<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 33-91226
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
POST-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-6
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
METROPOLITAN LIFE SEPARATE ACCOUNT UL
(EXACT NAME OF TRUST)
METROPOLITAN LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1 Madison Avenue
New York, New York 10010
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
GARY A. BELLER, ESQ.
Senior Executive Vice-President and General Counsel
Metropolitan Life Insurance Company
1 Madison Avenue
New York, New York 10010
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------------
Copies to:
GARY O. COHEN, ESQ. AND
THOMAS C. LAUERMAN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
------------------------
It is proposed that the filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1998 pursuant to paragraph (b) of Rule 485
/ / On (date) pursuant to paragraph (a)(1) of Rule 485
/ / on (date), pursuant to paragraph (a) of Rule 485
------------------------
This filing is made in reliance on Rule 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 to register an indefinite amount of interests in
Metropolitan Life Separate Account UL which funds certain variable universal
life insurance policies.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
METROPOLITAN LIFE INSURANCE COMPANY
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
- --------------------------------------------- ------------------------------------------------------------------------
<S> <C>
1........................................ Cover Page
2........................................ SUMMARY--Who is the Issuer of the Group Policies and Certificates?
3........................................ Inapplicable
4........................................ SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES;
SUMMARY--Who is the Issuer of the Group Policies and Certificates?
5, 6, 7.................................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account;
STATE REGULATION
8........................................ FINANCIAL STATEMENTS
9........................................ Inapplicable
10(a)..................................... OTHER CERTIFICATE PROVISIONS--Owner; Beneficiary; Collateral Assignment
10(c), 10(d).............................. DEFINITIONS--Valuation Date; SUMMARY--May the Certificate be Surrendered
or the Cash Value Partially With-drawn; Is There a "Free Look"
Period?; CERTIFICATE BENEFITS--Benefit at Final Date; CERTIFICATE
RIGHTS--Surrender and Withdrawal Privileges; Exchange Privilege;
PAYMENT AND ALLOCATION OF PREMIUMS--Allocation of Premiums and Cash
Value, Cash Value Transfers; THE FIXED ACCOUNT--Death Benefit
Transfer, Withdrawal, Surrender, and Loan Rights; OTHER POLICY
PROVISIONS--Payment and Deferment
10(e)..................................... PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement
While the Group Policy is in Effect
10(f)..................................... VOTING RIGHTS
10(g)(1)-(3), 10(h)(1)-(3)................ RIGHTS RESERVED BY METLIFE
10(g)(4), 10(h)(4)........................ Inapplicable
10(i)..................................... CERTIFICATE BENEFITS--Death Benefit; Cash Value; Optional Income Plans;
Optional Insurance Benefits; PAYMENT AND ALLOCATION OF
PREMIUMS--Issuance of a Certificate; Premiums; Allocation of Premiums
and Cash Value; Certificate Termination and Reinstatement While the
Group Policy is in Effect
11........................................ SUMMARY--What are Separate Account UL, the Fixed Account and the
Metropolitan Series Fund? SEPARATE ACCOUNT AND METROPOLITAN SERIES
FUND-- Metropolitan Series Fund
12(a)..................................... Cover Page
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
- --------------------------------------------- ------------------------------------------------------------------------
<S> <C>
12(b), 12(e).............................. Inapplicable
12(c), 12(d).............................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund
13(a), 13(b), 13(c), 13(d)................ SUMMARY--What are Separate Account UL, the Fixed Account and
Metropolitan Series Fund?; What Charges are Assessed in Connection
with the Certificate? CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT AND
METROPOLITAN SERIES FUND--The Separate Account; CERTIFICATE
BENEFITS--Death Benefit Increases
13(e)..................................... SALES AND ADMINISTRATION OF THE CERTIFICATE
13(f), 13(g).............................. Inapplicable
14........................................ PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Certificate; SALES AND
ADMINISTRATION OF THE CERTIFICATES
15........................................ PAYMENT AND ALLOCATION OF PREMIUMS
16........................................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund
17(a), 17(b).............................. Captions referenced under Items 10(c), 10(d), 10(e) and 10(i) above
17(c)..................................... Inapplicable
18(a), 18(c).............................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND
18(b), 18(d).............................. Inapplicable
19........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES; VOTING RIGHTS; REPORTS
RIGHTS RESERVED BY METLIFE
20(a), 20(b).............................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account
20(c), 20(d), 20(e), 20(f)................ Inapplicable
21(a), 21(b).............................. CERTIFICATE RIGHTS--Loan Privileges; OTHER CERTIFICATE
PROVISIONS--Payment and Deferment
21(c), 22................................. Inapplicable
23........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES
24........................................ OTHER CERTIFICATE PROVISIONS
25........................................ SUMMARY--Who is the Issuer of the Policies and Certificates?
26........................................ CHARGES AND DEDUCTIONS--Other Charges
27........................................ SUMMARY--Who is the Issuer of the Policies and Certificates?
28........................................ MANAGEMENT
29........................................ Inapplicable
30, 31, 32, 33, 34........................ Inapplicable
35........................................ STATE REGULATION
36, 37.................................... Inapplicable
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
- --------------------------------------------- ------------------------------------------------------------------------
<S> <C>
38........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES; DISTRIBUTION OF THE
CERTIFICATES
39........................................ SUMMARY--Who is the Issuer of the Group Policies and Certificates?;
SALES AND ADMINISTRATION OF THE CERTIFICATES; DISTRIBUTION OF THE
CERTIFICATES
40(a)..................................... Inapplicable
40(b)..................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund;
CHARGES AND DEDUCTIONS--Other Charges
41(a)..................................... SUMMARY--Who is the Issuer of the Group Policies and Certificates?;
SALES AND ADMINISTRATION OF THE CERTIFICATES
41(b), 41(c), 42, 43...................... Inapplicable
44(a)..................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund;
CERTIFICATE BENEFITS--Cash Value
44(b)..................................... Inapplicable
44(c)..................................... CHARGES AND DEDUCTIONS--Monthly Deduction From Cash Value
45........................................ Inapplicable
46........................................ Captions referenced under Item 44 above
47........................................ Captions referenced under Items 10(c) and 16 above
48, 49.................................... Inapplicable
50........................................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account
51(a), 51(b).............................. SUMMARY--Who is the Issuer of the Group Policies and Certificates?;
Cover Page; CERTIFICATE BENEFITS-- Optional Insurance Benefits;
CERTIFICATE RIGHTS-- Exchange Privileges
51(c), 51(d), 51(e)....................... Captions referenced under Item 10(i) above
51(f)..................................... PAYMENT AND ALLOCATION OF PREMIUMS--Certificate Termination and
Reinstatement While the Group Policy is in Effect
51(g)..................................... Captions referenced under Items 10(i) and 13 above
51(h), 51(j).............................. Inapplicable
51(i)..................................... DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES
52(a), 52(c).............................. RIGHTS RESERVED BY METLIFE
52(b), 52(d).............................. Inapplicable
53(a)..................................... FEDERAL TAX MATTERS
53(b), 54 through 58...................... Inapplicable
59........................................ FINANCIAL STATEMENTS
</TABLE>
iii
<PAGE>
[LOGO]
METLIFE GROUP
VARIABLE UNIVERSAL LIFE
May 1, 1998
Prospectuses for
- - Group Variable Universal Life Insurance
- - Metropolitan Series Fund, Inc.
[LOGO]
<PAGE>
MAY 1, 1998
PROSPECTUS
GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES
(Minimum Specified Face Amount For A Certificate-$10,000; Minimum Group Size-200
eligible lives)
Issued by METROPOLITAN LIFE INSURANCE COMPANY
Group variable universal life insurance policies ("Group Policies") and
certificates available through the Group Policies ("Certificates") are offered
by this Prospectus. The Group Policies and Certificates are issued by
Metropolitan Life Insurance Company, New York, NY ("MetLife"). Generally, so
long as the Group Policy remains in force, the Certificates are designed to
provide lifetime insurance coverage on the covered persons named in the
Certificates, as well as maximum flexibility in connection with premium
payments. This flexibility allows an owner of a Certificate to provide for
changing insurance needs within the confines of a single insurance product.
Group Policies may be issued to an employer (referred to herein as
"participating entity") or to a trust that is adopted by a participating entity.
Employees (including employees' spouses where specified in the Group Policy) of
adopting employers may own Certificates issued under their respective
participating entity's Group Policy. Unless the Certificate provides otherwise,
only the owner of the Certificate (the "Owner") may exercise the rights set
forth in the Certificate. The Certificate provides for a death benefit payable
at the covered person's death. The death benefit varies because it includes the
Certificate's cash value in addition to a fixed insurance amount.
The Certificate's cash value will vary with the investment experience of the
MetLife Separate Account UL ("Separate Account") investment divisions to which
amounts are allocated and the fixed rates of interest earned by allocations to a
fixed interest account within the General Account of MetLife ("Fixed Account").
The cash value will also be adjusted for other factors, including the amount of
charges imposed and the premium payments made. The Owner may withdraw or borrow
a portion of the Certificate's cash surrender value, or the Certificate may be
fully surrendered, at any time, subject to certain limitations. The Owner has
the flexibility to vary the frequency and amount of premium payments, subject to
certain restrictions and conditions.
The premiums paid, less premium expense charges, will generally be allocated
at the Owner's discretion among one or more of the available Separate Account
investment divisions or the Fixed Account. The participating entity may select
which investment divisions will be available to Owners. The assets in each
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 distributor
of its shares. Metropolitan Life also distributes and administers the
Certificates. The prospectus for the Fund describes the investment objectives
and certain attendant risks of the ten currently available portfolios of the
Fund. The following chart lists the name of each available portfolio and the
company that has the day-to-day investment management responsibility with
respect to each such portfolio.
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO MANAGER
<S> <C>
State Street Research International Stock State Street Research & Management Company
(sub-investment manager) and GFM International
Investors, Inc. (sub-sub-investment manager)
Janus Mid Cap Janus Capital Corporation
Loomis Sayles High Yield Bond Loomis, Sayles & Company, L.P.
MetLife Stock Index Metropolitan Life Insurance Company
Scudder Global Equity Scudder Kemper Investments, Inc.
