<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-6
REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933
----------------
METROPOLITAN LIFE SEPARATE ACCOUNT UL
(EXACT NAME OF TRUST)
METROPOLITAN LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1 Madison Avenue
New York, New York 10010
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GARY A. BELLER, ESQ.
Executive Vice-President and General Counsel
Metropolitan Life Insurance Company
1 Madison Avenue
New York, New York 10010
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
----------------
Copies to:
GARY O. COHEN, ESQ. and THOMAS C. LAUERMAN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
----------------
Title and amount of securities being offered:
An indefinite amount of separate account interests
under a variable additional insurance dividend option.
AMOUNT OF FILING FEE: None required.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practical after the
effective date of the Registration Statement. The Registrant hereby amends
this Registration Statement on such date or dates as may be necessary to delay
its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
----------------
Registrant elects to be governed by Rule 6e-3(T)(B) under the Investment
Company Act of 1940 with respect to the variable additional insurance dividend
option.
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<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
METROPOLITAN LIFE INSURANCE COMPANY
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
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<S> <C>
1...................... Cover Page
2...................... SUMMARY--About Metropolitan Life
3...................... Inapplicable
4...................... SALES AND ADMINISTRATION OF THE VAI; SUMMARY--About
Metropolitan Life
5, 6, 7................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The
Separate Account; STATE REGULATION
8...................... FINANCIAL STATEMENTS
9...................... Inapplicable
10(a)................... General Account and The Policy
10(c), 10(d)............ DEFINITIONS--Valuation Date; SUMMARY--Withdrawals
and Transfers; VAI BENEFITS; VAI RIGHTS--Withdrawal
and Transfer Privileges; VAI RIGHTS--Surrenders;
PAYMENTS; GENERAL ACCOUNT AND THE POLICY
10(e)................... VAI TERMINATION AND REINSTATEMENT
10(f)................... VOTING RIGHTS
10(g)(1)-(3), 10(h)(1)-
(3).................... RIGHTS RESERVED BY METROPOLITAN LIFE
10(g)(4), 10(h)(4)...... Inapplicable
10(i)................... VAI BENEFITS--VAI Death Benefits; VAI Cash Value;
Optional Income Plans; PAYMENTS; ISSUANCE OF A VAI;
VAI TERMINATION AND REINSTATEMENT
11...................... SUMMARY--The Separate Account and the Metropolitan
Series Fund; SEPARATE ACCOUNT AND METROPOLITAN SE-
RIES FUND--Metropolitan Series Fund
12(a)................... Cover Page
12(b), 12(e)............ Inapplicable
12(c), 12(d)............ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met-
ropolitan Series Fund
13(a), 13(b), 13(c), SUMMARY--The Separate Account and the Metropolitan
13(d).................. Series Fund; GENERAL ACCOUNT AND THE POLICY; Sepa-
rate Account Charge; Other Charges; Surrenders
13(e)................... SALES AND ADMINISTRATION OF THE VAI
13(f), 13(g)............ Inapplicable
14...................... PAYMENTS--Issuance of a VAI; SALES AND ADMINISTRA-
TION OF THE VAI
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
- ----------- ----------------------
<S> <C>
15...................... PAYMENTS
16...................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met-
ropolitan Series Fund
17(a), 17(b)............ Captions referenced under Items 10(c), 10(d), 10(e)
and 10(i) above
17(c)................... Inapplicable
18(a), 18(c)............ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND
18(b), 18(d)............ Inapplicable
19...................... SALES AND ADMINISTRATION OF THE VAI; VOTING RIGHTS;
REPORTS
20(a), 20(b)............ RIGHTS RESERVED BY METROPOLITAN LIFE; SEPARATE AC-
COUNT AND METROPOLITAN SERIES FUND--The Separate
Account
20(c), 20(d), 20(e),
20(f).................. Inapplicable
21(a), 21(b)............ VAI RIGHTS--Loan Privileges; GENERAL ACCOUNT AND THE
POLICY--Payment and Deferment
21(c), 22............... Inapplicable
23...................... SALES AND ADMINISTRATION OF THE VAI
24...................... GENERAL ACCOUNT AND THE POLICY
25...................... SUMMARY--About Metropolitan Life
26...................... Inapplicable
27...................... SUMMARY--About Metropolitan Life
28...................... MANAGEMENT
29...................... Inapplicable
30, 31, 32, 33, 34...... Inapplicable
35...................... STATE REGULATION
36, 37.................. Inapplicable
38...................... SALES AND ADMINISTRATION OF THE VAI; DISTRIBUTION OF
THE VAI
39...................... SUMMARY--About Metropolitan Life; SALES AND ADMINIS-
TRATION OF THE VAI; DISTRIBUTION OF THE VAI
40(a)................... Inapplicable
40(b)................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met-
ropolitan Series Fund
41(a)................... SUMMARY--About Metropolitan Life; SALES AND ADMINIS-
TRATION OF THE VAI
41(b), 41(c), 42, 43.... Inapplicable
44(a)................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met-
ropolitan Series Fund; VAI BENEFITS--Cash Value
44(b)................... Inapplicable
44(c)................... CHARGES--Separate Account Charge--Cost of Insurance
Charge
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
- ----------- ----------------------
<S> <C>
45......................... Inapplicable
46......................... Captions referenced under Item 44 above
47......................... Captions referenced under Items 10(c) and 16 above
</TABLE>
<TABLE>
<S> <C>
48, 49................... Inapplicable
50....................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The
Separate Account
51(a), 51(b)............. SUMMARY--About Metropolitan Life; Cover Page; VAI in
Brief
51(c), 51(d), 51(e)...... Captions referenced under Item 10(i) above
51(f).................... TERMINATION AND REINSTATEMENT
51(g).................... Captions referenced under Items 10(i) and 13 above
51(h), 51(j)............. Inapplicable
51(i).................... DISTRIBUTION OF THE VAI
52(a), 52(c)............. RIGHTS RESERVED BY METROPOLITAN LIFE
52(b), 52(d)............. Inapplicable
53(a).................... FEDERAL TAX MATTERS
53(b), 54 through 58..... Inapplicable
59....................... FINANCIAL STATEMENTS
</TABLE>
iii
<PAGE>
JANUARY 1, 1998
PROSPECTUS
for
VARIABLE ADDITIONAL INSURANCE DIVIDEND OPTION
Issued by
METROPOLITAN LIFE INSURANCE COMPANY
The Variable Additional Insurance Dividend Option ("VAI") is available as a
rider to a fixed benefit life insurance base policy which is offered by
Metropolitan Life Insurance Company ("Metropolitan Life"). The VAI can accept
VAI premium payments ("payments") that are derived from dividends from the
base policy and any other additional benefit riders, as well as dividends or
transfers of cash value from certain other dividend options to the base
policy. The owner has the flexibility to vary the frequency and amount of
payments, subject to certain restrictions and conditions.
The VAI cash value and death benefit will vary with the investment
experience of the MetLife Stock Index investment division of the Metropolitan
Life Separate Account UL ("Separate Account)" to which amounts held pursuant
to the VAI are allocated. The VAI cash value and the VAI death benefit will
also be adjusted for other factors, including the amount of charges imposed
and the payments made into the VAI. The owner may withdraw all or a portion of
the VAI cash value at any time and for any reason, without charge. The owner
may also transfer the VAI cash value to the fixed benefit additional insurance
dividend option, or for use as a payment of any premium, loan interest or
charges due under the base policy, its additional benefit riders or dividend
options.
The payments to the VAI will be allocated to the MetLife Stock Index
investment division of the Separate Account. The assets in the investment
division are invested in shares of a corresponding portfolio of the
Metropolitan Series Fund, Inc. ("Fund"). Metropolitan Life is the investment
manager of the Fund and the Portfolio and the distributor of its shares.
Metropolitan Life also distributes and administers the VAI. The prospectus for
the Fund describes the investment objective and certain attendant risks of the
MetLife Stock Index Portfolio, which is currently the only Portfolio available
under the VAI. The Fund and the Separate Account have additional funding
options which Metropolitan Life may, in the future, make available under the
VAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INTERESTS IN THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR INSURED, OR GUARANTEED BY THE U.S. GOVERNMENT, ANY BANK OR
OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY
OR PERSON, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE
METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT
THE FUND.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
1 Madison Avenue, New York, New York 10010 Telephone (800) 638-5000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................... 3
SUMMARY................................... 5
Purpose of Summary....................... 5
About Metropolitan Life.................. 5
VAI in Brief............................. 5
Payments................................. 5
VAI Cash Value........................... 5
VAI Death Benefit........................ 5
The Separate Account and the Metropolitan
Series Fund............................. 5
Separate Account Charge.................. 6
Cost of Insurance Charge................. 6
Withdrawals and Transfers................ 6
Loans.................................... 6
Fund Investment Management Fees and Di-
rect Expenses........................... 6
Tax Treatment of Cash Value.............. 6
Tax Treatment of the Death Benefit....... 7
Communications........................... 7
SEPARATE ACCOUNT AND METROPOLITAN
SERIES FUND.............................. 8
The Separate Account..................... 8
Metropolitan Series Fund................. 8
VAI BENEFITS.............................. 9
VAI Death Benefits....................... 9
VAI Cash Value........................... 9
Optional Income Plans.................... 9
ISSUANCE OF A VAI......................... 10
PAYMENTS.................................. 10
VAI TERMINATION AND REINSTATEMENT......... 10
CHARGES................................... 11
Separate Account Charge.................. 11
Charge for Income Taxes.................. 11
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cost of Insurance Charge............................................... 11
Guarantee of Certain Charges........................................... 12
Other Charges.......................................................... 12
NET SINGLE PREMIUM...................................................... 12
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS.. 12
VAI RIGHTS.............................................................. 15
Loan Privileges........................................................ 15
Withdrawal and Transfer Privileges..................................... 15
Surrenders............................................................. 16
Automatic Transfers of VAI Cash Value.................................. 16
GENERAL ACCOUNT AND THE POLICY.......................................... 16
RIGHTS RESERVED BY METROPOLITAN LIFE.................................... 17
SALES AND ADMINISTRATION OF THE VAI..................................... 18
DISTRIBUTION OF THE VAI................................................. 18
FEDERAL TAX MATTERS..................................................... 18
Taxation of the Policy................................................. 18
Taxation of Metropolitan Life.......................................... 20
MANAGEMENT.............................................................. 21
VOTING RIGHTS........................................................... 24
Disregard of Voting Instructions....................................... 24
REPORTS................................................................. 24
STATE REGULATION........................................................ 24
REGISTRATION STATEMENT.................................................. 24
LEGAL MATTERS........................................................... 25
EXPERTS................................................................. 25
FINANCIAL STATEMENTS.................................................... 25
INDEPENDENT AUDITORS' REPORT............................................ 26
APPENDIX TO PROSPECTUS.................................................. 65
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. METROPOLITAN LIFE DOES NOT AUTHORIZE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED
PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL
AUTHORIZED BY METROPOLITAN LIFE.
2
<PAGE>
DEFINITIONS
Attained Age--the age in years and days of the insured on any given date.
The attained age is computed using the issue age.
Base Policy--the fixed benefit life insurance policy offered by Metropolitan
Life to which the VAI is an endorsement.
Beneficiary--The beneficiary is the person or persons designated by the
Owner to receive the death benefit upon the death of the insured. The
beneficiary must be the same for the VAI and the base policy.
Cash Value--Amounts in the VAI or other components of the Policy. Policy
cash value refers to the sum of all these amounts.
Cost of Insurance Charge--A charge that is deducted daily from the VAI cash
value which compensates Metropolitan Life for insurance coverage provided
under the VAI.
Date of Base Policy--The date set forth in the base policy that is used to
determine base policy years and base policy months from issue. Base policy
anniversaries are measured from the date of the base policy. VAI years are
measured from the date Metropolitan Life approves the application for the VAI.
Designated Office--The home office of Metropolitan Life at 1 Madison Avenue,
New York, New York 10010, to which all Policy owner communications are to be
sent. Metropolitan Life may, by written notice, name other locations within
the United States to serve as designated offices, in place of or in addition
to the home office.
Dividend Option--The method elected by the Owner under which any dividends
from the Policy, as well as cash value transfers from other dividend options,
may be applied to accumulate additional cash value and purchase additional
death benefits. The VAI is a dividend option made available by rider to the
base policy.
Dividend Payment Date--The last day of the base policy year. The dividend
payment date is the same for each component of the Policy and is set forth in
the base policy.
DWI--The dividends with interest dividend option that allows the Owner to
accumulate dividends from the Policy. The accumulated dividends under this
option will earn currently taxable interest at a rate declared periodically.
No dividends are credited on accumulated amounts in this dividend option.
General Account--The assets of Metropolitan Life other than those allocated
to the Separate Account or any other legally-segregated separate account.
Indebtedness--The total of any unpaid loan and loan interest.
Insured--The person upon whose life the VAI is issued. The insured must be
the same for the VAI and the base policy.
Investment Start Date--The dividend payment date of the first base policy
dividend that is allocated to the Separate Account or, if sooner, the date of
a transfer of cash value to the VAI from another dividend option.
Investment Division--A subdivision of the Separate Account. The assets in an
investment division are invested exclusively in the shares of a specified
portfolio.
Issue Age--The age of the insured as of the birthday prior to or coincident
with the date of base policy.
Net Single Premium--The single premium amount based on the insured's
attained age, sex and rate class by which the VAI cash value is divided in
order to determine the daily VAI death benefit in thousands of dollars. A
table of net single premiums will be included in each VAI.
Owner--The person so designated in the application or as subsequently
changed as VAI owner. The Owner must be the same for the VAI and the base
policy.
3
<PAGE>
Payments--any amounts that are applied to the VAI as premium payments.
Policy--For ease of reference, the term Policy shall be used in this
Prospectus to refer collectively to the base policy, dividend options
(including the VAI) and any other riders or additional benefits that an Owner
has purchased or elected in connection with the base policy.
Portfolio--A portfolio represents a different class (or series) of stock of
the Metropolitan Series Fund, Inc., a mutual fund in which the Separate
Account assets are invested.
Riders--documents through which additional benefits can be purchased by an
Owner and which are available as supplemental benefits to the base policy.
Separate Account--Metropolitan Life Separate Account UL, a separate
investment account of Metropolitan Life in which payments to the VAI are
invested.
Separate Account Charge--A charge that is deducted daily from the cash value
in the Separate Account and which compensates Metropolitan Life for
administration services and the mortality and expense risks assumed by
Metropolitan Life under the VAI.
VAI--The variable additional insurance dividend option offered by
Metropolitan Life for use with the base policy and described in this
Prospectus.
Valuation Date--Each day on which the New York Stock Exchange is open for
trading or, on days other than when the New York Stock Exchange is open, on
which it is determined that there is a sufficient degree of trading in the
Fund's portfolio securities that the current net asset value of its redeemable
securities might be materially affected. Valuations for any date other than a
Valuation Date will be determined as of the next Valuation Date.
Valuation Period--The period between two successive Valuation Dates,
commencing at 4:00 p.m., New York City time, on each Valuation Date and ending
at 4:00 p.m., New York City time or, if earlier, the New York City time at
which the actual suspension of trading on the New York Stock Exchange, which
ends the day's trading, occurs due to unusual circumstances on the next
succeeding Valuation Date.
This Prospectus describes only the VAI, since it is only through the VAI
that interests in the Separate Account are currently being offered. Other
aspects of the Policy are referred to only to give a better understanding of
how the VAI functions.
4
<PAGE>
SUMMARY
................................................................................
PURPOSE OF SUMMARY
This summary was written to give you an overview of the VAI and is qualified
by the more detailed information provided in the prospectus and the VAI. You
may find it helpful to review the definitions of terms described preceding this
summary before reading the prospectus in full.
ABOUT METROPOLITAN LIFE
Metropolitan Life, the issuer of the VAI, is a mutual life insurance company
incorporated under the laws of the State of New York in 1866. Its home office
is located at 1 Madison Avenue, New York, New York 10010. MetLife is authorized
to transact business in all states of the United States, the District of
Columbia, Puerto Rico, and all Provinces of Canada. Metropolitan Life, serving
millions of people, is one of the largest financial services companies in the
world with many of the largest United States corporations for its clients. On
December 31, 1996, Metropolitan Life and its affiliates had total life
insurance in force of approximately $1.6 trillion and total assets under
management of approximately $298 billion.
VAI IN BRIEF
The VAI is offered as an optional rider to the base policy. It is designed to
allow the Owner to participate in equity investing through the Separate Account
using dividends from the Policy as well as transfers of cash value from other
dividend options as payments for the VAI. Once elected, the VAI comes into
existence when a base policy dividend is first credited to the VAI or, if
earlier, when a cash value transfer from another dividend option is allocated
to the VAI. This cannot currently be any earlier than the end of the second
year that the base policy has been in effect. The VAI cannot be elected while
any term insurance is in effect under the base policy's Flexible Additional
Insurance Rider ("FLAIR"). Once the FLAIR becomes fully funded, or if the term
insurance provided by "FLAIR" is discontinued, the VAI may be elected. The VAI
provides death benefit and cash value accumulation through the investment
experience of the MetLife Stock Index Portfolio.
PAYMENTS
The Owner decides whether dividends from the Policy will be used as VAI
payments. The Owner may direct any such payment derived from dividends to be
applied to the VAI, provided such direction is received at the designated
office at least sixty days prior to the date any such dividend is paid.
Currently, these dividends are declared annually. The Owner can also at any
time transfer cash value from other dividend options to the VAI. The VAI rider
does not assure or guarantee any amount of dividends or cash value under the
Policy. DIVIDENDS THAT ARE USED AS VAI PAYMENTS ARE BASED ON METROPOLITAN
LIFE'S CURRENT DIVIDEND SCALE WHICH CANNOT BE GUARANTEED AND IS SUBJECT TO
CHANGE ANNUALLY BY METROPOLITAN LIFE. (See "Payments to the VAI.")
VAI CASH VALUE
The VAI cash value is the value in the MetLife Stock Index investment
division which reflects the investment experience of the investment division,
partial withdrawals or transfers of amounts from the VAI and charges. There is
no guaranteed minimum cash value (see "VAI Benefits" and "VAI Rights").
VAI DEATH BENEFIT
The VAI provides a death benefit that varies each day. It is determined by
dividing the VAI cash value for a given day, after deduction of the Separate
Account charge and the cost of insurance charge, by the net single premium
amount for that day.
THE SEPARATE ACCOUNT AND THE METROPOLITAN SERIES FUND
Separate Account UL is a separate investment account of Metropolitan Life.
Currently only the MetLife Stock Index investment division is available under
the VAI; however, Metropolitan Life, in its
5
<PAGE>
sole discretion, may make other investment divisions available in the future.
The assets of the investment division are invested in the corresponding
portfolio of the Metropolitan Series Fund, Inc. (See "Separate Account and
Metropolitan Series Fund," and the prospectus for the Fund, which is attached
at the end of this Prospectus.)
SEPARATE ACCOUNT CHARGE
This charge is deducted daily from the cash value in the Separate Account.
The charge compensates Metropolitan Life for the administrative services
provided, and the mortality and expense risks assumed, by Metropolitan Life in
connection with the VAI. This charge is equal to an effective annual rate of
.75% of the average daily value of the net assets in the Separate Account which
are attributable to the VAI. (See "Separate Account Charge.")
COST OF INSURANCE CHARGE
This is a daily charge deducted from the VAI cash value which compensates
Metropolitan Life for the cost of insurance coverage provided under the VAI.
The charge will vary based on several factors including age, sex, rating class
and base policy face amount then in effect. (See "Cost of Insurance Charge.")
WITHDRAWALS AND TRANSFERS
At any time, the Owner may request in writing a partial or full withdrawal of
the VAI cash value without charge. The Owner may also request in writing a
partial or full transfer of the VAI cash value to be used as a payment of any
base policy premium, loan interest or charge due under the Policy.
LOANS
An Owner may obtain a loan from Metropolitan Life whenever the Policy has a
loan value. The VAI cash value is available as security for a loan and will be
used to the extent amounts from certain other components of the Policy are not
sufficient to provide security for the entire loan amount. (See "Loan
Privileges.") If there is an existing loan, the Owner may increase it to not
more than the full loan value. The loan value equals the Policy cash value less
the anticipated loan interest for the remainder of that base policy year. Any
loan amount withdrawn from the VAI is transferred to a fixed additional
insurance dividend option as security for the loan, where it will be eligible
for dividends. The loan interest accrues daily at a rate set from time to time
which will never be more than the maximum allowed by law and will not change
more often than once a year. Loans and accrued interest may be repaid in whole
or in part (but not less than $50) at any time.
FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES
Metropolitan Life receives a fee from the Fund for providing investment
management services to the MetLife Stock Index Portfolio. The following chart
shows the fee and other Fund expenses for the Portfolio.
METROPOLITAN SERIES FUND ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
OTHER
EXPENSES
AFTER EXPENSE
MANAGEMENT REIMBURSEMENT
FEES (A) TOTAL
---------- ------------- -----
<S> <C> <C> <C>
MetLife Stock Index Portfolio.................. .25% .05% .30%
</TABLE>
For a full description of the Fund, see the prospectus for the Fund, which is
attached at the end of this Prospectus, and the Fund's Statement of Additional
Information referred to therein.
TAX TREATMENT OF CASH VALUE
The VAI cash value is not subject to income tax until it is withdrawn from
the Policy. Except for transfers to the DWI, transfers from the VAI will not be
considered withdrawals from the Policy for tax
6
<PAGE>
purposes. In general, an Owner will be taxed on the amount of cash value
withdrawn from the Policy (including transfers to the DWI) that is in excess of
the remaining investment in the Policy (i.e., premiums paid less prior
nontaxable withdrawals). This excess is treated as ordinary income. Withdrawals
and loans from contracts referred to as modified endowment contracts are taxed
on an income first basis to the extent of gain in the contract. A 10%
additional tax also applies in certain circumstances. If the VAI is added to a
base policy that is part of a collateral assignment equity split-dollar
arrangement with an employer, any increase in cash value may be taxable
annually. An individual should consult with and rely on the advice of a tax
advisor with respect to any type of split-dollar arrangement involving a
Policy. (See "Federal Tax Matters.")
TAX TREATMENT OF THE DEATH BENEFIT
The beneficiary generally will not be subject to income tax on the death
benefit proceeds of the Policy. The death benefit under the Policy may be
subject to Federal estate tax. (See "Federal Tax Matters.")
COMMUNICATIONS
Communications should be sent to the Designated Office for the VAI.
Metropolitan Life may establish different Designated Offices for various VAI
transactions. The Owner should use the forms that Metropolitan Life has
prepared for these purposes. The forms may be obtained from an account
representative or the Designated Office.
A payment or other communication is considered received on the date that it
is actually received in the Designated Office (the "Date of Receipt") with two
exceptions: 1) if received on a day that is not a Valuation Date or 2) if
received by other than U.S. mail after 4:00 p.m. New York City time, or if
earlier, in the case of a payment, withdrawal or transfer, the New York City
time at which an actual suspension of trading occurs due to unusual
circumstances. The Date of Receipt will then be the next Valuation Date.
7
<PAGE>
...............................................................
SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND
...............................................................................
THE SEPARATE ACCOUNT
The Separate Account, which is a separate investment account of Metropolitan
Life, was established by Metropolitan Life pursuant to the New York Insurance
Law on December 13, 1988. The Separate Account also receives premium payments
in connection with other flexible premium variable life insurance products is-
sued by Metropolitan Life. The assets allocated to the Separate Account are
the property of Metropolitan Life. Metropolitan Life may accumulate in the
Separate Account charges, mortality gains and other amounts in excess of Met-
ropolitan Life's liabilities and reserves with respect to the Separate Ac-
count, as well as investment gains on such accumulations.
The Separate Account meets the definition of "separate account" under the
federal securities laws. All income, gains and losses, whether or not real-
ized, from assets allocated to the Separate Account are credited to or charged
against the Separate Account without regard to other income, gains or losses
of Metropolitan Life. Each VAI provides that such portion of the assets in the
Separate Account as equals the liabilities (and reserves) of Metropolitan Life
with respect to the Separate Account shall not be chargeable with liabilities
arising out of any other business of Metropolitan Life. Metropolitan Life may
from time to time transfer to its General Account any assets in the Separate
Account in excess of such reserves and liabilities. The liabilities are Metro-
politan Life's total commitments under the flexible premium variable life
products for which the Separate Account receives premium payments; the re-
serves are the assets allocated to pay these commitments.
Although the Separate Account is an integral part of Metropolitan Life, the
Separate Account is registered with the Securities and Exchange Commission as
a unit investment trust under the Investment Company Act of 1940 ("1940 Act").
