EXPENSE Premiums from traditional life and annuity policies with life contingencies are recognized as income when due. Benefits and expenses are matched with such income resulting in the recognition of profits over the life of the contract. This match is accomplished through the provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs. Premiums due over a significantly shorter period than the total period over which benefits are provided are recorded as income when due with any excess profit deferred and recognized as income in a constant relationship to insurance in-force or, for annuities, the amount of expected future benefit payments. Premiums from nonmedical health contracts are recognized as income on a pro rata basis over the contract term. Premiums from universal life and investment-type contracts are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to expense include benefit claims incurred in the period in excess of related policyholder account balances and interest credited to policyholder account balances. Property and liability premiums are generally recognized as revenue on a pro rata basis over the policy term. Unearned premiums are included in other liabilities. POLICYHOLDER DIVIDENDS The amount of policyholder dividends to be paid is determined annually by the board of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year and management's judgment as to the appropriate level of statutory surplus to be retained by the company. INCOME TAXES MetLife and its eligible life insurance and nonlife insurance subsidiaries file a consolidated U.S. federal income tax return and separate income tax returns as required. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured as of the balance sheet dates and are recorded as deferred income tax assets or liabilities. SEPARATE ACCOUNT OPERATIONS Separate Accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the company. Separate Account assets are subject to general account claims only to the extent the value of such assets exceeds the Separate Account liabilities. Investments held in the Separate Accounts (stated at estimated fair value) and liabilities of the Separate Accounts (including participants' corresponding equity in the Separate Accounts) are reported separately as assets and liabilities. Deposits to Separate Accounts are reported as increases in Separate Account liabilities and are not reported in revenues. Mortality, policy administration and surrender charges to all Separate Accounts are included in revenues. DISCONTINUED OPERATIONS Certain operations have been discontinued and, accordingly, are segregated in the consolidated statements of earnings. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign operations and subsidiaries are translated at the exchange rate in effect at year-end. Revenues and benefits and other expenses are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are charged or credited directly to equity. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FUTURE APPLICATION OF ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 125 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and SFAS No. 127 Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125 provide accounting and reporting standards relating to transfers of security interests, repurchase agreements, dollar rolls, securities lending and similar transactions which will be effective in 1998. The company believes that the application of these standards will not have a material impact on the company's results of operations, financial position or liquidity. SFAS No. 130 Reporting Comprehensive Income establishes standards for reporting and presentation of comprehensive income and its components and will be effective in 1998. Comprehensive income, which includes all changes to equity except those resulting from investments by owners or distributions to owners, was $2,024, $229 and $3,326 in 1997, 1996 and 1995, respectively. Consolidated statements of comprehensive income have not been presented, as the company has not determined the individual amounts to be displayed in such statements. 2. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES The cost or amortized cost, gross unrealized gain and loss, and estimated fair value of fixed maturity and equity securities, by category, were as follows:
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- --------- ----------------- DECEMBER 31, 1997 Available for Sale Securities: Fixed Maturities: Bonds: U. S. Treasury securities and obligations of U. S. government corporations and agencies............ $ 10,619 $ 1,511 $ 2 $ 12,128 States and political subdivisions..... 486 22 -- 508 Foreign governments................... 3,420 371 52 3,739 Corporate............................. 41,191 2,343 290 43,244 Mortgage-backed securities............ 22,191 572 21 22,742 Other................................. 9,463 428 134 9,757 -------- --------- ------ -------- Total bonds......................... 87,370 5,247 499 92,118 Redeemable preferred stocks............. 494 19 1 512 -------- --------- ------ -------- Total fixed maturities.............. $ 87,864 $ 5,266 $ 500 $ 92,630 ======== ========= ====== ======== Equity Securities: Common stocks........................... $ 2,444 $ 1,716 $ 105 $ 4,055 Nonredeemable preferred stocks.......... 201 5 11 195 -------- --------- ------ -------- Total equity securities............. $ 2,645 $ 1,721 $ 116 $ 4,250 ======== ========= ====== ========
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- --------- ------------------ DECEMBER 31, 1996 Available for Sale Securities: Fixed Maturities: Bonds: U. S. Treasury securities and obligations of U. S. government corporations and agencies........... $12,949 $ 901 $128 $13,722 States and political subdivisions.... 536 13 1 548 Foreign governments.................. 2,597 266 6 2,857 Corporate............................ 32,520 1,102 294 33,328 Mortgage-backed securities........... 21,200 407 91 21,516 Other................................ 2,511 90 30 2,571 ------- --------- ------- ------- Total bonds........................ 72,313 2,779 550 74,542 Redeemable preferred stocks............ 500 -- 3 497 ------- --------- ------- ------- Total fixed maturities............. $72,813 $ 2,779 $ 553 $75,039 ======= ========= ======= ======= Equity Securities: Common stocks.......................... $ 1,882 $ 648 $ 55 $ 2,475 Nonredeemable preferred stocks......... 371 51 81 341 ------- --------- ------- ------- Total equity securities............ $ 2,253 $ 699 $ 136 $ 2,816 ======= ========= ======= =======
GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- -------- -------- ---------- DECEMBER 31, 1996 Held to Maturity Securities: Fixed Maturities: Bonds: U.S. Treasury securities and obliga- tions of U.S. government corpora- tions and agencies............................ $ 48 $ 3 $ 51 States and political subdivisions.... 58 1 59 Foreign governments.................. 260 5 265 Corporate............................ 7,520 236 $ 64 7,692 Mortgage-backed securities........... 689 1 16 674 Other................................ 2,746 85 24 2,807 ------- -------- -------- ------- Total bonds........................ 11,321 331 104 11,548 Redeemable preferred stocks............ 1 -- -- 1 ------- -------- -------- ------- Total fixed maturities............. $11,322 $ 331 $ 104 $11,549 ======= ======== ======== =======
The amortized cost and estimated fair value of bonds, by contractual maturity, were as follows:
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- DECEMBER 31, 1997 Due in one year or less.............................. $ 1,916 $ 1,927 Due after one year through five years................ 15,830 16,260 Due after five years through 10 years................ 23,023 24,067 Due after 10 years................................... 24,410 27,122 ------- ------- Subtotal........................................... 65,179 69,376 Mortgage-backed securities........................... 22,191 22,742 ------- ------- Total.............................................. $87,370 $92,118 ======= =======
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) MORTGAGE LOANS Mortgage loans are collateralized by properties principally located throughout the United States and Canada. At December 31, 1997, approximately 15 percent, 7 percent and 6 percent of the properties were located in California, Illinois and Florida, respectively. Generally, the company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. The mortgage loan investments were categorized as follows:
1997 1996 ---- ---- DECEMBER 31 Office buildings................................................ 32% 30% Retail.......................................................... 16% 19% Residential..................................................... 15% 16% Agricultural.................................................... 18% 18% Other........................................................... 19% 17% ---- ---- Total......................................................... 100% 100% ==== ====