State Street Research Aggressive Growth State Street Research & Management Company
State Street Research Diversified State Street Research & Management Company
State Street Research Growth State Street Research & Management Company
State Street Research Income State Street Research & Management Company
T. Rowe Price Small Cap Growth T. Rowe Price Associates, Inc.
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE
METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE
FUND.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
1 Madison Avenue, New York, New York 10010 Telephone (800) 523-2894
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS....................................... 3
SUMMARY........................................... 5
Who is the Issuer of the Group Policies and
Certificates?.................................... 5
What are Separate Account UL, the Fixed Account
and the Metropolitan Series Fund?................ 5
What Death Benefit is Available under the
Certificate?..................................... 6
What Flexibility Does an Owner have to Adjust the
Amount of the Death Benefit?..................... 6
What Flexibility Does an Owner have in Connection
with Premium Payments?........................... 7
What Happens to Certificates when the
Participating Entity's Active Participation in
the Group Policy is Terminated?.................. 7
If the Participating Entity Continues to
Participate in the Group Policy, How Long Will
the Certificate Remain in Force?................. 7
How are Net Premiums Allocated?................... 7
May the Certificate be Surrendered or the Cash
Value Partially Withdrawn?....................... 8
Is There a "Free Look" Period?.................... 8
What is the Loan Privilege?....................... 8
What Charges are Assessed in Connection with the
Certificate?..................................... 8
What is the Tax Treatment of Cash Value?.......... 9
Is the Beneficiary Subject to Federal Income Tax
on the Death Benefit?............................ 9
Is the Death Benefit or the Cash Value Subject to
Federal Estate Tax?.............................. 9
How should Premium Payments, Owner Requests and
Other Communications be sent to MetLife?......... 9
SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND..... 9
The Separate Account.............................. 9
Metropolitan Series Fund.......................... 10
CERTIFICATE BENEFITS.............................. 12
Death Benefit..................................... 12
Cash Value........................................ 13
Benefit at Final Date............................. 14
Optional Income Plans............................. 14
Optional Insurance Benefits....................... 14
PAYMENT AND ALLOCATION OF PREMIUMS................ 14
<CAPTION>
PAGE
-----
<S> <C>
Issuance of a Certificate......................... 14
Premiums.......................................... 15
Allocation of Premiums and Cash Value............. 15
Termination of Participating Entity Participation
in the Group Policy.............................. 17
Effect of Termination of Group Policy
Participation on Owners.......................... 18
Certificate Termination and Reinstatement While
the Group Policy is in Effect.................... 18
CHARGES AND DEDUCTIONS............................ 19
Premium Expense Charges........................... 19
Monthly Deduction From Cash Value................. 19
Charges Against the Separate Account.............. 20
Guarantee of Certain Charges...................... 21
Other Charges..................................... 21
ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES AND
ACCUMULATED PREMIUMS............................. 21
CERTIFICATE RIGHTS................................ 25
Loan Privileges................................... 25
Surrender and Withdrawal Privileges............... 26
Exchange Privilege................................ 26
THE FIXED ACCOUNT................................. 27
General Description............................... 27
Fixed Account Cash Value.......................... 27
Death Benefit, Transfer, Withdrawal, Surrender and
Certificate Loan Rights.......................... 28
RIGHTS RESERVED BY METLIFE........................ 28
OTHER CERTIFICATE PROVISIONS...................... 28
SALES AND ADMINISTRATION OF THE GROUP POLICIES AND
CERTIFICATES..................................... 30
DISTRIBUTION OF THE GROUP POLICIES AND
CERTIFICATES..................................... 30
FEDERAL TAX MATTERS............................... 30
MANAGEMENT........................................ 33
VOTING RIGHTS..................................... 36
Right to Instruct Voting of Fund Shares........... 36
REPORTS........................................... 36
STATE REGULATION.................................. 37
REGISTRATION STATEMENT............................ 37
LEGAL MATTERS..................................... 37
EXPERTS........................................... 37
FINANCIAL STATEMENTS.............................. 37
APPENDIX TO PROSPECTUS............................ 82
</TABLE>
THE GROUP POLICY AND CERTIFICATE ARE NOT AVAILABLE IN ALL STATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. METLIFE 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 METLIFE.
2
<PAGE>
DEFINITIONS
ADMINISTRATIVE OFFICE--The office of MetLife at 177 South Commons Drive,
Aurora, Illinois 60507, to which all Owner communications are to be sent.
MetLife may, by written notice, name other locations within the United States to
serve as designated offices, in place of or in addition to the office above.
AGE--For each covered person in a particular group, Age is defined as of a
day selected by the participating entity and set forth in the Group Policy. Age
can be measured from the Date of the Group Policy or from December 31st of a
given year, or from any other date agreed to by MetLife and the participating
entity.
ALLOCATION DATE--The date the first premium is applied to the Separate
Account pursuant to the designation in the Certificate enrollment form and/or
Group Policy application, as applicable. During the first Group Policy year, it
is set at twenty days after the Investment Start Date with respect to any
Certificate. During this twenty day period the net premium allocated to the
investment divisions of the Separate Account under any new Certificate will be
applied to the Fixed Account. After the first Group Policy year, the Allocation
Date for all new Certificates issued with respect to that Group is the
Investment Start Date.
BENEFICIARY--The beneficiary is the person or persons designated by the
Owner to receive the insurance proceeds upon the death of the covered person.
CASH SURRENDER VALUE--The cash value less any indebtedness and any accrued
and unpaid monthly deduction.
CASH VALUE--The sum of the Certificate cash values in the Fixed Account, the
investment divisions of the Separate Account and the Loan Account.
CERTIFICATE--The group variable universal life insurance certificates issued
under the group variable universal life insurance policy offered by MetLife and
described in this Prospectus.
CERTIFICATE MONTH--The month beginning on the monthly anniversary.
COVERED PERSON--The person upon whose life the Certificate is issued.
DATE OF RECEIPT--The date premiums and communications are actually received
at an Administrative Office. Premium payments and communications will be deemed
to be received on the Date of Receipt with three exceptions: (1) when they are
received on any day that is not a Valuation Date; (2) when they are received by
means other than U.S. mail after the close of regular trading on the New York
Stock Exchange. With regard to (1) and (2) above, the Date of Receipt will be
deemed to be the next Valuation Date. The third exception is the date of receipt
for the first premium payment with regard to each Certificate. In this case, and
subject to the exceptions set forth in (1) and (2) above, the Date of Receipt is
the later of (1) the Date of Certificate and (2) the date the first premium for
a Certificate is received at the Administrative Office.
DATE OF CERTIFICATE--The effective date for life insurance protection under
the Certificate. The Date of Certificate is set forth in the Certificate and is
used to determine Certificate years and Certificate months from issue.
Certificate anniversaries are measured from the Date of Certificate.
DATE OF GROUP POLICY--The date set forth in the Group Policy that is used to
determine Group Policy years and Group Policy months. Group Policy anniversaries
are measured from the Date of Group Policy.
FINAL DATE--The certificate anniversary on which the covered person is age
95 or later if specified in the Certificate.
FIXED ACCOUNT--An account which is part of the General Account and to which
MetLife will allocate net premiums as directed by the Owner or participating
entity, as applicable, and credit certain fixed rates of interest.
GENERAL ACCOUNT--The assets of MetLife other than those allocated to the
Separate Account or any other legally-segregated separate account.
GROUP--A participating entity and all Owners and/or people eligible to
become Owners under the participating entity's Group Policy.
GROUP POLICY--For ease of reference in this Prospectus, this term includes
both the group variable universal life insurance policy that the participating
entity either participates in, is a party to or owns and which is offered by
MetLife and described in this Prospectus together with any administration
agreement entered into between the participating entity and MetLife.
3
<PAGE>
INDEBTEDNESS--The total of any unpaid Certificate loan and loan interest.
INVESTMENT START DATE--The Date of Receipt of the first premium with respect
to a Certificate.
INVESTMENT DIVISION--A subdivision of the Separate Account. The assets in
each investment division are invested exclusively in the shares of a specified
portfolio.
LOAN ACCOUNT--An account within the General Account to which cash value from
the Separate Account and/or the Fixed Account in an amount equal to a
Certificate loan requested by an Owner is transferred.
MINIMUM GROUP SIZE--The minimum number of people in a group that is
necessary before an employer can purchase a Group Policy. The minimum group size
is currently 200 lives; however, MetLife reserves the right to issue a Group
Policy or provide coverage to a participating entity that does not meet the
minimum group size.
MINIMUM SPECIFIED FACE AMOUNT--The minimum specified face amount of
insurance for which a Certificate may be issued. The amount is set forth in the
Certificate. The Certificate will never specify a minimum specified face amount
of less than $10,000.
MONTHLY ANNIVERSARY--The same date in each month as the Date of Group Policy
or the date the Certificate is issued, as applicable. For purposes of the
Separate Account, whenever the monthly anniversary date falls on a date other
than a Valuation Date, the next Valuation Date will be deemed to be the monthly
anniversary.
MONTHLY DEDUCTION--Charges deducted monthly from the cash value of a
Certificate and which include any monthly cost of insurance, monthly cost of
benefits provided by riders and monthly administration charge.
OWNER--The person so designated in the enrollment form for the Certificate
or as subsequently changed.
PAID-UP--An election under the Certificate whereby the Owner may terminate
the death benefit (and any riders in effect) and use all or part of the cash
surrender value as a single premium for a paid-up benefit under the Certificate.
If the paid-up election is made, all or part of the remaining cash value in the
Certificate will be transferred to the General Account and may no longer be
allocated to the Separate Account or the Fixed Account. The Owner will receive
any remaining cash surrender value that is not used to purchase a paid-up
benefit. The paid-up benefit elected must not be more than can be purchased
using the Certificate's cash surrender value or more than the death benefit
under the Certificate at the time the election is made and must not be less than
$10,000.
PLANNED PERIODIC PREMIUM--An Owner's self-determined amount of premium
planned to be paid at fixed intervals over a specified period of time. The Owner
is not required to follow this schedule after the first premium payment.
PORTABLE--A status that occurs when a covered person is no longer part of
the participating entity's group. A Certificate becomes portable when an event
specified in the Certificate occurs. These events may include: termination of
the covered person's employment (other than through retirement) and retirement
as determined by the participating entity, or the sale by the participating
entity of the business unit with which the covered person is employed. An Owner
of a portable Certificate will no longer be deemed to be a member of the
participating entity's group for purposes of determining cost of insurance rates
and charges.
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.
PRO RATA BASIS--Allocations made in the same proportion that the
Certificate's cash value in the Fixed Account and the Certificate's cash value
in each investment division of the Separate Account bear to the Certificate's
total cash value (except for the cash value, if any, in the Loan Account) as of
the Date of Receipt of a request.
SEPARATE ACCOUNT--Metropolitan Life Separate Account UL, a separate
investment account of MetLife through which premiums paid under the Certificate
are invested to the extent allocated to the Separate Account by the Owner.
SPECIFIED FACE AMOUNT--The amount of insurance specified in the Certificate.
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
4
<PAGE>
trading in the Fund's portfolio securities that the current net asset value of
its redeemable securities might be materially affected. Valuations for any date
other than a Valuation Date will be determined as of the next Valuation Date.
VALUATION PERIOD--The period between two successive Valuation Dates,
commencing at the close of regular trading on the New York Stock Exchange, on
each Valuation Date and ending at the close of regular trading on the New York
Stock Exchange, on the next succeeding Valuation Date.
SUMMARY
Unless the context indicates otherwise, this summary and the discussion in
the rest of this Prospectus assume that cash surrender values are sufficient to
pay all charges deducted on monthly anniversaries, that no Certificate loans
have been made and that no riders are in effect (see "Loan Privileges--Effect of
a Certificate Loan," "Payment and Allocation of Premiums--Certificate
Termination and Reinstatement While the Group Policy is in Effect," and
"Appendix to Prospectus").
This Prospectus describes only those aspects of the Certificate that relate
to the Separate Account since only interests in the Separate Account are being
offered by this Prospectus. Aspects of the Fixed Account are briefly summarized
in order to give a better understanding of how the Certificate functions (see
"The Fixed Account").
WHO IS THE ISSUER OF THE GROUP POLICIES AND CERTIFICATES?
MetLife, the issuer of the Group Policies and Certificates, is a mutual life
insurance company. It was incorporated under the laws of the State of New York
in 1866 and since 1868 it has been engaged in the life insurance business under
the name Metropolitan Life Insurance Company. Its Home Office is located at 1
Madison Avenue, New York, New York 10010. It is authorized to transact business
in all states of the United States, the District of Columbia, Puerto Rico and
all Provinces of Canada. MetLife, serving millions of people, is one of the
largest financial services companies in the world with many of the largest
United States corporations for its clients. On December 31, 1997, MetLife had
total life insurance in force of approximately $1.7 trillion and total assets
under management of approximately $330.3 billion.
WHAT ARE SEPARATE ACCOUNT UL, THE FIXED ACCOUNT AND THE METROPOLITAN SERIES
FUND?