Registration does not involve supervision of management or investment prac-
tices or policies of the Separate Account or of Metropolitan Life by the Com-
mission.
Currently, only the MetLife Stock Index investment division is available un-
der the VAI in the Separate Account. The assets in this investment division
are invested in a separate class (or series) of stock issued by the Fund. This
class of stock represents a separate portfolio within the Fund. New investment
divisions may be added as new portfolios are added to the Fund or made avail-
able to Owners. MetLife may also, in its sole discretion make additional ex-
isting investment divisions available under the VAI. In addition, investment
divisions may be eliminated from the Separate Account.
METROPOLITAN SERIES FUND
The Fund is a "series" type of mutual fund which is registered with the Se-
curities and Exchange Commission as a diversified open-end management invest-
ment company under the 1940 Act. The Fund has served as the investment medium
for the Separate Account since the Separate Account commenced operations.
MetLife Stock Index Portfolio. The investment objective of this portfolio is
to equal the performance of the Standard & Poor's 500 Composite Stock Price
Index (adjusted to assume reinvestment of dividends) by investing in the com-
mon stock of companies which are included in the index.
Metropolitan Life acts as the investment manager for the MetLife Stock Index
Portfolio.
Metropolitan Life purchases and redeems Fund shares for the Separate Account
at their net asset value without the imposition of any sales or redemption
charges. With respect to the VAI, such shares represent an interest in the
portfolio of the Fund which corresponds to the MetLife Stock Index investment
division. Any dividend or capital gain distributions received from the Fund
are likewise reinvested in Fund shares at net asset value as of the dates
paid. The distributions have the effect of reducing the value of each share of
the Fund and increasing the number of Fund shares outstanding. However, the
total cash value in the Separate Account does not change as a result of such
distributions.
On each Valuation Date, shares of the portfolio are purchased or redeemed by
Metropolitan Life for the Separate Account, based on, among other things, the
amounts of payments allocated to the VAI, dividends and distributions rein-
vested, and benefit payments to be effected pursuant to the terms of the VAI
as of that date. Such purchases and redemptions for the Separate Account are
effected at the net asset value per share for the portfolio determined as of
4:00 p.m., New York City time or if earlier, the New York City time at which
an actual suspension of trading on the New York Stock Exchange, which ends the
day's trading, occurs due to unusual circumstances.
A full description of the Fund, its investment policies and restrictions,
its charges and other aspects of its operation is contained in the prospectus
for the Fund, which is attached at the end of this Prospectus, and in the
Statement of Additional Information referred to therein. See "The Fund and its
Purpose," in the prospectus for the Fund for a discussion of the different
separate accounts of Metropolitan Life and its affiliates that invest in the
Fund and the risks related thereto.
8
<PAGE>
...............................................................
VAI BENEFITS
................................................................................
VAI DEATH BENEFIT
As long as the VAI remains in force (see "Termination and Reinstatement--Ter-
mination"), Metropolitan Life will, upon due proof of the insured's death, pay
the VAI death benefit as of the date of death to the named beneficiary. The
proceeds may be received by the beneficiary in a single sum or under one or
more of the optional income plans set forth in the base policy.
The death benefit for the VAI is computed by dividing the VAI cash value at
the end of the Valuation Period on which the insured dies, after deduction of
the Separate Account charge, by the net single premium for that day. The result
is multiplied by $1,000 to determine the amount of the death benefit.
Conditional Guaranteed Minimum VAI Death Benefit. Metropolitan Life will
provide a conditional guaranteed minimum VAI death benefit that will be in
effect during any "7-pay test" period required under the tax law (see "Taxation
of the Policy"). During any "7-pay test" period, the conditional guaranteed
minimum VAI death benefit will equal the VAI death benefit at the beginning of
any such "7-pay test" period, reduced for any loans, withdrawals or cash value
transfers that are allocated to the VAI. The conditional guaranteed minimum VAI
death benefit will end if the dividend option for the next dividend payment
date is changed from VAI to any other dividend option or any loan, withdrawal
or cash value transfer causes the Policy to become a modified endowment
contract.
Minimum Death Benefit. In no event will the death benefit be lower than the
minimum amount required to maintain the Policy (excluding DWI) as life insur-
ance under federal income tax law and applicable Internal Revenue Service
rules.
VAI CASH VALUE
The total VAI cash value at any time is allocated to the MetLife Stock Index
investment division of the Separate Account. The VAI cash value may increase or
decrease on each Valuation Date depending on the investment return of that in-
vestment division (see "Net Investment Return"). There is no guaranteed minimum
cash value in the Separate Account.
Calculation of VAI Cash Value. On the Investment Start Date, the VAI cash
value will equal the payment allocated to the VAI (see "Payments"). Thereafter,
on each Valuation Date, the VAI cash value will equal:
(1)The cumulative payments; minus
(2)Any partial cash withdrawal or transfers from the VAI; minus
(3)The Separate Account charge); minus
(4)The Cost of Insurance charge; plus
(5)The cumulative net investment return (discussed below) on the net amount of
VAI cash value in the MetLife Stock Index investment division.
Net Investment Return. The MetLife Stock Index investment division net in-
vestment return is determined as of 4:00 p.m., New York City time, or, if ear-
lier, the New York City time at which an actual suspension, on the New York
Stock Exchange, which ends the day's trading, occurs due to unusual circum-
stances, on each Valuation Date. All transactions and calculations with respect
to the VAI as of any Valuation Date are determined as of such time.
The MetLife Stock Index division is credited with a rate of net investment
return equal to its gross rate of investment return during the Valuation Period
less an adjustment for the Separate Account charges (see "Separate Account
Charges"). The investment division's gross rate of investment return is equal
to the rate of increase or decrease in the net asset value per share of the un-
derlying Fund portfolio over the Valuation Period, adjusted upward to take ap-
propriate account of any dividends paid by the portfolio during the period.
Depending primarily on the investment experience of the underlying Fund port-
folio, the MetLife Stock Index investment division's net investment return may
be either positive or negative during a Valuation Period.
From time to time the Separate Account may advertise its performance ranking
and rating information among similar investments as compiled by Lipper Analyti-
cal Services Inc., Morningstar, Inc. and other independent organizations.
From time to time the Separate Account may compare the performance of its in-
vestment division with the performance of common stocks, long-term government
bonds, long-term corporate bonds, intermediate-term government bonds, Treasury
Bills, certificates of deposit and savings accounts. The Separate Account may
use the Consumer Price Index in its advertisements as a measure of inflation
for comparison purposes.
OPTIONAL INCOME PLANS
During the insured's lifetime, the Owner may arrange for the VAI cash value
to be paid in a single sum to an account that earns interest or under one or
more of the optional income plans, which are available under the Policy. The
election of one of these options causes the VAI to terminate. For more specif-
ics regarding optional income plans, see the Appendix to this Prospectus.
9
<PAGE>
...............................................................
When the death benefits due under a Policy are payable in a single sum, the
beneficiary also may, within one year of the insured's death, select one or
more of these optional income plans, if no payments have yet been made to such
beneficiary. If the insurance proceeds become payable under an optional income
plan and the beneficiary has the right to withdraw the entire amount, the ben-
eficiary may name and change contingent beneficiaries.
ISSUANCE OF A VAI
...............................................................................
Individuals wishing to purchase the VAI must complete an application which
will be sent to the Designated Office. The VAI is available as a rider to base
policies meeting the minimum face amount and eligibility requirements estab-
lished by Metropolitan Life. In determining eligibility requirements, Metro-
politan Life will not discriminate unreasonably or unfairly against base pol-
icy owners. The application may be completed either at the same time as the
application for the base policy or after the base policy has been issued. No
evidence of insurability, other than that required in connection with issuance
of the base policy, will be required unless the owner desires to make a VAI
payment that is derived from another dividend option that does not itself have
a death benefit. Acceptance is subject to Metropolitan Life's underwriting
rules, and Metropolitan Life reserves the right to reject an application for
any reason permitted by law. The VAI cannot be applied for while any term in-
surance is in effect under the FLAIR. Once the FLAIR becomes fully funded, or
if the term insurance provided by FLAIR is discontinued, the individual may
apply for the VAI. Once the application has been accepted by Metropolitan
Life, the VAI will come into existence on the Investment Start Date, which
cannot currently be earlier than the end of the second year that the base pol-
icy has been in effect.
PAYMENTS
...............................................................................
VAI payments are derived from dividends declared on the Policy as well as
transfers of cash value from other dividend options. Dividends are currently
declared annually by Metropolitan Life's Board of Directors and are based upon
the face amounts or death benefits, as applicable, of the Policy and other
factors relating to Metropolitan Life's earnings. THESE DIVIDENDS CANNOT BE
GUARANTEED AND ARE SUBJECT TO CHANGE. PAYMENTS TO THE VAI WILL NOT GUARANTEE
THAT THERE WILL BE ANY VAI DEATH BENEFIT. The death benefit depends upon the
VAI cash value.
The Owner may direct that dividends from the Policy be used as payments for
the VAI. Such direction must be made in writing at least sixty days prior to
the dividend payment date. Only one election may be made for any dividend pay-
ment date and will apply to all dividends payable under the Policy.
Metropolitan Life will allocate the initial payment to the investment divi-
sion on the Investment Start Date. All payments derived from dividends after
the initial payment are credited to the investment division as of the Valua-
tion Date next following the dividend payment date. Payments derived from the
cash value transfers from other dividend options can be used at any time as
payments for the VAI and will be credited as of the close of the Valuation Pe-
riod on the Date of Receipt of the transfer request.
There may be cases where the total of all premiums paid could cause the Pol-
icy (other than the DWI) to be classified as a modified endowment contract
(see "Federal Tax Matters"). The annual statement (see "Reports") sent to each
Owner will include information regarding the modified endowment contract sta-
tus of a Policy. In cases where a Policy is not an irrevocable modified endow-
ment contract, the annual statement will indicate what action the Owner can
take to reverse the modified endowment contract status of the Policy.
VAI TERMINATION AND REINSTATEMENT
...............................................................................
Termination. The VAI will terminate if the base policy terminates. The base
policy generally will terminate if no base policy premium payment is made
within the 31 day grace period after its due date; or if any loan plus inter-
est due on the loan is greater than the available cash value in the Policy for
more than 31 days after Metropolitan Life mails notice to the Owner. If the
insured dies during the grace period, the insurance proceeds will still be
payable, but any due and unpaid base policy premiums and any loan and loan in-
terest will be deducted from the proceeds. At the end of the grace period, any
due and unpaid base policy premiums may be paid with an automatic loan if: 1.
the Owner has requested this feature either in the application for the base
policy or by written request while no premium is due and unpaid; and 2. the
available cash value in the Policy is sufficient to pay the due and unpaid
base policy premium. If the automatic loan feature has not been requested, or
if it was requested but there is not sufficient cash value to pay any due and
unpaid premiums, the base policy will terminate. Insurance coverage may con-
tinue after termination of the base policy depending on how long the base pol-
icy was in effect before it terminated, the amount of available cash value at
the time of its termination and the option upon termination elected by the
Owner as included base policy. The VAI will also terminate if the face amount
of the base policy is reduced to an amount
10
<PAGE>
...............................................................
less than the minimum face amount requirement for VAI eligibility then in ef-
fect. Any VAI cash value as of the end of the Valuation Period in which the
VAI terminates will be paid out to the Owner, if requested, or applied to any
continued coverage, as the case may be.
Reinstatement. The VAI will be reinstated when the base policy is reinstat-
ed. The reinstated VAI will have no cash value until a VAI payment is made. A
terminated base policy may be reinstated any time within 3 years (5 years in
Missouri and North Carolina) of the due date of the first unpaid base policy
premium by submitting the following items to Metropolitan Life: (1) evidence
of insurability satisfactory to Metropolitan Life; (2) all overdue base policy
premiums to the date of reinstatement with compound interest at the rate of 6%
a year; and (3) payment of any loan (plus interest) in effect on the due date
of the first unpaid base policy premium plus any loan taken after that. Com-
pound interest to the date of reinstatement will be charged on any unpaid loan
at the applicable Policy loan interest rate, as would have been charged if all
due premiums had been paid.
The date of Policy reinstatement will be the date of approval of the rein-
statement. The terms of the original Policy, including the VAI net single pre-
mium and maximum percentages for insurance coverage provided therein, will ap-
ply to the reinstated Policy.
CHARGES
...............................................................................
SEPARATE ACCOUNT CHARGE
A daily charge is made against the Separate Account to compensate Metropoli-
tan Life for administrative services provided and mortality and expense risks
assumed by Metropolitan Life. This charge is equal to an effective annual rate
of .75% of the average daily value of the net assets in the Separate Account
which are attributable to the VAI. Administrative services rendered with re-
spect to the VAI include the cost of processing applications, determining in-
surability and the insured's risk class, establishing and maintaining VAI rec-
ords, and communicating with Owners. The mortality risk assumed is that
insureds may live for a shorter period of time than estimated and, thus, a
greater amount of death benefit than expected will be payable. The expense
risk assumed is that expenses incurred in issuing and administering the VAI
will be greater than estimated.
Metropolitan Life will realize a gain if the Separate Account charge proves
ultimately to be more than sufficient to cover its actual costs. If the charge
is not sufficient, the loss will fall on Metropolitan Life. If its estimates
of future mortality and expense experience are accurate, Metropolitan Life an-
ticipates that it will realize a profit from the Separate Account charge; how-
ever if such estimates are inaccurate, Metropolitan Life could incur a loss.
CHARGE FOR INCOME TAXES
Currently, no charge is made against the Separate Account for income taxes.
However, Metropolitan Life may decide to make such a charge in the future (see
"Federal Tax Matters--Taxation of Metropolitan Life").
COST OF INSURANCE CHARGE
A daily charge is made to compensate Metropolitan Life for the insurance
coverage provided under the VAI. Because the cost of insurance depends upon a
number of variables, it can vary from day to day. Metropolitan Life will de-
termine the daily cost of insurance charge by multiplying the applicable cost
of insurance percent by the cash value for each day. Thus, the insurance
amount may be affected by changes in the cash value.
Cost of Insurance Percent. Cost of insurance percentages are based on the
sex (except in Montana or if the Policy is issued in connection with certain
types of employee benefit plans), attained age, base policy face amount then
in effect and rate class of the insured. The actual daily cost of insurance
percentages will be based on Metropolitan Life's expectations as to future ex-
perience. They will not, however, be greater than the guaranteed cost of in-
surance percentages set forth in the VAI. These guaranteed percentages are
based on certain of the 1980 Commissioners Standard Ordinary Mortality Tables
and the insured's sex and age. The Tables used for this purpose set forth dif-
ferent mortality estimates for males and females. Any change in the cost of
insurance percentages will apply to all persons of the same insuring age, sex
(where applicable), and rate class whose VAI have been in force for the same
length of time. Metropolitan Life reviews its cost of insurance percentages
periodically and may adjust them from time to time.
Rate Class. The rate class of an insured affects the charge for insurance
coverage. Metropolitan Life currently places insureds into a standard rate
class or rate classes involving a higher or lower mortality risk. For attained
ages 18 and over, each such rate class is further divided into a smoker divi-
sion and a nonsmoker division. In an otherwise identical VAI, insureds in the
standard rate class will have a lower charge for insurance coverage than those
in the rate class with the higher mortality risk, and a higher charge for in-
surance coverage than those in the rate class with a lower mortality risk. Al-
so,
11
<PAGE>
...............................................................
those insureds in the nonsmoker division of a rate class will have lower
charge for insurance coverage than those in the smoker division of the same
rate class. If the insured's rate class or division improves, the lower charge
for insurance coverage will apply to the entire VAI death benefit.
GUARANTEE OF CERTAIN CHARGES
Metropolitan Life guarantees, and may not increase, the Separate Account
charge and the maximum cost of insurance percentages set forth in the VAI.
OTHER CHARGES
Fund Investment Management Fee. Shares of the Fund are purchased for the
Separate Account at their net asset value. The net asset value of Fund shares
is determined after deduction of the fee for investment management services
and the deduction of direct expenses from the assets of the Fund as more fully
described under "Fund Investment Management Fees and Direct Expenses" and in
the attached prospectus for the Fund.
NET SINGLE PREMIUM
...............................................................................
The net single premium is not a charge or expense that is deducted from the
cash value of a VAI. Nevertheless, the lower the net single premium, the
higher the death benefit for a VAI with a given amount of cash value, and vice
versa. The net single premium varies from day to day and is based on the guar-
anteed cost of insurance relative to an insured's sex (except in Montana or if
the Policy is issued in connection with certain types of employee benefit
plans) and attained age. This means that for a given cash value an older in-
sured would have a lower death benefit. The net single premiums set forth in
the rider for each base policy anniversary are guaranteed and will not change.
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS
...............................................................................
The tables in this section illustrate the way in which a VAI death benefit
and VAI cash value could vary over an extended period of time assuming hypo-
thetical gross investment rates of return for the Fund (i.e., investment in-
come and capital gains and losses, realized or unrealized) equivalent to con-
stant gross (after tax) annual rates of 0%, 6% and 12%. The tables are based
on the payment of annual VAI payments equal to the annual base policy divi-
dends for a male aged 40 with a base policy face amount of $100,000 under Met-
ropolitan Life's 1998 dividend scale. Each illustration assumes that the in-
sured is in Metropolitan Life's standard nonsmoker underwriting rate classifi-
cation. Illustrations for an insured in Metropolitan Life's standard smoker
underwriting rate classification would show, for the same age and payments,
lower cash values and, therefore, lower death benefits.
The death benefits and cash values would be different from those shown if
the actual gross investment rates of return averaged 0%, 6% or 12% over a pe-
riod of years, but fluctuated above or below such averages for individual VAI
years.
The amounts shown for the VAI death benefits and VAI cash values take into
account the daily charge against the Separate Account for administration, and
mortality and expense risks equivalent to an effective annual rate of .75% of
the average daily value of the assets in the Separate Account attributable to
the VAI and assume a daily charge to the Fund for investment management serv-
ices equivalent to an annual rate of .25% of the average daily value of the
aggregate net assets of the MetLife Stock Index Portfolio and .05% for other
direct expenses for the Portfolio. The daily charge for insurance coverage is
based on the guaranteed cost of insurance percentages for the guaranteed
charges illustration and the current cost of insurance percentages as pres-
ently in effect for the current charges illustration. These illustrations do
not take into account the benefits provided under any other components of the
Policy other than the VAI.
Taking account of the Separate Account charge, investment management serv-
ices and other Fund expenses, the gross annual investment rates of return of
0%, 6% and 12% correspond to actual (or net) annual rates of: -1.05%, 4.95%
and 10.95%, respectively.
The hypothetical returns shown in the tables do not reflect any charges for
income taxes against the Separate Account since no such charges are currently
made. However, if in the future such charges are made, in order to produce the
death benefits and cash values illustrated, the gross annual investment rate
of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover
the tax charges. (See "Federal Tax Matters--Taxation of Metropolitan Life.")
The second column of the tables shows the amount which would accumulate if
an amount equal to the assumed annual payments were invested to earn interest,
after taxes, at 5% compounded annually.
Upon request, Metropolitan Life will furnish an illustration reflecting the
proposed insured's attained age, sex, and requested frequency of payments.
12
<PAGE>
VAI(1)
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK GUARANTEED CHARGES
<TABLE>
<CAPTION>
TOTAL VAI CASH VALUE(2) TOTAL VAI DEATH BENEFIT(2)
PAYMENTS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF
BASE POLICY ANNUAL INTEREST ----------------------------------------------------
YEAR PAYMENTS PER YEAR 0% 6% 12% 0% 6% 12%
----------- -------- ----------- ------- ------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1...................... $ $ $ $ $ $ $ $
2......................
3......................
4......................
5......................
6......................
7......................
8......................
9......................
10......................
15......................
20......................
25......................
40......................
45......................
50......................
</TABLE>
- -------
(1) Assumes annual payments of $ paid in full at the dividend declaration
dates. The values would vary from those shown if the amount or frequency
of payments varies.
(2) Assumes no loan or partial withdrawal has been made and that the base
policy continues in force.
(3) Minimum death benefit applies; see "Death Benefit Options--Minimum Death
Benefit," for further details.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN OR DIVIDEND PAYMENT RATES. ACTUAL RATES MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS,
INCLUDING THE AMOUNT AND TIMING OF PAYMENTS MADE BY AN OWNER AND THE LEVEL OF
DIVIDENDS DECLARED BY METROPOLITAN LIFE ON THE BASE POLICY. THE DEATH BENEFIT
AND CASH VALUE FOR VAI WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL YEARS. NO
REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
13
<PAGE>
VAI(1)
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK
CURRENT CHARGES
<TABLE>
<CAPTION>
TOTAL VAI
TOTAL VAI CASH DEATH
VALUE(2) BENEFIT(2)
ASSUMING ASSUMING
HYPOTHETICAL HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
PAYMENTS INVESTMENT INVESTMENT
ACCUMULATED RATES OF RATES OF
AT 5% RETURN OF RETURN OF
ANNUAL INTEREST -------------- --------------
END OF BASE POLICY YEAR PAYMENTS PER YEAR 0% 6% 12% 0% 6% 12%
----------------------- -------- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1......................... $ $ $ $ $ $ $ $
2.........................
3.........................
4.........................
5.........................
6.........................
7.........................
8.........................
9.........................
10.........................
15.........................
20.........................
25.........................
30.........................
35.........................
</TABLE>
- -------
(1) Assumes annual payments of $ paid in full at the dividend declaration
dates. The values would vary from those shown if the amount or frequency
of payments varies.
(2) Assumes no policy loan or partial withdrawal has been made and that the
base policy continues in force.
(3) Minimum death benefit applies; see "Death Benefit Options--Minimum Death
Benefit," for further details.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN OR DIVIDEND PAYMENT RATES. ACTUAL RATES MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS,
INCLUDING THE AMOUNT AND TIMING OF PAYMENTS MADE BY AN OWNER AND THE LEVEL OF
DIVIDENDS DECLARED BY METROPOLITAN LIFE ON THE BASE POLICY. THE DEATH BENEFIT
AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL YEARS. NO
REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
14
<PAGE>
...............................................................
VAI RIGHTS
................................................................................
LOAN PRIVILEGES
An Owner may obtain a loan from Metropolitan Life whenever the Policy has a
loan value. If there is an existing loan, the Owner may increase it. The loan
value equals the Policy cash value less the anticipated loan interest for the
remainder of that base policy year. If an Owner would like to take a loan, then
security shall be taken first from any available cash value in the components
of the Policy except the VAI and then from any available cash value in the VAI.
For situations where a loan may be treated as a taxable distribution, see
"Federal Tax Matters."
Interest. The interest charged on a loan accrues daily. The interest rate
will never be more than the maximum allowed by law and will not change more
than once a year, on the anniversary of the date of the base policy. Interest
payments are due at the end of each base policy year. Metropolitan Life will
test the Policy prior to the date interest payments are due. If some or all of
the VAI cash value would be required as security for any unpaid accrued inter-
est, then Metropolitan Life will transfer such VAI cash value to a fixed bene-
fit additional insurance dividend option as of the date the test is performed.
If the interest is paid by the Owner, then the Owner may transfer back to the
VAI any fixed benefit additional insurance cash value not needed as security
for the loan on the Valuation Date next following the Date of Receipt of the
interest payment. If the interest is unpaid within 31 days after it is due, it
will be treated as a new loan subject to the interest rates applicable at that
time. The rate of interest for a base policy year may not be more than the
higher of: (a) the published monthly average for the calendar month ending two
months before the start of the base policy year; or (b) the rate used to com-
pute the guaranteed cash value of the base policy and its riders for the base
policy year plus 1%. The published monthly average means (a) Moody's Corporate
Bond Yield Average--Monthly Average Corporates, as published by Moody's Invest-
ors Service, Inc. or any successor to that service; or (b) If that average is
no longer published, a substantially similar average, established by regulation
issued by the insurance supervisory official of the state in which the base
policy is delivered. If the maximum limit for a base policy year is at least
1/2% higher than the rate set for the prior base policy year, the actual rate
will be increased to no more than that limit. If the maximum limit for a base
policy year is at least 1/2% lower than the rate set for the prior base policy
year the rate will be reduced to at least that limit. Metropolitan Life will
inform the Owner of the initial rate applicable to a loan and mail advance no-
tice if there is to be an increase in the rate applicable to an existing loan.
Generally, pursuant to legislation enacted in 1997, no tax deduction is al-
lowed for interest on loans on life insurance policies, subject to certain ex-
ceptions for key person insurance covering a limited number of individuals. The
1997 legislation also generally disallows in part an interest deduction to
businesses which own cash value life insurance issued after June 8, 1997 for
debt unrelated to the contract, subject to certain exceptions for contracts
covering employees and certain other individuals. Counsel and other competent
advisors should be consulted regarding the impact of these rules on the deduct-
ibility of interest for income tax purposes. (See "Federal Tax Matters.")