Many of the company's real estate joint ventures have mortgage loans with the company. The carrying values of such mortgages were $753 and $869 at December 31, 1997 and 1996, respectively. Mortgage loan valuation allowances and changes thereto were as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance, January 1............................... $ 444 $ 466 $ 483 Additions charged to income...................... 61 144 107 Deductions for writedowns and dispositions....... (241) (166) (124) ------ ------ ------ Balance, December 31............................. $ 264 $ 444 $ 466 ====== ====== ====== Impaired mortgage loans and related valuation allowances were as follows: 1997 1996 ------ ------ DECEMBER 31 Impaired mortgage loans with valuation allow- ances........................................... $1,231 $1,677 Impaired mortgage loans with no valuation allow- ances........................................... 306 165 ------ ------ Recorded investment in impaired mortgage loans... 1,537 1,842 Valuation allowances............................. (250) (427) ------ ------ Net impaired mortgage loans...................... $1,287 $1,415 ====== ====== 1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Average recorded investment in impaired mortgage loans........................................... $1,680 $2,113 $2,365 ====== ====== ======
Interest income on impaired mortgage loans recorded on a cash basis totaled $110 , $122 and $169 for the years ended December 31, 1997, 1996 and 1995, respectively. REAL ESTATE Accumulated depreciation on real estate was as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance, January 1................................ $2,109 $2,187 $2,757 Depreciation expense.............................. 332 348 427 Deductions for dispositions....................... (475) (426) (997) ------ ------ ------ Balance, December 31.............................. $1,966 $2,109 $2,187 ====== ====== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Real estate valuation allowances and changes thereto were as follows:
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Balance, January 1................................... $ 529 $ 743 $ 622 (Credited) charged to income......................... (52) 127 358 Deductions for writedowns and dispositions........... (436) (341) (237) ----- ----- ----- Balance, December 31................................. $ 41 $ 529 $ 743 ===== ===== =====
The above table does not include valuation allowances of $55, $118 and $167 at December 31, 1997, 1996 and 1995, respectively, relating to investments in real estate joint ventures. Prior to 1996, the company established valuation allowances for all impaired real estate investments including real estate held for investment. During 1996, $150 of allowances relating to real estate held for investment were applied as writedowns to specific properties. During 1997, allowances of $94 relating to real estate held for sale were applied as writedowns to specific properties. The balances in the real estate valuation allowances at December 31, 1997 and 1996, relate to properties that management has committed to a plan of sale. The carrying values, net of valuation allowances, of properties committed to a plan of sale were $206 and $1,844 at December 31, 1997 and 1996, respectively. Net investment income relating to such properties was $8 and $60 for the years ended December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, the company owned real estate acquired in satisfaction of debt of $218 and $456, respectively. LEASES AND LEVERAGED LEASES The company's investment in direct financing leases and leveraged leases was as follows:
DIRECT FINANCING LEVERAGED LEASES LEASES TOTAL -------------- ------------- -------------- 1997 1996 1997 1996 1997 1996 ------ ------ ------ ----- ------ ------ DECEMBER 31 Investment................ $1,137 $1,247 $ 851 $ 387 $1,988 $1,634 Estimated residual values. 183 238 641 543 824 781 ------ ------ ------ ----- ------ ------ Total................... 1,320 1,485 1,492 930 2,812 2,415 Unearned income........... (261) (336) (428) (316) (689) (652) ------ ------ ------ ----- ------ ------ Net investment............ $1,059 $1,149 $1,064 $ 614 $2,123 $1,763 ====== ====== ====== ===== ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to eight years, but in certain circumstances are as long as 20 years. Average yields range from 7 percent to 12 percent. These receivables are generally collateralized by the related property. Scheduled aggregate receipts for the investment and estimated residual values in direct financing leases were as follows:
DIRECT FINANCING RESIDUALS TOTAL --------- --------- ------ YEARS ENDED DECEMBER 31 1998......................................... $ 229 $ 14 $ 243 1999......................................... 211 19 230 2000......................................... 192 25 217 2001......................................... 147 19 166 2002......................................... 114 22 136 Thereafter................................... 244 84 328 ------ ---- ------ Total........................................ $1,137 $183 $1,320 ====== ==== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Historical collection experience indicates that a portion of the above amounts will be paid prior to contractual maturity. Accordingly, the future receipts, as shown above, should not be regarded as a forecast of future cash flows. FINANCIAL INSTRUMENTS The company has a securities lending program whereby large blocks of securities are loaned to third parties, primarily major brokerage firms. Company policy requires a minimum of 102 percent of the fair value of the loaned securities to be separately maintained as collateral for the loans. The collateral is recorded in memorandum records and is not reflected in the consolidated balance sheets. To further minimize the credit risks related to this lending program, the company regularly monitors the financial condition of the borrowers. The company engages in a variety of derivative transactions. Certain derivatives, such as forwards, futures, options and swaps, which do not themselves generate interest or dividend income, are acquired or sold in order to hedge or reduce risks applicable to assets held, or expected to be purchased or sold, and liabilities incurred or expected to be incurred. The company also may occasionally sell covered call options. The company does not engage in trading of derivatives. Derivative financial instruments involve varying degrees of market risk resulting from changes in the volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments. The company's risk of loss is typically limited to the fair value of these instruments and not by the notional or contractual amounts which reflect the extent of involvement but not necessarily the amounts subject to risk. Credit risk arises from the possible inability of counterparties to meet the terms of the contracts. Credit risk due to counterparty nonperformance associated with these instruments is the unrealized gain, if any, reflected by the fair value of such instruments. During the three year period ended December 31, 1997, the company employed several ongoing derivatives strategies. The company entered into a number of anticipatory hedge agreements using securities forwards, futures and interest rate swaps to limit the interest rate exposure of investments expected to be acquired or sold within one year. The company also executed swaps and foreign currency forwards to hedge, including on an anticipatory basis, the foreign currency risk of foreign currency denominated investments. The company also used interest rate swaps and forwards to reduce risks from changes in interest rates and exposures arising from mismatches between assets and liabilities. In addition, the company has used interest rate caps to reduce the market and interest rate risks relating to certain assets and liabilities. Income and expense related to derivatives used to hedge or manage risks are recorded on the accrual basis as an adjustment to the yield of the related securities over the periods covered by the derivative contracts. Gains and losses relating to early terminations of interest rate swaps used to hedge or manage interest rate risk are deferred and amortized over the remaining period originally covered by the swap. Gains and losses relating to derivatives used to hedge the risks associated with anticipated transactions are deferred and utilized to adjust the basis of the transaction once it has closed. If it is determined that the transaction will not close, such gains and losses are included in realized investment gains and losses. ASSETS ON DEPOSIT As of December 31, 1997 and 1996, the company had assets on deposit with regulatory agencies of $4,695 and $4,062, respectively. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. NET INVESTMENT INCOME AND INVESTMENT GAINS The sources of net investment income were as follows:
1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Fixed maturities............................ $ 6,455 $ 6,042 $ 6,006 Equity securities........................... 50 60 45 Mortgage loans on real estate............... 1,684 1,523 1,501 Policy loans................................ 368 399 394 Real estate................................. 1,566 1,647 1,833 Real estate joint ventures.................. 42 21 41 Other limited partnership interests......... 302 215 149 Leases and leveraged leases................. 131 135 113 Cash, cash equivalents and short-term in- vestments.................................. 169 214 231 Other investment income..................... 235 281 326 ------- ------- ------- Gross investment income..................... 11,002 10,537 10,639 Investment expenses......................... (1,527) (1,544) (1,802) ------- ------- ------- Investment income, net...................... $ 9,475 $ 8,993 $ 8,837 ======= ======= ======= Investment gains (losses), including changes in valuation allowances, were as follows: 1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Fixed maturities............................ $ 118 $ 234 $ 621 Equity securities........................... 224 78 (5) Mortgage loans on real estate............... 56 (86) (51) Real estate................................. 249 165 (375) Real estate joint ventures.................. 117 61 (142) Other limited partnership interests......... 103 82 117 Other....................................... 162 (76) (92) ------- ------- ------- Subtotal................................ 1,029 458 73 Investment gains relating to: Participating pension contracts........... (35) (20) -- Amortization of deferred policy acquisi- tion costs............................... (70) (4) (78) Future policy benefit loss recognition.... (126) (203) (152) ------- ------- ------- Net investment gains (losses)............... $ 798 $ 231 $ (157) ======= ======= ======= Sales of bonds were as follows: 1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Bonds classified as available for sale Proceeds.................................. $72,396 $74,580 $58,537 Gross realized gains...................... 691 1,069 1,013 Gross realized losses..................... 584 842 402 Bonds classified as held to maturity Proceeds.................................. $ 352 $ 1,281 $ 1,806 Gross realized gains...................... 5 10 17 Gross realized losses..................... 1 1 4
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The net unrealized investment gains (losses), which are included in the consolidated balance sheets as a component of equity, and the changes for the corresponding years were as follows:
1997 1996 1995 ------ ------ ------- DECEMBER 31 Balance, comprised of: Unrealized investment gains on: Fixed maturities.......................... $4,766 $2,226 $ 5,166 Equity securities......................... 1,605 563 210 Other..................................... 294 474 380 ------ ------ ------- 6,665 3,263 5,756 ------ ------ ------- Amounts allocable to: Participating pension contracts............. 312 9 350 Loss recognition............................ 2,189 1,219 2,064 Deferred policy acquisition cost............ 1,147 420 748 Deferred income taxes....................... 1,119 587 948 ------ ------ ------- 4,767 2,235 4,110 ------ ------ ------- Total................................... $1,898 $1,028 $ 1,646 ====== ====== ======= 1997 1996 1995 ------ ------ ------- YEARS ENDED DECEMBER 31 Balance, January 1............................ $1,028 $1,646 $ (955) Unrealized investment gains (losses) during year......................................... 3,402 (2,493) 7,665 Unrealized investment (gains) losses allocable to: Participating pension contracts............. (303) 341 (258) Loss recognition............................ (970) 845 (2,063) Deferred policy acquisition costs........... (727) 328 (1,247) Deferred income taxes......................... (532) 361 (1,496) ------ ------ ------- Balance, December 31.......................... $1,898 $1,028 $ 1,646 ====== ====== =======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. JOINT VENTURES AND OTHER LIMITED PARTNERSHIPS Combined financial information for real estate joint ventures and other limited partnership interests accounted for under the equity method, in which the company has an investment of at least $10 and an equity interest of at least 10 percent, was as follows:
1997 1996 ------ ------ DECEMBER 31 Assets: Investments in real estate, at depreciated cost........ $ 938 $1,030 Investments in securities, at estimated fair value..... 717 621 Cash and cash equivalents.............................. 141 37 Other.................................................. 984 1,030 ------ ------ Total assets......................................... 2,780 2,718 ------ ------ Liabilities: Borrowed funds--third party............................ 384 243 Borrowed funds--MetLife................................ 136 69 Other.................................................. 678 915 ------ ------ Total liabilities.................................... 1,198 1,227 ------ ------ Partners' capital........................................ $1,582 $1,491 ====== ====== MetLife equity in partners' capital included above....... $ 822 $ 786 ====== ======
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Operations: Revenues of real estate joint ventures......... $ 291 $ 275 $ 364 Revenues of other limited partnership inter- ests.......................................... 276 297 417 Interest expense--third party.................. (25) (11) (26) Interest expense--MetLife...................... (16) (19) (31) Other expenses................................. (396) (411) (501) ----- ----- ----- Net earnings..................................... $ 130 $ 131 $ 223 ===== ===== ===== MetLife earnings from real estate joint ventures and other limited partnership interests included above........................................... $ 59 $ 34 $ 28 ===== ===== =====
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS The company assumes and cedes insurance with other insurance companies. The consolidated statements of earnings are presented net of reinsurance ceded. The effect of reinsurance on premiums earned was as follows:
1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Direct premiums............................ $12,749 $12,569 $11,944 Reinsurance assumed........................ 360 508 812 Reinsurance ceded.......................... (1,810) (1,615) (1,578) ------- ------- ------- Net premiums earned........................ $11,299 $11,462 $11,178 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits..................... $ 1,689 $ 1,667 $ 1,523 ======= ======= =======
Premiums and other receivables in the consolidated balance sheets include reinsurance recoverables of $1,579 and $700 at December 31, 1997 and 1996, respectively. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Activity in the liability for unpaid losses and loss adjustment expenses relating to property and casualty and group accident and nonmedical health policies and contracts was as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance at January 1........................... $3,345 $3,296 $2,670 Reinsurance recoverables..................... (215) (214) (104) ------ ------ ------ Net balance at January 1....................... 3,130 3,082 2,566 ------ ------ ------ Incurred related to: Current year................................. 2,855 2,951 3,420 Prior years.................................. 88 (114) (68) ------ ------ ------ Total incurred............................. 2,943 2,837 3,352 ------ ------ ------ Paid related to: Current year................................. 1,832 1,998 2,053 Prior years.................................. 815 791 783 ------ ------ ------ Total paid................................. 2,647 2,789 2,836 ------ ------ ------ Net balance at December 31..................... 3,426 3,130 3,082 Plus reinsurance recoverables................ 229 215 214 ------ ------ ------ Balance at December 31......................... $3,655 $3,345 $3,296 ====== ====== ======
The company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to material fluctuations in the company's results of operations. The company uses excess of loss and quota share reinsurance arrangements to reduce its catastrophe losses and provide diversification of risk. 6. INCOME TAXES Income tax expense for U. S. operations has been calculated in accordance with the provisions of the Internal Revenue Code, as amended (the "Code"). Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated by a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. The income tax expense (benefit) of continuing operations was as follows:
CURRENT DEFERRED TOTAL ------- -------- ----- 1997 Federal......................................... $432 $(26) $406 State and local................................. 10 9 19 Foreign......................................... 26 25 51 ---- ---- ---- Total......................................... $468 $ 8 $476 ==== ==== ==== 1996 Federal......................................... $346 $ 66 $412 State and local................................. 25 6 31 Foreign......................................... 27 12 39 ---- ---- ---- Total......................................... $398 $ 84 $482 ==== ==== ==== 1995 Federal......................................... $241 $ 65 $306 State and local................................. 52 3 55 Foreign......................................... 22 24 46 ---- ---- ---- Total......................................... $315 $ 92 $407 ==== ==== ====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Reconciliations of the differences between income taxes of continuing operations computed at the federal statutory tax rates and consolidated provisions for income taxes were as follows:
1997 1996 1995 ------ ------ ---- YEARS ENDED DECEMBER 31 Earnings from continuing operations before income taxes................................... $1,693 $1,406 $744 Income tax rate................................. 35% 35% 35% ------ ------ ---- Expected income tax expense at federal statutory income tax rate................................ 593 492 260 Tax effect of: Tax exempt investment income.................. (30) (18) (9) Goodwill...................................... 9 -- -- Differential earnings amount.................. (40) 38 67 State and local income taxes.................. 15 23 37 Foreign operations............................ 7 (7) 25 Tax credits................................... (15) (15) (15) Prior year taxes.............................. (2) (46) (3) Sale of subsidiary............................ (41) -- -- Other, net.................................... (20) 15 45 ------ ------ ---- Income taxes.................................... $ 476 $ 482 $407 ====== ====== ====
The deferred income tax assets or liabilities recorded at December 31, 1997 and 1996 represent the net temporary differences between the tax bases of assets and liabilities and their amounts for financial reporting. The components of the net deferred income tax asset or liability were as follows:
1997 1996 ------ ------ DECEMBER 31 Deferred income tax assets: Policyholder liabilities and receivables........ $3,010 $2,889 Net operating loss carryforwards................ 33 38 Other, net...................................... 938 698 ------ ------ Total gross deferred income tax assets........ 3,981 3,625 Less valuation allowance........................ 24 14 ------ ------ Deferred income tax assets, net of valuation al- lowance.......................................... 3,957 3,611 ------ ------ Deferred income tax liabilities: Investments..................................... 1,227 848 Deferred policy acquisition costs............... 1,890 1,940 Net unrealized capital gains.................... 1,119 587 Other, net...................................... 193 199 ------ ------ Total deferred income tax liabilities......... 4,429 3,574 ------ ------ Net deferred income tax (liability) asset......... $ (472) $ 37 ====== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The sources of deferred income tax expense (benefit) and their tax effects were as follows:
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Policyholder liabilities and receivables........... $(109) $ 53 $(105) Net operating loss carryforwards................... 5 (19) 89 Investments........................................ 382 50 199 Deferred policy acquisition costs.................. (51) 55 49 Change in valuation allowance...................... 10 4 (6) Other, net......................................... (229) (59) (134) ----- ----- ----- Total............................................ $ 8 $ 84 $ 92 ===== ===== ===== The valuation allowance for the tax benefits of net operating loss carryforwards reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for net operating loss carryforwards will not be realized. The benefit will be recognized when management believes that it is more likely than not that the deferred income tax asset is realizable. U.S. tax basis net operating loss carryforwards of $15 are available, subject to statutory limitation, to offset taxable income through the year 2012. 7. EMPLOYEE BENEFIT PLANS PENSION PLANS The company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of MetLife and certain of its subsidiaries. Retirement benefits are based on years of credited service and final average earnings history. Components of the net periodic pension (credit) cost for the defined benefit qualified and nonqualified pension plans were as follows: 1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Service cost....................................... $ 73 $ 77 $ 62 Interest cost on projected benefit obligation...... 244 232 222 Actual return on assets............................ (318) (273) (280) Net amortization and deferrals..................... (5) (12) (13) ----- ----- ----- Net periodic pension (credit) cost................. $ (6) $ 24 $ (9) ===== ===== =====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The funded status of the qualified and nonqualified defined benefit pension plans and a comparison of the accumulated benefit obligation, plan assets and projected benefit obligation were as follows:
1997 1996 ---------------------- ---------------------- OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED ---------- ----------- ---------- ----------- DECEMBER 31 Actuarial present value of obligations: Vested.................... $2,804 $ 251 $2,668 $223 Nonvested................. 33 2 36 2 ------ ----- ------ ---- Accumulated benefit obliga- tion...................... $2,837 $ 253 $2,704 $225 ====== ===== ====== ==== Projected benefit obliga- tion...................... $3,170 $ 353 $2,958 $310 Plan assets (principally company investment contracts) at contract value 3,831 151 3,495 133 ------ ----- ------ ---- Plan assets in excess of (less than) projected benefit obligation........ 661 (202) 537 (177) Unrecognized prior service cost...................... 125 25 139 26 Unrecognized net (gain) loss from past experience different from that assumed................... (130) 21 (27) 60 Unrecognized net asset at transition................ (140) -- (176) -- ------ ----- ------ ---- Prepaid (accrued) pension cost at December 31....... $ 516 $(156) $ 473 $(91) ====== ===== ====== ====
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation ranged from 7.25 percent to 7.75 percent for 1997 and 7.25 percent to 8.0 percent for 1996. The weighted average assumed rate of increase in future compensation levels ranged from 4.5 percent to 8.5 percent in 1997 and from 4.0 percent to 8.0 percent in 1996. The assumed long-term rate of return on assets used in determining the net periodic pension cost was 8.75 percent in 1997 and ranged from 8.0 percent to 8.5 percent in 1996. In addition, several other factors, such as expected retirement dates and mortality, enter into the determination of the actuarial present value of the accumulated benefit obligation. SAVINGS AND INVESTMENT PLANS The company sponsors savings and investment plans available for substantially all employees under which the company matches a portion of employee contributions. During 1997, 1996 and 1995, the company contributed $44, $42 and $49, respectively, to the plans. OTHER POSTRETIREMENT BENEFITS The company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the company. The components of the net periodic nonpension postretirement benefit cost were as follows:
1997 1996 1995 ---- ---- ---- YEARS ENDED DECEMBER 31 Service cost......................................... $ 31 $ 41 $ 28 Interest cost on accumulated postretirement benefit obligation.......................................... 122 127 115 Actual return on plan assets (company insurance contracts).......................................... (66) (58) (63) Net amortization and deferrals....................... (5) 2 (9) ---- ---- ---- Net periodic nonpension postretirement benefit cost.. $ 82 $112 $ 71 ==== ==== ====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the postretirement health care and life insurance plans' combined status reconciled with the amount included in the company's consolidated balance sheets.