The Owner may allocate the net premiums paid under the Certificate to one or
more of the investment divisions of the Separate Account, a separate investment
account of MetLife (see "The Separate Account") and/or to a Fixed Account
established by MetLife. In some cases, however, the participating entity may
select the investment divisions available to Owners. Also, the participating
entity may retain the right to allocate any net premiums it pays unless and
until the covered person retires (as determined by the participating entity) or
the Owner's Certificate becomes portable.
There are currently ten investment divisions available in the Separate
Account. The assets in each division are invested in a separate class (or
series) of stock of the Fund, a "series" type of mutual fund (see "Metropolitan
Series Fund"). Each class of stock represents a separate portfolio within the
Fund. The ten portfolios of the Fund which are currently available to Owners are
the State Street Research Growth Portfolio, the State Street Research Income
Portfolio, the State Street Research Diversified Portfolio, the State Street
Research Aggressive Growth Portfolio, the State Street Research International
Stock Portfolio, the MetLife Stock Index Portfolio, the Loomis Sayles High Yield
Bond Portfolio, the T. Rowe Price Small Cap Growth Portfolio, the Janus Mid Cap
Portfolio and the Scudder Global Equity Portfolio. Net premiums allocated to the
Fixed Account are held in the General Account of MetLife.
Each portfolio of the Fund has a different investment objective and is
managed by MetLife. For providing investment management services to the Fund,
MetLife receives a fee from the Fund for providing investment management
services to each Portfolio. The following chart shows the fee and other Fund
expenses for each Portfolio.
5
<PAGE>
METROPOLITAN SERIES FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS(a))
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT FEES AFTER EXPENSE
(b) REIMBURSEMENT (c) TOTAL
--------------- ----------------- ---------
<S> <C> <C> <C>
MetLife Stock Index Portfolio................................................ .25% .08% .33%
State Street Research Income Portfolio....................................... .33% .10% .43%
State Street Research Diversified Portfolio.................................. .44% .06% .50%
State Street Research Growth Portfolio....................................... .49% .07% .56%
State Street Research Aggressive Growth Portfolio............................ .71% .08% .79%
T. Rowe Price Small Cap Growth Portfolio..................................... .55% .18% .73%
Scudder Global Equity Portfolio.............................................. .90% .22% 1.12%
Loomis Sayles High Yield Bond Portfolio...................................... .70% .20% .90%
Janus Mid Cap Portfolio...................................................... .75% .14% .89%
State Street Research International Stock Portfolio.......................... .75% .28% 1.03%
</TABLE>
- ------------
(a) Except for the annual expenses for the Loomis Sayles High Yield Bond, T.
Rowe Price Small Cap Growth, Scudder Global Equity and Janus Mid Cap
Portfolios which are expressed as a percentage of the year-end net assets.
(b) The marginal fee rate for the State Street Research Income Portfolio, State
Street Research Diversified Portfolio, State Street Research Growth
Portfolio, State Street Research Aggressive Growth Portfolio, State Street
Research International Stock Portfolio, T. Rowe Price Small Cap Growth
Portfolio, Janus Mid Cap Portfolio, and Scudder Global Equity Portfolio
will decrease when the dollar amount in each such Portfolio reaches certain
threshold amounts.
(c) Expenses for the T. Rowe Price Small Cap Growth, Janus Mid Cap, Scudder
Global Equity and Loomis Sayles High Yield Bond Portfolios are based on
estimated amounts for 1998. Metropolitan Life agreed to bear all expenses
(other than management fees, brokerage commissions, taxes, interest and any
extraordinary or non-recurring expenses) in excess of .20% of the net
assets for each of the Loomis Sayles High Yield Bond, T. Rowe Price Small
Cap Growth, Janus Mid Cap and Scudder Global Equity Portfolios until a
Portfolio's total net assets are at least $100 million, or March 2, 1999,
whichever is earlier. Expenses for the Loomis Sayles High Yield Bond and
the Scudder Global Equity Portfolios, absent the expense reimbursement,
would have been .39% and .31%, respectively. Metropolitan Life ceased
subsidizing expenses for the Janus Mid Cap Portfolio as of December 31,
1997 and the T. Rowe Price Small Cap Growth Portfolio as of January 23,
1998, when the Portfolios' assets exceeded $100 million.
For a full description of the Fund, see the prospectus for the Fund, which
is attached at the end of this Prospectus, and the Fund's Statement of
Additional Information referred to therein.
WHAT DEATH BENEFIT IS AVAILABLE UNDER THE CERTIFICATE?
The Certificate provides for the payment of a benefit upon the death of the
covered person. The death benefit is the specified face amount of the
Certificate plus the cash value on the date of death. If greater than the death
benefit otherwise payable, a minimum death benefit equivalent to a percentage of
the cash value, determined by age at death, will be paid. The insurance proceeds
payable will be reduced by any outstanding indebtedness and any accrued and
unpaid charges (see "Certificate Benefits--Death Benefit").
In addition, an Owner has the flexibility to add optional insurance benefits
by riders specified in the Certificate. These may include a waiver of monthly
deduction during total disability rider; an accelerated death benefit rider; an
accidental death benefit rider; an accidental death or dismemberment benefit
rider; and a dependent life benefits rider (see "Certificate Benefits--Optional
Insurance Benefits"). The cost of these optional insurance benefits will be
deducted from the cash value as part of the monthly deduction (see "Charges and
Deductions--Monthly Deduction From Cash Value").
Proceeds under the Certificate may be received in cash or under one of the
available optional income plans described in the Appendix to Prospectus (see
"Certificate Benefits--Optional Income Plans").
WHAT FLEXIBILITY DOES AN OWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT?
The Owner may increase the specified face amount of the Certificate on a
date or dates determined by the participating entity and set forth in the Group
Policy (see "Certificate Benefits"). For employees of a participating entity,
automatic increases in specified face amount will be made in conjunction with
each employee's
6
<PAGE>
salary increase on a date or dates specified by the participating entity. Any
increases in the death benefit are subject to MetLife's underwriting rules (see
"Certificate Benefits--Change in Specified Face Amount"). Any specified face
amount increase also will result in additional charges (see "Certificate
Benefits--Increases" and "Effect of Changes in Specified Face Amount on
Charges"). The specified face amount may also be decreased by the Owner. The
specified face amount may never be less than the minimum specified face amount
set forth in the Certificate. In no event will the specified face amount be less
than $10,000. An increase or decrease in the death benefit may have tax
consequences (see "Federal Tax Matters").
WHAT FLEXIBILITY DOES AN OWNER HAVE IN CONNECTION WITH PREMIUM PAYMENTS?
If elected by a participating entity and authorized by the Owner, premiums
are paid through payroll deduction and are remitted to MetLife by such employer
on at least a monthly basis. A participating entity may limit the availability
of payroll deduction to employees who contribute a minimum monthly amount
specified by the participating entity. If payroll deduction is not available,
the Owner may remit premiums to MetLife directly on a quarterly or annual basis.
Premium payments will not be credited to the Owner's Certificate until received
by MetLife. An Owner has considerable flexibility concerning the amount and
frequency of premium payments. After payment of the first premium, an Owner need
not pay any specific amount of minimum premiums. Instead, an Owner may, subject
to certain restrictions, make premium payments in any amount and at any
frequency. However, the Owner may be required to make an unscheduled premium
payment in order to keep the Certificate in force (see "Payment and Allocation
of Premiums").
WHAT HAPPENS TO CERTIFICATES WHEN THE PARTICIPATING ENTITY'S ACTIVE
PARTICIPATION IN THE GROUP POLICY IS TERMINATED?
If the participating entity or MetLife decides to terminate the
participating entity's participation in the Group Policy, the participating
entity will cease remitting any payroll deductions of premiums. In addition, no
future Certificates will be issued under the Group Policy. The current
Certificates may also be terminated by MetLife under certain circumstances.
There are also circumstances where an Owner may continue the Certificate even
after the participating entity's termination of its participation in the Group
Policy. If the Certificate is not terminated, different current charges may
apply, but the guaranteed charges will not be greater than they were prior to
the termination of the Group Policy (see "Effect of Termination of the Group
Policy Participation on Owners").
IF THE PARTICIPATING ENTITY CONTINUES TO PARTICIPATE IN THE GROUP POLICY, HOW
LONG WILL THE CERTIFICATE REMAIN IN FORCE?
The Certificate will terminate only when its cash surrender value is
insufficient to pay the monthly deduction (see "Charges and Deductions--Monthly
Deduction from Cash Value"), and the grace period expires without a sufficient
payment being made (see "Certificate Termination and Reinstatement While the
Group Policy is in Effect--Termination"). Therefore, failure to pay premiums
will not automatically cause the Certificate to terminate and payment of
premiums does not guarantee that the Certificate will remain in force until its
final date.
HOW ARE NET PREMIUMS ALLOCATED?
The portion of the premium available for allocation ("net premium") equals
the premium paid less the amount of any premium expense charges that are
deducted from that premium payment (see "Charges and Deductions--Premium Expense
Charges"). The participating entity or Owner, as applicable, determines in the
application for the Group Policy or enrollment form for the Certificate,
respectively, what portions, if any, of net premiums paid by each are to be
allocated to the investment divisions of the Separate Account and/or to the
Fixed Account. Allocations with respect to the Fixed Account are effective as of
the Investment Start Date. Allocations with respect to the investment divisions
of the Separate Account are effective as of the Allocation Date, as explained
more fully under "Payment and Allocation of Premiums--Allocation of Premiums and
Cash Value." An Owner or participating entity, as applicable, may change
allocations of future net premiums at any time, without charge by notifying
MetLife in writing, subject to certain limitations (see "Payment and Allocation
of Premiums--Allocation of Premiums and Cash Value"). Because investment
performance of a Separate Account investment division (unlike that of the Fixed
Account) is not guaranteed by MetLife, allocation of net premiums to the
Separate Account investment divisions increases the amount of investment risk to
the Owner,
7
<PAGE>
and allocation to the Fixed Account decreases such risk. On the other hand, the
potential benefit of the Fixed Account is limited to the return guaranteed by
MetLife plus any discretionary return declared by MetLife from time to time.
Subject to certain restrictions, currently, an Owner may transfer amounts
among the investment divisions of the Separate Account or between the Separate
Account and the Fixed Account without charge (see "Charges and Deductions"). In
the first 24 Certificate months, an Owner may transfer the entire amount in the
Separate Account to the Fixed Account without charge (see "Certificate
Rights--Exchange Privilege" and "The Fixed Account Death Benefit, Transfer,
Withdrawal, Surrender, and Certificate Loan Rights"). An Owner may also elect to
participate in one of the systematic investment strategies (see "Allocation of
Premiums and Cash Value--Systematic Investment Strategies").
MAY THE CERTIFICATE BE SURRENDERED OR THE CASH VALUE PARTIALLY WITHDRAWN?
The Owner may surrender the Certificate at any time and receive the cash
surrender value of the Certificate. Subject to certain limitations, the Owner
also may make partial withdrawals from the cash surrender value at any time
prior to the final date (see "Certificate Rights--Surrender and Withdrawal
Privileges"). Certificates under some Group Policies may be subject to a
transaction charge of up to $25 (but not more than 2% of the amount withdrawn).
Surrenders and withdrawals may have certain tax consequences (see "Federal Tax
Matters").
IS THERE A "FREE LOOK" PERIOD?
The Certificate provides for a free-look period that lasts until 10 days
after receipt (except where state law requires a longer period for replacement
policies or other reasons) or 45 days after the enrollment form has been
completed, whichever is later. The Owner may return the Certificate within this
period and MetLife will send the Owner a complete refund of any premiums paid
within 7 days. The refund of any premium paid by check, however, may be delayed
until the check has cleared the Owner's bank.