Effect of a Loan. As of the Date of Receipt of the loan request that affects
the VAI, the loan amount is withdrawn from the VAI and transferred to a fixed
additional insurance dividend option as security for the loan, reducing the VAI
cash value and therefore the VAI death benefit. In the fixed benefit additional
insurance dividend option, the amount will be credited with the declared divi-
dends. THE CASH VALUE UNDER THE FIXED ADDITIONAL INSURANCE DIVIDEND OPTION WILL
NOT PARTICIPATE IN ANY INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE AC-
COUNT.
Indebtedness. Indebtedness equals the outstanding loan plus accrued interest
thereon. If any loan plus interest due on the loan is greater than the avail-
able cash value in the Policy, Metropolitan Life will notify the Owner and any
assignee of record. If a sufficient payment is not made to Metropolitan Life
within 31 days after Metropolitan Life mails notice, the base policy, riders,
other dividend options and the VAI will terminate without value. The Owner
could be subject to tax at the time of such termination even though no cash
value will be distributed at such time. These may, however, later be reinstat-
ed, subject to certain conditions (see "Termination and Restatement").
Repayment of Indebtedness. Loans and accrued interest thereon may be repaid
in whole or in part (but not less than $50) at any time. As of the Date of Re-
ceipt of the repayment, the amount in the fixed benefit additional insurance
rider securing such loan amount for which the repayment was received shall be
available to be transferred to the VAI. Thereafter, the Owner may transfer such
available amounts to the VAI at any time.
WITHDRAWAL AND TRANSFER PRIVILEGES
Subject to the limitations set forth below, at any time before the death of
the insured, the Owner may make a partial or total withdrawal of or transfer
the VAI cash value by sending a written request to the Designated Office. With-
drawals and transfers are generally effected at the value computed at the close
of the Date of Receipt of the request. Metropolitan Life may require that these
15
<PAGE>
...............................................................
requests be made on forms provided for these purposes. The maximum amount
available for withdrawal or transfer is the VAI cash value on the Date of Re-
ceipt of the request. No charge will be imposed on withdrawals or transfers.
If an Owner would like to take a partial withdrawal and does not indicate in
writing from where such withdrawal should be made, or if it is not possible to
follow the Owner's instructions then it will be taken first from any currently
declared dividend that has not been paid or applied to a dividend option, then
from available cash value in any dividends with interest dividend option, then
from any available cash value in any fixed benefit additional insurance divi-
dend option, then from any available cash value in any fixed benefit paid-up
additions rider, then from any cash value in FLAIR, then from any cash value
in any variable paid-up additions rider and finally from any available VAI
cash value.
For any tax consequences in connection with a withdrawal or transfer, see
"Federal Tax Matters". A transfer to the DWI would be treated as a distribu-
tion to the Owner and could be taxable.
In the event that an Owner elects to have a transfer of VAI cash value to a
rider or dividend option that is permitted to receive payments, any dividend
that might be payable on the rider or dividend option will be reduced to re-
flect the timing of receipt of such transferred amount and Metropolitan Life's
expenses associated with such transfer. Any partial withdrawal or transfer
from the VAI will reduce the VAI death benefit because the amount of cash
value that is divided by the net single premium will be smaller than if no
partial withdrawal had been made.
Metropolitan Life reserves the right, if permitted by state law, to allow
Owners to make transfer requests by telephone and to allow Owners to authorize
their sales representatives to make requests on behalf of the Owners by tele-
phone on a form Metropolitan Life will supply to Owners. If Metropolitan Life
decides to permit either of these transfer procedures, and an Owner elects to
participate in either of these transfer procedures, the following will apply:
the Owner will authorize Metropolitan Life to act upon the telephone instruc-
tions of any person purporting to be the Owner (or, if applicable, the Owner's
sales representative), assuming Metropolitan Life's procedures have been fol-
lowed, to make transfers from the VAI. Metropolitan Life will institute rea-
sonable procedures to confirm that any instructions communicated by telephone
are genuine. All telephone calls will be recorded, and the Owner (or, if ap-
plicable, the Owner's sales representative) will be asked to produce the Own-
er's personalized data prior to Metropolitan Life initiating any transfer re-
quests by telephone. Additionally, as with other transactions, the Owner will
receive a written confirmation of any such transfer. Neither Metropolitan Life
nor the Separate Account will be liable for any loss, expense or cost arising
out of any requests that Metropolitan Life or the Separate Account reasonably
believe to be genuine. In the event that these transfer procedures are insti-
tuted and in the further event that the Owner who has elected to use such pro-
cedures encounters difficulty with them, such Owner should make the request to
the Designated Office.
SURRENDERS
The Owner may surrender the VAI for its cash value. Surrenders are generally
effected at the value computed at the close of the Date of Receipt of the re-
quest. In addition, a request for surrender of the base policy will also be
deemed a request for surrender of the VAI. An Owner may elect to have the pro-
ceeds applied, without charge, as a transfer to any rider or dividend option
that is permitted to receive premiums at that time. In this event, any divi-
dend that might be payable on amounts in such rider or dividend option will be
reduced to reflect the timing of receipt of such transferred amount and Metro-
politan Life's expenses associated with such transfer.
AUTOMATIC TRANSFERS OF VAI CASH VALUE
An Owner may elect in writing that VAI cash value be used to make base pol-
icy premium payments on their due dates if the Owner does not otherwise pro-
vide for the making of such premium payment.
In addition, if the VAI cash value is sufficient to pay at least three base
policy annual premiums, an Owner may direct Metropolitan Life in writing to
transfer the VAI cash value to the fixed benefit additional insurance dividend
option for the purpose of paying future base policy premiums as they fall due.
These arrangements will continue in effect as long as there is sufficient
VAI cash value or until the Owner requests in writing that an arrangement be
stopped.
GENERAL ACCOUNT AND THE POLICY
...............................................................................
Subject to certain limits and conditions, cash value in the fixed benefit
portions of the Policy is guaranteed by the General Account of Metropolitan
Life (the "Policy fixed benefits"). Because of exemptive and exclusionary pro-
visions, interests in the General Account have not been registered under the
Securities Act of 1933 and the General Account has not been registered as an
investment company under the 1940 Act. Accordingly, neither the Policy fixed
benefits nor the General Account nor any interests therein are generally sub-
ject to the provisions of these Acts and Metropolitan Life has been advised
that the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Pro-
16
<PAGE>
...............................................................
spectus relating to the Policy fixed benefits nor the General Account. Disclo-
sures regarding these may, however, be subject to certain generally applicable
provisions of the Federal securities laws relating to the accuracy and com-
pleteness of statements made in prospectuses.
This Prospectus is generally intended to serve as a disclosure document only
for the aspects of the VAI involving the Separate Account and contains only
selected information regarding the Policy fixed benefits and the General Ac-
count. For complete details regarding the Policy fixed benefits and the Gen-
eral Account, see the base policy, fixed benefit riders and fixed benefit div-
idend options themselves.
GENERAL DESCRIPTION
The General Account consists of all assets owned by Metropolitan Life other
than those in the Separate Account and other legally-segregated separate ac-
counts. Subject to applicable law, Metropolitan Life has sole discretion over
the investment of the assets of the General Account. Unlike the assets of the
Separate Account, the assets in the General Account, are chargeable with lia-
bilities arising out of any other business of Metropolitan Life.
Any amounts allocated to Policy fixed benefits (including cash value trans-
fers from the VAI) to the base policy do not entitle an Owner to share in the
investment experience of the General Account. Instead, these amounts are eli-
gible for dividends or interest, as applicable.
Metropolitan Life periodically reevaluates the amount of dividends it pays
and no assurance can be given as to the amount of dividends that will be de-
clared in the future.
WITHDRAWALS, SURRENDERS, AND POLICY LOANS
Metropolitan Life reserves the right to delay withdrawals, surrenders and
the payment of the loan proceeds allocated to Policy fixed benefits for up to
six months. Nevertheless, payments to pay premiums on another policy with Met-
ropolitan Life will not be delayed.
RIGHTS RESERVED BY METROPOLITAN LIFE
...............................................................................
Metropolitan Life reserves the right to make certain changes if, in its
judgment, they would best serve the interests of the Owners or would be appro-
priate in carrying out the purposes of the VAI. Any changes will be made only
to the extent and in the manner permitted by applicable laws. Also, when re-
quired by law, Metropolitan Life will obtain Owner approval of the changes and
approval from any appropriate regulatory authority. Examples of the changes
Metropolitan Life may make include:
. To operate the Separate Account in any form permitted under the 1940 Act
or in any other form permitted by law.
. To take any action necessary to comply with or obtain and continue any ex-
emptions from the 1940 Act.
. To transfer any assets in any investment division to another investment
division, or to one or more separate accounts; or to add, combine or re-
move investment divisions in the Separate Account.
. To substitute, for the Fund shares held in any investment division, the
shares of another portfolio of the Fund or the shares of another invest-
ment company or any other investment permitted by law.
. To change the way Metropolitan Life assesses charges, but without increas-
ing the aggregate amount charged in connection with the VAI.
. To make any other necessary technical changes in the VAI in order to con-
form with any action the above provisions permit Metropolitan Life to
take.
If any of these changes result in a material change in the underlying in-
vestments of the MetLife Stock Index investment division. Metropolitan Life
will notify the Owner of such change.
SALES AND ADMINISTRATION OF THE VAI
...............................................................................
Metropolitan Life performs the sales and administrative services relating to
the VAI. The offices of Metropolitan Life which may administer the VAI are lo-
cated in: Aurora, Illinois; Johnstown, Pennsylvania; Pearl River, New York;
Princeton, New Jersey; San Ramon, California; Tampa, Florida; Tulsa, Oklahoma;
and Warwick, Rhode Island. Each Owner will be notified which office will be
the Designated Office for servicing the VAI. Metropolitan Life may name dif-
ferent Designated Offices for different transactions.
Metropolitan Life acts as the principal underwriter (distributor) of the VAI
as defined in the 1940 Act (see "Distribution of the VAI," below). In addition
to selling insurance and annuities, Metropolitan Life also serves as invest-
ment adviser to certain other advisory clients, and is also principal under-
writer for Metropolitan Tower Separate Accounts One and Two of Metropolitan
Tower Life Insurance Company, a wholly-owned subsidiary of Metropolitan Life,
and Metropolitan Life Separate Ac-
17
<PAGE>
...............................................................
count E of Metropolitan Life, each of which is registered as a unit investment
trust under the 1940 Act. Finally, Metropolitan Life acts as principal under-
writer for other forms of flexible premium variable life insurance, premiums
for which are also allocated to the Separate Account.
Bonding. The directors, officers and employees of Metropolitan Life are
bonded in the amount of $50,000,000, subject to a $5,000,000 deductible.
DISTRIBUTION OF THE VAI
...............................................................................
The VAI will be sold as a dividend option to the base policy by individuals
who are licensed life insurance sales representatives and registered repre-
sentatives of Metropolitan Life, the principal underwriter of the VAI. Metro-
politan Life is registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. The VAI may in the future be
sold through other registered broker-dealers, including MetLife Securities,
Inc., a wholly owned broker-dealer subsidiary of Metropolitan Life. No commis-
sions are payable for the sale of a VAI. However commissions are payable for
sale of the base policy and certain riders.
FEDERAL TAX MATTERS
...............................................................................
The following description is a brief summary of some of the tax rules, pri-
marily related to federal income and estate taxes, which in the opinion of
Metropolitan Life are currently in effect.
TAXATION OF THE POLICY
The Policy generally, receives the same federal income and estate tax treat-
ment as fixed benefit life insurance. Therefore the VAI death benefit is gen-
erally excludable from the gross income of the beneficiary under Section 101
of the Internal Revenue Code ("Code"), and the Owner is not deemed to be in
constructive receipt of the cash values under the VAI prior to the time such
amounts are distributed to the Owner or transferred to DWI. A transfer of VAI
cash value to riders or dividend options (excluding DWI) or to pay Policy pre-
miums will not be considered a distribution to the Owner for federal income
tax purposes.
Under existing tax law, unless the Policy is a modified endowment contract
as discussed below, an Owner generally will be taxed on cash value, including
VAI cash value, distributed from the Policy or transferred to DWI. Under most
circumstances, unless the distribution occurs during the first 15 base policy
years, only the amount distributed that exceeds the Owner's remaining invest-
ment in the Policy will be treated as ordinary income.
Out-of-pocket premiums, including DWI amounts applied as premiums, increase
the Owner's investment in the Policy. Non-taxable distributions, including any
non-taxable transfers to DWI, reduce the Owner's investment in the Policy.
Dividends used to pay Policy premiums will have no impact on the Owner's in-
vestment in the Policy. During the first 15 base policy years, cash distribu-
tions, made as a result of a change that reduces death benefits or other bene-
fits, will be taxable to the Owner, under a complex formula, to the extent
that cash value exceeds the Owner's remaining investment in the Policy. If a
Policy is part of a collateral assignment equity split-dollar arrangement with
an employer, any increase in cash value including increases in VAI cash value
may be taxable annually. This type of arrangement involves premium advances by
an employer which are secured through a collateral assignment of the Policy. A
purchaser should consult with and rely on the advice of a qualified tax advi-
sor with respect to any type of split-dollar arrangement involving the Policy.
The United States Treasury Department has adopted regulations which set di-
versification rules for the investments in separate accounts underlying life
insurance policies, in order for policies to be treated as life insurance.
Metropolitan Life believes that these diversification standards will be satis-
fied with respect to the VAI. There is a provision in the regulations which
allows for the correction of an inadvertent failure to diversify. Failure to
comply with the rules found in the regulations would result in immediate taxa-
tion to Policy owners of all positive investment experience credited to a Pol-
icy.
There is a possibility that regulations may be proposed or that a control-
ling ruling may be issued in the future describing the extent to which owner
control over allocation of cash value may cause owners to be treated as the
owners of Separate Account assets for tax purposes. Metropolitan Life reserves
the right to amend the VAI in any way necessary to avoid any such result.
Metropolitan Life also believes that loans received will be treated as in-
debtedness of an owner for federal tax purposes, and, unless the Policy is or
becomes a modified endowment contract as described below or terminates, that
no part of any loan received under a Policy will constitute income to the Own-
er.
Generally, interest on Policy loans is not deductible. However, an Owner
should consult a tax advisor to determine how the rules governing the deduct-
ibility of interest would apply in the Owner's situation.
Legislation enacted in 1997 and effective for policies issued after June 8,
1997 generally disallows, in part,
18
<PAGE>
...............................................................
interest deductions to businesses which own cash value life insurance for debt
unrelated to the policy. There are exceptions for policies covering employees,
officers, directors, 20 percent owner and joint life policies covering a 20%
owner and a spouse. The rules are complex. Consult your tax adviser.
A total surrender, cancellation, or other termination where there is an out-
standing loan also may have tax consequences depending on the amount of gain
in the Policy.
Special rules govern the federal income tax treatment of pre-death withdraw-
als from a class of life insurance contracts referred to as modified endowment
contracts. Unlike other life insurance contracts, amounts received before
death from a modified endowment contract, including policy loans, are treated
first as income (to the extent of gain) and then as recovered investment. For
purposes of determining the amount includible in income, all modified endow-
ment contracts issued by the same company (or affiliate) to the same policy-
holder during any calendar year will be treated as one modified endowment con-
tract. Finally, an additional 10% income tax is generally imposed on the tax-
able portion of pre-death amounts received before age 59 1/2.
In general, a modified endowment contract is a life insurance contract en-
tered into or materially changed after June 20, 1988 that fails to meet a "7-
pay test". Under the 7-pay test, if the amount of premiums paid under the life
insurance contract at any time during the first 7 base policy years exceeds
the sum of the net level premiums which would have been paid if the contract
provided for paid-up future benefits after the payment of 7 level annual pay-
ments, the contract is a modified endowment contract. A policy may have to be
reviewed under the 7-pay test even after the first seven base policy years in
the case of certain events such as a material modification to the policy as
discussed below. If there is a reduction in benefits under the policy during
any 7-pay testing period, the 7-pay test is applied using the reduced benefits
level.
Any distribution made within two years before a policy fails the 7-pay test
may be treated as made in anticipation of such failure. Whether or not a
particular policy meets these definitional requirements is dependent on the
date the policy was entered into, premium payments made and to be made and the
level of death benefits. Any changes in the level of death benefits, the
extent of any prior cash withdrawals, and other factors. Generally, a life
insurance policy which is received in exchange for a modified endowment
contract will also be considered a modified endowment contract.
A Policy should be reviewed upon issuance, upon making a cash withdrawal,
upon making a change in future benefits and upon making a material modifica-
tion to determine to what extent, if any, these tax rules apply. A material
modification includes, but is not limited to, any increase in the future bene-
fits. However, in general, increases in benefits that are attributable to the
payment of premiums necessary to fund the lowest death benefit payable in the
first 7 base policy years will not be considered material modifications. The
annual statement sent to each Owner will include information regarding the
modified endowment contract status of the Policy. Counsel and other competent
advisors should be consulted to determine how these rules apply to an individ-
ual situation.
Congress may, in the future, consider other legislation that, if enacted,
could adversely affect the tax treatment of life insurance policies. In addi-
tion, the Treasury Department may by regulation or interpretation modify the
above described tax effects. Any legislative or administrative action could be
applied retroactively.
The death benefit payable under the Policy, is includable in the insured's
gross estate for federal estate tax purposes if the death benefit is paid to
the insured's estate or if the death benefit is paid to a beneficiary other
than the estate and the insured either possessed incidents of ownership at the
time of death or transferred incidents of ownership to another person within
three years of death.
Whether or not any federal estate tax is payable with respect to the death
benefit of the Policy which is included in the insured's gross estate depends
on a variety of factors including the following. A smaller size estate may be
exempt from federal estate tax because of an estate tax credit which generally
is equivalent to an exemption of $600,000 in 1997, gradually increasing from
$625,000 in 1998 to $1 million in 2006 and thereafter. In addition, a death
benefit paid to a surviving spouse may not be taxable because of a 100% estate
tax marital deduction. Furthermore, a death benefit paid to a tax-exempt char-
ity may not be taxable because of the allowance of an estate tax charitable
deduction.
If the Owner is not the insured, and the Owner dies before the insured, the
value of the Policy, as determined under Internal Revenue Service regulations,
is includable in the federal gross estate of the Owner for federal estate tax
purposes. Whether a federal estate tax is payable depends on a variety of fac-
tors, including those listed in the preceding paragraph.
State and local income, estate, inheritance and other tax consequences of
ownership or receipt of proceeds depend on the circumstances of each insured,
owner or beneficiary.
The foregoing summary does not purport to be complete or to cover all situa-
tions. Counsel and other competent advisors should be consulted for more com-
plete information.
19
<PAGE>
...............................................................
TAXATION OF METROPOLITAN LIFE
Metropolitan Life does not initially expect to incur any federal income tax
upon the earnings or the realized capital gains attributable to the Separate
Account. Based upon these expectations, no charge is currently being made
against the Separate Account for federal income taxes, with respect to earnings
or capital gains, which may be attributable to the Separate Account. If, howev-
er, Metropolitan Life determines that it may incur such taxes, it may assess a
charge against or make provisions in the Separate Account for those taxes.
Under present laws, Metropolitan Life may incur state and local taxes (in ad-
dition to premium taxes) in several states. At present, these taxes are not
significant. If they increase, however, Metropolitan Life may decide to make
charges for such taxes against or provisions for such taxes in the Separate Ac-
count.
20
<PAGE>
MANAGEMENT
The present directors and the senior officers and secretary of Metropolitan
Life are listed below, together with certain information concerning them:
DIRECTORS, OFFICERS-DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE
---- ---------------------- ----------------------
<S> <C> <C>
Curtis H. Barnette...... Chairman and Chief Executive Officer, Director
Bethlehem Steel Corp.,
1170 Eighth Avenue,
Martin Tower 2118,
Bethlehem, PA 18016-7699.
Robert H. Benmosche..... President and Chief Operating Officer, President, Chief Operating
Metropolitan Life Insurance Company, Officer and Director
One Madison Avenue,
New York, N.Y. 10010.
Gerald Clark............ Senior Executive Vice-President Senior Executive Vice-
and Chief Investment Officer, President and Chief
Metropolitan Life Insurance Company, Investment Officer,
One Madison Avenue, Director
New York, N.Y. 10010.
Joan Ganz Cooney........ Chairman, Executive Committee, Director
Children's Television Workshop,
One Lincoln Plaza,
New York, NY 10023.
Burton A. Dole.......... Chairman of the Board, Director
Nellcor Puritan Bennett,
2200 Faraday Avenue,
Carlsbad, CA 92008-7208.
James R. Houghton....... Retired Chairman of the Board and Director
Chief Executive Officer,
Corning Incorporated,
80 East Market Street,
2nd Floor,
Corning, NY 14830.
Harry P. Kamen.......... Chairman, President, and Chairman, President,
Chief Executive Officer, Chief Executive Officer and
Metropolitan Life Insurance Company, Director
One Madison Avenue,
New York, NY 10010.
Helene L. Kaplan........ Of Counsel, Skadden, Arps, Slate, Director
Meagher & Flom,
919 Third Avenue,
New York, NY 10022.
Charles M. Leighton..... Chairman and Chief Executive Officer, Director
CML Group, Inc.,
524 Main Street,
Acton, MA 01720.
Allen E. Murray......... Retired Chairman of the Board Director
and Chief Executive Officer,
Mobil Corporation,
P.O. Box 2072,
New York, NY 10163.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE
---- ---------------------- ----------------------
<S> <C> <C>
John J. Phelan, Jr. .... Retired Chairman and Chief Executive Director
Officer, New York Stock Exchange,
Inc.,
P.O. Box 312,
Mill Neck, NY 11765.
John B. M. Place........ Former Chairman of the Board, Director
Crocker National Corporation,
111 Sutter Street, 4th Fl.,
San Francisco, CA 94104.
Hugh B. Price........... President and Chief Executor Officer, Director
National Urban League, Inc.,
12 Wall Street,
New York, NY 10005.
Robert G. Schwartz...... Retired Chairman of the Board, Director
President and Chief Executive Officer,
Metropolitan Life Insurance Company,
200 Park Avenue, Suite 5700,
New York, NY 10166.
Ruth J. Simmons, Ph.D. . President, Director
Smith College,
College Hall 20,
Northhampton, MA 01063.
William S. Sneath....... Retired Chairman of the Board, Director
Union Carbide Corporation,
41 Leeward Lane,
Riverside, CT 06878.
William C. Steere, Jr. . Chairman of the Board and Chief Director
Executive Officer,
Pfizer, Inc.,
235 East 42nd Street,
New York, NY 10017.
</TABLE>
22
<PAGE>
OFFICERS*
<TABLE>
<CAPTION>
NAME OF OFFICER POSITION WITH METROPOLITAN LIFE
--------------- -------------------------------
<S> <C>
Harry P. Kamen.......... Chairman and Chief Executive Officer
Robert H. Benmosche..... President and Chief Operating Officer
Gerald Clark............ Senior Executive Vice-President and Chief Investment Officer
Stewart G. Nagler....... Senior Executive Vice-President and Chief Financial Officer
Gary A. Beller.......... Executive Vice-President and General Counsel
C. Robert Henrikson..... Executive Vice-President
Jeffrey J. Hodgman...... Executive Vice-President
David A. Levene......... Executive Vice-President
John D. Moynahan, Jr. .. Executive Vice-President
Catherine A. Rein....... Executive Vice-President
William J. Toppeta...... Executive Vice-President
John H. Tweedie......... Executive Vice-President
Alexander D. Brunini.... Senior Vice President
Richard M. Blackwell.... Senior Vice-President
James B. Digney......... Senior Vice-President
William T. Friedewald... Senior Vice-President
Ira Friedman............ Senior Vice-President
Frederick P. Hauser..... Senior Vice-President and Controller
Anne E. Hayden.......... Senior Vice-President
Sybil C. Jacobsen....... Senior Vice-President
Joseph W. Jordan........ Senior Vice-President
Kernan F. King.......... Senior Vice President
Nicholas D. Latrenta.... Senior Vice-President
Leland C. Launer, Jr. .. Senior Vice-President
Terence I. Lennon....... Senior Vice-President
James L. Lipscomb....... Senior Vice-President
James M. Logan.......... Senior Vice-President
John S. Lombardo........ Senior Vice President
Francis P. Lynch........ Senior Vice-President
Jeanne R. Naglak........ Senior Vice-President
Dominick A. Prezzano.... Senior Vice-President
Joseph A. Reali......... Senior Vice-President
Vincent P. Reusing...... Senior Vice-President
Felix Schirripa......... Senior Vice-President
Robert E. Sollmann, Jr.. Senior Vice-President
Thomas L. Stapleton..... Senior Vice-President and Tax Director
James F. Stenson........ Senior Vice-President
Stanley J. Talbi........ Senior Vice-President
Richard R. Tartre....... Senior Vice-President
Edward A. Trautz Jr..... Senior Vice President
Arthur G. Typermass..... Senior Vice-President and Treasurer
James A. Valentino...... Senior Vice-President
Judy E. Weiss........... Senior Vice-President and Chief Actuary
Louis Ragusa............ Vice-President and Secretary
</TABLE>
- -------
* The principal occupation of each officer, except for Gary A. Beller, Robert
H. Benmosche and Terence I. Lennon, during the last five years has been as an
officer of Metropolitan Life or an affiliate thereof. Gary A. Beller has been
an officer of Metropolitan Life since November, 1994; prior thereto, he was a
Consultant and Executive Vice-President and General Counsel of the American
Express Company. Robert H. Benmosche has been an officer of Metropolitan Life
since September, 1995; prior thereto, he was an Executive Vice-President of
Paine Webber. Terence I. Lennon has been an officer of Metropolitan Life
since March, 1994; prior thereto, he was Assistant Deputy Superintendent and
Chief Examiner of the New York State Department of Insurance. The business
address of each officer is 1 Madison Avenue, New York, New York 10010.
