-----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, TIgK7nvmf2LaY0j3J/Uhv+jpdGIBtvyXb1TyC2GkOLA6GL9/syPLmJetwDntg6NJ ZAtDXYdDkQLyJJyf4XhWvQ== 0001193125-04-075671.txt : 20040503 0001193125-04-075671.hdr.sgml : 20040503 20040430173226 ACCESSION NUMBER: 0001193125-04-075671 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040503 EFFECTIVENESS DATE: 20040503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-32813 FILM NUMBER: 04771015 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 497 1 d497.txt UL II 497 METROPOLITAN LIFE INSURANCE COMPANY UL II -- FLEXIBLE PREMIUM MULTIFUNDED LIFE INSURANCE POLICIES SUPPLEMENT DATED MAY 1, 2004 TO Prospectus Dated May 1, 1993 This supplement updates certain information contained in the last prospectus you received. The last prospectus you received was dated May 1, 1993 and was supplemented on May 1, 1994, May 1, 1997, May 1, 1998, May 1, 2002, May 1, 2003, and February 18, 2004. You should read and retain this supplement with your Policy. We will send you an additional copy of your most recent prospectus (and any previous supplements thereto), without charge, on written request sent to MetLife, P.O. Box 336, Warwick, RI 02887-0336. New UL II Policies are no longer available for sale. Prospectuses for the Metropolitan Series Fund, Inc., the Met Investors Series Trust and the American Funds Insurance Series are attached. Please read them and keep them for reference. 1 SENDING COMMUNICATIONS AND PAYMENTS TO US You can communicate all of your requests, instructions and notifications to us by contacting us in writing at our Designated Office. We may require that certain requests, instructions and notifications be made on forms that we provide. These include: changing your beneficiary; taking a Policy loan; changing your death benefit option; taking a partial withdrawal; surrendering your Policy; making transfer requests (including elections with respect to the automated investment strategies) or changing your premium allocations. Below is a list of our Designated Offices for various functions. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. You may also contact us at 1-800-MET-5000 for information on where to direct communication regarding any function not listed below.
FUNCTION DESIGNATED OFFICE ADDRESS - --------------------------------------------------------------------------------- Premium Payments MetLife, P.O. Box 371487, Pittsburgh, PA 15250-7487 - --------------------------------------------------------------------------------- Payment Inquiries MetLife, P.O. Box 30375, Tampa, FL 33630 - --------------------------------------------------------------------------------- Surrenders, Withdrawals, Loans, MetLife, P.O. Box 336, Warwick, R.I. Investment Division Transfers, 02887-0336 Premium Reallocation - --------------------------------------------------------------------------------- Death Claims MetLife, P.O. Box 330, Warwick, R.I. 02887-0330 - --------------------------------------------------------------------------------- Beneficiary & Assignment MetLife, P.O. Box 313, Warwick, R.I. 02887-0313 - --------------------------------------------------------------------------------- Address Changes MetLife, 500 Schoolhouse Road, Johnstown, PA 15904-1097 Attn: Data Integrity - --------------------------------------------------------------------------------- Reinstatements MetLife, P.O. Box 30375, Tampa, FL 33630 - ---------------------------------------------------------------------------------
VARIABLE INVESTMENT OPTIONS The variable investment options for allocating premium payments and transferring cash value now consist of our fixed interest account and 43 different investment divisions of the Metropolitan Life Separate Account UL. Each investment division, in turn, invests solely in one of the corresponding fund "Portfolios". METROPOLITAN SERIES FUND, INC. PORTFOLIOS: Davis Venture Value MFS Total Return FI International Stock (formerly, Morgan Stanley EAFE(R) Index Putnam International Stock) Neuberger Berman Partners Mid Cap FI Mid Cap Opportunities (formerly, Value Janus Mid Cap) Russell 2000(R) Index FI Value Leaders (formerly, FI Salomon Brothers Strategic Bond Structured Equity) Opportunities Franklin Templeton Small Cap Growth Salomon Brothers U.S. Government Harris Oakmark Focused Value Scudder Global Equity Harris Oakmark Large Cap Value State Street Research Aggressive Lehman Brothers(R) Aggregate Bond Growth Index State Street Research Aurora Loomis Sayles Small Cap State Street Research Bond Income Met/Putnam Voyager State Street Research Diversified MetLife Mid Cap Stock Index State Street Research Investment Trust MetLife Stock Index State Street Research Large Cap Growth MFS Investors Trust State Street Research Large Cap Value State Street Research Money Market T. Rowe Price Large Cap Growth T. Rowe Price Small Cap Growth MET INVESTORS SERIES TRUST PORTFOLIOS: Harris Oakmark International Neuberger Berman Real Estate Janus Aggressive Growth PIMCO PEA Innovation (formerly, PIMCO Lord Abbett Bond Debenture Innovation) Met/AIM Mid Cap Core Equity PIMCO Total Return Met/AIM Small Cap Growth T. Rowe Price Mid-Cap Growth MFS Research International AMERICAN FUNDS INSURANCE SERIES PORTFOLIOS*: American Funds Global Small American Funds Growth-Income Capitalization American Funds Growth - -------- * The American Funds Insurance Series calls these "Funds", but this supplement calls them "Portfolios." 2 THE PORTFOLIOS The adviser, any sub-adviser and investment objective of each Portfolio are as follows:
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------------------------------- METROPOLITAN SERIES FUND, INC. ADVISER: METLIFE ADVISERS, LLC/1/ CLASS A SHARES - -------------------------------------------------------------------------------------------------------------- Davis Venture Value Davis Selected Advisers, L.P./2/ Growth of capital - -------------------------------------------------------------------------------------------------------------- FI International Stock Fidelity Management & Research Long-term growth of capital Company/3/ - -------------------------------------------------------------------------------------------------------------- FI Mid Cap Opportunities/4/ Fidelity Management & Research Long-term growth of capital Company/5/ - -------------------------------------------------------------------------------------------------------------- FI Value Leaders Fidelity Management & Research Long-term growth of capital Company - -------------------------------------------------------------------------------------------------------------- Franklin Templeton Small Cap Growth Franklin Advisers, Inc. Long-term capital growth - -------------------------------------------------------------------------------------------------------------- Harris Oakmark Focused Value Harris Associates L.P. Long-term capital appreciation - -------------------------------------------------------------------------------------------------------------- Harris Oakmark Large Cap Value Harris Associates L.P. Long-term capital appreciation - -------------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index Metropolitan Life Insurance To equal the performance of the Company Lehman Brothers Aggregate Bond Index - -------------------------------------------------------------------------------------------------------------- Loomis Sayles Small Cap Loomis, Sayles & Company, L.P. Long-term capital growth from investments in common stocks or other equity securities - -------------------------------------------------------------------------------------------------------------- Met/Putnam Voyager Putnam Investment Management, Capital appreciation LLC - -------------------------------------------------------------------------------------------------------------- MetLife Mid Cap Stock Index Metropolitan Life Insurance To equal the performance of the Company Standard & Poor's Mid Cap 400 Composite Stock Price Index - -------------------------------------------------------------------------------------------------------------- MetLife Stock Index Metropolitan Life Insurance To equal the performance of the Company Standard & Poor's 500 Composite Stock Price Index - -------------------------------------------------------------------------------------------------------------- MFS Investors Trust Massachusetts Financial Services Long-term growth of capital with a Company secondary objective to seek reasonable current income - -------------------------------------------------------------------------------------------------------------- MFS Total Return Massachusetts Financial Services Favorable total return through Company investment in a diversified portfolio - -------------------------------------------------------------------------------------------------------------- Morgan Stanley EAFE Index Metropolitan Life Insurance To equal the performance of the Company MSCI EAFE Index - -------------------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value Neuberger Berman Management Inc. Capital growth - -------------------------------------------------------------------------------------------------------------- Russell 2000 Index Metropolitan Life Insurance To equal the return of the Russell Company 2000 Index - -------------------------------------------------------------------------------------------------------------- Salomon Brothers Strategic Bond Salomon Brothers Asset To maximize total return consistent Opportunities Management Inc/6/ with preservation of capital - -------------------------------------------------------------------------------------------------------------- Salomon Brothers U.S. Government Salomon Brothers Asset To maximize total return consistent Management Inc with preservation of capital and maintenance of liquidity - -------------------------------------------------------------------------------------------------------------- Scudder Global Equity Deutsche Investment Management Long-term growth of capital Americas Inc. - -------------------------------------------------------------------------------------------------------------- State Street Research Aggressive Growth State Street Research & Maximum capital appreciation Management Company - -------------------------------------------------------------------------------------------------------------- State Street Research Aurora State Street Research & High total return, consisting Management Company principally of capital appreciation - -------------------------------------------------------------------------------------------------------------- State Street Research Bond Income State Street Research & Competitive total return primarily Management Company from investing in fixed-income securities - -------------------------------------------------------------------------------------------------------------- State Street Research Diversified State Street Research & High total return while attempting to Management Company limit investment risk and preserve capital - --------------------------------------------------------------------------------------------------------------
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PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE - ------------------------------------------------------------------------------------------------------------------ State Street Research Investment Trust State Street Research & Long-term growth of capital and Management Company income - ------------------------------------------------------------------------------------------------------------------ State Street Research Large Cap Growth State Street Research & Long-term growth of capital Management Company/7/ - ------------------------------------------------------------------------------------------------------------------ State Street Research Large Cap Value State Street Research & Long-term growth of capital Management Company - ------------------------------------------------------------------------------------------------------------------ State Street Research Money Market/8/ State Street Research & A high level of current income Management Company consistent with preservation of capital - ------------------------------------------------------------------------------------------------------------------ T. Rowe Price Large Cap Growth T. Rowe Price Associates, Inc. Long-term growth of capital, and secondarily, dividend income - ------------------------------------------------------------------------------------------------------------------ T. Rowe Price Small Cap Growth T. Rowe Price Associates, Inc. Long-term capital growth - ------------------------------------------------------------------------------------------------------------------ MET INVESTORS SERIES TRUST ADVISER: MET INVESTORS ADVISORY LLC CLASS A SHARES - ------------------------------------------------------------------------------------------------------------------ Harris Oakmark International Harris Associates L.P. Long-term capital appreciation - ------------------------------------------------------------------------------------------------------------------ Janus Aggressive Growth Janus Capital Management LLC Long-term growth of capital - ------------------------------------------------------------------------------------------------------------------ Lord Abbett Bond Debenture Lord, Abbett & Co. LLC High current income and the opportunity for capital appreciation to produce a high total return - ------------------------------------------------------------------------------------------------------------------ Met/AIM Mid Cap Core Equity AIM Capital Management, Inc. Long-term growth of capital - ------------------------------------------------------------------------------------------------------------------ Met/AIM Small Cap Growth AIM Capital Management, Inc. Long-term growth of capital - ------------------------------------------------------------------------------------------------------------------ MFS Research International Massachusetts Financial Services Capital appreciation Company - ------------------------------------------------------------------------------------------------------------------ Neuberger Berman Real Estate Neuberger Berman Management Inc. Total return through investment in real estate securities, emphasizing both capital appreciation and current income - ------------------------------------------------------------------------------------------------------------------ PIMCO PEA Innovation PEA Capital LLC Capital appreciation; no consideration (formerly PIMCO Equity Advisors) is given to income - ------------------------------------------------------------------------------------------------------------------ PIMCO Total Return Pacific Investment Management Maximum total return, consistent Company LLC with the preservation of capital and prudent investment management - ------------------------------------------------------------------------------------------------------------------ T. Rowe Price Mid-Cap Growth T. Rowe Price Associates, Inc. Long-term growth of capital - ------------------------------------------------------------------------------------------------------------------ AMERICAN FUNDS INSURANCE SERIES ADVISER: CAPITAL RESEARCH AND MANAGEMENT COMPANY CLASS 2 SHARES - ------------------------------------------------------------------------------------------------------------------ American Funds Global Small Capitalization N/A Capital appreciation through stocks - ------------------------------------------------------------------------------------------------------------------ American Funds Growth N/A Capital appreciation through stocks - ------------------------------------------------------------------------------------------------------------------ American Funds Growth-Income N/A Capital appreciation and income - ------------------------------------------------------------------------------------------------------------------
- -------- /1/ Prior to May 1, 2001, Metropolitan Life Insurance Company was the adviser to the Metropolitan Series Fund. /2/ Davis Selected Advisers, L.P. may also delegate any of its responsibilities to Davis Selected Advisers-NY, Inc., a wholly-owned subsidiary. /3/ Prior to December 16, 2003, Putnam Investment Management, LLC was the sub-adviser to this Portfolio. /4/ On or about April 30, 2004, the FI Mid Cap Opportunities Portfolio that had been offered as an investment option up to that date merged with and into the Janus Mid Cap Portfolio which was then renamed the FI Mid Cap Opportunities Portfolio. /5/ Prior to May 1, 2004, Janus Capital Management LLC was the sub-adviser to this Portfolio. /6/ The Salomon Brothers Strategic Bond Opportunities Portfolio also receives certain investment subadvisory services from Citigroup Asset Management Limited, a London-based affiliate of Salomon Brothers Asset Management, Inc. /7/ Prior to May 1, 2004, Fred Alger Management, Inc. was the sub-adviser to this Portfolio. /8/ An investment in the State Street Research Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to maintain a net asset value of $100 per share, it is possible to lose money by investing in the Portfolio. During extended periods of low interest rates, the yields of the investment division investing in the State Street Research Money Market Portfolio may become extremely low and possibly negative. 4 ANNUAL PORTFOLIO OPERATING EXPENSES This table describes the fees and expenses that the Portfolios will pay and that therefore a Policy owner will indirectly pay periodically during the time that he or she owns a Policy. The table shows the lowest and highest fees and expenses charged by the Portfolios for the fiscal year ended December 31, 2003, before and after any contractual fee waivers and expense reimbursements. More detail concerning each Portfolio's fees and expenses is contained in the table that follows this table and in the attached Fund prospectuses.
LOWEST* HIGHEST* - ------------------------------------------------------------------------------------------------------------ Gross Total Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets, including management fees, distribution (Rule 12b-1) fees and other expenses) .31% 1.32% - ------------------------------------------------------------------------------------------------------------ Net Total Annual Portfolio Operating Expenses (net of any contractual fee waivers and expense reimbursements) .31% 1.20%**
- -------- *The lowest and highest percentages have been selected after adjustment of the percentage for all Portfolios (on a consistent basis) to reflect any changes in expenses during the 12 months ended December 31, 2003 or expected to occur during the 12 months ended December 31, 2004. **Consists of expenses of the Harris Oakmark International Portfolio after the fee waivers and expense reimbursements reflected for that Portfolio in the table below. This table describes the annual operating expenses for each Portfolio for the year ended December 31, 2003, as a percentage of the Portfolio's average daily net assets for the year (anticipated annual operating expenses for 2004 for the Neuberger Berman Real Estate Portfolio). Net Total Annual Expenses do not reflect any expense reductions that certain Portfolios achieved as a result of directed brokerage arrangements.
FEE WAIVERS GROSS AND MANAGE- TOTAL EXPENSE NET TOTAL MENT OTHER 12B-1 ANNUAL REIMBURSE- ANNUAL FEES EXPENSES FEES EXPENSES MENTS EXPENSES - -------------------------------------------------------------------------------------------------- METROPOLITAN SERIES FUND (CLASS A SHARES) - -------------------------------------------------------------------------------------------------- Davis Venture Value .74% .05% .00% .79% .00% .79% - -------------------------------------------------------------------------------------------------- FI International Stock .86% .23% .00% 1.09% .00% 1.09% - -------------------------------------------------------------------------------------------------- FI Mid Cap Opportunities .69% .08% .00% .77% .00% .77% - -------------------------------------------------------------------------------------------------- FI Value Leaders .67% .07% .00% .74% .00% .74% - -------------------------------------------------------------------------------------------------- Franklin Templeton Small Cap Growth .90% .42% .00% 1.32% .17% 1.15%(a) - -------------------------------------------------------------------------------------------------- Harris Oakmark Focused Value .75% .05% .00% .80% .00% .80% - -------------------------------------------------------------------------------------------------- Harris Oakmark Large Cap Value .74% .09% .00% .83% .00% .83% - -------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index .25% .09% .00% .34% .00% .34% - -------------------------------------------------------------------------------------------------- Loomis Sayles Small Cap .90% .09% .00% .99% .00% .99% - -------------------------------------------------------------------------------------------------- Met/Putnam Voyager .80% .27% .00% 1.07% .07% 1.00%(a) - -------------------------------------------------------------------------------------------------- MetLife Mid Cap Stock Index .25% .15% .00% .40% .00% .40% - -------------------------------------------------------------------------------------------------- MetLife Stock Index .25% .06% .00% .31% .00% .31% - -------------------------------------------------------------------------------------------------- MFS Investors Trust .75% .36% .00% 1.11% .11% 1.00%(a) - -------------------------------------------------------------------------------------------------- MFS Total Return .50% .19% .00% .69% .00% .69% - -------------------------------------------------------------------------------------------------- Morgan Stanley EAFE Index .30% .41% .00% .71% .00% .71% - -------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value .69% .11% .00% .80% .00% .80% - -------------------------------------------------------------------------------------------------- Russell 2000 Index .25% .22% .00% .47% .00% .47% - -------------------------------------------------------------------------------------------------- Salomon Brothers Strategic Bond Opportunities .65% .16% .00% .81% .00% .81% - -------------------------------------------------------------------------------------------------- Salomon Brothers U.S. Government .55% .10% .00% .65% .00% .65% - -------------------------------------------------------------------------------------------------- Scudder Global Equity .64% .20% .00% .84% .00% .84% - -------------------------------------------------------------------------------------------------- State Street Aggressive Growth .73% .08% .00% .81% .00% .81% - -------------------------------------------------------------------------------------------------- State Street Research Aurora .85% .08% .00% .93% .00% .93% - -------------------------------------------------------------------------------------------------- State Street Research Bond Income .40% .07% .00% .47% .00% .47% - -------------------------------------------------------------------------------------------------- State Street Research Diversified .44% .07% .00% .51% .00% .51% - -------------------------------------------------------------------------------------------------- State Street Research Investment Trust .49% .07% .00% .56% .00% .56% - -------------------------------------------------------------------------------------------------- State Street Research Large Cap Growth .73% .07% .00% .80% .00% .80% - -------------------------------------------------------------------------------------------------- State Street Research Large Cap Value .70% .35% .00% 1.05% .10% .95%(a) - --------------------------------------------------------------------------------------------------
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FEE WAIVERS GROSS AND MANAGE- TOTAL EXPENSE NET TOTAL MENT OTHER 12B-1 ANNUAL REIMBURSE- ANNUAL FEES EXPENSES FEES EXPENSES MENTS EXPENSES - --------------------------------------------------------------------------------------------------- State Street Research Money Market .35% .05% .00% .40% .00% .40% - --------------------------------------------------------------------------------------------------- T. Rowe Price Large Cap Growth .63% .16% .00% .79% .00% .79% - --------------------------------------------------------------------------------------------------- T. Rowe Price Small Cap Growth .52% .11% .00% .63% .00% .63% - --------------------------------------------------------------------------------------------------- MET INVESTORS SERIES TRUST (CLASS A SHARES) - --------------------------------------------------------------------------------------------------- Harris Oakmark International .85% .36% .00% 1.21% .01% 1.20%(b) - --------------------------------------------------------------------------------------------------- Janus Aggressive Growth .78% .12% .00% .90% .00% .90%(b) - --------------------------------------------------------------------------------------------------- Lord Abbett Bond Debenture .60% .10% .00% .70% .00% .70%(d) - --------------------------------------------------------------------------------------------------- Met/AIM Mid Cap Core Equity .75% .21% .00% .96% .01% .95%(b) - --------------------------------------------------------------------------------------------------- Met/AIM Small Cap Growth .90% .26% .00% 1.16% .11% 1.05%(b) - --------------------------------------------------------------------------------------------------- MFS Research International .80% .31% .00% 1.11% .01% 1.10%(b) - --------------------------------------------------------------------------------------------------- Neuberger Berman Real Estate .70% .41% .00% 1.11% .21% .90%(b)(c) - --------------------------------------------------------------------------------------------------- PIMCO PEA Innovation .95% .31% .00% 1.26% .16% 1.10%(b) - --------------------------------------------------------------------------------------------------- PIMCO Total Return .50% .09% .00% .59% .00% .59%(d) - --------------------------------------------------------------------------------------------------- T. Rowe Price Mid-Cap Growth .75% .17% .00% .92% .00% .92%(b) - --------------------------------------------------------------------------------------------------- AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES)(E) - --------------------------------------------------------------------------------------------------- American Funds Global Small Capitalization .80% .03% .25% 1.08% .00% 1.08% - --------------------------------------------------------------------------------------------------- American Funds Growth .37% .02% .25% .64% .00% .64% - --------------------------------------------------------------------------------------------------- American Funds Growth-Income .33% .01% .25% .59% .00% .59% - ---------------------------------------------------------------------------------------------------
- -------- (a) The Metropolitan Series Fund and its affiliate MetLife Advisers, LLC ("MetLife Advisers") have entered into an Expense Agreement under which MetLife Advisers LLC will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses) ("Expenses") attributable to the Class A shares of these Portfolios of the Metropolitan Series Fund, so that the Net Total Annual Expenses will not exceed, at any time prior to April 30, 2005, the percentages shown above. Under the Expense Agreement, if certain conditions are met, the Franklin Templeton Small Cap Growth Portfolio, the MFS Investors Trust Portfolio and the State Street Research Large Cap Value Portfolio may reimburse MetLife Advisers for fees it waived and Expenses it paid if, in the future, actual Expenses of the Portfolios are less than the expense limits. (b) Met Investors Series Trust and its affiliate Met Investors Advisory LLC have entered into an Expense Limitation Agreement under which Met Investors Advisory LLC has agreed to waive or limit its fees and to assume other expenses so that the Net Total Annual Expenses of each Portfolio (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of each Portfolio's business) will not exceed, at any time prior to April 30, 2005, the percentages shown above in the right hand column (.95% in the case of the T. Rowe Price Mid-Cap Growth Portfolio). Under certain circumstances, any fees waived or expenses reimbursed by Met Investors Advisory LLC may, with the approval of the Trust's Board of Trustees, be repaid by the applicable Portfolio to Met Investors Advisory LLC. Due to expense waivers in addition to those shown above, actual Net Total Expenses for the year ended December 31, 2003, for the following Portfolios, were: 1.16% for the Harris Oakmark International Portfolio, .89% for the Janus Aggressive Growth Portfolio, .93% for the Met/AIM Mid Cap Core Equity Portfolio, 1.04% for the Met/AIM Small Cap Growth Portfolio, 1.09% for the MFS Research International Portfolio, and .91% for the T. Rowe Price Mid-Cap Growth Portfolio. (c) Expenses for the Neuberger Berman Real Estate Portfolio are annualized estimates for the year ending December 31, 2004, based on the Portfolio's May 1, 2004 start date. (d) Other Expenses reflect the repayment by the Portfolio of fees previously waived by Met Investors Advisory LLC under the terms of the Expense Limitation Agreement in the following amounts: .03% for the Lord Abbett Bond Debenture Portfolio and .02% for the PIMCO Total Return Portfolio. (e) The American Funds Insurance Series has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. Under the Distribution Plan the Portfolios pay an annual fee to compensate certain other parties for promoting, selling and servicing the shares of the Portfolio. The Distribution Plan is described in more detail in the American Funds Insurance Series prospectus. The American Funds Insurance Series pays MetLife for its distribution-related services and expenses, an amount equal to an annual rate of 0.25% of the assets attributable to the Policies. An Investment Adviser or subadviser of a Portfolio or its affiliates may make payments to MetLife and/or certain affiliates that are based on a percentage of assets of the Portfolios attributable to the Policies and certain other variable insurance products that we and our affiliates issue. These percentages differ and some Advisers (or other affiliates) may pay us more than others. These percentages currently range up to 0.50% of assets. MetLife pays American Funds Distributors, Inc., the principal underwriter for the American Funds Insurance Series, a percentage of all premiums allocated to the American Funds Growth Portfolio, the American Funds Growth-Income Portfolio and the American Funds Global Small Capitalization Portfolio for the services it provides in marketing the Portfolios' shares in connection with the Policies. 6 TRANSFERRING CASH VALUE AMONG YOUR POLICY'S INVESTMENT OPTIONS MARKET TIMING We have policies and procedures that attempt to detect transfer activity that may adversely affect other Policy owners or Portfolio shareholders in situations where there is potential for pricing inefficiencies or that involve relatively large single or grouped transactions by one or more Policy owners (i.e., market timing). We employ various means to try to detect such transfer activity, such as periodically examining the number of transfers and/or the number of "round trip" transfers into and out of particular investment divisions made by Policy owners within given periods of time and/or investigating transfer activity identified by us or the Funds on a case-by-case basis. We may revise these policies and procedures in our sole discretion at any time without prior notice. The detection and deterrence of harmful transfer activity involves judgments that are inherently subjective. Our ability to detect such transfer activity may be limited by operational and technological systems, as well as our ability to predict strategies employed by Policy owners to avoid such detection. Our ability to restrict such transfer activity may be limited by provisions of the Policy. We apply our policies and procedures without exception, waiver, or special arrangement, although we may vary our policies and procedures among our variable policies and investment divisions and may be more restrictive with regard to certain policies or investment divisions than others. Accordingly, there is no assurance that we will prevent all transfer activity that may adversely affect Policy owners or Portfolio shareholders. In addition, we cannot guarantee that the Portfolios will not be harmed by transfer activity related to other insurance companies and/or retirement plans that may invest in the Portfolios. Our policies and procedures may result in restrictions being applied to Policy owner(s). These restrictions may include: .. requiring you to send us by U.S. mail a signed, written request to make transfers; .. establishing an earlier submission time for telephone, facsimile, and Internet requests than for written requests or removing the availability of these means for making transfers; .. limiting the number of transfers you may make each Policy Year; .. charging a transfer or collecting a fund redemption fee; .. denying a transfer request from an authorized third party acting on behalf of multiple Policy owners; and .. imposing other limitations and modifications where we determine that exercise of the transfer privilege may create a disadvantage to other Policy owners. If restrictions are imposed on a Policy owner, we will reverse upon discovery any transaction inadvertently processed in contravention of such restrictions. In accordance with applicable law, we reserve the right to modify or terminate the transfer privilege at any time. We also reserve the right to defer or restrict the transfer privilege at any time that we are unable to purchase or redeem shares of any of the Portfolios, including any refusal or restriction on purchases or redemptions of their shares as a result of their own policies and procedures on market timing activities. You should read the Fund prospectuses for more details. AUTOMATED INVESTMENT STRATEGIES We may, at any time, modify or terminate any of the automated investment strategies currently available. INTERNET TRANSFERS We now offer Internet transfer capability for your Policy. You may make transfers on www.metlife.com. 7 FEDERAL TAX MATTERS The following is a brief summary of some tax rules that may apply to your Policy. It does not purport to be complete or cover every situation. Because individual circumstances vary, you should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy, especially before you make unscheduled premium payments, change your specified face amount, change your death benefit option, change coverage provided by riders, take a loan or withdrawal, or assign or surrender the Policy. INSURANCE PROCEEDS .. Generally excludable from your beneficiary's gross income. .. The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. .. If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. . Whether or not any federal estate tax is due is based on a number of factors, including the estate size. . The insurance proceeds payable upon death of the insured will never be less than the minimum amount required for the Policy to be treated as life insurance under section 7702 of the Internal Revenue Code, as in effect on the date the Policy was issued. CASH VALUE (IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT) You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution such as on the Final Date. In these cases, you are generally permitted to take withdrawals and receive other distributions up to the amount of premiums paid without any tax consequences. However, withdrawals and other distributions will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules apply in the first 15 Policy years, when a distribution may be subject to tax if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). There may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the Federal corporate alternative minimum tax, if you are subject to that tax. SPLIT-DOLLAR INSURANCE PLANS The IRS has recently issued guidance on split dollar insurance plans. A tax advisor should be consulted with respect to this new guidance if you have purchased or are considering the purchase of a Policy for a split dollar insurance plan. The Sarbanes-Oxley Act of 2002 (the "Act"), which was signed into law on July 30, 2002, prohibits, with limited exceptions, publicly-traded companies, including non-U.S. companies that have securities listed on U.S. exchanges, from extending, directly or indirectly or through a subsidiary, many types of personal loans to their directors or executive officers. It is possible that this prohibition may be interpreted to apply to certain split-dollar life insurance arrangements for directors and executive officers of such companies, since at least some such arrangements can arguably be viewed as involving a loan from the employer for at least some purposes. Although the prohibition on loans generally took effect as of July 30, 2002, there is an exception for loans outstanding as of the date of enactment, so long as there is no material modification to the loan terms and the loan is not renewed after July 30, 2002. Any affected business contemplating the payment of a premium on an existing Policy or the purchase of a new Policy in connection with a split-dollar life insurance arrangement should consult legal counsel. 8 LOANS .. Loan amounts you receive will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. .. Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. .. If your Policy terminates (upon surrender, cancellation lapse, the Final Date or, in most cases, exchange) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Since amounts borrowed reduce the cash value that will be distributed to you if the Policy is surrendered, cancelled or lapses, any cash value distributed to you in these circumstances may be insufficient to pay the income tax on any gain. MODIFIED ENDOWMENT CONTRACTS These contracts are life insurance policies where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the Policy exceeds tax law limits referred to as the "7-pay test." Material changes in the Policy, include changes in the level of benefits and certain other changes to your Policy after the issue date. Reductions in benefits during a 7-pay period may cause your Policy to become a modified endowment contract. Generally, a life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. The IRS has promulgated a procedure for the correction of inadvertent modified endowment contracts. If your Policy is considered a modified endowment contract: .. The death benefit will still generally be income tax free to your beneficiary, as discussed above. .. Amounts withdrawn or distributed before the insured's death, including (without limitation) loans, assignments and pledges, are (to the extent of any gains on your policy) treated as income first and subject to income tax. All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. .. You will generally owe an additional 10% tax penalty on the taxable portion of the amounts you received before age 59 1/2, except generally if you are disabled or the distribution is part of a series of substantially equal periodic payments. DIVERSIFICATION In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. CHANGES TO TAX RULES AND INTERPRETATIONS Changes in applicable tax laws, rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: . Possible taxation of cash value transfers. . Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. 9 . Possible limits on the number of investment funds available or the frequency of transfers among them. . Possible changes in the tax treatment of Policy benefits and rights. FOREIGN TAX CREDITS To the extent permitted under the federal tax law, we may claim the benefit of certain foreign tax credits attributable to taxes paid by certain Portfolios to foreign jurisdictions. LEGAL AND ACCOUNTING MATTERS Marie C. Swift, Associate General Counsel at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner LLP, Washington, D.C., has advised us on certain matters relating to the federal securities laws. The financial statements included in this Supplement to the prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the change in the method of accounting for embedded derivatives in certain insurance products as required by new accounting guidance which became effective on October 1, 2003, and recorded the impact as a cumulative effect of a change in accounting principle), and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP's principal business address is 201 E. Kennedy Boulevard, Tampa, Florida 33602. FINANCIAL STATEMENTS The financial statements of MetLife and the Separate Account are attached to this Supplement. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. MANAGEMENT The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE - -------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman Emeritus Director Bethlehem Steel Corp. 1170 Eighth Ave. -- Martin Tower 101 Bethlehem, PA 18016 - -------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, Chairman of the Board, President and Chief Executive President, Chief Executive Officer Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 - -------------------------------------------------------------------------------------------- John C. Danforth Partner Director Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 - --------------------------------------------------------------------------------------------
10
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE - ----------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman Director Nellcor Puritan Bennett P.O. Box 208 Pauma Valley, CA 92061 - ----------------------------------------------------------------------------------------------- Cheryl W. Grise President Director Utility Group of Northeast Utilities Service Company P.O. Box 270 Hartford, CT 06141 - ----------------------------------------------------------------------------------------------- James R. Houghton Chairman of the Board Director Emeritus and Director Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 - ----------------------------------------------------------------------------------------------- Harry P. Kamen Retired Chairman and Director Chief Executive Officer Metropolitan Life Insurance Company 200 Park Ave, Suite 5700 New York, NY 10166 - ----------------------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 - ----------------------------------------------------------------------------------------------- John M. Keane General (Retired) Director United States Army 2200 Wilson Blvd. Suite 102-542 Arlington, VA 22201-3324 - ----------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. 51 Vaughn Hill Road Bolton, MA 01740 - ----------------------------------------------------------------------------------------------- Sylvia M. Mathews Chief Operating Officer Director and Executive Director The Bill and Melinda Gates Foundation 1551 Eastlake Avenue, East Seattle, WA 98102 - ----------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board Vice Chairman of the Board and MetLife, Inc. and Director Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 - ----------------------------------------------------------------------------------------------- Hugh B. Price Of Counsel Director Piper Rudnick LLP 1251 Avenue of the Americas New York, NY 10005 - -----------------------------------------------------------------------------------------------
11
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE - --------------------------------------------------------------------------------- Kenton J. Sicchitano Retired Global Managing Director Partner PriceWaterhouseCoopers 101 Jericho Road Weston, MA 02493 - --------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board Director Pfizer, Inc. 235 East 42nd Street New York, NY 10017 - ---------------------------------------------------------------------------------
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE - ------------------------------------------------------------------------------------ Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer - ------------------------------------------------------------------------------------ Stewart G. Nagler Vice Chairman of the Board, and Director - ------------------------------------------------------------------------------------ Gwenn L. Carr Vice President and Secretary - ------------------------------------------------------------------------------------ Daniel J. Cavanagh Executive Vice President - ------------------------------------------------------------------------------------ C. Robert Henrikson President, US Insurance and Financial Services - ------------------------------------------------------------------------------------ Jeffrey J. Hodgman Executive Vice President - ------------------------------------------------------------------------------------ Leland C. Launer Jr. Executive Vice President and Chief Investment Officer - ------------------------------------------------------------------------------------ James L. Lipscomb Executive Vice President and General Counsel - ------------------------------------------------------------------------------------ Joseph J. Prochaska Senior Vice President, Financial Operations and Chief Accounting Officer - ------------------------------------------------------------------------------------ William J. Toppeta President, International - ------------------------------------------------------------------------------------ Catherine A. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company - ------------------------------------------------------------------------------------ Stanley J. Talbi Senior Vice-President and Chief Actuary - ------------------------------------------------------------------------------------ Lisa M. Weber Senior Executive Vice-President, Chief Administrative Officer - ------------------------------------------------------------------------------------ Judy E. Weiss Executive Vice-President and Chief Actuary - ------------------------------------------------------------------------------------ William J. Wheeler Executive Vice President and Chief Financial Officer - ------------------------------------------------------------------------------------