Following an increase in specified face amount requested by an Owner, there
is a similar free look period that extends until the later of 10 days after the
Owner receives revised Certificate pages reflecting the increase or 45 days
after the request for the increase has been completed. During this period, the
Owner may elect to terminate the increase, and all Certificate values will be
restored to what they would have been had the increase not occurred. MetLife
will also refund the amount of any premiums paid, to the extent necessary for
the Certificate to continue to be within the definition of life insurance for
federal income tax purposes (see "Premiums--Premium Limitations").
WHAT IS THE LOAN PRIVILEGE?
An Owner may obtain a Certificate loan at any time that the Certificate has
a loan value. Loans may be repaid at any time prior to the Final Date (see
"Certificate Rights--Loan Privileges"). Certificates under some Group Policies
may be subject to a transaction charge of up to $25. Loans are not available for
Owners who have exercised the paid-up Certificate provision, except as otherwise
required by law.
WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE CERTIFICATE?
PREMIUM EXPENSE CHARGES. Premium expense charges vary based on the Group
Policy under which the Certificate is issued. These charges may consist of a
charge of the equivalent of .35% of each premium payment to recover a portion of
MetLife's estimated cost for the federal income tax treatment of deferred
acquisition costs ("DAC tax charge") and a state premium tax charge of the
equivalent of up to 5% of each premium payment. These charges may be deducted
either as a percent of premium or as part of the monthly deduction. (See
"Charges and Deductions--Premium Expense Charges").
MONTHLY DEDUCTION. The charges deducted as part of the monthly deduction
can vary based upon the Group Policy under which an Owner's Certificate is
issued. Cash value may be reduced by a monthly deduction equal to the sum of any
applicable: (1) charge for the cost of insurance (MetLife uses simplified
underwriting and guaranteed issue procedures. While the current costs of
insurance rates are generally lower than 100% of the 1980 Commissioners Standard
Ordinary Mortality Table, Males, age last birthday ("1980 CSO Table"), the
guaranteed rates are up to 150% of the rates that could be charged based on the
1980 CSO Table. The use of simplified underwriting and guaranteed issue
procedures may result in the cost of insurance
8
<PAGE>
charges being higher for some healthy individuals); (2) cost of any optional
insurance benefits added by rider; (3) monthly administration charge, which may
be up to $5.00 per Certificate per month as specified in the Certificate and (4)
premium expense charges, as described above. (See "Charges and
Deductions--Monthly Deduction from Cash Value.")
CHARGES AGAINST SEPARATE ACCOUNT. A daily charge equivalent to an effective
annual rate of at least .45% and not to exceed .90% of the average daily value
of the net asset, in the Separate Account which are attributable to the
Certificates is imposed to compensate MetLife for its assumption of certain
mortality and expense risks (see "Charges and Deductions--Charge for Mortality
and Expense Risks").
No charges are currently made against the Separate Account for federal or
state income taxes with respect to earnings or capital gains which may be
attributable to the Separate Account. Should MetLife determine that such taxes
will be imposed, MetLife may make deductions from the Separate Account to pay
these taxes (see "Federal Tax Matters"). The imposition of such taxes would
result in a reduction of the cash value in the Separate Account.
WHAT IS THE TAX TREATMENT OF CASH VALUE?
Cash value under a Certificate is subject to the same federal income tax
treatment as cash value under a conventional fixed benefit life insurance
policy. Under existing tax law, if a Certificate is not a modified endowment
contract as discussed in the following paragraph, a Certificate owner generally
will be taxed on cash value withdrawn from the Certificate, the cash value
received upon surrender of the Certificate or the cash value distributed at the
Final Date of a Certificate only to the extent these amounts, when added to
previous distributions, exceed the total premiums paid. Amounts received upon
surrender or withdrawal or on the Final Date of a Certificate in excess of
premiums paid will be treated as ordinary income.
Special rules regarding taxation, including the imposition of a tax penalty,
govern pre-death withdrawals from life insurance contracts referred to as
modified endowment contracts. For more information, see "Federal Tax Matters."
IS THE BENEFICIARY SUBJECT TO FEDERAL INCOME TAX ON THE DEATH BENEFIT?
Like death benefits payable under conventional fixed benefit life insurance
policies, death benefit proceeds payable under the Certificate under current law
are generally completely excludable from the gross income of the beneficiary for
federal income tax purposes. As a result, the beneficiary generally will not be
taxed on death benefit proceeds (see "Federal Tax Matters").
IS THE DEATH BENEFIT OR THE CASH VALUE SUBJECT TO FEDERAL ESTATE TAX?
The death benefit under the Certificate or the cash value may be subject to
federal estate tax (see "Federal Tax Matters").
HOW SHOULD PREMIUM PAYMENTS, OWNER REQUESTS AND OTHER COMMUNICATIONS BE SENT TO
METLIFE?
Premium payments and other communications (such as transfer requests, loan
requests, loan repayments, withdrawal requests, surrender requests, changes of
beneficiary, changes of the specified face amount, or changes of premium
allocation) should be sent to the Administrative Office for the Certificate.
MetLife may name different Administrative Offices for different transactions. In
the future MetLife may permit transfer and withdrawal or other requests to be
made by telephone.
To exercise rights under a Certificate, the Owner must follow the procedures
stated in the Certificate. To request a payment, change the allocation among the
investment divisions, change the beneficiary, change the specified face amount,
change an address or request any other action by MetLife, the Owner should
utilize the forms prepared by MetLife for each purpose. The forms are available
from the Administrative Offices.
SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND
THE SEPARATE ACCOUNT
The Separate Account, which is a separate investment account of MetLife, was
established by MetLife pursuant to the New York Insurance Law on December 13,
1988. The Separate Account also receives
9
<PAGE>
premium payments in connection with other variable universal life insurance
products issued by MetLife. The assets allocated to the Separate Account are the
property of MetLife, and MetLife is not a trustee by reason of the Separate
Account.
The Separate Account meets the definition of "separate account" under the
federal securities laws. All income, gains and losses, whether or not realized,
from assets allocated to the Separate Account are credited to or charged against
the Separate Account without regard to other income, gains or losses of MetLife.
Each Certificate provides that such portion of the assets in the Separate
Account as equals the liabilities (and reserves) of MetLife with respect to the
Separate Account shall not be chargeable with liabilities arising out of any
other business of MetLife. The liabilities are the actuarially determined amount
of MetLife's total commitments under the Certificates; the reserves are the
assets allocated to pay these commitments. The values of the assets in the
Separate Account will not at any time be less than the sum of all amounts then
allocated to the Separate Account under variable life insurance policies.
MetLife may accumulate in the Separate Account mortality and expense risk
charges, mortality gains and investment gains on those assets (which represent
such charges) in the Separate Account and other amounts in excess of MetLife's
liabilities and reserves with respect to the Separate Account. MetLife may from
time to time transfer to its General Account any assets in the Separate Account
in excess of such reserves and liabilities.
Although the Separate Account is an integral part of MetLife, the Separate
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act").
Registration does not involve supervision of management or investment practices
or policies of the Separate Account or of MetLife by the Commission.
There are currently ten available investment divisions in the Separate
Account. The assets in each investment division are invested in a separate class
(or series) of stock issued by the Fund. Each class of stock represents a
separate portfolio within the Fund. New investment divisions may be added as new
portfolios are added to the Fund and made available to Owners. In addition,
investment divisions may be eliminated from the Separate Account. One division,
whose corresponding portfolio is not listed below, has been eliminated from the
Separate Account.
METROPOLITAN SERIES FUND
The Fund is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission as a diversified open-end management
investment company under the 1940 Act. The Fund has served as the investment
medium for the Separate Account since the Separate Account commenced operations.
A brief summary of the investment objectives of each available Fund portfolio
that may be available to Owners is set forth below.
STATE STREET RESEARCH GROWTH PORTFOLIO: The investment objective of this
portfolio is to achieve long-term growth of capital and income, and moderate
current income, by investing primarily in common stocks that are believed to be
of good quality or to have good growth potential or which are considered to be
undervalued based on historical investment standards.
STATE STREET RESEARCH INCOME PORTFOLIO: The investment objective of this
portfolio is to achieve the highest possible total return, by combining current
income with capital gains, consistent with prudent investment risk and the
preservation of capital, by investing primarily in fixed-income, high-quality
debt securities.
STATE STREET RESEARCH DIVERSIFIED PORTFOLIO: The investment objective of
this portfolio is to achieve a high total return while attempting to limit
investment risk and preserve capital by investing in equity securities, fixed-
income debt securities, or short-term money market instruments, or any
combination thereof, at the discretion of State Street Research.
STATE STREET RESEARCH AGGRESSIVE GROWTH PORTFOLIO: The investment objective
of this portfolio is to achieve maximum capital appreciation by investing
primarily in common stocks (and equity and debt securities convertible into or
carrying the right to acquire common stocks) of emerging growth companies,
undervalued securities or special situations.
10
<PAGE>
STATE STREET RESEARCH INTERNATIONAL STOCK PORTFOLIO: The investment
objective of this portfolio is to achieve long-term growth of capital by
investing primarily in common stocks and equity-related securities of non-United
States companies.
METLIFE STOCK INDEX PORTFOLIO: The investment objective of this portfolio
is to equal the performance of the Standard & Poor's 500 Composite Stock Price
Index (adjusted to assume reinvestment of dividends) by investing in the common
stock of companies which are included in the index.
LOOMIS SAYLES HIGH YIELD BOND PORTFOLIO: The investment objective of this
portfolio is to achieve high total investment return through a combination of
current income and capital appreciation. The Portfolio will normally invest at
least 65% of its assets in fixed income securities of below investment grade
quality.
JANUS MID CAP PORTFOLIO: The investment objective of this nondiversified
portfolio is to provide long-term growth of capital. It pursues this objective
by investing primarily in securities issued by medium sized companies.
T. ROWE PRICE SMALL CAP GROWTH PORTFOLIO: The investment objective of this
portfolio is to achieve long-term capital growth by investing in small
capitalization companies.
SCUDDER GLOBAL EQUITY PORTFOLIO: The investment objective of this portfolio
is to achieve long-term growth of capital through a diversified portfolio of
marketable securities, primarily equity securities, including common stocks,
preferred stocks and debt securities convertible into common stocks. The
Portfolio invests on a worldwide basis in equity securities of companies which
are incorporated in the U.S. or in foreign countries. It also may invest in the
debt securities of U.S. and foreign issuers. Income is an incidental
consideration.
MetLife acts as the investment manager of the Fund. State Street Research &
Management Company ("State Street Research"), a wholly-owned subsidiary of
MetLife, provides sub-investment management services with respect to State
Street Research Growth, State Street Research Income, State Street Research
Diversified, State Street Research International Stock and State Street Research
Aggressive Growth Portfolios. GFM International Investors, Inc. ("GFM"), a
subsidiary of State Street Research, provides sub-sub-investment management
services and has day-to-day investment responsibility with respect to the State
Street Research International Stock Portfolio. Loomis, Sayles & Company, L.P.
("Loomis Sayles"), whose general partner is indirectly owned by MetLife,
provides sub-investment management services with respect to the Loomis Sayles
High Yield Bond Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price")
provides sub-investment management services with respect to the T. Rowe Price
Small Cap Growth Portfolio. Janus Capital Corporation ("Janus") provides
sub-investment management services with respect to the Janus Mid Cap Portfolio.
Scudder Kemper Investments, Inc. ("Scudder") provides sub-investment management
services with respect to the Scudder Global Equity Portfolio. Sub-investment
manager fees are paid by MetLife.