1997 1996 ------ ------ DECEMBER 31 Accumulated postretirement benefit obligation: Retirees............................................. $1,251 $1,228 Fully eligible active employees...................... 115 145 Active employees not eligible to retire.............. 397 400 ------ ------ Total............................................... 1,763 1,773 Plan assets (company insurance contracts) at contract value................................................ 1,004 897 ------ ------ Plan assets less than accumulated postretirement benefit obligation................................... (759) (876) Unrecognized net gain from past experience different from that assumed and from changes in assumptions.... (173) (60) ------ ------ Accrued nonpension postretirement benefit cost at December 31.......................................... $ (932) $ (936) ====== ======
The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was generally 9.0 percent in 1997, gradually decreasing to 5.25 percent over five years and generally 9.5 percent in 1996 decreasing to 5.25 percent over 12 years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation ranged from 7.25 percent to 7.75 percent at December 31, 1997 and 7.0 percent to 7.75 percent at December 31, 1996. If the health care cost trend rate assumptions were increased 1.0 percent, the accumulated postretirement benefit obligation as of December 31, 1997 would be increased 6.75 percent. The effect of this change on the sum of the service and interest cost components of the net periodic postretirement benefit cost for the year ended December 31, 1997, would be an increase of 9.7 percent. 8. LEASES RENTAL INCOME ON REAL ESTATE OWNED AND LEASE EXPENSE In accordance with industry practice, certain of the company's lease agreements with retail tenants result in income that is contingent on the level of the tenants' sales revenues. Additionally, the company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental income, gross minimum rental payments and minimum sublease rental income relating to these lease agreements were as follows:
GROSS RENTAL RENTAL SUBLEASE INCOME PAYMENTS INCOME ------ -------- -------- DECEMBER 31 1998.......................................... $ 697 $146 $55 1999.......................................... 657 127 52 2000.......................................... 604 103 50 2001.......................................... 560 82 44 2002.......................................... 496 59 36 2003 and thereafter........................... 2,724 103 68
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 9. DEBT Debt consisted of the following:
SCHEDULED MATURITY 1997 1996 --------- ------ ------ DECEMBER 31 Surplus notes: 6.300% 2003 $ 397 $ 396 7.000% 2005 249 248 7.700% 2015 198 197 7.450% 2023 296 296 7.875% 2024 148 148 7.800% 2025 248 248 Floating rate notes, interest rates based on LIBOR................................. 1999-2007 358 49 Fixed rate notes, interest rates ranging from 5.80%-10.50%................................... 1998-2007 519 135 Zero coupon Eurobonds........................... 1999 79 71 Other........................................... 124 158 ------ ------ Total long-term debt............................ 2,616 1,946 Short-term debt................................. 4,587 3,311 ------ ------ Total........................................... $7,203 $5,257 ====== ======
Payments of interest and principal on the surplus notes may be made only with the prior approval of the Superintendent of Insurance of the State of New York (Superintendent). Subject to the prior approval of the Superintendent, the 7.45 percent surplus notes may be redeemed, in whole or in part, at the election of the company at any time on or after November 1, 2003. At December 31, 1997, aggregate maturities of the long-term debt based on required principal payments at maturity for 1998 and the succeeding four years amounted to $80, $377, $178, $9 and $11, respectively, and $1,979 thereafter. 10. CONTINGENCIES The company is currently a defendant in numerous state and federal lawsuits (including individual suits and putative class actions) raising allegations of improper marketing of individual life insurance. Litigation seeking compensatory and/or punitive damages relating to the marketing by the company of individual life insurance (including putative class and individual actions) continues to be brought by or on behalf of policyholders and others. These cases, most of which are in the early stages of litigation, seek substantial damages, including in some cases claims for punitive and treble damages and attorneys' fees, and raise, among other claims, allegations that individual life insurance policies were improperly sold in replacement transactions or with inadequate or inaccurate disclosure as to the period for which premiums would be payable, or were misleadingly sold as savings or retirement plans. Putative classes have been certified, conditionally or subject to appeal, in state court actions covering certain policyholders in California and West Virginia; class certification has been denied in a state court action in Ohio thus far. A number of the federal cases alleging improper marketing of individual life insurance have been consolidated in the United States District Court for the Western District of Pennsylvania and the United States District Court in Massachusetts for pretrial proceedings. Additional litigation relating to the company's marketing of individual life insurance may be commenced in the future. The company is vigorously defending itself in these actions. Regulatory authorities in a small number of states, including both insurance departments and attorneys general, have ongoing investigations of the company's sales of individual life insurance, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures NOTES TO FINANCIAL STATEMENTS--(CONTINUED) as to the period for which premiums would be payable. In addition, an investigation by the Office of the United States Attorney for the Middle District of Florida, which commenced in 1994, into certain of the retirement and savings plan selling allegations that have been a subject of regulatory inquiries, has not been closed. In addition to the foregoing matters, the company is a defendant in a large number of asbestos lawsuits relating to allegations regarding certain research, advice and publication activity that occurred decades ago. While the company believes that it has significant defenses to these claims and has effected settlements in many of these cases and has prevailed in certain cases, it is not possible to predict the number of such cases that may be brought or the aggregate amount of any liability that may ultimately be incurred by the company. Various litigation, claims and assessments against the company, in addition to the aforementioned and those otherwise provided for in the company's financial statements, have arisen in the course of the company's business, including in connection with its activities as an insurer, employer, investor and taxpayer. Further, state insurance regulatory authorities and other state authorities regularly make inquiries and conduct investigations concerning the company's compliance with applicable insurance and other laws and regulations. In certain of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome in all such matters, it is the opinion of the company's management that their outcome, after consideration of the provisions made in the company's financial statements, is not likely to have a material adverse effect on the company's financial position. 11. OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses were as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Compensation costs............................. $2,072 $1,813 $1,607 Commissions.................................... 766 722 853 Interest and debt issue costs.................. 453 311 285 Amortization of policy acquisition costs....... 771 633 606 Capitalization of policy acquisition costs..... (1,000) (1,028) (1,060) Rent expense, net of sublease.................. 179 180 184 Restructuring charges.......................... -- 18 88 Minority interest.............................. 51 30 22 Other.......................................... 2,467 2,105 1,696 ------ ------ ------ Total.......................................... $5,759 $4,784 $4,281 ====== ====== ======
During 1996 and 1995, the company recorded restructuring charges primarily related to the consolidation of administration and agency sales force leased office space and costs relating to workforce reductions. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 12. OTHER INTANGIBLE ASSETS The value of business acquired and the excess of purchase price over the fair value of net assets acquired and changes thereto were as follows:
EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF VALUE OF BUSINESS ACQUIRED NET ASSETS ACQUIRED ---------------------------- ---------------------------- 1997 1996 1995 1997 1996 1995 -------- -------- -------- -------- -------- -------- YEARS ENDED DECEMBER 31 Net Balance, January 1.. $ 358 $ 381 $ 6 $ 544 $ 377 $ 413 Acquisitions............ 176 7 396 387 197 221 Dispositions............ -- -- -- -- -- (236) Amortization............ (36) (30) (21) (47) (30) (21) -------- -------- -------- -------- -------- -------- Net balance, December 31..................... $ 498 $ 358 $ 381 $ 884 $ 544 $ 377 ======== ======== ======== ======== ======== ======== 1997 1996 1995 1997 1996 1995 -------- -------- -------- -------- -------- -------- DECEMBER 31 Accumulated amortiza- tion................... $ 87 $ 51 $ 21 $ 148 $ 101 $ 71 ======== ======== ======== ======== ======== ========
13. DISCONTINUED OPERATIONS In January 1995 the company contributed its group medical benefits businesses to a corporate joint venture, The MetraHealth Companies, Inc. ("MetraHealth"). In October 1995, the company sold its investment in MetraHealth to United HealthCare Corporation. For its interest in MetraHealth, the company received $485 face amount of United HealthCare Corporation convertible preferred stock and $326 in cash (including additional consideration of $50 in 1996). The sale resulted in an aftertax loss of $36 in 1996 and an aftertax gain of $372 in 1995. Operating losses in 1997 and 1996 related principally to the finalization of the transfer of group medical contracts to United HealthCare Corporation. During 1995 the company also sold its real estate brokerage, mortgage banking and mortgage administration operations for an aggregate consideration of $251 (including additional cash consideration of $25 in 1996), resulting in aftertax gains of $17 in 1996 and $44 in 1995. 14. CONSOLIDATED CASH FLOWS INFORMATION During 1997 the company acquired assets of $3,777 and assumed liabilities of $3,347 through the acquisition of certain insurance and noninsurance companies. The aggregate purchase prices were allocated to the assets and liabilities acquired based upon their estimated fair values. During 1997 the company also reduced assets and liabilities by $4,342 and $4,207, respectively, through the sale of certain insurance operations, resulting in a pretax gain of $139. During 1995 the company also reduced assets and liabilities by $919 and $413, respectively, through the sale of its real estate brokerage, mortgage banking and mortgage administration operations. During 1997 the company assumed liabilities of $227 and received assets of $227 and during 1995 the company assumed liabilities of $1,573 and received assets of $1,573 through assumption of certain businesses from other insurance companies. For the years ended December 31, 1997, 1996 and 1995, respectively, real estate of $151, $189 and $429 was acquired in satisfaction of debt. During 1997 and 1995, fixed maturity securities with an amortized cost of $11,682 and $3,058, respectively, were transferred from held to maturity to available for sale. 15. FAIR VALUE INFORMATION The estimated fair value amounts of financial instruments presented below have been determined by the company using market information available as of December 31, 1997 and 1996, and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value for financial instruments for which there are no available market value quotations. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The estimates presented below were not necessarily indicative of the amounts the company could have realized in a market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE -------- -------- ---------- DECEMBER 31, 1997 Assets: Fixed maturities................................ $92,630 $92,630 Equity securities............................... 4,250 4,250 Mortgage loans on real estate................... 20,247 21,133 Policy loans.................................... 5,846 6,110 Short-term investments.......................... 705 705 Cash and cash equivalents....................... 2,871 2,871 Liabilities: Policyholder account balances................... 36,433 36,664 Short- and long-term debt....................... 7,203 7,258 Other financial instruments: Interest rate swaps............................. $1,464 (1) (19) Interest rate caps.............................. 1,545 16 12 Foreign currency swaps.......................... 254 -- (28) Foreign currency forwards....................... 150 -- -- Covered call options............................ 88 (31) (31) Other options................................... 565 -- (2) Futures contracts............................... 2,262 10 10 Unused lines of credit.......................... 2,310 -- 2 NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE -------- -------- ---------- DECEMBER 31, 1996 Assets: Fixed maturities................................ $86,361 $86,588 Equity securities............................... 2,816 2,816 Mortgage loans on real estate................... 18,964 19,342 Policy loans.................................... 5,842 5,796 Short-term investments.......................... 741 741 Cash and cash equivalents....................... 2,325 2,325 Liabilities: Policyholder account balances................... 30,470 30,611 Short- and long-term debt....................... 5,257 5,223 Other Financial Instruments: Interest rate swaps............................. $1,242 -- (14) Interest rate caps.............................. 1,946 20 14 Foreign currency swaps.......................... 207 -- (23) Foreign currency forwards....................... 151 3 3 Covered call options............................ 25 (2) (2) Unused lines of credit.......................... 1,821 -- 1
Estimated fair values were determined as follows: publicly traded fixed maturities (approximately 78 percent of the estimated fair value of total fixed maturities) from an independent market pricing service; all other bonds at estimated fair value determined by management (based primarily on interest rates, maturity, credit quality and average life); equity securities, on quoted market prices; mortgage loans, based on discounted projected cash flows using interest rates offered for loans to borrowers with comparable credit ratings and for the same maturities; policy loans, based on NOTES TO FINANCIAL STATEMENTS--(CONTINUED) discounted projected cash flows using U.S. Treasury rates to approximate interest rates and company experience to project patterns of loan accrual and repayment; cash and cash equivalents and short-term investments, at carrying amount, which is considered to be a reasonable estimate of fair value. Included in fixed maturities are loaned securities with estimated fair values of $6,537 and $7,293 at December 31, 1997 and 1996, respectively. The fair values for policyholder account balances are estimated using discounted projected cash flows, based on interest rates being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. The estimated fair value of short- and long-term debt was determined using rates currently available to the company for debt with similar terms and remaining maturities. For interest rate and foreign currency swaps, interest rate caps, foreign currency forwards, covered call options, other options and futures contracts, estimated fair value is the amount at which the contracts could be settled based on estimates obtained from dealers. The estimated fair values of unused lines of credit were based on fees charged to enter into similar agreements. 16. STATUTORY FINANCIAL INFORMATION The reconciliation of the net change in statutory surplus and statutory surplus determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities with net earnings and equity on a GAAP basis was as follows:
1997 1996 1995 ------ ---- ---- YEARS ENDED DECEMBER 31 Net change in statutory surplus...................... $ 227 $366 $229 Adjustments for GAAP: Future policy benefits and policyholder account balances.......................................... (445) (165) (17) Deferred policy acquisition costs.................. 159 391 376 Deferred income taxes.............................. 62 (74) (97) Valuation of investments........................... (387) (84) 106 Statutory asset valuation reserves................. 1,170 599 30 Statutory interest maintenance reserve............. 53 19 284 Surplus notes...................................... -- -- (622) Other, net......................................... 364 (199) 410 ------ ---- ---- Net earnings..................................... $1,203 $853 $699 ====== ==== ====
1997 1996 ------- ------- DECEMBER 31 Statutory surplus..................................... $ 7,378 $ 7,151 Adjustments for GAAP: Future policy benefits and policyholder account bal- ances (7,305) (5,742) Deferred policy acquisition costs................... 6,436 7,227 Deferred income taxes............................... (242) 264 Valuation of investments............................ 3,474 610 Statutory asset valuation reserves.................. 3,854 2,684 Statutory interest maintenance reserve.............. 1,261 1,208 Surplus notes....................................... (1,396) (1,393) Other, net.......................................... 601 (26) ------- ------- Equity............................................ $14,061 $11,983 ======= =======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 17. SUBSEQUENT EVENT On March 12, 1998 the company reached an agreement, subject to regulatory approval, to sell substantially all of its Canadian operations to a nonaffiliated life insurance company at a gain. Financial information for the Canadian operations was as follows:
1997 1996 1995 ----- ----- ---- YEARS ENDED DECEMBER 31 Total revenue......................................... $ 969 $ 920 $903 Total benefits and other deductions................... 831 802 804 Net earnings.......................................... 87 83 22 1997 1996 ----- ----- DECEMBER 31 Total assets.......................................... 5,881 5,826 Total equity.......................................... 957 917
APPENDIX TO PROSPECTUS OPTIONAL INCOME PLANS The insurance proceeds when the insured dies, or the cash surrender value payable on full surrender of a Policy or on the Final Date, instead of being paid in one lump sum, may be applied under one or more of the following income plans. Values under the income plans do not depend upon the investment experience of a separate account. The selection of an income plan can significantly affect the federal income tax consequences associated with the Policy proceeds. Owners and beneficiaries should consult with qualified tax advisers in this regard. OPTION 1. INTEREST INCOME The amount applied will earn interest which will be paid monthly. Withdrawals of at least $500 each may be made at any time by written request. OPTION 2. INSTALLMENT INCOME FOR A STATED PERIOD Monthly installment payments will be made so that the amount applied, with interest, will be paid over the period chosen (from 1 to 30 years). OPTION 2A. INSTALLMENT INCOME OF A STATED AMOUNT Monthly installment payments of a chosen amount will be made until the entire amount applied, with interest, is paid. OPTION 3. SINGLE LIFE INCOME--GUARANTEED PAYMENT PERIOD Monthly payments will be made during the lifetime of the payee with a chosen guaranteed payment period of 10, 15 or 20 years. OPTION 3A. SINGLE LIFE INCOME--GUARANTEED RETURN Monthly payments will be made during the lifetime of the payee. If the payee dies before the total amount applied under this plan has been paid, the remainder will be paid in one sum as a death benefit. OPTION 4. JOINT AND SURVIVOR LIFE INCOME Monthly payments will be made jointly to two persons during their lifetime and will continue during the remaining lifetime of the survivor. A total payment period of 10 years is guaranteed. OTHER FREQUENCIES AND PLANS. Instead of monthly payments, the owner may elect to have payments made quarterly, semiannually or annually. Other income plans may be arranged with Metropolitan Life's approval. CHOICE OF INCOME PLANS. See "Policy Benefits--Optional Income Plans" and "Policy Rights--Surrenders", regarding how optional income plans may be chosen. When an income plan starts, a separate contract will be issued describing the terms of the plan. Specimen contracts may be obtained from Metropolitan Life sales representatives, and reference should be made to these forms for further details. LIMITATIONS. If the payee is not a natural person, the choice of an income plan will be subject to Metropolitan Life's approval. A collateral assignment will modify a prior choice of income plan. The amount due the assignee will be payable in one sum and the balance will be applied under the income plan. A choice of an income plan will not become effective unless each payment under the plan would be at least $50. Income plan payments may not be assigned and, to the extent permitted by law, will not be subject to the claims of creditors. INCOME PLAN RATES. Amounts applied under the interest income and installment income plans will earn interest at a rate set from time to time by Metropolitan Life but never less than 3% per year. Life income payments will be based on a rate set by Metropolitan Life and in effect on the date the amount to be applied becomes payable, but never less than the minimum payments guaranteed in the Policy. Such minimum guaranteed payments are based on certain assumed mortality rates and an interest rate of 3%. 88 OPTIONAL INSURANCE BENEFITS Optional insurance benefit riders may be attached to a Policy, subject to certain insurance underwriting requirements and the payment of additional premiums. The yearly renewable term rider is not available in all states. Consult a sales representative registered with Metropolitan Life for more information. The riders are described in general terms below. Limitations and conditions are contained in the riders, and the description below is subject to the specific terms of the riders. A prospective purchaser may obtain a specimen Policy with riders (when available) from a Metropolitan Life sales representative. The duration, but not the amount, of rider benefits may depend on the investment experience of a separate account. DISABILITY WAIVER BENEFIT. This rider waives the monthly deduction (except the charge for mortality and expense risks) during the total disability of the insured if the insured is totally and continuously disabled for at least six months beginning prior to age 60. If the total disability continues without interruption to the Policy anniversary at age 65, it will be deemed permanent and all further monthly deductions will be waived as they fall due. If there has been an increase in the death benefit resulting from a request by the Policy owner and the Policy owner at the time of the increase did not request or did not qualify for this rider with respect to such increase, monthly deductions for charges related to such increase will continue to be made against the cash value of the Policy. This could result in the cash value being insufficient to cover the monthly deductions related to the increase. In such a case, the grace period and termination provisions of the Policy would apply only to such increase in death benefit. Since the monthly deduction with respect to the increase in the death benefit could reduce the cash value of the Policy to zero, it may be advantageous for the Policy owner, at the time of the total disability, to reduce the death benefit to that amount which is subject to this rider. This rider is available at issue only. ACCIDENTAL DEATH BENEFIT. This rider provides additional insurance equal to an amount stated in the Policy if the insured dies from an accident prior to age 70. It also provides an additional amount equal to twice the stated amount if the insured dies from an accident occurring while the insured is a fare-paying passenger on a common carrier. This rider is available at issue only. INTERIM TERM INSURANCE BENEFIT. This rider provides a term insurance benefit if any insured person dies on or after the date of this rider and before the Date of Policy. The single premium for this rider is due and payable on the date of this rider. ACCELERATED DEATH BENEFIT. This rider provides for payment of an accelerated death benefit during the lifetime of the insured if the insured is terminally ill. There is no charge for this rider. The payment under this rider may affect eligibility for benefits under state or federal law. Generally, payments under this rider should be income-tax free as amounts paid by reason of the death of the insured. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. YEARLY RENEWABLE TERM. This rider provides annual renewable term coverage on the insured under the Policy to age 95. This rider is available at Policy issue only, although the amount of coverage under an existing rider may be decreased, or subject to evidence of insurability, increased at a later date. The amount of target premium under a Policy is not affected by the amount of term insurance coverage provided under this rider. Accordingly, the amount of the sales charge paid by the Owner may be less if coverage is purchased under this rider, rather than as part of the Policy. In addition, the amount of compensation paid by Metropolitan Life to the selling insurance agent or broker may be lower if coverage is purchased under this rider. On the other hand, the current cost of insurance rates are higher under this rider than they are under the Policy. These factors should be considered before allocating the insurance coverage between the Policy and this rider. The yearly renewable term rider generally is not available in connection with large groups. 89 FLEXIBLE PREMIUM VARIABLE LIFE Prospectuses For Flexible Premium Variable Life Insurance Policies Issued By Metropolitan Life Insurance Company Metropolitan Series Fund, Inc. FORM NO. (0598) 98042H9M (exp0599) MLIC-LD PART II 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 this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or any variations therein based on supplements, amendments, endorsements or other riders to such policies or prospectus, or otherwise. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. The Prospectus, consisting of 89 pages. Undertaking to File Reports as filed with the initial filing of this Registration Statement on January 22, 1993. Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933 as filed with the initial filing of this Registration Statement on January 22, 1993. Representation With Respect To Fees And Charges as Filed herewith. The signatures. Written Consents of the following persons: Rocco A. Mariano, Jr. (filed with Exhibit 6 below). Freedman, Levy, Kroll & Simonds as filed with the initial filing of this Registration Statement on January 22, 1993. Deloitte & Touche LLP 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) Specimen Flexible Premium Variable Life Insurance Policy.......................... * -- (b) Alternate pages required by State Law............................................. * -- (c) Endorsement for calculation of minimum death benefit using the Cash Value Accumulation test..................................................................... * -- (d) Accelerated Death Benefit and Zero Cost Loan riders............................... * -- (e) Yearly Renewable Term rider....................................................... +++++ -- (f) Refund of sales load rider........................................................ +++++ -- (g) Amended Policy Specifications Page indicating alternate premium expense charges... +++++ (6) -- (a) Charter and By-Laws of Metropolitan Life.......................................... ++ -- (b) Amendment to By-laws.............................................................. ++ (7) -- Not Applicable (8) -- Not Applicable (9) -- Not Applicable
II-1 (10) -- (a) Amended Application Forms for Policy and Form of Receipt (including State variations).......................................................... * 3. -- Not Applicable 4. -- Not Applicable 5. -- See Exhibit 27 below. 6. -- Opinion and consent of Rocco A. Mariano, Jr., relating to the Policies................ + 7. -- Not Applicable 8. -- Powers of Attorney.................................................................... ++++ 11. -- Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii).... * 27. -- Financial Data Schedule (not applicable)
- --------- + Filed herewith. ++ Included in the filing of Post-Effective Amendment No. 4 to this Registration Statement on March 1, 1996. +++ Incorporated by reference from "Distribution of the Policies" in the Prospectus included herein. ++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 33-47927) 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 incorporated by reference to the filing of Post-Effective Amendment No. 6 to the Registration Statement of Separate Account UL (File No. 33-47927) on December 23, 1997 and Jon F. Danski's power of attorney which is incorporated by reference to the filing of Pre-Effective Amendment No. 1 to the Registration Statement of Separate Account UL (File No. 333-40161) on April 2, 1998. +++++ Included in the filing of Post-Effective Amendment No. 5 to this Registration Statement on April 26, 1996. * Included in the filing of Post-Effective Amendment No. 6 to this Registration Statement on April 30, 1997. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, METROPOLITAN LIFE INSURANCE COMPANY certifies that it meets all of the requirements for effectness 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 23rd day of April, 1998. Metropolitan Life Insurance Company (Seal) By: Gary A. Beller Senior Executive Vice-President & General Counsel Attest: Ruth Gluck, Esq. Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed below by the following persons in the in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman, Chief Executive * Officer and Director - ----------------------------------------------------------------- (Principal Executive Harry P. Kamen Officer) * - ----------------------------------------------------------------- President, Chief Operating Robert H. Benmosche Officer and Director Senior Executive * Vice-President, Chief - ----------------------------------------------------------------- Investment Officer and Gerald Clark Director Senior Executive * Vice-President and Chief - ----------------------------------------------------------------- Financial Officer Stewart G. Nagler (Principal Financial Officer) * Senior Vice-President and - ----------------------------------------------------------------- Controller (Principal Jon F. Danski Accounting Officer) * - ----------------------------------------------------------------- Director Curtis H. Barnette * - ----------------------------------------------------------------- Director Joan Ganz Cooney * - ----------------------------------------------------------------- Director Burton A. Dole, Jr. *By /s/ CHRISTOPHER P. NICHOLAS - ---------------------------------------------------------- ------- Christopher P. Nicholas, Esq. Attorney-in-fact April 23, 1998
II-3
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * - ----------------------------------------------------------------- Director James R. Houghton * - ----------------------------------------------------------------- Director Helene L. Kaplan * - ----------------------------------------------------------------- Director Charles M. Leighton * - ----------------------------------------------------------------- Director Allen E. Murray * - ----------------------------------------------------------------- Director John J. Phelan, Jr. * - ----------------------------------------------------------------- Director Hugh B. Price * - ----------------------------------------------------------------- Director Robert G. Schwartz * - ----------------------------------------------------------------- Director Ruth J. Simmons, Ph.D * - ----------------------------------------------------------------- Director William C. Steere *By /s/ CHRISTOPHER P. NICHOLAS - ---------------------------------------------------------- ------- April 23, 1998 Christopher P. Nicholas, Esq. Attorney-in-fact
II-4 Pursuant to the requirements of the Securities Act of 1933, the Registrant, METROPOLITAN LIFE SEPARATE ACCOUNT UL, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement pursuant to Rule 485(b) 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 23rd day of April 1998. Metropolitan Life Separate Account UL (Registrant) By: Metropolitan Life Insurance Company (Depositor) (Seal) By: /s/ GARY A. BELLER - ----------------------------------------------------------- ------ Gary A. Beller, Esq. Senior Executive Vice-President and General Counsel Attest: /s/ RUTH GLUCK - ------------------------------------------------------ ----------- Ruth Gluck, Esq. Assistant Secretary II-5 METROPOLITAN LIFE INSURANCE COMPANY: We consent to the use in this Post-Effective Amendment No. 7 to the Registration Statement No. 33-57320 of Metropolitan Life Separate Account UL on Form S-6 of our report dated March 31, 1998 relating to Metropolitan Life Separate Account UL appearing in the Prospectus, which is a part of such Registration Statement, and our report dated February 12, 1998, except for Note 17, as to which the date is March 12, 1998, relating to Metropolitan Life Insurance Company also appearing in the Prospectus, and to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP New York, New York April 20, 1998 II-6 EX-99.6 2 EXHIBIT 99.6 April 22, 1998 Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Dear Sirs: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 7 to Registration Statement No. 33-57320 on Form S-6 ("Registration Statement") which covers premiums received under Flexible Premium Variable Life Insurance Policies ("Policies") offered by Metropolitan Life Insurance Company ("MLIC") in each State where they have been approved by appropriate State insurance authorities. As an Assistant Vice-President and Actuary of MLIC, I have reviewed the Policy form and I am familiar with the Registration Statement and Exhibits thereto. In my opinion: (1) The illustrations of death benefits, cash values, cash surrender values and accumulated premiums for the Policy in the Section "Illustrations of Death Benefits and Cash Values and Accumulated Premiums" of the prospectus included in the Registration Statement ("Prospectus"), based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies. The rate structure of the Policies has not been designed so as to make the relationship between premiums and benefits, as shown in these illustrations appear to be correspondingly more favorable to a prospective purchaser of the Policy for males age 45, than to prospective purchasers of Policies for a male at other ages or for a female. (2) The illustrations of the amount of the death benefit under each of the death benefit options in the Section "Policy Benefits - Death Benefits" based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the Prospectus. Very truly yours, /s/ Rocco A. Mariano - ------------------------------------ Rocco A. Mariano, Jr., FSA, MAAA Assistant Vice-President and Actuary -----END PRIVACY-ENHANCED MESSAGE-----