- -------- * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 12 INDEPENDENT AUDITORS' REPORT To the Policyholders of Metropolitan Life Separate Account UL and the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statement of assets and liabilities of each of the investment divisions (as disclosed in Note 1 to the financial statements) comprising Metropolitan Life Separate Account UL (the "Separate Account") of Metropolitan Life Insurance Company ("Metropolitan Life") as of December 31, 2003, and the related statements of operations and statements of changes in net assets for each of the periods in the three years then ended. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodians and the depositors of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the investment divisions comprising the Separate Account of Metropolitan Life as of December 31, 2003, the results of their operations and the changes in their net assets for each of the periods in the three years then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida April 16, 2004 F-1 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2003
State Street State Street State Street Research Research Research Investment Trust Diversified Aggressive Growth Investment Division Investment Division Investment Division ------------------- ------------------- ------------------- ASSETS: Investments at Value: Metropolitan Series Fund, Inc. ("Metropolitan Fund") State Street Research Investment Trust Portfolio (14,863,974 Shares; cost $441,842,964)................ $ 366,694,241 $ -- $ -- State Street Research Diversified Portfolio (19,105,895 Shares; cost $308,822,843)................ -- 289,072,197 -- State Street Research Aggressive Growth Portfolio (10,426,099 Shares; cost $247,124,703)................ -- -- 187,148,479 MetLife Stock Index Portfolio (15,492,994 Shares; cost $471,480,310)................ -- -- -- FI International Stock Portfolio (4,453,384 Shares; cost $49,092,645).................. -- -- -- Janus Mid Cap Portfolio (13,049,904 Shares; cost $245,811,880)................ -- -- -- T. Rowe Price Small Cap Growth Portfolio (5,028,788 Shares; cost $60,709,864).................. -- -- -- Scudder Global Equity Portfolio (2,503,741 Shares; cost $28,862,268).................. -- -- -- Harris Oakmark Large Cap Value Portfolio (3,104,521 Shares; cost $33,265,016).................. -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (1,781,579 Shares; cost $24,876,339).................. -- -- -- T. Rowe Price Large Cap Growth Portfolio (2,868,134 Shares; cost $31,282,336).................. -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (5,026,722 Shares; cost $53,380,037).................. -- -- -- Morgan Stanley EAFE Index Portfolio (2,459,540 Shares; cost $19,855,278).................. -- -- -- Russell 2000 Index Portfolio (2,317,218 Shares; cost $22,079,290).................. -- -- -- Met/Putnam Voyager Portfolio (1,900,061 Shares; cost $8,302,977)................... -- -- -- State Street Research Aurora Portfolio (3,401,875 Shares; cost $44,584,567).................. -- -- -- MetLife Mid Cap Stock Index Portfolio (2,344,249 Shares; cost $23,095,881).................. -- -- -- Franklin Templeton Small Cap Growth Portfolio (327,356 Shares; cost $2,499,796)..................... -- -- -- State Street Research Large Cap Value Portfolio (104,079 Shares; cost $957,558)....................... -- -- -- Davis Venture Value Portfolio (965,333 Shares; cost $21,277,385).................... -- -- -- Loomis Sayles Small Cap Portfolio (23,295 Shares; cost $3,717,206)...................... -- -- -- Alger Equity Growth Portfolio (263,538 Shares; cost $4,582,005)..................... -- -- -- MFS Investors Trust Portfolio (186,025 Shares; cost $1,391,215)..................... -- -- -- MFS Research Managers Portfolio (79,153 Shares; cost $613,213)........................ -- -- -- State Street Research Bond Income Portfolio (837,355 Shares; cost $89,830,207).................... -- -- -- FI Structured Equity Portfolio (3,215 Shares; cost $454,116)......................... -- -- -- Harris Oakmark Focused Value Portfolio (115,466 Shares; cost $21,015,539).................... -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (409,695 Shares; cost $4,866,132)..................... -- -- -- Salomon Brothers U.S. Government Portfolio (592,211 Shares; cost $7,267,172)..................... -- -- -- State Street Research Money Market Portfolio (273,528 Shares; cost $27,352,817).................... -- -- -- FI Mid Cap Opportunities Portfolio (96,616 Shares; cost $916,740)........................ -- -- -- ----------------- ----------------- ----------------- Total Investments...................................... 366,694,241 289,072,197 187,148,479 Cash and Accounts Receivable........................... 393,060 -- 119,894 ----------------- ----------------- ----------------- Total Assets........................................... 367,087,301 289,072,197 187,268,373 LIABILITIES............................................ Due to/From Metropolitan Life Insurance Company........ -- 38,810 -- ----------------- ----------------- ----------------- NET ASSETS............................................. $367,087,301 $289,033,387 $187,268,373 ================= ================= ================= Outstanding Units (In Thousands)....................... 16,151 12,881 11,833 Unit Values............................................ $10.57 to $33.12 $11.79 to $30.64 $11.71 to $16.87
MetLife Stock Index Investment Division ------------------- ASSETS: Investments at Value: Metropolitan Series Fund, Inc. ("Metropolitan Fund") State Street Research Investment Trust Portfolio (14,863,974 Shares; cost $441,842,964)................ $ -- State Street Research Diversified Portfolio (19,105,895 Shares; cost $308,822,843)................ -- State Street Research Aggressive Growth Portfolio (10,426,099 Shares; cost $247,124,703)................ -- MetLife Stock Index Portfolio (15,492,994 Shares; cost $471,480,310)................ 456,268,669 FI International Stock Portfolio (4,453,384 Shares; cost $49,092,645).................. -- Janus Mid Cap Portfolio (13,049,904 Shares; cost $245,811,880)................ -- T. Rowe Price Small Cap Growth Portfolio (5,028,788 Shares; cost $60,709,864).................. -- Scudder Global Equity Portfolio (2,503,741 Shares; cost $28,862,268).................. -- Harris Oakmark Large Cap Value Portfolio (3,104,521 Shares; cost $33,265,016).................. -- Neuberger Berman Partners Mid Cap Value Portfolio (1,781,579 Shares; cost $24,876,339).................. -- T. Rowe Price Large Cap Growth Portfolio (2,868,134 Shares; cost $31,282,336).................. -- Lehman Brothers Aggregate Bond Index Portfolio (5,026,722 Shares; cost $53,380,037).................. -- Morgan Stanley EAFE Index Portfolio (2,459,540 Shares; cost $19,855,278).................. -- Russell 2000 Index Portfolio (2,317,218 Shares; cost $22,079,290).................. -- Met/Putnam Voyager Portfolio (1,900,061 Shares; cost $8,302,977)................... -- State Street Research Aurora Portfolio (3,401,875 Shares; cost $44,584,567).................. -- MetLife Mid Cap Stock Index Portfolio (2,344,249 Shares; cost $23,095,881).................. -- Franklin Templeton Small Cap Growth Portfolio (327,356 Shares; cost $2,499,796)..................... -- State Street Research Large Cap Value Portfolio (104,079 Shares; cost $957,558)....................... -- Davis Venture Value Portfolio (965,333 Shares; cost $21,277,385).................... -- Loomis Sayles Small Cap Portfolio (23,295 Shares; cost $3,717,206)...................... -- Alger Equity Growth Portfolio (263,538 Shares; cost $4,582,005)..................... -- MFS Investors Trust Portfolio (186,025 Shares; cost $1,391,215)..................... -- MFS Research Managers Portfolio (79,153 Shares; cost $613,213)........................ -- State Street Research Bond Income Portfolio (837,355 Shares; cost $89,830,207).................... -- FI Structured Equity Portfolio (3,215 Shares; cost $454,116)......................... -- Harris Oakmark Focused Value Portfolio (115,466 Shares; cost $21,015,539).................... -- Salomon Brothers Strategic Bond Opportunities Portfolio (409,695 Shares; cost $4,866,132)..................... -- Salomon Brothers U.S. Government Portfolio (592,211 Shares; cost $7,267,172)..................... -- State Street Research Money Market Portfolio (273,528 Shares; cost $27,352,817).................... -- FI Mid Cap Opportunities Portfolio (96,616 Shares; cost $916,740)........................ -- ---------------- Total Investments...................................... 456,268,669 Cash and Accounts Receivable........................... 845,678 ---------------- Total Assets........................................... 457,114,347 LIABILITIES............................................ Due to/From Metropolitan Life Insurance Company........ -- ---------------- NET ASSETS............................................. $457,114,347 ================ Outstanding Units (In Thousands)....................... 25,747 Unit Values............................................ $9.58 to $29.26
See Notes to Financial Statements. F-2
FI International Janus T. Rowe Price Scudder Harris Oakmark Neuberger Berman T. Rowe Price Stock Mid Cap Small Cap Growth Global Equity Large Cap Value Partners Mid Cap Large Cap Growth Investment Investment Investment Investment Investment Value Investment Investment Division Division Division Division Division Division Division - ---------------- ---------------- ----------------- ----------------- ----------------- ----------------- ---------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 43,910,364 -- -- -- -- -- -- -- 182,829,152 -- -- -- -- -- -- -- 61,703,229 -- -- -- -- -- -- -- 28,617,758 -- -- -- -- -- -- -- 37,440,522 -- -- -- -- -- -- -- 30,910,402 -- -- -- -- -- -- -- 33,385,077 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ---------------- ---------------- ----------------- ----------------- ----------------- ----------------- ---------------- 43,910,364 182,829,152 61,703,229 28,617,758 37,440,522 30,910,402 33,385,077 73,925 1,248,936 139,936 77,960 63,107 35,149 135,257 - ---------------- ---------------- ----------------- ----------------- ----------------- ----------------- ---------------- 43,984,289 184,078,088 61,843,165 28,695,718 37,503,629 30,945,551 33,520,334 -- -- -- -- -- -- -- - ---------------- ---------------- ----------------- ----------------- ----------------- ----------------- ---------------- $ 43,984,289 $ 184,078,088 $ 61,843,165 $ 28,695,718 $ 37,503,629 $ 30,945,551 $ 33,520,334 ================ ================ ================= ================= ================= ================= ================ 3,484 13,348 4,703 2,140 3,060 1,946 3,290 $9.92 to $13.85 $5.69 to $16.17 $12.64 to $14.08 $12.92 to $14.39 $11.53 to $14.56 $13.86 to $19.29 $8.23 to $12.13 Lehman Brothers Aggregate Bond Index Investment Division - ----------------- $ -- -- -- -- -- -- -- -- -- -- -- 54,942,071 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ----------------- 54,942,071 52,236 - ----------------- 54,994,307 -- - ----------------- $ 54,994,307 ================= 4,064 $12.77 to $13.67
See Notes to Financial Statements. F-3 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2003
Morgan Stanley Russell 2000 Met/Putnam State Street EAFE Index Index Voyager Research Aurora Investment Investment Investment Investment Division Division Division Division ---------------- ----------------- --------------- ----------------- ASSETS: Investments at Value: Metropolitan Series Fund, Inc. ("Metropolitan Fund") State Street Research Investment Trust Portfolio (14,863,974 Shares; cost $441,842,964)................ $ -- $ -- $ -- $ -- State Street Research Diversified Portfolio (19,105,895 Shares; cost $308,822,843)................ -- -- -- -- State Street Research Aggressive Growth Portfolio (10,426,099 Shares; cost $247,124,703)................ -- -- -- -- MetLife Stock Index Portfolio (15,492,994 Shares; cost $471,480,310)................ -- -- -- -- FI International Stock Portfolio (4,453,384 Shares; cost $49,092,645).................. -- -- -- -- Janus Mid Cap Portfolio (13,049,904 Shares; cost $245,811,880)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (5,028,788 Shares; cost $60,709,864).................. -- -- -- -- Scudder Global Equity Portfolio (2,503,741 Shares; cost $28,862,268).................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (3,104,521 Shares; cost $33,265,016).................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (1,781,579 Shares; cost $24,876,339).................. -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (2,868,134 Shares; cost $31,282,336).................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (5,026,722 Shares; cost $53,380,037).................. -- -- -- -- Morgan Stanley EAFE Index Portfolio (2,459,540 Shares; cost $19,855,278).................. 24,103,487 -- -- -- Russell 2000 Index Portfolio (2,317,218 Shares; cost $22,079,290).................. -- 27,690,757 -- -- Met/Putnam Voyager Portfolio (1,900,061 Shares; cost $8,302,977)................... -- -- 8,588,274 -- State Street Research Aurora Portfolio (3,401,875 Shares; cost $44,584,567).................. -- -- -- 56,539,160 MetLife Mid Cap Stock Index Portfolio (2,344,249 Shares; cost $23,095,881).................. -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (327,356 Shares; cost $2,499,796)..................... -- -- -- -- State Street Research Large Cap Value Portfolio (104,079 Shares; cost $957,558)....................... -- -- -- -- Davis Venture Value Portfolio (965,333 Shares; cost $21,277,385).................... -- -- -- -- Loomis Sayles Small Cap Portfolio (23,295 Shares; cost $3,717,206)...................... -- -- -- -- Alger Equity Growth Portfolio (263,538 Shares; cost $4,582,005)..................... -- -- -- -- MFS Investors Trust Portfolio (186,025 Shares; cost $1,391,215)..................... -- -- -- -- MFS Research Managers Portfolio (79,153 Shares; cost $613,213)........................ -- -- -- -- State Street Research Bond Income Portfolio (837,355 Shares; cost $89,830,207).................... -- -- -- -- FI Structured Equity Portfolio (3,215 Shares; cost $454,116)......................... -- -- -- -- Harris Oakmark Focused Value Portfolio (115,466 Shares; cost $21,015,539).................... -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (409,695 Shares; cost $4,866,132)..................... -- -- -- -- Salomon Brothers U.S. Government Portfolio (592,211 Shares; cost $7,267,172)..................... -- -- -- -- State Street Research Money Market Portfolio (273,528 Shares; cost $27,352,817).................... -- -- -- -- FI Mid Cap Opportunities Portfolio (96,616 Shares; cost $916,740)........................ -- -- -- -- ---------------- ----------------- --------------- ----------------- Total Investments...................................... 24,103,487 27,690,757 8,588,274 56,539,160 Cash and Accounts Receivable........................... 186,690 35,522 62,483 502 ---------------- ----------------- --------------- ----------------- Total Assets........................................... 24,290,177 27,726,279 8,650,757 56,539,662 LIABILITIES Due to/From Metropolitan Life Insurance Company........ -- -- -- -- ---------------- ----------------- --------------- ----------------- NET ASSETS $ 24,290,177 $ 27,726,279 $ 8,650,757 $ 56,539,662 ================ ================= =============== ================= Outstanding Units (In Thousands)....................... 2,676 2,085 1,913 3,372 Unit Values............................................ $7.85 to $10.37 $10.75 to $14.59 $4.38 to $4.78 $15.46 to $16.89
See Notes to Financial Statements. F-4
MetLife Franklin State Street MFS Mid Cap Stock Templeton Small Research Large Davis Venture Loomis Sayles Alger Equity Investors Index Cap Growth Cap Value Value Small Cap Growth Trust Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division - ----------------- --------------- ----------------- ---------------- ----------------- ------------ --------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 27,896,567 -- -- -- -- -- -- -- 3,041,132 -- -- -- -- -- -- -- 1,110,523 -- -- -- -- -- -- -- 24,393,963 -- -- -- -- -- -- -- 4,415,478 -- -- -- -- -- -- -- 4,933,432 -- -- -- -- -- -- -- 1,538,430 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ----------------- --------------- ----------------- ---------------- ----------------- ---------- --------------- 27,896,567 3,041,132 1,110,523 24,393,963 4,415,478 4,933,432 1,538,430 28,320 -- -- 35,532 7,461 -- 5,616 - ----------------- --------------- ----------------- ---------------- ----------------- ---------- --------------- 27,924,887 3,041,132 1,110,523 24,429,495 4,422,939 4,933,432 1,544,046 -- 2,885 395 -- -- -- -- - ----------------- --------------- ----------------- ---------------- ----------------- ---------- --------------- $ 27,924,887 $ 3,038,247 $ 1,110,128 $ 24,429,495 $ 4,422,939 $4,933,432 $ 1,544,046 ================= =============== ================= ================ ================= ========== =============== 2,338 329 103 1,322 30 721 186 $11.04 to $12.13 $9.07 to $9.29 $10.70 to $10.86 $9.79 to $28.40 $9.27 to $205.39 $6.84 $7.96 to $8.33 MFS Research Mangers Investment Division - --------------- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 666,466 -- -- -- -- -- -- -- - --------------- 666,466 2,075 - --------------- 668,541 -- - --------------- $ 668,541 =============== 81 $6.57 to $8.51
See Notes to Financial Statements. F-5 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2003
State Street Salomon Brothers Research Bond FI Structured Harris Oakmark Strategic Bond Income Equity Focused Value Opportunities Investment Investment Investment Investment Division Division Division Division ---------------- --------------- ------------------ ---------------- ASSETS: Investments at Value: Metropolitan Series Fund, Inc. ("Metropolitan Fund") State Street Research Investment Trust Portfolio (14,863,974 Shares; cost $441,842,964)................ $ -- $ -- $ -- $ -- State Street Research Diversified Portfolio (19,105,895 Shares; cost $308,822,843)................ -- -- -- -- State Street Research Aggressive Growth Portfolio (10,426,099 Shares; cost $247,124,703)................ -- -- -- -- MetLife Stock Index Portfolio (15,492,994 Shares; cost $471,480,310)................ -- -- -- -- FI International Stock Portfolio (4,453,384 Shares; cost $49,092,645).................. -- -- -- -- Janus Mid Cap Portfolio (13,049,904 Shares; cost $245,811,880)................ -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (5,028,788 Shares; cost $60,709,864).................. -- -- -- -- Scudder Global Equity Portfolio (2,503,741 Shares; cost $28,862,268).................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (3,104,521 Shares; cost $33,265,016).................. -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (1,781,579 Shares; cost $24,876,339).................. -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (2,868,134 Shares; cost $31,282,336).................. -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (5,026,722 Shares; cost $53,380,037).................. -- -- -- -- Morgan Stanley EAFE Index Portfolio (2,459,540 Shares; cost $19,855,278).................. -- -- -- -- Russell 2000 Index Portfolio (2,317,218 Shares; cost $22,079,290).................. -- -- -- -- Met/Putnam Voyager Portfolio (1,900,061 Shares; cost $8,302,977)................... -- -- -- -- State Street Research Aurora Portfolio (3,401,875 Shares; cost $44,584,567).................. -- -- -- -- MetLife Mid Cap Stock Index Portfolio (2,344,249 Shares; cost $23,095,881).................. -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (327,356 Shares; cost $2,499,796)..................... -- -- -- -- State Street Research Large Cap Value Portfolio (104,079 Shares; cost $957,558)....................... -- -- -- -- Davis Venture Value Portfolio (965,333 Shares; cost $21,277,385).................... -- -- -- -- Loomis Sayles Small Cap Portfolio (23,295 Shares; cost $3,717,206)...................... -- -- -- -- Alger Equity Growth Portfolio (263,538 Shares; cost $4,582,005)..................... -- -- -- -- MFS Investors Trust Portfolio (186,025 Shares; cost $1,391,215)..................... -- -- -- -- MFS Research Managers Portfolio (79,153 Shares; cost $613,213)........................ -- -- -- -- State Street Research Bond Income Portfolio (837,355 Shares; cost $89,830,207).................... 96,806,570 -- -- -- FI Structured Equity Portfolio (3,215 Shares; cost $454,116)......................... -- 505,504 -- -- Harris Oakmark Focused Value Portfolio (115,466 Shares; cost $21,015,539).................... -- -- 25,894,491 -- Salomon Brothers Strategic Bond Opportunities Portfolio (409,695 Shares; cost $4,866,132)..................... -- -- -- 5,166,251 Salomon Brothers U.S. Government Portfolio (592,211 Shares; cost $7,267,172)..................... -- -- -- -- State Street Research Money Market Portfolio (273,528 Shares; cost $27,352,817).................... -- -- -- -- FI Mid Cap Opportunities Portfolio (96,616 Shares; cost $916,740)........................ -- -- -- -- ---------------- --------------- ------------------ ---------------- Total Investments...................................... 96,806,570 505,504 25,894,491 5,166,251 Cash and Accounts Receivable........................... -- -- -- -- ---------------- --------------- ------------------ ---------------- Total Assets........................................... 96,806,570 505,504 25,894,491 5,166,251 LIABILITIES Due to/From Metropolitan Life Insurance Company........ 86,980 221 28,853 3,182 ---------------- --------------- ------------------ ---------------- NET ASSETS............................................. $96,719,590 $505,283 $25,865,638 $5,163,069 ================ =============== ================== ================ Outstanding Units (In Thousands)....................... 5,517 49 115 375 Unit Values............................................ $12.89 to $27.12 $8.37 to $10.56 $219.73 to $225.05 $13.52 to $13.85
See Notes to Financial Statements. F-6
State Street Salomon Brothers Research FI Mid Cap U.S. Government Money Market Opportunities Investment Investment Investment Division Division Division ----------------- ----------------- ----------------- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 7,307,884 -- -- -- 27,352,819 -- -- -- 1,112,044 ----------------- ----------------- ----------------- 7,307,884 27,352,819 1,112,044 -- 15,270 -- ----------------- ----------------- ----------------- 7,307,884 27,368,089 1,112,044 2,982 21,662 273 ----------------- ----------------- ----------------- $ 7,304,902 $ 27,346,427 $ 1,111,771 ================= ================= ================= 559 1,760 96 $12.82 to $13.13 $15.21 to $15.92 $11.50 to $11.67
See Notes to Financial Statements. F-7 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2003
Invesco VIF Invesco VIF Janus Aspen Invesco VIF Equity Real Estate Growth High Yield Income Opportunity Investment Investment Investment Investment Division Division Division Division ----------- ----------- ----------- ----------- ASSETS: Investments at Value: Janus Aspen Series Fund ("Janus Fund") Janus Aspen Growth Portfolio (182,002 Shares; cost $3,317,989).......................................... $3,499,893 $ -- $ -- $ -- Invesco Variable Investment Funds, Inc ("Invesco Funds") Invesco VIF High Yield Portfolio (101,401 Shares; cost $755,920)............................................ -- 804,108 -- -- Invesco VIF Equity Income Portfolio (10,296 Shares; cost $180,622)............................................. -- -- 184,406 -- Invesco VIF Real Estate Opportunity Portfolio (12,455 Shares; cost $132,719)............................................. -- -- -- 178,608 Franklin Templeton Variable Insurance Product Series Funds ("Franklin Fund") Franklin Templeton International Stock Portfolio (327,691 Shares; cost $3,587,146).......................................... -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (77,203 Shares; cost $1,159,415)........................................... -- -- -- -- Alliance Variable Product Series Funds ("Alliance Fund") Alliance Growth & Income Portfolio (95,425 Shares; cost $1,731,867)........................................... -- -- -- -- Alliance Premier Growth Portfolio (3,941 Shares; cost $83,621)............................................... -- -- -- -- Alliance Technology Portfolio (3,177 Shares; cost $43,696)............................................... -- -- -- -- Fidelity Variable Insurance Products Funds ("Fidelity Funds") Fidelity VIP Contrafund Portfolio (38,974 Shares; cost $783,501)............................................. -- -- -- -- Fidelity VIP Asset Manager Growth Portfolio (35,491 Shares; cost $395,048)............................................. -- -- -- -- Fidelity VIP Growth Portfolio (9,647 Shares; cost $277,258).............................................. -- -- -- -- American Series Funds ("American Fund") American Funds Growth Portfolio (555,600 Shares; cost $21,669,606)......................................... -- -- -- -- American Funds Growth-Income Portfolio (602,836 Shares; cost $17,398,081)......................................... -- -- -- -- American Funds Global Small Cap Portfolio (410,836 Shares; cost $4,620,777).......................................... -- -- -- -- Met Investors Series Trust ("Met Investors Fund") T. Rowe Price Mid Cap Growth Portfolio (527,122 Shares; cost $2,959,767).......................................... -- -- -- -- MFS Research International Portfolio (152,598 Shares; cost $1,307,159).......................................... -- -- -- -- PIMCO Total Return Portfolio (1,093,890 Shares; cost $12,468,910)....................................... -- -- -- -- PIMCO Innovation Portfolio (924,904 Shares; cost $3,855,266).......................................... -- -- -- -- Lord Abbett Bond Debenture Portfolio (991,531 Shares; cost $10,678,786)......................................... -- -- -- -- Met/AIM Mid Cap Core Equity Portfolio (80,233 Shares; cost $854,896)............................................. -- -- -- -- Met/AIM Small Cap Growth Portfolio (53,490 Shares; cost $596,561)............................................. -- -- -- -- Harris Oakmark International Portfolio (68,416 Shares; cost $766,989)............................................. -- -- -- -- Janus Aggressive Growth Portfolio (567,168 Shares; cost $3,302,437).......................................... -- -- -- -- Lord Abbett Growth and Income Portfolio (845 Shares; cost $16,883)................................................. -- -- -- -- ---------- -------- -------- -------- Total Investments........................................................... 3,499,893 804,108 184,406 178,608 Cash and Accounts Receivable................................................ -- -- -- -- ---------- -------- -------- -------- Total Assets................................................................ 3,499,893 804,108 184,406 178,608 LIABILITIES Due to/From Metropolitan Life Insurance Company............................. -- -- -- -- ---------- -------- -------- -------- NET ASSETS.................................................................. $3,499,893 $804,108 $184,406 $178,608 ========== ======== ======== ======== Outstanding Units (In Thousands)............................................ 435 87 19 10 Unit Values................................................................. $8.03 $9.21 $9.73 $17.79
See Notes to Financial Statements. F-8
Alliance Alliance Fidelity Franklin Templeton Franklin Templeton Growth & Premier Alliance Fidelity Asset Manager Fidelity International Stock Valuemark Small Income Growth Technology Contrafund Growth Growth Investment Cap Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ------------------- ------------------ ---------- ---------- ---------- ---------- ------------- ---------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 4,053,532 -- -- -- -- -- -- -- -- 1,345,642 -- -- -- -- -- -- -- -- 2,063,085 -- -- -- -- -- -- -- -- 84,057 -- -- -- -- -- -- -- -- 45,595 -- -- -- -- -- -- -- -- 893,677 -- -- -- -- -- -- -- -- 432,629 -- -- -- -- -- -- -- -- 296,358 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ----------- ---------- ---------- ------- ------- -------- -------- -------- 4,053,532 1,345,642 2,063,085 84,057 45,595 893,677 432,629 296,358 -- -- -- -- -- -- -- -- ----------- ---------- ---------- ------- ------- -------- -------- -------- 4,053,532 1,345,642 2,063,085 84,057 45,595 893,677 432,629 296,358 -- -- -- -- -- -- -- -- ----------- ---------- ---------- ------- ------- -------- -------- -------- $4,053,532 $1,345,642 $2,063,085 $84,057 $45,595 $893,677 $432,629 $296,358 =========== ========== ========== ======= ======= ======== ======== ======== 403 199 197 14 10 97 54 47 $10.03 $6.76 $10.47 $6.10 $4.54 $9.18 $8.00 $6.27
See Notes to Financial Statements. F-9 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2003
American Funds American Funds American Funds Global Growth Growth-Income Small Cap Investment Investment Investment Division Division Division ---------------- ---------------- ---------------- ASSETS: Investments at Value: Janus Aspen Series Fund ("Janus Fund") Janus Aspen Growth Portfolio (182,002 Shares; cost $3,317,989).......................................... $ -- $ -- $ -- Invesco Variable Investment Funds, Inc ("Invesco Funds") Invesco VIF High Yield Portfolio (101,401 Shares; cost $755,920)............................................ -- -- -- Invesco VIF Equity Income Portfolio (10,296 Shares; cost $180,622)............................................. -- -- -- Invesco VIF Real Estate Opportunity Portfolio (12,455 Shares; cost $132,719)............................................. -- -- -- Franklin Templeton Variable Insurance Product Series Funds ("Franklin Fund") Franklin Templeton International Stock Portfolio (327,691 Shares; cost $3,587,146).......................................... -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (77,203 Shares; cost $1,159,415)........................................... -- -- -- Alliance Variable Product Series Funds ("Alliance Fund") Alliance Growth & Income Portfolio (95,425 Shares; cost $1,731,867)........................................... -- -- -- Alliance Premier Growth Portfolio (3,941 Shares; cost $83,621)............................................... -- -- -- Alliance Technology Portfolio (3,177 Shares; cost $43,696)............................................... -- -- -- Fidelity Variable Insurance Products Funds ("Fidelity Funds") Fidelity VIP Contrafund Portfolio (38,974 Shares; cost $783,501)............................................. -- -- -- Fidelity VIP Asset Manager Growth Portfolio (35,491 Shares; cost $395,048)............................................. -- -- -- Fidelity VIP Growth Portfolio (9,647 Shares; cost $277,258).............................................. -- -- -- American Series Funds ("American Fund") American Funds Growth Portfolio (555,600 Shares; cost $21,669,606)......................................... 25,279,776 -- -- American Funds Growth-Income Portfolio (602,836 Shares; cost $17,398,081)......................................... -- 20,182,964 -- American Funds Global Small Cap Portfolio (410,836 Shares; cost $4,620,777).......................................... -- -- 5,784,566 Met Investors Series Trust ("Met Investors Fund") T. Rowe Price Mid Cap Growth Portfolio (527,122 Shares; cost $2,959,767).......................................... -- -- -- MFS Research International Portfolio (152,598 Shares; cost $1,307,159).......................................... -- -- -- PIMCO Total Return Portfolio (1,093,890 Shares; cost $12,468,910)....................................... -- -- -- PIMCO Innovation Portfolio (924,904 Shares; cost $3,855,266).......................................... -- -- -- Lord Abbett Bond Debenture Portfolio (991,531 Shares; cost $10,678,786)......................................... -- -- -- Met/AIM Mid Cap Core Equity Portfolio (80,233 Shares; cost $854,896)............................................. -- -- -- Met/AIM Small Cap Growth Portfolio (53,490 Shares; cost $596,561)............................................. -- -- -- Harris Oakmark International Portfolio (68,416 Shares; cost $766,989)............................................. -- -- -- Janus Aggressive Growth Portfolio (567,168 Shares; cost $3,302,437).......................................... -- -- -- Lord Abbett Growth and Income Portfolio (845 Shares; cost $16,883)................................................. -- -- -- ---------------- ---------------- ---------------- Total Investments........................................................... 25,279,776 20,182,964 5,784,566 Cash and Accounts Receivable................................................ 480,164 185,947 16,294 ---------------- ---------------- ---------------- Total Assets................................................................ 25,759,940 20,368,911 5,800,860 LIABILITIES Due to/From Metropolitan Life Insurance Company............................. -- -- -- ---------------- ---------------- ---------------- NET ASSETS.................................................................. $25,759,940 $20,368,911 $5,800,860 ================ ================ ================ Outstanding Units (In Thousands)............................................ 417 525 378 Unit Values................................................................. $60.53 to $62.00 $38.04 to $38.96 $15.06 to $15.42
T. Rowe Price Mid Cap Growth Investment Division -------------- ASSETS: Investments at Value: Janus Aspen Series Fund ("Janus Fund") Janus Aspen Growth Portfolio (182,002 Shares; cost $3,317,989).......................................... $ -- Invesco Variable Investment Funds, Inc ("Invesco Funds") Invesco VIF High Yield Portfolio (101,401 Shares; cost $755,920)............................................ -- Invesco VIF Equity Income Portfolio (10,296 Shares; cost $180,622)............................................. -- Invesco VIF Real Estate Opportunity Portfolio (12,455 Shares; cost $132,719)............................................. -- Franklin Templeton Variable Insurance Product Series Funds ("Franklin Fund") Franklin Templeton International Stock Portfolio (327,691 Shares; cost $3,587,146).......................................... -- Franklin Templeton Valuemark Small Cap Portfolio (77,203 Shares; cost $1,159,415)........................................... -- Alliance Variable Product Series Funds ("Alliance Fund") Alliance Growth & Income Portfolio (95,425 Shares; cost $1,731,867)........................................... -- Alliance Premier Growth Portfolio (3,941 Shares; cost $83,621)............................................... -- Alliance Technology Portfolio (3,177 Shares; cost $43,696)............................................... -- Fidelity Variable Insurance Products Funds ("Fidelity Funds") Fidelity VIP Contrafund Portfolio (38,974 Shares; cost $783,501)............................................. -- Fidelity VIP Asset Manager Growth Portfolio (35,491 Shares; cost $395,048)............................................. -- Fidelity VIP Growth Portfolio (9,647 Shares; cost $277,258).............................................. -- American Series Funds ("American Fund") American Funds Growth Portfolio (555,600 Shares; cost $21,669,606)......................................... -- American Funds Growth-Income Portfolio (602,836 Shares; cost $17,398,081)......................................... -- American Funds Global Small Cap Portfolio (410,836 Shares; cost $4,620,777).......................................... -- Met Investors Series Trust ("Met Investors Fund") T. Rowe Price Mid Cap Growth Portfolio (527,122 Shares; cost $2,959,767).......................................... 3,368,307 MFS Research International Portfolio (152,598 Shares; cost $1,307,159).......................................... -- PIMCO Total Return Portfolio (1,093,890 Shares; cost $12,468,910)....................................... -- PIMCO Innovation Portfolio (924,904 Shares; cost $3,855,266).......................................... -- Lord Abbett Bond Debenture Portfolio (991,531 Shares; cost $10,678,786)......................................... -- Met/AIM Mid Cap Core Equity Portfolio (80,233 Shares; cost $854,896)............................................. -- Met/AIM Small Cap Growth Portfolio (53,490 Shares; cost $596,561)............................................. -- Harris Oakmark International Portfolio (68,416 Shares; cost $766,989)............................................. -- Janus Aggressive Growth Portfolio (567,168 Shares; cost $3,302,437).......................................... -- Lord Abbett Growth and Income Portfolio (845 Shares; cost $16,883)................................................. -- -------------- Total Investments........................................................... 3,368,307 Cash and Accounts Receivable................................................ 6,963 -------------- Total Assets................................................................ 3,375,270 LIABILITIES Due to/From Metropolitan Life Insurance Company............................. -- -------------- NET ASSETS.................................................................. $3,375,270 ============== Outstanding Units (In Thousands)............................................ 527 Unit Values................................................................. $6.28 to $6.43
See Notes to Financial Statements. F-10
MFS Lord Abbett Met/AIM Mid Research PIMCO PIMCO Bond Cap Met/AIM Small Harris Oakmark International Total Return Innovation Debenture Core Equity Cap Growth International Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division - -------------- ---------------- -------------- ---------------- ---------------- ---------------- ----------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1,496,988 -- -- -- -- -- -- -- 12,700,057 -- -- -- -- -- -- -- 4,467,285 -- -- -- -- -- -- -- 11,938,027 -- -- -- -- -- -- -- 989,278 -- -- -- -- -- -- -- 643,481 -- -- -- -- -- -- -- 813,470 -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -------------- ---------------- -------------- ---------------- ---------------- ---------------- ----------------- 1,496,988 12,700,057 4,467,285 11,938,027 989,278 643,481 813,470 232 -- 13,528 104,275 -- -- -- - -------------- ---------------- -------------- ---------------- ---------------- ---------------- ----------------- 1,497,220 12,700,057 4,480,813 12,042,302 989,278 643,481 813,470 -- 2,991 -- -- 346 30 454 - -------------- ---------------- -------------- ---------------- ---------------- ---------------- ----------------- $1,497,220 $12,697,066 $4,480,813 $12,042,302 $988,932 $643,451 $ 813,016 ============== ================ ============== ================ ================ ================ ================= 151 1,042 932 876 92 60 72 $9.70 to $9.94 $11.96 to $12.25 $4.72 to $4.83 $12.87 to $14.95 $10.69 to $10.85 $10.46 to $10.62 $11.23 to $11.40
Janus Lord Abbett Aggressive Growth & Growth Income Investment Investment Division Division - --------------- ----------- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 3,987,193 -- -- 20,634 - --------------- ------- 3,987,193 20,634 15,526 -- - --------------- ------- 4,002,719 20,634 -- 105 - --------------- ------- $ 4,002,719 $20,529 =============== ======= 569 3 $6.89 to $7.06 $8.10
See Notes to Financial Statements. F-11 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
State Street Research Investment Trust Investment Division ---------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 2,669,960 $ 1,708,899 $ 51,437,166 Expenses: Mortality and expense charges................................ 2,738,164 2,678,347 3,136,115 ----------- ------------ ------------- Net investment (loss) income................................... (68,204) (969,448) 48,301,051 ----------- ------------ ------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (6,958,914) (6,132,437) 731,187 Change in unrealized appreciation (depreciation) of investments 88,855,777 (90,883,953) (122,469,738) ----------- ------------ ------------- Net realized and unrealized gains (losses) on investments...... 81,896,863 (97,016,390) (121,738,551) ----------- ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $81,828,659 $(97,985,838) $ (73,437,500) =========== ============ =============
See Notes to Financial Statements. F-12
State Street Research Diversified State Street Research Aggressive Growth MetLife Stock Index Investment Division Investment Division Investment Division - --------------------------------------- --------------------------------------- ---------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 9,831,564 $ 5,726,999 $ 25,415,648 $ -- $ -- $ 46,776,659 $ 6,468,236 $ 5,409,402 $ 3,858,667 2,320,042 2,168,000 2,231,404 1,367,678 1,263,240 1,493,070 3,080,678 2,704,257 2,645,594 - ----------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 7,511,522 3,558,999 23,184,244 (1,367,678) (1,263,240) 45,283,589 3,387,558 2,705,145 1,213,073 - ----------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ (2,593,687) (1,810,936) (111,095) (8,202,841) (5,953,657) (1,536,972) (10,060,006) (5,045,284) 4,130,927 42,182,763 (41,694,719) (42,080,714) 62,199,697 (44,703,891) (94,895,107) 101,361,307 (82,559,071) (48,985,481) - ----------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 39,589,076 (43,505,655) (42,191,809) 53,996,856 (50,657,548) (96,432,079) 91,301,301 (87,604,355) (44,854,554) - ----------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ $47,100,598 $(39,946,656) $(19,007,565) $52,629,178 $(51,920,788) $(51,148,490) $ 94,688,859 $(84,899,210) $(43,641,481) =========== ============ ============ =========== ============ ============ ============ ============ ============
F-13 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
FI International Stock Investment Division -------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 249,748 $ 317,077 $ 1,500,375 Expenses: Mortality and expense charges................................ 304,442 298,333 327,499 ----------- ----------- ------------ Net investment (loss) income................................... (54,694) 18,744 1,172,876 ----------- ----------- ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (1,630,864) (2,655,399) (1,661,736) Change in unrealized appreciation (depreciation) of investments 10,924,390 (4,418,288) (9,202,287) ----------- ----------- ------------ Net realized and unrealized gains (losses) on investments...... 9,293,526 (7,073,687) (10,864,023) ----------- ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,238,832 $(7,054,943) $ (9,691,147) =========== =========== ============
See Notes to Financial Statements. F-14
Janus Mid Cap T. Rowe Price Small Cap Growth Scudder Global Equity Investment Division Investment Division Investment Division - --------------------------------------- -------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ -- $ -- $ -- $ 3,542,193 $ 501,419 $ 350,009 $ 2,319,964 1,297,757 1,013,088 1,037,631 402,320 332,098 332,644 189,917 168,321 164,713 - ----------- ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- (1,297,757) (1,013,088) (1,037,631) (402,320) (332,098) 3,209,549 311,502 181,688 2,155,251 - ----------- ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- (1,145,184) (5,163,698) (2,451,549) (309,653) (297,872) (796,014) (1,005,776) (466,029) (71,082) 46,019,342 (34,449,605) (53,291,667) 17,635,578 (12,423,975) (6,595,361) 7,242,152 (3,445,540) (5,825,339) - ----------- ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- 44,874,158 (39,613,303) (55,743,216) 17,325,925 (12,721,847) (7,391,375) 6,236,376 (3,911,569) (5,896,421) - ----------- ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- $43,576,401 $(40,626,391) $(56,780,847) $16,923,605 $(13,053,945) $(4,181,826) $ 6,547,878 $(3,729,881) $(3,741,170) =========== ============ ============ =========== ============ =========== =========== =========== ===========
F-15 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Harris Oakmark Large Cap Value Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ -- $ 618,214 $ 12,105 Expenses: Mortality and expense charges................................ 252,368 179,930 68,617 ---------- ----------- -------- Net investment (loss) income................................... (252,368) 438,284 (56,512) ---------- ----------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... 38,696 173,172 94,596 Change in unrealized appreciation (depreciation) of investments 6,986,213 (3,824,797) 810,284 ---------- ----------- -------- Net realized and unrealized gains (losses) on investments...... 7,024,909 (3,651,625) 904,880 ---------- ----------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,772,541 $(3,213,341) $848,368 ========== =========== ========
See Notes to Financial Statements. F-16
Neuberger Berman Partners Mid Cap Value T. Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- -------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 78,805 $ 49,885 $ 196,293 $ 30,610 $ 57,106 $ 8,447 $ 2,863,939 $1,283,105 $ 366,468 197,793 139,354 89,772 210,672 163,196 103,226 357,739 300,244 154,225 ---------- ----------- --------- ---------- ----------- --------- ----------- ---------- ---------- (118,988) (89,469) 106,521 (180,062) (106,090) (94,779) 2,506,200 982,861 212,243 ---------- ----------- --------- ---------- ----------- --------- ----------- ---------- ---------- 28,084 105,666 (68,863) (489,389) (317,124) (100,488) 1,152,171 515,268 210,509 7,656,793 (1,888,036) (195,526) 7,871,800 (5,333,848) (92,461) (2,185,014) 2,760,523 1,053,501 ---------- ----------- --------- ---------- ----------- --------- ----------- ---------- ---------- 7,684,877 (1,782,370) (264,389) 7,382,411 (5,650,972) (192,949) (1,032,843) 3,275,791 1,264,010 ---------- ----------- --------- ---------- ----------- --------- ----------- ---------- ---------- $7,565,889 $(1,871,839) $(157,868) $7,202,349 $(5,757,062) $(287,728) $ 1,473,357 $4,258,652 $1,476,253 ========== =========== ========= ========== =========== ========= =========== ========== ==========