MetLife purchases and redeems Fund shares for the Separate Account at their
net asset value without the imposition of any sales or redemption charges. Such
shares represent an interest in one of the portfolios of the Fund which
correspond to the investment divisions of the Separate Account. Any dividend or
capital gain distributions received from the Fund are likewise reinvested in
Fund shares at net asset value as of the dates paid. The distributions have the
effect of reducing the value of each share of the Fund and increasing the number
of Fund shares outstanding. However, the total cash value in the Separate
Account does not change as a result of such distributions.
On each Valuation Date, shares of each portfolio are purchased or redeemed
by MetLife for the Separate Account, based on, among other things, the amounts
of net premiums allocated to the Separate Account, dividends and distributions
reinvested, transfers to and among investment divisions, Certificate loans, loan
repayments and benefit payments to be effected pursuant to the terms of the
Certificates as of that date. Such purchases and redemptions for the Separate
Account are effected at the net asset value per share for each portfolio
determined as of the close of regular trading on the New York Stock Exchange on
that same Valuation Date.
A full description of the Fund, its investment policies and restrictions,
its charges and other aspects of its operation is contained in the prospectus
for the Fund, which is attached at the end of this Prospectus, and in
11
<PAGE>
the Statement of Additional Information referred to therein. See "The Fund and
its Purpose" in the prospectus for the Fund for a discussion of the different
separate accounts for MetLife and its affiliates that invest in the Fund and the
risks related thereto.
CERTIFICATE BENEFITS
DEATH BENEFIT
As long as the Certificate remains in force, and subject to its terms (see
"Certificate Termination and Reinstatement While the Group Policy is in
Effect--Termination"), MetLife will, upon due proof of the covered person's
death, pay the insurance proceeds of the Certificate to the named beneficiary.
The proceeds may be received by the beneficiary in a single sum or under one or
more of the available optional income plans as described in the Appendix to
Prospectus.
The insurance proceeds are: (a) the death benefit provided on the date of
death; plus (b) any additional insurance on the covered person's life that is
provided by rider; minus (c) any outstanding indebtedness and any accrued and
unpaid charges; and minus (d) certain amounts of death benefit previously
decreased as a result of a claim under a rider to the Policy.
The death benefit is equal to the specified face amount of insurance plus
the cash value.
MINIMUM DEATH BENEFIT--There is a minimum death benefit equal to the greater
of (1) the death benefit and (2) a percentage of the cash value as set forth in
the following table. The minimum death benefit is determined in accordance with
federal income tax laws, to ensure that the Certificate qualifies as a life
insurance contract and that the insurance proceeds will be excluded from the
gross income of the beneficiary.
TABLE
<TABLE>
<CAPTION>
ATTAINED AGE OF
COVERED PERSON AT
THE BEGINNING OF PERCENTAGE OF
THE CERTIFICATE YEAR CASH VALUE
- -------------------------------------- -----------------
<S> <C>
40 and less:.......................... 250%
45:................................... 215%
50:................................... 185%
55:................................... 150%
60:................................... 130%
65:................................... 120%
<CAPTION>
ATTAINED AGE OF
COVERED PERSON AT
THE BEGINNING OF PERCENTAGE OF
THE CERTIFICATE YEAR CASH VALUE
- -------------------------------------- -----------------
<S> <C>
70:................................... 115%
75:................................... 105%
80:................................... 105%
85:................................... 105%
90:................................... 105%
95:................................... 100%
</TABLE>
For the ages not listed, the percentage decreases by a ratable portion for each
full year.
In no event will the death benefit be lower than the minimum amount required
to maintain the Certificate as life insurance under federal income tax law and
applicable Internal Revenue Service rules.
The death benefit provides insurance protection as well as possible build-up
of cash value. The death benefit varies as the cash value changes.
If the covered person dies on a date that is not a Valuation Date, the
amount of death benefit proceeds payable will be determined as of the next
Valuation Date.
CHANGE IN SPECIFIED FACE AMOUNT. Subject to certain limitations, an Owner
may request an increase in the specified face amount of a Certificate on a date
or dates determined by the participating entity and set forth in the Group
Policy (see "Decreases" and "Increases" below). For Owners who are qualifying
employees of employers who are participating entities, automatic increases in
specified face amount will be made in conjunction with each employee's salary
increases on a date or dates determined by the participating entity, unless such
employee notifies MetLife in writing that no such automatic increases are
desired. Any increases in the specified face amount are subject to MetLife's
underwriting rules which may include a requirement for satisfactory evidence of
the covered person's insurability. The specified face amount may also be
decreased
12
<PAGE>
by the Owner. An increase or decrease in the death benefit may have tax
consequences (see "Federal Tax Matters"). Any increase or decrease in the
specified face amount requested by the Owner will become effective on the
monthly anniversary on or next following the date of approval of the request.
DECREASES. The specified face amount remaining in force after any requested
decrease may not be less than the minimum specified face amount as specified in
the Certificate. No decrease in the specified face amount will be permitted if
it would result in total premiums paid exceeding the then current maximum
premium limitations determined by Internal Revenue Code rules (see
"Premiums--Premium Limitations"). For purposes of determining the cost of
insurance charge (see "Charges and Deductions--Cost of Insurance", "Cost of
Insurance Rate", and "Rate Class"), a decrease in the specified face amount will
reduce the specified face amount in the following order: (a) the specified face
amount provided by the most recent increases successively; and (b) the specified
face amount on the Date of Certificate.
INCREASES. Any requirements as to the minimum amount of an increase are
specified in the Certificate. Any increases in specified face amount are subject
to MetLife's underwriting rules.
EFFECT OF CHANGES IN SPECIFIED FACE AMOUNT ON CHARGES. A change in the
specified face amount may affect the net amount at risk which may affect an
Owner's cost of insurance charge (see "Charges and Deductions--Cost of
Insurance", "Cost of Insurance Rate", and "Rate Class"). This in turn can affect
the level of subsequent cash values and death benefit. A change in the specified
face amount may also affect the Certificate's status as a modified endowment
contract for tax purposes (see "Federal Tax Matters").
CASH VALUE
The total cash value of a Certificate at any time is the sum of the
Certificate's cash values in the Fixed Account (see "The Fixed Account"), the
Loan Account (see "Certificate Rights--Loan Privileges"), and the investment
divisions of the Separate Account at such time. The Certificate's cash value in
the Separate Account may increase or decrease on each Valuation Date depending
on the investment return of the chosen investment divisions of the Separate
Account (see "Separate Account Net Investment Return"). There is no guaranteed
minimum cash value in the Separate Account.
CALCULATION OF SEPARATE ACCOUNT CASH VALUE. The portion of the first net
premium allocated to the investment divisions of the Separate Account under a
Certificate that is issued within the first Group Policy year will automatically
be allocated to the Fixed Account from the Investment Start Date to the
Allocation Date. Otherwise, on each Valuation Date, the Certificate's cash value
in an investment division of the Separate Account will equal:
(1) The cumulative amount of all net premium payments, transfers of cash
value, loan repayments and interest credited on Certificate loans that are
allocated to the investment division; minus
(2) Any cash value transferred, surrendered or withdrawn from the
investment division (including transfers to the Loan Account); minus
(3) The portion of all charges and deductions allocated to the
Certificate's cash value in the investment division (see "Charges and
Deductions"); plus or minus
(4) The cumulative net investment return (discussed below) on the amount
of cash value in the investment division.
The Certificate's total cash value in the Separate Account equals the sum of
the Certificate's cash value in each investment division.
SEPARATE ACCOUNT NET INVESTMENT RETURN. An investment division's net
investment return is determined as of the end of each Valuation Date. All
transactions and calculations with respect to the Certificates as of any
Valuation Date are determined as of such time.
Each investment division is credited with a rate of net investment return
equal to its gross rate of investment return during the Valuation Period less
(1) an adjustment for the Separate Account's charge for mortality and expense
risks (equivalent to at least .45% and not more than .90% on an annual basis)
and (2) a charge for MetLife's taxes, if any such tax charge becomes necessary
in the future (see "Charges and
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Deductions--Charges Against the Separate Account"). The investment division's
gross rate of investment return is equal to the rate of increase or decrease in
the net asset value per share of the underlying Fund portfolio over the
Valuation Period, adjusted upward to take appropriate account of any dividends
paid by the portfolio during the period.
Depending primarily on the investment experience of the underlying Fund
portfolio, an investment division's net investment return may be either positive
or negative during a Valuation Period.
PERFORMANCE RANKINGS. From time to time the Separate Account may advertise
its performance ranking information among similar investments as compiled by
Lipper Analytical Services Inc., Morningstar, Inc. and other independent
organizations.
From time to time the Separate Account may compare the performance of its
investment divisions with the performance of common stocks, long-term government
bonds, long-term corporate bonds, intermediate-term government bonds, Treasury
Bills, certificates of deposit and savings accounts. The Separate Account may
use the Consumer Price Index in its advertisements as a measure of inflation for
comparison purposes. In addition, MetLife may advertise ratings assigned by
independent rating agencies that are relevant when considering the guarantees
provided by MetLife.
BENEFIT AT FINAL DATE
If the covered person is living, MetLife will pay to the Owner the cash
value of the Certificate on the Final Date, reduced by any outstanding
indebtedness (see "Certificate Benefits--Cash Value"). The Final Date of a
Certificate is the Certificate anniversary on which the covered person is 95 or
later, if so requested by the Owner and permitted by law (see "Federal Tax
Matters").
OPTIONAL INCOME PLANS
During the covered person's lifetime, the Owner may arrange for the cash
surrender value to be paid in a single sum, in an account that earns interest or
under one or more of the available optional income plans. For more specifics
regarding optional income plans, see the Appendix to Prospectus. These choices
are also available at the Final Date. If no election is made, MetLife will place
the amount in an account that earns interest. The payee will have immediate
access to all or any part of the account.
When the insurance proceeds are payable in a single sum, the beneficiary
may, within one year of the covered person's death, select one or more of the
optional income plans, if no payments have yet been made. If the insurance
proceeds become payable under an optional income plan and the beneficiary has
the right to withdraw the entire amount, the beneficiary may name and change
contingent beneficiaries.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the optional insurance
benefits described in the Appendix to Prospectus, may be included with a
Certificate by rider. The cost of any optional insurance benefits will be
deducted as part of the monthly deduction (see "Charges and Deductions--Monthly
Deduction From Cash Value"). See the Appendix to Prospectus, for a discussion of
how certain riders affect the benefits and the exercise of certain rights under
the Certificate.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A CERTIFICATE
Certificates will only be offered to eligible employees, and their spouses
when provided by the participating entity. Individuals wishing to purchase a
Certificate must complete an enrollment form which must be received in good
order by the Administrative Office before a Certificate will be issued or any
investment return will commence thereunder. A Certificate will not be issued
with a specified face amount less than the Minimum Specified Face Amount.
Acceptance is subject to MetLife's underwriting rules. MetLife reserves the
right to reject an enrollment for any reason permitted by law.
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PREMIUMS
The Owner is not required to pay any specific amount of premiums. MOREOVER
THE PAYMENT OF PREMIUMS WILL NOT GUARANTEE THAT THE CERTIFICATE REMAINS IN
FORCE. Instead, the duration of the Certificate while the Group Policy is in
force depends upon the Certificate's cash surrender value (see "Certificate
Termination and Reinstatement While the Group Policy is in
Effect--Termination").
Premiums will be paid through payroll deduction, where provided by the
participating entity. A participating entity may limit the availability of
payroll deduction to employees who contribute a minimum monthly amount specified
by the participating entity. A participating entity may remit payroll deductions
to MetLife as much as 30 days after the deduction is made. If there is no
payroll deduction available, an Owner may elect to pay the premium quarterly or
annually.
Subject to the minimum and maximum premium limitations described below, an
Owner may make unscheduled premium payments at any time in any amount. The
Certificate, therefore, provides the Owner with the flexibility to vary the
frequency and amount of premium payments to reflect changing financial
conditions.