23
<PAGE>
...............................................................
VOTING RIGHTS
...............................................................................
In accordance with its view of present applicable law, Metropolitan Life
will vote the shares of the MetLife Stock Index Portfolio of the Fund which
are deemed attributable to VAIs at regular and special meetings of the share-
holders of the Fund based on instructions received from persons having the
voting interest in the MetLife Stock Index investment division of the Separate
Account. However, if the 1940 Act or any rules thereunder should be amended or
if the present interpretation thereof should change, and as a result Metropol-
itan Life determines that it is permitted to vote such shares of the Fund in
its own right, it may elect to do so.
Accordingly, the Owner will have a voting interest under a VAI. The number
of shares held in the MetLife Stock Index investment division deemed attribut-
able to each Owner is determined by dividing a VAI's cash value in that divi-
sion, if any, by the net asset value of one share in the corresponding Fund
portfolio. Fractional votes will be counted. The number of shares concerning
which an Owner has the right to give instructions will be determined as of the
record date for the meeting.
Fund shares held in each registered separate account of Metropolitan Life or
any affiliate that are or are not attributable to life insurance policies (in-
cluding the VAIs) or annuity contracts and for which no timely instructions
are received will be voted in the same proportion as the shares for which vot-
ing instructions are received by that separate account. Fund shares held in
the general accounts or unregistered separate accounts of Metropolitan Life or
its affiliates will be voted in the same proportion as the aggregate of (i)
the shares for which voting instructions are received and (ii) the shares that
are voted in proportion to such voting instructions. However, if Metropolitan
Life or an affiliate determines that it is permitted to vote any such shares
of the Fund in its own right, it may elect to do so subject to the then cur-
rent interpretation of the 1940 Act or any rules thereunder.
The Owners may give instructions regarding, among other things, the election
of the Board of Directors of the Fund, ratification of the selection of the
Fund's independent auditors, and the approval of the Fund's investment manager
and sub-investment manager, if applicable.
Each Owner having a voting interest will be sent voting instruction solicit-
ing material and a form for giving voting instructions to Metropolitan Life.
DISREGARD OF VOTING INSTRUCTIONS
Notwithstanding the foregoing, Metropolitan Life may vote Fund shares con-
trary to Owner voting instructions in certain limited circumstances specified
by the Commission. In the event that Metropolitan Life does disregard voting
instructions, a summary of the action and the reasons for such action will be
included in the next annual or semiannual report to Owners.
REPORTS
...............................................................................
Owners will receive promptly statements of significant transactions such as
partial withdrawals, increases in loan principal by the Owner, termination for
any reason, reinstatement and payments. An annual statement will also be sent
to the Owner on or before base policy anniversary summarizing all of the above
transactions for the period and setting forth the status of the death benefit,
cash value, any Policy loan and unpaid loan interest added to loan principal.
The annual statement will also discuss the modified endowment contract status
of a Policy. In addition, an Owner will be sent semiannual reports containing
financial statements for the Fund, as required by the 1940 Act.
STATE REGULATION
...............................................................................
Metropolitan Life is subject to regulation and supervision by the Insurance
Department of the State of New York, which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. Where required, a copy of the form of
VAI has been filed for approval with insurance officials in each jurisdiction
where the VAIs are sold. VAI is not yet available in all jurisdictions. Indi-
viduals should consult with their Metropolitan Life sales representatives to
determine if VAI is available in their jurisdictions.
Metropolitan Life is required to submit annual statements of its operations,
including financial statements, to the insurance departments of the various
jurisdictions in which it does business, for the purposes of determining sol-
vency and compliance with local insurance laws and regulations. Such state-
ments are available for public inspection at state insurance department of-
fices.
REGISTRATION STATEMENT
...............................................................................
A registration statement under the Securities Act of 1933 has been filed
with the Securities and Exchange Commission relating to the offering described
in this Prospectus. This Prospectus does not contain all the information set
forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for addi-
tional information concerning the Separate Account, Metropolitan Life and the
Policies. The additional information may be obtained at the Commission's main
office in Washington, D.C., upon payment of the prescribed fees.
24
<PAGE>
...............................................................
LEGAL MATTERS
...............................................................................
The legality of the VAI described in this Prospectus has been passed upon by
Christopher P. Nicholas, Associate General Counsel of Metropolitan Life.
Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised
Metropolitan Life on certain matters relating to the federal securities laws.
EXPERTS
...............................................................................
The financial statements of Metropolitan Life Separate Account UL as of
December 31, 1996 and for the two years then ended and the financial
statements of Metropolitan Life Insurance Company as of December 31, 1996 and
1995 and for the three years ended December 31, 1996 included in this
Prospectus have been audited by LLP, independent auditors, as stated
in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been examined by
, FSA, MAAA, Vice-President and Actuary of Metropolitan Life, as
stated in his opinion filed as an exhibit to the registration statement.
FINANCIAL STATEMENTS
...............................................................................
The financial statements of Metropolitan Life included in this Prospectus
should be considered only as bearing upon the ability of Metropolitan Life to
meet its obligations under the VAI.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Metropolitan Life Insurance Company:
We have audited the accompanying statements of assets and liabilities of the
Growth, Income, Money Market, Diversified, International Stock, Stock Index,
and Aggressive Growth Divisions of Metropolitan Life Separate Account UL (the
"Separate Account") as of December 31, 1996, and the related statements of
operations for the year then ended and of changes in net assets for each of
the two years in the period 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996
by correspondence with the custodian and the depositor of the Separate
Account. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets of the Growth, Income, Money Market, Diversified,
International Stock, Stock Index and Aggressive Growth Divisions of
Metropolitan Life Separate Account UL as of December 31, 1996 and the results
of their operations for the year then ended and the changes in their net
assets for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
LLP
New York, New York
February 28, 1997
26
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY INTERNATIONAL STOCK AGGRESSIVE
GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ----------- ---------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Metropol-
itan Series Fund, Inc.
at Value (Note 1A):
Growth Portfolio
(5,208,796 shares; cost
$133,325,492).......... $158,920,369 -- -- -- -- -- --
Income Portfolio
(2,210,984 shares; cost
$27,751,597)........... -- $27,327,760 -- -- -- -- --
Money Market Portfolio
(584,077 shares; cost
$6,278,669)............ -- -- $6,095,430 -- -- -- --
Diversified Portfolio
(6,643,203 shares; cost
$100,173,963).......... -- -- -- $110,742,194 -- -- --
International Stock
Portfolio
(1,991,487 shares; cost
$24,907,650)........... -- -- -- -- $23,798,267 -- --
Stock Index Portfolio
(1,450,886 shares; cost
$27,248,573)........... -- -- -- -- -- $32,253,185 --
Aggressive Growth Port-
folio
(3,107,005 shares; cost
$78,361,229)........... -- -- -- -- -- -- $84,106,614
------------ ----------- ---------- ------------ ----------- ----------- -----------
Total Investments...... 158,920,369 27,327,760 6,095,430 110,742,194 23,798,267 32,253,185 84,106,614
Cash and Accounts Re-
ceivable............... 11,882 3,998 86,448 168 6,129 119,880 28,704
------------ ----------- ---------- ------------ ----------- ----------- -----------
Total Assets........... 158,932,251 27,331,758 6,181,878 110,742,362 23,804,396 32,373,065 84,135,318
LIABILITIES............. 34,679 74,006 62,023 274,903 135,056 339,551 394,115
------------ ----------- ---------- ------------ ----------- ----------- -----------
NET ASSETS.............. $158,897,572 $27,257,752 $6,119,855 $110,467,459 $23,669,340 $32,033,514 $83,741,203
============ =========== ========== ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------
MONEY INTERNATIONAL STOCK AGGRESSIVE
GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------- ---------- -------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (Note 2)..... $15,051,436 $1,723,590 $300,997 $ 9,697,032 $ 200,282 $ 744,725 $2,234,170
Expenses:
Mortality and expense
charges (Note 3)...... 1,221,219 220,150 37,221 870,631 181,892 185,397 641,863
----------- ---------- -------- ----------- --------- ---------- ----------
Net investment income... 13,830,217 1,503,440 263,776 8,826,401 18,390 559,328 1,592,307
----------- ---------- -------- ----------- --------- ---------- ----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)
from security transac-
tions.................. 2,929,455 (16,679) (11,231) 532,857 (9,816) 742,061 166,243
Change in unrealized ap-
preciation (deprecia-
tion) of investments
....................... 9,406,099 (697,499) (90,379) 3,200,410 (559,306) 2,836,911 1,728,894
----------- ---------- -------- ----------- --------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments (Note
1B).................... 12,335,554 (714,178) (101,610) 3,733,267 (569,122) 3,578,972 1,895,137
----------- ---------- -------- ----------- --------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $26,165,771 $ 789,262 $162,166 $12,559,668 ($550,732) $4,138,300 $3,487,444
=========== ========== ======== =========== ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH INCOME MONEY MARKET
DIVISION DIVISION DIVISION
-------------------------- ------------------------ ------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income.. $ 13,830,217 $ 4,694,831 $ 1,503,440 $ 1,147,331 $ 263,776 $ 128,508
Net realized gain
(loss) from security
transactions.......... 2,929,455 293,233 (16,679) (8,290) (11,231) 35,201
Change in unrealized
appreciation
(depreciation) of
investments........... 9,406,099 19,543,807 (697,499) 1,977,261 (90,379) 4,641
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations........ 26,165,771 24,531,871 789,262 3,116,302 162,166 168,350
------------ ------------ ----------- ----------- ----------- -----------
From capital transac-
tions:
Net premiums........... 50,115,276 41,455,659 9,255,854 8,687,776 4,945,669 2,988,786
Redemptions............ (4,742,435) (2,766,288) (764,548) (546,157) (31,149) (89,665)
Net portfolio trans-
fers.................. (2,214,936) 395,373 (154,542) 36,042 (1,062,557) (3,328,483)
Other net transfers.... (22,866,726) (19,059,583) (4,179,745) (4,186,427) (869,014) (1,058,931)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from capital
transactions .......... 20,291,179 20,025,161 4,157,019 3,991,234 2,982,949 (1,488,293)
------------ ------------ ----------- ----------- ----------- -----------
NET CHANGE IN NET
ASSETS................. 46,456,950 44,557,032 4,946,281 7,107,536 3,145,115 (1,319,943)
NET ASSETS--BEGINNING OF
YEAR................... 112,440,622 67,883,590 22,311,471 15,203,935 2,974,740 4,294,683
------------ ------------ ----------- ----------- ----------- -----------
NET ASSETS--END OF
YEAR................... $158,897,572 $112,440,622 $27,257,752 $22,311,471 $ 6,119,855 $ 2,974,740
============ ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED INTERNATIONAL STOCK STOCK INDEX AGGRESSIVE GROWTH
DIVISION DIVISION DIVISION DIVISION
- -------------------------- ------------------------ ------------------------ --------------------------
FOR THE YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 8,826,401 $ 4,695,480 $ 18,390 $ 27,416 $ 559,328 $ 213,805 $ 1,592,307 $ 4,726,548
532,857 248,523 (9,816) 28,349 742,061 29,512 166,243 152,387
3,200,410 10,898,818 (559,306) 136,578 2,836,911 2,271,366 1,728,894 4,188,117
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
12,559,668 15,842,821 (550,732) 192,343 4,138,300 2,514,683 3,487,444 9,067,052
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
34,025,252 31,888,789 10,992,609 12,024,423 16,930,258 7,870,004 45,233,040 32,859,273
(3,640,372) (2,358,803) (611,355) (392,901) (385,783) (232,828) (2,071,839) (1,185,240)
(466,159) (416,768) (688,494) (658,961) 4,466,799 1,324,319 1,106,638 2,162,117
(16,191,671) (15,856,704) (2,768,825) (5,248,525) (6,541,830) (2,897,249) (18,345,877) (14,163,669)
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
13,727,050 13,256,514 6,923,935 5,724,036 14,469,444 6,064,246 25,921,962 19,672,481
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
26,286,718 29,099,335 6,373,203 5,916,379 18,607,744 8,578,929 29,409,406 28,739,533
84,180,741 55,081,406 17,296,137 11,379,758 13,425,770 4,846,841 54,331,797 25,592,264
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
$110,467,459 $ 84,180,741 $23,669,340 $17,296,137 $32,033,514 $13,425,770 $ 83,741,203 $ 54,331,797
============ ============ =========== =========== =========== =========== ============ ============
</TABLE>
30
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Metropolitan Life Separate Account UL (the "Separate Account") is a multi-
division unit investment trust registered under the Investment Company Act of
1940 and presently consists of seven investment divisions used to support
variable universal life insurance policies. The assets in each division are
invested in shares of the corresponding portfolio of the Metropolitan Series
Fund, Inc. (the "Fund"). Each portfolio has varying investment objectives
relative to growth of capital and income.
The Separate Account was formed by Metropolitan Life Insurance Company
("Metropolitan Life") on December 13, 1988, and registered as a unit investment
trust on January 5, 1990. The assets of the Separate Account are the property
of Metropolitan Life.
A summary of significant accounting policies, all of which are in accordance
with generally accepted accounting principles, is set forth below:
1. SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS
Investments in shares of the Fund are valued at the reported net asset
values of the respective portfolios. A summary of investments of the
seven designated portfolios of the Fund in which the seven investment
divisions of the Separate Account invest as of December 31, 1996 is
included as Note 4. The methods used to value the Fund's investments at
December 31, 1996 are described in Note 1A of the Fund's 1996 Annual
Report.
B.SECURITY TRANSACTIONS
Purchases and sales are recorded on the trade date. Realized gains and
losses on sales of investments are determined on the basis of identified
cost.
C.FEDERAL INCOME TAXES
In the opinion of counsel of Metropolitan Life, the Separate Account will
be treated as a part of Metropolitan Life and its operations, and the
Separate Account will not be taxed separately as a "regulated investment
company" under existing law. Metropolitan Life is taxed as a life
insurance company. The policies permit Metropolitan Life to charge
against the Separate Account any taxes, or reserves for taxes,
attributable to the maintenance or operation of the Separate Account.
Metropolitan Life is not currently charging any Federal income taxes
against the Separate Account arising from the earnings or realized
capital gains attributable to the Separate Account. Such charges may be
imposed in future years depending on market fluctuations and transactions
involving the Separate Account.
D. NET PREMIUMS
Metropolitan Life deducts a sales load and a state premium tax charge from
premiums before amounts are allocated to the Separate Account. In the case
of certain of the policies, Metropolitan Life also deducts a Federal
income tax charge before amounts are allocated to the Separate Account.
The Federal income tax charge is imposed in connection with certain of the
policies to recover a portion of the Federal income tax adjustment
attributable to policy acquisition expenses.
2. DIVIDENDS
On April 25, 1996 and December 16, 1996, the Fund declared dividends for all
shareholders of record on April 25, 1996 and December 26, 1996, respectively.
The amount of dividends received by the Separate Account was $29,952,232. The
dividends were paid to Metropolitan Life on April 26, 1996 and December 27,
1996, respectively, and were immediately reinvested in additional shares of the
portfolios in which the investment divisions invest. As a result of this
reinvestment, the number of shares of the Fund held by each of the seven
investment divisions increased by the following: Growth Portfolio 488,416
shares, Income Portfolio 139,135 shares, Money Market Portfolio 28,861 shares,
Diversified Portfolio 578,116 shares, International Stock Portfolio 16,160
shares, Stock Index Portfolio 33,043 shares, and Aggressive Growth Portfolio
82,174 shares.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. EXPENSES
With respect to assets in the Separate Account that support certain
policies, Metropolitan Life applies a daily charge against the Separate
Account for the mortality and expense risks assumed by Metropolitan Life. This
charge is equivalent to the effective annual rate of .90% of the average daily
value of the net assets in the Separate Account which are attributable to such
policies.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1996 METROPOLITAN SERIES FUND,
INC.
<TABLE>
<CAPTION>
GROWTH INCOME MONEY MARKET DIVERSIFIED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------- ------------ ------- ------------ ------- --------------
VALUE VALUE VALUE VALUE
(NOTE 1A) (NOTE 1A) (NOTE 1A) (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Aerospace.............. $ 14,697,375 (0.9%) $ 8,224,562 (0.6%)
Automotive............. 38,188,750 (2.4%) 21,290,925 (1.5%)
Banking................ 157,307,202 (9.8%) 87,632,900 (6.0%)
Broadcasting........... 19,728,750 (1.2%) 11,025,000 (0.8%)
Business Services...... 31,078,650 (1.9%) 17,361,575 (1.2%)
Chemicals.............. 105,060,638 (6.6%) 58,547,387 (4.0%)
Cosmetics.............. 20,924,887 (1.3%) 11,739,188 (0.8%)
Drugs & Health Care.... 65,432,344 (4.1%) 36,554,638 (2.5%)
Electrical Equipment... 39,896,063 (2.5%) 22,197,437 (1.5%)
Electronics............ 147,966,575 (9.3%) 82,595,572 (5.7%)
Financial Services..... 34,196,000 (2.1%) 19,078,600 (1.3%)
Food & Beverages....... 55,678,225 (3.5%) 31,081,563 (2.1%)
Hospital Management.... 26,943,900 (1.7%) 15,140,663 (1.0%)
Hospital Supply........ 64,140,600 (4.0%) 35,693,650 (2.5%)
Hotel & Restaurant..... 34,541,887 (2.2%) 19,286,312 (1.3%)
Household Products..... 27,788,750 (1.7%) 15,490,750 (1.1%)
Insurance.............. 58,992,362 (3.7%) 32,934,038 (2.3%)
Leisure................ 37,965,054 (2.4%) 21,750,587 (1.5%)
Machinery.............. 24,072,650 (1.5%) 13,385,200 (0.9%)
Metals--Aluminum....... 45,886,900 (2.9%) 25,661,113 (1.8%)
Miscellaneous.......... 17,727,000 (1.1%) 9,861,000 (0.7%)
Office & Business
Equipment............. 104,763,338 (6.6%) 58,437,513 (4.0%)
Oil.................... 27,677,510 (1.7%) 15,646,986 (1.1%)
Oil--Domestic.......... 7,318,575 (0.5%) 4,071,375 (0.3%)
Oil--International..... 32,374,200 (2.0%) 18,031,200 (1.2%)
Oil--Services.......... 46,821,401 (2.9%) 26,157,263 (1.8%)
Retail Grocery......... 23,040,750 (1.4%) 13,019,606 (0.9%)
Retail Trade........... 74,240,420 (4.7%) 41,373,775 (2.9%)
Software............... 19,964,200 (1.3%) 11,203,265 (0.8%)
Tobacco................ 22,356,062 (1.4%) 12,602,737 (0.9%)
Transportation--
Railroad.............. 8,116,800 (0.5%) 4,548,600 (0.3%)
Transportation--
Trucking.............. 0 (0.0%) 5 (0.0%)
Utilities--Gas
Distribution &
Pipelines............. 33,212,237 (2.1%) 18,517,850 (1.3%)
-------------- --------------
Total Common Stock..... 1,468,100,055 (91.9%) 820,142,835 (56.6%)
-------------- --------------
LONG-TERM DEBT
SECURITIES
Corporate Bonds:
Banking................ $ 17,291,411 (4.5%) $ 13,220,347 (0.9%)
Collateralized Mortgage
Obligations........... 8,684,394 (2.3%) 9,152,935 (0.6%)
Financial Services..... 36,834,715 (9.6%) 60,619,051 (4.2%)
Government Sponsored... 5,656,770 (1.5%) 6,496,680 (0.5%)
Industrials............ 26,858,935 (7.0%) 33,637,368 (2.3%)
Miscellaneous.......... 6,288,068 (1.6%) 8,335,834 (0.6%)
Utilities--Electric.... 7,305,058 (1.9%) 5,318,809 (0.4%)
Utilities--
Miscellaneous......... 0 (0.0%) 2,838,920 (0.2%)
Utilities--Telephone... 0 (0.0%) 5,040,000 (0.3%)
------------ --------------
Total Corporate Bonds.. 108,919,351 (28.4%) 144,659,944 (10.0%)
------------ --------------
Federal Agency
Obligations........... 19,701,551 (5.1%) 30,641,236 (2.1%)
Federal Treasury
Obligations........... 201,495,177 (52.6%) 317,610,213 (21.9%)
Foreign Obligations.... 14,393,603 (3.8%) 20,255,361 (1.4%)
Yankee Bonds........... 15,352,261 (4.0%) 21,020,607 (1.5%)
------------ --------------
Total Bonds............ 359,861,943 (93.9%) 534,187,361 (36.9%)
------------ --------------
SHORT-TERM OBLIGATIONS
Commercial Paper....... $ 125,797,417 (7.9%) $ 17,393,000 (4.5%) $25,926,227 (62.3%) $ 82,989,000 (5.7%)
Corporate Note......... 3,998,775 (9.6%)
Federal Agency
Obligations........... 11,675,628 (28.0%)
-------------- ------------ ----------- --------------
Total Short-Term
Obligations........... 125,797,417 (7.9%) 17,393,000 (4.5%) 41,600,630 (99.9%) 82,989,000 (5.7%)
-------------- ------------ ----------- --------------
TOTAL INVESTMENTS....... 1,593,897,472 (99.8%) 377,254,943 (98.4%) 41,600,630 (99.9%) 1,437,319,196 (99.2%)
Other Assets Less
Liabilities........... 3,831,003 (0.2%) 6,139,895 (1.6%) 36,001 (0.1%) 11,521,971 (0.8%)
-------------- ------------ ----------- --------------
NET ASSETS.............. $1,597,728,475 (100.0%) $383,394,838 (100.0%) $41,636,631 (100.0%) $1,448,841,167 (100.0%)
============== ============ =========== ==============
</TABLE>
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1996 METROPOLITAN SERIES FUND,
INC. (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL
STOCK
PORTFOLIO
-------------
VALUE
(NOTE 1A)
<S> <C> <C>
COMMON STOCK
Automotive.............................................. $ 12,042,055 (4.0%)
Banking................................................. 28,537,013 (9.4%)
Broadcasting............................................ 1,583,340 (0.5%)
Business Services....................................... 1,353,994 (0.5%)
Chemicals............................................... 15,831,034 (5.2%)
Construction Materials.................................. 4,410,671 (1.5%)
Consumer Non-Durables................................... 1,078,633 (0.4%)
Drugs & Health Care..................................... 13,669,733 (4.5%)
Electrical Equipment.................................... 4,851,913 (1.6%)
Electronics............................................. 33,670,645 (11.1%)
Financial Services...................................... 16,109,145 (5.3%)
Food & Beverages........................................ 4,475,477 (1.5%)
Forest Products & Paper................................. 1,650,874 (0.6%)
General Business........................................ 81,167 (0.0%)
Homebuilders............................................ 2,312,664 (0.8%)
Household Products...................................... 1,626,631 (0.5%)
Insurance............................................... 12,269,901 (4.0%)
Investment Companies.................................... 2,234,375 (0.7%)
Leisure................................................. 2,828,608 (0.9%)
Machinery............................................... 5,079,733 (1.7%)
Metals--Gold............................................ 59,942 (0.0%)
Metals--Non-Ferrous..................................... 4,051,349 (1.3%)
Metals--Steel & Iron.................................... 6,796,496 (2.2%)
Miscellaneous........................................... 5,656,864 (1.9%)
Multi-Industry.......................................... 14,979,104 (4.9%)
Oil & Gas Exploration................................... 6,073,231 (2.0%)
Oil--International...................................... 15,038,125 (4.9%)
Printing & Publishing................................... 3,890,524 (1.3%)
Real Estate............................................. 15,753,267 (5.2%)
Retail Trade............................................ 8,007,127 (2.6%)
Textiles & Apparel...................................... 2,385,456 (0.8%)
Toys & Amusements....................................... 976,600 (0.3%)
Transportation.......................................... 1,745,426 (0.6%)
Utilities--Electric..................................... 4,565,840 (1.5%)
Utilities--Gas Distribution & Pipelines................. 3,750,981 (1.2%)
Utilities--Miscellaneous................................ 3,130,194 (1.0%)
Utilities--Telephone.................................... 7,711,745 (2.5%)
------------
Total Common Stock...................................... 270,269,877 (88.9%)
------------
PREFERRED STOCK
Retail Trade............................................ 518,032 (0.2%)
------------
Total Equity Securities................................. 270,787,909 (89.1%)
TOTAL LONG-TERM DEBT SECURITIES--CONVERTIBLE BONDS....... 19,499,259 (6.4%)
------------
TOTAL INVESTMENTS........................................ 290,287,168 (95.5%)
Other Assets Less Liabilities........................... 13,538,315 (4.5%)
------------
NET ASSETS............................................... $303,825,483 (100.0%)
============
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1996 METROPOLITAN SERIES FUND,
INC. (CONTINUED)
<TABLE>
<CAPTION>
STOCK INDEX
PORTFOLIO
-----------
VALUE
(NOTE 1A)
<S> <C> <C>
COMMON STOCK
Aerospace.............................................. $ 28,736,048 (2.6%)
Automotive............................................. 28,701,626 (2.6%)
Banking................................................ 93,714,830 (8.4%)
Broadcasting........................................... 11,450,367 (1.0%)
Building & Construction................................ 7,528,376 (0.7%)
Business Services...................................... 14,455,324 (1.3%)
Chemicals.............................................. 34,500,400 (3.1%)
Containers & Glass..................................... 1,693,750 (0.2%)
Cosmetics.............................................. 3,360,350 (0.3%)
Drugs & Health Care.................................... 72,616,988 (6.5%)
Electrical Equipment................................... 48,407,363 (4.3%)
Electronics............................................ 63,125,007 (5.6%)
Financial Services..................................... 35,084,926 (3.1%)
Food & Beverages....................................... 68,548,136 (6.1%)
Forest Products & Paper................................ 16,456,307 (1.5%)
Hospital Management.................................... 10,165,689 (0.9%)
Hospital Supply........................................ 30,587,031 (2.7%)
Hotel & Restaurant..................................... 10,602,137 (0.9%)