F-17 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Morgan Stanley EAFE Index Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 280,223 $ 59,278 $ 25,460 Expenses: Mortality and expense charges................................ 158,241 123,406 63,300 ---------- ----------- ----------- Net investment (loss) income................................... 121,982 (64,128) (37,840) ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (497,564) (800,822) (961,834) Change in unrealized appreciation (depreciation) of investments 6,516,826 (1,274,363) (729,479) ---------- ----------- ----------- Net realized and unrealized gains (losses) on investments...... 6,019,262 (2,075,185) (1,691,313) ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,141,244 $(2,139,313) $(1,729,153) ========== =========== ===========
See Notes to Financial Statements. F-18
Russell 2000 Index Met/Putnam Voyager State Street Research Aurora Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 134,309 $ 74,869 $ 21,244 $ -- $ -- $ -- $ -- $ 127,494 $ 44,265 163,522 104,600 68,898 58,697 39,278 22,732 336,756 225,368 95,291 ---------- ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- (29,213) (29,731) (47,654) (58,697) (39,278) (22,732) (336,756) (97,874) (51,026) ---------- ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- (125,595) (343,069) (1,016,179) (624,452) (304,226) (113,353) 196,537 81,843 155,882 7,938,110 (2,545,881) 1,215,383 2,271,140 (1,227,374) (585,114) 17,391,943 (6,958,922) 1,218,805 ---------- ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- 7,812,515 (2,888,950) 199,204 1,646,688 (1,531,600) (698,467) 17,588,480 (6,877,079) 1,374,687 ---------- ----------- ----------- ---------- ----------- --------- ----------- ----------- ---------- $7,783,302 $(2,918,681) $ 151,550 $1,587,991 $(1,570,878) $(721,199) $17,251,724 $(6,974,953) $1,323,661 ========== =========== =========== ========== =========== ========= =========== =========== ==========
F-19 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
MetLife Mid Cap Stock Index Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 100,611 $ 42,658 $ 24,102 Expenses: Mortality and expense charges................................ 164,774 98,019 42,826 ---------- ----------- -------- Net investment (loss) income................................... (64,163) (55,361) (18,724) ---------- ----------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... 12,063 (23,095) (19,531) Change in unrealized appreciation (depreciation) of investments 6,538,587 (2,089,536) 294,328 ---------- ----------- -------- Net realized and unrealized gains (losses) on investments...... 6,550,650 (2,112,631) 274,797 ---------- ----------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $6,486,487 $(2,167,992) $256,073 ========== =========== ========
See Notes to Financial Statements. F-20
State Street Research Franklin Templeton Small Cap Growth Large Cap Value Davis Venture Value Investment Division Investment Division Investment Division - --------------------------------------- -------------------------- ------------------------------------- For the Year For the Year For the Period For the Year For the Period For the Year For the Year For the Year Ended Ended May 1, 2001 to Ended May 1, 2002 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2003 2002 2001 - ------------ ------------ -------------- ------------ -------------- ------------ ------------ ------------ $ -- $ -- $ -- $ 8,880 $ 869 $ 69,175 $ 91,596 $ 192,850 16,641 8,397 1,124 4,290 436 144,858 90,846 39,662 -------- --------- ------- -------- ------- ---------- ----------- --------- (16,641) (8,397) (1,124) 4,590 433 (75,683) 750 153,188 -------- --------- ------- -------- ------- ---------- ----------- --------- (19,016) (42,766) (3,651) 41,938 (3,284) (213,900) (188,804) (46,987) 796,643 (271,373) 16,066 156,144 (3,178) 5,610,390 (2,083,879) (437,523) -------- --------- ------- -------- ------- ---------- ----------- --------- 777,627 (314,139) 12,415 198,082 (6,462) 5,396,490 (2,272,683) (484,510) -------- --------- ------- -------- ------- ---------- ----------- --------- $760,986 $(322,536) $11,291 $202,672 $(6,029) $5,320,807 $(2,271,933) $(331,322) ======== ========= ======= ======== ======= ========== =========== =========
F-21 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Loomis Sayles Small Cap Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ -- $ 2,322 $ 86,281 Expenses: Mortality and expense charges................................ 28,298 18,464 11,207 ---------- --------- -------- Net investment (loss) income................................... (28,298) (16,142) 75,074 ---------- --------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (88,636) (106,829) (35,645) Change in unrealized appreciation (depreciation) of investments 1,169,772 (414,868) (62,611) ---------- --------- -------- Net realized and unrealized gains (losses) on investments...... 1,081,136 (521,697) (98,256) ---------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,052,838 $(537,839) $(23,182) ========== ========= ========
See Notes to Financial Statements. F-22
Alger Equity Growth MFS Investors Trust MFS Research Managers Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 2,523 $ -- $ -- $ 2,817 $ 3,660 $ -- $ 3,840 $ 705 $ 386 26,251 13,698 121 10,528 6,375 1,179 4,713 3,132 749 ---------- ----------- ------- -------- --------- ------- -------- -------- ------ (23,728) (13,698) (121) (7,711) (2,715) (1,179) (873) (2,427) (363) ---------- ----------- ------- -------- --------- ------- -------- -------- ------ (63,998) (57,097) (175) 13,432 (71,866) (5,896) (4,462) (30,794) 1,304 1,339,908 (983,355) (5,126) 221,187 (78,498) 4,527 112,414 (58,814) (346) ---------- ----------- ------- -------- --------- ------- -------- -------- ------ 1,275,910 (1,040,452) (5,301) 234,619 (150,364) (1,369) 107,952 (89,608) 958 ---------- ----------- ------- -------- --------- ------- -------- -------- ------ $1,252,182 $(1,054,150) $(5,422) $226,908 $(153,079) $(2,548) $107,079 $(92,035) $ 595 ========== =========== ======= ======== ========= ======= ======== ======== ======
F-23 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
State Street Research Bond Income Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $2,907,624 $4,937,322 $5,667,650 Expenses: Mortality and expense charges................................ 724,135 658,727 572,051 ---------- ---------- ---------- Net investment (loss) income................................... 2,183,489 4,278,595 5,095,599 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... 880,712 (378,655) 400,025 Change in unrealized appreciation (depreciation) of investments 1,572,001 2,444,438 (137,736) ---------- ---------- ---------- Net realized and unrealized gains (losses) on investments...... 2,452,713 2,065,783 262,289 ---------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $4,636,202 $6,344,378 $5,357,888 ========== ========== ==========
See Notes to Financial Statements. F-24
FI Structured Equity Harris Oakmark Focused Value Salomon Brothers Strategic Bond Investment Division Investment Division Opportunities Investment Division - ------------------------------------- --------------------------------------- --------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Period For the Year For the Year For the Period Ended Ended Ended Ended Ended May 1, 2001 to Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ -------------- $ 1,560 $ 527 $ -- $ 24,204 $ 15,621 $ -- $ 62,248 $ 83,495 $ -- 2,368 457 69 151,516 79,292 9,775 29,146 10,768 894 ------- -------- ------- ---------- ----------- -------- -------- -------- ------ (808) 70 (69) (127,312) (63,671) (9,775) 33,102 72,727 (894) ------- -------- ------- ---------- ----------- -------- -------- -------- ------ 24,426 (9,596) (77) 31,214 (9,588) (43) 97,650 241 117 58,141 (4,285) (2,467) 5,537,632 (938,481) 279,801 233,146 62,351 4,621 ------- -------- ------- ---------- ----------- -------- -------- -------- ------ 82,567 (13,881) (2,544) 5,568,846 (948,069) 279,758 330,796 62,592 4,738 ------- -------- ------- ---------- ----------- -------- -------- -------- ------ $81,759 $(13,811) $(2,613) $5,441,534 $(1,011,740) $269,983 $363,898 $135,319 $3,844 ======= ======== ======= ========== =========== ======== ======== ======== ======
F-25 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Salomon Brothers U.S. Government Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 91,740 $ 90,377 $ -- Expenses: Mortality and expense charges................................ 49,123 18,808 1,841 -------- -------- ------- Net investment (loss) income................................... 42,617 71,569 (1,841) -------- -------- ------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... 48,098 10,225 5,065 Change in unrealized appreciation (depreciation) of investments (40,677) 83,661 (2,273) -------- -------- ------- Net realized and unrealized gains (losses) on investments...... 7,421 93,886 2,792 -------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 50,038 $165,455 $ 951 ======== ======== =======
See Notes to Financial Statements. F-26
State Street Research Money Market FI Mid Cap Opportunities Janus Aspen Growth Investment Division Investment Division Investment Division - ------------------------------------- -------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Period For the Year For the Year For the Year Ended Ended Ended Ended May 1, 2002 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2003 2002 2001 - ------------ ------------ ------------ ------------ -------------- ------------ ------------ ------------ $226,302 $ 527,338 $1,134,017 $ 14,470 $ -- $ 2,873 $ 708 $ 210,720 179,158 268,010 215,488 4,632 333 13,156 10,078 25,354 -------- --------- ---------- -------- ------- ---------- --------- ----------- 47,144 259,328 918,529 9,838 (333) (10,283) (9,370) 185,366 -------- --------- ---------- -------- ------- ---------- --------- ----------- (1) (628,588) (499,341) 19,777 (1,950) (263,013) (179,152) (1,848,663) 1 611,711 796,577 191,546 3,758 1,041,007 (329,490) 498,521 -------- --------- ---------- -------- ------- ---------- --------- ----------- -- (16,877) 297,236 211,323 1,808 777,994 (508,642) (1,350,142) -------- --------- ---------- -------- ------- ---------- --------- ----------- $ 47,144 $ 242,451 $1,215,765 $221,161 $ 1,475 $ 767,711 $(518,012) $(1,164,776) ======== ========= ========== ======== ======= ========== ========= ===========
F-27 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Invesco VIF High Yield Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 46,066 $ 49,754 $ 29,774 Expenses: Mortality and expense charges................................ 2,831 1,346 602 -------- -------- -------- Net investment (loss) income................................... 43,235 48,408 29,172 -------- -------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (5,183) (31,480) (3,798) Change in unrealized appreciation (depreciation) of investments 90,384 (7,350) (33,395) -------- -------- -------- Net realized and unrealized gains (losses) on investments...... 85,201 (38,830) (37,193) -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $128,436 $ 9,578 $ (8,021) ======== ======== ========
See Notes to Financial Statements. F-28
Invesco VIF Equity Income Invesco VIF Real Estate Opportunity Franklin Templeton International Stock Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 1,951 $ 2,157 $ 1,779 $ 2,672 $ 1,881 $ 1,183 $ 50,493 $ 44,446 $ 203,320 662 638 304 946 2,129 531 16,047 13,035 5,484 ------- -------- ------- ------- ------- ------- -------- --------- --------- 1,289 1,519 1,475 1,726 (248) 652 34,446 31,411 197,836 ------- -------- ------- ------- ------- ------- -------- --------- --------- (4,599) (7,425) (1,414) 7,645 12,032 1,271 (71,786) (325,690) (18,952) 30,971 (21,641) (4,995) 41,591 3,016 (3,692) 947,139 (187,267) (287,060) ------- -------- ------- ------- ------- ------- -------- --------- --------- 26,372 (29,066) (6,409) 49,236 15,048 (2,421) 875,353 (512,957) (306,012) ------- -------- ------- ------- ------- ------- -------- --------- --------- $27,661 $(27,547) $(4,934) $50,962 $14,800 $(1,769) $909,799 $(481,546) $(108,176) ======= ======== ======= ======= ======= ======= ======== ========= =========
F-29 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Franklin Templeton Valuemark Small Cap Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ -- $ 2,327 $ 56 Expenses: Mortality and expense charges................................ 6,613 3,601 177 -------- --------- ------ Net investment (loss) income................................... (6,613) (1,274) (121) -------- --------- ------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized (losses) gains from security transactions......... (16,606) (49,638) (480) Change in unrealized appreciation (depreciation) of investments 366,174 (184,311) 4,364 -------- --------- ------ Net realized and unrealized gains (losses) on investments...... 349,568 (233,949) 3,884 -------- --------- ------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $342,955 $(235,223) $3,763 ======== ========= ======
See Notes to Financial Statements. F-30
Alliance Growth & Income Alliance Premier Growth Alliance Technology Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 11,419 $ 27,692 $ 3,229 $ -- $ -- $ -- $ -- $ -- $ 782 7,030 4,105 1,034 257 274 104 181 96 121 -------- --------- ------- ------- -------- ------ ------- ------- -------- 4,389 23,587 2,195 (257) (274) (104) (181) (96) 661 -------- --------- ------- ------- -------- ------ ------- ------- -------- (27,592) (18,278) (318) (661) (9,853) (138) (931) (519) (19,763) 441,306 (137,057) 24,267 11,616 (12,480) 1,299 13,613 (9,033) (2,681) -------- --------- ------- ------- -------- ------ ------- ------- -------- 413,714 (155,335) 23,949 10,955 (22,333) 1,161 12,682 (9,552) (22,444) -------- --------- ------- ------- -------- ------ ------- ------- -------- $418,103 $(131,748) $26,144 $10,698 $(22,607) $1,057 $12,501 $(9,648) $(21,783) ======== ========= ======= ======= ======== ====== ======= ======= ========
F-31 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Fidelity Contrafund Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 830 $ 187 $ -- Expenses: Mortality and expense charges................................ 3,285 1,113 57 -------- -------- ----- Net investment (loss) income................................... (2,455) (926) (57) -------- -------- ----- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from security transactions......... 6,303 (348) (27) Change in unrealized appreciation (depreciation) of investments 139,867 (29,437) (253) -------- -------- ----- Net realized and unrealized gains (losses) on investments...... 146,170 (29,785) (280) -------- -------- ----- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $143,715 $(30,711) $(337) ======== ======== =====
See Notes to Financial Statements. F-32
Fidelity Asset Manager Growth Fidelity Growth American Funds Growth Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- --------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Period Ended Ended Ended Ended Ended Ended Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ -------------- $ 8,346 $ 3,640 $ -- $ 174 $ 132 $ -- $ 22,917 $ 3,067 $ 134,864 1,598 623 233 1,005 649 243 141,220 59,610 6,807 ------- -------- ------- ------- -------- ------- ---------- ----------- --------- 6,748 3,017 (233) (831) (517) (243) (118,303) (56,543) 128,057 ------- -------- ------- ------- -------- ------- ---------- ----------- --------- (4,335) (5,591) 113 (2,588) (8,400) (3,407) (100,817) (49,022) (95,342) 59,143 (19,964) (1,597) 63,146 (40,968) (3,078) 5,264,250 (1,636,890) (17,189) ------- -------- ------- ------- -------- ------- ---------- ----------- --------- 54,808 (25,555) (1,484) 60,558 (49,368) (6,485) 5,163,433 (1,685,912) (112,531) ------- -------- ------- ------- -------- ------- ---------- ----------- --------- $61,556 $(22,538) $(1,717) $59,727 $(49,885) $(6,728) $5,045,130 $(1,742,455) $ 15,526 ======= ======== ======= ======= ======== ======= ========== =========== =========
F-33 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
American Funds Growth-Income Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 170,202 $ 83,225 $ 20,236 Expenses: Mortality and expense charges................................ 112,608 48,157 5,104 ---------- ----------- -------- Net investment (loss) income................................... 57,594 35,068 15,132 ---------- ----------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from security transactions......... (26,406) (51,319) (13,398) Change in unrealized appreciation (depreciation) of investments 3,852,340 (1,122,854) 55,397 ---------- ----------- -------- Net realized and unrealized gains (losses) on investments...... 3,825,934 (1,174,173) 41,999 ---------- ----------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,883,528 $(1,139,105) $ 57,131 ========== =========== ========
See Notes to Financial Statements. F-34
American Funds Global Small Cap JPM Enhanced Index T. Rowe Price Mid Cap Growth Investment Division Investment Division Investment Division - --------------------------------------- ------------------------------------- --------------------------------------- For the Year For the Year For the Period For the Year For the Year For the Year For the Year For the Year For the Period Ended Ended May 1, 2001 to Ended Ended Ended Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------ -------------- $ 19,214 $ 10,794 $ 7,147 $ 163 $ 117 $ -- $ -- $ 7,906 $ -- 27,847 12,245 1,216 16 39 13 17,818 6,944 940 ---------- --------- -------- ------- ------- ----- -------- --------- ------- (8,633) (1,451) 5,931 147 78 (13) (17,818) 962 (940) ---------- --------- -------- ------- ------- ----- -------- --------- ------- (33,362) 35,746 (18,714) (1,554) (1,186) (25) (46,026) (55,314) (1,372) 1,513,502 (396,292) 46,579 1,806 (1,483) (320) 776,010 (378,709) 11,239 ---------- --------- -------- ------- ------- ----- -------- --------- ------- 1,480,140 (360,546) 27,865 252 (2,669) (345) 729,984 (434,023) 9,867 ---------- --------- -------- ------- ------- ----- -------- --------- ------- $1,471,507 $(361,997) $ 33,796 $ 399 $(2,591) $(358) $712,166 $(433,061) $ 8,927 ========== ========= ======== ======= ======= ===== ======== ========= =======
F-35 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
MFS Research International Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 10,739 $ 1,203 $ 174 Expenses: Mortality and expense charges................................ 7,953 3,324 525 -------- -------- ------- Net investment (loss) income................................... 2,786 (2,121) (351) -------- -------- ------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from security transactions......... 148,987 (66,559) (4,107) Change in unrealized appreciation (depreciation) of investments 191,049 (2,664) 1,444 -------- -------- ------- Net realized and unrealized gains (losses) on investments...... 340,036 (69,223) (2,663) -------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $342,822 $(71,344) $(3,014) ======== ======== =======
See Notes to Financial Statements. F-36
PIMCO Total Return PIMCO Innovation Lord Abbett Bond Debenture Investment Division Investment Division Investment Division - --------------------------------------- --------------------------------------- ------------------------------------- For the Year For the Year For the Period For the Year For the Year For the Period For the Year For the Year For the Year Ended Ended May 1, 2001 to Ended Ended May 1, 2001 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ -------------- ------------ ------------ -------------- ------------ ------------ ------------ $255,223 $ -- $ 26,164 $ -- $ -- $ -- $ 190,964 $ 996,547 $ 923,897 79,517 28,120 2,322 21,608 9,521 1,528 81,381 71,674 64,809 -------- -------- -------- ---------- --------- ------- ---------- ----------- ----------- 175,706 (28,120) 23,842 (21,608) (9,521) (1,528) 109,583 924,873 859,088 -------- -------- -------- ---------- --------- ------- ---------- ----------- ----------- 175,963 60,373 1,564 (195,867) (111,879) (9,873) 198,834 (1,886,218) (134,223) (25,434) 270,736 (14,155) 1,260,206 (652,366) 4,179 1,391,673 949,375 (902,997) -------- -------- -------- ---------- --------- ------- ---------- ----------- ----------- 150,529 331,109 (12,591) 1,064,339 (764,245) (5,694) 1,590,507 (936,843) (1,037,220) -------- -------- -------- ---------- --------- ------- ---------- ----------- ----------- $326,235 $302,989 $ 11,251 $1,042,731 $(773,766) $(7,222) $1,700,090 $ (11,970) $ (178,132) ======== ======== ======== ========== ========= ======= ========== =========== ===========
F-37 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF OPERATIONS
Met/AIM Mid Cap Core Equity Met/AIM Small Cap Growth Investment Division Investment Division -------------------------- -------------------------- For the Year For the Period For the Year For the Period Ended May 1, 2002 to Ended May 1, 2002 to December 31, December 31, December 31, December 31, 2003 2002 2003 2002 ------------ -------------- ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 8,411 $ 291 $ -- $ -- Expenses: Mortality and expense charges................................ 4,773 638 2,947 281 -------- ------- -------- ------- Net investment (loss) income................................... 3,638 (347) (2,947) (281) -------- ------- -------- ------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) from security transactions......... 6,414 (1,242) 66,977 (593) Change in unrealized appreciation (depreciation) of investments 140,733 (6,351) 51,242 (4,322) -------- ------- -------- ------- Net realized and unrealized gains (losses) on investments...... 147,147 (7,593) 118,219 (4,915) -------- ------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $150,785 $(7,940) $115,272 $(5,196) ======== ======= ======== =======
See Notes to Financial Statements. F-38
Harris Oakmark International Janus Aggressive Growth Lord Abbett Growth & Income Investment Division Investment Division Investment Division - -------------------------- --------------------------------------- -------------------------------- For the Year For the Period For the Year For the Year For the Period For the Year For the Period Ended May 1, 2002 to Ended Ended May 1, 2001 to Ended October 31, 2002 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2003 2002 2001 2003 2002 - ------------ -------------- ------------ ------------ -------------- ------------ ------------------- $ 8,848 $ 210 $ -- $ -- $ -- $ -- $-- 2,473 298 25,657 13,374 2,780 47 -- -------- ------- ---------- --------- -------- ------ --- 6,375 (88) (25,657) (13,374) (2,780) (47) -- -------- ------- ---------- --------- -------- ------ --- 72,432 (843) (313,967) (78,401) (43,356) 20 -- 49,401 (2,920) 1,123,504 (426,893) (11,854) 3,750 -- -------- ------- ---------- --------- -------- ------ --- 121,833 (3,763) 809,537 (505,294) (55,210) 3,770 -- -------- ------- ---------- --------- -------- ------ --- $128,208 $(3,851) $ 783,880 $(518,668) $(57,990) $3,723 $-- ======== ======= ========== ========= ======== ====== ===
F-39 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Investment Trust Investment Division ----------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (68,204) $ (969,448) $ 48,301,051 Net realized (losses) gains from security transactions..................... (6,958,914) (6,132,437) 731,187 Change in unrealized appreciation (depreciation) of investments............ 88,855,777 (90,883,953) (122,469,738) ------------ ------------ ------------- Net increase (decrease) in net assets resulting from operations............ 81,828,659 (97,985,838) (73,437,500) ------------ ------------ ------------- From capital transactions: Net premiums............................................................... 67,707,999 78,160,135 80,046,712 Redemptions................................................................ (15,137,546) (10,399,853) (15,513,042) Net Investment Division transfers.......................................... (7,863,696) (11,186,400) 2,751,095 Other net transfers........................................................ (36,428,084) (38,309,389) (40,534,492) ------------ ------------ ------------- Net increase (decrease) in net assets resulting from capital transactions.. 8,278,673 18,264,493 26,750,273 ------------ ------------ ------------- NET CHANGE IN NET ASSETS...................................................... 90,107,332 (79,721,345) (46,687,227) NET ASSETS--BEGINNING OF PERIOD............................................... 276,979,969 356,701,314 403,388,541 ------------ ------------ ------------- NET ASSETS--END OF PERIOD..................................................... $367,087,301 $276,979,969 $ 356,701,314 ============ ============ =============
See Notes to Financial Statements. F-40
State Street Research Diversified State Street Research Aggressive Growth MetLife Stock Index Investment Division Investment Division Investment Division - ---------------------------------------- ---------------------------------------- ---------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 7,511,522 $ 3,558,999 $ 23,184,244 $ (1,367,678) $ (1,263,240) $ 45,283,589 $ 3,387,558 $ 2,705,145 $ 1,213,073 (2,593,687) (1,810,936) (111,095) (8,202,841) (5,953,657) (1,536,972) (10,060,006) (5,045,284) 4,130,927 42,182,763 (41,694,719) (42,080,714) 62,199,697 (44,703,891) (94,895,107) 101,361,307 (82,559,071) (48,985,481) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 47,100,598 (39,946,656) (19,007,565) 52,629,178 (51,920,788) (51,148,490) 94,688,859 (84,899,210) (43,641,481) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 52,190,961 54,194,120 55,767,097 34,182,901 40,003,786 42,942,155 108,236,751 114,022,950 113,949,042 (14,264,879) (9,523,000) (8,333,720) (7,318,523) (4,831,140) (6,486,474) (14,265,812) (13,779,170) (11,030,629) (2,178,352) (383,162) 8,413,016 (5,104,646) (6,485,783) 1,097,789 (11,228,029) 11,797,286 19,393,554 (31,835,294) (32,044,615) (31,250,185) (17,936,155) (17,642,321) (19,697,556) (46,545,385) (47,844,806) (45,631,351) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3,912,436 12,243,343 24,596,208 3,823,577 11,044,542 17,855,914 36,197,525 64,196,260 76,680,616 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 51,013,034 (27,703,313) 5,588,643 56,452,755 (40,876,246) (33,292,576) 130,886,384 (20,702,950) 33,039,135 238,020,353 265,723,666 260,135,023 130,815,618 171,691,864 204,984,440 326,227,963 346,930,913 313,891,778 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $289,033,387 $238,020,353 $265,723,666 $187,268,373 $130,815,618 $171,691,864 $457,114,347 $326,227,963 $346,930,913 ============ ============ ============ ============ ============ ============ ============ ============ ============
F-41 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
FI International Stock Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (54,694) $ 18,744 $ 1,172,876 Net realized (losses) gains from security transactions..................... (1,630,864) (2,655,399) (1,661,736) Change in unrealized appreciation (depreciation) of investments............ 10,924,390 (4,418,288) (9,202,287) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 9,238,832 (7,054,943) (9,691,147) ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 7,903,805 9,783,594 9,615,907 Redemptions................................................................ (1,780,012) (1,287,021) (1,289,983) Net Investment Division transfers.......................................... (552,252) (2,781,604) 323,092 Other net transfers........................................................ (3,792,182) (3,974,969) (4,148,436) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 1,779,359 1,740,000 4,500,580 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... 11,018,191 (5,314,943) (5,190,567) NET ASSETS--BEGINNING OF PERIOD............................................... 32,966,098 38,281,041 43,471,608 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $43,984,289 $32,966,098 $38,281,041 =========== =========== ===========
See Notes to Financial Statements. F-42
Janus Mid Cap T. Rowe Price Small Cap Growth Scudder Global Equity Investment Division Investment Division Investment Division - ---------------------------------------- -------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (1,297,757) $ (1,013,088) $ (1,037,631) $ (402,320) $ (332,098) $ 3,209,549 $ 311,502 $ 181,688 $ 2,155,251 (1,145,184) (5,163,698) (2,451,549) (309,653) (297,872) (796,014) (1,005,776) (466,029) (71,082) 46,019,342 (34,449,605) (53,291,667) 17,635,578 (12,423,975) (6,595,361) 7,242,152 (3,445,540) (5,825,339) - ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- 43,576,401 (40,626,391) (56,780,847) 16,923,605 (13,053,945) (4,181,826) 6,547,878 (3,729,881) (3,741,170) - ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- 53,673,455 64,528,237 74,363,749 12,384,395 14,332,234 15,023,523 6,014,790 7,029,500 7,562,752 (5,340,392) (2,804,544) (3,144,623) (1,578,439) (1,348,311) (2,577,320) (1,735,572) (936,418) (630,613) (5,185,372) (5,298,371) 3,860,189 (197,295) 753,895 (372,409) (125,590) (322,915) 603,395 (21,665,579) (21,964,497) (23,970,747) (5,569,189) (5,463,573) (5,350,422) (2,481,721) (2,670,700) (2,572,779) - ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- 21,482,112 34,460,825 51,108,568 5,039,472 8,274,245 6,723,372 1,671,907 3,099,467 4,962,755 - ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- 65,058,513 (6,165,566) (5,672,279) 21,963,077 (4,779,700) 2,541,546 8,219,785 (630,414) 1,221,585 119,019,575 125,185,141 130,857,420 39,880,088 44,659,788 42,118,242 20,475,933 21,106,347 19,884,762 - ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- ----------- $184,078,088 $119,019,575 $125,185,141 $61,843,165 $ 39,880,088 $44,659,788 $28,695,718 $20,475,933 $21,106,347 ============ ============ ============ =========== ============ =========== =========== =========== ===========
F-43 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Harris Oakmark Large Cap Value Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (252,368) $ 438,284 $ (56,512) Net realized (losses) gains from security transactions..................... 38,696 173,172 94,596 Change in unrealized appreciation (depreciation) of investments............ 6,986,213 (3,824,797) 810,284 ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 6,772,541 (3,213,341) 848,368 ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 11,430,624 10,115,432 4,073,390 Redemptions................................................................ (991,704) (287,586) (268,807) Net Investment Division transfers.......................................... 1,835,698 6,291,525 9,043,603 Other net transfers........................................................ (4,616,084) (4,169,815) (1,466,228) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 7,658,534 11,949,556 11,381,958 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... 14,431,075 8,736,215 12,230,326 NET ASSETS--BEGINNING OF PERIOD............................................... 23,072,554 14,336,339 2,106,013 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $37,503,629 $23,072,554 $14,336,339 =========== =========== ===========
See Notes to Financial Statements. F-44
Neuberger Berman Partners Mid Cap Value T. Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (118,988) $ (89,469) $ 106,521 $ (180,062) $ (106,090) $ (94,779) $ 2,506,200 $ 982,861 $ 212,243 28,084 105,666 (68,863) (489,389) (317,124) (100,488) 1,152,171 515,268 210,509 7,656,793 (1,888,036) (195,526) 7,871,800 (5,333,848) (92,461) (2,185,014) 2,760,523 1,053,501 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 7,565,889 (1,871,839) (157,868) 7,202,349 (5,757,062) (287,728) 1,473,357 4,258,652 1,476,253 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 8,682,614 8,172,686 5,746,048 8,620,553 9,447,412 8,996,035 13,565,785 10,479,062 8,533,067 (629,059) (1,215,338) (57,006) (982,056) (125,856) (60,227) (1,812,183) (1,839,866) (1,024,276) 650,401 2,321,678 4,766,372 (78,277) 873,833 8,736,398 (6,698,353) 8,318,943 11,244,179 (3,610,116) (3,236,171) (2,321,908) (3,337,120) (3,453,967) (3,536,498) (5,580,587) (4,492,832) (2,262,688) - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 5,093,840 6,042,855 8,133,506 4,223,100 6,741,422 14,135,708 (525,338) 12,465,307 16,490,282 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 12,659,729 4,171,016 7,975,638 11,425,449 984,360 13,847,980 948,019 16,723,959 17,966,535 18,285,822 14,114,806 6,139,168 22,094,885 21,110,525 7,262,545 54,046,288 37,322,329 19,355,794 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $30,945,551 $18,285,822 $14,114,806 $33,520,334 $22,094,885 $21,110,525 $54,994,307 $54,046,288 $37,322,329 =========== =========== =========== =========== =========== =========== =========== =========== ===========
F-45 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Morgan Stanley EAFE Index Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 121,982 $ (64,128) $ (37,840) Net realized (losses) gains from security transactions..................... (497,564) (800,822) (961,834) Change in unrealized appreciation (depreciation) of investments............ 6,516,826 (1,274,363) (729,479) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 6,141,244 (2,139,313) (1,729,153) ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 7,425,875 6,625,665 4,890,376 Redemptions................................................................ (362,211) (1,101,621) (722,285) Net Investment Division transfers.......................................... 438,708 1,672,217 4,395,203 Other net transfers........................................................ (2,849,511) (2,360,586) (1,819,787) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 4,652,861 4,835,675 6,743,507 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... 10,794,105 2,696,362 5,014,354 NET ASSETS--BEGINNING OF PERIOD............................................... 13,496,072 10,799,710 5,785,356 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $24,290,177 $13,496,072 $10,799,710 =========== =========== ===========
See Notes to Financial Statements. F-46
Russell 2000 Index Met/Putnam Voyager State Street Research Aurora Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (29,213) $ (29,731) $ (47,654) $ (58,697) $ (39,278) $ (22,732) $ (336,756) $ (97,874) $ (51,026) (125,595) (343,069) (1,016,179) (624,452) (304,226) (113,353) 196,537 81,843 155,882 7,938,110 (2,545,881) 1,215,383 2,271,140 (1,227,374) (585,114) 17,391,943 (6,958,922) 1,218,805 - ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- 7,783,302 (2,918,681) 151,550 1,587,991 (1,570,878) (721,199) 17,251,724 (6,974,953) 1,323,661 - ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- 7,659,016 7,082,371 5,343,692 3,213,111 3,461,165 2,425,615 16,618,731 15,376,489 7,040,736 (486,878) (266,570) (375,673) (93,468) (27,865) (23,841) (920,139) (302,359) (81,569) 991,151 2,834,125 1,811,235 (151,453) 548,678 2,239,800 1,566,557 6,843,668 11,247,758 (3,048,846) (2,527,437) (2,007,235) (1,158,137) (1,159,060) (878,209) (7,037,769) (5,887,521) (2,656,308) - ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- 5,114,443 7,122,489 4,772,019 1,810,053 2,822,918 3,763,365 10,227,380 16,030,277 15,550,617 - ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- 12,897,745 4,203,808 4,923,569 3,398,044 1,252,040 3,042,166 27,479,104 9,055,324 16,874,278 14,828,534 10,624,726 5,701,157 5,252,713 4,000,673 958,507 29,060,558 20,005,234 3,130,956 - ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- $27,726,279 $14,828,534 $10,624,726 $ 8,650,757 $ 5,252,713 $4,000,673 $56,539,662 $29,060,558 $20,005,234 =========== =========== =========== =========== =========== ========== =========== =========== ===========
F-47 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
MetLife Mid Cap Stock Index Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (64,163) $ (55,361) $ (18,724) Net realized (losses) gains from security transactions..................... 12,063 (23,095) (19,531) Change in unrealized appreciation (depreciation) of investments............ 6,538,587 (2,089,536) 294,328 ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 6,486,487 (2,167,992) 256,073 ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 8,658,518 7,438,484 4,147,919 Redemptions................................................................ (315,294) (109,971) (16,900) Net Investment Division transfers.......................................... 960,729 4,006,261 4,052,437 Other net transfers........................................................ (3,433,510) (2,617,681) (1,566,864) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 5,870,443 8,717,093 6,616,592 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... 12,356,930 6,549,101 6,872,665 NET ASSETS--BEGINNING OF PERIOD............................................... 15,567,957 9,018,856 2,146,191 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $27,924,887 $15,567,957 $ 9,018,856 =========== =========== ===========
See Notes to Financial Statements. F-48
State Street Research Franklin Templeton Small Cap Growth Large Cap Value Davis Venture Value Investment Division Investment Division Investment Division - --------------------------------------- -------------------------- ------------------------------------- For the Year For the Year For the Period For the Year For the Period For the Year For the Year For the Year Ended Ended May 1, 2001 to Ended May 1, 2002 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2003 2002 2001 - ------------ ------------ -------------- ------------ -------------- ------------ ------------ ------------ $ (16,641) $ (8,397) $ (1,124) $ 4,590 $ 433 $ (75,683) $ 750 $ 153,188 (19,016) (42,766) (3,651) 41,938 (3,284) (213,900) (188,804) (46,987) 796,643 (271,373) 16,066 156,144 (3,178) 5,610,390 (2,083,879) (437,523) ---------- ---------- -------- ---------- -------- ----------- ----------- ----------- 760,986 (322,536) 11,291 202,672 (6,029) 5,320,807 (2,271,933) (331,322) ---------- ---------- -------- ---------- -------- ----------- ----------- ----------- 844,482 626,488 107,629 405,361 64,977 6,492,659 5,157,409 3,338,434 (27,310) (5,592) (802) (5,862) (313) (286,620) (86,825) (44,938) 610,392 745,849 369,945 469,287 153,138 2,147,532 5,300,022 4,710,785 (416,036) (235,608) (30,931) (149,915) (23,188) (2,675,075) (2,166,021) (1,312,198) ---------- ---------- -------- ---------- -------- ----------- ----------- ----------- 1,011,528 1,131,137 445,841 718,871 194,614 5,678,496 8,204,585 6,692,083 ---------- ---------- -------- ---------- -------- ----------- ----------- ----------- 1,772,514 808,601 457,132 921,543 188,585 10,999,303 5,932,652 6,360,761 1,265,733 457,132 -- 188,585 -- 13,430,192 7,497,540 1,136,779 ---------- ---------- -------- ---------- -------- ----------- ----------- ----------- $3,038,247 $1,265,733 $457,132 $1,110,128 $188,585 $24,429,495 $13,430,192 $ 7,497,540 ========== ========== ======== ========== ======== =========== =========== ===========
F-49 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Loomis Sayles Small Cap Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (28,298) $ (16,142) $ 75,074 Net realized (losses) gains from security transactions..................... (88,636) (106,829) (35,645) Change in unrealized appreciation (depreciation) of investments............ 1,169,772 (414,868) (62,611) ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 1,052,838 (537,839) (23,182) ---------- ---------- ---------- From capital transactions: Net premiums............................................................... 1,387,309 1,200,038 909,510 Redemptions................................................................ (49,105) (11,815) (7,864) Net Investment Division transfers.......................................... 159,941 268,407 960,425 Other net transfers........................................................ (536,437) (436,811) (356,458) ---------- ---------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 961,708 1,019,819 1,505,613 ---------- ---------- ---------- NET CHANGE IN NET ASSETS...................................................... 2,014,546 481,980 1,482,431 NET ASSETS--BEGINNING OF PERIOD............................................... 2,408,393 1,926,413 443,982 ---------- ---------- ---------- NET ASSETS--END OF PERIOD..................................................... $4,422,939 $2,408,393 $1,926,413 ========== ========== ==========
See Notes to Financial Statements. F-50
Alger Equity Growth MFS Investors Trust MFS Research Managers Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (23,728) $ (13,698) $ (121) $ (7,711) $ (2,715) $ (1,179) $ (873) $ (2,427) $ (363) (63,998) (57,097) (175) 13,432 (71,866) (5,896) (4,462) (30,794) 1,304 1,339,908 (983,355) (5,126) 221,187 (78,498) 4,527 112,414 (58,814) (346) ---------- ----------- ------- ---------- --------- --------- -------- --------- --------- 1,252,182 (1,054,150) (5,422) 226,908 (153,079) (2,548) 107,079 (92,035) 595 ---------- ----------- ------- ---------- --------- --------- -------- --------- --------- 1,035,783 40,283 -- 701,861 657,381 122,835 278,607 256,687 72,571 -- -- -- (14,052) (4,428) (1,444) (4,854) (250) (3,984) 359 4,290,312 52,468 164,766 480,329 486,210 57,895 151,712 231,621 (337,622) (338,952) (1,809) (229,330) (608,417) (282,946) (84,526) (153,237) (149,340) ---------- ----------- ------- ---------- --------- --------- -------- --------- --------- 698,520 3,991,643 50,659 623,245 524,865 324,655 247,122 254,912 150,868 ---------- ----------- ------- ---------- --------- --------- -------- --------- --------- 1,950,702 2,937,493 45,237 850,153 371,786 322,107 354,201 162,877 151,463 2,982,730 45,237 -- 693,893 322,107 -- 314,340 151,463 -- ---------- ----------- ------- ---------- --------- --------- -------- --------- --------- $4,933,432 $ 2,982,730 $45,237 $1,544,046 $ 693,893 $ 322,107 $668,541 $ 314,340 $ 151,463 ========== =========== ======= ========== ========= ========= ======== ========= =========
F-51 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
State Street Research Bond Income Investment Division -------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 2,183,489 $ 4,278,595 $ 5,095,599 Net realized (losses) gains from security transactions..................... 880,712 (378,655) 400,025 Change in unrealized appreciation (depreciation) of investments............ 1,572,001 2,444,438 (137,736) ----------- ----------- ------------ Net increase (decrease) in net assets resulting from operations............ 4,636,202 6,344,378 5,357,888 ----------- ----------- ------------ From capital transactions: Net premiums............................................................... 16,159,717 18,007,464 14,237,318 Redemptions................................................................ (4,549,369) (3,078,401) (3,623,665) Net Investment Division transfers.......................................... (3,340,166) 1,121,089 3,289,281 Other net transfers........................................................ (9,344,726) (8,719,726) (15,760,945) ----------- ----------- ------------ Net increase (decrease) in net assets resulting from capital transactions.. (1,074,544) 7,330,426 (1,858,011) ----------- ----------- ------------ NET CHANGE IN NET ASSETS...................................................... 3,561,658 13,674,804 3,499,877 NET ASSETS--BEGINNING OF PERIOD............................................... 93,157,932 79,483,128 75,983,251 ----------- ----------- ------------ NET ASSETS--END OF PERIOD..................................................... $96,719,590 $93,157,932 $ 79,483,128 =========== =========== ============
See Notes to Financial Statements. F-52
Salomon Brothers FI Structured Equity Harris Oakmark Focused Value Strategic Bond Opportunities Investment Division Investment Division Investment Division - ------------------------------------- --------------------------------------- --------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Period For the Year For the Year For the Period Ended Ended Ended Ended Ended May 1, 2001 to Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ -------------- $ (808) $ 70 $ (69) $ (127,312) $ (63,671) $ (9,775) $ 33,102 $ 72,727 $ (894) 24,426 (9,596) (77) 31,214 (9,588) (43) 97,650 241 117 58,141 (4,285) (2,467) 5,537,632 (938,481) 279,801 233,146 62,351 4,621 -------- -------- ------- ----------- ----------- ---------- ---------- ---------- -------- 81,759 (13,811) (2,613) 5,441,534 (1,011,740) 269,983 363,898 135,319 3,844 -------- -------- ------- ----------- ----------- ---------- ---------- ---------- -------- 167,405 51,077 -- 8,198,287 6,333,512 999,657 1,996,763 890,271 97,914 (10,046) -- -- (450,269) (161,171) (7,188) (108,331) (17,732) (566) 229,644 41,277 28,886 3,144,705 5,880,885 3,223,723 1,486,748 1,049,918 396,753 (56,377) (10,863) (1,055) (3,347,152) (2,377,498) (271,630) (749,672) (348,947) (33,111) -------- -------- ------- ----------- ----------- ---------- ---------- ---------- -------- 330,626 81,491 27,831 7,545,571 9,675,728 3,944,562 2,625,508 1,573,510 460,990 -------- -------- ------- ----------- ----------- ---------- ---------- ---------- -------- 412,385 67,680 25,218 12,987,105 8,663,988 4,214,545 2,989,406 1,708,829 464,834 92,898 25,218 -- 12,878,533 4,214,545 -- 2,173,663 464,834 -- -------- -------- ------- ----------- ----------- ---------- ---------- ---------- -------- $505,283 $ 92,898 $25,218 $25,865,638 $12,878,533 $4,214,545 $5,163,069 $2,173,663 $464,834 ======== ======== ======= =========== =========== ========== ========== ========== ========