During the first Group Policy year, the portion of the first premium payment
under each Certificate allocated to investment divisions of the Separate Account
will be allocated to the Fixed Account from the Investment Start Date until the
Allocation Date as discussed in detail under "Allocation of Net Premiums" below.
Thereafter, the portion of a premium payment allocated to the investment
divisions of the Separate Account under such Certificates and any portion of
premium payments allocated to the investment divisions of the Separate Account
under Certificates issued after the first Group Policy year are credited to the
Separate Account as of the Date of Receipt of the premium payment, together with
any necessary allocation instructions in good order from the participating
entity. The portion of each premium payment under each Certificate allocated to
the Fixed Account is credited to the Fixed Account as of the Date of Receipt.
PREMIUM LIMITATIONS. The Certificate will terminate after a grace period
commencing on a monthly anniversary when the cash surrender value is
insufficient to pay the monthly deduction on that date. Except as described
below, the total of all premiums paid, both planned and unplanned, can never
exceed the then current maximum premium limitation determined by Internal
Revenue Code rules relating to the definition of life insurance. If at any time
a premium is paid that would result in total premiums exceeding the then current
maximum premium limitations, MetLife will accept only that portion of the
premium that will make total premiums equal the limit. Any part of the premium
in excess of that amount will be refunded, and no further premiums will be
accepted until allowed by the maximum premium limitations. These limitations
will not apply to any premium that is required to be paid in order to prevent
the Certificate from terminating.
There may be cases where the total of all premiums paid could cause the
Certificate 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 status of a Certificate.
In cases where a Certificate is not an irrevocable modified endowment contract,
the annual statement will indicate what action the Certificate owner can take to
reverse the modified endowment contract status of the Certificate.
The first premium may not be less than the planned periodic premium. Every
unplanned premium payment must be at least $100. Premium payments less than
these minimum amounts will be refunded to the Owner. These minimum premium
limits can be changed by MetLife. No increase will take effect until 90 days
after notice is sent to the Owner.
ALLOCATION OF PREMIUMS AND CASH VALUE
NET PREMIUMS. The net premium equals the premium paid less any premium
expense charges (see "Charges and Deductions--Premium Expense Charges").
ALLOCATION OF NET PREMIUMS. In the enrollment form for a Certificate, the
Owner indicates the initial allocation of net premiums among the Fixed Account
and the investment divisions of the Separate Account. In some cases, the
participating entity retains the right to allocate the portion of any net
premiums it pays rather
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than the Owner pays among the Fixed Account and the investment divisions of the
Separate Account unless and until the covered person retires, as determined by
the participating entity (if the covered person is employed by the participating
entity), or the Certificate becomes portable. The Certificate includes a
description of the Owner's right to allocate net premiums. The minimum
percentage of each premium that may be allocated to the Fixed Account or any
investment division of the Separate Account is 10%. Allocation percentages must
be in whole numbers; for example, 33 1/3% may not be chosen. The Owner may
change the allocation of future net premiums without charge at any time by
providing MetLife with written notification at the Administrative Office. The
change will be effective as of the Date of Receipt of the notice at the
Administrative Office.
A newly-issued Certificate is credited with an investment return commencing
with the date the first premium for that Certificate is received, or, if later,
the Date of Certificate. With one exception, the investment return that
commences on this "Investment Start Date" is based on the allocation among the
Fixed Account and the investment divisions of the Separate Account selected by
the Owner (or, to the extent mentioned in the preceding paragraph, the
participating entity). The one exception is for Certificates that are issued
during the first year that the related Group Policy has been in effect. For
those Certificates, the initial premium payments allocated to the investment
division of the Separate Account will be allocated to and earn the current
interest rate in the Fixed Account during the 20 day period of time from the
Investment Start Date to the Allocation Date. Thereafter, the investment return
is based on the investment allocation selected by the Owner or participating
entity as mentioned above.
The Certificate's cash value in the investment divisions of the Separate
Account will vary with the investment experience of these investment divisions,
and the Owner bears this investment risk. Owners should periodically review
their allocations of net premiums and cash values in light of market conditions
and their overall financial planning requirements.
CASH VALUE TRANSFERS. Except as described below, on and after the
Allocation Date the Owner may transfer cash value among the Fixed Account and
investment divisions of the Separate Account. In some cases, the participating
entity may retain the right to transfer the portion of any cash value
attributable to net premiums it pays rather than the Owner pays among the Fixed
Account and the investment divisions of the Separate Account unless and until
the covered person retires, as determined by the participating entity (if the
covered person is employed by the participating entity) or the Owner's
Certificate becomes portable. In addition, in some cases, the maximum amount
that may be transferred from the Fixed Account in any Certificate year is the
greater of $200 or 25% of the largest amount in the Fixed Account over the last
four Certificate years, or, if the Certificate has been in effect for less than
that period, since the Certificate date. This limit does not apply to a full
surrender, to any loans taken or to any transfers made under a systematic
investment strategy (see "Systematic Investment Strategies").The Certificate
includes a description of the Owner's cash value transfer rights. There is no
charge for transfers.
A transfer must be made in either dollar amounts or a percentage in whole
numbers. The minimum amount that may be transferred is the lesser of $200 or the
total amount in an investment division or, if the transfer is from the Fixed
Account, the total amount in the Fixed Account. Transferring cash value from one
or more investment divisions and/or the Fixed Account into one or more other
investment divisions and/or the Fixed Account counts as one transfer. MetLife
will effectuate transfers and determine all values in connection with transfers
as of the Date of Receipt of written notice at the Administrative Office, except
in the limited circumstances described under "Other Certificate
Provisions--Payment Deferment," and "The Fixed Account--Death Benefit Transfer,
Withdrawal, Surrender and Certificate Loan Rights."
Transfers are not taxable transactions under current law. Transfer requests
must be in writing in a form acceptable to MetLife, or in another form of
communication acceptable to MetLife.
MetLife reserves the right, if permitted by state law, to allow Owners to
make transfer requests by telephone. If MetLife decides to permit this transfer
procedure, and an Owner elects to participate in the transfer procedure, the
following will apply: the Owner will authorize MetLife to act upon the telephone
instructions of any person purporting to be the Owner, assuming MetLife's
procedures have been followed, to make transfers both from amounts in the
Certificate's Fixed Account and in the Separate Account. MetLife will
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institute reasonable procedures to confirm that any instructions communicated by
telephone are genuine. All telephone calls will be recorded, and the Owner will
be asked to produce the Owner's personalized data prior to MetLife initiating
any transfer requests by telephone. Additionally, as with other transactions,
the Owner will receive a written confirmation of any such transfer. Neither
MetLife nor the Separate Account will be liable for any loss, expense or cost
arising out of any requests that MetLife or the Separate Account reasonably
believe to be genuine. In the event that these transfer procedures are
instituted and in the further event that an Owner who has elected to use such
procedures encounters difficulty with them, such Owner should make the request
to the Administrative Office.
SYSTEMATIC INVESTMENT STRATEGIES. For certain groups, MetLife may permit
the Owner to submit a written authorization directing MetLife to make transfers
on a continuing periodic basis from one investment division to another or to the
Fixed Account. The participating entity will be able to inform its employees
whether these investment strategies are available. MetLife currently offers four
such investment strategies: the "Equity Generator," the "Equalizer," the
"Allocator" and the "Rebalancer." Only one of these systematic investment
strategies may be in effect at any one time. The Owner may submit a written
request electing a strategy or directing MetLife to cancel a systematic
investment strategy at any time. The election of any systematic investment
strategy in connection with a Certificate's initial purchase will become
effective on the later of the Allocation Date and the end of the free look
period.
Under the "Equity Generator," Owners may have the interest earned on amounts
in the Fixed Account transferred to the MetLife Stock Index investment division
or the State Street Research Aggressive Growth investment division, as elected
by the Owners. Any such transfer from the Fixed Account to the MetLife Stock
Index investment division or the State Street Research Aggressive Growth
investment division, as applicable, will be made at the beginning of each
Certificate month following the Certificate month in which the interest is
earned. The transfer will only be made for a month during which at least $20.00
in interest is earned. Amounts earned during a month in which less than $20.00
in interest is earned will remain in the Fixed Account.
Under the "Equalizer," at the end of a calendar quarter, a transfer is made
from the MetLife Stock Index investment division or the State Street Research
Aggressive Growth investment division, as elected by the Owner, to the Fixed
Account or from the Fixed Account to such elected investment division in order
to make the Fixed Account and such elected investment division equal in value.
While the "Equalizer" is in effect, any cash value transfer out of such elected
investment division that is not part of this systematic investment strategy will
automatically terminate the "Equalizer" election. The Owner may then reelect the
"Equalizer" strategy commencing on the next Certificate anniversary.
Under the "Allocator," at the beginning of each Certificate month, an amount
designated by the Owner is transferred from the Fixed Account to any investment
division(s) specified by the Owner. The Owner may choose to do this in one of
the following three ways: (1) designating an amount to be transferred from the
Fixed Account each month until amounts in that investment division are
exhausted; (2) designating an amount to be transferred from the Fixed Account
for a certain number of months; or (3) designating a total amount to be
transferred from the Fixed Account in equal monthly installments over a certain
number of months. The Owner's designations must allow the "Allocator" to remain
in effect for at least three months.
Under the "Rebalancer," Owners may elect the periodic redistribution of cash
value so that the cash value is allocated among the Fixed Account and the
investment divisions of the Separate Account in the same proportion as the net
premiums are allocated. MetLife will redistribute the cash value at the
beginning of each calendar quarter.
TERMINATION OF PARTICIPATING ENTITY PARTICIPATION IN THE GROUP POLICY
Participation in the Group Policy will terminate if the participating entity
decides to terminate its participation in the Group Policy. In addition, MetLife
may also terminate the participating entity's participation in the Group Policy
if (1) during any twelve month period, the aggregate specified face amount for
all Owners under the Group Policy or the number of Certificates falls by certain
amounts or below the minimum permissible levels established by MetLife and set
forth in the Certificate or (2) the participating entity makes available to
employees another life insurance product. Both the participating entity and
MetLife must provide ninety days'
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written notice to the other as well to the Owners before terminating
participation in the Group Policy. Termination of participation in the Group
Policy means that the participating entity will no longer remit premiums to
MetLife through payroll deduction and that no new Certificates will be issued
under the participating entity's group. Owners of "portable" Certificates (as
defined in the Certificate) as of the Certificate monthly anniversary next
following the termination of the participating entity's participation in the
Group Policy and Owners who exercised the paid-up Certificate provision as of a
date not later than the last Certificate monthly anniversary immediately prior
to notice of termination being sent to Owners will remain Owners of the
Certificates.
EFFECT OF TERMINATION OF GROUP POLICY PARTICIPATION ON OWNERS
A termination by the participating entity or MetLife of the participating
entity's participation in the Group Policy will not affect Owners whose
Certificates have become portable or who have exercised their paid-up
Certificate option by dates specified in the preceding paragraph. For all other
Owners, the following would apply:
If the participating entity replaces the Group Policy with another life
insurance product that accumulates cash value, Certificates will be terminated
and cash surrender values of each Owner will be transferred to the other life
insurance product. If the Owner does not elect to be covered under the new
product or if the new product does not provide coverage for the Owner, the
Certificate's cash surrender value will be transferred to the Owner.
If the participating entity replaces the Group Policy with a life insurance
product that does not accumulate cash value, Certificates will be terminated and
Owners will receive their cash surrender value. In this case and in any other
case involving termination of the Certificate, Owners may elect to receive an
annuity product from MetLife instead of their cash surrender value.