Household Appliances & Home Furnishings................ 1,995,625 (0.2%)
Household Products..................................... 34,569,100 (3.1%)
Insurance.............................................. 38,990,773 (3.5%)
Leisure................................................ 9,888,705 (0.9%)
Liquor................................................. 2,526,500 (0.2%)
Machinery.............................................. 14,790,412 (1.3%)
Metals--Aluminum....................................... 4,013,638 (0.4%)
Metals--Gold........................................... 5,642,260 (0.5%)
Metals--Non-Ferrous.................................... 2,738,985 (0.2%)
Metals--Steel & Iron................................... 1,839,738 (0.2%)
Mining................................................. 2,180,087 (0.2%)
Miscellaneous.......................................... 3,178,900 (0.3%)
Multi-Industry......................................... 9,577,826 (0.9%)
Newspapers............................................. 6,143,637 (0.5%)
Office & Business Equipment............................ 48,538,755 (4.3%)
Oil & Gas Exploration.................................. 2,800,313 (0.2%)
Oil--Domestic.......................................... 21,819,438 (1.9%)
Oil--International..................................... 65,066,563 (5.8%)
Oil--Services.......................................... 11,558,751 (1.0%)
Photography............................................ 5,953,875 (0.5%)
Printing & Publishing.................................. 3,554,968 (0.3%)
Retail Grocery......................................... 5,887,863 (0.5%)
Retail Trade........................................... 42,490,678 (3.8%)
Software............................................... 30,829,784 (2.7%)
Textiles & Apparel..................................... 6,880,088 (0.6%)
Tires & Rubber......................................... 3,116,200 (0.3%)
Tobacco................................................ 21,138,225 (1.9%)
Toys & Amusements...................................... 2,450,273 (0.2%)
Transportation--Airlines............................... 4,475,875 (0.4%)
Transportation--Railroad............................... 11,508,961 (1.0%)
Transportation--Trucking............................... 1,006,875 (0.1%)
Utilities--Electric.................................... 27,914,283 (2.5%)
Utilities--Gas Distribution & Pipelines................ 14,503,806 (1.3%)
Utilities--Telephone................................... 72,606,227 (6.5%)
--------------
Total Common Stock..................................... 1,121,912,642 (100.0%)
PREFERRED STOCK
Hospital Supply........................................ 1,774 (0.0%)
--------------
Total Equity Securities................................ 1,121,914,416 (100.0%)
TOTAL SHORT-TERM OBLIGATIONS--U.S. TREASURY BILLS....... 6,119,501 (0.5%)
--------------
TOTAL INVESTMENTS....................................... 1,128,033,917 (100.5%)
Other Assets Less Liabilities.......................... (5,736,583) (-0.5%)
--------------
NET ASSETS.............................................. $1,122,297,334 (100.0%)
==============
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
4. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1996 METROPOLITAN SERIES FUND,
INC. (CONCLUDED)
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH
PORTFOLIO
----------
VALUE
(NOTE 1A)
---------
<S> <C> <C>
COMMON STOCK
Automotive............................................. $ 8,300,475 (0.6%)
Banking................................................ 52,161,093 (4.0%)
Broadcasting........................................... 1,911,644 (0.1%)
Business Services...................................... 111,731,275 (8.5%)
Chemicals.............................................. 8,035,150 (0.6%)
Drugs & Health Care.................................... 40,531,901 (3.1%)
Electronics............................................ 159,063,920 (12.0%)
Finance................................................ 1,903,687 (0.1%)
Financial Services..................................... 36,782,250 (2.8%)
Food & Beverages....................................... 8,800,137 (0.7%)
Hospital Supply........................................ 24,680,369 (1.9%)
Hotel & Restaurant..................................... 147,865,328 (11.2%)
Insurance.............................................. 24,104,063 (1.8%)
Leisure................................................ 22,011,718 (1.7%)
Machinery.............................................. 5,305,125 (0.4%)
Office & Business Equipment............................ 46,756,744 (3.5%)
Oil.................................................... 1,795,219 (0.1%)
Oil & Gas Exploration.................................. 22,009,875 (1.7%)
Oil--Services.......................................... 115,561,562 (8.7%)
Personal Care.......................................... 2,647,288 (0.2%)
Printing & Publishing.................................. 7,947,212 (0.6%)
Retail Trade........................................... 116,932,900 (8.9%)
Software............................................... 110,257,289 (8.3%)
Textiles & Apparel..................................... 38,388,025 (2.9%)
Tobacco................................................ 1,785,938 (0.1%)
Transportation--Airlines............................... 19,139,375 (1.4%)
Utilities--Miscellaneous............................... 7,936,000 (0.6%)
Utilities--Telephone................................... 19,502,387 (1.5%)
--------------
Total Common Stock..................................... 1,163,847,949 (88.0%)
PREFERRED STOCK
Printing & Publishing.................................. 3,590,300 (0.3%)
--------------
Total Equity Securities................................. 1,167,438,249 (88.3%)
TOTAL LONG-TERM DEBT SECURITIES--CONVERTIBLE BONDS...... 2,312,500 (0.2%)
TOTAL SHORT-TERM OBLIGATIONS--COMMERCIAL PAPER.......... 142,773,021 (10.8%)
--------------
TOTAL INVESTMENTS....................................... 1,312,523,770 (99.3%)
Other Assets Less Liabilities.......................... 9,325,594 (0.7%)
--------------
NET ASSETS.............................................. $1,321,849,364 (100.0%)
==============
</TABLE>
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Metropolitan Life Insurance Company
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company (the "Company") as of December 31, 1996 and 1995 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1996 and 1995 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 13 to the consolidated financial statements, the
Company has retroactively adopted applicable generally accepted accounting
principles relating to mutual life insurance companies and has changed, as of
December 31, 1994, the method of accounting for fixed maturity investments.
Deloitte & Touche LLP
New York, New York
April 4, 1997
37
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities: 2,12
Available for Sale, at Estimated Fair Value......... $ 75,039 $ 76,412
Held to Maturity, at Amortized Cost................. 11,322 11,340
Equity Securities..................................... 2,12 2,816 1,749
Mortgage Loans on Real Estate......................... 2,12 18,964 17,216
Policy Loans.......................................... 12 5,842 5,714
Real Estate........................................... 2 7,744 8,761
Real Estate Joint Ventures............................ 4 851 753
Other Limited Partnership Interests................... 4 992 797
Leases and Leveraged Leases........................... 2 1,883 1,503
Short-Term Investments................................ 12 741 1,769
Other Invested Assets................................. 2,692 2,651
-------- --------
Total Investments................................... 128,886 128,665
Cash and Cash Equivalents.............................. 12 2,325 1,930
Deferred Policy Acquisition Costs...................... 7,227 6,508
Accrued Investment Income.............................. 1,611 1,961
Premiums and Other Receivables......................... 2,916 2,533
Deferred Income Taxes Receivable....................... 37 --
Other Assets........................................... 2,094 2,157
Separate Account Assets................................ 43,775 39,384
-------- --------
Total Assets........................................ $188,871 $183,138
======== ========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits................................. 5 $ 69,223 $ 68,256
Policyholder Account Balances.......................... 5,12 47,674 48,133
Other Policyholder Funds............................... 12 4,179 4,006
Policyholder Dividends Payable......................... 1,817 1,825
Short- and Long-Term Debt.............................. 9,12 5,365 5,580
Income Taxes Payable: 6
Current............................................... 599 827
Deferred.............................................. -- 230
Other Liabilities...................................... 4,632 3,666
Separate Account Liabilities........................... 43,399 38,861
-------- --------
Total Liabilities................................... 176,888 171,384
-------- --------
Commitments and Contingencies (Notes 2, 4 and 10)
EQUITY
Retained Earnings...................................... 10,937 10,084
Net Unrealized Investment Gains........................ 3 1,028 1,646
Foreign Currency Translation Adjustments............... 18 24
-------- --------
Total Equity........................................ 13 11,983 11,754
-------- --------
Total Liabilities and Equity........................ $188,871 $183,138
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
The New York State Insurance Department (the "Department") recognizes only
statutory accounting practices for determining and reporting the financial
condition and results of operations of an insurance company for determining
solvency under the New York Insurance Law. No consideration is given by the
Department to financial statements prepared in accordance with generally
accepted accounting principles in making such determination.
38
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums....................................... 5 $11,462 $11,178 $10,078
Universal Life and Investment-Type Product Pol-
icy Fee Income................................ 1,173 1,105 883
Net Investment Income.......................... 3 8,848 8,711 8,283
Investment Gains, Net.......................... 3 603 199 4
Commissions, Fees and Other Income............. 1,152 741 636
------- ------- -------
Total Revenues................................ 23,238 21,934 19,884
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.......................... 5 12,525 11,976 11,179
Interest Credited to Policyholder Account Bal-
ances......................................... 2,868 3,143 3,040
Policyholder Dividends......................... 1,728 1,786 1,752
Other Operating Costs and Expenses............. 4,711 4,285 3,500
------- ------- -------
Total Benefits and Other Deductions........... 21,832 21,190 19,471
------- ------- -------
Earnings from Continuing Operations before In-
come Taxes.................................... 1,406 744 413
Income Taxes................................... 6 482 407 380
------- ------- -------
Earnings from Continuing Operations............ 924 337 33
------- ------- -------
Discontinued Operations:
(Loss) Earnings from Discontinued Operations
(Net of Income Tax (Benefit) Expense of $(18)
in 1996, $32 in 1995 and $54 in 1994)........ (52) (54) 81
(Loss) Gain on Disposal of Discontinued Opera-
tions (Net of Income Tax (Benefit) Expense of
$(11) in 1996 and $106 in 1995).............. (19) 416 --
------- ------- -------
(Loss) Earnings from Discontinued Operations... (71) 362 81
------- ------- -------
Net Earnings................................... 13 $ 853 $ 699 $ 114
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 ,1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- ------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year........... $10,084 $ 9,385 $9,271
Net Earnings................................... 853 699 114
------- ------- ------
Retained Earnings, End of Year................. 10,937 10,084 9,385
------- ------- ------
<CAPTION>
Net Unrealized Investment Gains (Losses),
Beginning of Year.............................. 1,646 (955) 259
<S> <C> <C> <C> <C>
Cumulative Effect of Accounting Change......... 1 -- -- (1,247)
Change in Unrealized Investment (Losses) Gains. (618) 2,601 33
------- ------- ------
Net Unrealized Investment Gains (Losses), End
of Year........................................ 1,028 1,646 (955)
------- ------- ------
Foreign Currency Translation Adjustments,
Beginning of Year.............................. 24 (2) (17)
Change in Foreign Currency Translation
Adjustments.................................... (6) 26 15
------- ------- ------
Foreign Currency Translation Adjustments, End
of Year........................................ 18 24 (2)
------- ------- ------
Total Equity, End of Year...................... 13 $11,983 $11,754 $8,428
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Cash Provided by Operating Activities......... $ 3,688 $ 4,823 $ 3,980
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Fixed Maturities................................ 76,117 64,372 47,658
Equity Securities............................... 2,069 694 795
Mortgage Loans on Real Estate................... 2,380 3,182 2,684
Real Estate..................................... 1,948 1,193 688
Real Estate Joint Ventures...................... 410 387 471
Other Limited Partnership Interests............. 178 42 24
Purchases of:
Fixed Maturities................................ (76,225) (66,693) (51,073)
Equity Securities............................... (2,742) (781) (812)
Mortgage Loans on Real Estate................... (4,225) (2,491) (1,465)
Real Estate..................................... (859) (904) (773)
Real Estate Joint Ventures...................... (130) (285) (51)
Other Limited Partnership Interests............. (307) (87) (164)
Net Change in Short-Term Investments............. 1,028 (634) 198
Net Change in Policy Loans....................... (128) (112) (393)
Other, Net ...................................... (438) (568) (107)
-------- -------- --------
Net Cash Used by Investing Activities............. (924) (2,685) (2,320)
-------- -------- --------
Cash Flows from Financing Activities:
Policyholder Account Balances
Deposits........................................ 17,167 16,017 15,580
Withdrawals..................................... (19,321) (19,142) (16,876)
Additions to Long-Term Debt...................... -- 692 148
Repayments of Long-Term Debt..................... (284) (389) (334)
Net Increase (Decrease) in Short-Term Debt....... 69 (78) 143
-------- -------- --------
Net Cash Used by Financing Activities............. (2,369) (2,900) (1,339)
-------- -------- --------
Change in Cash and Cash Equivalents............... 395 (762) 321
Cash and Cash Equivalents, Beginning of Year...... 1,930 2,692 2,371
-------- -------- --------
Cash and Cash Equivalents, End of Year............ $ 2,325 $ 1,930 $ 2,692
======== ======== ========
Supplemental Cash Flow Information:
Interest Paid.................................... $ 310 $ 280 $ 257
======== ======== ========
Income Taxes Paid................................ $ 497 $ 283 $ 161
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net Earnings......................................... $ 853 $ 699 $ 114
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Change in Deferred Policy Acquisition Costs, Net... (391) (376) (538)
Change in Accrued Investment Income................ 350 (191) (70)
Change in Premiums and Other Receivables........... (106) (29) (458)
Undistributed (Income) Loss of Real Estate Joint
Ventures and Other Limited Partnerships........... 100 (95) 150
Gains from Sale of Investments and Businesses, Net. (573) (721) (4)
Depreciation and Amortization Expenses............. (18) 30 (25)
Interest Credited to Policyholder Account Balances. 2,868 3,143 3,040
Universal Life and Investment-Type Product Policy
Fee Income........................................ (1,173) (1,105) (883)
Change in Future Policy Benefits................... 2,149 2,332 2,089
Change in Other Policyholder Funds................. 181 (66) 65
Change in Policyholder Dividends Payable........... (8) 11 (55)
Change in Income Taxes Payable..................... (134) 327 503
Other, Net......................................... (410) 864 52
------- ------- ------
Net Cash Provided by Operating Activities............ $ 3,688 $ 4,823 $3,980
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "Company") principally provide life insurance and annuity
products and pension, pension-related and investment-related services to
individuals, corporations and other institutions. The Company also provides
nonmedical health, disability and property and casualty insurance and offers
investment management, investment advisory, and commercial finance services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint venture interests in
which MetLife has control. Other equity investments in affiliated companies,
partnerships and joint ventures are generally reported on the equity basis.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Minority interest related to subsidiaries, partnership and joint venture
interests that are consolidated amounted to $149 million and $137 million at
December 31, 1996 and 1995, respectively, and is included in other
liabilities. Minority interest in earnings of $30 million, $22 million and $5
million in 1996, 1995 and 1994, respectively, is included in other operating
costs and expenses.
In August 1996, MetLife completed a merger with New England Mutual Life
Insurance Company ("The New England") whereby The New England was merged
directly into MetLife. The merger was accounted for as a pooling of interest
and, accordingly, the accompanying consolidated financial statements include
the accounts and operations of The New England for all periods.
Prior to 1996, MetLife, as a mutual life insurance company, prepared its
financial statements in conformity with accounting practices prescribed or
permitted by the Department (statutory financial statements), which accounting
practices were considered to be GAAP for a mutual life insurance company. In
1996, MetLife adopted Interpretation No. 40, Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises
(the "Interpretation"), and Statement of Financial Accounting Standards
("SFAS") No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies (the "Standard"), of the Financial Accounting Standards
Board ("FASB"). The Interpretation and the Standard required mutual life
insurance companies to adopt all standards promulgated by the FASB in their
general purpose financial statements. The financial statements of MetLife for
1995 and 1994 have been retroactively restated to reflect the adoption of all
applicable authoritative GAAP pronouncements. The effect of such adoption,
except for SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," has been reflected in equity at January 1, 1994 (see Note
13).
As of December 31, 1994, the Company adopted SFAS No. 115, which expanded
the use of fair value accounting for those securities that a company does not
have positive intent and ability to hold to maturity. Implementation of SFAS
No. 115 decreased consolidated equity at December 31, 1994, by $1,247 million,
net of deferred income taxes, amounts attributable to participating pension
contractholders and adjustments of deferred policy acquisition costs and
future policy benefits. In 1995, the FASB issued implementation guidance for
SFAS No. 115 and permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 31, 1995, the Company transferred
$3,058 million of securities classified as held to maturity to the available
for sale portfolio. As a result, consolidated equity at December 31, 1995,
increased by $135 million, excluding the effects of deferred income taxes,
amounts attributable to participating pension contractholders and adjustments
of deferred policy acquisition costs and future policy benefits.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
VALUATION OF INVESTMENTS
Fixed maturity securities for which the Company has the positive intent and
ability to hold to maturity are stated principally at amortized cost and
include bonds and redeemable preferred stock. All other fixed maturity
securities are classified as available for sale and are reported at estimated
fair value. Equity securities are stated principally at estimated fair value
and include common stocks and nonredeemable preferred stocks. Unrealized
investment gains and losses on fixed maturity securities available for sale
and equity securities are reported as a separate component of equity. Such
amounts are net of related deferred income taxes, amounts attributable to
participating pension contractholders and adjustments of deferred policy
acquisition costs and future policy benefits relating to unrealized gains on
available for sale securities. Costs of fixed maturity and equity securities
are adjusted for impairments in value deemed to be other than temporary. All
security transactions are recorded on a trade date basis.
Mortgage loans in good standing are carried at outstanding principal
balances less unaccreted discounts. Mortgage loans are considered impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contract terms of
the loan agreement. When the Company determines that a loan is impaired, an
allowance for loss is established for the difference between the carrying
value of the mortgage loan and the estimated fair value. Estimated fair value
is based on either the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's observable market price or
the fair value of the collateral. The provision for losses is reported as a
realized investment loss. Mortgage loans deemed to be uncollectible are
charged against the allowance for losses and subsequent recoveries, if any,
are credited to the allowance for losses.
Investment real estate, including real estate acquired in satisfaction of
debt, is generally stated at depreciated cost (or amortized cost for capital
leases). At the date of foreclosure, real estate acquired in satisfaction of
debt is recorded at estimated fair value. Cost is adjusted for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the investment may not be recoverable. In performing the review for
recoverability, management estimates future cash flows expected from real
estate investments including proceeds on disposition. If the sum of such
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the real estate, an impairment loss is recognized.
Measurement of impairment losses is based on the estimated fair market value
of the real estate, which is generally computed using the present value of
expected future cash flows discounted at a rate commensurate with underlying
risks. Real estate investments that management intends to sell in the near
term are reported at the lower of cost or estimated fair market value less
allowances for the estimated cost of sales. Changes in allowances relating to
real estate to be disposed of and impairments of real estate are reported as
realized investment gains or losses.
Depreciation, including charges relating to capital leases, of real estate
is computed using the straight-line method over the estimated useful lives of
the properties, which generally range from 20 to 40 years or the terms of the
lease, if shorter. Accumulated depreciation and amortization on real estate
was $2,109 million and $2,187 million at December 31, 1996 and 1995,
respectively. Depreciation and amortization expense totaled $348 million, $427
million and $356 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Policy loans are stated at unpaid principal balances. Short-term investments
are stated at amortized cost, which approximates fair value.
The Company acts as the lessor of equipment in both direct financing and
operating lease transactions. At lease commencement, the Company records the
aggregate future minimum lease payments due, the estimated residual value of
the leased equipment and unearned lease income for direct financing leases.
The unearned lease income represents the excess of aggregate future minimum
lease receipts plus the estimated residual value over the cost of the leased
equipment or its net capitalized value. Lease income is recognized over the
term of the lease in a manner which reflects a level yield on the net
investment in the lease. Certain origination fees and costs are deferred and
recognized over the term of the lease using the interest method. For operating
lease transactions, the cost of equipment or its net realizable value is
depreciated on a straight-line basis over its estimated economic life and
lease income is recorded as earned.
The Company participates in leasing transactions in which it supplies only a
portion of the purchase price, but generally has the entire equity interest in
the equipment and rentals receivable (leveraged leases). These interests,
however, are subordinated to the interests of the lenders supplying the
nonequity portion of the repurchase price. The financing is generally in the
form of long-term debt that provides for no recourse against the Company and
is collateralized by the property. The investment in leveraged leases is
recorded net of the nonrecourse debt. Revenue,
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
including related tax benefits, is recorded over the term of the lease at a
level rate of return. Management regularly reviews residual values and writes
down residuals to expected values as needed.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are netted against asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other
assets, and are stated at cost, less accumulated depreciation and
amortization. Depreciation, including charges relating to capitalized leases,
is provided using the straight-line or sum of the years digits methods over
the estimated useful lives of the assets, which generally range from 20 to 40
years for real estate and five to 15 years or the term of the lease, if
shorter, for all other property and equipment. Amortization of leasehold
improvements is provided using the straight-line method over the lesser of the
term of the lease or the estimated useful life of the improvements.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium, or limited number of premium payments
due over a significantly shorter period of time than the total period over
which benefits are provided ("limited payment contracts"), premiums are
recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from nonmedical health contracts are recognized as income on a pro
rata basis over the contract terms.
Premiums from universal life and investment-type contracts are reported as
deposits to policyholder account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholder account
balances for mortality, policy administration and surrender charges. Policy
benefits and claims that are charged to expenses include benefit claims
incurred in the period in excess of related policyholder account balances and
interest credited to policyholder account balances.
Property and liability premiums are generally recognized as revenue on a pro
rata basis over the policy term. Unearned premiums are included in other
liabilities and are computed principally by the monthly pro rata method.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over 40 years for
participating traditional life and 30 years for universal life and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated future experience, updated
regularly. The effects of revisions to experience on previous amortization of
deferred policy acquisition costs are reflected in earnings in the period
estimated gross margins or profits are revised.
For nonparticipating traditional life and annuity policies with life
contingencies, deferred policy acquisition costs are amortized in proportion
to anticipated premiums. Assumptions as to anticipated premiums are estimated
at the date of policy issue and are consistently applied during the life of
the contracts. Deviations from estimated experience are reflected in earnings
in the period such deviations occur. For these contracts, the amortization
periods generally are for the estimated life of the policy.