F-53 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Salomon Brothers U.S. Government Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 42,617 $ 71,569 $ (1,841) Net realized (losses) gains from security transactions..................... 48,098 10,225 5,065 Change in unrealized appreciation (depreciation) of investments............ (40,677) 83,661 (2,273) ----------- ---------- -------- Net increase (decrease) in net assets resulting from operations............ 50,038 165,455 951 ----------- ---------- -------- From capital transactions: Net premiums............................................................... 3,454,837 1,641,232 162,934 Redemptions................................................................ (137,457) (35,283) (10,909) Net Investment Division transfers.......................................... 916,767 2,382,469 755,686 Other net transfers........................................................ (1,344,693) (637,762) (59,363) ----------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 2,889,454 3,350,656 848,348 ----------- ---------- -------- NET CHANGE IN NET ASSETS...................................................... 2,939,492 3,516,111 849,299 NET ASSETS--BEGINNING OF PERIOD............................................... 4,365,410 849,299 -- ----------- ---------- -------- NET ASSETS--END OF PERIOD..................................................... $ 7,304,902 $4,365,410 $849,299 =========== ========== ========
See Notes to Financial Statements. F-54
State Street Research Money Market FI Mid Cap Opportunities Janus Aspen Growth Investment Division Investment Division Investment Division - -------------------------------------- -------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Period For the Year For the Year For the Year Ended Ended Ended Ended May 1, 2002 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2003 2002 2001 - ------------ ------------ ------------ ------------ -------------- ------------ ------------ ------------ $ 47,144 $ 259,328 $ 918,529 $ 9,838 $ (333) $ (10,283) $ (9,370) $ 185,366 (1) (628,588) (499,341) 19,777 (1,950) (263,013) (179,152) (1,848,663) 1 611,711 796,577 191,546 3,758 1,041,007 (329,490) 498,521 - ----------- ------------ ----------- ---------- -------- ---------- ---------- ----------- 47,144 242,451 1,215,765 221,161 1,475 767,711 (518,012) (1,164,776) - ----------- ------------ ----------- ---------- -------- ---------- ---------- ----------- 4,560,820 25,769,284 17,936,134 324,317 49,033 839,829 913,602 779,753 (1,186,158) (4,958,930) (1,689,474) (43,946) (19) (88,894) (13,590) (2,741,484) (4,975,125) (33,048,287) (4,603,225) 537,734 149,230 (5,665) 34,319 254,486 (1,910,867) 10,079,748 (1,666,768) (95,364) (31,850) (176,510) (211,649) (189,372) - ----------- ------------ ----------- ---------- -------- ---------- ---------- ----------- (3,511,330) (2,158,185) 9,976,667 722,741 166,394 568,760 722,682 (1,896,617) - ----------- ------------ ----------- ---------- -------- ---------- ---------- ----------- (3,464,186) (1,915,734) 11,192,432 943,902 167,869 1,336,471 204,670 (3,061,393) 30,810,613 32,726,347 21,533,915 167,869 -- 2,163,422 1,958,752 5,020,145 - ----------- ------------ ----------- ---------- -------- ---------- ---------- ----------- $27,346,427 $ 30,810,613 $32,726,347 $1,111,771 $167,869 $3,499,893 $2,163,422 $ 1,958,752 =========== ============ =========== ========== ======== ========== ========== ===========
F-55 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Invesco VIF High Yield Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 43,235 $ 48,408 $ 29,172 Net realized (losses) gains from security transactions..................... (5,183) (31,480) (3,798) Change in unrealized appreciation (depreciation) of investments............ 90,384 (7,350) (33,395) -------- -------- -------- Net increase (decrease) in net assets resulting from operations............ 128,436 9,578 (8,021) -------- -------- -------- From capital transactions: Net premiums............................................................... 232,669 216,788 213,527 Redemptions................................................................ (6,154) -- -- Net Investment Division transfers.......................................... 11,139 2,473 71,476 Other net transfers........................................................ (37,616) (27,503) (13,506) -------- -------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 200,038 191,758 271,497 -------- -------- -------- NET CHANGE IN NET ASSETS...................................................... 328,474 201,336 263,476 NET ASSETS--BEGINNING OF PERIOD............................................... 475,634 274,298 10,822 -------- -------- -------- NET ASSETS--END OF PERIOD..................................................... $804,108 $475,634 $274,298 ======== ======== ========
See Notes to Financial Statements. F-56
Invesco VIF Equity Income Invesco VIF Real Estate Opportunity Franklin Templeton International Stock Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 1,289 $ 1,519 $ 1,475 $ 1,726 $ (248) $ 652 $ 34,446 $ 31,411 $ 197,836 (4,599) (7,425) (1,414) 7,645 12,032 1,271 (71,786) (325,690) (18,952) 30,971 (21,641) (4,995) 41,591 3,016 (3,692) 947,139 (187,267) (287,060) -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- 27,661 (27,547) (4,934) 50,962 14,800 (1,769) 909,799 (481,546) (108,176) -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- 44,937 30,604 5,886 20,763 9,629 3,478 571,285 937,164 461,547 (13,395) -- (780) (74,780) -- -- (219,304) (90,063) (236,261) 6,492 7,548 112,018 8,373 64,182 (24,700) 342,850 643,475 589,847 (6,352) (8,020) (3,589) (5,943) 1,520 (2,641) (163,132) (163,651) (39,531) -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- 31,682 30,132 113,535 (51,587) 75,331 (23,863) 531,699 1,326,925 775,602 -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- 59,343 2,585 108,601 (625) 90,131 (25,632) 1,441,498 845,379 667,426 125,063 122,478 13,877 179,233 89,102 114,734 2,612,034 1,766,655 1,099,229 -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- $184,406 $125,063 $122,478 $178,608 $179,233 $ 89,102 $4,053,532 $2,612,034 $1,766,655 ======== ======== ======== ======== ======== ======== ========== ========== ==========
F-57 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Franklin Templeton Valuemark Small Cap Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (6,613) $ (1,274) $ (121) Net realized (losses) gains from security transactions..................... (16,606) (49,638) (480) Change in unrealized appreciation (depreciation) of investments............ 366,174 (184,311) 4,364 ---------- --------- -------- Net increase (decrease) in net assets resulting from operations............ 342,955 (235,223) 3,763 ---------- --------- -------- From capital transactions: Net premiums............................................................... 258,012 40,174 32,699 Redemptions................................................................ -- -- -- Net Investment Division transfers.......................................... 30,689 995,374 69,587 Other net transfers........................................................ (86,982) (102,364) (3,042) ---------- --------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 201,719 933,184 99,244 ---------- --------- -------- NET CHANGE IN NET ASSETS...................................................... 544,674 697,961 103,007 NET ASSETS--BEGINNING OF PERIOD............................................... 800,968 103,007 -- ---------- --------- -------- NET ASSETS--END OF PERIOD..................................................... $1,345,642 $ 800,968 $103,007 ========== ========= ========
See Notes to Financial Statements. F-58
Alliance Growth & Income Alliance Premier Growth Alliance Technology Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 4,389 $ 23,587 $ 2,195 $ (257) $ (274) $ (104) $ (181) $ (96) $ 661 (27,592) (18,278) (318) (661) (9,853) (138) (931) (519) (19,763) 441,306 (137,057) 24,267 11,616 (12,480) 1,299 13,613 (9,033) (2,681) ---------- ---------- -------- ------- -------- ------- ------- ------- -------- 418,103 (131,748) 26,144 10,698 (22,607) 1,057 12,501 (9,648) (21,783) ---------- ---------- -------- ------- -------- ------- ------- ------- -------- 581,532 560,351 422,139 29,785 29,958 -- 15,245 17,162 463 (87,076) (14,526) -- -- -- -- (316) -- -- 41,687 192,482 160,474 3,688 (60,622) 97,128 727 -- 36,082 (82,296) (71,035) (11,019) (2,341) (2,820) 133 (792) (1,833) (2,213) ---------- ---------- -------- ------- -------- ------- ------- ------- -------- 453,847 667,272 571,594 31,132 (33,484) 97,261 14,864 15,329 34,332 ---------- ---------- -------- ------- -------- ------- ------- ------- -------- 871,950 535,524 597,738 41,830 (56,091) 98,318 27,365 5,681 12,549 1,191,135 655,611 57,873 42,227 98,318 -- 18,230 12,549 -- ---------- ---------- -------- ------- -------- ------- ------- ------- -------- $2,063,085 $1,191,135 $655,611 $84,057 $ 42,227 $98,318 $45,595 $18,230 $ 12,549 ========== ========== ======== ======= ======== ======= ======= ======= ========
F-59 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Fidelity Contrafund Investment Division ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (2,455) $ (926) $ (57) Net realized (losses) gains from security transactions..................... 6,303 (348) (27) Change in unrealized appreciation (depreciation) of investments............ 139,867 (29,437) (253) --------- -------- ------- Net increase (decrease) in net assets resulting from operations............ 143,715 (30,711) (337) --------- -------- ------- From capital transactions: Net premiums............................................................... 53,210 22,932 3,356 Redemptions................................................................ (213,750) -- -- Net Investment Division transfers.......................................... 657,697 237,002 21,462 Other net transfers........................................................ 3,584 (3,862) (621) --------- -------- ------- Net increase (decrease) in net assets resulting from capital transactions.. 500,741 256,072 24,197 --------- -------- ------- NET CHANGE IN NET ASSETS...................................................... 644,456 225,361 23,860 NET ASSETS--BEGINNING OF PERIOD............................................... 249,221 23,860 -- --------- -------- ------- NET ASSETS--END OF PERIOD..................................................... $ 893,677 $249,221 $23,860 ========= ======== =======
See Notes to Financial Statements. F-60
Fidelity Asset Manager Growth Fidelity Growth American Funds Growth Investment Division Investment Division Investment Division - ------------------------------------- ------------------------------------- --------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Period Ended Ended Ended Ended Ended Ended Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ -------------- $ 6,748 $ 3,017 $ (233) $ (831) $ (517) $ (243) $ (118,303) $ (56,543) $ 128,057 (4,335) (5,591) 113 (2,588) (8,400) (3,407) (100,817) (49,022) (95,342) 59,143 (19,964) (1,597) 63,146 (40,968) (3,078) 5,264,250 (1,636,890) (17,189) -------- -------- ------- -------- -------- ------- ----------- ----------- ---------- 61,556 (22,538) (1,717) 59,727 (49,885) (6,728) 5,045,130 (1,742,455) 15,526 -------- -------- ------- -------- -------- ------- ----------- ----------- ---------- 194,197 105,094 16,990 101,957 102,972 22,338 8,746,040 5,515,691 700,197 (1,698) (2,162) -- (738) -- -- (274,455) (51,220) (1,570) 74,992 (31,085) 84,590 6,224 (1,143) 74,755 5,353,241 5,147,713 2,173,706 (27,293) (12,942) (5,355) (4,423) (5,581) (3,117) (3,102,038) (2,053,980) 288,414 -------- -------- ------- -------- -------- ------- ----------- ----------- ---------- 240,198 58,905 96,225 103,020 96,248 93,976 10,722,788 8,558,204 3,160,747 -------- -------- ------- -------- -------- ------- ----------- ----------- ---------- 301,754 36,367 94,508 162,747 46,363 87,248 15,767,918 6,815,749 3,176,273 130,875 94,508 -- 133,611 87,248 -- 9,992,022 3,176,273 -- -------- -------- ------- -------- -------- ------- ----------- ----------- ---------- $432,629 $130,875 $94,508 $296,358 $133,611 $87,248 $25,759,940 $ 9,992,022 $3,176,273 ======== ======== ======= ======== ======== ======= =========== =========== ==========
F-61 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
American Funds Growth-Income Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 57,594 $ 35,068 $ 15,132 Net realized (losses) gains from security transactions..................... (26,406) (51,319) (13,398) Change in unrealized appreciation (depreciation) of investments............ 3,852,340 (1,122,854) 55,397 ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ 3,883,528 (1,139,105) 57,131 ----------- ----------- ---------- From capital transactions: Net premiums............................................................... 7,049,440 4,324,156 553,810 Redemptions................................................................ (184,181) (62,519) (6,270) Net investment division transfers.......................................... 3,708,586 4,404,613 1,876,550 Other net transfers........................................................ (2,495,963) (1,573,001) (27,864) ----------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 8,077,882 7,093,249 2,396,226 ----------- ----------- ---------- NET CHANGE IN NET ASSETS...................................................... 11,961,410 5,954,144 2,453,357 NET ASSETS--BEGINNING OF PERIOD............................................... 8,407,501 2,453,357 -- ----------- ----------- ---------- NET ASSETS--END OF PERIOD..................................................... $20,368,911 $ 8,407,501 $2,453,357 =========== =========== ==========
See Notes to Financial Statements. F-62
American Funds Global Small Cap JPM Enhanced Index T. Rowe Price Mid Cap Growth Investment Division Investment Division Investment Division - --------------------------------------- ------------------------------------- --------------------------------------- For the Year For the Year For the Period For the Year For the Year For the Year For the Year For the Year For the Period Ended Ended May 1, 2001 to Ended Ended Ended Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------ -------------- $ (8,633) $ (1,451) $ 5,931 $ 147 $ 78 $ (13) $ (17,818) $ 962 $ (940) (33,362) 35,746 (18,714) (1,554) (1,186) (25) (46,026) (55,314) (1,372) 1,513,502 (396,292) 46,579 1,806 (1,483) (320) 776,010 (378,709) 11,239 ---------- ---------- -------- -------- ------- ------ ---------- ---------- -------- 1,471,507 (361,997) 33,796 399 (2,591) (358) 712,166 (433,061) 8,927 ---------- ---------- -------- -------- ------- ------ ---------- ---------- -------- 1,663,445 1,071,636 138,839 3,043 6,165 -- 1,283,521 820,210 82,192 (60,720) (8,869) -- -- -- -- (26,453) (1,344) (543) 1,303,948 1,067,611 476,691 (11,034) 1,869 5,908 481,182 375,032 264,649 (610,233) (354,525) (30,269) (173) (3,041) (187) (448,143) 47,743 209,192 ---------- ---------- -------- -------- ------- ------ ---------- ---------- -------- 2,296,440 1,775,853 585,261 (8,164) 4,993 5,721 1,290,107 1,241,641 555,490 ---------- ---------- -------- -------- ------- ------ ---------- ---------- -------- 3,767,947 1,413,856 619,057 (7,765) 2,402 5,363 2,002,273 808,580 564,417 2,032,913 619,057 -- 7,765 5,363 -- 1,372,997 564,417 -- ---------- ---------- -------- -------- ------- ------ ---------- ---------- -------- $5,800,860 $2,032,913 $619,057 $ -- $ 7,765 $5,363 $3,375,270 $1,372,997 $564,417 ========== ========== ======== ======== ======= ====== ========== ========== ========
F-63 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
MFS Research International Investment Division --------------------------------------- For the Year For the Year For the Period Ended Ended May 1, 2001 to December 31, December 31, December 31, 2003 2002 2001 ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 2,786 $ (2,121) $ (351) Net realized (losses) gains from security transactions..................... 148,987 (66,559) (4,107) Change in unrealized appreciation (depreciation) of investments............ 191,049 (2,664) 1,444 ---------- -------- -------- Net increase (decrease) in net assets resulting from operations............ 342,822 (71,344) (3,014) ---------- -------- -------- From capital transactions: Net premiums............................................................... 514,658 323,700 38,580 Redemptions................................................................ (15,626) (1,956) -- Net investment division transfers.......................................... 140,125 254,704 77,076 Other net transfers........................................................ (198,441) (28,935) 124,871 ---------- -------- -------- Net increase (decrease) in net assets resulting from capital transactions.. 440,716 547,513 240,527 ---------- -------- -------- NET CHANGE IN NET ASSETS...................................................... 783,538 476,169 237,513 NET ASSETS--BEGINNING OF PERIOD............................................... 713,682 237,513 -- ---------- -------- -------- NET ASSETS--END OF PERIOD..................................................... $1,497,220 $713,682 $237,513 ========== ======== ========
See Notes to Financial Statements. F-64
PIMCO Total Return PIMCO Innovation Lord Abbett Bond Debenture Investment Division Investment Division Investment Division - --------------------------------------- --------------------------------------- -------------------------------------- For the Year For the Year For the Period For the Year For the Year For the Period For the Year For the Year For the Year Ended Ended May 1, 2001 to Ended Ended May 1, 2001 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2003 2002 2001 2003 2002 2001 - ------------ ------------ -------------- ------------ ------------ -------------- ------------ ------------ ------------ $ 175,706 $ (28,120) $ 23,842 $ (21,608) $ (9,521) $ (1,528) $ 109,583 $ 924,873 $ 859,088 175,963 60,373 1,564 (195,867) (111,879) (9,873) 198,834 (1,886,218) (134,223) (25,434) 270,736 (14,155) 1,260,206 (652,366) 4,179 1,391,673 949,375 (902,997) - ----------- ---------- ---------- ---------- ---------- -------- ----------- ------------ ---------- 326,235 302,989 11,251 1,042,731 (773,766) (7,222) 1,700,090 (11,970) (178,132) - ----------- ---------- ---------- ---------- ---------- -------- ----------- ------------ ---------- 5,176,301 1,998,260 266,987 1,268,741 931,879 138,136 2,358,538 2,500,797 2,653,126 (300,049) (31,798) (9,397) (47,295) (7,020) -- (558,076) (441,582) (478,731) 3,254,351 3,693,012 902,199 1,385,317 627,449 661,537 1,087,733 11,019,013 807,014 (1,973,454) (851,347) (68,474) (437,762) (258,151) (43,761) (1,142,589) (13,314,199) (872,472) - ----------- ---------- ---------- ---------- ---------- -------- ----------- ------------ ---------- 6,157,149 4,808,127 1,091,315 2,169,001 1,294,157 755,912 1,745,606 (235,971) 2,108,937 - ----------- ---------- ---------- ---------- ---------- -------- ----------- ------------ ---------- 6,483,384 5,111,116 1,102,566 3,211,732 520,391 748,690 3,445,696 (247,941) 1,930,805 6,213,682 1,102,566 -- 1,269,081 748,690 -- 8,596,606 8,844,547 6,913,742 - ----------- ---------- ---------- ---------- ---------- -------- ----------- ------------ ---------- $12,697,066 $6,213,682 $1,102,566 $4,480,813 $1,269,081 $748,690 $12,042,302 $ 8,596,606 $8,844,547 =========== ========== ========== ========== ========== ======== =========== ============ ==========
F-65 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company STATEMENTS OF CHANGES IN NET ASSETS
Met/AIM Met/AIM Mid Cap Core Equity Small Cap Growth Investment Division Investment Division -------------------------- -------------------------- For the Year For the Period For the Year For the Period Ended May 1, 2002 to Ended May 1, 2002 to December 31, December 31, December 31, December 31, 2003 2002 2003 2002 ------------ -------------- ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income..................................... $ 3,638 $ (347) $ (2,947) $ (281) Net realized (losses) gains from security transactions........... 6,414 (1,242) 66,977 (593) Change in unrealized appreciation (depreciation) of investments.. 140,733 (6,351) 51,242 (4,322) --------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations.. 150,785 (7,940) 115,272 (5,196) --------- -------- -------- -------- From capital transactions: Net premiums..................................................... 376,221 70,763 201,753 30,362 Redemptions...................................................... (9,516) (929) (5,605) (129) Net investment division transfers................................ 345,361 212,616 286,464 84,320 Other net transfers.............................................. (126,899) (21,530) (70,229) 6,439 --------- -------- -------- -------- Net increase (decrease) in net assets resulting from capital transactions............................................ 585,167 260,920 412,383 120,992 --------- -------- -------- -------- NET CHANGE IN NET ASSETS............................................ 735,952 252,980 527,655 115,796 NET ASSETS--BEGINNING OF PERIOD..................................... 252,980 -- 115,796 -- --------- -------- -------- -------- NET ASSETS--END OF PERIOD........................................... $ 988,932 $252,980 $643,451 $115,796 ========= ======== ======== ========
See Notes to Financial Statements. F-66
Harris Oakmark International Janus Aggressive Growth Lord Abbett Growth & Income Investment Division Investment Division Investment Division - -------------------------- --------------------------------------- -------------------------------- For the Year For the Period For the Year For the Year For the Period For the Year For the Period Ended May 1, 2002 to Ended Ended May 1, 2001 to Ended October 31, 2002 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2003 2002 2003 2002 2001 2003 2002 - ------------ -------------- ------------ ------------ -------------- ------------ ------------------- $ 6,375 $ (88) $ (25,657) $ (13,374) $ (2,780) $ (47) $-- 72,432 (843) (313,967) (78,401) (43,356) 20 -- 49,401 (2,920) 1,123,504 (426,893) (11,854) 3,750 -- -------- -------- ---------- ---------- ---------- ------- --- 128,208 (3,851) 783,880 (518,668) (57,990) 3,723 -- -------- -------- ---------- ---------- ---------- ------- --- 111,653 59,332 1,705,553 1,567,918 311,526 4,885 -- (357) (178) (28,560) (23,600) -- -- -- 446,278 122,434 109,161 607,036 817,361 12,124 -- (22,736) (27,767) (612,599) (540,084) (118,215) (203) -- -------- -------- ---------- ---------- ---------- ------- --- 534,838 153,821 1,173,555 1,611,270 1,010,672 16,806 -- -------- -------- ---------- ---------- ---------- ------- --- 663,046 149,970 1,957,435 1,092,602 952,682 20,529 -- 149,970 -- 2,045,284 952,682 -- -- -- -------- -------- ---------- ---------- ---------- ------- --- $813,016 $149,970 $4,002,719 $2,045,284 $ 952,682 $20,529 $-- ======== ======== ========== ========== ========== ======= ===
F-67 Metropolitan Life Separate Account UL Of Metropolitan Life Insurance Company NOTES TO FINANCIAL STATEMENTS December 31, 2003 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account"), a separate account of Metropolitan Life Insurance Company ("Metropolitan Life"), was established on December 13, 1988 to support Metropolitan Life's operations with respect to certain variable universal life policies ("Policies"). Metropolitan Life is a wholly owned subsidiary of MetLife Inc. ("MetLife"). The Separate Account was registered as a unit investment trust on January 5, 1990 under the Investment Company Act of 1940, as amended, and exists in accordance with the regulations of the New York Insurance Department. The Separate Account presently consists of fifty-seven investment divisions that support six variable universal life insurance policies: Flexible Premium Multifunded Life ("UL II"), MetLife Flexible Premium Variable Life ("MetFlex"), Group Variable Universal Life ("GVUL"), Flexible Premium Multifunded Life ("UL 2001"), Variable Additional Insurance ("VAI") and Variable Additional Benefits Rider ("VABR"). The Separate Account is divided into investment divisions. Each investment division invests its assets exclusively in shares of corresponding portfolios, series or funds (with the same name) within the Metropolitan Fund, Janus Fund, Invesco Funds, Franklin Fund, Alliance Fund, Fidelity Funds, American Fund or Met Investors Fund, collectively, (the "Funds"). For convenience, the portfolios, series, and funds are referred to as "portfolios." The assets of the Separate Account are registered in the name of Metropolitan Life. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from Metropolitan Life's other assets and liabilities. The portion of the Separate Account's assets applicable to the variable life policies is not chargeable with liabilities arising out of any other business Metropolitan Life may conduct. The table below represents the investment divisions within the Separate Account: State Street Research Investment Trust Investment Division State Street Research Diversified Investment Division State Street Research Aggressive Growth Investment Division MetLife Stock Index Investment Division FI International Stock Investment Division Janus Mid Cap Investment Division T. Rowe Price Small Cap Growth Investment Division Scudder Global Equity Investment Division Harris Oakmark Large Cap Value Investment Division Neuberger Berman Partners Mid Cap Value Investment Division T. Rowe Price Large Cap Growth Investment Division Lehman Brothers Aggregate Bond Index Investment Division Morgan Stanley EAFE Index Investment Division Russell 2000 Index Investment Division Met/Putnam Voyager Investment Division State Street Research Aurora Investment Division MetLife Mid Cap Stock Index Investment Division Franklin Templeton Small Cap Growth Investment Division (b) State Street Research Large Cap Value Investment Division (c) Davis Venture Value Investment Division Loomis Sayles Small Cap Investment Division Alger Equity Growth Investment Division (a) MFS Investors Trust Investment Division (a) MFS Research Managers Investment Division (a) State Street Research Bond Income Investment Division (a) FI Structured Equity Investment Division (a) Harris Oakmark Focused Value Investment Division (b) Salomon Brothers Stategic Bond Opportunities Investment Division (b) Salomon Brothers U.S. Government Investment Division (b) State Street Research Money Market Investment Division FI Mid Cap Opportunities Investment Division (c) Janus Aspen Growth Investment Division Invesco VIF High Yield Investment Division Invesco VIF Equity Income Investment Division Invesco VIF Real Estate Opportunity Investment Division Franklin Templeton International Stock Investment Division Franklin Templeton Valuemark Small Cap Investment Division (a) Alliance Growth & Income Investment Division Alliance Premier Growth Investment Division (a) Alliance Technology Investment Division (a) Fidelity Contrafund Investment Division (a) Fidelity Asset Manager Growth Investment Division (a) Fidelity Growth Investment Division (a) American Funds Growth Investment Division (b) American Funds Growth-Income Investment Division (b) American Funds Global Small Cap Investment Division (b) JPM Enhanced Index Investment Division (a) T. Rowe Price Mid Cap Growth Investment Division (b) MFS Research International Investment Division (b) PIMCO Total Return Investment Division (b) PIMCO Innovation Investment Division (b) Lord Abbett Bond Debenture Investment Division Met/AIM Mid Cap Core Equity Investment Division (c) Met/AIM Small Cap Growth Investment Division (c) Harris Oakmark International Investment Division (c) Janus Aggressive Growth Investment Division Lord Abbett Growth & Income Investment Division (d) F-68 NOTES TO FINANCIAL STATEMENTS -- (Continued) 1. BUSINESS -- (Continued) (a) On January 1, 2001, operations commenced for eleven new investment divisions added to the Separate Account on that date: Franklin Templeton Valuemark Small Cap Investment Division, Alger Equity Growth Investment Division, MFS Investors Trust Investment Division, MFS Research Managers Investment Division, FI Structured Equity Investment Division, Alliance Premier Growth Investment Division, Alliance Technology Investment Division, Fidelity Contrafund Investment Division, Fidelity Asset Manager Growth Investment Division, Fidelity Growth Investment Division, and JPM Enhanced Index Investment Division. (b) On May 1, 2001, operations commenced for twelve new investment divisions added to the Separate Account on that date: Janus Aggressive Growth Investment Division, Franklin Templeton Small Cap Growth Investment Division, Harris Oakmark Focused Value Investment Division, Salomon Brothers Strategic Bond Opportunities Investment Division, Salomon Brothers U.S. Government Investment Division, American Funds Growth Investment Division, American Funds Growth-Income Investment Division, American Funds Global Small Cap Investment Division, T. Rowe Price Mid Cap Growth Investment Division, MFS Research International Investment Division, PIMCO Total Return Investment Division, and PIMCO Innovation Investment Division. (c) On May 1, 2002, operations commenced for five new investment divisions added to the Separate Account on that date: State Street Research Large Cap Value Investment Division, FI Mid Cap Opportunities Investment Division, Met/AIM Mid Cap Core Equity Investment Division, Met/AIM Small Cap Growth Investment Division, and Harris Oakmark International Investment Division. (d) On October 31, 2002 operations commenced for one new investment division added to the Separate Account on that date: Lord Abbett Growth & Income Investment Division. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements included herein have been provided in accordance with accounting principles generally accepted in the United States of America for variable universal life separate accounts registered as unit investment trusts. A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of these portfolios. The investments of the Funds are valued at fair value. Money market fund investments are valued utilizing the amortized cost method of valuation. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the policies. Accordingly, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributed to the policies. D. Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. F-69 NOTES TO FINANCIAL STATEMENTS -- (Continued) 2. SIGNIFICANT ACCOUNTING POLICIES -- (Continued) E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. F. Purchase Payments Purchase payments received by Metropolitan Life are credited as Accumulation Units as of the end of the valuation period in which received, as provided in the prospectus. 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of general administrative expenses and mortality and expense risks. This charge is equivalent to an effective annual rate of 0.45% of the average daily values of the assets in the Separate Account for GVUL policies, 0.90% for UL II & UL 2001 policies, 0.75% for VAI and VABR policies less than $250,000, and 0.50% for VAI and VABR policies $250,000 and greater. For Met Flex policies, a charge of 0.48% is assessed against the cash value of the assets in the separate account. F-70 NOTES TO FINANCIAL STATEMENTS -- (Continued) 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2003 were as follows:
Purchases Sales --------- -------- (In Thousands) State Street Research Investment Trust Investment Division....... $ 23,613 $ 15,572 State Street Research Diversified Investment Division............ 25,688 14,354 State Street Research Aggressive Growth Investment Division...... 11,163 8,764 MetLife Stock Index Investment Division.......................... 63,324 24,023 FI International Stock Investment Division....................... 5,514 3,811 Janus Mid Cap Investment Division................................ 22,923 3,117 T. Rowe Price Small Cap Growth Investment Division............... 6,430 1,862 Scudder Global Equity Investment Division........................ 4,833 2,872 Harris Oakmark Large Cap Value Investment Division............... 9,213 1,835 Neuberger Berman Partners Mid Cap Value Investment Division...... 5,510 557 T. Rowe Price Large Cap Growth Investment Division............... 6,544 2,531 Lehman Brothers Aggregate Bond Index Investment Division......... 20,915 19,015 Morgan Stanley EAFE Index Investment Division.................... 9,570 4,867 Russell 2000 Index Investment Division........................... 6,960 1,888 Met/Putnam Voyager Investment Division........................... 2,701 964 State Street Research Aurora Investment Division................. 11,291 1,416 MetLife Mid Cap Stock Index Investment Division.................. 7,181 1,384 Franklin Templeton Small Cap Growth Investment Division.......... 1,497 116 State Street Research Large Cap Value Investment Division........ 1,062 338 Davis Venture Value Investment Division.......................... 6,627 1,045 Loomis Sayles Small Cap Investment Division...................... 1,611 682 Alger Equity Growth Investment Division.......................... 1,071 396 MFS Investors Trust Investment Division.......................... 1,675 1,062 MFS Research Managers Investment Division........................ 279 34 State Street Research Bond Income Investment Division............ 13,891 12,765 FI Structured Equity Investment Division......................... 587 257 Harris Oakmark Focused Value Investment Division................. 7,908 488 Salomon Brothers Stategic Bond Opportunities Investment Division. 4,033 1,375 Salomon Brothers U.S. Government Investment Division............. 5,404 2,472 State Street Research Money Market Investment Division........... 6,223 9,648 FI Mid Cap Opportunities Investment Division..................... 823 90 Janus Aspen Growth Investment Division........................... 833 274 Invesco VIF High Yield Investment Division....................... 298 55 Invesco VIF Equity Income Investment Division.................... 57 24 Invesco VIF Real Estate Opportunity Investment Division.......... 32 82 Franklin Templeton International Stock Investment Division....... 1,048 482 Franklin Templeton Valuemark Small Cap Investment Division....... 311 502 Alliance Growth & Income Investment Division..................... 635 176 Alliance Premier Growth Investment Division...................... 33 3 Alliance Technology Investment Division.......................... 16 1 Fidelity Contrafund Investment Division.......................... 728 230 Fidelity Asset Manager Growth Investment Division................ 279 32 Fidelity Growth Investment Division.............................. 109 6 American Funds Growth Investment Division........................ 10,843 369 American Funds Growth-Income Investment Division................. 8,552 463 American Funds Global Small Cap Investment Division.............. 3,456 1,175 JPM Enhanced Index Investment Division........................... 3 11 T. Rowe Price Mid Cap Growth Investment Division................. 1,455 183 MFS Research International Investment Division................... 2,812 2,368 PIMCO Total Return Investment Division........................... 8,452 2,120 PIMCO Innovation Investment Division............................. 2,694 553 Lord Abbett Bond Debenture Investment Division................... 4,152 2,314 Met/AIM Mid Cap Core Equity Investment Division.................. 704 115 Met/AIM Small Cap Growth Investment Division..................... 786 377 Harris Oakmark International Investment Division................. 1,577 1,035 Janus Aggressive Growth Investment Division...................... 4,304 3,158 Lord Abbett Growth & Income Investment Division.................. 17 0 -------- -------- Total............................................................ $350,250 $155,708 ======== ========
F-71 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS The changes in units outstanding for the years ended December 31, 2003, 2002 and 2001 were as follows:
State Street State Street State Street Research MetLife Research Research Aggressive Stock Investment Trust Diversified Growth Index Investment Investment Investment Investment Division Division Division Division ---------------- ------------ ------------ ---------- (In Thousands) Outstanding at December 31, 2002 15,060 12,268 11,447 22,140 Activity during 2003: Issued........................ 5,136 3,873 3,343 10,343 Redeemed...................... (4,045) (3,260) (2,957) (6,736) ------ ------ ------ ------ Outstanding at December 31, 2003 16,151 12,881 11,833 25,747 ====== ====== ====== ====== Outstanding at December 31, 2001 13,264 11,138 10,503 17,015 Activity during 2002: Issued........................ 5,072 3,678 3,343 9,909 Redeemed...................... (3,276) (2,548) (2,399) (4,784) ------ ------ ------ ------ Outstanding at December 31, 2002 15,060 12,268 11,447 22,140 ====== ====== ====== ====== Outstanding at December 31, 2000 11,054 9,234 9,254 11,689 Activity during 2001: Issued........................ 2,828 2,200 1,392 6,525 Redeemed...................... (618) (296) (143) (1,199) ------ ------ ------ ------ Outstanding at December 31, 2001 13,264 11,138 10,503 17,015 ====== ====== ====== ======
F-72 NOTES TO FINANCIAL STATEMENTS -- (Continued)
FI T. Rowe Price Harris Neuberger T. Rowe Price Lehman Brothers International Janus Small Cap Scudder Oakmark Berman Partners Large Cap Aggregate Stock Mid Cap Growth Global Equity Large Cap Value Mid Cap Value Growth Bond Index Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ------------- ---------- ------------- ------------- --------------- --------------- ------------- --------------- 3,296 11,521 4,261 1,978 2,346 1,567 2,853 4,147 1,224 5,469 1,463 768 1,639 892 1,408 2,097 (1,036) (3,642) (1,021) (606) (925) (513) (971) (2,180) ------ ------ ------ ----- ----- ----- ----- ------ 3,484 13,348 4,703 2,140 3,060 1,946 3,290 4,064 ====== ====== ====== ===== ===== ===== ===== ====== 3,106 8,481 3,509 2,000 1,242 1,076 2,124 3,153 1,176 5,867 1,561 687 1,697 906 1,289 1,774 (986) (2,827) (809) (709) (593) (415) (560) (780) ------ ------ ------ ----- ----- ----- ----- ------ 3,296 11,521 4,261 1,978 2,346 1,567 2,853 4,147 ====== ====== ====== ===== ===== ===== ===== ====== 2,709 5,367 2,995 1,848 220 456 632 1,730 1,578 3,701 864 209 1,076 790 2,004 2,267 (1,181) (587) (350) (57) (54) (170) (512) (844) ------ ------ ------ ----- ----- ----- ----- ------ 3,106 8,481 3,509 2,000 1,242 1,076 2,124 3,153 ====== ====== ====== ===== ===== ===== ===== ======
F-73 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Morgan Stanley State Street EAFE Russell Met/Putnam Research Index 2000 Index Voyager Aurora Investment Investment Investment Investment Division Division Division Division -------------- ---------- ---------- ------------ (In Thousands) Outstanding at December 31, 2002 2,044 1,614 1,463 2,599 Activity during 2003: Issued........................ 2,174 1,138 1,235 1,832 Redeemed...................... (1,542) (667) (785) (1,059) ------ ----- ----- ------ Outstanding at December 31, 2003 2,676 2,085 1,913 3,372 ====== ===== ===== ====== Outstanding at December 31, 2001 1,352 920 792 1,317 Activity during 2002: Issued........................ 1,485 1,015 1,075 1,944 Redeemed...................... (793) (321) (404) (662) ------ ----- ----- ------ Outstanding at December 31, 2002 2,044 1,614 1,463 2,599 ====== ===== ===== ====== Outstanding at December 31, 2000 544 512 131 164 Activity during 2001: Issued........................ 1,865 1,181 704 1,201 Redeemed...................... (1,057) (773) (43) (48) ------ ----- ----- ------ Outstanding at December 31, 2001 1,352 920 792 1,317 ====== ===== ===== ======
F-74 NOTES TO FINANCIAL STATEMENTS -- (Continued)
MetLife Mid Franklin State Street MFS Cap Stock Templeton Research Davis Loomis Sayles Alger MFS Research Index Small Cap Growth Large Cap Value Venture Value Small Cap Equity Growth Investors Trust Managers Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ----------- ---------------- --------------- ------------- ------------- ------------- --------------- ---------- 1,762 198 23 901 18 589 104 47 1,301 266 147 650 21 200 272 54 (725) (135) (67) (229) (9) (68) (190) (20) ----- ---- --- ----- -- --- ---- --- 2,338 329 103 1,322 30 721 186 81 ===== ==== === ===== == === ==== === 867 52 -- 297 11 6 43 13 1,231 215 27 754 12 624 110 73 (336) (69) (4) (150) (5) (41) (49) (39) ----- ---- --- ----- -- --- ---- --- 1,762 198 23 901 18 589 104 47 ===== ==== === ===== == === ==== === 210 -- -- 39 2 -- -- -- 693 54 -- 267 10 6 47 83 (36) (2) -- (9) (1) -- (4) (70) ----- ---- --- ----- -- --- ---- --- 867 52 -- 297 11 6 43 13 ===== ==== === ===== == === ==== ===
F-75 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
State Street Saloman Brothers Research FI Harris Oakmark Strategic Bond Bond Income Structured Equity Focused Value Opportunities Investment Investment Investment Investment Division Division Division Division ------------ ----------------- -------------- ---------------- (In Thousands) Outstanding at December 31, 2002 5,564 12 76 177 Activity during 2003: Issued........................ 1,494 75 72 430 Redeemed...................... (1,541) (38) (33) (232) ------ --- --- ---- Outstanding at December 31, 2003 5,517 49 115 375 ====== === === ==== Outstanding at December 31, 2001 4,202 3 23 41 Activity during 2002: Issued........................ 2,094 15 72 195 Redeemed...................... (732) (6) (19) (59) ------ --- --- ---- Outstanding at December 31, 2002 5,564 12 76 177 ====== === === ==== Outstanding at December 31, 2000 3,980 -- -- -- Activity during 2001: Issued........................ 1,197 3 24 42 Redeemed...................... (975) -- (1) (1) ------ --- --- ---- Outstanding at December 31, 2001 4,202 3 23 41 ====== === === ====
F-76 NOTES TO FINANCIAL STATEMENTS -- (Continued)
State Street FI Janus Invesco VIF Invesco Franklin Templeton Saloman Brothers Research Mid Cap Aspen Invesco VIF Equity VIF Real Estate International U.S. Government Money Market Opportunities Growth High Yield Income Opportunity Stock Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ---------------- ------------ ------------- ---------- ----------- ----------- --------------- ------------------ 340 1,981 21 354 65 15 14 344 626 526 107 123 29 6 2 118 (407) (747) (32) (42) (7) (2) (6) (59) ---- ------ --- ---- --- -- --- --- 559 1,760 96 435 87 19 10 403 ==== ====== === ==== === == === === 71 2,156 -- 236 37 12 7 189 393 1,770 22 149 38 5 61 183 (124) (1,945) (1) (31) (10) (2) (54) (28) ---- ------ --- ---- --- -- --- --- 340 1,981 21 354 65 15 14 344 ==== ====== === ==== === == === === -- 1,479 -- 473 1 2 10 99 99 2,983 -- 84 45 12 1 118 (28) (2,306) -- (321) (9) (2) (4) (28) ---- ------ --- ---- --- -- --- --- 71 2,156 -- 236 37 12 7 189 ==== ====== === ==== === == === ===
F-77 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Franklin Templeton Alliance Valuemark Growth & Alliance Alliance Small Cap Income Premier Growth Technology Investment Investment Investment Investment Division Division Division Division ------------------ ---------- -------------- ---------- (In Thousands) Outstanding at December 31, 2002 163 150 9 6 Activity during 2003: Issued........................ 57 67 6 5 Redeemed...................... (21) (20) (1) (1) --- --- --- --- Outstanding at December 31, 2003 199 197 14 10 === === === === Outstanding at December 31, 2001 16 65 14 2 Activity during 2002: Issued........................ 183 95 5 4 Redeemed...................... (36) (10) (10) -- --- --- --- --- Outstanding at December 31, 2002 163 150 9 6 === === === === Outstanding at December 31, 2000 -- 6 -- -- Activity during 2001: Issued........................ 17 60 14 26 Redeemed...................... (1) (1) -- (24) --- --- --- --- Outstanding at December 31, 2001 16 65 14 2 === === === ===
F-78 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Fidelity American JPM T. Rowe Price Fidelity Asset Manager Fidelity American American Funds Funds Global Enhanced Mid Cap Contrafund Growth Growth Funds Growth Growth-Income Small Cap Index Growth Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ---------- ------------- ---------- ------------ -------------- ------------ ---------- ------------- 35 20 28 221 287 203 1 294 90 39 20 313 387 375 1 387 (28) (5) (1) (117) (149) (200) (2) (154) --- -- -- ---- ---- ---- -- ---- 97 54 47 417 525 378 -- 527 === == == ==== ==== ==== == ==== 3 13 13 53 68 49 1 68 33 15 18 217 287 226 1 328 (1) (8) (3) (49) (68) (72) (1) (102) --- -- -- ---- ---- ---- -- ---- 35 20 28 221 287 203 1 294 === == == ==== ==== ==== == ==== -- -- -- -- -- -- -- -- 3 14 17 67 76 55 1 71 -- (1) (4) (14) (8) (6) -- (3) --- -- -- ---- ---- ---- -- ---- 3 13 13 53 68 49 1 68 === == == ==== ==== ==== == ====
F-79 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
MFS Lord Abbett Research PIMCO PIMCO Bond International Total Return Innovation Debenture Investment Investment Investment Investment Division Division Division Division ------------- ------------ ---------- ----------- (In Thousands) Outstanding at December 31, 2002 95 534 416 748 Activity during 2003: Issued........................ 397 1,055 896 449 Redeemed...................... (341) (547) (380) (321) ---- ----- ---- ---- Outstanding at December 31, 2003 151 1,042 932 876 ==== ===== ==== ==== Outstanding at December 31, 2001 28 103 121 774 Activity during 2002: Issued........................ 239 623 437 178 Redeemed...................... (172) (192) (142) (204) ---- ----- ---- ---- Outstanding at December 31, 2002 95 534 416 748 ==== ===== ==== ==== Outstanding at December 31, 2000 -- -- -- 601 Activity during 2001: Issued........................ 113 123 128 246 Redeemed...................... (85) (20) (7) (73) ---- ----- ---- ---- Outstanding at December 31, 2001 28 103 121 774 ==== ===== ==== ====
F-80 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Met/Aim Met/Aim Harris Janus Lord Abbett Mid Cap Small Cap Oakmark Aggressive Growth & Core Equity Growth International Growth Income Investment Investment Investment Investment Investment Division Division Division Division Division ----------- ---------- ------------- ---------- ----------- 30 15 18 381 -- 96 99 180 1,088 3 (34) (54) (126) (900) -- --- --- ---- ----- -- 92 60 72 569 3 === === ==== ===== == -- -- -- 122 -- 33 17 22 409 -- (3) (2) (4) (150) -- --- --- ---- ----- -- 30 15 18 381 -- === === ==== ===== == -- -- -- -- -- -- -- -- 148 -- -- -- -- (26) -- --- --- ---- ----- -- -- -- -- 122 -- === === ==== ===== ==
F-81 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES A summary of unit values and units outstanding for the Contracts and the expense as a percentage of average net assets, excluding expenses for the underlying funds, for each of the periods ended December 31, 2003, 2002 and 2001, respectively, or lesser time period if applicable.