If the participating entity does not replace the Group Policy with another
life insurance product, then, depending on the terms of the Certificate, Owners
may have the option of electing to become Owners of portable Certificates or
Owners of paid-up Certificates, or Owners may have the option of electing the
standard conversion rights set forth in the Certificate or receiving the cash
surrender value of their Certificates.
If an Owner becomes the Owner of a portable Certificate, the current cost of
insurance may change but will never be higher than the guaranteed cost of
insurance. If an Owner elects the standard conversion rights, insurance provided
will be substantially less (and in some cases nominal) than the insurance
provided under the Certificate. The Owner will receive any cash surrender value
not used to purchase such standard conversion right.
CERTIFICATE TERMINATION AND REINSTATEMENT WHILE THE GROUP POLICY IS IN EFFECT
TERMINATION. If the cash surrender value on any monthly anniversary is
insufficient to cover the monthly deduction, MetLife will notify the Owner and
any assignee of record of that shortfall. The Owner will then have a grace
period of the greater of 61 days, measured from the Certificate monthly
anniversary, or 30 days after the date notice is mailed, to make sufficient
payment. Failure to make a sufficient payment within the grace period will
result in termination of the Certificate without any cash surrender value. If
the covered person dies during the grace period, the insurance proceeds will
still be payable, but any accrued and unpaid monthly deductions will be deducted
from the proceeds.
REINSTATEMENT. Unless the Group Policy is terminated and the Owner would
not have been permitted to retain the Certificate on a portable or paid-up basis
(see "Effect of Termination of Group Policy Participation on Owners"), a
terminated Certificate may be reinstated any time within 3 years (or longer
where required by state law) after the end of the grace period and before the
Final Date by submitting the following items to MetLife: (1) a written request
for reinstatement; (2) evidence of insurability satisfactory to MetLife; and (3)
a premium that, after the deduction of the premium expense charges (see "Charges
and Deductions--Premium Expense Charges"), is large enough to cover the monthly
deductions through the end of the grace period and for at least the two
Certificate months commencing with the effective date of reinstatement.
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Indebtedness on the date of termination will be cancelled and need not be
repaid, but may be reinstated. The amount of cash surrender value on the date of
reinstatement will be determined in the manner set forth in the Certificate.
The date of reinstatement will be the monthly anniversary on or next
following the date of approval of the request. The terms of the original
Certificate, including the insurance rates provided therein, will apply to the
reinstated Certificate. A reinstated Certificate is subject to a new period of
contestability (see "Other Certificate Provisions--Incontestability").
CHARGES AND DEDUCTIONS
To the extent discussed in this section, the charges under the Certificates
for one Group may differ from those for any other group. Because of the
methodology for establishing the mix of charges and product features in the
context of the particular circumstances of each Group, the Certificates issued
in connection with each group are deemed to be a separate class or series.
MetLife incurs many expenses and risks in connection with the Group Policies and
Certificates. It is compensated for these out of all of the charges discussed
below. Although different purposes are ascribed below to different charges, such
distinctions are imprecise. MetLife is free to retain any and all revenues or
profits that result from any of these charges or to apply such revenues or
profits to any other purposes, including any costs and expenses in connection
with the Group Policies and Certificates.
PREMIUM EXPENSE CHARGES.
TAX CHARGES. Two charges are currently made for taxes related to premiums.
These taxes include any federal, state or local taxes measured by or based on
the amount of premiums received by MetLife. A DAC tax charge of the equivalent
of .35% of each premium payment is made to compensate MetLife for its increased
federal income tax burden under the Internal Revenue Code resulting from the
receipt of premiums. An additional charge is made for state premium taxes.
Premium taxes vary from state to state, and may be zero in some cases. One rate
will be charged for each group. The initial charge for each group will be an
estimate of anticipated taxes to be incurred on behalf of each Group Policy
during the first Group Policy year. For each Group Policy year after the first
Group Policy year, the state premium tax charge will be based on anticipated
taxes taking into account actual state and local premium taxes incurred on
behalf of each Group Policy in the prior year and known factors affecting the
coming year's taxes. This charge may vary based on changes in the law or changes
in the residences of the Owners. This charge may vary from the equivalent of 0
to 5% of premium. MetLife will waive state premium taxes for Internal Revenue
Code section 1035 exchanges from any other policy to a Certificate. MetLife will
waive the DAC tax charge for Internal Revenue Code section 1035 exchanges from
another MetLife policy to a Certificate. MetLife does not anticipate making a
profit on this charge. The tax charges may be deducted either as a percent of
premium or as part of the monthly deduction. In the latter case the amount
deducted under any Certificate would depend on the amount of premiums paid by
the Group as a whole rather than on the amount of premiums paid by the
Certificate Owner.
MONTHLY DEDUCTION FROM CASH VALUE
The monthly deduction from cash value includes the cost of insurance charge,
the charge for optional insurance benefits added by rider (see "Certificate
Benefits--Optional Insurance Benefits"), and the administration charges. The
cost of insurance charge, and the administration charges are discussed
separately in the paragraphs that follow. The premium expense charges discussed
above may also be included as part of the monthly deduction. The charges that
comprise the monthly deduction can vary depending upon the Group Policy under
which an Owner's Certificate is issued. The Certificate describes the charges
applicable to each Owner.
The monthly deduction accrues on each monthly anniversary commencing with
the Date of Certificate; however, the actual deduction may be made up to 45 days
after each such monthly anniversary. It will be allocated among the Fixed
Account and each investment division of the Separate Account on a Pro Rata
Basis. See "Payment and Allocation of Premiums--Issuance of a Certificate"
regarding when insurance coverage starts under a newly issued Certificate.
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COST OF INSURANCE. Because the cost of insurance depends upon a number of
variables, it can vary from month to month. MetLife will determine the monthly
cost of insurance charge by multiplying the applicable cost of insurance rate or
rates by the insurance amount for each Certificate month. The insurance amount
for a Certificate month is (a) the death benefit at the beginning of the
Certificate month, less (b) the cash value at the beginning of the Certificate
month.
The insurance amount will be affected by changes in the specified face
amount of the Certificate (see "Certificate Benefits--Death Benefits"). The
insurance amount and therefore the cost of insurance will be greater if the
specified face amount is increased. If the minimum death benefit is in effect
(see "Death Benefit--Minimum Death Benefit"), then the cost of insurance will
vary directly with the cash value.
COST OF INSURANCE RATE. Cost of insurance rates are based on the age and
rate class of the covered person and group mortality characteristics, the
particular characteristics (such as the rate class structure, the degree of
stability in the charges sought by the participating entity and portability
features) under the Group Policy that are agreed to by MetLife and the
participating entity, and the amount of any surplus or reserves to be
transferred to MetLife from any previous insurer or from another MetLife policy
(see "Other Certificate Provisions--Dividends"). The actual monthly cost of
insurance rates will be based on MetLife's expectations as to future experience.
They will not, however, be greater than the guaranteed maximum cost of insurance
rates set forth in the Certificate. These guaranteed rates may be up to 150% of
the rates that could be charged based on the 1980 CSO Table. The maximum
guaranteed rates may be higher than the 1980 CSO Table because MetLife uses
simplified underwriting and guaranteed issue procedures whereby the covered
person may not be required to submit to a medical or paramedical examination,
and may provide coverage to groups that present substandard risk characteristics
according to underwriting criteria. Under certain circumstances a covered person
may be required to submit to a medical or paramedical examination. The current
cost of insurance rates for most groups are lower than 100% of the 1980 CSO
Table. Any change in the cost of insurance rates will apply to all persons of
the same insuring age, rate class and group. MetLife reviews its cost of
insurance rates annually and adjusts the rates from time to time based on
several factors including the number of Certificates in force for each group,
the number of Certificates in the group surrendered or becoming portable during
the period and the actual experience of the group.
RATE CLASS. The rate class of a covered person affects the cost of
insurance rate. MetLife and the participating entity will agree to the number of
classes and characteristics of each class. The classes may vary by smokers and
non-smokers, active and retired status, Owners of portable Certificates and
other Owners, and/or any other nondiscriminatory classes agreed to by the
participating entity. Where smoker and non-smoker divisions are provided, a
covered person who is in the non-smoker division of a rate class will have a
lower cost of insurance than a covered person in the smoker division of the same
rate class, even if each covered person has an identical Certificate.
ADMINISTRATION CHARGE. The administration charge is a charge which may be
up to $5.00 per Certificate per month as specified in the Certificate. The
Certificate will describe the administration charge applicable to each Owner.
This charge will be used to compensate MetLife for expenses incurred in the
administration of the Certificate as a group variable universal life
certificate. These expenses include the cost of processing enrollments,
determining insurability, and establishing and maintaining Certificate records.
Differences in the administration charge rates applicable to different Group
Policies will be determined by MetLife based on expected differences in the
administrative costs under the Certificates or in the amount of revenues that
MetLife expects to derive from the charge. Such differences may result, for
example, from features under each Group Policy that are agreed to by MetLife and
the participating entity; the extent to which certain administrative functions
in connection with the Group Policy are to be performed by MetLife or by the
participating entity; and the expected average Certificate size.
CHARGES AGAINST THE SEPARATE ACCOUNT
CHARGE FOR MORTALITY AND EXPENSE RISKS. A daily charge is made against the
Separate Account for mortality and expense risks assumed by MetLife. The amount
of the charge is equivalent to an effective annual
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rate of at least .45% and is guaranteed not to exceed an effective annual rate
of .90% of the average daily value of the assets in the Separate Account which
are attributable to the Group Policies. MetLife reserves the right, if permitted
by applicable law, to change the structure of mortality and expense risk charge
so that it is charged on a monthly basis as a percentage of cash value
attributable to the Separate Account or so that it is charged as a component of
the monthly deduction.
The mortality risk assumed is that covered persons may live for a shorter
period of time than estimated and, thus, a greater amount of death benefits than
expected will be payable. The expense risk assumed is that expenses incurred in
issuing and administering the Certificates will be greater than estimated.
MetLife will realize a gain if the charges prove ultimately to be more than
sufficient to cover the actual costs of such mortality and expense commitments.
If the charges are not sufficient, the loss will fall on MetLife. If its
estimates of future mortality and expense experience are accurate, MetLife
anticipates that it will realize a profit from the mortality and expense risk
charge; however if such estimates are inaccurate, MetLife could incur a loss.
Differences in the mortality and expense risk charge rates applicable to
different Group Policies will be determined by MetLife based on differences in
the levels of mortality and expense risks under those Group Policies.
Differences in mortality and expense risk arise principally from the fact that
(a) the factors discussed above under "Monthly Deduction From Cash Value" on
which the cost of insurance and administration charges are based are more
uncertain in some cases than in others and (b) MetLife's ability to recover any
unexpected mortality and administrative expense costs from the cost of insurance
and administration charges will also vary from case to case depending on the
maximum rates for such charges agreed upon by MetLife and the participating
entity. MetLife will determine cost of insurance, administration, and mortality
and expense risk charge rates pursuant to its established actuarial procedures,
and in doing so MetLife will not discriminate unreasonably or unfairly against
Owners of Certificates under any Group Policy.
CHARGE FOR INCOME TAXES. Currently, no charge is made against the Separate
Account for income taxes. However, MetLife may decide to make such a charge in
the future (see "Federal Tax Matters").
GUARANTEE OF CERTAIN CHARGES
MetLife guarantees, and may not increase the rates specified in the
Certificate for the following charges: the charge for the estimated cost of
Federal income tax treatment of deferred acquisition costs, apart from any
change in the law; the maximum cost of insurance charge; the maximum
administration charge; and the maximum charge for mortality and expense risks
with respect to the Certificates.