For nonmedical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally 10 years) in
proportion to anticipated premium revenue at the time of issue.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For property and liability insurance, deferred policy acquisition costs are
amortized over the terms of policies or reinsurance treaties.
VALUE OF INSURANCE BUSINESS ACQUIRED AND GOODWILL
The cost of insurance acquired of $358 million and $381 million at December
31, 1996 and 1995, respectively, and the excess of purchase price over the
fair value of net assets acquired of $17 million and $22 million at December
31, 1996 and 1995, respectively, are included in other assets. The cost of
insurance acquired is being amortized over the expected policy or contract
duration in relation to the present value of estimated gross profits from such
policies and contracts. Accumulated amortization of cost of insurance acquired
was $48 million and $18 million at December 31, 1996 and 1995, respectively,
and related amortization expense was $30 million, $27 million and $2 million
for the years ended December 31, 1996, 1995 and 1994, respectively. The excess
of purchase price over the fair value of assets acquired is being amortized
generally over a 10 year period using the straight-line method. Accumulated
amortization of cost in excess of net assets acquired was $48 million and $43
million at December 31, 1996 and 1995, respectively, and related amortization
expense was $5 million, $5 million and $6 million for the years ended December
31, 1996, 1995 and 1994, respectively.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of net level premium reserves
for death and endowment policy benefits, the liability for terminal dividends
and premium deficiency reserves. The net level premium reserve is calculated
based on the nonforfeiture interest rate, ranging from 2.5 percent to 7.0
percent, and mortality rates guaranteed in calculating the cash surrender
values described in such contracts. Premium deficiency reserves are
established, if necessary, when the liabilities for future policy benefits
plus the present value of expected future gross premiums are insufficient to
provide for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
Future policy benefit liabilities for traditional annuities during the
accumulation period are equal to accumulated contractholder fund balances and,
after annuitization, are equal to the present value of expected future
payments. Interest rates used in establishing future policy benefit
liabilities range from 2.5 percent to 7.0 percent for life insurance policies
and 6.0 percent to 8.25 percent for annuity contracts.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals.
Benefit liabilities for nonmedical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals
and interest, which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
For property and liability insurance, the liability for unpaid reported
losses is based on a case by case or overall estimate using the Company's past
experience. A provision is also made for losses incurred but not reported on
the basis of estimates and past experience.
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated federal income tax return. The future tax consequences of
temporary differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business
of the Company. Separate Account assets are subject to general account claims
only to the extent the value of such assets exceeds the Separate Account
liabilities. Separate Account assets and liabilities also include assets and
liabilities relating to unit-linked products sold in the United Kingdom.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by
the Board of Directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for
the year and management's judgment as to the appropriate level of statutory
surplus to be retained by the Company.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1996, 1995 and 1994, respectively, real
estate of $189 million, $429 million and $273 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned real
estate acquired in satisfaction of debt of $456 million and $649 million,
respectively. During 1995 and 1994, respectively, the company assumed
liabilities of $1,573 million and $88 million and received assets of $1,573
million and $86 million through assumption of certain businesses from other
insurance companies.
DISCONTINUED OPERATIONS
In January 1995, the Company contributed its group medical benefits
businesses to a corporate joint venture, The MetraHealth Companies, Inc.
("MetraHealth"). In October 1995, the Company sold its investment in
MetraHealth to United HealthCare Corporation. For its interest in MetraHealth,
the Company received $485 million face amount of United HealthCare Corporation
convertible preferred stock and $326 million in cash (including additional
consideration of $50 million in 1996). The sale resulted in an aftertax loss
of $36 million in 1996 and an aftertax gain of $372 million in 1995. Operating
losses in 1996 related principally to the finalization of the transfer of
group medical contracts to MetraHealth. The Company also has the right to
receive from United HealthCare Corporation up to approximately $169 million in
cash based on the 1997 consolidated financial results of United HealthCare
Corporation.
During 1995, the company also sold its real estate brokerage, mortgage
banking and mortgage administration operations for an aggregate consideration
of $251 million (including additional cash consideration of $25 million in
1996), resulting in aftertax gains of $17 million in 1996 and $44 million in
1995.
These operations are accounted for as discontinued operations and,
accordingly, are segregated in the accompanying consolidated statements of
earnings.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations and subsidiaries are translated
at the exchange rate in effect at year end. Revenues and benefits and other
expenses are translated at the average rate prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are charged or credited directly to equity.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The cost or amortized cost, gross unrealized gain and loss and estimated fair
value of fixed maturity and equity securities, by category, are shown below.
HELD TO MATURITY SECURITIES--DECEMBER 31, 1996 (in millions):
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ---- ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies............ $ 48 $ 3 $ 51
States and political subdivisions..... 58 1 59
Foreign governments................... 260 5 265
Corporate............................. 7,520 236 $ 64 7,692
Mortgage-backed securities............ 689 1 16 674
Other................................. 2,746 85 24 2,807
------- -------- -------- -------
Total bonds......................... 11,321 331 104 11,548
Redeemable preferred stocks............ 1 -- -- 1
------- -------- -------- -------
Total Fixed Maturities.............. $11,322 $ 331 $ 104 $11,549
======= ======== ======== =======
HELD TO MATURITY SECURITIES--DECEMBER 31, 1995 (in millions):
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies............ $ 63 $ 3 $ 66
States and political subdivisions..... 57 -- 57
Foreign governments................... 194 10 204
Corporate............................. 8,039 398 $ 33 8,404
Mortgage-backed securities............ 860 5 31 834
Other................................. 2,126 128 5 2,249
------- -------- -------- -------
Total bonds......................... 11,339 544 69 11,814
Redeemable preferred stocks............ 1 -- -- 1
------- -------- -------- -------
Total Fixed Maturities.............. $11,340 $ 544 $ 69 $11,815
======= ======== ======== =======
</TABLE>
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1996 (in millions)
<TABLE>
<CAPTION>
GROSS
UNREALIZED
-----------
ESTIMATED
AMORTIZED FAIR
COST GAIN LOSS VALUE
--------- ------ ---- ---------
Fixed Maturities:
Bonds:
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations
of U. S. government corporations and agen-
cies........................................ $12,949 $ 901 $128 $13,722
States and political subdivisions............. 536 13 1 548
Foreign governments........................... 2,597 266 6 2,857
Corporate..................................... 32,520 1,102 294 33,328
Mortgage-backed securities.................... 21,200 407 91 21,516
Other......................................... 2,511 90 30 2,571
------- ------ ---- -------
Total bonds.................................. 72,313 2,779 550 74,542
Redeemable preferred stocks.................... 500 -- 3 497
------- ------ ---- -------
Total Fixed Maturities....................... $72,813 $2,779 $553 $75,039
======= ====== ==== =======
Equity Securities:
Common stocks................................. $ 1,882 $ 648 $ 55 $ 2,475
Nonredeemable preferred stocks................ 371 51 81 341
------- ------ ---- -------
Total Equity Securities...................... $ 2,253 $ 699 $136 $ 2,816
======= ====== ==== =======
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1995 (in millions)
Fixed Maturities:
Bonds:
U. S. Treasury securities and obligations
of U. S. government corporations and
agencies.................................... $15,963 $2,194 $ 4 $18,153
States and political subdivisions............. 54 1 -- 55
Foreign governments........................... 1,851 195 -- 2,046
Corporate..................................... 29,742 1,905 124 31,523
Mortgage-backed securities.................... 21,255 707 28 21,934
Other......................................... 1,788 235 7 2,016
------- ------ ---- -------
Total bonds.................................. 70,653 5,237 163 75,727
Redeemable preferred stocks.................... 593 95 3 685
------- ------ ---- -------
Total Fixed Maturities......................... $71,246 $5,332 $166 $76,412
======= ====== ==== =======
Equity Securities:
Common stocks................................. $ 1,372 $ 389 $134 $ 1,627
Nonredeemable preferred stocks................ 167 2 47 122
------- ------ ---- -------
Total Equity Securities...................... $ 1,539 $ 391 $181 $ 1,749
======= ====== ==== =======
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of bonds classified as held to
maturity, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less.............................. $ 389 $ 391
Due after one year through five years................ 3,317 3,413
Due after five years through 10 years................ 5,444 5,562
Due after 10 years................................... 1,482 1,508
------- -------
Subtotal............................................ 10,632 10,874
Mortgage-backed securities........................... 689 674
------- -------
Total.............................................. $11,321 $11,548
======= =======
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less.............................. $ 1,842 $ 1,844
Due after one year through five years................ 13,659 13,957
Due after five years through 10 years................ 15,729 16,228
Due after 10 years................................... 19,883 20,997
------- -------
Subtotal............................................ 51,113 53,026
Mortgage-backed securities........................... 21,200 21,516
------- -------
Total.............................................. $72,313 $74,542
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1996, approximately
16 percent and 7 percent of the properties were located in California and
Illinois, respectively. Generally, the Company (as the lender) requires that a
minimum of one-fourth of the purchase price of the underlying real estate be
paid by the borrower.
The mortgage loan investments were categorized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings..................................................... 30% 32%
Retail............................................................... 19% 18%
Residential.......................................................... 16% 17%
Agricultural......................................................... 18% 16%
Other................................................................ 17% 17%
--- ---
Total.............................................................. 100% 100%
=== ===
</TABLE>
Many of the Company's real estate joint ventures have loans with the
Company. The carrying values of such mortgages were $869 million and $1,164
million at December 31, 1996 and 1995, respectively.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage loan valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, beginning of year.................................... $466 $483 $569
Additions charged to income................................... 144 107 89
Deductions for writedowns and dispositions.................... (166) (124) (175)
---- ---- ----
Balance, end of year.......................................... $444 $466 $483
==== ==== ====
</TABLE>
Impaired mortgage loans and related valuation allowances are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Impaired mortgage loans with valuation allowances............... $1,677 $2,028
Impaired mortgage loans with no valuation allowances............ 165 389
------ ------
Recorded investment in impaired mortgage loans.................. 1,842 2,417
Valuation allowances............................................ (427) (449)
------ ------
Net impaired mortgage loans..................................... $1,415 $1,968
====== ======
</TABLE>
During the years ended December 31, 1996 and 1995, the Company's average
recorded investment in impaired mortgage loans was $2,113 million and $2,365
million, respectively. Interest income recognized on these impaired mortgage
loans totaled $122 million and $169 million for the years ended December 31,
1996 and 1995, respectively. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a cash basis.
Interest income on loans, where the present value method is used to measure
impairment, is accrued on the net carrying value amount of the loan at the
interest rate used to discount the cash flows.
REAL ESTATE
Real Estate valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year.................................... $743 $622 $674
Additions charged to income................................... 127 358 82
Deductions for writedowns and dispositions.................... (341) (237) (134)
---- ---- ----
Balance, end of year.......................................... $529 $743 $622
==== ==== ====
</TABLE>
The above table does not include valuation reserves of $118 million, $167
million and $95 million at December 31, 1996, 1995 and 1994, respectively,
relating to investments in real estate joint ventures.
Prior to 1996, the Company established valuation allowances for impaired
real estate investments. During 1996, $150 million of valuation allowances
relating to real estate held for investment were applied as writedowns to
specific properties. The balance in the real estate valuation allowance at
December 31, 1996, relates to properties that management has committed to a
plan of sale. The carrying value, net of valuation allowances, of properties
committed to a plan of sale was $1,844 million at December 31, 1996. Net
investment income relating to such properties was $60 million for the year
ended December 31, 1996.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASES AND LEVERAGED LEASES
The Company's investment in direct financing leases and leveraged leases is
summarized below.
<TABLE>
<CAPTION>
DIRECT FINANCING LEVERAGED
LEASES LEASES TOTAL
------------------ ------------ --------------
1996 1995 1996 1995 1996 1995
-------- -------- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Investment.................... $ 1,247 $ 1,054 $ 507 $298 $1,754 $1,352
Estimated Residual Values..... 238 231 543 445 781 676
-------- -------- ------ ---- ------ ------
Total........................ 1,485 1,285 1,050 743 2,535 2,028
Unearned Income............... (336) (295) (316) (230) (652) (525)
-------- -------- ------ ---- ------ ------
Net Investment................ $ 1,149 $ 990 $ 734 $513 $1,883 $1,503
======== ======== ====== ==== ====== ======
</TABLE>
The investment amounts set forth above are due primarily in monthly
installments. The payment periods generally range from three to eight years,
but in certain circumstances are as long as 20 years. Average yields range
from 7 percent to 12 percent. These receivables are generally collateralized
by the related property.
Scheduled aggregate receipts for the investment and estimated residual values
in direct financing leases are:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEAR ENDING DECEMBER 31 (in millions)
1997.............................................. $ 236 $ 20 $ 256
1998.............................................. 209 9 218
1999.............................................. 189 25 214
2000.............................................. 167 26 193
2001.............................................. 128 23 151
Thereafter.......................................... 318 135 453
------ ---- ------
Total............................................... $1,247 $238 $1,485
====== ==== ======
</TABLE>
Historical collection experience indicates that a portion of the above
amounts will be paid prior to contractual maturity. Accordingly, the future
receipts, as shown above, should not be regarded as a forecast of future cash
flow.
FINANCIAL INSTRUMENTS
The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
Company policy requires a minimum of 102 percent of the fair value of the
loaned securities to be separately maintained as collateral for the loans. The
collateral is recorded in memorandum records and is not reflected in the
accompanying consolidated balance sheets. To further minimize the credit risks
related to this lending program, the Company regularly monitors the financial
condition of counterparties to these agreements.
The Company engages in a variety of derivative transactions. Certain
derivatives, such as forwards, futures, options and swaps, which do not
themselves generate interest or dividend income, are acquired or sold in order
to hedge or reduce risks applicable to assets held, or expected to be
purchased or sold, and liabilities incurred or expected to be incurred. The
Company may also sell covered call options for income generation purposes from
time to time. The Company does not engage in trading of these derivatives.
Derivative financial instruments involve varying degrees of market risk
resulting from changes in the volatility of interest rates, foreign currency
exchange rates or market values of the underlying financial instruments. The
Company's risk of loss is typically limited to the fair value of these
instruments and not by the notional or contractual amounts which reflect the
extent of involvement but not necessarily the amounts subject to risk. Credit
risk arises from
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the possible inability of counterparties to meet the terms of the contracts.
Credit risk due to counterparty nonperformance associated with these
instruments is the unrealized gain, if any, reflected by the fair value of
such instruments.
During the three year period ended December 31, 1996, the Company employed
several ongoing derivatives strategies. The Company entered into a number of
anticipatory hedges using securities forwards, futures and interest rate swaps
to limit the interest rate exposure of investments expected to be acquired or
sold within one year. The Company also executed swaps and foreign currency
forwards to hedge, including on an anticipatory basis, the foreign currency
risk of foreign currency denominated investments. The Company also used
interest rate swaps and forwards to reduce risks from changes in interest
rates and exposures arising from mismatches between assets and liabilities. In
addition, the Company has used interest rate caps to reduce the market and
interest rate risks relating to certain assets and liabilities.
Income and expenses related to derivatives used to hedge or manage risks are
recorded on the accrual basis as an adjustment to the yield of the related
securities over the periods covered by the derivative contracts. Gains and
losses relating to early terminations of interest rate swaps used to hedge or
manage interest rate risk are deferred and amortized over the remaining period
originally covered by the swap. Gains and losses relating to derivatives used
to hedge the risks associated with anticipated transactions are deferred and
utilized to adjust the basis of the transaction once it has closed. If it is
determined that the transaction will not close, such gains and losses are
included in realized investment gains and losses.
ASSETS ON DEPOSIT
As of December 31, 1996 and 1995, the Company had assets on deposit with
regulatory agencies of $4,062 million and $3,917 million, respectively.
3. INVESTMENT INCOME AND INVESTMENT GAINS
The sources of investment income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities........................................ $6,042 $6,006 $5,682
Equity securities....................................... 60 45 53
Mortgage loans on real estate........................... 1,523 1,501 1,573
Policy loans............................................ 399 394 359
Real estate............................................. 1,647 1,833 1,870
Real estate joint ventures.............................. 21 41 (99)
Other limited partnership interests..................... 70 23 40
Leases and leveraged leases............................. 135 113 92
Cash, cash equivalents and short-term investments....... 214 231 146
Other investment income................................. 281 326 337
------ ------ ------
Gross investment income................................. 10,392 10,513 10,053
Investment expenses..................................... (1,544) (1,802) (1,770)
------ ------ ------
Investment income, net.................................. $8,848 $8,711 $8,283
====== ====== ======
</TABLE>
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment gains (losses), including changes in valuation allowances, are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities...................................... $ 234 $ 621 $ (97)
Equity securities..................................... 78 (5) 141
Mortgage loans on real estate......................... (86) (51) (41)
Real estate........................................... 165 (375) (20)
Real estate joint ventures............................ 206 (16) 18
Other limited partnership interests................... 82 117 28
Other................................................. (76) (92) (25)
------ ------ -------
Investment gains, net................................. $ 603 $ 199 $ 4
====== ====== =======
Proceeds from the sales of bonds classified as available for sale during
1996, 1995 and 1994 were $74,580 million, $58,537 million and $43,903 million,
respectively. During 1996, 1995 and 1994, respectively, gross gains of $1,069
million, $1,013 million and $642 million and gross losses of $842 million, $402
million and $719 million were realized on those sales. Proceeds from the sale
of bonds classified as held to maturity during 1996, 1995 and 1994 were $1,281
million, $1,806 million and $1,797 million, respectively. During 1996, 1995 and
1994, respectively, gross gains of $10 million, $17 million and $9 million and
gross losses of $1 million, $4 million and $13 million were realized on those
sales. Sales of held to maturity bonds were principally due to prepayments and
callable features on privately placed bonds.
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity, and the changes for the
corresponding years are summarized as follows:
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities.................................... $2,226 $5,166 $(2,328)
Equity securities................................... 563 210 41
Other............................................... 474 380 378
------ ------ -------
3,263 5,756 (1,909)
Amounts of unrealized investment gains (losses)
attributable to:
Participating pension contracts..................... (9) (350) (92)
Loss recognition.................................... (1,219) (2,064) (1)
Deferred policy acquisition cost allowances......... (420) (748) 499
Deferred income tax (expense) benefit............... (587) (948) 548
------ ------ -------
Balance, end of year.................................. $1,028 $1,646 $ (955)
====== ====== =======
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year:........................... $1,646 $ (955) $ 259
Change in unrealized investment gains (losses)....... (2,493) 7,665 50
Unrealized loss at date of adoption of SFAS No. 115.. -- -- (2,449)
Change in unrealized investment gains (losses)
attributable to:
Participating pension contracts..................... 341 (258) (86)
Loss recognition.................................... 845 (2,063) 21
Deferred policy acquisition cost allowances......... 328 (1,247) 550
Deferred income tax (expense) benefit............... 361 (1,496) 700
------ ------ -------
Balance, end of year.................................. $1,028 $1,646 $ (955)
====== ====== =======
</TABLE>
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REAL ESTATE JOINT VENTURES AND OTHER LIMITED PARTNERSHIP INTERESTS
Summarized combined financial information of real estate joint ventures and
other limited partnership interests accounted for under the equity method, in
which the Company has an investment of $10 million or greater and an equity
interest of 10 percent or greater, is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Assets:
Investments in real estate, at depreciated cost.................. $1,030 $1,409
Investments in securities, generally at estimated fair value..... 621 534
Cash and cash equivalents........................................ 37 33
Other............................................................ 1,030 1,005
------ ------
Total assets...................................................... $2,718 $2,981
====== ======
Liabilities:
Borrowed funds--third party...................................... $ 243 $ 264
Borrowed funds--MetLife.......................................... 69 133
Other............................................................ 915 933
------ ------
Total liabilities................................................. 1,227 1,330
------ ------
Partners' Capital................................................. $1,491 $1,651
====== ======
MetLife equity in partners' capital included above................ $ 786 $1,103
====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Operations:
Revenues of real estate joint ventures...................... $275 $364 $357
Revenues of other limited partnerships interests............ 297 417 287
Interest expense--third party............................... (11) (26) (24)
Interest expense--MetLife................................... (19) (31) (27)
Other expenses.............................................. (411) (501) (499)
---- ---- ----
Net earnings................................................. $131 $223 $ 94
==== ==== ====
MetLife earnings from real estate joint ventures and other
limited partnership interests
included above.............................................. $ 34 $ 28 $ 9
==== ==== ====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes insurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Direct premiums...................................... $12,569 $11,944 $11,309
Reinsurance assumed.................................. 508 812 227
Reinsurance ceded.................................... (1,615) (1,578) (1,458)
------- ------- -------
Net premiums earned.................................. $11,462 $11,178 $10,078
======= ======= =======
</TABLE>
Policyholder benefits in the accompanying consolidated statements of
earnings are presented net of reinsurance recoveries of $1,667 million, $1,523
million and $1,328 million for the years ended December 31, 1996, 1995 and
1994, respectively. Premiums and other receivables in the accompanying
consolidated balance sheets include reinsurance recoverables of $700 million
and $458 million at December 31, 1996 and 1995, respectively.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
The Company acquired, in part through reinsurance effective in January 1995,
group life, dental, disability, accidental death and dismemberment, vision and
long-term care insurance businesses for $403 million, $53 million of which was
paid in 1994. In January 1995, the Company received assets with a fair market
value equal to the $1,565 million of liabilities assumed under the reinsurance
agreements. The reinsured contracts converted to Company contracts at policy
anniversary dates.
Activity in the liability for unpaid losses and loss adjustment expenses
relating to property and casualty and group accident and nonmedical health
policies and contracts is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance at January 1.................................... $3,296 $2,670 $2,553
Less reinsurance recoverables.......................... 214 104 88
------ ------ ------
Net balance at January 1................................ 3,082 2,566 2,465
------ ------ ------
Incurred related to:
Current year........................................... 2,951 3,420 2,831
Prior years............................................ (114) (68) (75)
------ ------ ------
Total incurred.......................................... 2,837 3,352 2,756
------ ------ ------
Paid related to:
Current year........................................... 1,998 2,053 1,887
Prior years............................................ 791 783 768
------ ------ ------
Total paid.............................................. 2,789 2,836 2,655
------ ------ ------
Net balance at December 31.............................. 3,130 3,082 2,566
Plus reinsurance recoverables.......................... 215 214 104
------ ------ ------
Balance at December 31.................................. $3,345 $3,296 $2,670
====== ====== ======
</TABLE>
The Company has exposure to catastrophes, which are an inherent risk of the
property and casualty insurance business and could contribute to material
fluctuations in the Company's results of operations. The Company uses excess
of loss and quota share reinsurance arrangements to reduce its catastrophe
losses and provide diversification of risk.
6. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance
with the provisions of the Internal Revenue Code, as amended (the "Code").
Under the Code, the amount of Federal income tax expense incurred by mutual
life insurance companies includes an equity tax calculated by a prescribed
formula that incorporates a differential earnings rate between stock and
mutual life insurance companies.
MetLife and its eligible subsidiaries file a consolidated U. S. income tax
return and separate income tax returns as required. The Company uses the
liability method of accounting for income taxes. Income tax provisions are
based on income reported for financial statement purposes. Deferred income
taxes arise from the recognition of temporary differences between income
determined for financial reporting purposes and taxable income.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAX EXPENSE (BENEFIT) OF CONTINUING OPERATIONS
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996 (in millions)
Federal.................................................. $346 $ 66 $412
State and local.......................................... 25 6 31
Foreign.................................................. 27 12 39
---- ---- ----
Total.................................................. $398 $ 84 $482
==== ==== ====
1995 (in millions)
Federal.................................................. $241 $ 65 $306
State and local.......................................... 52 3 55
Foreign.................................................. 22 24 46
---- ---- ----
Total.................................................. $315 $ 92 $407
==== ==== ====
1994 (in millions)
Federal.................................................. $443 $(95) $348
State and local.......................................... 15 (5) 10
Foreign.................................................. 17 5 22
---- ---- ----
Total.................................................. $475 $(95) $380
==== ==== ====
</TABLE>
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Income before taxes........................................ $1,406 $744 $413
Income tax rate............................................ 35% 35% 35%
------ ---- ----
Expected income tax expense at federal statutory income tax
rate....................................................... 492 260 145
Tax effect of:
Tax exempt investment income.............................. (18) (9) (9)
Differential earnings amount.............................. 38 67 206
State and local income taxes.............................. 23 37 5
Foreign operations........................................ (7) 25 3
Tax credits............................................... (15) (15) --
Prior year taxes.......................................... (46) (3) 3
Other, net................................................ 15 45 27
------ ---- ----
Income tax expense......................................... $ 482 $407 $380
====== ==== ====
</TABLE>
The deferred tax asset or liability recorded on the consolidated balance
sheets represents the future tax effects of the temporary differences between
the tax basis of assets and liabilities and their amounts for financial
reporting. Significant components of deferred tax assets relate to
policyholder liabilities and unrealized investment losses. The major items
associated with deferred tax liabilities relate to policy acquisition costs,
the excess of tax over financial statement depreciation, and unrealized
investment gains.