State Street State Street State Street Research Research Research Aggressive MetLife Investment Trust Diversified Growth Stock Index Investment Investment Investment Investment Division Division Division Division ---------------- ---------------- ---------------- ---------------- 2003 Units (In Thousands).................................. 16,151 12,881 11,833 25,747 Unit Fair Value, Lowest to Highest (1)................ $10.57 to $33.12 $11.79 to $30.64 $11.71 to $16.87 $9.58 to $29.26 Net Assets (In Thousands)............................. $367,087 $289,033 $187,268 $457,114 Investment Income Ratio to Net Assets (2)............. 0.83% 3.73% 0.00% 1.65% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return, Lowest to Highest (1)(4)................ 29.08% to 30.24% 19.48% to 20.56% 39.53% to 40.79% 27.06% to 28.20% 2002 Units (In Thousands).................................. 15,060 12,268 11,447 22,140 Unit Fair Value, Lowest to Highest (1)................ $8.11 to $25.66 $9.78 to $25.64 $8.32 to $12.09 $7.48 to $23.03 Net Assets (In Thousands)............................. $276,980 $238,020 $130,816 $326,228 Investment Income Ratio to Net Assets (2)............. 0.54% 2.27% 0.00% 1.61% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return, Lowest to Highest (1)(4)................ -27% to -26% -15% to -14% -29% -23% to -22% 2001 Units (In Thousands).................................. 13,264 11,138 10,503 17,015 Unit Fair Value, Lowest to Highest (1)................ $10.98 to $35.04 $11.35 to $30.04 $11.67 to $17.12 $9.62 to $29.91 Net Assets (In Thousands)............................. $356,701 $265,724 $171,692 $346,931 Investment Income Ratio to Net Assets (2)............. 13.53% 9.67% 24.84% 1.17% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return, Lowest to Highest (1)(4)................ -18% to -17% -7% to -6% -24% -13% to -12%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the investment division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios excluded those expenses, such as mortality and expense charges, that are assessed against contract owners' accounts either through reductions in unit values or the redemption of units. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying portfolio in which the investment divisions invest. (3) These amounts represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense risk charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying portfolio, are excluded. (4) These amounts represent the total return for the period indicated including changes in the value of the underlying portfolio, and expenses assessed through the reduction of units values. The total return does not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. F-82 NOTES TO FINANCIAL STATEMENTS -- (Continued)
FI T. Rowe Price Harris Neuberger T. Rowe Price International Janus Small Cap Scudder Oakmark Large Berman Partners Large Cap Stock Mid Cap Growth Global Equity Cap Value Mid Cap Value Growth Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division - ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 3,484 13,348 4,703 2,140 3,060 1,946 3,290 $9.92 to $13.85 $5.69 to $16.17 $12.64 to $14.08 $12.92 to $14.39 $11.53 to $14.56 $13.86 to $19.29 $8.23 to $12.13 $43,984 $184,078 $61,843 $28,696 $37,504 $30,946 $33,520 0.65% 0.00% 0.00% 2.04% 0.00% 0.32% 0.11% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% 26.90% to 28.04% 33.38% to 35.10% 39.62% to 40.87% 29.29% to 30.45% 24.38% to 25.49% 35.30% to 36.52% 29.64% to 30.81% 3,296 11,521 4,261 1,978 2,346 1,567 2,853 $7.78 to $10.91 $4.22 to $12.07 $9.05 to $10.04 $9.90 to $11.03 $9.23 to $11.71 $10.24 to $14.13 $6.35 to $9.27 $32,966 $119,020 $39,880 $20,476 $23,073 $18,286 $22,095 0.89% 0.00% 0.00% 1.68% 3.31% 0.31% 0.26% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% -18% to -17% -30% to -29% -27% -17% to -16% -15% to -14% -10% -24% to 23% 3,106 8,481 3,509 2,000 1,242 1,076 2,124 $9.47 to $13.35 $5.95 to $17.08 $12.46 to $13.76 $11.79 to $12.88 $10.80 to $13.76 $11.44 to $15.63 $8.35 to $12.08 $38,281 $125,185 $44,660 $21,106 $14,336 $14,115 $21,111 3.67% 0.00% 8.16% 11.32% 0.15% 1.94% 0.06% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% -21% to -20% -37% to -33% -10% to 2% -16% to -15% 17% to 20% -3% to 0% -11% to -6%
F-83 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Lehman Brothers Aggregate Bond Morgan Stanley Russell 2000 Met/Putnam Index EAFE Index Index Voyager Investment Investment Investment Investment Division Division Division Division ---------------- ---------------- ---------------- ---------------- 2003 Units (In Thousands).................................. 4,064 2,676 2,085 1,913 Unit Fair Value, Lowest to Highest (1)................ $12.77 to $13.67 $7.85 to $10.37 $10.75 to $14.59 $4.38 to $4.78 Net Assets (In Thousands)............................. $54,994 $24,290 $27,726 $8,651 Investment Income Ratio to Net Assets (2)............. 5.25% 1.48% 0.63% 0.00% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% Total Return, Lowest to Highest (1)(4)................ 2.71% to 3.63% 36.41% to 37.70% 44.77% to 46.07% 24.78% to 25.91% 2002 Units (In Thousands).................................. 4,147 2,044 1,614 1,463 Unit Fair Value, Lowest to Highest (1)................ $12.43 to $13.19 $5.76 to $7.53 $7.43 to $9.99 $3.51 to $3.79 Net Assets (In Thousands)............................. $54,046 $13,496 $14,829 $5,253 Investment Income Ratio to Net Assets (2)............. 2.81% 0.49% 0.59% 0.00% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.50% to 0.90% Total Return, Lowest to Highest (1)(4)................ 9% to 10% -17% -21% to -20% -30% to -29% 2001 Units (In Thousands).................................. 3,153 1,352 920 792 Unit Fair Value, Lowest to Highest (1)................ $11.38 to $11.97 $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04 Net Assets (In Thousands)............................. $37,322 $10,800 $10,625 $4,001 Investment Income Ratio to Net Assets (2)............. 1.29% 0.31% 0.26% 0.00% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3)....................................... 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% Total Return, Lowest to Highest (1)(4)................ 7% -22% to -21% 0% to 6% -46% to -31%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the investment division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios excluded those expenses, such as mortality and expense charges, that are assessed against contract owners' accounts either through reductions in unit values or the redemption of units. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying portfolio in which the investment divisions invest. (3) These amounts represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense risk charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying portfolio, are excluded. (4) These amounts represent the total return for the period indicated including changes in the value of the underlying portfolio, and expenses assessed through the reduction of unit values. The total return does not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. F-84 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Franklin State Street MetLife Mid Templeton State Street Loomis Research Cap Stock Small Cap Research Davis Sayles Alger Aurora Index Growth Large Cap Value Venture Value Small Cap Equity Growth Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division - ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ------------- 3,372 2,338 329 103 1,322 30 721 $15.46 to $16.89 $11.04 to $12.13 $9.07 to $9.29 $10.70 to $10.86 $9.79 to $28.40 $9.27 to $205.39 $6.84 $56,540 $27,925 $3,038 $1,110 $24,429 $4,423 $4,933 0.00% 0.46% 0.00% 1.37% 0.37% 0.00% 0.06% 0.60% to 0.90% 0.60% to 0.90% 0.90% 0.90% 0.60% to 0.90% 0.60% to 0.90% 0.60% 48.80% to 50.14% 33.76% to 34.96% 43.64% to 44.93% 34.47% to 35.68% 29.70% to 30.87% 35.25% to 36.47% 35.15% 2,599 1,762 198 23 901 18 589 $10.30 to $11.25 $8.18 to $8.98 $6.31 to $6.41 $7.96 to $8.00 $7.48 to $21.70 $6.80 to $150.51 $5.06 $29,061 $15,568 $1,266 $189 $13,430 $2,408 $2,983 0.52% 0.35% 0.00% 0.92% 0.88% 0.11% 0.00% 0.50% to 0.90% 0.50% to 0.90% 0.90% 0.90% 0.50% to 0.90% 0.50% to 0.90% 0.60% -22% to -21% -16% to -15% -28% -20% -17% to -16% -22% -33% 1,317 867 52 -- 297 11 6 $13.09 to $14.29 $9.62 to $10.56 $8.83 to $8.88 $-- $8.94 to $25.95 $8.66 to $191.87 $7.57 $20,005 $9,019 $457 $-- $7,498 $1,926 $45 0.38% 0.43% 0.00% -- 4.47% 7.28% 0.00% 0.60% to 0.90% 0.60% to 0.90% 0.60% -- 0.60% to 0.90% 0.60% to 0.90% 0.60% 16% to 19% -1% to 3% -12% to -11% -- -11% to -9% -9% to -4% -16%
F-85 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
MFS State Street MFS Research Research Investors Trust Managers Bond Income Investment Investment Investment Division Division Division ---------------- ---------------- ---------------- 2003 Units (In Thousands)................................................. 186 81 5,517 Unit Fair Value, Lowest to Highest (1)............................... $7.96 to $8.33 $6.57 to $8.51 $12.89 to $27.12 Net Assets (In Thousands)............................................ $1,544 $669 $96,720 Investment Income Ratio to Net Assets (2)............................ 0.25% 0.78% 3.06% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return, Lowest to Highest (1)(4)............................... 20.76% to 21.85% 23.00% to 24.10% 4.91% to 5.85% 2002 Units (In Thousands)................................................. 104 47 5,564 Unit Fair Value, Lowest to Highest (1)............................... $6.54 to $6.84 $5.29 to $6.86 $12.18 to $25.85 Net Assets (In Thousands)............................................ $694 $314 $93,158 Investment Income Ratio to Net Assets (2)............................ 0.72% 0.30% 5.72% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return, Lowest to Highest (1)(4)............................... -21% to -20% -25% to -24% 7% to 8% 2001 Units (In Thousands)................................................. 43 13 4,202 Unit Fair Value, Lowest to Highest (1)............................... $8.19 to $8.57 $6.97 to $9.04 $11.23 to $24.08 Net Assets (In Thousands)............................................ $322 $151 $79,483 Investment Income Ratio to Net Assets (2)............................ 0.00% 0.25% 5.64% to 7.28% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% to 0.90% 0.60% to 0.90% .45% to 0.90% Total Return, Lowest to Highest (1)(4)............................... -14% to -3% -17% to -14% 7% to 8%
FI Structured Equity Investment Division ---------------- 2003 Units (In Thousands)................................................. 49 Unit Fair Value, Lowest to Highest (1)............................... $8.37 to $10.56 Net Assets (In Thousands)............................................ $505 Investment Income Ratio to Net Assets (2)............................ 0.52% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% to .90% Total Return, Lowest to Highest (1)(4)............................... 25.79% to 26.92% 2002 Units (In Thousands)................................................. 12 Unit Fair Value, Lowest to Highest (1)............................... $6.59 to $8.32 Net Assets (In Thousands)............................................ $93 Investment Income Ratio to Net Assets (2)............................ 0.89% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% to .90% Total Return, Lowest to Highest (1)(4)............................... -19% to -17% 2001 Units (In Thousands)................................................. 3 Unit Fair Value, Lowest to Highest (1)............................... $8.19 Net Assets (In Thousands)............................................ $25 Investment Income Ratio to Net Assets (2)............................ 0.00% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% Total Return, Lowest to Highest (1)(4)............................... -11%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the investment division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios excluded those expenses, such as mortality and expense charges, that are assessed against contract owners' accounts either through reductions in unit values or the redemption of units. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying portfolio in which the investment divisions invest. (3) These amounts represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense risk charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying portfolio, are excluded. (4) These amounts represent the total return for the period indicated including changes in the value of the underlying portfolio, and expenses assessed through the reduction of unit values. The total return does not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. F-86 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Saloman Brothers Saloman State Street FI Janus Invesco Invesco Harris Oakmark Strategic Bond Brothers Research Mid Cap Aspen VIF High VIF Equity Focused Value Opporunities U.S. Government Money Market Opportunities Growth Yield Income Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - ------------------ ---------------- ---------------- ---------------- ---------------- ---------- ---------- ---------- 115 375 559 1,760 96 435 87 19 $219.73 to $225.05 $13.52 to $13.85 $12.82 to $13.13 $15.21 to $15.92 $11.50 to $11.67 $8.03 $9.21 $9.73 $25,866 $5,163 $7,305 $27,346 $1,112 $3,500 $804 $184 0.12% 1.70% 1.57% 0.78% 2.26% 0.10% 7.20% 1.26% 0.90% 0.90% 0.90% 0.60% to 0.90% 0.90% 0.60% 0.60% 0.60% 31.47% to 32.66% 11.62% to 12.62% 0.77% to 1.68% -0.09% to 0.81% 41.26% to 42.53% 31.73% 25.04% 22.60% 76 177 340 1,981 21 354 65 15 $167.13 to $169.65 $12.12 to $12.30 $12.72 to $12.91 $13.09 to $15.93 $8.14 to $8.19 $6.10 $7.37 $7.94 $12,879 $2,174 $4,365 $30,811 $168 $2,163 $476 $125 0.18% 6.33% 3.47% 1.57% 0.00% 0.03% 13.27% 1.74% 0.90% 0.90% 0.90% 0.45% to 0.90% 0.90% 0.60% 0.60% 0.60% -10% to -9% 9% to 10% 7% to 8% 0% to 1% -19% to -18% -27% -1% -19% 23 41 71 2,156 -- 236 37 12 $184.98 to $186.09 $11.15 to $11.22 $11.89 to $11.96 $14.88 to $15.85 $-- $8.30 $7.46 $9.81 $4,215 $465 $849 $32,726 $-- $1,959 $274 $122 0.00% 0.00% 0.00% 4.18% -- 6.04% 20.89% 2.61% 0.90% 0.90% 0.90% 0.60% to 0.90% -- 0.60% 0.60% 0.60% 12% to 13% 3% to 4% 4% 3% to 4% -- -19% -15% -7%
F-87 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Franklin Franklin Invesco VIF Templeton Templeton Alliance Real Estate International Valuemark Growth & Opportunity Stock Small Cap Income Investment Investment Investment Investment Division Division Division Division ----------- ------------- ---------- ---------- 2003 Units (In Thousands)................................................. 10 403 199 197 Unit Fair Value, Lowest to Highest (1)............................... $17.79 $10.03 $6.76 $10.47 Net Assets (In Thousands)............................................ $179 $4,054 $1,346 $2,063 Investment Income Ratio to Net Assets (2)............................ 1.49% 1.52% 0.00% 0.70% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% 0.60% 0.60% 0.60% Total Return, Lowest to Highest (1)(4)............................... 38.82% 32.55% 37.24% 32.18% 2002 Units (In Thousands)................................................. 14 344 163 150 Unit Fair Value, Lowest to Highest (1)............................... $12.82 $7.57 $4.93 $7.92 Net Assets (In Thousands)............................................ $179 $2,612 $801 $1,191 Investment Income Ratio to Net Assets (2)............................ 1.40% 2.03% 0.51% 3.31% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% 0.60% 0.60% 0.60% Total Return, Lowest to Highest (1)(4)............................... -6% -18% -29% -22% 2001 Units (In Thousands)................................................. 7 189 16 65 Unit Fair Value, Lowest to Highest (1)............................... $12.05 $9.27 $6.91 $10.19 Net Assets (In Thousands)............................................ $89 $1,767 $103 $656 Investment Income Ratio to Net Assets (2)............................ 1.16% 14.19% 0.05% 0.91% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% 0.60% 0.60% 0.60% Total Return, Lowest to Highest (1)(4)............................... 1% -16% -9% 2%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the investment division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios excluded those expenses, such as mortality and expense charges, that are assessed against contract owners' accounts either through reductions in unit values or the redemption of units. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying portfolio in which the investment divisions invest. (3) These amounts represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense risk charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying portfolio, are excluded. (4) These amounts represent the total return for the period indicated including changes in the value of the underlying portfolio, and expenses assessed through the reduction of unit values. The total return does not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. F-88 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Fidelity American Asset American American Funds Alliance Alliance Fidelity Manager Fidelity Funds Funds Global Premier Growth Technology Contrafund Growth Growth Growth Growth-Income Small Cap Investment Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division Division - -------------- ---------- ---------- ---------- ---------- ---------------- ---------------- ---------------- 14 10 97 54 47 417 525 378 $6.10 $4.54 $9.18 $8.00 $6.27 $60.53 to $62.00 $38.04 to $38.96 $15.06 to $15.42 $84 $46 $894 $433 $296 $25,760 $20,369 $5,801 0.00% 0.00% 0.15% 2.96% 0.08% 0.13% 1.18% 0.49% 0.60% 0.60% 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% 23.37% 43.79% 28.35% 23.15% 32.78% 35.59% to 36.81% 31.25% to 32.43% 52.16% to 53.53% 9 6 35 20 28 221 287 203 $4.94 $3.16 $7.16 $6.50 $4.72 $44.64 to $45.32 $28.98 to $29.42 $9.90 to $10.05 $42 $18 $249 $131 $134 $9,992 $8,408 $2,033 0.00% 5.08% 0.14% 3.23% 0.12% 0.05% 1.74% 0.81% 0.60% 0.60% 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% -31% -42% -10% -18% -30% -25% to -24% -19% to -18% -20% to -19% 14 2 3 13 13 53 68 49 $7.15 $5.43 $7.96 $7.89 $6.77 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 $98 $13 $24 $95 $87 $3,176 $2,453 $619 0.00% 6.23% 0.00% 0.00% 0.00% 4.25% 0.82% 1.15% 0.60% 0.60% 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% -14% -35% -12% -10% -20% -15% to -14% -3% -9% to -8%
F-89 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
JPM MFS Enhanced T. Rowe Price Research Index Mid Cap Growth International Investment Investment Investment Division Division Division ---------- ---------------- ---------------- 2003 Units (In Thousands)................................................. -- 527 151 Unit Fair Value, Lowest to Highest (1)............................... $-- $6.28 to $6.43 $9.70 to $9.94 Net Assets (In Thousands)............................................ $-- $3,375 $1,497 Investment Income Ratio to Net Assets (2)............................ -- 0.00% 0.97% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) -- 0.90% 0.90% Total Return, Lowest to Highest (1)(4)............................... -- 35.90% to 37.12% 31.01% to 32.19% 2002 Units (In Thousands)................................................. 1 294 95 Unit Fair Value, Lowest to Highest (1)............................... $6.09 $4.62 to $4.69 $7.41 to $7.52 Net Assets (In Thousands)............................................ $8 $1,373 $714 Investment Income Ratio to Net Assets (2)............................ 1.78% 0.82% 0.25% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% 0.90% 0.90% Total Return, Lowest to Highest (1)(4)............................... -25% -44% -12% 2001 Units (In Thousands)................................................. 1 68 28 Unit Fair Value, Lowest to Highest (1)............................... $8.12 $8.32 to $8.37 $8.44 to $8.50 Net Assets (In Thousands)............................................ $5 $564 $238 Investment Income Ratio to Net Assets (2)............................ 0.00% 0.00% 0.07% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.60% 0.90% 0.90% Total Return, Lowest to Highest (1)(4)............................... -9% -16% to -15% -13% to -12%
PIMCO Total Return Investment Division ---------------- 2003 Units (In Thousands)................................................. 1,042 Unit Fair Value, Lowest to Highest (1)............................... $11.96 to $12.25 Net Assets (In Thousands)............................................ $12,697 Investment Income Ratio to Net Assets (2)............................ 2.70% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.90% Total Return, Lowest to Highest (1)(4)............................... 3.59% to 4.52% 2002 Units (In Thousands)................................................. 534 Unit Fair Value, Lowest to Highest (1)............................... $11.55 to $11.72 Net Assets (In Thousands)............................................ $6,214 Investment Income Ratio to Net Assets (2)............................ 0.00% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.90% Total Return, Lowest to Highest (1)(4)............................... 9% to 10% 2001 Units (In Thousands)................................................. 103 Unit Fair Value, Lowest to Highest (1)............................... $10.64 to $10.70 Net Assets (In Thousands)............................................ $1,103 Investment Income Ratio to Net Assets (2)............................ 2.37% Expenses as a percent of Average Net Assets, Lowest to Highest (1)(3) 0.90% Total Return, Lowest to Highest (1)(4)............................... 6%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the investment division from the underlying portfolio, net of management fees assessed by the fund manager, divided by the average net assets. These ratios excluded those expenses, such as mortality and expense charges, that are assessed against contract owners' accounts either through reductions in unit values or the redemption of units. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying portfolio in which the investment divisions invest. (3) These amounts represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense risk charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit value. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying portfolio, are excluded. (4) These amounts represent the total return for the period indicated including changes in the value of the underlying portfolio, and expenses assessed through the reduction of unit values. The total return does not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. F-90 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Lord Abbett Met/Aim Met/Aim Janus Lord Abbett PIMCO Bond Mid Cap Small Cap Harris Oakmark Aggressive Growth & Innovation Debenture Core Equity Growth International Growth Income Investment Investment Investment Investment Investment Investment Investment Division Division Division Division Division Division Division - ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------- 932 876 92 60 72 569 3 $4.72 to $4.83 $12.87 to $14.95 $10.69 to $10.85 $10.46 to $10.62 $11.23 to $11.40 $6.89 to $7.06 $8.10 $4,481 $12,042 $989 $643 $814 $4,003 $20,529 0.00% 1.85% 1.35% 0.00% 1.84% 0.00% 0.00% 0.90% 0.45% to 0.90% 0.90% 0.90% 0.90% 0.90% 0.60% 56.44% to 57.84% 17.17% to 19.52% 25.29% to 26.42% 37.84% to 39.08% 34.16% to 35.37% 28.77% to 29.93% 29.15% 416 748 30 15 18 381 -- $3.01 to $3.06 $10.87 to $12.51 $8.53 to $8.58 $7.59 to $7.63 $8.37 to $8.42 $5.35 to $5.43 $-- $1,269 $8,597 $253 $116 $150 $2,045 $-- 0.00% 11.43% 0.00% 0.00% 0.00% 0.00% -- 0.90% 0.45% to 0.90% 0.90% 0.90% 0.90% 0.90% -- -51% 0% to 1% -15% to -14% -24% -16% -31% -- 121 774 -- -- -- 122 -- $6.15 to $6.19 $10.83 to $12.35 $-- $-- $-- $7.73 to $7.82 $-- $749 $8,845 $-- $-- $-- $953 $-- 0.00% 11.73% -- -- -- 0.00% -- 0.90% 0.45% to 0.90% -- -- -- 0.90% -- -25% -2% to -1% -- -- -- -23% to -22% --
F-91 NOTES TO FINANCIAL STATEMENTS -- (Concluded) 7. CHANGE OF PORTFOLIO NAME AND PORTFOLIO MERGERS Effective January 1, 2003, MFS Mid Cap Growth Portfolio changed sub-advisers from Massachusetts Financial Services to T. Rowe Price Associates Inc. and changed its name to T. Rowe Price Mid Cap Growth Portfolio; and State Street Research Concentrated International Portfolio changed sub-advisers from State Street Research & Management Company to Harris Associates L.P. and changed its name to Harris Oakmark International Portfolio. Effective April 28, 2003, Janus Growth Portfolio of the Metropolitan Fund merged into the Janus Aggressive Growth Portfolio of the Met Investors Fund. Effective May 1, 2003, Putnam Large Cap Growth Portfolio changed its name to Met/Putnam Voyager Portfolio. Effective May, 1, 2003, all series of the New England Zenith Fund became newly organized portfolios of the Metropolitan Fund. The reorganization had no effect on the investment objectives, policies or advisory fees of any series, nor was there any change in investment adviser or sub-adviser. Effective December 16, 2003, Putnam International Stock Portfolio of the Metropolitan Fund changed its name to FI International Stock Portfolio. Effective April 29, 2002, Loomis Sayles High Yield Bond Portfolio of the Metropolitan Fund was merged into the Lord Abbett Bond Debenture Portfolio of the Met Investors Fund. Effective April 29, 2002, State Street Research Income Portfolio and State Street Research Money Market Portfolio of the Metropolitan Fund were merged respectively into the State Street Research Bond Income Portfolio and the State Street Research Money Market Portfolio of the Zenith Fund. Effective May 1, 2002, State Street Research Aurora Small Cap Value Portfolio and the Harris Oakmark Mid Cap Value Portfolio changed their names to State Street Research Aurora Portfolio and Harris Oakmark Focused Value Portfolio, respectively. Effective July 1, 2001, State Street Research became the sub-investment manager of the State Street Research Bond Income Portfolio (formerly Back Bay Advisers Bond Income Portfolio) of the New England Zenith Series Fund. Effective May 1, 2001, State Street Research Growth Portfolio changed its name to State Street Research Investment Trust Portfolio. F-92 Independent Auditors' Report To the Board of Directors and Stockholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Company changed its method of accounting for embedded derivatives in certain insurance products as required by new accounting guidance which became effective on October 1, 2003, and recorded the impact as a cumulative effect of a change in accounting principle. DELOITTE & TOUCHE LLP New York, New York April 9, 2004 F-1 Metropolitan Life Insurance Company and Subsidiaries Consolidated Balance Sheets December 31, 2003 and 2002 (Dollars in millions, except share and per share data)
2003 2002 -------- -------- Assets Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $134,844 and $117,528, respectively)................................................................ $143,148 $124,260 Equity securities, at fair value (cost: $893 and $1,495, respectively)...................... 1,246 1,551 Mortgage loans on real estate............................................................... 26,637 25,353 Policy loans................................................................................ 8,180 8,047 Real estate and real estate joint ventures held-for-investment.............................. 3,163 3,050 Real estate held-for-sale................................................................... 89 799 Other limited partnership interests......................................................... 2,461 2,380 Short-term investments...................................................................... 1,320 1,199 Other invested assets....................................................................... 4,803 3,419 -------- -------- Total investments........................................................................ 191,047 170,058 Cash and cash equivalents....................................................................... 2,393 1,106 Accrued investment income....................................................................... 1,922 1,889 Premiums and other receivables.................................................................. 6,193 6,721 Deferred policy acquisition costs............................................................... 10,232 9,666 Other assets.................................................................................... 5,817 6,084 Separate account assets......................................................................... 63,661 53,912 -------- -------- Total assets............................................................................. $281,265 $249,436 ======== ======== Liabilities and Stockholder's Equity Liabilities: Future policy benefits...................................................................... $ 86,802 $ 86,039 Policyholder account balances............................................................... 61,725 54,464 Other policyholder funds.................................................................... 6,948 6,206 Policyholder dividends payable.............................................................. 1,046 1,025 Policyholder dividend obligation............................................................ 2,130 1,882 Short-term debt............................................................................. 3,536 912 Long-term debt.............................................................................. 2,055 2,624 Shares subject to mandatory redemption...................................................... 277 -- Current income taxes payable................................................................ 792 873 Deferred income taxes payable............................................................... 2,698 1,947 Payables under securities loaned transactions............................................... 24,065 16,321 Other liabilities........................................................................... 8,057 6,889 Separate account liabilities................................................................ 63,661 53,912 -------- -------- Total liabilities........................................................................ 263,792 233,094 -------- -------- Company-obligated mandatorily redeemable securities of subsidiary trusts........................ -- 277 -------- -------- Stockholder's Equity: Preferred stock, par value $1,000 per share; 110,000 shares authorized; 93,402 shares issued and outstanding at December 31, 2003............................................................... 93 -- Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding at December 31, 2003 and 2002........................................... 5 5 Additional paid-in capital...................................................................... 13,730 13,474 Retained earnings............................................................................... 1,261 708 Accumulated other comprehensive income.......................................................... 2,384 1,878 -------- -------- Total stockholder's equity............................................................... 17,473 16,065 -------- -------- Total liabilities and stockholder's equity............................................... $281,265 $249,436 ======== ========
See accompanying notes to consolidated financial statements. F-2 Metropolitan Life Insurance Company and Subsidiaries Consolidated Statements of Income For the years ended December 31, 2003, 2002 and 2001 (Dollars in millions)
2003 2002 2001 ------- ------- ------- Revenues Premiums...................................................................... $18,151 $18,461 $17,023 Universal life and investment-type product policy fees........................ 1,921 1,927 1,874 Net investment income......................................................... 10,357 10,631 11,054 Other revenues................................................................ 1,062 1,354 1,532 Net investment gains (losses) (net of amounts allocable from other accounts of ($259), ($139) and ($33), respectively)..................................... (287) (697) 951 ------- ------- ------- Total revenues............................................................. 31,204 31,676 32,434 ------- ------- ------- Expenses Policyholder benefits and claims (excludes amounts directly related to net investment gains (losses) of ($233), ($150) and ($54), respectively)........ 18,677 18,860 18,265 Interest credited to policyholder account balances............................ 2,379 2,711 3,035 Policyholder dividends........................................................ 1,897 1,911 2,060 Other expenses (excludes amounts directly related to net investment gains (losses) of ($26), $11 and $21, respectively)............................... 5,836 6,543 6,920 ------- ------- ------- Total expenses............................................................. 28,789 30,025 30,280 ------- ------- ------- Income from continuing operations before provision for income taxes........... 2,415 1,651 2,154 Provision for income taxes.................................................... 688 510 774 ------- ------- ------- Income from continuing operations............................................. 1,727 1,141 1,380 Income from discontinued operations, net of income taxes...................... 300 471 107 ------- ------- ------- Income before cumulative effect of change in accounting....................... 2,027 1,612 1,487 Cumulative effect of change in accounting, net of income taxes................ (26) -- -- ------- ------- ------- Net income.................................................................... $ 2,001 $ 1,612 $ 1,487 ======= ======= =======
See accompanying notes to consolidated financial statements. F-3 Metropolitan Life Insurance Company and Subsidiaries Consolidated Statements of Stockholder's Equity For the years ended December 31, 2003, 2002 and 2001 (Dollars in millions)
Additional Preferred Common Paid-in Retained Stock Stock Capital Earnings --------- ------ ---------- -------- Balance at December 31, 2000........................... $-- $ 5 $14,549 $ 407 Sale of subsidiary to the Holding Company.............. 96 Issuance of warrants--by subsidiary.................... 40 Dividends on common stock.............................. (1,860) (1,894) Comprehensive income: Net income.......................................... 1,487 Other comprehensive income: Cumulative effect of change in accounting for derivatives, net of income taxes and reclassification adjustment..................... Unrealized gains on derivative instruments, net of income taxes............................. Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... Foreign currency translation adjustment.......... Minimum pension liability adjustment............. Other comprehensive income....................... Comprehensive income................................ --- --- ------- ------- Balance at December 31, 2001........................... -- 5 12,825 -- Sale of subsidiary to the Holding Company.............. 149 Capital contribution from the Holding Company.......... 500 Dividends on common stock.............................. (904) Comprehensive income: Net income.......................................... 1,612 Other comprehensive income: Unrealized losses on derivative instruments, net of income taxes............................. Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... Foreign currency translation adjustment.......... Other comprehensive income....................... Comprehensive income................................ --- --- ------- ------- Balance at December 31, 2002........................... -- 5 13,474 708 Issuance of preferred stock--by subsidiary............. 93 Issuance of shares--by subsidiary...................... 24 Issuance of stock options.............................. 2 Sale of subsidiaries to the Holding Company or affiliate............................................. 261 Capital contribution from the Holding Company.......... 2 Return of capital to the Holding Company............... (33) Dividends on common stock.............................. (1,448) Comprehensive income: Net income.......................................... 2,001 Other comprehensive income: Unrealized losses on derivative instruments, net of income taxes............................. Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... Foreign currency translation adjustment.......... Minimum pension liability adjustment............. Other comprehensive income....................... Comprehensive income................................ --- --- ------- ------- Balance at December 31, 2003........................... $93 $ 5 $13,730 $ 1,261 === === ======= =======
Accumulated Other Comprehensive Income (Loss) -------------------------------------------- Net Foreign Minimum Unrealized Currency Pension Investment Translation Liability (Losses) Gains Adjustment Adjustment Total -------------- ----------- ---------- ------- Balance at December 31, 2000........................... $1,183 $(100) $ (28) $16,016 Sale of subsidiary to the Holding Company.............. 96 Issuance of warrants--by subsidiary.................... 40 Dividends on common stock.............................. (3,754) Comprehensive income: Net income.......................................... 1,487 Other comprehensive income: Cumulative effect of change in accounting for derivatives, net of income taxes and reclassification adjustment..................... 22 22 Unrealized gains on derivative instruments, net of income taxes............................. 24 24 Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... 570 570 Foreign currency translation adjustment.......... (39) (39) Minimum pension liability adjustment............. (18) (18) ------- Other comprehensive income....................... 559 ------- Comprehensive income................................ 2,046 ------ ----- ----- ------- Balance at December 31, 2001........................... 1,799 (139) (46) 14,444 Sale of subsidiary to the Holding Company.............. 149 Capital contribution from the Holding Company.......... 500 Dividends on common stock.............................. (904) Comprehensive income: Net income.......................................... 1,612 Other comprehensive income: Unrealized losses on derivative instruments, net of income taxes............................. (58) (58) Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... 250 250 Foreign currency translation adjustment.......... 72 72 ------- Other comprehensive income....................... 264 ------- Comprehensive income................................ 1,876 ------ ----- ----- ------- Balance at December 31, 2002........................... 1,991 (67) (46) 16,065 Issuance of preferred stock--by subsidiary............. 93 Issuance of shares--by subsidiary...................... 24 Issuance of stock options.............................. 2 Sale of subsidiaries to the Holding Company or affiliate............................................. 261 Capital contribution from the Holding Company.......... 2 Return of capital to the Holding Company............... (33) Dividends on common stock.............................. (1,448) Comprehensive income: Net income.......................................... 2,001 Other comprehensive income: Unrealized losses on derivative instruments, net of income taxes............................. (228) (228) Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes.................................... 642 642 Foreign currency translation adjustment.......... 174 174 Minimum pension liability adjustment............. (82) (82) ------- Other comprehensive income....................... 506 ------- Comprehensive income................................ 2,507 ------ ----- ----- ------- Balance at December 31, 2003........................... $2,405 $ 107 $(128) $17,473 ====== ===== ===== =======
See accompanying notes to consolidated financial statements. F-4 Metropolitan Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2003, 2002 and 2001 (Dollars in millions)
2003 2002 2001 -------- -------- -------- Cash flows from operating activities Net income............................................................. $ 2,001 $ 1,612 $ 1,487 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses.............................. 386 432 521 Amortization of premiums and accretion of discounts associated with investments, net.................................................. (162) (456) (560) (Gains) losses from sales of investments and businesses, net........ 125 256 (918) Interest credited to other policyholder account balances............ 2,379 2,711 3,035 Universal life and investment-type product policy fees.............. (1,921) (1,927) (1,874) Change in premiums and other receivables............................ (81) (1,878) (612) Change in deferred policy acquisition costs, net.................... (902) (766) (553) Change in insurance-related liabilities............................. 4,210 4,550 3,463 Change in income taxes payable...................................... 250 684 871 Change in other liabilities......................................... 725 106 (226) Other, net.......................................................... (485) (937) (946) -------- -------- -------- Net cash provided by operating activities.............................. 6,525 4,387 3,688 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities.................................................... 69,292 61,473 51,479 Equity securities................................................... 576 2,676 2,116 Mortgage loans on real estate....................................... 3,221 2,555 1,834 Real estate and real estate joint ventures.......................... 888 714 1,131 Other limited partnership interests................................. 307 209 396 Purchases of: Fixed maturities.................................................... (90,122) (79,509) (51,122) Equity securities................................................... (104) (1,235) (3,323) Mortgage loans on real estate....................................... (4,354) (3,111) (3,310) Real estate and real estate joint ventures.......................... (310) (28) (665) Other limited partnership interests................................. (588) (447) (424) Net change in short-term investments................................... (183) (308) (303) Proceeds from sales of businesses...................................... 1,995 749 831 Net change in payable under securities loaned transactions............. 7,744 3,659 361 Other, net............................................................. (1,141) (815) (510) -------- -------- -------- Net cash used in investing activities.................................. $(12,779) $(13,418) $ (1,509) ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 Metropolitan Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows--(Continued) For the years ended December 31, 2003, 2002 and 2001 (Dollars in millions)
2003 2002 2001 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits........................................................... $ 29,054 $ 30,457 $ 31,407 Withdrawals........................................................ (22,268) (24,880) (27,846) Net change in short-term debt......................................... 2,624 567 (740) Long-term debt issued................................................. 145 537 353 Long-term debt repaid................................................. (714) (221) (1,379) Capital contribution from the Holding Company......................... 148 649 96 Net proceeds from issuance of company-obligated mandatorily redeemable securities of subsidiary trust...................................... -- -- 197 Dividends on common stock............................................. (1,448) (904) (3,754) -------- -------- -------- Net cash provided by (used in) financing activities................... 7,541 6,205 (1,666) -------- -------- -------- Change in cash and cash equivalents................................... 1,287 (2,826) 513 Cash and cash equivalents, beginning of year.......................... 1,106 3,932 3,419 -------- -------- -------- Cash and cash equivalents, end of year................................ $ 2,393 $ 1,106 $ 3,932 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid (refunded) during the year: Interest....................................................... $ 344 $ 267 $ 346 ======== ======== ======== Income taxes................................................... $ 789 $ 96 $ (335) ======== ======== ======== Non-cash transactions during the year: Business dispositions--assets.................................. $ 5,506 $ 17,276 $ 6,162 ======== ======== ======== Business dispositions--liabilities............................. $ 3,511 $ 16,547 $ 5,263 ======== ======== ======== Mortgage note on sale of real estate........................... $ -- $ -- $ 1,530 ======== ======== ======== Purchase money mortgage on real estate sale.................... $ 196 $ 954 $ -- ======== ======== ======== Real estate acquired in satisfaction of debt................... $ 14 $ 30 $ 30 ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and other financial services to a broad spectrum of individual and institutional customers. The Company offers life insurance, annuities, and mutual funds to individuals, as well as group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. Metropolitan Life is a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"). The Company offered automobile and homeowners insurance through Metropolitan Property and Casualty Insurance Company, which was sold to the Holding Company in 2003. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York 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 conformity with GAAP in making such determination. The accompanying consolidated financial statements include the accounts of (i) Metropolitan Life and its subsidiaries; (ii) partnerships and joint ventures in which the Company has a majority voting interest; and (iii) variable interest entities ("VIEs") created or acquired on or after February 1, 2003 of which the Company is deemed to be the primary beneficiary. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. See Note 6. Intercompany accounts and transactions have been eliminated. Metropolitan Insurance and Annuity Company ("MIAC" ), which was sold to MetLife in 2001; Cova Corporation, MetLife Investors Group, Inc., MetLife International Holdings, Inc., Walnut Street Securities, Inc., Seguros Genesis S.A., MetLife Pensiones S.A. and Metropolitan Life Seguros de Vida S.A., which were sold to MetLife in 2002; and Metropolitan Property and Casualty Insurance Company and its subsidiaries, Metropolitan Tower Life Insurance Company, MetLife General Insurance Agency, Inc. and its subsidiaries, MetLife Securities, Inc. and N.L. Holding Corporation and its subsidiaries, which were sold to MetLife in 2003, are included in the accompanying financial statements until the date of sale. See Note 17. The Company uses the equity method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than minor influence over the partnership's operations, but does not have a controlling interest. The Company uses the cost method of accounting for interests in which it has a minor equity investment and virtually no influence over the partnership's operations. Minority interest related to consolidated entities included in other liabilities was $1,233 million and $481 million at December 31, 2003 and 2002, respectively. This increase was the direct result of the change in Metropolitan Life's ownership of Reinsurance Group of America Incorporated ("RGA") to approximately 52% in 2003 as compared to 58% in 2002. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2003 presentation. F-7 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Summary of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies, estimates and related judgments underlying the Company's consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Investments The Company's principal investments are in fixed maturities, mortgage loans and real estate, all of which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; (vi) unfavorable changes in forecasted cash flows on asset-backed securities; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on: (i) valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. In addition, the Company enters into certain structured investment transactions, real estate joint ventures and limited partnerships for which the Company may be deemed to be the primary beneficiary and, therefore, may be required to consolidate such investments. The accounting rules for the determination of the primary beneficiary are complex and require evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity's expected losses and expected residual returns and the allocation of such estimates to each party. Derivatives The Company enters into freestanding derivative transactions primarily to manage the risk associated with variability in cash flows or changes in fair values related to the Company's financial assets and liabilities or to changing fair values. The Company also uses derivative instruments to hedge its currency exposure associated with net investments in certain foreign operations. The Company also purchases investment securities, issues certain insurance policies and engages in certain reinsurance contracts that embed derivatives. The associated financial statement risk is the volatility in net income which can result from (i) changes in fair value of derivatives not qualifying as accounting hedges; (ii) ineffectiveness of designated hedges; and (iii) counterparty default. In addition, there is a risk that embedded derivatives requiring bifurcation are not identified and reported F-8 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) at fair value in the consolidated financial statements. Accounting for derivatives is complex, as evidenced by significant authoritative interpretations of the primary accounting standards which continue to evolve, as well as the significant judgments and estimates involved in determining fair value in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances. Such assumptions include estimated volatility and interest rates used in the determination of fair value where quoted market values are not available. The use of different assumptions may have a material effect on the estimated fair value amounts. Deferred Policy Acquisition Costs The Company incurs significant costs in connection with acquiring new and renewal insurance business. These costs, which vary with and are primarily related to the production of that business, are deferred. The recovery of such costs is dependent upon the future profitability of the related business. The amount of future profit is dependent principally on investment returns in excess of the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns are most likely to impact the rate of amortization of such costs. The aforementioned factors enter into management's estimates of gross margins and profits, which generally are used to amortize such costs. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross margins and profits are less than amounts deferred. In addition, the Company utilizes the reversion to the mean assumption, a standard industry practice, in its determination of the amortization of deferred policy acquisition cost ("DAC"), including value of business acquired ("VOBA"). This practice assumes that the expectation for long-term appreciation in equity markets is not changed by minor short-term market fluctuations, but that it does change when large interim deviations have occurred. Future Policy Benefits The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disability insurance. Generally, amounts are payable over an extended period of time and liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. The Company also establishes liabilities for unpaid claims and claims expenses for property and casualty insurance. Liabilities for property and casualty insurance are dependent on estimates of amounts payable for claims reported but not settled and claims incurred but not reported. These estimates are influenced by historical experience and actuarial assumptions with respect to current developments, anticipated trends and risk management strategies. Differences between the actual experience and assumptions used in pricing these policies and in the establishment of liabilities result in variances in profit and could result in losses. Reinsurance The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to F-9 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. Additionally, for each of its reinsurance contracts, the Company must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If the Company determines that a reinsurance contract does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the contract using the deposit method of accounting. Litigation The Company is a party to a number of legal actions. Given the inherent unpredictability of litigation, it is difficult to estimate the impact of litigation on the Company's consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including the Company's asbestos-related liability, are especially difficult to estimate due to the limitation of available data and uncertainty regarding numerous variables used to determine amounts recorded. The data and variables that impact the assumption used to estimate the Company's asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. It is possible that an adverse outcome in certain of the Company's litigation, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's consolidated net income or cash flows in particular quarterly or annual periods. Employee Benefit Plans The Company sponsors pension and other retirement plans in various forms covering employees who meet specified eligibility requirements. The reported expense and liability associated with these plans requires an extensive use of assumptions which include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company. Management determines these assumptions based upon currently available market and industry data, historical performance of the plan and its assets, and consultation with an independent consulting actuarial firm to aid it in selecting appropriate assumptions and valuing its related liabilities. The actuarial assumptions used in the calculation of the Company's aggregate projected benefit obligation may vary and include an expectation of long-term market appreciation in equity markets which is not changed by minor short-term market fluctuations, but does change when large interim deviations occur. These assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have a significant effect on the Company's consolidated financial statements and liquidity. Significant Accounting Policies Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other- than-temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of F-10 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Such valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. The Company also establishes allowances for loan loss when a loss contingency exists for pools of loans with similar characteristics based on property types and loan to value risk factors. A loss contingency exists when the likelihood that a future event will occur is probable based on past events. Changes in valuation allowances are included in net investment gains and losses. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan's contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or where the collection of interest is not considered probable. Cash receipts on impaired loans are recorded as a reduction of the recorded investment. Real estate held-for-investment, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Once the Company identifies a property that is expected to be sold within one year and commences a firm plan for marketing the property, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), the Company, if applicable, classifies the property as held-for-sale and reports the related net investment income and any resulting investment gains and losses as discontinued operations. Real estate held-for-sale is stated at the lower of depreciated cost or fair value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. Cost of real estate held-for-investment is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains and losses. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired upon foreclosure of commercial and agricultural mortgage loans is recorded at the lower of estimated fair value or the carrying value of the mortgage loan at the date of foreclosure. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Other invested assets consist principally of leveraged leases and funds withheld at interest. The leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions which are diversified by industry, asset type and geographic area. The Company regularly reviews residual values and impairs residuals to expected values as needed. Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the reinsured policies and equal to the net statutory reserves are withheld and continue to be legally owned by the ceding companies. Other invested assets also includes the fair value of embedded derivatives related to funds withheld and modified coinsurance contracts. The Company recognizes interest on funds withheld in accordance with the treaty terms as investment income is earned on the assets supporting the reinsured policies. F-11 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Structured Investment Transactions The Company participates in structured investment transactions, primarily asset securitizations and structured notes. These transactions enhance the Company's total return of the investment portfolio principally by generating management fee income on asset securitizations and by providing equity-based returns on debt securities through structured notes and similar instruments. The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on these beneficial interests is recognized using the prospective method in accordance with Emerging Issues Task Force ("EITF") Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments ("EITF 99-20"). The SPEs used to securitize assets are not consolidated by the Company because the Company has determined that it is not the primary beneficiary of these entities based on the framework provided in Financial Accounting Standards Board ("FASB") Interpretation No. 46 (revised December 31, 2003), Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51 ("FIN 46(r)"). Prior to the adoption of FIN 46(r), such SPEs were not consolidated because they did not meet the criteria for consolidation under previous accounting guidance. The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets, including corporate equities, debt securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company's exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management strategy, including asset-liability management. These SPEs are not consolidated by the Company because the Company has determined that it is not the primary beneficiary of these entities based on the framework provided in FIN 46(r). Prior to the adoption of FIN 46(r), such SPEs were not consolidated because they did not meet the criteria for consolidation under previous accounting guidance. These beneficial interests are generally structured notes, as defined by EITF Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes, which are included in fixed maturities, and their income is recognized using the retrospective interest method or the level yield method, as appropriate. Impairments of these beneficial interests are included in net investment gains and losses. Derivative Financial Instruments The Company uses derivative instruments to manage risk through one of five principal risk management strategies, the hedging of: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; (iv) net investments in certain foreign operations; and (v) firm commitments and forecasted transactions. Additionally, the Company enters into income generation and replication derivative transactions as permitted by its insurance subsidiaries' Derivatives Use Plans approved by the applicable state insurance departments. The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, foreign currency forwards, and options, including caps and floors. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify for hedge F-12 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) accounting, according to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), the changes in its fair value and all scheduled periodic settlement receipts and payments are reported in net investment gains or losses. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, foreign operation, or forecasted transaction that has been designated as a hedged item, states how the hedging instrument is expected to hedge the risks related to the hedged item, and sets forth the method that will be used to retrospectively and prospectively assess the hedging instruments effectiveness and the method that will be used to measure hedge ineffectiveness. The Company generally determines hedge effectiveness based on total changes in fair value of a derivative instrument. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) the derivative is de-designated as a hedge instrument; (iv) it is probable that the forecasted transaction will not occur; (v) a hedged firm commitment no longer meets the definition of a firm commitment; or (vi) management determines that designation of the derivative as a hedge instrument is no longer appropriate. The Company designates and accounts for the following as cash flow hedges, when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) foreign currency forwards to hedge the exposure of future payments or receipts in foreign currencies; and (v) other instruments to hedge the cash flows of various other forecasted transactions. For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported in other comprehensive income or loss. The ineffective portion of changes in fair value of the derivative instrument is reported in net investment gains or losses. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company designates and accounts for the following as fair value hedges when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert fixed rate investments to floating rate investments; (ii) receive U.S. dollar floating on foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments; (iii) pay U.S. dollar floating on foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated liabilities, and (iv) other instruments to hedge various other fair value exposures of investments. For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported as net investment gains or losses. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried on the consolidated balance sheet at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheet and recognized as a net investment gain or loss in the current period. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried on the consolidated balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive F-13 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) income or loss are recognized immediately in net investment gains or losses. When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in other comprehensive income or loss and is recognized when the transaction affects net income or loss; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value on the consolidated balance sheet, with changes in its fair value recognized in the current period as net investment gains or losses. The Company uses forward exchange contracts that provide an economic hedge on portions of its net investments in foreign operations against adverse movements in foreign currency exchange rates. Unrealized losses on instruments so designated are recorded as components of accumulated other comprehensive income. The Company may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determines whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded on the consolidated balance sheet at fair value and changes in their fair value are recognized in the current period in net investment gains or losses. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the consolidated balance sheet at fair value, with changes in fair value recognized in the current period as net investment gains or losses. The Company also uses derivatives to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These securities, called replication synthetic asset transactions ("RSATs"), are a combination of a credit default swap and a U.S. Treasury or Agency security, to synthetically create a third replicated security. These derivatives are not designated as hedges. As of December 31, 2003 and 2002, 23 and 18, respectively, of such RSATs, with notional amounts totaling $479 million and $275 million, respectively, were outstanding. The Company records both the premiums received on the credit default swaps over the life of the contracts and changes in their fair value in net investment gains and losses. The Company enters into written covered calls to generate additional investment income on the underlying assets it holds. These derivatives are not designated as hedges. The Company records the premiums received over the life of the contract and changes in fair value of such options as net investment gains and losses. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment, Leasehold Improvements and Computer Software Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years-digits method over the estimated useful lives of the assets. The estimated life for company occupied real estate property is generally 40 years. Estimated lives range from five to ten years for leasehold improvements and three to five years for all other property and equipment. Accumulated depreciation and F-14 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) amortization of property, equipment and leasehold improvements was $394 million and $368 million at December 31, 2003 and 2002, respectively. Related depreciation and amortization expense was $101 million, $81 million and $96 million for the years ended December 31, 2003, 2002 and 2001, respectively. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a three-year period using the straight-line method. Accumulated amortization of capitalized software was $376 million and $297 million at December 31, 2003 and 2002, respectively. Related amortization expense was $139 million, $153 million and $106 million for the years ended December 31, 2003, 2002 and 2001, respectively. Deferred Policy Acquisition Costs The costs of acquiring new and renewal insurance business that vary with, and are primarily related to, the production of that business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, DAC is amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management utilizes the reversion to the mean assumption, a standard industry practice, in its determination of the amortization of DAC. This practice assumes that the expectation for long-term equity investment appreciation is not changed by minor short-term market fluctuations, but that it does change when large interim deviations have occurred. Management periodically updates these estimates and evaluates the recoverability of DAC. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is reestimated and adjusted by a cumulative charge or credit to current operations. DAC for non-participating traditional life, non-medical health and annuity policies with life contingencies is amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Policy acquisition costs related to internally replaced contracts are expensed at the date of replacement. DAC for property and casualty insurance contracts, which is primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. VOBA, included as part of DAC, represents the present value of future profits generated from existing insurance contracts in-force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the estimated gross profits or premiums from such policies and contracts. Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. On January 1, 2002, the Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, F-15 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) ("SFAS 142"). In accordance with SFAS 142, goodwill is not amortized but is tested for impairment at least annually to determine whether a write down of the cost of the asset is required. Impairments are recognized in operating results when the carrying amount of goodwill exceeds its implied fair value. Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line basis over a period ranging from ten to 30 years and impairments were recognized in operating results when permanent diminution in value was deemed to have occurred. Changes in goodwill were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ----- ----- ---- (Dollars in millions) Net balance at January 1.. $ 405 $ 575 $703 Acquisitions.............. 3 7 20 Amortization.............. -- -- (47) Impairment losses......... -- (2) (61) Disposition and other..... (190) (175) (40) ----- ----- ---- Net balance at December 31 $ 218 $ 405 $575 ===== ===== ====
Accumulated amortization from goodwill was as follows at:
December 31, ------------------ 2003 2002 ---- ---- (Dollars in millions) Accumulated amortization $32 $71 === ===
Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges and are recognized in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Other Revenues Other revenues include asset management and advisory fees, broker/dealer commissions and fees, and administrative service fees. Such fees and commissions are recognized in the period in which services are F-16 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) performed. Other revenues also include changes in account value relating to corporate-owned life insurance ("COLI"). Under certain COLI contracts, if the Company reports certain unlikely adverse results in its consolidated financial statements, withdrawals would not be immediately available and would be subject to market value adjustment, which could result in a reduction of the account value. Policyholder Dividends Policyholder dividends are approved annually by the insurance subsidiaries' boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 13% and 16% of the Company's life insurance in-force, and 88% and 89% of the number of life insurance policies in-force, at December 31, 2003 and 2002, respectively. Participating policies represented approximately 40% and 41%, 40% and 41%, and 44% and 46% of gross and net life insurance premiums for the years ended December 31, 2003, 2002 and 2001, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes The Holding Company and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. DAC is reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement and is reported in other revenue. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and F-17 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) liabilities. Deposits to separate accounts, investment income and recognized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the revenues of the Company. Fees charged to contractholders, principally mortality, policy administration and surrender charges are included in universal life and investment-type product fees. See "--Application of Recent Accounting Pronouncements." Stock-Based Compensation Effective January 1, 2003, MetLife and the Company account for stock-based compensation plans using the prospective fair value method prescribed by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), as amended by SFAS 148, Accounting for Stock-Based Compensation--Transition and Disclosure ("SFAS 148"). MetLife allocates 100% of stock option expense to the Company. Stock-based compensation grants prior to January 1, 2003 are accounted for using the accounting method prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees ("APB 25") and Note 14 includes the pro forma disclosures required by SFAS No. 123, as amended. Foreign Currency Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income or loss. Gains and losses from foreign currency transactions are reported in earnings. Discontinued Operations The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale on or after January 1, 2002 are reported in discontinued operations if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. Application of Recent Accounting Pronouncements Effective December 31, 2003, the Company adopted EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides guidance on the disclosure requirements for other-than-temporary impairments of debt and marketable equity investments that are accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). The adoption of EITF 03-1 requires the Company to include certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS 115 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. (See Note 2). The initial adoption of EITF 03-1, which only required additional disclosures, did not have a material impact on the Company's consolidated financial statements. In December, 2003, the FASB revised SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits--an Amendment of FASB Statements No. 87, 88 and 106 ("SFAS 132(r)"). SFAS 132(r) retains most of the disclosure requirements of SFAS 132 and requires additional disclosure about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined F-18 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) postretirement plans. SFAS 132(r) is primarily effective for fiscal years ending after December 15, 2003; however, certain disclosures about foreign plans and estimated future benefit payments are effective for fiscal years ending after June 15, 2004. The Company's adoption of SFAS 132(r) on December 31, 2003 did not have a significant impact on its consolidated financial statements since it only revises disclosure requirements. In January 2004, the FASB issued FASB Staff Position ("FSP") No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("FSP 106-1") which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the new legislation. The Company has elected to defer the accounting until further guidance is issued by the FASB. The measurements of the Company's postretirement accumulated benefit plan obligation and net periodic benefit cost disclosed in Note 13 do not reflect the effects of the new legislation. The guidance, when issued, could require the Company to change previously reported information. In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance on (i) the classification and valuation of long-duration contract liabilities, (ii) the accounting for sales inducements and (iii) separate account presentation and valuation. SOP 03-1 is effective for fiscal years beginning after December 15, 2003. As of January 1, 2004, the Company increased future policyholder benefits for various guaranteed minimum death and income benefits net of DAC and unearned revenue liability offsets under certain variable annuity and universal life contracts of approximately $61 million, net of income tax, which will be reported as a cumulative effect of a change in accounting. Industry standards and practices continue to evolve relating to the valuation of liabilities relating to these types of benefits, which may result in further adjustments to the Company's measurement of liabilities associated with such benefits in subsequent accounting periods. Effective with the adoption of SOP 03-1, costs associated with enhanced or bonus crediting rates to contractholders must be deferred and amortized over the life of the related contract using assumptions consistent with the amortization of DAC, which has been the Company's accounting treatment. Effective January 1, 2004, the Company reclassified $116 million of ownership in its own separate accounts from other assets to fixed maturities available-for-sale and equity securities. This reclassification will have no effect on net income or other comprehensive income. In accordance with SOP 03-1's revised definition of a separate account, effective January 1, 2004, the Company also reclassified $1,678 million of separate account assets to general account investments and $1,678 million of separate account liabilities to future policy benefits and policyholder account balances. The net cumulative effect of this reclassification was insignificant. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS 150"). SFAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as a liability or, in certain circumstances, an asset. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150, as of July 1, 2003, required the Company to reclassify $277 million of company-obligated mandatorily redeemable securities of subsidiary trusts from mezzanine equity to liabilities. In April 2003, the FASB cleared Statement 133 Implementation Issue No. B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("Issue B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or receivable under certain F-19 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) reinsurance arrangements, and (ii) a debt instrument that incorporates credit risk exposures that are unrelated or only partially related to the creditworthiness of the obligor include an embedded derivative feature that is not clearly and closely related to the host contract. Therefore, the embedded derivative feature must be measured at fair value on the balance sheet and changes in fair value reported in income. Issue B36 became effective on October 1, 2003 and required the Company to increase policyholder account balances by $40 million, to decrease other invested assets by $1 million and increase DAC by $2 million. These amounts, net of income taxes of $13 million, were recorded as a cumulative effect of a change in accounting. As a result of the adoption of Issue B36, the Company recognized investment gains of $9 million, net of income tax, for the three month period ended December 31, 2003. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Except for certain implementation guidance that is incorporated in SFAS 149 and already effective, SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Company's adoption of SFAS 149 on July 1, 2003 did not have a significant impact on the consolidated financial statements. During 2003, the Company adopted FASB Interpretation No. 46 Consolidation of Variable Interest Entities--An Interpretation of ARB No. 51 ("FIN 46") and its December 2003 revision ("FIN 46(r)"). Certain of the Company's asset-backed securitizations, collateralized debt obligations, structured investment transactions, and investments in real estate joint ventures and other limited partnership interests meet the definition of a variable interest entity ("VIE") and must be consolidated, in accordance with the transition rules and effective dates, if the Company is deemed to be the primary beneficiary. A VIE is defined as (i) any entity in which the equity investments at risk in such entity do not have the characteristics of a controlling financial interest or (ii) any entity that does not have sufficient equity at risk to finance its activities without additional subordinated support from other parties. Effective February 1, 2003, the Company adopted FIN 46 for VIEs created or acquired on or after February 1, 2003 and, effective December 31, 2003, the Company adopted FIN 46(r) with respect to interests in entities formerly considered special purpose entities ("SPEs") including interests in asset-backed securities and collateralized debt obligations. In accordance with the provisions in FIN 46(r), the Company has elected to defer until March 31, 2004 the consolidation of interests in VIEs for non SPEs acquired prior to February 1, 2003 for which it is the primary beneficiary. The adoption of FIN 46 as of February 1, 2003 did not have a significant impact on the Company's consolidated financial statements. The adoption of the provisions of FIN 46(r) at December 31, 2003 did not require the Company to consolidate any additional VIEs that were not previously consolidated. Effective January 1, 2003, the Company adopted FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires entities to establish liabilities for certain types of guarantees and expands financial statement disclosures for others. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a significant impact on the Company's consolidated financial statements. See Note 12. Effective January 1, 2003, MetLife and the Company adopted SFAS No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure ("SFAS 148"), which provides guidance on how to apply the fair value method of accounting and use the prospective transition method for stock options granted by the Holding Company and the Company subsequent to December 31, 2002. As permitted under SFAS 148, options granted prior to January 1, 2003 will continue to be accounted for under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and the pro forma impact of accounting for these options at fair value will continue to be disclosed in the consolidated financial statements until the last of those options vest in 2005. See Note 14. F-20 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Effective January 1, 2003, the Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recorded and measured initially at fair value only when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity Including Certain Costs Incurred in a Restructuring ("EITF 94-3"). The Company's activities subject to this guidance in 2003 were not significant. Effective January 1, 2003, the Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). In addition to amending or rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS 145 generally precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS 145 also requires sale-leaseback treatment for certain modifications of a capital lease that result in the lease being classified as an operating lease. The adoption of SFAS 145 did not have a significant impact on the Company's consolidated financial statements. Effective January 1, 2002, the Company adopted SFAS 144. SFAS 144 provides a single model for accounting for long-lived assets to be disposed of by superseding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less costs to sell, rather than on a net realizable value basis. Future operating losses relating to discontinued operations also are no longer recognized before they occur. SFAS 144 (i) broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business); (ii) requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed; and (iii) retains the basic provisions of (a) APB 30 regarding the presentation of discontinued operations in the statements of income, (b) SFAS 121 relating to recognition and measurement of impaired long-lived assets (other than goodwill), and (c) SFAS 121 relating to the measurement of long-lived assets classified as held-for-sale. Adoption of SFAS 144 did not have a material impact on the Company's consolidated financial statements other than the presentation as discontinued operations of net investment income and net investment gains related to operations of real estate on which the Company initiated disposition activities subsequent to January 1, 2002 and the classification of such real estate as held-for-sale on the consolidated balance sheets. See Note 18. Effective January 1, 2002, the Company adopted SFAS No. 142. SFAS 142 eliminates the systematic amortization and establishes criteria for measuring the impairment of goodwill and certain other intangible assets by reporting unit. Amortization of goodwill, prior to the adoption of SFAS 142 was $47 million for the year ended December 31, 2001. Amortization of other intangible assets was not material for the years ended December 31, 2003, 2002 and 2001. The Company completed the required impairment tests of goodwill and indefinite-lived intangible assets in the third quarter of 2002 and recorded a $5 million charge to earnings relating to the impairment of certain goodwill assets as a cumulative effect of a change in accounting. There was no impairment of identified intangible assets or significant reclassifications between goodwill and other intangible assets at January 1, 2002. Effective July 1, 2001, the Company adopted SFAS No. 141, Business Combinations ("SFAS 141"). SFAS 141 requires the purchase method of accounting for all business combinations and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. In accordance with SFAS 141, the elimination of $5 million of negative goodwill was reported in net income in the first quarter of 2002 as a cumulative effect of a change in accounting. F-21 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) In July 2001, the U.S. Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. The application of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-- a Replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The initial adoption of these requirements did not have a material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted EITF 99-20, Recognition of Interest Income and Impairment on Certain Investments. This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The initial adoption of EITF 99-20 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2001, the Company adopted SFAS 133 which established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of SFAS 133, as of January 1, 2001, resulted in a $33 million increase in other comprehensive income, net of income taxes of $18 million, and had no material impact on net income. The increase to other comprehensive income is attributable to net gains on cash flow-type hedges at transition. Also at transition, the amortized cost of fixed maturities decreased and other invested assets increased by $22 million, representing the fair value of certain interest rate swaps that were accounted for prior to SFAS 133 using fair value-type settlement accounting. During the year ended December 31, 2001, $18 million of the pre-tax gain reported in accumulated other comprehensive income at transition was reclassified into net investment income. The FASB continues to issue additional guidance relating to the accounting for derivatives under SFAS 133, which may result in further adjustments to the Company's treatment of derivatives in subsequent accounting periods. F-22 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 2. Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2003 were as follows:
Gross Cost or Unrealized Amortized ----------- Estimated Cost Gain Loss Fair Value --------- ------ ---- ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. corporate securities................. $ 49,466 $3,486 $228 $ 52,724 Mortgage-backed securities................ 28,049 687 81 28,655 Foreign corporate securities.............. 18,680 2,005 70 20,615 U.S. treasuries/agencies.................. 13,249 1,208 23 14,434 Asset-backed securities................... 10,414 169 54 10,529 Commercial mortgage-backed securities..... 9,080 480 15 9,545 Foreign government securities............. 4,847 752 20 5,579 States and political subdivisions......... 282 11 8 285 Other fixed income assets................. 232 138 62 308 -------- ------ ---- -------- Total bonds............................ 134,299 8,936 561 142,674 Redeemable preferred stocks................... 545 2 73 474 -------- ------ ---- -------- Total fixed maturities................. $134,844 $8,938 $634 $143,148 ======== ====== ==== ======== Equity Securities: Common stocks................................. $ 514 $ 329 $ 1 $ 842 Nonredeemable preferred stocks................ 379 25 -- 404 -------- ------ ---- -------- Total equity securities................ $ 893 $ 354 $ 1 $ 1,246 ======== ====== ==== ========
F-23 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Fixed maturities and equity securities at December 31, 2002 were as follows:
Cost or Gross Unrealized Amortized ---------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. corporate securities................. $ 42,265 $2,914 $ 896 $ 44,283 Mortgage-backed securities................ 24,999 1,018 15 26,002 Foreign corporate securities.............. 15,405 1,295 185 16,515 U.S. treasuries/agencies.................. 13,256 1,514 3 14,767 Asset-backed securities................... 8,070 204 181 8,093 Commercial mortgage-backed securities..... 5,445 516 5 5,956 Foreign government securities............. 4,649 516 50 5,115 States and political subdivisions......... 2,575 181 20 2,736 Other fixed income assets................. 312 126 82 356 -------- ------ ------ -------- Total bonds............................ 116,976 8,284 1,437 123,823 Redeemable preferred stocks................... 552 1 116 437 -------- ------ ------ -------- Total fixed maturities................. $117,528 $8,285 $1,553 $124,260 ======== ====== ====== ======== Equity Securities: Common stocks............................. $ 827 $ 114 $ 80 $ 861 Nonredeemable preferred stocks............ 668 25 3 690 -------- ------ ------ -------- Total equity securities................ $ 1,495 $ 139 $ 83 $ 1,551 ======== ====== ====== ========
The Company held foreign currency derivatives with notional amounts of $4,242 million and $2,371 million to hedge the exchange rate risk associated with foreign bonds and loans at December 31, 2003 and 2002, respectively. The Company held fixed maturities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $11,814 million and $11,041 million at December 31, 2003 and 2002, respectively. These securities had a net unrealized gain of $839 million at December 31, 2003 and a net unrealized loss of $378 million at December 31, 2002. Non-income producing fixed maturities were $357 million and $456 million at December 31, 2003 and 2002, respectively. F-24 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The cost or amortized cost and estimated fair value of bonds at December 31, 2003, by contractual maturity date (excluding scheduled sinking funds), are shown below:
Cost or Amortized Estimated Cost Fair Value --------- ---------- (Dollars in millions) Due in one year or less.................... $ 4,084 $ 4,233 Due after one year through five years...... 25,388 26,737 Due after five years through ten years..... 24,539 26,662 Due after ten years........................ 32,745 36,313 -------- -------- Subtotal................................ 86,756 93,945 Mortgage-backed and asset-backed securities 47,543 48,729 -------- -------- Subtotal................................ 134,299 142,674 Redeemable preferred stock................. 545 474 -------- -------- Total fixed maturities.................. $134,844 $143,148 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of fixed maturities and equity securities classified as available-for-sale were as follows:
Years Ended December 31, ------------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Proceeds............... $48,390 $34,918 $27,576 Gross investment gains. $ 446 $ 1,683 $ 634 Gross investment losses $ (452) $ (973) $ (934)
Gross investment losses above exclude writedowns recorded during 2003, 2002 and 2001 for other-than-temporarily impaired available-for-sale fixed maturities and equity securities of $328 million, $1,342 million and $278 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. F-25 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The following table shows the estimated fair values and gross unrealized losses of the Company's fixed maturities, aggregated by sector and length of time that the securities have been in a continuous unrealized loss position at December 31, 2003:
Equal to or Greater Less than 12 months than 12 months Total -------------------- -------------------- -------------------- Estimated Gross Estimated Gross Estimated Gross Fair Unrealized Fair Unrealized Fair Unrealized Value Loss Value Loss Value Loss --------- ---------- --------- ---------- --------- ---------- (Dollars in millions) U.S. corporate securities............ $ 6,338 $136 $ 962 $ 92 $ 7,300 $228 Mortgage-backed securities........... 7,133 78 18 3 7,151 81 Foreign corporate securities......... 2,446 57 331 13 2,777 70 U.S. treasuries/agencies............. 3,526 23 -- -- 3,526 23 Asset-backed securities.............. 2,295 29 780 25 3,075 54 Commercial mortgage-backed securities 1,998 13 227 2 2,225 15 Foreign government securities........ 225 20 2 -- 227 20 States and political subdivisions.... 131 8 -- -- 131 8 Other fixed income assets............ 12 52 40 10 52 62 ------- ---- ------ ---- ------- ---- Total bonds....................... 24,104 416 2,360 145 26,464 561 Redeemable preferred stocks.......... 192 60 279 13 471 73 ------- ---- ------ ---- ------- ---- Total fixed maturities............ $24,296 $476 $2,639 $158 $26,935 $634 ======= ==== ====== ==== ======= ====
At December 31, 2003, the Company had gross unrealized losses of $1 million from equity securities that had been in an unrealized loss position for less than twelve months. The amount of unrealized losses from equity securities that had been in an unrealized loss position for twelve months or greater is less than $1 million at December 31, 2003. The fair value of those equity securities that had been in an unrealized loss position for less than twelve months and for twelve months or greater at December 31, 2003, is $18 million and $21 million, respectively. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $22,290 million and $13,477 million and an estimated fair value of $23,461 million and $16,120 million were on loan under the program at December 31, 2003 and 2002, respectively. The Company was liable for cash collateral under its control of $24,065 million and $16,321 million at December 31, 2003 and 2002, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $1,286 million and $939 million at December 31, 2003 and 2002, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,711 million and $1,430 million at December 31, 2003 and 2002, respectively. F-26 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31, ------------------------------ 2003 2002 -------------- -------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.. $21,597 81% $20,433 80% Agricultural mortgage loans 5,166 19% 5,042 20% ------- --- ------- --- Total................... 26,763 100% 25,475 100% === === Less: Valuation allowances. 126 122 ------- ------- Mortgage loans.......... $26,637 $25,353 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2003, approximately 20%, 12% and 7% of the properties were located in California, New York and Florida, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Mortgage loans at December 31, 2003 and 2002 include $1,998 million and $1,515 million, respectively to MIAC, a related party, in connection with MIAC's purchase of real estate from the Company in 2001 and 2003. In addition, certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $639 million and $620 million at December 31, 2003 and 2002, respectively. Changes in mortgage loan valuation allowances were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ---- ---- ---- (Dollars in millions) Balance at January 1...... $122 $144 $ 83 Additions................. 50 39 106 Deductions................ (46) (56) (45) Dispositions of affiliates -- (5) -- ---- ---- ---- Balance at December 31.... $126 $122 $144 ==== ==== ====
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, ------------------ 2003 2002 ---- ---- (Dollars in millions) Impaired mortgage loans with valuation allowances... $286 $604 Impaired mortgage loans without valuation allowances 146 257 ---- ---- Total............................................ 432 861 Less: Valuation allowances on impaired mortgages.... 61 121 ---- ---- Impaired mortgage loans.......................... $371 $740 ==== ====
F-27 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The average investment in impaired mortgage loans on real estate was $615 million, $1,068 million and $938 million for the years ended December 31, 2003, 2002 and 2001, respectively. Interest income on impaired mortgage loans was $55 million, $88 million and $103 million for the years ended December 31, 2003, 2002 and 2001, respectively. The investment in restructured mortgage loans on real estate was $188 million and $410 million at December 31, 2003 and 2002, respectively. Interest income of $19 million, $44 million and $76 million was recognized on restructured loans for the years ended December 31, 2003, 2002 and 2001, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $24 million, $41 million and $60 million for the years ended December 31, 2003, 2002 and 2001, respectively. Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $35 million and $28 million at December 31, 2003 and 2002, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, -------------------- 2003 2002 ------ ------ (Dollars in millions) Real estate and real estate joint ventures held-for-investment $3,446 $3,321 Impairments................................................... (283) (271) ------ ------ Total...................................................... 3,163 3,050 ------ ------ Real estate held-for-sale..................................... 101 815 Impairments................................................... -- (5) Valuation allowance........................................... (12) (11) ------ ------ Total...................................................... 89 799 ------ ------ Real estate and real estate joint ventures............. $3,252 $3,849 ====== ======
Accumulated depreciation on real estate was $1,226 million and $1,319 million at December 31, 2003 and 2002, respectively. The related depreciation expense was $124 million, $180 million and $217 million for the years ended December 31, 2003, 2002 and 2001, respectively. These amounts include $15 million, $66 million and $93 million of depreciation expense related to discontinued operations for the years ended December 31, 2003, 2002 and 2001, respectively. F-28 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Real estate and real estate joint ventures were categorized as follows:
December 31, ---------------------------- 2003 2002 ------------- ------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office..... $1,597 49 % $2,244 58 % Retail..... 660 20 697 18 Apartments. 499 15 454 12 Land....... 77 2 87 2 Agriculture 1 -- 7 -- Other...... 418 14 360 10 ------ --- ------ ---- Total... $3,252 100% $3,849 100 % ====== === ====== ====
The Company's real estate holdings are primarily located throughout the United States. At December 31, 2003, approximately 25%, 21% and 17% of the Company's real estate holdings were located in California, Texas and New York, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ---- ---- ---- (Dollars in millions) Balance at January 1...................... $ 11 $ 35 $ 39 Additions charged to investment income.... 17 21 16 Deductions for writedowns and dispositions (16) (45) (20) ---- ---- ---- Balance at December 31.................... $ 12 $ 11 $ 35 ==== ==== ====
Investment income related to impaired real estate and real estate joint ventures held-for-investment was $35 million, $48 million and $34 million for the years ended December 31, 2003, 2002 and 2001, respectively. There was no investment income related to impaired real estate and real estate joint ventures held-for-sale for the year ended December 31, 2003. Investment income related to impaired real estate and real estate joint ventures held-for-sale was $3 million and $19 million for the years ended December 31, 2002 and 2001, respectively. The carrying value of non-income producing real estate and real estate joint ventures was $67 million and $62 million at December 31, 2003 and 2002, respectively. The Company owned real estate acquired in satisfaction of debt of $1 million and $8 million at December 31, 2003 and 2002, respectively. F-29 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, -------------------- 2003 2002 ------ ------ (Dollars in millions) Investment............... $ 974 $ 985 Estimated residual values 386 428 ------ ------ Total................. 1,360 1,413 Unearned income.......... (380) (368) ------ ------ Leveraged leases...... $ 980 $1,045 ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from one to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. The Company's deferred tax liability related to leveraged leases was $870 million and $981 million at December 31, 2003 and 2002, respectively. Net Investment Income The components of net investment income were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Fixed maturities................................. $ 7,757 $ 7,844 $ 8,449 Equity securities................................ 26 42 61 Mortgage loans on real estate.................... 1,811 1,840 1,838 Real estate and real estate joint ventures (1)... 612 673 824 Policy loans..................................... 510 512 527 Other limited partnership interests.............. 75 57 48 Cash, cash equivalents and short-term investments 83 228 264 Other............................................ 315 286 244 ------- ------- ------- Total......................................... 11,189 11,482 12,255 Less: Investment expenses (1).................... 832 851 1,201 ------- ------- ------- Net investment income......................... $10,357 $10,631 $11,054 ======= ======= =======
- -------- (1)Excludes amounts related to real estate held-for-sale presented as discontinued operations in accordance with SFAS 144. F-30 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Net Investment Gains (Losses) Net investment gains (losses), including changes in valuation allowances, and related policyholder amounts were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ----- ----- ------ (Dollars in millions) Fixed maturities............................... $(373) $(862) $ (644) Equity securities.............................. 39 230 66 Mortgage loans on real estate.................. (51) (21) (91) Real estate and real estate joint ventures (1). 19 (6) 1,626 Other limited partnership interests............ (84) (2) (161) Sales of businesses............................ 5 (7) 25 Derivatives (2)................................ (122) (140) 124 Other.......................................... 21 (28) (27) ----- ----- ------ Total................................... (546) (836) 918 Amounts allocated from: Deferred policy acquisition costs........... 26 (11) (21) Participating contracts..................... 89 (7) (105) Policyholder dividend obligation............ 144 157 159 ----- ----- ------ Total net investment gains (losses)..... $(287) $(697) $ 951 ===== ===== ======
- -------- (1)The amounts presented exclude amounts related to sales of real estate held-for-sale presented as discontinued operations in accordance with SFAS 144. (2)The amounts presented include scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS 133. Investment gains and losses are net of related policyholder amounts. The amounts netted against investment gains and losses are (i) amortization of DAC to the extent that such amortization results from investment gains and losses; (ii) adjustments to participating contractholder accounts when amounts equal to such investment gains and losses are applied to the contractholder's accounts; and (iii) adjustments to the policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Real estate and real estate joint ventures net investment gains for 2001 include $1,630 million related to the sale of real estate to MIAC. F-31 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Net Unrealized Investment Gains The components of net unrealized investment gains, included in accumulated other comprehensive income, were as follows:
Years Ended December 31, ------------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Fixed maturities........................... $ 8,094 $ 6,701 $ 2,958 Equity securities.......................... 353 56 619 Derivatives................................ (395) (24) 71 Other invested assets...................... (55) 1 59 ------- ------- ------- Total................................... 7,997 6,734 3,707 ------- ------- ------- Amounts allocated from: Future policy benefit loss recognition.. (1,453) (1,242) (30) Deferred policy acquisition costs....... (495) (366) (6) Participating contracts................. (117) (129) (127) Policyholder dividend obligation........ (2,130) (1,882) (708) Deferred income taxes...................... (1,397) (1,124) (1,037) ------- ------- ------- Total................................... (5,592) (4,743) (1,908) ------- ------- ------- Net unrealized investment gains..... $ 2,405 $ 1,991 $ 1,799 ======= ======= =======
The changes in net unrealized investment gains were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ------ ------- ------ (Dollars in millions) Balance at January 1................................................. $1,991 $ 1,799 $1,183 Unrealized investment gains during the year.......................... 994 2,803 1,391 Unrealized investment gains (losses) relating to: Future policy benefit (loss) gain recognition..................... (211) (1,212) 254 Deferred policy acquisition costs................................. (129) (204) (128) Participating contracts........................................... 12 (2) 6 Policyholder dividend obligation.................................. (248) (1,174) (323) Deferred income taxes................................................ (179) (72) (475) Unrealized investment gains (losses) of subsidiaries at date of sale, net of deferred income taxes....................................... 175 53 (109) ------ ------- ------ Balance at December 31............................................... $2,405 $ 1,991 $1,799 ====== ======= ====== Net change in unrealized investment gains............................ $ 414 $ 192 $ 616 ====== ======= ======