As of December 31, 1996, the net deferred tax asset includes a benefit of
$18 million resulting from foreign net operating loss carryforwards from
several foreign affiliates. This benefit is offset by a valuation allowance of
$18 million. The valuation allowance reflects management's assessment, based
on available information, that it is more likely than not that the deferred
tax asset for foreign net operating loss carryforwards will not be realized.
The benefit will be recognized when management believes that it is more likely
than not that the deferred tax asset is realizable.
As of December 31, 1996, the deferred tax asset includes a benefit of $12
million resulting from U.S. tax basis net operating loss carryforwards of $34
million. Subject to statutory limitations, these carryforwards are available
to offset taxable income through the year 2011.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has defined benefit pension plans covering all eligible
employees and sales representatives of MetLife and certain of its
subsidiaries. The Company is both the sponsor and administrator of these
plans. Retirement benefits are based on years of credited service and final
average earnings history.
Components of the net periodic pension cost for the defined benefit
qualified and nonqualified pension plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 77 $ 62 $ 93
Interest cost on projected benefit obligation................. 232 222 216
Actual return on assets....................................... (273) (280) (246)
Net amortization and deferrals................................ (12) (13) (28)
---- ---- ----
Net periodic pension cost..................................... $ 24 $ (9) $ 35
==== ==== ====
</TABLE>
The funded status of the qualified and nonqualified defined benefit pension
plans and a comparison of the accumulated benefit obligation, plan assets and
projected benefit obligation are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Actuarial present value of
obligations:
Vested.......................... $2,756 $135 $2,682 $121
Nonvested....................... 38 -- 43 1
------ ---- ------ ----
Accumulated benefit obligation... $2,794 $135 $2,725 $122
====== ==== ====== ====
Projected benefit obligation..... $3,084 $184 $3,047 $166
Plan assets (principally Company
investment contracts) at
contract value.................. 3,495 133 3,236 117
------ ---- ------ ----
Plan assets in excess of (less
than) projected benefit obliga-
tion............................ 411 (51) 189 (49)
Unrecognized prior service cost.. 165 -- 71 (4)
Unrecognized net (loss) gain from
past experience different from
that assumed.................... (5) 38 351 43
Unrecognized net asset at transi-
tion............................ (172) (4) (206) (5)
------ ---- ------ ----
Prepaid (accrued) pension cost at
December 31..................... $ 399 $(17) $ 405 $(15)
====== ==== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 8.0
percent for 1996 and 7.25 percent to 8.5 percent for 1995. The weighted
average assumed rate of increase in future compensation levels ranged from 4.0
percent to 8.0 percent in 1996 and 1995. The assumed long-term rate of return
on assets used in determining the net periodic pension cost ranged from 8.0
percent to 8.5 percent in 1996 and 8.0 percent to 9.5 percent in 1995. In
addition, several other factors, such as expected retirement dates and
mortality, enter into the determination of the actuarial present value of the
accumulated benefit obligation.
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans available for
substantially all employees under which the Company matches a portion of
employee contributions. During 1996, 1995 and 1994, the Company contributed
$42 million, $49 million and $53 million, respectively, to the plans.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company also provides certain postretirement health care and life
insurance benefits for retired employees through insurance contracts.
Substantially all of the Company's employees may, in accordance with the plans
applicable to such benefits, become eligible for these benefits if they attain
retirement age, with sufficient service, while working for the Company.
The following table sets forth the postretirement health care and life
insurance plans' combined status reconciled with the amount included in the
Company's consolidated balance sheets.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Accumulated postretirement benefit obligation:
Retirees...................................................... $1,170 $1,223
Fully eligible active employees............................... 135 111
Active employees not eligible to retire....................... 378 366
------ ------
Total........................................................ 1,683 1,700
Plan assets (Company insurance contracts) at contract value.... 897 804
------ ------
Plan assets less than accumulated postretirement benefit obli-
gation........................................................ (786) (896)
Unrecognized net (loss) gain from past experience different
from that assumed and from
changes in assumptions........................................ (20) 108
------ ------
Accrued nonpension postretirement benefit cost at December 31.. $ (806) $ (788)
====== ======
</TABLE>
The components of the net periodic nonpension postretirement benefit cost
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 41 $28 $ 43
Interest cost on accumulated postretirement benefit obliga-
tion......................................................... 127 115 122
Actual return on plan assets (Company insurance contracts).... (58) (63) (56)
Net amortization and deferrals................................ 2 (9) (1)
---- --- ----
Net periodic nonpension postretirement benefit cost........... $112 $71 $108
==== === ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.5 percent in
1996, gradually decreasing to 5.25 percent over 12 years and 10.0 percent in
1995 decreasing to 5.25 percent over 12 years. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation
ranged from 7.0 percent to 7.75 percent at December 31, 1996 and was 7.25
percent at December 31, 1995.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1996
would be increased 9.0 percent. The effect of this change on the sum of the
service and interest cost components of the net periodic postretirement
benefit cost for the year ended December 31, 1996, would be an increase of
13.0 percent.
8. LEASES
LEASE INCOME ON REAL ESTATE
During 1996, 1995 and 1994, the Company received $1,658 million, $1,523
million and $1,538 million, respectively, in lease income related to its
wholly owned real estate portfolio. In accordance with industry practice,
certain of the Company's lease agreements with retail tenants result in income
that is contingent on the level of the tenants' sales revenues. At December
31, 1996, the minimum future rental income on noncancelable operating leases
for wholly owned investments in real estate is $853 million, $783 million,
$695 million, $607 million and $526 million for 1997 and each of the
succeeding four years, respectively, and $1,609 million thereafter.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
noncancelable leases for 1997 and the succeeding four years are $129 million,
$110 million, $91 million, $70 million and $55 million, respectively, and $74
million thereafter. Minimum future sublease rental income on these
noncancelable leases is $30 million, $25 million, $32 million, $23 million and
$17 million for 1997 and the succeeding four years, respectively, and $45
million thereafter.
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
6.300% surplus notes scheduled to mature on November 1, 2003..... $ 396 $ 395
7.000% surplus notes scheduled to mature on November 1, 2005..... 248 248
7.700% surplus notes scheduled to mature on November 1, 2015..... 197 197
7.450% surplus notes scheduled to mature on November 1, 2023..... 296 296
7.875% surplus notes scheduled to mature on February 15, 2024.... 148 148
7.800% surplus notes scheduled to mature on November 1, 2025..... 248 247
Mortgage debt, due 1997 through 2015, interest rates ranging from
7.25% to 10.25%.................................................. 96 187
Other............................................................ 425 627
------ ------
Total long-term debt............................................ 2,054 2,345
Short-term debt.................................................. 3,311 3,235
------ ------
Total........................................................... $5,365 $5,580
====== ======
</TABLE>
Payments of interest and principal on the surplus notes may be made only
with the prior approval of the Superintendent of Insurance of the State of New
York ("Superintendent"). Subject to the prior approval of the Superintendent,
the 7.45 percent surplus notes may be redeemed, as a whole or in part, at the
election of the Company at any time on or after November 1, 2003.
At December 31, 1996, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1997 and the succeeding four years
amounted to $72 million, $22 million, $106 million, $38 million and $9
million, respectively, and $1,828 million thereafter.
As of December 31, 1996, the Company had unused lines of credit under
agreements with various banks having a principal amount of $1,821 million.
10. CONTINGENCIES
Litigation seeking compensatory and/or punitive damages relating to the
marketing by the Company of individual life insurance (including putative
class and individual actions) has been instituted by or on behalf of
policyholders and others, and additional litigation relating to the Company's
life insurance marketing may be commenced in the future. In addition, an
investigation into certain life insurance marketing, which was commenced by
the Office of the United States Attorney for the Middle District of Florida,
in conjunction with a grand jury, as early as 1994, has not been terminated.
Numerous litigation, claims and assessments against the Company, in addition
to the aforementioned, have arisen in the course of the Company's business,
operations and activities. In certain of these matters, including actions with
multiple plaintiffs, very large and/or indeterminate amounts, including
punitive and treble damages, are sought.
While it is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or to make a meaningful estimate
of the amount or range of loss that could result from an unfavorable outcome
in all such matters, it is the opinion of the Company's management that their
outcome, after consideration of the provisions made in the Company's financial
statements, is not likely to have a material adverse effect on the Company's
financial position.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Compensation costs...................................... $1,813 $1,607 $1,553
Commissions............................................. 722 853 700
Interest and debt issue costs........................... 311 285 264
Amortization of policy acquisition costs................ 637 684 601
Capitalization of policy acquisition costs.............. (1,028) (1,060) (1,062)
Rent expense, net of sublease........................... 180 184 179
Restructuring charges................................... 18 88 --
Other................................................... 2,058 1,644 1,265
------ ------ ------
Total.................................................. $4,711 $4,285 $3,500
====== ====== ======
</TABLE>
During 1996 and 1995, the Company recorded restructuring charges primarily
related to the consolidation of administration and agency sales force leased
office space and costs relating to workforce reductions.
12. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below
have been determined by the Company using market information available as of
December 31, 1996 and 1995, and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The estimates presented below are not necessarily indicative of the amounts
the Company could have realized in a market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1996 (in millions)
Assets
Fixed maturities.................................. $86,361 $86,588
Equity securities................................. 2,816 2,816
Mortgage loans on real estate..................... 18,964 19,342
Policy loans...................................... 5,842 5,796
Short-term investments............................ 741 741
Cash and cash equivalents......................... 2,325 2,325
Liabilities
Policyholder account balances..................... 30,470 30,611
Short- and long-term debt......................... 5,365 5,331
Other financial instruments
Interest rate swaps............................... $1,242 -- (14)
Interest rate caps................................ 1,946 20 14
Foreign currency swaps............................ 207 -- (23)
Foreign currency forwards......................... 151 3 3
Covered call options.............................. 25 (2) (2)
Unused lines of credit............................ 1,821 -- 1
</TABLE>
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1995 (in millions)
Assets
Fixed maturities.................................. $87,752 $88,227
Equity securities................................. 1,749 1,749
Mortgage loans on real estate..................... 17,216 18,161
Policy loans...................................... 5,714 5,884
Short-term investments............................ 1,769 1,769
Cash and cash equivalents......................... 1,930 1,930
Liabilities
Policyholder account balances..................... 31,595 31,974
Short- and long-term debt......................... 5,580 5,594
Other financial instruments
Interest rate swaps............................... $2,031 (29) (40)
Interest rate caps................................ 2,711 32 15
Foreign currency swaps............................ 89 -- 4
Foreign currency forwards......................... 121 1 1
Covered call options.............................. 25 (2) (2)
Futures contracts................................. 1,402 (19) --
Unused lines of credit............................ 1,645 -- 1
</TABLE>
For fixed maturities that are publicly traded, estimated fair value was
obtained from an independent market pricing service. Publicly traded fixed
maturities represented approximately 80 percent of the estimated fair value of
the total fixed maturities as of December 31, 1996 and 1995. For all other
bonds, estimated fair value was determined by management, based primarily on
interest rates, maturity, credit quality and average life. Included in fixed
maturities are loaned securities with estimated fair values of $7,293 million
and $8,418 million at December 31, 1996 and 1995, respectively. Estimated fair
values of equity securities were generally based on quoted market prices.
Estimated fair values of mortgage loans were generally based on discounted
projected cash flows using interest rates offered for loans to borrowers with
comparable credit ratings and for the same maturities. Estimated fair values
of policy loans were based on discounted projected cash flows using U.S.
Treasury rates to approximate interest rates and Company experience to project
patterns of loan accrual and repayment. For cash and cash equivalents and
short-term investments, the carrying amount is a reasonable estimate of fair
value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
The estimated fair value of short- and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
For interest rate and foreign currency swaps, interest rate caps, foreign
currency forwards, covered call options and futures contracts, estimated fair
value is the amount at which the contracts could be settled based on estimates
obtained from dealers. The estimated fair values of unused lines of credit
were based on fees charged to enter into similar agreements.
13. STATUTORY FINANCIAL INFORMATION
The FASB Interpretation and the FASB Standard referred to in Note 1 required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The effect (except for
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the adoption of SFAS No. 115 in 1994) of applying the Interpretation and the
Standard is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
DECEMBER 31, 1993,
statutory surplus:
MetLife historical...... $ 6,406
The New England
historical.............. 401
Adjustments to conform
statutory accounting
policies................ (315)
-------
6,492
Adjustments to GAAP:
Future policy benefits
and policyholder account
balances................ (3,975)
Deferred policy
acquisition costs....... 6,142
Deferred income taxes... 1,032
Valuation of
investments............. (2,216)
Statutory asset
valuation reserves...... 1,743
Statutory interest
maintenance reserve..... 962
Surplus notes........... (629)
Other, net.............. (38)
-------
January 1, 1994, Equity.. $ 9,513
=======
</TABLE>
The following reconciles net change in statutory surplus and statutory
surplus determined in accordance with accounting practices prescribed or
permitted by insurance regulatory authorities with net earnings and equity on
a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Net change in statutory surplus:
MetLife historical.......................................... $366 $260 $(102)
The New England historical.................................. -- (8) 231
Adjustments to conform statutory accounting policies........ -- (23) (65)
---- ---- -----
366 229 64
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (165) (17) (464)
Deferred policy acquisition costs........................... 391 376 461
Deferred income taxes....................................... (74) (97) 47
Valuation of investments.................................... (84) 106 (53)
Statutory asset valuation reserves.......................... 599 30 313
Statutory interest maintenance reserve...................... 19 284 (58)
Surplus notes............................................... -- (622) (148)
Other, net.................................................. (199) 410 (48)
---- ---- -----
Net Earnings................................................ $853 $699 $ 114
==== ==== =====
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
DECEMBER 31 (in millions).....................................
Statutory surplus:
MetLife historical........................................... $ 7,151 $ 6,564
The New England historical................................... -- 624
Adjustments to conform statutory accounting policies......... -- (403)
------- -------
7,151 6,785
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (5,742) (6,781)
Deferred policy acquisition costs........................... 7,227 6,508
Deferred income taxes....................................... 264 (28)
Valuation of investments.................................... 610 3,070
Statutory asset valuation reserves.......................... 2,684 2,085
Statutory interest maintenance reserve...................... 1,208 1,189
Surplus notes............................................... (1,393) (1,391)
Other, net.................................................. (26) 317
------- -------
Equity...................................................... $11,983 $11,754
======= =======
</TABLE>
64
<PAGE>
APPENDIX TO PROSPECTUS
OPTIONAL INCOME PLANS
The insurance proceeds when the insured dies, the value payable on surrender
of a VAI, and the full withdrawal of VAI cash values, instead of being paid in
one lump sum, may be applied under one or more of the following income plans.
Values under the income plans do not depend upon the investment experience of
a separate account. The selection of an income plan can significantly affect
the federal income tax consequences associated with the Policy proceeds.
Owners and beneficiaries should consult with qualified tax advisers in this
regard.
OPTION 1. Interest income
The amount applied will earn interest which will be paid monthly.
Withdrawals of at least $500 each may be made at any time by written request.
OPTION 2. Installment Income for a Stated Period
Monthly installment payments will be made so that the amount applied, with
interest, will be paid over the period chosen (from 1 to 30 years).
OPTION 2A. Installment Income of a Stated Amount
Monthly installment payments of a chosen amount will be made until the
entire amount applied, with interest, is paid.
OPTION 3. Single Life Income--Guaranteed Payment Period
Monthly payments will be made during the lifetime of the payee with a chosen
guaranteed payment period of 10, 15 or 20 years.
OPTION 3A. Single Life Income--Guaranteed Return
Monthly payments will be made during the lifetime of the payee. If the payee
dies before the total amount applied under this plan has been paid, the
remainder will be paid in one sum as a death benefit.
OPTION 4. Joint and Survivor Life Income
Monthly payments will be made jointly to two persons during their lifetime
and will continue during the remaining lifetime of the survivor. A total
payment period of 10 years is guaranteed.
Other Frequencies and Plans. Instead of monthly payments, the owner may
elect to have payments made quarterly, semiannually or annually. Other income
plans may be arranged with Metropolitan Life's approval.
Choice of Income Plans. When an income plan starts, a separate contract will
be issued describing the terms of the plan. Specimen contracts may be obtained
from Metropolitan Life sales representatives, and reference should be made to
these forms for further details.
Limitations. If the payee is not a natural person, the choice of an income
plan will be subject to Metropolitan Life's approval. A collateral assignment
will modify a prior choice of income plan. The amount due the assignee will be
payable in one sum and the balance will be applied under the income plan. A
choice of an income plan will not become effective unless each payment under
the plan would be at least $50. Income plan payments may not be assigned and,
to the extent permitted by law, will not be subject to the claims of
creditors.
Income Plan Rates. Amounts applied under the interest income and installment
income plans will earn interest at a rate set from time to time by
Metropolitan Life but never less than 3% per year. Life income payments will
be based on a rate set by Metropolitan Life and in effect on the date the
amount to be applied becomes payable, but never less than the minimum payments
guaranteed in the Policy. Such minimum guaranteed payments are based on
certain assumed mortality rates and an interest rate of 3%.
65
<PAGE>
METLIFE (R)
VAI
VARIABLE ADDITIONAL INSURANCE DIVIDEND OPTION
PROSPECTUSES FOR
. VARIABLE ADDITIONAL INSURANCE DIVIDEND OPTION
ISSUED BY
METROPOLITAN LIFE INSURANCE COMPANY
. METROPOLITAN SERIES FUND, INC.
[ART]
ML-UL2 ( /98 EDITION) PRINTED IN U.S.A.
96041ASX (EXP0597) MLIC-LD
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(B)(1) UNDER THE SECURITIES ACT OF 1933
Directors, officers and employees of Metropolitan Life are indemnified by
Metropolitan Life and insured under its Directors and Officers Liability
Policy in the amount of $50,000,000, subject to a $5,000,000 deductible.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Metropolitan Life pursuant to the foregoing provisions, or otherwise,
Metropolitan Life has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Metropolitan Life of expenses incurred or paid by a director, officer or
controlling person of Metropolitan Life in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
Metropolitan Life will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
REPRESENTATION WITH RESPECT TO FEES AND CHARGES
Metropolitan Life represents that the fees and charges deducted under the
rider described in this Registration Statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses to be incurred,
and the risks assumed by Metropolitan Life under the rider. Metropolitan Life
bases its representation on its assessment of all of the facts and
circumstances, including such relevant factors as: the nature and extent of
such services, expenses and risks, the need for Metropolitan Life to earn a
profit, the degree to which the rider includes innovative features, and
regulatory standards for exemptive relief under the Investment Company Act of
1940 used prior to October 1996, including the range of industry practice.
This representation applies to all riders issued pursuant to this Registration
Statement, including those sold on the terms specifically described in the
prospectus contained herein, or any variations therein based on supplements,
amendments, endorsements or other riders to such riders or any related base
policies or prospectus, or otherwise.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Table.
The Prospectus, consisting of 65 pages.
Undertaking to File Reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of
1933.
Representation with respect to fees and charges.
The signatures.
Written Consents of the following persons:
Independent Auditors (to be filed by pre-effective amendment)
Counsel (included in Exhibit 2 listed below)
Company Actuary (included in Exhibit 5 listed below) (to be filed by
pre-effective amendment)
II-1
<PAGE>
The following exhibits:
<TABLE>
<C> <S> <C>
1.A (1) --Resolution of Board of Directors of Metropolitan Life
effecting the establishment of Metropolitan Life Separate
Account UL............................................... ++++
(2) --Not Applicable
(3) --(a) Not Applicable
--(b) Form of Selected Broker Agreement................... ++++
--(c) Schedule of Sales Commissions....................... ++
(4) --Not applicable
(5) --(a) Variable Additional Insurance Rider................. +
--(b) L98 fixed benefit Life Insurance Policy............. +
(6) --(a) Charter and By-Laws of Metropolitan Life............ +++
--(b) Amendment to By-laws................................ +++
(7) --Not Applicable
(8) --Not Applicable
(9) --Not Applicable
(10) --Form of Application for Rider (included in Exhibits 5(a)
and (b) listed above)
2. --Opinion and consent of Counsel as to the legality of the
securities being registered.............................. +
3. --Not Applicable
4. --Not Applicable
5. --Opinion and consent of relating to the VAI (to
be filed by pre-effective amendment)
6. --Powers of Attorney...................................... +++++
7. --Method of Computing Exchange pursuant to Rule 6e-
3(T)(b)(13)(v)(B) under the Investment Company Act of
1940 (not required because there will be no cash value
adjustments)
8. --Memoranda describing certain procedures filed pursuant
to Rule 6e-3(T)(b)(12)(iii).............................. ++++
27. --Financial Data Schedule (to be filed by pre-effective
amendment)
</TABLE>
- --------
+ Filed herewith.
++ Incorporated by reference from "Distribution of the Policies" in the
Prospectus included herein.
+++ Incorporated by reference to the filing of Post-Effective Amendment No.
4 to the Registration Statement of Separate Account UL (File No. 33-
57320) on March 1, 1996.
++++ Incorporated by reference to the filing of Post-Effective Amendment No.
5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997.
+++++ Incorporated by reference to the filing of Post-Effective Amendment No.
5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997 except for Robert H. Benmosche whose power of
attorney is filed herewith.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, METROPOLITAN
LIFE INSURANCE COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, AND ITS
SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY OF NEW YORK, STATE
OF NEW YORK, THIS 13TH DAY OF NOVEMBER, 1997.
METROPOLITAN LIFE
INSURANCE COMPANY
(Seal)
/s/ Gary A. Beller
By: ________________________________
GARY A. BELLER, ESQ. EXECUTIVE
VICE-PRESIDENT & GENERAL COUNSEL
/s/ Ruth Gluck
Attest: _____________________________
RUTH GLUCK, ESQ. ASSISTANT
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman, Chief
- ------------------------------------- Executive Officer
HARRY P. KAMEN and Director
(Principal
Executive Officer)
* President, Chief
- ------------------------------------- Operating Officer
ROBERT H. BENMOSCHE and Director
* Senior Executive
- ------------------------------------- Vice-President and
STEWART G. NAGLER Chief Financial
Officer (Principal
Financial Officer)
* Senior Vice-
- ------------------------------------- President and
FREDERICK P. HAUSER Controller
(Principal
Accounting Officer)
* Director
- -------------------------------------
CURTIS H. BARNETTE
* Director
- -------------------------------------
GERALD CLARK
* Director
- -------------------------------------
JOAN GANZ COONEY
/s/ Christopher P. Nicholas November 13, 1997
*By _________________________________
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
II-3
<PAGE>
SIGNATURE TITLE DATE
* Director
- -------------------------------------
BURTON A. DOLE, JR.
* Director
- -------------------------------------
JAMES R. HOUGHTON
* Director
- -------------------------------------
HELENE L. KAPLAN
* Director
- -------------------------------------
CHARLES M. LEIGHTON
* Director
- -------------------------------------
ALLEN E. MURRAY
* Director
- -------------------------------------
JOHN J. PHELAN, JR.
* Director
- -------------------------------------
JOHN B. M. PLACE
* Director
- -------------------------------------
HUGH B. PRICE
* Director
- -------------------------------------
ROBERT G. SCHWARTZ
* Director
- -------------------------------------
RUTH J. SIMMONS, PH.D.
* Director
- -------------------------------------
WILLIAM S. SNEATH
Director
- -------------------------------------
WILLIAM C. STEERE, JR.
/s/ Christopher P. Nicholas November 13, 1997
*By _________________________________
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
II-4
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
METROPOLITAN LIFE SEPARATE ACCOUNT UL, HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED, ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY
OF NEW YORK, STATE OF NEW YORK THIS 13TH DAY OF NOVEMBER, 1997.
METROPOLITAN LIFE SEPARATE ACCOUNT
UL
(REGISTRANT)
By: METROPOLITAN LIFE INSURANCE
COMPANY
(DEPOSITOR)
(Seal)
/s/ Gary A. Beller
By: _____________________________
GARY A. BELLER, ESQ.
EXECUTIVE VICE-PRESIDENT AND
GENERAL COUNSEL
/s/ Ruth Gluck
Attest: _____________________________
RUTH GLUCK, ESQ. ASSISTANT
SECRETARY
II-5
<PAGE>
EXHIBIT 1.A(5)(a)
METROPOLITAN LIFE INSURANCE COMPANY
RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS
This rider is a part of the policy to which it is attached.