Structured Investment Transactions The Company securitizes high yield debt securities, investment grade bonds and structured finance securities. The Company has sponsored four securitizations with a total of approximately $1,431 million in financial assets as of December 31, 2003. The Company's beneficial interests in these SPEs as of December 31, 2003 and 2002 and the related investment income for the years ended December 31, 2003, 2002 and 2001 were insignificant. F-32 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The Company also invests in structured notes and similar type instruments, which generally provide equity-based returns on debt securities. The carrying value of such investments was approximately $880 million and $870 million at December 31, 2003 and 2002, respectively. The related income recognized was $78 million, $1 million and $44 million for the years ended December 31, 2003, 2002 and 2001, respectively. Variable Interest Entities As discussed in Note 1, the Company has adopted the provisions of FIN 46 and FIN46(r). At December 31, 2003, FIN 46(r) did not require the Company to consolidate any additional VIEs that were not previously consolidated. The following table presents the total assets of and maximum exposure to loss relating to VIEs for which the Company has concluded that (i) it is the primary beneficiary and which will be consolidated in the Company's financial statements beginning March 31, 2004 and (ii) it holds significant valuable interests but it is not the primary beneficiary and which will not be consolidated:
December 31, 2003 ------------------------------------------------------- Primary Beneficiary (1) Not Primary Beneficiary --------------------------- --------------------------- Total Maximum Exposure Total Maximum Exposure Assets (2) to Loss (3) Assets (2) to Loss (3) ---------- ---------------- ---------- ---------------- (Dollars in millions) SPEs: Asset-backed securitizations and collateralized debt obligations $ -- $ -- $2,400 $20 Non-SPEs: Real estate joint ventures (4)... 617 238 42 59 Other limited partnerships (5)... 29 27 445 10 ---- ---- ------ --- Total......................... $646 $265 $2,887 $89 ==== ==== ====== ===
- -------- (1)Had the Company consolidated these VIEs at December 31, 2003, the transition adjustments would have been $10 million, net of income tax. (2)The assets of the asset-backed securitizations and collateralized debt obligations are reflected at fair value as of December 31, 2003. The assets of the real estate joint ventures and other limited partnerships are reflected at the carrying amounts at which such assets would have been reflected on the Company's balance sheet had the Company consolidated the VIE from the date of its initial investment in the entity. (3)The maximum exposure to loss of the asset-backed securitizations and collateralized debt obligations is equal to the carrying amounts of retained interests. In addition, the Company provides collateral management services for certain of these structures for which it collects a management fee. The maximum exposure to loss relating to real estate joint ventures and other limited partnerships is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by other partners. (4)Real estate joint ventures include partnerships and other ventures, which engage in the acquisition, development, management and disposal of real estate investments. (5)Other limited partnerships include partnerships established for the purpose of investing in public and private debt and equity securities, as well as limited partnerships established for the purpose of investing in low-income housing that qualifies for federal tax credits. F-33 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 3. Derivative Financial Instruments The table below provides a summary of notional amount and fair value of derivative financial instruments held at December 31, 2003 and 2002:
2003 2002 --------------------------- --------------------------- Current Market Current Market or Fair Value or Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) Financial futures................ $ 1,015 $ 8 $ 24 $ 4 $ -- $ -- Interest rate swaps.............. 9,921 189 36 3,866 196 126 Floors........................... 325 5 -- 325 9 -- Caps............................. 9,483 29 -- 7,770 -- -- Financial forwards............... 1,310 2 3 1,870 -- 12 Foreign currency swaps........... 4,679 9 791 2,371 92 181 Options.......................... 6,065 7 -- 6,472 9 -- Foreign currency forwards........ 528 -- 10 1 -- -- Credit default swaps............. 605 2 1 376 2 -- ------- ---- ---- ------- ---- ---- Total contractual commitments. $33,931 $251 $865 $23,055 $308 $319 ======= ==== ==== ======= ==== ====
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2003 and 2002:
December 31, 2002 Terminations/ December 31, 2003 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures............................ $ 4 $ 1,543 $ 532 $ 1,015 Interest rate swaps.......................... 3,866 8,040 1,985 9,921 Floors....................................... 325 -- -- 325 Caps......................................... 7,770 3,000 1,287 9,483 Financial forwards........................... 1,870 1,310 1,870 1,310 Foreign currency swaps....................... 2,371 2,516 208 4,679 Options...................................... 6,472 -- 407 6,065 Foreign currency forwards.................... 1 527 -- 528 Written covered calls........................ -- 1,178 1,178 -- Credit default swaps......................... 376 284 55 605 ------- ------- ------ ------- Total contractual commitments............. $23,055 $18,398 $7,522 $33,931 ======= ======= ====== ======= BY DERIVATIVE STRATEGY Liability hedging............................ $ 8,683 $ 5,030 $1,187 $12,526 Invested asset hedging....................... 5,284 6,671 1,459 10,496 Portfolio hedging............................ 9,028 2,323 4,429 6,922 Firm commitments and forecasted transactions. 60 3,847 447 3,460 Hedging net investments in foreign operations -- 527 -- 527 ------- ------- ------ ------- Total contractual commitments............. $23,055 $18,398 $7,522 $33,931 ======= ======= ====== =======
F-34 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2003:
Remaining Life --------------------------------------------------------------------- One Year After One Year After Five Years or Less Through Five Years Through Ten Years After Ten Years Total -------- ------------------ ----------------- --------------- ------- (Dollars in millions) Financial futures................ $ 1,015 $ -- $ -- $ -- $ 1,015 Interest rate swaps.............. 242 6,297 1,716 1,666 9,921 Floors........................... -- -- 325 -- 325 Caps............................. 3,000 6,483 -- -- 9,483 Financial forwards............... 1,310 -- -- -- 1,310 Foreign currency swaps........... 326 1,663 2,255 435 4,679 Options.......................... 4,163 1,901 -- 1 6,065 Foreign currency forwards........ 528 -- -- -- 528 Credit default swaps............. 209 396 -- -- 605 ------- ------- ------ ------ ------- Total contractual commitments. $10,793 $16,740 $4,296 $2,102 $33,931 ======= ======= ====== ====== =======
The following table presents the notional amounts and fair values of derivatives by type of hedge designation at December 31, 2003 and 2002:
2003 2002 -------------------------- --------------------------- Fair Value Fair Value ----------------- ------------------ Notional Notional Amount Asset Liabilities Amount Assets Liabilities -------- ----- ----------- -------- ------ ----------- (Dollars in millions) BY TYPE OF HEDGE Fair value........ $ 3,678 $ 27 $291 $ 418 $ -- $ 64 Cash flow......... 12,968 54 422 3,445 69 72 Foreign Operations 527 -- 10 -- -- -- Non qualifying.... 16,758 170 142 19,192 239 183 ------- ---- ---- ------- ---- ---- Total.......... $33,931 $251 $865 $23,055 $308 $319 ======= ==== ==== ======= ==== ====
The company recognizes net investment expense of $61 million and $4 million and net investment income of $8 million, from the periodic settlement of interest rate caps and interest rate, foreign currency and credit default swaps that qualify as accounting hedges under SFAS No. 133, as amended, for the years ended December 31, 2003, 2002 and 2001, respectively. During the years ended December 31, 2003 and 2002, the Company recognized $184 million and $30 million, respectively, in net investment losses related to qualifying fair value hedges. Accordingly, $158 million and $34 million of net unrealized gains on fair value hedged investments were recognized in net investment losses during the years ended December 31, 2003 and 2002, respectively. There were no discontinued fair value hedges during the years ended December 31, 2003 or 2002. There were no derivatives designated as fair value hedges during the year ended December 31, 2001. For the years ended December 31, 2003 and 2002, the net amounts accumulated in other comprehensive income relating to cash flow hedges were losses of $379 million and $24 million, respectively. For the years ended December 31, 2003 and 2002, the market value of cash flow hedges decreased by $418 million and $145 million, respectively. During the years ended December 31, 2003 and 2002, the Company recognized other F-35 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) comprehensive net losses of $349 million and $142 million, respectively, relating to the effective portion of cash flow hedges. During the year ended December 31, 2003, other comprehensive expense of $2 million was reclassified to net investment income. During the year ended December 31, 2002, other comprehensive losses of $57 million were reclassified to net investment losses. During the year ended December 31, 2003, insignificant amounts were recognized in net investment losses related to discontinued cash flow hedges. During the year ended December 31, 2002 and 2001 no cash flow hedges were discontinued. For the years ended December 31, 2003, 2002 and 2001, $8 million, $10 million and $19 million of other comprehensive income was reclassified to net investment income, respectively, related to the SFAS 133 transition adjustment. Approximately $2 million of net investment expense and $17 million of net losses reported in accumulated other comprehensive income at December 31, 2003 are expected to be reclassified during the year ending December 31, 2004 into net investment income and net investment loss, respectively, as the derivatives and underlying investments mature or expire according to their original terms. For the years ended December 31, 2003, 2002 and 2001, the Company recognized as net investment gains, the settlement payments on derivative instruments of $84 million, $32 million and $24 million, respectively, and net investment losses from changes in fair value of $206 million and $172 million and net investment gains of $100 million, respectively, related to derivatives not qualifying as accounting hedges. The Company uses forward exchange contracts that provide an economic hedge on portions of its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the year ended December 31, 2003, the Company experienced net unrealized foreign currency losses of $10 million related to hedges of its net investments in foreign operations. These unrealized losses were recorded as components of accumulated other comprehensive income. F-36 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 4. Insurance Deferred Policy Acquisition Costs Information regarding VOBA and DAC for the years ended December 31, 2003, 2002 and 2001 is as follows:
Deferred Value of Policy Business Acquisition Acquired Costs Total -------- ----------- ------- (Dollars in millions) Balance at December 31, 2000............ $1,674 $ 8,823 $10,497 Capitalizations......................... -- 2,018 2,018 ------ ------- ------- Total............................ 1,674 10,841 12,515 Amortization allocated to: Net investment gains (losses)........ (15) 36 21 Unrealized investment gains (losses). 16 112 128 Other expenses....................... 178 1,256 1,434 ------ ------- ------- Total amortization............... 179 1,404 1,583 Dispositions and other.................. 7 (468) (461) ------ ------- ------- Balance at December 31, 2001............ 1,502 8,969 10,471 Capitalizations......................... -- 2,227 2,227 ------ ------- ------- Total............................ 1,502 11,196 12,698 Amortization allocated to: Net investment gains (losses)........ 16 (5) 11 Unrealized investment gains (losses). 31 173 204 Other expenses....................... 121 1,380 1,501 ------ ------- ------- Total amortization............... 168 1,548 1,716 Dispositions and other.................. (463) (853) (1,316) ------ ------- ------- Balance at December 31, 2002............ 871 8,795 9,666 Capitalizations......................... -- 1,982 1,982 Acquisitions............................ -- 218 218 ------ ------- ------- Total............................ 871 10,995 11,866 Amortization allocated to: -- Net investment gains (losses)........ (5) (21) (26) Unrealized investment gains (losses). (9) 138 129 Other expenses....................... 49 1,332 1,381 ------ ------- ------- Total amortization............... 35 1,449 1,484 Dispositions and other.................. -- (150) (150) ------ ------- ------- Balance at December 31, 2003............ $ 836 $ 9,396 $10,232 ====== ======= =======
The estimated future amortization expense allocated to other expenses for VOBA is $71 million in 2004, $69 million in 2005, $63 million in 2006, $59 million in 2007 and $56 million in 2008. Amortization of VOBA and DAC is allocated to (i) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (ii) unrealized investment gains and losses to provide information regarding the amount that would F-37 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) have been amortized if such gains and losses had been recognized, and (iii) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of VOBA and DAC. Presenting investment gains and losses net of related amortization of VOBA and DAC provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 3% to 9%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (ii) the liability for terminal dividends, and (iii) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after DAC is written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 9%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 7%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 8%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 1% to 13%, less expenses, mortality charges, and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. Separate Accounts Separate accounts include two categories of account types: non-guaranteed separate accounts totaling $47,198 million and $38,702 million at December 31, 2003 and 2002, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $16,463 million and $15,210 million at December 31, 2003 and 2002, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $451 million, $461 million and $559 million for the years ended December 31, F-38 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 2003, 2002 and 2001, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close-out contracts. The average interest rates credited on these contracts were 4.5% and 4.8% at December 31, 2003 and 2002, respectively. The assets that support these liabilities were comprised of $13,504 million and $12,979 million in fixed maturities at December 31, 2003 and 2002, respectively. 5. Reinsurance The Company's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. The Company currently reinsures up to 90% of the mortality risk for all new individual life insurance policies that it writes through its various franchises. This practice was initiated by different franchises for different products starting at various points in time between 1992 and 2000. Risks in excess of $25 million on single life policies and $30 million on survivorship policies are 100% coinsured. In addition, in 1998, the Company reinsured substantially all of the mortality risk on its universal life policies issued since 1983. RGA retains a maximum of $6 million of coverage per individual life with respect to its assumed reinsurance business. The Company reinsures its business through a diversified group of reinsurers. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks of specific characteristics. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. In addition to reinsuring mortality risk, the Company reinsures other risks and specific coverages. The Company routinely reinsures certain classes of risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company has exposure to catastrophes, which are an inherent risk of the property and casualty business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company has also protected itself through the purchase of combination risk coverage. This reinsurance coverage pools risks from several lines of business and includes individual and group life claims in excess of $2 million per policy, as well as excess property and casualty losses, among others. See Note 12 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years Ended December 31, ------------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Direct premiums............................................ $16,843 $17,859 $16,257 Reinsurance assumed........................................ 3,568 2,948 2,786 Reinsurance ceded.......................................... (2,260) (2,346) (2,020) ------- ------- ------- Net premiums............................................... $18,151 $18,461 $17,023 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits $ 2,175 $ 2,478 $ 2,069 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,692 million and $3,833 million at December 31, 2003 and 2002, respectively, including $1,341 million and $1,348 million, respectively, F-39 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $102 million and $74 million at December 31, 2003 and 2002, respectively. Included in premiums and other receivables are reinsurance recoverables due from Exeter Reassurance Company, Limited, a related party, of $507 million and $502 million at December 31, 2003 and 2002, respectively. Included in future policy benefits, other policyholder funds, and policyholder account balances are reinsurance liabilities assumed from MIAC, Cova Corporation, MetLife Investor's Group, Inc. and MetLife International Holdings, Inc., related parties, of $790 million, $1,807 million, and $190 million and $772 million, $1,694 million, and $136 million, respectively, at December 31, 2003 and 2002. The following table provides an analysis of the activity in the liability for benefits relating to property and casualty group accident and non-medical health policies and contracts (See Note 17):
Years Ended December 31, ------------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Balance at January 1............. $ 4,821 $ 4,597 $ 4,226 Reinsurance recoverables...... (496) (457) (410) ------- ------- ------- Net balance at January 1......... 4,325 4,140 3,816 ------- ------- ------- Incurred related to: Current year.................. 3,816 4,219 4,182 Prior years................... 28 (81) (84) ------- ------- ------- 3,844 4,138 4,098 ------- ------- ------- Paid related to: Current year.................. (2,153) (2,559) (2,538) Prior years................... (1,290) (1,332) (1,236) ------- ------- ------- (3,443) (3,891) (3,774) ------- ------- ------- Dispositions..................... (1,450) (62) -- Net Balance at December 31....... 3,276 4,325 4,140 Add: Reinsurance recoverables. 284 496 457 ------- ------- ------- Balance at December 31........... $ 3,560 $ 4,821 $ 4,597 ======= ======= =======
6. Closed Block On April 7, 2000 ("the date of demutualization"), Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience. F-40 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. F-41 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Closed block liabilities and assets designated to the closed block are as follows:
December 31, -------------------- 2003 2002 ------- ------- (Dollars in millions) CLOSED BLOCK LIABILITIES Future policy benefits.................................................... $41,928 $41,207 Other policyholder funds.................................................. 260 279 Policyholder dividends payable............................................ 682 719 Policyholder dividend obligation.......................................... 2,130 1,882 Payables under securities loaned transactions............................. 6,418 4,851 Other liabilities......................................................... 180 433 ------- ------- Total closed block liabilities..................................... 51,598 49,371 ------- ------- ASSETS DESIGNATED TO THE CLOSED BLOCK Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $30,381 and $28,339, respectively).................. 32,348 29,981 Equity securities, at fair value (cost: $217 and $236, respectively)... 250 218 Mortgage loans on real estate.......................................... 7,431 7,032 Policy loans........................................................... 4,036 3,988 Short-term investments................................................. 123 24 Other invested assets.................................................. 108 604 ------- ------- Total investments.................................................. 44,296 41,847 Cash and cash equivalents................................................. 531 435 Accrued investment income................................................. 527 540 Deferred income taxes..................................................... 1,043 1,151 Premiums and other receivables............................................ 164 130 ------- ------- Total assets designated to the closed block........................ 46,561 44,103 ------- ------- Excess of closed block liabilities over assets designated to to the closed block................................................................... 5,037 5,268 ------- ------- Amounts included in accumulated other comprehensive loss: Net unrealized investment gains, net of deferred income tax of $730 and $577, respectively............................ 1,270 1,047 Unrealized derivative gains (losses), net of deferred income tax (benefit) expense of $(28) and $7, respectively.................. (48) 13 Allocated to policyholder dividend obligation, net of deferred income tax benefit of ($778) and ($668), respectively....... (1,352) (1,214) ------- ------- (130) (154) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities............................................ $ 4,907 $ 5,114 ======= =======
F-42 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Information regarding the policyholder dividend obligation is as follows:
Years Ended December 31, --------------------- 2003 2002 2001 ------ ------ ----- (Dollars in millions) Balance at beginning of year................................... $1,882 $ 708 $ 385 Impact on net income before amounts allocated from policyholder dividend obligation.......................................... 144 157 159 Net investment gains (losses).................................. (144) (157) (159) Change in unrealized investment and derivative gains........... 248 1,174 323 ------ ------ ----- Balance at end of year......................................... $2,130 $1,882 $ 708 ====== ====== =====
Closed block revenues and expenses were as follows:
Years Ended December 31, ----------------------- 2003 2002 2001 ------ ------ ------ (Dollars in millions) REVENUES Premiums................................................................ $3,365 $3,551 $3,658 Net investment income and other revenues................................ 2,554 2,568 2,547 Net investment gains (losses) (net of amounts allocated from the policyholder dividend obligation of ($144), ($157) and ($159), respectively)......................................................... 16 168 (12) ------ ------ ------ Total revenues....................................................... 5,935 6,287 6,193 ------ ------ ------ EXPENSES Policyholder benefits and claims........................................ 3,660 3,770 3,862 Policyholder dividends.................................................. 1,509 1,573 1,544 Change in policyholder dividend obligation (excludes amounts directly related to net investment gains (losses) of ($144), ($157) and ($159), respectively)......................................................... 144 157 159 Other expenses.......................................................... 297 310 352 ------ ------ ------ Total expenses....................................................... 5,610 5,810 5,917 ------ ------ ------ Revenues net of expenses before income taxes............................ 325 477 276 Income taxes............................................................ 118 173 97 ------ ------ ------ Revenues net of expenses and income taxes............................... $ 207 $ 304 $ 179 ====== ====== ======
The change in maximum future earnings of the closed block is as follows:
Years Ended December 31, ---------------------- 2003 2002 2001 ------ ------ ------ (Dollars in millions) Balance at end of year.......... $4,907 $5,114 $5,333 Less: Reallocation of assets....... -- 85 -- Balance at beginning of year. 5,114 5,333 5,512 ------ ------ ------ Change during year.............. $ (207) $ (304) $ (179) ====== ====== ======
F-43 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) During the year ended December 31, 2002, the allocation of assets to the closed block was revised to appropriately classify assets in accordance with the plan of demutualization. The reallocation of assets had no impact on consolidated assets or liabilities. Metropolitan Life charges the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of demutualization. Metropolitan Life also charges the closed block for expenses of maintaining the policies included in the closed block. Many of the derivative instrument strategies used by the Company are also used for the closed block. The table below provides a summary of the notional amount and fair value of derivatives by hedge accounting classification at:
December 31, 2003 December 31, 2002 --------------------------- --------------------------- Fair Value Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) By Type of Hedge Fair value...... $ 6 $-- $ 1 $ -- $-- $-- Cash flow....... 473 -- 80 128 2 11 Non qualifying.. 90 -- 12 258 32 2 ---- --- --- ---- --- --- Total........ $569 $-- $93 $386 $34 $13 ==== === === ==== === ===
During the years ended December 31, 2003, 2002 and 2001, the closed block recognized net investment expenses of $2 million and net investment income of $1 million and $1 million, respectively, from the periodic settlement of interest rate caps and interest rate, foreign currency and credit default swaps that qualify as accounting hedges under SFAS 133, as amended. During the year ended December 31, 2003, the closed block recognized $1 million in net investment losses related to qualifying fair value hedges. Accordingly, $1 million of unrealized gains on fair value hedged investments was recognized in net investment losses during the year ended December 31, 2003. There were no fair value hedges during the years ended December 31, 2002 and 2001. There were no discontinued fair value hedges during the years ended December 31, 2003, 2002 and 2001. For the years ended December 31, 2003 and 2002, the net amounts accumulated in other comprehensive income relating to cash flow hedges were losses of $76 million and gains of $20 million, respectively. For the years ended December 31, 2003 and 2002, the market value of cash flow hedges decreased by $106 million and increased $4 million, respectively. During the years ended December 31, 2003 and 2002, the closed block recognized other comprehensive net losses of $93 million and other comprehensive net gains of $4 million, respectively, relating to the effective portion of cash flow hedges. During the years ended December 31, 2003, 2002 and 2001, no cash flow hedges were discontinued. For the years ended December 31, 2003 and 2002, $3 million and $4 million of other comprehensive income was reclassified to net investment income, respectively, related to the SFAS 133 transition adjustment. Amounts reclassified for transition adjustment for the year ended December 31, 2001 were insignificant. Approximately $5 million of net losses reported in accumulated other comprehensive income at December 31, 2003 are expected to be reclassified during the year ending December 31, 2004 into net investment losses as the derivatives and underlying investments mature or expire according to their original terms. F-44 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) For the years ended December 31, 2003, 2002 and 2001, scheduled periodic settlement payments on derivative instruments recognized as net investment gains and losses were immaterial. Net investment losses from changes in fair value of $18 million and $11 million and gains of $5 million related to derivatives not qualifying as accounting hedges were recognized for the years ended December 31, 2003, 2002 and 2001, respectively. 7. Debt Debt consisted of the following:
December 31, --------------------- 2003 2002 ------ ------ (Dollars in millions) Surplus notes, interest rates ranging from 7.00% to 7.88%, maturity dates ranging from 2005 to 2025.............................................................. $ 940 $1,632 Capital notes payable to the Holding Company, interest rate of 7.13%, maturity dates ranging from 2032 to 2033................................................ 500 500 Senior notes, interest rates ranging from 6.75% to 7.25%, maturity dates ranging from 2006 to 2011.............................................................. 299 298 Fixed rate notes, interest rates ranging from 1.69% to 12.00%, maturity dates ranging from 2005 to 2009...................................................... 103 33 Capital lease obligations........................................................ 74 21 Other notes with varying interest rates.......................................... 139 140 ------ ------ Total long-term debt............................................................. 2,055 2,624 Total short-term debt............................................................ 3,536 912 ------ ------ Total......................................................................... $5,591 $3,536 ====== ======
The Company maintains committed and unsecured credit facilities aggregating $2,478 million ($1,000 million expiring in 2004, $1,303 million expiring in 2005 and $175 million expiring in 2006). If these facilities were drawn upon, they would bear interest at rates stated in the agreements. The facilities are primarily used for general corporate purposes and as back-up lines of credit for the borrowers' commercial paper program. At December 31, 2003, the Company had drawn approximately $49 million under the facilities expiring in 2005 at interest rates ranging from 4.08% to 5.48% and approximately another $50 million under the facility expiring in 2006 at an interest rate of 1.69%. In April 2003, the Company replaced an expiring $1 billion five-year credit facility with a $1 billion 364-day credit facility and the Holding Company was added as a borrower. In May 2003, the Company replaced an expiring $140 million three-year credit facility, with a $175 million three-year credit facility which expires in 2006. At December 31, 2003, the Company had approximately $616 million in letters of credit from various banks. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. On November 1, 2003, the Company redeemed the $300 million of 7.45% surplus notes outstanding scheduled to mature on November 1, 2023 at a redemption price of $311 million. The aggregate maturities of long-term debt for the Company are $131 million in 2004, $309 million in 2005, $160 million in 2006, $14 million in 2007, $24 million in 2008 and $1,417 million thereafter. F-45 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 1.1% and a weighted average maturity of 33 days at December 31, 2003. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 1.4% and a weighted average maturity of 63 days at December 31, 2002. The Company also has other collateralized borrowings with a weighted average coupon rate of 5.07% and a weighted average maturity of 30 days at December 31, 2003. Such securities had a weighted average coupon rate of 5.83% and a weighted average maturity of 34 days at December 31, 2002. Interest expense related to the Company's indebtedness included in other expenses was $265 million, $208 million and $313 million for the years ended December 31, 2003, 2002 and 2001, respectively. 8. Shares Subject to Mandatory Redemption and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts GenAmerica Capital I. In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding were $119 million, net of unamortized discounts of $6 million, at both December 31, 2003 and 2002. Interest expense on these instruments is included in other expenses and was $11 million for each of the years ended December 31, 2003, 2002 and 2001. RGA Capital Trust I. In December 2001, a majority-owned subsidiary of the Company, RGA, through its wholly-owned trust, RGA Capital Trust I (the "Trust"), issued 4,500,000 Preferred Income Equity Redeemable Securities ("PIERS") Units. Each PIERS unit consists of (i) a preferred security issued by the trust, having a stated liquidation amount of $50 per unit, representing an undivided beneficial ownership interest in the assets of the Trust, which consist solely of junior subordinated debentures issued by RGA which have a principal amount at maturity of $50 and a stated maturity of March 18, 2051, and (ii) a warrant to purchase, at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an exercise price of $50. The fair market value of the warrant on the issuance date was $14.87 and is detachable from the preferred security. RGA fully and unconditionally guarantees, on a subordinated basis, the obligations of the Trust under the preferred securities. The preferred securities and subordinated debentures were issued at a discount (original issue discount) to the face or liquidation value of $14.87 per security. The securities will accrete to their $50 face/liquidation value over the life of the security on a level yield basis. The weighted average effective interest rate on the preferred securities and the subordinated debentures is 8.25% per annum. Capital securities outstanding were $158 million, net of unamortized discount of $67 million, at both December 31, 2003 and 2002. 9. September 11, 2001 Tragedies On September 11, 2001, terrorist attacks occurred in New York, Washington, D.C. and Pennsylvania (the "tragedies") triggering a significant loss of life and property, which had an adverse impact on certain of the Company's businesses. The Company's original estimate of the total insurance losses related to the tragedies, which was recorded in the third quarter of 2001, was $208 million, net of income taxes of $117 million. As of December 31, 2003 and 2002, the Company's remaining liability for unpaid and future claims associated with the tragedies was $9 million and $47 million, respectively, principally related to disability coverages. This estimate has been and will continue to be subject to revision in subsequent periods, as claims are received from insureds and processed. Any revision to the estimate of losses in subsequent periods will affect net income in such periods. F-46 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 10. Business Realignment Initiatives During the fourth quarter of 2001, the Company implemented several business realignment initiatives, which resulted from a strategic review of operations and an ongoing commitment to reduce expenses. The impact of these actions on a segment basis were charges of $399 million in Institutional, $97 million in Individual and $3 million in Auto & Home. The liability at December 31, 2003 and 2002 was $27 million and $40 million, in the Institutional segment and $9 million and $14 million, in the Individual segment, respectively. The remaining liability is due to certain contractual obligations. The remaining liability in the Individual segment as of December 31, 2002 does not include $4 million, related to MetLife Investors Group, Inc., a subsidiary sold to the Holding Company in December 2002. There was no liability remaining for Metlife Investors Group, Inc., as of December 31, 2003. 11. Income Taxes The provision for income taxes for continuing operations was as follows:
Years Ended December 31, -------------------- 2003 2002 2001 ---- ----- ---- (Dollars in millions) Current: Federal................ $357 $ 826 $(83) State and local........ 19 (18) (4) Foreign................ 2 (5) 15 ---- ----- ---- 378 803 (72) ---- ----- ---- Deferred: Federal................ 283 (322) 813 State and local........ 27 17 32 Foreign................ -- 12 1 ---- ----- ---- 310 (293) 846 ---- ----- ---- Provision for income taxes $688 $ 510 $774 ==== ===== ====
Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported for continuing operations were as follows:
Years Ended December 31, -------------------- 2003 2002 2001 ----- ---- ---- (Dollars in millions) Tax provision at U.S. statutory rate.............. $ 845 $578 $754 Tax effect of: Tax exempt investment income................... (101) (86) (82) State and local income taxes................... 42 18 29 Foreign operations net of foreign income taxes. (17) 4 4 Prior year taxes............................... (25) (8) 36 Sales of businesses............................ -- -- 5 Other, net..................................... (56) 4 28 ----- ---- ---- Provision for income taxes........................ $ 688 $510 $774 ===== ==== ====
F-47 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
December 31, -------------------- 2003 2002 ------- ------- (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables. $ 2,597 $ 3,020 Net operating losses..................... 245 187 Litigation related....................... 72 95 Other.................................... 179 286 ------- ------- 3,093 3,588 Less: Valuation allowance................ 16 14 ------- ------- 3,077 3,574 ------- ------- Deferred income tax liabilities: Investments.............................. 1,352 1,597 Deferred policy acquisition costs........ 2,815 2,699 Employee benefits........................ 151 65 Net unrealized investment gains.......... 1,397 1,124 Other.................................... 60 36 ------- ------- 5,775 5,521 ------- ------- Net deferred income tax liability........... $(2,698) $(1,947) ======= =======
Domestic net operating loss carryforwards amount to $650 million at December 31, 2003 and will expire beginning in 2013. Foreign net operating loss carryforwards amount to $55 million at December 31, 2003 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. The 2003 tax provision also includes an adjustment revising the estimate of income taxes for 2002. The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on its consolidated financial statements. 12. Commitments, Contingencies and Guarantees Litigation Sales Practices Claims Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." F-48 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) In December 1999, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, MIAC or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, have been settled. In October 2000, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by New England Mutual between January 1, 1983 through August 31, 1996. The class includes owners of approximately 600,000 in-force or terminated policies. A federal court has approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by General American between January 1, 1982 through December 31, 1996. An appellate court has affirmed the order approving the settlement. The class includes owners of approximately 250,000 in-force or terminated policies. Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices lawsuits. In addition, other sales practices lawsuits have been brought. As of December 31, 2003, there are approximately 366 sales practices lawsuits pending against Metropolitan Life, approximately 40 sales practices lawsuits pending against New England Mutual and approximately 25 sales practices lawsuits pending against General American. Metropolitan Life, New England Mutual and General American continue to defend themselves vigorously against these lawsuits. Some individual sales practices claims have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada, and these actions remain pending. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices claims against Metropolitan Life, New England Mutual and General American. Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Asbestos-Related Claims Metropolitan Life is also a defendant in thousands of lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products nor has Metropolitan Life issued liability or workers' compensation insurance to companies in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits have principally been based upon allegations relating to certain research, publication and F-49 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and have alleged that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Metropolitan Life believes that it should not have legal liability in such cases. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. Although Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse monetary judgments in respect of these claims, due to the risks and expenses of litigation, almost all past cases have been resolved by settlements. Metropolitan Life's defenses (beyond denial of certain factual allegations) to plaintiffs' claims include that: (i) Metropolitan Life owed no duty to the plaintiffs--it had no special relationship with the plaintiffs and did not manufacture, produce, distribute or sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs cannot demonstrate justifiable detrimental reliance; and (iii) plaintiffs cannot demonstrate proximate causation. In defending asbestos cases, Metropolitan Life selects various strategies depending upon the jurisdictions in which such cases are brought and other factors which, in Metropolitan Life's judgment, best protect Metropolitan Life's interests. Strategies include seeking to settle or compromise claims, motions challenging the legal or factual basis for such claims or defending on the merits at trial. In 2002 and 2003, trial courts in California, Utah and Georgia granted motions dismissing claims against Metropolitan Life on some or all of the above grounds. Other courts have denied motions brought by Metropolitan Life to dismiss cases without the necessity of trial. There can be no assurance that Metropolitan Life will receive favorable decisions on motions in the future. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. The following table sets forth the total number of asbestos personal injury claims pending against Metropolitan Life as of the dates indicated, the number of new claims during the years ended on those dates and the total settlement payments made to resolve asbestos personal injury claims during those years:
At or for the Years Ended December 31, ------------------------- 2003 2002 2001 -------- -------- ------- (Dollars in millions) Asbestos personal injury claims at year end (approximate) 111,700 106,500 89,000 Number of new claims during the year (approximate)....... 60,300 66,000 59,500 Settlement payments during the year (1).................. $ 84.2 $ 95.1 $ 90.7
- -------- (1)Settlement payments represent payments made by Metropolitan Life during the year in connection with settlements made in that year and in prior years. Amounts do not include Metropolitan Life's attorneys' fees and expenses and do not reflect amounts received from insurance carriers. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. The ability of Metropolitan Life to estimate its ultimate asbestos exposure is subject to considerable uncertainty due to numerous factors. The availability of data is limited and it is difficult to predict with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation, as well as advertising by plaintiffs' asbestos lawyers, may result in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible adverse verdicts Metropolitan Life may experience. Plaintiffs are seeking F-50 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) additional funds from defendants, including Metropolitan Life, in light of such recent bankruptcies by certain other defendants. In addition, publicity regarding legislative reform efforts may result in an increase in the number of claims. Metropolitan Life will continue to study its claims experience, review external literature regarding asbestos claims experience in the United States and consider numerous variables that can affect its asbestos liability exposure, including bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the recorded asbestos liability. The number of asbestos cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. During the fourth quarter of 2002, Metropolitan Life analyzed its claims experience and reviewed external publications and numerous variables to identify trends and assessed their impact on its recorded asbestos liability. Certain publications suggested a trend towards more asbestos-related claims and a greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers. Plaintiffs' lawyers continue to advertise heavily with respect to asbestos litigation. Bankruptcies and reorganizations of other defendants in asbestos litigation may increase the pressures on remaining defendants, including Metropolitan Life. Through the first nine months of 2002, the number of new claims received by Metropolitan Life was lower than those received during the comparable 2001 period. However, the number of new claims received by Metropolitan Life during the fourth quarter of 2002 was significantly higher than those received in the prior year quarter, resulting in more new claims being received by Metropolitan Life in 2002 than in 2001. Factors considered also included expected trends in filing cases, the dates of initial exposure of plaintiffs to asbestos, the likely percentage of total asbestos claims which included Metropolitan Life as a defendant and experience in claims settlement negotiations. Metropolitan Life also considered views derived from actuarial calculations it made in the fourth quarter of 2002. These calculations were made using, among other things, then current information regarding Metropolitan Life's claims and settlement experience, information available in public reports, as well as a study regarding the possible future incidence of mesothelioma. Based on all of the above information, including greater than expected claims experience in 2000, 2001 and 2002, Metropolitan Life expected to receive more claims in the future than it had previously expected. Previously, Metropolitan Life's liability reflected that the increase in asbestos-related claims was a result of an acceleration in the reporting of such claims; the liability now reflects that such an increase is also the result of an increase in the total number of asbestos-related claims expected to be received by Metropolitan Life. Accordingly, Metropolitan Life increased its recorded liability for asbestos-related claims by $402 million from approximately $820 million to $1,225 million at December 31, 2002. This total recorded asbestos-related liability (after the self-insured retention) is within the coverage of the excess insurance policies discussed below. The aforementioned analysis was updated through December 31, 2003. During 1998, Metropolitan Life paid $878 million in premiums for excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention. The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid by Metropolitan Life in any given year that may be recoverable in the next calendar year under the policies will be reflected as a reduction in the Company's F-51 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) operating cash flows for the year in which they are paid, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to Metropolitan Life at the commutation date if the reference fund is greater than zero at commutation or pro rata reductions from time to time in the loss reimbursements to Metropolitan Life if the cumulative return on the reference fund is less than the return specified in the experience fund. The return in the reference fund is tied to performance of the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. A claim was made under the excess insurance policies in 2003 for the amounts paid with respect to asbestos litigation in excess of the retention. Based on performance of the reference fund, at December 31, 2002, the loss reimbursements to Metropolitan Life in 2003 and the recoverable with respect to later periods was $42 million less than the amount of the recorded losses. Such foregone loss reimbursements may be recovered upon commutation depending upon future performance of the reference fund. The foregone loss reimbursements were estimated to be $9 million with respect to 2002 claims and estimated to be $42 million in the aggregate. The $402 million increase in the recorded liability for asbestos claims less the foregone loss reimbursement adjustment of $42 million ($27 million, net of income tax) resulted in an increase in the recoverable of $360 million. At December 31, 2002, a portion ($136 million) of the $360 million recoverable was recognized in income while the remainder ($224 million) was recorded as a deferred gain which is expected to be recognized in income in the future over the estimated settlement period of the excess insurance policies. The $402 million increase in the recorded liability, less the portion of the recoverable recognized in income, resulted in a net expense of $266 million ($169 million, net of income tax). The $360 million recoverable may change depending on the future performance of the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. As a result of the excess insurance policies, $1,237 million is recorded as a recoverable at December 31, 2002 ($224 million of which is recorded as a deferred gain as mentioned above); the amount includes recoveries for amounts paid in 2002. If at some point in the future, the Company believes the liability for probable and estimable losses for asbestos-related claims should be increased, an expense would be recorded and the insurance recoverable would be adjusted subject to the terms, conditions and limits of the excess insurance policies. Portions of the change in the insurance recoverable would be recorded as a deferred gain and amortized into income over the estimated remaining settlement period of the insurance policies. In 2003, Metropolitan Life also has been named as a defendant in a small number of silicosis, welding and mixed dust cases. The cases are pending in Mississippi, Texas, Ohio, Pennsylvania, West Virginia, Louisiana, Kentucky, Georgia, Alabama, Illinois and Arkansas. The Company intends to defend itself vigorously against these cases. Demutualization Actions Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization, as amended (the "plan") and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance (the "Superintendent") and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the New York state court in New York County were consolidated within the commercial part. In addition, there remained a separate purported class action in New York state court in New York County. On February 21, 2003, the defendants' motions to dismiss both the consolidated action and separate action were granted; leave to replead as a proceeding under Article 78 of New York's Civil Practice Law and Rules has been granted in the separate action. Plaintiffs in the consolidated action and separate action F-52 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) have filed notices of appeal. Another purported class action in New York state court in Kings County has been voluntarily held in abeyance by plaintiffs. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting and, in some instances, punitive damages. Some of the plaintiffs in the above described actions also have brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the Superintendent who approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. This case also is being held in abeyance by plaintiffs. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended complaint adding a fraud claim under the Securities Exchange Act of 1934. Metropolitan Life has served a motion to dismiss the consolidated amended complaint and a motion for summary judgment in this action. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario, Canada on behalf of a proposed class of certain former Canadian policyholders against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance Company of Canada. Plaintiffs' allegations concern the way that their policies were treated in connection with the demutualization of Metropolitan Life; they seek damages, declarations, and other non-pecuniary relief. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest vigorously all of plaintiffs' claims in this matter. In July 2002, a lawsuit was filed in the United States District Court for the Eastern District of Texas on behalf of a proposed class comprised of the settlement class in the Metropolitan Life sales practices class action settlement approved in December 1999 by the United States District Court for the Western District of Pennsylvania. After the defendants' motion to transfer the lawsuit to the Western District of Pennsylvania was granted, plaintiffs filed an amended complaint alleging that the treatment of the cost of the sales practices settlement in connection with the demutualization of Metropolitan Life breached the terms of the settlement. Plaintiffs sought compensatory and punitive damages, as well as attorneys' fees and costs. In October 2003, the court granted defendants' motion to dismiss the action. Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. In January 2004, the appeal was dismissed. Race-Conscious Underwriting Claims Insurance departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its affiliates. The New York Insurance Department has concluded its examination of Metropolitan Life concerning possible past race-conscious underwriting practices. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies have been consolidated in the United States District Court for the Southern District of New York. On April 28, 2003, the United States District Court approved a class-action settlement of the consolidated actions. Several persons filed notices of appeal from the order approving the settlement, but subsequently the appeals were dismissed. Metropolitan Life also has entered into settlement agreements to resolve the regulatory examination. Metropolitan Life recorded a charge in the fourth quarter of 2001 in connection with the anticipated resolution of these matters. The Company believes the remaining portion of the previously recorded charge is adequate to cover the costs associated with the resolution of these matters. F-53 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Sixteen lawsuits involving approximately 130 plaintiffs have been filed in federal and state court in Alabama, Mississippi and Tennessee alleging federal and/or state law claims of racial discrimination in connection with the sale, formation, administration or servicing of life insurance policies. Metropolitan Life is contesting vigorously plaintiffs' claims in these actions. Other In 2001, a putative class action was filed against Metropolitan Life in the United States District Court for the Southern District of New York alleging gender discrimination and retaliation in the MetLife Financial Services unit of the Individual segment. The plaintiffs were seeking unspecified compensatory damages, punitive damages, a declaration that the alleged practices were discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices, an order restoring class members to their rightful positions (or appropriate compensation in lieu thereof), and other relief. Plaintiffs filed a motion for class certification. Opposition papers were filed by Metropolitan Life. In August 2003, the court granted preliminary approval to a settlement of the lawsuit. At the fairness hearing held on November 6, 2003, the court approved the settlement of the lawsuit. Implementation of the settlement has commenced in 2004. A putative class action lawsuit is pending in the United States District Court for the District of Columbia, in which plaintiffs allege that they were denied certain ad hoc pension increases awarded to retirees under the Metropolitan Life retirement plan. The ad hoc pension increases were awarded only to retirees (i.e., individuals who were entitled to an immediate retirement benefit upon their termination of employment) and not available to individuals like these plaintiffs whose employment, or whose spouses' employment, had terminated before they became eligible for an immediate retirement benefit. The plaintiffs seek to represent a class consisting of former Metropolitan Life employees, or their surviving spouses, who are receiving deferred vested annuity payments under the retirement plan and who were allegedly eligible to receive the ad hoc pension increases awarded in 1977, 1980, 1989, 1992, 1996 and 2001, as well as increases awarded in earlier years. Metropolitan Life is vigorously defending itself against these allegations. A lawsuit was filed against Metropolitan Life in Ontario, Canada by Clarica Life Insurance Company ("Clarica") regarding the sale of the majority of Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleged that Metropolitan Life breached certain representations and warranties contained in the sale agreement, that Metropolitan Life made misrepresentations upon which Clarica relied during the negotiations and that Metropolitan Life was negligent in the performance of certain of its obligations and duties under the sale agreement. The parties settled the matter in January 2004. The settlement will have no material impact on the Company's consolidated financial results in 2004. A reinsurer of universal life policy liabilities of Metropolitan Life and certain of its affiliates commenced an arbitration proceeding and sought rescission, claiming that, during underwriting, material misrepresentations or omissions were made to the reinsurer. The reinsurer also sent a notice purporting to increase reinsurance premium rates. In December 2003, the arbitration panel denied the reinsurer's attempt to rescind the contract and granted the reinsurer's request to raise rates. As a result of the panel's rulings, liabilities ceded to the reinsurer were recaptured effective May 5, 2003. The recapture had no material impact on the Company's consolidated financial results in 2003. As previously reported, the SEC is conducting a formal investigation of New England Securities Corporation ("NES"), an indirect subsidiary of New England Life Insurance Company, in response to NES informing the SEC that certain systems and controls relating to one NES advisory program were not operating effectively. NES is cooperating fully with the SEC. F-54 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Prior to filing MetLife's June 30, 2003 Form 10-Q, MetLife announced a $31 million after-tax charge resulting from certain improperly deferred expenses at an affiliate, New England Financial. MetLife notified the SEC about the nature of this charge prior to its announcement. The SEC is pursuing a formal investigation of the matter and MetLife is fully cooperating with the investigation. The American Dental Association and two individual providers have sued MetLife, Mutual of Omaha and Cigna in a purported class action lawsuit brought in a Florida federal district court. The plaintiffs purport to represent a nationwide class of in-network providers who allege that their claims are being wrongfully reduced by downcoding, bundling, and the improper use and programming of software. The complaint alleges federal racketeering and various state law theories of liability. MetLife is vigorously defending the case and a motion to dismiss has been filed. A purported class action in which a policyholder seeks to represent a class of owners of participating life insurance policies is pending in state court in New York. Plaintiff asserts that Metropolitan Life breached her policy in the manner in which it allocated investment income across lines of business during a period ending with the 2000 demutualization. In August 2003, an appellate court affirmed the dismissal of fraud claims in this action. MetLife is vigorously defending the case. Regulatory bodies have contacted the Company and have requested information relating to market timing and late trading of mutual funds and variable insurance products. The Company believes that these inquiries are similar to those made to many financial services companies as part of an industry-wide investigation by various regulatory agencies into the practices, policies and procedures relating to trading in mutual fund shares. State Street Research Investment Services, one of the Company's indirect broker/dealer subsidiaries, has entered into a settlement with the National Association of Securities Dealers ("NASD") resolving all outstanding issues relating to its investigation. The SEC has commenced an investigation with respect to market timing and late trading in a limited number of privately-placed variable insurance contracts that were sold through General American. The Company is in the process of responding and is fully cooperating with regard to these information requests and investigations. The Company at the present time is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the Company's consolidated financial position. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. Summary It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. F-55 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and sublease income, and minimum gross rental payments relating to these lease agreements were as follows:
Gross Rental Sublease Rental Income Income Payments ------ -------- -------- (Dollars in millions) 2004.............................................. $ 399 $16 $194 2005.............................................. $ 366 $15 $178 2006.............................................. $ 336 $14 $158 2007.............................................. $ 293 $12 $137 2008.............................................. $ 232 $10 $108 Thereafter........................................ $1,402 $13 $698
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,378 million and $1,667 million at December 31, 2003 and 2002, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. Guarantees In the course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from $1 million to $800 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount due under these guarantees in the future. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies other of its agents for liabilities incurred as a result of their representation of the Company's interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under these indemnities in the future. The fair value of such indemnities, guarantees and commitments entered into was insignificant. The Company's recorded liability at December 31, 2003 and 2002 for indemnities, guarantees and commitments provided to third parties prior to January 1, 2003 was insignificant. F-56 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The Company writes credit default swap obligations requiring payment of principal due in exchange for the reference credit obligation, depending on the nature or occurrence of specified credit events for the referenced entities. In the event of a specified credit event, the Company's maximum amount at risk, assuming the value of the referenced credits become worthless, is $479 million at December 31, 2003. The credit default swaps expire at various times during the next four years. 13. Employee Benefit Plans Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering eligible employees and sales representatives of the Company. Retirement benefits are based upon years of credited service and final average or career average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. F-57 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The Company uses a December 31 measurement date for all of its pension and postretirement benefit plans. Obligations, Funded Status and Net Periodic Benefit Costs
December 31, ------------------------------- Pension Benefits Other Benefits -------------- --------------- 2003 2002 2003 2002 ------ ------ ------- ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year...... $4,747 $4,426 $ 1,878 $1,669 Service cost........................................ 122 104 38 36 Interest cost....................................... 311 307 122 123 Acquisitions and divestitures....................... (1) (110) -- -- Actuarial losses.................................... 352 307 167 342 Curtailments and terminations....................... (7) (3) (4) (2) Change in benefits.................................. (1) -- (1) (168) Transfers in (out) of controlled group.............. (181) -- (77) -- Benefits paid....................................... (287) (284) (122) (122) ------ ------ ------- ------ Projected benefit obligation at end of year............ 5,055 4,747 2,001 1,878 ------ ------ ------- ------ Change in plan assets: Contract value of plan assets at beginning of year..... 4,008 4,161 965 1,169 Actual return on plan assets........................ 632 (185) 112 (92) Acquisitions and divestitures....................... (1) (110) -- -- Employer and participant contributions.............. 340 426 46 10 Transfers in (out) of controlled group.............. (186) -- (2) -- Benefits paid....................................... (287) (284) (122) (122) ------ ------ ------- ------ Contract value of plan assets at end of year........... 4,506 4,008 999 965 ------ ------ ------- ------ Under funded........................................... (549) (739) (1,002) (913) Unrecognized net asset at transition................... 1 -- -- -- Unrecognized net actuarial losses...................... 1,438 1,507 352 262 Unrecognized prior service cost........................ 82 101 (175) (208) ------ ------ ------- ------ Prepaid (accrued) benefit cost......................... $ 972 $ 869 $ (825) $ (859) ====== ====== ======= ====== Qualified plan prepaid pension cost.................... $1,296 $1,164 Non-qualified plan accrued pension cost................ (468) (351) Unamortized prior service cost......................... 14 -- Accumulated other comprehensive loss................... 130 56 ------ ------ Prepaid benefit cost................................... $ 972 $ 869 ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Qualified Plan Non-Qualified Plan Total ---------------- ----------------- ---------------- 2003 2002 2003 2002 2003 2002 ------- ------- ----- ----- ------- ------- (Dollars in millions) Aggregate projected benefit obligation....................... $(4,526) $(4,273) $(529) $(474) $(5,055) $(4,747) Aggregate contract value of plan assets (principally Company contracts)....................... 4,506 4,008 -- -- 4,506 4,008 ------- ------- ----- ----- ------- ------- Under funded....................... $ (20) $ (265) $(529) $(474) $ (549) $ (739) ======= ======= ===== ===== ======= =======
F-58 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The accumulated benefit obligation for all defined benefit pension plans was $4,869 million and $4,224 million at December 31, 2003 and 2002, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets:
December 31, ------------------ 2003 2002 ---- ---- (Dollars in millions) Projected benefit obligation.. $546 $489 Accumulated benefit obligation $468 $357 Fair value of plan assets..... $ 12 $ 9
Information for pension and postretirement plans with a projected benefit obligation in excess of plan assets:
December 31, ------------------------------------ Pension Benefits Other Benefits ------------------- ---------------- 2003 2002 2003 2002 ------ ------ ------ ------ (Dollars in millions) Projected benefit obligation $5,046 $4,739 $2,001 $1,878 Fair value of plan assets... $4,486 $3,991 $1,003 $ 965
The components of net periodic benefit cost were as follows:
Pension Benefits Other Benefits ------------------- ----------------- 2003 2002 2001 2003 2002 2001 ----- ----- ----- ---- ---- ----- (Dollars in millions) Service cost.................................. $ 122 $ 104 $ 104 $ 38 $ 36 $ 34 Interest cost................................. 311 307 308 122 123 115 Expected return on plan assets................ (331) (354) (402) (71) (93) (108) Amortization of prior actuarial losses (gains) 102 33 (2) (12) (9) (27) Curtailment cost.............................. 10 11 21 3 4 6 ----- ----- ----- ---- ---- ----- Net periodic benefit cost..................... $ 214 $ 101 $ 29 $ 80 $ 61 $ 20 ===== ===== ===== ==== ==== =====
Assumptions Assumptions used in determining benefit obligations were as follows:
December 31, ------------------------------------ Pension Benefits Other Benefits --------------- -------------------- 2003 2002 2003 2002 --------- ----- --------- ---------- Discount rate................ 6.1%-6.5% 6.75% 6.1%-6.5% 6.5%-6.75% Rate of compensation increase 4%-8% 4%-8% N/A N/A
Assumptions used in determining net periodic benefit cost were as follows:
December 31, ---------------------------------------- Pension Benefits Other Benefits ------------------ --------------------- 2003 2002 2003 2002 ---------- ------- ---------- ---------- Discount rate.................. 6.5%-6.75% 6%-7.4% 6.5%-6.75% 6.5%-7.40% Expected rate of return on plan assets....................... 8%-8.75% 8%-9% 3.79%-8.5% 5.2%-9 % Rate of compensation increase.. 4%-8 % 4%-8% N/A N/A
F-59 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The discount rate is based on the yield of a hypothetical portfolio of high-quality debt instruments available on the valuation date, which would provide the necessary future cash flows to pay the aggregate projected benefit obligation when due. The expected rate of return on plan assets is based on anticipated performance of the various asset sectors in which the plan invests, weighted by target allocation percentages. Anticipated future performance is based on long-term historical returns of the plan assets by sector, adjusted for the Company's long-term expectations on the performance of the markets. While the precise expected return derived using this approach will fluctuate from year to year, the Company's policy is to hold this long-term assumption constant as long as it remains within a reasonable tolerance from the derived rate. The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were as follows:
December 31, ----------------------------------------------- 2003 2002 ------------------------ ---------------------- Pre-Medicare eligible claims 8.5% down to 5% in 2010 9% down to 5% in 2010 Medicare eligible claims.... 10.5% down to 5% in 2014 11% down to 5% in 2014
Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components $ 10 $ (9) Effect of accumulated postretirement benefit obligation $108 $(105)
Plan Assets The weighted average allocation of pension plan and other benefit plan assets is as follows:
December 31, ------------------------------ Pension Benefits Other Benefits --------------- ------------- 2003 2002 2003 2002 Asset Category ---- ---- ---- ---- Equity securities 52% 39% 38% 36% Fixed maturities. 39% 51% 61% 63% Real estate...... 9% 10% -- -- Other............ -- -- 1% 1% --- --- --- --- Total......... 100% 100% 100% 100% === === === ===
The weighted average target allocation of pension plan and other benefit plan assets for 2004 is as follows:
Pension Benefits Other Benefits ---------------- -------------- Asset Category Equity securities 35%-60% 25%-40% Fixed maturities. 35%-70% 50%-80% Real estate...... 0%-15% N/A Other............ 0%-20% 0%-10%
Target allocations of assets are determined with the objective of maximizing returns and minimizing volatility of net assets through adequate asset diversification and partial liability immunization. Adjustments are made to target allocations based on the Company's assessment of the impact of economic factors and market conditions. F-60 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Cash Flows The Company expects to contribute $488 million to its pension plans and $87 million to its other benefit plans during 2004. The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:
Pension Benefits Other Benefits ---------------- -------------- (Dollars in millions) 2004..... $ 326 $115 2005..... $ 297 $119 2006..... $ 309 $123 2007..... $ 313 $128 2008..... $ 321 $131 2009-2013 $1,771 $711
Savings and Investment Plans The Company sponsors savings and investment plans for substantially all employees under which the Company matches a portion of employee contributions. The Company contributed $59 million, $58 million and $60 million for the years ended December 31, 2003, 2002 and 2001, respectively. 14. Equity Preferred Stock On December 16, 2003, the Holding Company contributed 2,532,600 shares of common stock to the Company in exchange for 93,402 shares of Series A Cumulative Preferred Stock ("the Preferred Shares"). Holders of the Preferred Shares are entitled to receive cumulative cash dividends at the annual applicable rate of 7% times the Liquidation Preference of $1,000 per share payable quarterly, when and if declared by the Board of Directors. Holders of the Preferred Shares have no voting rights, except as required by applicable law. The Preferred Shares rank senior to the common stock. The Preferred Shares are redeemable at the option of the Company at any time, to the extent that any such redemption shall not violate applicable provisions of the laws of the State of Missouri. The Preferred Shares are redeemable at a price equal to the par value per share plus any amount equal to accumulated and unpaid dividends. Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding calendar year, and (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). Metropolitan Life will be permitted to pay a cash dividend to the Holding Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. F-61 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. For the year ended December 31, 2003, Metropolitan Life paid to MetLife, Inc. $698 million in dividends for which prior insurance regulatory clearance was not required and $750 million in special dividends, as approved by the Superintendent. For the year ended December 31, 2002, Metropolitan Life paid to MetLife, Inc. $535 million in dividends for which prior insurance regulatory clearance was not required and $369 million in special dividends, as approved by the Superintendent. For the year ended December 31, 2001, Metropolitan Life paid to MetLife, Inc. $721 million in dividends for which prior insurance regulatory clearance was not required and $3,033 million in special dividends, as approved by the Superintendent. At December 31, 2003, the maximum amount of the dividend, which may be paid to the Holding Company from Metropolitan Life in 2004, without prior regulatory approval, is $798 million. Stock Compensation Plans Under the MetLife, Inc. 2000 Stock Incentive Plan (the "Stock Incentive Plan"), awards granted may be in the form of non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code. Under the MetLife, Inc. 2000 Directors Stock Plan, as amended, (the "Directors Stock Plan") awards granted may be in the form of stock awards or non-qualified stock options or a combination of the foregoing to outside Directors of MetLife. The aggregate number of shares of stock that may be awarded under the Stock Incentive Plan is subject to a maximum limit of 37,823,333 shares for the duration of the plan. The Directors Stock Plan has a maximum limit of 500,000 share awards. All options granted have an exercise price equal to the fair market value price of MetLife common stock on the date of grant, and an option's maximum term is ten years. Certain options under the Stock Incentive Plan become exercisable over a three-year period commencing with date of grant, while other options become exercisable three years after the date of grant. Options issued under the Directors Stock Plan are exercisable immediately. Effective January 1, 2003, MetLife and the Company elected to apply the fair value method of accounting and use the prospective transition method for stock options granted by MetLife subsequent to December 31, 2002. As permitted under SFAS 148, options granted prior to January 1, 2003 will continue to be accounted for under APB 25. MetLife allocated 100% of stock option expense to the Company in each of the years ended December 31, 2003, 2002 and 2001. Had compensation cost for MetLife Stock Incentive Plan and Directors Stock Plan been determined based on fair value at the grant date for awards under those plans consistent with the method of SFAS 123, the Company's net income would have been reduced to the following pro-forma amounts:
Years Ended December 31, ---------------------- 2003 2002 2001 ------ ------ ------ (Dollars in millions) Net Income.......................................................... $2,001 $1,612 $1,487 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects................... 13 1 1 Deduct: Total Stock-based employee compensation determined under fair value based method for all awards, net of related tax effects (42) (33) (20) ------ ------ ------ Pro forma net income (1) (2)........................................ $1,972 $1,580 $1,468 ====== ====== ======
- -------- (1)The pro forma earnings disclosures are not necessarily representative of the effects on net income. (2)Includes MetLife's ownership share of stock compensation costs related to the RGA incentive stock plan and the stock compensation costs related to the incentive stock plans at SSRM Holdings, Inc. determined in accordance with SFAS 123. F-62 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants for the:
Years Ended December 31, --------------------------------- 2003 2002 2001 ----------- ----------- --------- Dividend yield.......... 0.68%-0.79% 0.68% 0.68% Risk-free rate of return 2.71%-4.03% 4.74%-5.52% 5.72% Volatility.............. 37.0%-38.7% 25.3%-30.3% 31.60% Expected duration....... 6 years 6 years 4-6 years
Statutory Equity and Income Applicable insurance department regulations require that the insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis. As of December 31, 2001, New York Statutory Accounting Practices did not provide for deferred income taxes. The Department has adopted a modification to its regulations, effective December 31, 2002, with respect to the admissibility of deferred taxes by New York insurers, subject to certain limitations. Statutory net income of Metropolitan Life, as filed with the Department, was $2,169 million, $1,455 million and $2,782 million for the years ended December 31, 2003, 2002 and 2001, respectively; statutory capital and surplus, as filed, was $7,978 million and $6,986 million at December 31, 2003 and 2002, respectively. The National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments, and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Department required adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. Further modifications by state insurance departments may impact the effect of the Codification on the statutory capital and surplus of Metropolitan Life and the Holding Company's other insurance subsidiaries. F-63 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Other Comprehensive Income The following table sets forth the reclassification adjustments required for the years ended December 31, 2003, 2002 and 2001 in other comprehensive income (loss) that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
Years Ended December 31, ---------------------- 2003 2002 2001 ----- ------- ------ (Dollars in millions) Holding gains on investments arising during the year............................... $ 835 $ 2,936 $1,311 Income tax effect of holding gains................................................. (344) (971) (518) Reclassification adjustments: Recognized holding losses included in current year income....................... 311 307 555 Amortization of premiums and accretion of discounts associated with investments................................................................... (152) (440) (475) Recognized holding gains allocated to other policyholder amounts................ (259) (139) (33) Income tax effect............................................................... 40 85 (18) Allocation of holding losses on investments relating to other policyholder amounts. (317) (2,453) (158) Income tax effect of allocation of holding losses to other policyholder amounts.... 125 814 61 Unrealized investment gains (losses) of subsidiary at date of sale................. 269 68 (173) Deferred income taxes on unrealized investment gains (losses) of subsidiary at date of sale.......................................................................... (94) (15) 64 ----- ------- ------ Net unrealized investment gains.................................................... 414 192 616 ----- ------- ------ Foreign currency translation adjustments arising during the year................... 174 137 (58) Foreign currency translation adjustments of subsidiary at date of sale............. -- (65) 19 ----- ------- ------ Foreign currency translation adjustment............................................ 174 72 (39) ----- ------- ------ Minimum pension liability adjustments arising during the year...................... (81) -- (18) Minimum pension liability adjustments of subsidiary at date of sale................ (1) -- -- ----- ------- ------ Minimum pension liability adjustment............................................... (82) -- (18) ----- ------- ------ Other comprehensive income......................................................... $ 506 $ 264 $ 559 ===== ======= ======
15. Other Expenses Other expenses were comprised of the following:
Years Ended December 31, ------------------------- 2003 2002 2001 ------- ------- ------- (Dollars in millions) Compensation....................................................... $ 2,038 $ 2,423 $ 2,447 Commissions........................................................ 1,710 1,938 1,649 Interest and debt issue costs...................................... 313 242 312 Amortization of policy acquisition costs (excludes amounts directly related to net investment gains (losses) of $(26), $11 and $21, respectively).................................................... 1,381 1,501 1,434 Capitalization of policy acquisition costs......................... (1,982) (2,227) (2,018) Rent, net of sublease income....................................... 226 289 280 Minority interest.................................................. 116 74 57 Other.............................................................. 2,034 2,303 2,759 ------- ------- ------- Total other expenses............................................ $ 5,836 $ 6,543 $ 6,920 ======= ======= =======
F-64 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 16. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Institutional, Individual, Auto & Home, International, Reinsurance and Asset Management. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance, such as short and long-term disability, long-term care, and dental insurance, and other insurance products and services. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Auto & Home provides insurance coverages, including private passenger automobile, homeowners and personal excess liability insurance. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. Reinsurance provides primarily reinsurance of life and annuity policies in North America and various international markets. Additionally, reinsurance of critical illness policies is provided in select international markets. Asset Management provides a broad variety of asset management products and services to individuals and institutions. F-65 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) Set forth in the tables below is certain financial information with respect to the Company's operating segments as of and for the years ended December 31, 2003, 2002 and 2001. The accounting policies of the segments are the same as those of the Company, except for the method of capital allocation and the accounting for gains and losses from intercompany sales, which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon net income excluding certain net investment gains and losses, net of income taxes, and the impact from the cumulative effect of changes in accounting, net of income taxes. Scheduled periodic settlement payments on derivative instruments not qualifying for hedge accounting are included in net investment gains (losses). The Company allocates certain non-recurring items (e.g., expenses associated with the resolution of proceedings alleging race-conscious underwriting practices, sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products) to Corporate & Other.
At or for the Year Ended Auto & Asset Corporate December 31, 2003 Institutional Individual Home International Reinsurance Management & Other Total - ------------------------ ------------- ---------- ------ ------------- ----------- ---------- --------- -------- (Dollars in millions) Premiums.......................... $ 9,093 $ 4,242 $2,168 $ 6 $ 2,648 $ -- $ (6) $ 18,151 Universal life and investment-type product policy fees.............. 633 1,287 -- 1 -- -- -- 1,921 Net investment income............. 4,037 5,592 119 50 431 66 62 10,357 Other revenues.................... 592 204 23 14 48 143 38 1,062 Net investment gains (losses)..... (204) (127) (4) (7) 31 9 15 (287) Policyholder benefits and claims.. 9,931 5,020 1,604 16 2,102 -- 4 18,677 Interest credited to policyholder account balances................. 914 1,280 -- 1 184 -- -- 2,379 Policyholder dividends............ 198 1,697 -- 3 -- -- (1) 1,897 Other expenses.................... 1,782 2,464 572 24 741 182 71 5,836 Income from continuing operations before provision for income taxes............................ 1,326 737 130 20 131 36 35 2,415 Income from discontinued operations, net of income taxes............................ 30 30 -- -- -- -- 240 300 Cumulative effect of change in accounting, net of income taxes............................ (26) -- -- -- -- -- -- (26) Net income........................ 849 519 111 13 86 22 401 2,001 Total assets...................... 109,492 133,335 -- 1,069 12,879 175 24,315 281,265 Deferred policy acquisition costs............................ 739 7,363 -- 6 2,122 -- 2 10,232 Goodwill, net..................... 59 42 -- -- 99 18 -- 218 Separate account assets........... 35,632 28,028 -- -- 13 -- (12) 63,661 Policyholder liabilities.......... 61,565 88,096 -- 297 9,272 -- (579) 158,651 Separate account liabilities...... 35,632 28,028 -- -- 13 -- (12) 63,661
F-66 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued)
At or for the Year Ended Auto & Asset Corporate December 31, 2002 Institutional Individual Home International Reinsurance Management & Other Total - ------------------------ ------------- ---------- ------ ------------- ----------- ---------- --------- -------- (Dollars in millions) Premiums.......................... $ 8,245 $ 4,419 $2,828 $992 $1,984 $ -- $ (7) $ 18,461 Universal life and investment-type product policy fees.............. 623 1,267 -- 37 -- -- -- 1,927 Net investment income............. 3,915 6,019 177 241 378 59 (158) 10,631 Other revenues.................... 607 454 26 10 42 166 49 1,354 Net investment gains (losses)..... (497) (110) (46) (9) 7 (4) (38) (697) Policyholder benefits and claims.. 9,337 5,162 2,020 821 1,517 -- 3 18,860 Interest credited to policyholder account balances................. 930 1,608 -- 28 146 -- (1) 2,711 Policyholder dividends............ 115 1,769 (1) 28 -- -- -- 1,911 Other expenses.................... 1,529 2,543 794 373 616 211 477 6,543 Income (loss) from continuing operations before provision (benefit) for income taxes....... 982 967 172 21 132 10 (633) 1,651 Income from discontinued operations, net of income taxes............................ 121 199 -- -- -- -- 151 471 Net income (loss)................. 759 811 131 21 86 6 (202) 1,612 Total assets...................... 94,911 120,284 4,957 795 9,458 191 18,840 249,436 Deferred policy acquisition costs............................ 608 7,448 175 5 1,429 -- 1 9,666 Goodwill, net..................... 62 73 156 -- 96 18 -- 405 Separate account assets........... 31,935 21,982 -- -- 11 -- (16) 53,912 Policyholder liabilities.......... 55,460 84,844 2,673 248 6,734 -- (343) 149,616 Separate account liabilities...... 31,935 21,982 -- -- 11 -- (16) 53,912 At or for the Year Ended Auto & Asset Corporate December 31, 2001 Institutional Individual Home International Reinsurance Management & Other Total - ------------------------ ------------- ---------- ------ ------------- ----------- ---------- --------- -------- (Dollars in millions) Premiums.......................... $ 7,288 $ 4,531 $2,755 $788 $1,664 $ -- $ (3) $ 17,023 Universal life and investment-type product policy fees.............. 592 1,245 -- 38 -- -- (1) 1,874 Net investment income............. 3,966 6,107 200 256 349 71 105 11,054 Other revenues.................... 649 527 22 16 35 198 85 1,532 Net investment gains (losses)..... (16) 864 (17) (16) (10) 25 121 951 Policyholder benefits and claims.. 8,924 5,213 2,121 632 1,373 -- 2 18,265 Interest credited to policyholder account balances................. 1,012 1,850 -- 51 122 -- -- 3,035 Policyholder dividends............ 259 1,767 -- 34 -- -- -- 2,060 Other expenses.................... 1,746 2,763 800 315 478 252 566 6,920 Income (loss) from continuing operations before provision (benefit) for income taxes....... 538 1,681 39 50 65 42 (261) 2,154 Income from discontinued operations, net of income taxes............................ 21 36 -- -- -- -- 50 107 Net income (loss)................. 383 1,092 41 16 39 27 (111) 1,487
F-67 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The following table indicates amounts in the current and prior years that have been classified as discontinued operations in accordance with SFAS 144:
Year ended December 31, ----------------------- 2003 2002 2001 ---- ---- ---- (Dollars in millions) Net investment income Institutional............................... $ 2 $ 33 $ 34 Individual.................................. 5 50 56 Corporate & Other........................... 45 77 79 ---- ---- ---- Total net investment income............. $ 52 $160 $169 ==== ==== ==== Net investment gains (losses) Institutional............................... $ 45 $156 $ -- Individual.................................. 43 262 -- Corporate & Other........................... 333 164 -- ---- ---- ---- Total net investment gains (losses)..... $421 $582 $ -- ==== ==== ==== Interest Expense Individual.................................. $ 1 $ 1 $ -- ---- ---- ---- Total interest expense.................. $ 1 $ 1 $ -- ==== ==== ====
Economic Capital. Beginning in 2003, the Company changed its methodology of allocating capital to its business segments from Risk-Based Capital ("RBC") to Economic Capital. Prior to 2003, the Company's business segments' allocated equity was primarily based on RBC, an internally developed formula based on applying a multiple to the National Association of Insurance Commissioners Statutory Risk-Based Capital and included certain adjustments in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Economic Capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The Economic Capital model accounts for the unique and specific nature of the risks inherent in the Company's businesses. This is in contrast to the standardized regulatory RBC formula, which is not as refined in its risk calculations with respect to the nuances of the Company's businesses. The change in methodology is being applied prospectively. This change has and will continue to impact the level of net investment income and net income of each of the Company's business segments. A portion of net investment income is credited to the segments based on the level of allocated equity. This change in methodology of allocating equity does not impact the Company's consolidated net investment income or net income. F-68 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The following table presents actual and pro forma net investment income with respect to the Company's segments for the years ended December 31, 2002 and 2001. The amounts shown as pro forma reflect net investment income that would have been reported in these years had the Company allocated capital based on Economic Capital rather than on the basis of RBC. Net Investment Income
For the Years Ended December 31, ------------------------------------ 2002 2001 ----------------- ----------------- Actual Pro forma Actual Pro forma ------- --------- ------- --------- (Dollars in millions) Institutional.... $ 3,915 $ 3,977 $ 3,966 $ 4,040 Individual....... 6,019 5,929 6,107 6,020 Auto & Home...... 177 160 200 184 International.... 241 204 256 240 Reinsurance...... 378 341 349 313 Asset Management. 59 71 71 89 Corporate & Other (158) (51) 105 168 ------- ------- ------- ------- Total......... $10,631 $10,631 $11,054 $11,054 ======= ======= ======= =======
The Auto & Home segment's results of operations for the year ended December 31, 2003 consists of Metropolitan Property and Casualty Insurance Company and its subsidiaries until October 2003 when it was sold to MetLife. See Note 17. The Reinsurance segment's results of operations for the year ended December 31, 2003 include RGA's coinsurance agreement under which it assumed the traditional U.S. life reinsurance business of Allianz Life Insurance Company of North America. The transaction added approximately $246 million of premiums and $11 million of pre-tax income, excluding minority interest expense. The Individual segment's results of operations for the year ended December 31, 2003 includes a second quarter after-tax charge of $31 million resulting from certain improperly deferred expenses at an affiliate, New England Financial. The Institutional, Individual, Reinsurance and Auto & Home segments for the year ended December 31, 2001 include $287 million, $24 million, $9 million and $5 million, respectively, of pre-tax losses associated with the September 11, 2001 tragedies. See Note 9. The Institutional, Individual and Auto & Home segments include $399 million, $97 million and $3 million, respectively, in pre-tax charges associated with business realignment initiatives for the year ended December 31, 2001. See Note 10. The Individual segment for the year ended December 31, 2001, includes $118 million of pre-tax expenses associated with the establishment of a policyholder liability for certain group annuity policies. For the year ended December 31, 2001, pre-tax gross investment gains (losses) of $1,027 million, $142 million and $357 million resulting from the sale of certain real estate properties to MIAC are included in the Individual segment, Institutional segment and Corporate & Other, respectively. F-69 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) As part of the GenAmerica acquisition in 2000, the Company acquired Conning Corporation ("Conning"), the results of which are included in the Asset Management segment due to the types of products and strategies employed by the entity from its acquisition date to July 2001, the date of its disposition. The Company sold Conning, receiving $108 million in the transaction and reported a gain of approximately $25 million, in the third quarter of 2001. Corporate & Other includes various start-up and run-off entities, as well as the elimination of all intersegment amounts. The elimination of intersegment amounts relates to intersegment loans, which bear interest rates commensurate with related borrowings, as well as intersegment reinsurance transactions. Net investment income and net investment gains (losses) are based upon the actual results of each segment's specifically identifiable asset portfolio adjusted for allocated capital. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company's product pricing. Revenues derived from any customer did not exceed 10% of consolidated revenues for the years ended December 31, 2003, 2002 and 2001. Revenues from U.S. operations were $30,199 million, $29,723 million and $30,812 million for the years ended December 31, 2003, 2002 and 2001, respectively, which represented 97%, 94% and 95%, respectively, of consolidated revenues. 17. Acquisitions and Dispositions In September 2003, a subsidiary of the Company, RGA, announced a coinsurance agreement under which it assumed the traditional U.S. life reinsurance business of Allianz Life Insurance Company of North America. This transaction closed during the fourth quarter of 2003 with an effective date retroactive to July 1, 2003. The transaction added approximately $278 billion of life reinsurance in-force, $246 million of premiums and $11 million of income before income tax expense, excluding minority interest expense, to the fourth quarter of 2003. In October 2003, the Company completed its sales of Met Tower Life Insurance Company, MetLife General Insurance Agency, Inc., MetLife Securities, Inc., and N.L. Holding Corporation to the Holding Company. The amount received in excess of book value of $28 million was recorded as a capital contribution from the Holding Company. Total assets and total liabilities of the entities sold at the date of sale were $293 million and $195 million, respectively. Total revenues of the entities sold included in the consolidated statements of income were $156 million, $218 million and $219 million for the years ended December 31, 2003, 2002 and 2001, respectively. In October 2003, the Company sold Metropolitan Property and Casualty Insurance Company's common stock to the Holding Company for $1,990 million. The amount received in excess of book value of $120 million was recorded as a capital contribution from the Holding Company. Total assets and total liabilities of the entities sold at the date of sale were $5,806 million and $3,400 million, respectively. Total revenues of the entities sold included in the consolidated statements of income were $2,343 million, $3,013 million and $2,973 million for the years ended December 31, 2003, 2002 and 2001, respectively. In December 2002, the Company completed its sales of Cova Corporation, MetLife Investors Group, Inc., MetLife International Holdings, Inc., Walnut Street Securities, Inc., Seguros Genesis S.A., MetLife Pensiones S.A. and Metropolitan Life Seguros de Vida S.A. to the Holding Company. The amount received in excess of book value of $149 million was recorded as a capital contribution from the Holding Company. Total assets and F-70 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) total liabilities of the entities sold at the date of sale were $17,853 million and $16,545 million, respectively. Total revenues of the entities sold included in the consolidated statements of income were $1,648 million and $1,463 million for the years ended December 31, 2002 and 2001, respectively. In December 2001, the Company completed its sale of MIAC to the Holding Company. The amount received in excess of book value of $96 million was recorded as a capital contribution from the Holding Company. Total assets and total liabilities of MIAC at the date of sale were $6,240 million and $5,219 million, respectively. Total revenues of MIAC included in the consolidated statements of income were $391 million for the year ended December 31, 2001. In July 2001, the Company completed its sale of Conning, an affiliate acquired in the acquisition of GenAmerica Financial Corporation in 2000. Conning specialized in asset management for insurance company investment portfolios and investment research. 18. Discontinued Operations The Company actively manages its real estate portfolio with the objective to maximize earnings through selective acquisitions and dispositions. In accordance with SFAS 144, income related to real estate classified as held-for-sale on or after January 1, 2002 is presented as discontinued operations. These assets are carried at lower of cost or market. The following table presents the components of income from discontinued operations:
Years Ended December 31, ----------------------- 2003 2002 2001 ---- ----- ----- (Dollars in millions) Investment income...................... $120 $ 458 $ 508 Investment expense..................... (68) (298) (339) Net investment gains (losses).......... 421 582 -- ---- ----- ----- Total revenues...................... 473 742 169 Interest Expense....................... 1 1 -- Provision for income taxes............. 172 270 62 ---- ----- ----- Income from discontinued operations. $300 $ 471 $ 107 ==== ===== =====
The carrying value of real estate related to discontinued operations was $89 million and $799 million at December 31, 2003 and 2002, respectively. See Note 16 for discontinued operations by business segment. F-71 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 19. Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated Amount Value Fair Value December 31, 2003 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities............................. $143,148 $143,148 Equity securities............................ $ 1,246 $ 1,246 Mortgage loans on real estate................ $ 26,637 $ 28,572 Policy loans................................. $ 8,180 $ 8,180 Short-term investments....................... $ 1,320 $ 1,320 Cash and cash equivalents.................... $ 2,393 $ 2,393 Mortgage loan commitments.................... $ 555 $ -- $ (4) Commitments to fund partnership investments.. $1,378 $ -- $ -- Liabilities: Policyholder account balances................ $ 53,503 $ 55,218 Short-term debt.............................. $ 3,536 $ 3,536 Long-term debt............................... $ 2,055 $ 2,236 Shares subject to mandatory redemption....... $ 277 $ 336 Payable under securities loaned transactions. $ 24,065 $ 24,065
Notional Carrying Estimated Amount Value Fair Value December 31, 2002 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $124,260 $124,260 Equity securities................................................. $ 1,551 $ 1,551 Mortgage loans on real estate..................................... $ 25,353 $ 27,935 Policy loans...................................................... $ 8,047 $ 8,047 Short-term investments............................................ $ 1,199 $ 1,199 Cash and cash equivalents......................................... $ 1,106 $ 1,106 Mortgage loan commitments......................................... $ 859 $ -- $ 12 Commitments to fund partnership investments....................... $1,667 $ -- $ -- Liabilities: Policyholder account balances..................................... $ 34,706 $ 35,063 Short-term debt................................................... $ 912 $ 912 Long-term debt.................................................... $ 2,624 $ 2,794 Payable under securities loaned transactions...................... $ 16,321 $ 16,321 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... $ 277 $ 310
F-72 Metropolitan Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements--(Continued) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities for which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate, Mortgage Loan Commitments and Commitments to Fund Partnership Investments Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Commitments to fund partnership investments have no stated interest rate and are assumed to have a fair value of zero. Policy Loans The carrying values for policy loans approximate fair value. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances is estimated by discounting expected future cash flows based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. Short-term and Long-term Debt, Payables Under Securities Loaned Transactions, Shares Subject to Mandatory Redemption and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts The fair values of short-term and long-term debt, payables under securities loaned transactions, shares subject to mandatory redemption and Company-obligated mandatorily redeemable securities of subsidiary trusts are determined by discounting expected future cash flows using risk rates currently available for debt with similar terms and remaining maturities. Derivative Financial Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, foreign currency forwards, caps, floors, options and written covered calls are based upon quotations obtained from dealers or other reliable sources. See Note 3 for derivative fair value disclosures. 20. Related Parties Effective January 1, 2003, MetLife Group, Incorporated, a New York corporation and wholly owned subsidiary of the Holding Company, was formed as a personnel services company to provide personnel, as needed, to support the activities of the Company. Charges for these services were approximately $1,680 million in 2003. F-73 -----END PRIVACY-ENHANCED MESSAGE-----