This rider provides an additional dividend option. While this option is in
effect, we will use the annual dividends credited to your policy to buy variable
life insurance.
DEFINITIONS
The "Date of Rider" is shown on page 3. It is the effective date of this rider.
"Dividends" mean all dividends credited under your policy. They include any
dividends from any optional benefit rider in your policy, as well as any
dividend amounts transferred or converted from other dividend options.
The "Investment Start Date" is the date the first dividend under this option is
applied to the Separate Account.
A "Valuation Date" is each day on which there is enough trading in a portfolio's
securities that the current value of its shares could change materially. In
general, Valuation Dates will be days when the New York Stock Exchange is open
for trading. We reserve the right, on 30 days notice, to change the basis for
such Valuation Date, as long as the basis is not inconsistent with applicable
laws.
A "Valuation Period" is the period between two successive Valuation Dates
starting at 4:00 P.M., New York City time, on each Valuation Date and ending at
4:00 P.M., New York City time, on the next succeeding Valuation Date. We
reserve the right, on 30 days notice, to change the basis for such Valuation
Period as long as the basis is not inconsistent with applicable law.
The "Separate Account" is the Metropolitan Life Separate Account UL, the account
to which we will apply your dividends.
The "Investment Division" in the Separate Account is the METLIFE STOCK INDEX
PORTFOLIO. The investment objective of this portfolio is to equal the
performance of the Standard & Poor's 500 Composite Stock Price Index(adjusted to
assume the reinvestment of dividends) by investing in the common stock of
companies that are included in the index,
The "Cash Value" is the value of your funds in the Separate Account. The cash
value is based on the dividends applied to the Separate Account. The cash value
reflects the
<PAGE>
investment experience of the Separate Account and may increase or decrease
daily. It is not guaranteed.
The "Guaranteed Death Benefit" is the amount of death benefit needed at a given
point in time to maintain this benefit as life insurance under the Internal
Revenue Code.
"Net Single Premiums" are used to calculate the amount of variable additional
insurance under this benefit. A table showing the net single premiums for each
policy anniversary is attached to this rider.
A "Cost of Insurance Charge" is deducted each day from the cash value of your
account. We may change these charges, but they will never be more than the
guaranteed charges shown in the table at the end of this rider.
Variable Additional Insurance Death Benefit--We will use your dividends to buy
variable insurance that will be included in the insurance proceeds payable on
the death of the insured. The amount of insurance is subject to change on each
Valuation Date. We determine the amount of the death benefit on the date of
death of the Insured as follows:
1. On the Investment Start Date, we take the sum of all dividend amounts and
then divide by the applicable Net Single Premium at the insured's attained
age to provide the variable additional insurance death benefit.
2. On each day after until another dividend amount is credited, transferred,
or converted, the variable insurance death benefit is the cash value
divided by the Net Single Premium for that day. If the Guaranteed Death
Benefit is larger, we will pay that amount instead.
3. On a policy anniversary, we take all the dividends credited on that
anniversary and add them to the cash value of the variable additional
insurance determined on the last Valuation Date of the last policy year and
then divide that sum by the Net Single Premium for the insured's attained
age. This is the total variable additional insurance death benefit for the
first day of the new policy year.
CASH VALUE--The cash value of the variable additional insurance under this rider
is determined as follows:
1. On the Investment Start Date, the cash value is equal to the sum of any
dividends credited.
2. On each day after until another dividend amount is credited, transferred,
or converted, the cash value is equal to the value of the Investment
Division of the Separate Account minus the daily Cost of Insurance Charge
and a charge of not more than .000000%.
3. On a policy anniversary, the cash value is equal to the cash value on the
last Valuation Date of the previous year and all dividends credited on that
anniversary.
<PAGE>
SEPARATE ACCOUNT
Separate Account UL is an investment account set up and kept by us, apart from
our general account or other separate investment accounts. It is used for
variable additional insurance and for other policies and contracts as permitted
by law.
We own the assets of the Separate Account. Assets equal to our reserves and
other liabilities of the Separate Account will not be charged with the
liabilities that arise from any other business that we conduct. We may from
time to time transfer to our general account assets in excess of such reserves
and liabilities.
Income and realized and unrealized gains or losses from the assets of the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains or losses.
The Separate Account will be valued at the end of each Valuation Period.
Right to Make Changes--We reserve the right to make certain changes if, in our
judgment, they would best serve the interests of the owners of benefits such as
this one, or would be appropriate in carrying out the purposes of such benefits.
Any changes will be made only to the extent and in the manner permitted by
applicable laws. Also, when required by law, we will obtain your approval of
the changes and approval of any appropriate regulatory authority.
Example of the changes we may make include:
. To operate the Separate Account in any form permitted under the
Investment Company Act of 1940, or in any other form permitted by law.
. To take any action necessary to comply with or obtain any exemptions
from the Investment Company Act of 1940.
. To transfer any assets in the Investment Division to one or more
separate accounts, or to our general account, or to add Investment
Divisions to the Separate Account.
. To substitute, for the investment company shares held in the Investment
Division, the shares of another class of the investment company or the
shares of another investment company or any other investment permitted
by law.
. To change the way we assess charges, but without increasing the
aggregate charged to the Separate Account.
. To make any other necessary technical changes in this benefit in order
to conform with any action this provision permits us to take.
If any of these changes result in a material change in the underlying
investments of the Separate Account, we will notify you of such change.
<PAGE>
Transfers--You may transfer existing paid-up insurance under the paid-up
additions dividend option described in your policy to this rider. You may also
transfer the variable paid-up insurance under this rider to the paid-additions
option in your policy. For both types of transfers, you must request the
transfer in writing. We will take the cash value of the existing paid-up
insurance and add it to the cash value of the paid-up insurance to which you
have asked it to be transferred and will apply the total cash value as a net
single premium, based on the insured's sex and attained age, to buy additional
insurance under that option.
WITHDRAWALS--You may withdraw all or part of the cash value of this option at
any time.
A withdrawal will reduce the amount of variable additional insurance payable as
of the date of withdrawal.
CHANGE OF OPTION--You may change dividend options at any time. To do so you
must write to us and request the change.
Age and Sex--If the insured's age or sex on the Date of Rider is not correct as
shown on page 3 of the policy, we will recalculate the amount of variable
additional insurance by using the Cost of Insurance Charges and the Net Single
Premiums applicable to the insured's correct age and sex.
INCONTESTABILITY AND SUICIDE--The Incontestability and Suicide provisions of the
policy will also apply to this rider but will be measured from the Date of Rider
TERMINATION--This rider will end on the earliest of the following :
1. At the end of the grace period of the first unpaid premium.
2. On the date we receive your written request to end this rider.
3. On the date you reduce the face amount of your policy to less than $50,000.
4. On the date you change the plan or amount of insurance of this policy.
ENDORSEMENT
When this rider is part of the policy, any dividends credited to an Option for
Paid-Up Additional Insurance rider will be applied to buy variable additional
insurance in the same way as any other dividend amounts under this policy.
<PAGE>
TABLE OF COST OF INSURANCE CHARGES
Age
To Determine the Daily Cost of Insurance Charge, divide the applicable
percentage by 1/365.
<PAGE>
TABLE OF NET SINGLE PREMIUMS
Age On
Policy
Anniversary
The net single premium on a date during a policy year is determined by
interpolation between the values for the anniversaries immediately preceding and
immediately following that date.
<PAGE>
EXHIBIT 1(A)(5)(b)
[logo] MetLife
Metropolitan Life Insurance Company
A Mutual Company Incorporated in New York State
Metropolitan Life Insurance Company will pay the amount of insurance and provide
the other benefits of this policy according to its provisions.
Insured SPECIMEN
Face Amount
of Insurance $100.000 as of Feb. 11 1995
Policy Number 123 123 124 PR8
Plan LIFE PAID-UP AT AGE 98
s/Joseph A. Reali s/ T. Athanassiades
Joseph A. Reali Ted Athanassiades
Vice-President and Secretary President and Chief Operating Officer
Life 98 Policy
Life insurance payable when the insured dies.
Premiums payable for a stated period.
Annual dividends.
10-DAY RIGHT TO EXAMINE POLICY--PLEASE READ THIS POLICY. YOU MAY RETURN THIS
POLICY TO METROPOLITAN OR TO THE SALES REPRESENTATIVE THROUGH WHOM YOU BOUGHT IT
WITHIN 10 DAYS FROM THE DATE YOU RECEIVE IT. IF YOU RETURN IT WITHIN THE 10-DAY
PERIOD, THE POLICY WILL BE VOID FROM THE BEGINNING. WE WILL REFUND ANY PREMIUM
PAID.
See Table of Contents and Company address on last page.
READ THIS POLICY CAREFULLY. This policy is a legal contract between the policy
owner and Metropolitan Life Insurance Company.
<PAGE>
UNDERSTANDING THIS POLICY
"You" and "Your" refer to the owner of this policy.
"We", "us" and "our" refer to Metropolitan Life Insurance Company.
The "insured" named on page 3 is the person at whose death the insurance
proceeds will be payable.
The "Face Amount of Insurance" is shown on page 3.
Policy years and months are measured from the date of policy. For example, if
the date of policy is May 5, 1990, the first policy year ends May 4, 1991.
To make this policy clear and easy to read, we have left out many cross-
references and conditional statements. Therefore, the provisions of the policy
must be read as a whole. For example, our payment of the insurance proceeds
(see page 5) depends upon the payment of premiums (see page7). Otherwise, the
provisions for non-payment of premiums will apply (see page 7).
To exercise your rights, you should follow the procedures stated in this policy.
If you want to request a payment, change a beneficiary, change an address or
request any other action by us, you should do so on the forms prepared for each
purpose. You can get these forms from your sales representative or your local
Metropolitan office.
PAYMENT WHEN INSURED DIES
When the insured dies, an amount of money, called the insurance proceeds, will
be payable to the beneficiary. The insurance proceeds are the total of:
*the Face Amount of Insurance.
PLUS
*Any insurance on the insured's life which may be provided by riders to this
policy.
*Any insurance bought with dividends.
*Any dividends left with us to earn interest.
Any dividend which we may credit at death.
Any part of a premium paid for coverage beyond the policy month in which the
insured dies.
MINUS
*Any premium due (not more than one month's part of the premium).
*Any policy loan and loan interest.
<PAGE>
We will pay the insurance proceeds to the beneficiary after receipt of proof of
death and a proper written claim.
PAYMENTS DURING INSURED'S LIFETIME
Dividends
Every year we determine an amount to be paid to our policyholders as dividends.
We will determine the share, if any, for this policy and credit as a dividend at
the end of the policy year. We do not expect that any dividend on ths policy
will be paid until at least 2 years from its date.
You may choose to use dividends in any one of these ways:
1. Paid-Up Additions--To buy more insurance on the insured's life.
2. Dividend Accumulations--To be left with us to earn interest at the rate we
set from time to time.
3. Premium Payment--To be applied toward the payment of premiums. Any excess
will be used to buy Paid-Up Additions.
4. Cash--to be paid to you by check.
Your choice may be made on the application for your policy or in writing at a
later date. If no choice has been made, we will provide paid-up additions
unless you make a different choice within 3 months after a dividend is credited.
If a dividend check has not been cashed within one year, a choice of paid-up
additions will be deemed to have been made.
1-1-87 5 AAAATA
<PAGE>
PAYMENTS DURING INSURED'S LIFETIME (CONTINUED)
CASH VALUE
Your policy has a cash value while the insured is alive. The cash value is the
total of:
*the Guaranteed cash value, as defined below.
PLUS
*The cash value of any insurance bought with dividends.
*Any dividends left with us to earn interest.
*Any part of a premium paid for coverage beyond the policy month in which you
surrender this policy.
MINUS
*Any policy loan and loan interest.
There are several ways you can use all or part of the cash value:
1. Take a policy loan from us.
2. Take the cash value of any insurance bought with dividends.
3. Take any dividends left with us to earn interest.
4. Surrender the policy to us for its full cash value.
GUARANTEED CASH VALUE
If all due premiums have been paid, the guaranteed cash value is as shown in the
Table of Values on page 4.
The guaranteed cash value of any paid-up insurance or any extended term
insurance is as described under "Computation of Values" on page 8.
POLICY LOAN
You can get cash from us by taking a policy loan. If there is an existing loan
you can increase it. The most you can borrow is the cash value at the end of
the current policy year less any unpaid premiums for that year and loan interest
to the end of that year. A loan may not be taken if extended term insurance is
in effect (see page 7).
<PAGE>
Loan interest is charged daily at the rate we set from time to time. This rate
will never be more than the maximum allowed by law and will not change more
often than once a year on the anniversary of the date of policy.
The rate of interest we set for a policy year may not be more than the higher
of:
(a) The Published Monthly Average for the calendar month ending 2 months before
the start of the policy year; or
(b) The rate we use to compute the guaranteed cash value of this policy for the
policy year, plus 1%.
The Published Monthly Average means:
(a) Moody's Corporate Bond Yield Average--Monthly Average Corporates, as
published by Moody's Investors Service, Inc. or any successor to that
service; or
(b) If that average is no longer published, a substantially similar average,
established by regulation issued by the insurance supervisory official of
the state in which this policy is delivered.
If the maximum limit for a policy year is at least 1/2% higher than the rate
set for the prior policy year, we may increase the rate to no more than that
limit. If the maximum limit for a policy year is at least 1/2% lower than the
rate set for the prior policy year, we will reduce the rate to at least that
limit.
When a loan is made, we will inform you of the initial rate applicable to that
loan. We will mail you advance notice if there is to be an increase in the rate
applicable to an existing loan.
Loan interest is due at the end of each policy year. Interest is not paid
within 31 days after it is due will be added to the loan principal. It will be
added as of the due date and will bear interest at the same rate as the rest of
the loan principal.
LOAN REPAYMENT
You may repay all or part (but not less than $50) of a policy loan at any time
while the insured is alive.
101-87 6 AAAATC
<PAGE>
Payments During Insured's Lifetime (Continued)
POLICY TERMINATION
Your policy will end whenever the amount of your policy loan plus loan interest
is more than the sum of
1. The guaranteed cash value.
2. The cash value of any insurance bought with dividends; and
3. Any dividends left with us to earn interest.
We will mail notice to you at least 31 days before termination. We will also
mail notice to any assignee on our records. You can prevent termination by
making sufficient repayment of the loan.
DEFERMENT
We may delay paying the cash value for up to 6 months from the date we received
a request for payment. If we delay for 30 days or more, interest will be paid
from the date we received the request at the rate we set from time to time. We
also may delay making a policy loan, except for a loan to pay a premium, for up
to 6 months from the date you request the loan.
PREMIUMS
PREMIUM PAYMENT
The benefits of your policy depend on the payment of premiums when due.
Premiums are payable while the insured is alive, on or before their due dates as
shown in the premium schedule on page 3. Premiums may be paid at our Home
Office or any other office we designate or to your sales representative. A
receipt signed by our President or Secretary and countersigned by the sales
representative will be given for a premium paid to the sales representative.
You may change the frequency of payment with our approval.
You may ask us to pay premiums with a combination of yearly dividends, the cash
value of any paid-up additions and/or any dividends accumulations. As long as
these values are great enough, out-of-pocket premiums need not be paid to keep
your policy in force.
GRACE PERIOD
After the first premium is paid, there will be a grace period of 31 days after
each premium due date to pay the premium. If the insured dies during a grace
period, the insurance proceeds will still be payable.
<PAGE>
AUTOMATIC POLICY LOAN
Each premium which remains unpaid at the end of a grace period will be paid with
an automatic policy loan if:
1. You ask us to do so in the application for your policy or in writing while no
premium is due and unpaid; and
2. Your policy has enough cash value to pay the premium.
NON-PAYMENT OF PREMIUMS
If any premium due before the first date shown under "Value Date" in the Table
of Values on page 4 is not paid by the end of its grace period your policy will
end as of the date of that premium. If any premium due on or after that date is
not paid by the end of its grace period the insurance coverage will continue for
a limited time as extended term insurance. However, after premiums have been
paid at least until the date at which a guaranteed cash value is first shown in
the Table of Value on page 4 you may choose either reduced paid-up insurance or
cash instead of extended term insurance.
1. Extended Term Insurance - The amount of the extended term insurance will be
the total of:
. The Face amount of Insurance
PLUS
. Any insurance bought with dividends.
. Any dividends left with us to earn interest:
MINUS
. Any policy loan and loan interest.
101-87(91) 7 AAAABPY
PREMIUMS (CONTINUED)
The policy will no longer be eligible for dividends and the policy loan
provisions will no longer apply. Benefits provided by any riders will end. At
the end of the term this policy will be void.
<PAGE>
2. Reduced Paid-Up Insurance You may choose to continue insurance for the
lifetime of the insured but for a reduced amount. This choice may be made at
any time within 3 months after the due date of the first unpaid premium.
The policy will continue to be eligible for dividends and the policy loan
provisions will continue to apply. Benefits provided by any rider will end.
3. Cash Instead of continuing insurance coverage you may surrender your policy
for its cash value.
COMPUTATION OF VALUES
The Table of Values on page 4 shows the guaranteed cash values, the amounts of
reduced paid-up insurance and the periods of extended term insurance that we
would provide. This table does not take into account any insurance bought with
dividends, dividends left with us to earn interest, or policy loan and loan
interest. Values not shown in the table are computed by the same method as that
used for the values shown. The method of computation will be furnished on
request.
A period of extended term insurance is measured from the date of the first
unpaid premium. We compute the length of extended term insurance or the amount
of reduced paid-up insurance by applying the cash value as a net single premium
as of the due date of the first unpaid premium. The insured's age for this
purpose is the age on the date of the policy plus the number of years and full
months from that date to the due date of the first unpaid premium. Any loans or
cash paid to you during the grace period will not be included in the cash value
applied.
At any time the guaranteed cash value of any paid-up insurance or any extended
term insurance is equal to the net single premium for such insurance at the
insured's then attained age. The guaranteed cash value will not decrease during
the first 3 months after the due date of the first unpaid premium. Also, the
guaranteed cash value will not decrease for the first 31 days after the end of a
policy year.
Guaranteed cash values, insurance benefits and net single premiums are computed
on the basis immediate payment of death claims and refund of premiums beyond the
end of the month in which the insured dies. The guaranteed interest rate and
mortality tables used are shown on page 4.
We have filed a detailed statement of the method of computation with the
insurance supervisory official of the state in which this policy is delivered.
The values under this policy are equal to or greater than those required by the
law of that state.
REINSTATEMENT
If you have stopped paying premiums but have not surrendered your policy for its
cash value, you may reinstate the policy while the insured is alive if you:
<PAGE>
1. Request reinstatement within 3 years of the due date of the first unpaid
premium:
2. Provide evidence of insurability satisfactory to us:
3. Pay all overdue premiums to the date of reinstatement with compound interest
at the rate of 6% a year: and
4. Repay any policy loan (plus interest) in effect on the due date of the first
unpaid premium, plus any policy loan taken after that. Compound interest to
the date of reinstatement will be charged on any unpaid loan at the
applicable policy loan interest rate, as would have been charged if all due
premiums had been paid.
Any cash value that your policy would have after reinstatement may be taken as a
policy loan and used toward the payment required to make reinstatement.
After 3 years from the due date of the first unpaid premium, the policy may be
reinstated subject to the conditions we set.
101-87 8 AAAATF
OWNERSHIP AND BENEFICIARY
OWNER
As owner, you may exercise all rights under your policy while the insured is
alive. You may name a contingent owner who would become the owner if you should
die before the insured.
CHANGE OF OWNERSHIP
You may name a new owner at any time. If a new owner is named, any earlier
choice of a contingent owner, beneficiary, contingent beneficiary or optional
income plan will be canceled, unless you specify otherwise.
BENEFICIARY
The beneficiary is the person or persons to whom the insurance proceeds are
payable when the insured dies. You may name a contingent beneficiary to become
the beneficiary if all the beneficiaries die while the insured is alive. If no
beneficiary or contingent beneficiary is named, or if none is alive when the
insured dies, the owner (or the owner's estate) will be the
<PAGE>
beneficiary. While the insured is alive, the owner may change any beneficiary or
contingent beneficiary.
If more than one beneficiary is alive when the insured dies, we will pay them in
equal shares, unless you have chosen otherwise.
HOW TO CHANGE THE OWNER OR THE BENEFICIARY
You may change the owner, contingent owner, beneficiary or contingent
beneficiary of this policy by written notice or assignment of the policy. No
change is binding on us until it is recorded at our Home or a Head Office. Once
recorded, the change binds us as of the date you signed it. The change will not
apply to any payment made by us before we recorded your request. We may require
that you send us this policy to make the change.
COLLATERAL ASSIGNMENT
Your policy may be assigned as collateral. All rights under the policy will be
transferred to the extent of the assignee's interest. We are not bound by any
assignment unless it is in writing and is recorded at our Home or Head Office.
We are not responsible for the validity of any assignment.
GENERAL PROVISIONS
THE CONTRACT
This policy includes any riders and, with the application attached when the
policy is issued, makes up the entire contract. All statements in the
application will be representations and not warranties. No statement will be
used to contest the policy unless it appears in the application.
LIMITATION ON SALES REPRESENTATIVE'S AUTHORITY
No sales representative or other person except our President, Secretary, or a
Vice-President may (a) make or change any contract of insurance; or (b) change
or waive any of the terms of this policy. Any change must be in writing and
signed by our President, Secretary, or a Vice-President.
INCONTESTABILITY
We will not contest the validity of your policy after it has been in force
during the insured's lifetime for 2 years from the date of policy, except for
nonpayment of premiums.
INTEREST RATE
<PAGE>
Where this policy provides that interest on payment we make will be at a rate we
set, that rate will never be less than 3% a year.
AGE AND SEX
If the insured's age or sex on the date of policy is not correct as shown on
page 3, we will adjust the benefits under this policy. The adjusted benefits
will be those which the premium paid would have bought at the correct age and
sex.
EXCLUSION
SUICIDE
The insurance proceeds will not be paid if the insured commits suicide, while
sane or insane, within 2 years from the date of policy. Instead, we will pay the
beneficiary an amount equal to all premiums paid, without interest, less any
loan and loan interest.
102-87 9 AAAATH
<PAGE>
EXHIBIT 2
Metropolitan Life Insurance Company
One Madison Avenue, New York, NY 10010-3690
212 578-2211
[LOGO METLIFE]
CHRISTOPHER P. NICHOLAS
Associate General Counsel
Law Department
Tel 212 578-4487 Fax 212 578-8144
November 13, 1997
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Dear Sirs:
This opinion is furnished in connection with the offering of a variable
additional insurance rider ("Rider") of Metropolitan Life Insurance Company
("Metropolitan Life") under a Registration Statement to be filed by Metropolitan
Life and Metropolitan Life Separate Account UL ("Account") on November 13, 1997
under the Securities Act of 1933, as amended ("Act").
I have made such examination of the law and examined such corporate records
and such other documents as in my judgment are necessary and appropriate to
enable me to render the following opinion that:
1. Metropolitan Life has been duly organized under the laws of the State of
New York and is a validly existing corporation.
2. The Account is duly created and validly existing as a separate account
pursuant to Section 4240 of Chapter 28 of the Consolidated Laws of New York.
3. The portion of the assets to be held in the Account equal to the reserves
and other liabilities under the Riders and under other life insurance policies
the premium in which may be allocated to the Account is not chargeable with
liabilities arising out of any other business Metropolitan Life may conduct.
4. The Riders have been duly authorized by Metropolitan Life and, when issued
as contemplated by the Registration Statement, as amended, will constitute
legal, validly issued and binding obligations of Metropolitan Life in accordance
with their terms.
<PAGE>
Metropolitan Life Insurance Company
November 14, 1997
Page 2
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Christopher P. Nicholas
Christopher P. Nicholas
Associate General Counsel
cc: Gary A. Beller, Esq.
<PAGE>
EXHIBIT 6
POWER OF ATTORNEY
-----------------
Robert H. Benmosche
Director and Officer
KNOW ALL MEN BY THESE PRESENTS, that I, a director and officer of Metropolitan
Life Insurance Company, do hereby appoint Gary A. Beller, Louis J. Ragusa,
Richard G. Mandel and Christopher P. Nicholas, and each of them severally, my
true and lawful attorney-in-fact, for me and in my name, place and stead to
execute and file any instrument or document to be filed as part of or in
connection with or in any way related to the Registration Statements and any and
all amendments thereto, filed by said Company under the Securities Act of 1933
and/or the Investment Company Act of 1940, in connection with Metropolitan Life
Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of November,
1997.
/s/ Robert H. Benmosche
-----------------------
Signature