OTHER CHARGES
FUND INVESTMENT MANAGEMENT FEE AND EXPENSES. Shares of the Fund are
purchased for the Separate Account at their net asset value, which reflects Fund
fees and expenses as described more fully under "What are Separate Account UL,
the Fixed Account and the Metropolitan Series Fund?" and in the attached
prospectus for the Fund.
The Certificates do not impose any charges for sales expenses. Such expenses
will be paid from other sources, including any excess accumulated charges for
mortality and expense risks under the Certificates, any other gains attributable
to operations with respect to the Certificates and MetLife's general assets and
surplus.
ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES AND ACCUMULATED PREMIUMS
The tables in this section illustrate the way in which a Certificate's death
benefit and cash value could vary over an extended period of time assuming that
all premiums are allocated to and remain in the Separate Account for the entire
period shown and hypothetical gross investment rates of return for the Fund
(i.e., investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross (after tax) annual rates of 0%, 6% and 12%. The
tables are based on the payment of monthly premiums (see "Premiums--Premium
Limitations"), for a specified face amount of $100,000 for an individual who is
age 40. The illustrations assume no Certificate loans have been made; therefore
cash surrender values for the
21
<PAGE>
guaranteed illustrations would be $25 less than the cash values shown due to the
deduction of a surrender transaction charge, and cash surrender values for the
current illustrations would be equal to the cash values shown because it is
assumed that no surrender transaction charge is deducted.
The guaranteed insurance policy charges illustrations assume: (1) that the
covered person is in a rate class that has maximum guaranteed cost of insurance
charges equal to the maximum rates that could be charged (150% of the 1980 CSO
Table); (2) a $5.00 per Certificate per month administration charge; (3) a .35%
DAC tax charge; (4) a 5.0% premium tax rate; (5) a daily charge against the
Separate Account for mortality and expense risks equivalent to an effective
annual rate of .90% of the average daily value of the assets in the Separate
Account attributable to the Certificates; and (6) a surrender transaction charge
of $25.
The current insurance policy charges illustrations assume: (1) that the
covered person is in a rate class that does not distinguish between smoker and
nonsmoker and has current standardized cost of insurance charges as set forth in
the following table:
<TABLE>
<CAPTION>
MONTHLY CURRENT COST
OF INSURANCE RATE
- ---------------------------------------
RATE PER THOUSAND DOLLARS
AGE OF INSURANCE
- ---------- ---------------------------
<S> <C>
40 to 44 $ 0.17
45 to 49 $ 0.29
50 to 54 $ 0.48
55 to 59 $ 0.75
60 to 64 $ 1.17
65 to 69 $ 2.10
</TABLE>
Comparable illustrations for a covered person in MetLife's standard smoker
underwriting risk classification or in a substandard risk classification would
show lower cash values and, therefore, a lower death benefit. Conversely,
comparable illustrations for a covered person in MetLife's standard nonsmoker
underwriting risk classification would show higher cash values and cash
surrender values and, therefore, a higher death benefit; (2) a $2.00 per
Certificate per month administration charge; (3) a .35% DAC tax charge; (4) a
2.5% premium tax rate; (5) a daily charge against the Separate Account for
mortality and expense risks equivalent to an effective annual rate of .45% of
the average daily value of the assets in the Separate Account attributable to
the Certificates; and (6) no surrender transaction charge.
The amounts shown for the death benefits and cash values also take into
account the daily charge to the Fund for investment management services
equivalent to an annual rate of .59% of the average daily value of the aggregate
net assets of the available Fund portfolios (an average of the rates for the ten
available portfolios of the Fund) and .14% for other direct expenses of the
available Fund portfolios (the average of the expenses indicated in the chart of
"Metropolitan Series Fund Annual Expenses" under "What are Separate Account UL,
the Fixed Account, and the Metropolitan Series Fund?"). Taking account of the
charges for investment management services, other Fund expenses and the current
charge for mortality and expense risks, the gross annual investment rates of
return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.17%,
4.80% and 10.77%, respectively. With the guaranteed charges, the gross annual
investment rates of return of 0%, 6% and 12% correspond to actual (or net)
annual rates of: -1.62%, 4.33% and 10.28%, respectively.
The guaranteed maximum charge illustration is based on rates charged under a
hypothetical representative standard Group Policy; the current charge
illustrations are based on rates that would be representative of such a Group
Policy (see "Monthly Deduction From Cash Value--Cost of Insurance Rate"). The
actual maximum current charge rates can be expected to vary from one Group
Policy to another.
The second column of the tables shows the amount which would accumulate if
an amount equal to the annual planned premium were invested to earn interest,
after taxes, at 5% compounded annually.
Upon request, MetLife will furnish an illustration reflecting the proposed
covered person's age, Certificate charges, the specified face amount or premium
amount requested, frequency of premium payments, and any available rider
requested.
22
<PAGE>
GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1)
ISSUE AGE 40
SPECIFIED FACE AMOUNT: $100,000
GUARANTEED INSURANCE POLICY CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2)
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF
CERTIFICATE INTEREST --------------------------------- ---------------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------ ----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................ $ 1,232 $ 597 $ 616 $ 635 $100,597 $100,616 $100,635
2............................ 2,526 1,145 1,219 1,294 101,145 101,219 101,294
3............................ 3,885 1,640 1,802 1,974 101,640 101,802 101,974
4............................ 5,311 2,080 2,362 2,673 102,080 102,362 102,673
5............................ 6,809 2,462 2,893 3,390 102,462 102,893 103,390
6............................ 8,382 2,784 3,391 4,123 102,784 103,391 104,123
7............................ 10,033 3,042 3,851 4,869 103,042 103,851 104,869
8............................ 11,767 3,234 4,267 5,627 103,234 104,267 105,627
9............................ 13,588 3,358 4,634 6,393 103,358 104,634 106,393
10........................... 15,499 3,407 4,941 7,159 103,407 104,941 107,159
15........................... 26,590 2,201 5,089 10,575 102,201 105,089 110,575
20........................... 40,746 0(3) 1,332 11,612 0(3) 101,332 111,612
25........................... 58,812 0(3) 0(3) 6,329 0(3) 0(3) 106,329
30........................... 81,870 0(3) 0(3) 0(3) 0(3) 0(3) 0(3)
</TABLE>
- ---------
(1) Assumes monthly payments of $100 paid at the beginning of each Certificate
month. 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. Excessive loans or
withdrawals, adverse investment performance or insufficient premium payments
may cause the Certificate to terminate because of insufficient cash value.
(3) Zero value in cash value, cash surrender value and death benefit indicate
termination of insurance coverage in the absence of a sufficient additional
premium payment; see "Payment and Allocation of Premiums--Termination," for
further details.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER
AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT,
CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE 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 CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH
VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY
METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
23
<PAGE>
GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1)
ISSUE AGE 40
SPECIFIED FACE AMOUNT: $100,000
CURRENT INSURANCE POLICY CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2)
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF
CERTIFICATE INTEREST ----------------------------- --------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
- ------------------------------ ----------- --------- ------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................ $ 1,232 $ 932 $ 962 $ 992 $100,932 $100,962 $100,992
2............................ 2,526 1,853 1,970 2,090 101,853 101,970 102,090
3............................ 3,885 2,763 3,027 3,307 102,763 103,027 103,307
4............................ 5,311 3,662 4,134 4,655 103,662 104,134 104,655
5............................ 6,809 4,551 5,294 6,148 104,551 105,294 106,148
6............................ 8,382 5,286 6,363 7,650 105,286 106,363 107,650
7............................ 10,033 6,013 7,482 9,313 106,013 107,482 109,313
8............................ 11,767 6,731 8,656 11,155 106,731 108,656 111,155
9............................ 13,588 7,441 9,885 13,196 107,441 109,885 113,196
10........................... 15,499 8,142 11,174 15,457 108,142 111,174 115,457
15........................... 26,590 10,421 17,319 29,489 110,421 117,319 129,489
20........................... 40,746 10,996 23,257 50,767 110,996 123,257 150,767
25........................... 58,812 9,093 27,919 82,950 109,093 127,919 182,950
30........................... 81,870 1,883 27,511 129,308 101,883 127,511 229,308
</TABLE>
- ---------
(1) Assumes monthly payments of $100 paid at the beginning of each Certificate
month. 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. Excessive loans or
withdrawals, adverse investment performance or insufficient premium payments
may cause the Certificate to terminate because of insufficient cash value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER
AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT,
CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE 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 CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH
VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY
METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
24
<PAGE>
CERTIFICATE RIGHTS
LOAN PRIVILEGES
CERTIFICATE LOAN. At any time, the Owner may borrow money from MetLife
using the Certificate as the only security for the loan. Certificates under some
Group Policies may be subject to a transaction charge of up to $25 for each
loan. The smallest amount the Owner can borrow at any one time is $200. The
maximum amount that may be borrowed at any time is the loan value. The loan
value equals 75% (or higher where required by state law) of the cash surrender
value. For situations where a Certificate loan may be treated as a taxable
distribution, see "Federal Tax Matters."
ALLOCATION OF CERTIFICATE LOAN. MetLife will allocate a Certificate loan
among the Fixed Account and the investment divisions of the Separate Account on
a Pro Rata Basis.
INTEREST. Interest charges can vary depending upon the Group Policy under
which an Owner's Certificate is issued. The Certificate describes the interest
charges applicable to each Owner. The interest rate may be up to 8% per year.
The Certificate specifies the current interest rate applicable to each Owner.
Interest payments are generally due at the beginning of each Certificate year.
However, MetLife reserves the right to make interest payments due in a different
manner. If unpaid within 31 days after it is due, interest will be treated as a
new loan subject to the interest rates applicable at that time and an amount
equal to such interest due will be transferred from the Fixed Account and the
investment divisions of the Separate Account on a Pro Rata Basis to the Loan
Account. Generally, interest paid to MetLife in connection with Certificate
loans is not deductible. For further information with respect to loan interest
deductibility, counsel and other competent advisors should be consulted.
EFFECT OF A CERTIFICATE LOAN. As of the Date of Receipt of the loan
request, cash value equal to the portion of the Certificate loan allocated to
the Fixed Account and to each investment division will be transferred from the
Fixed Account and/or such investment divisions to the Certificate Loan Account,
reducing the Certificate's cash value in the accounts from which the transfer
was made. The transfer will be allocated among the Fixed Account and investment
divisions of the Separate Account on a Pro Rata Basis (see "Charges and
Deductions--Monthly Deduction from Cash Value").
Cash value in the Loan Account equal to indebtedness will be credited with
interest at a rate equal to the rate of loan interest charged less a percentage
charge, determined by MetLife. This charge may be up to 2%. Thus, the interest
rate credited may be up to 8%. The Certificate indicates the current charge
applicable to each Owner and the current interest rate credited to the amounts
in the Loan Account. The minimum rate credited to the Loan Account will be 4%
per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO THE CASH VALUE IN THE LOAN
ACCOUNT, NOR WILL THE CASH VALUE IN THE LOAN ACCOUNT PARTICIPATE IN ANY
INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT.
The Certificate's cash value in the Loan Account will be the outstanding
indebtedness on the Valuation Date plus any interest credited to the Loan
Account which has not yet been allocated to the Fixed Account or the investment
divisions of the Separate Account as of the Valuation Date. Interest credited to
amounts in the Loan Account will be allocated at least once a year among the
Fixed Account and the investment divisions of the Separate Account in the same
proportion as the net premiums are then being allocated.
INDEBTEDNESS. Indebtedness equals the outstanding Certificate loan and loan
interest. If, on a monthly anniversary, indebtedness exceeds the cash value
minus the monthly deduction, MetLife will notify the Owner and any assignee of
record. If a sufficient payment is not made to MetLife within the greater of 61
days, measured from the such monthly anniversary, or 30 days after the date
notice of the start of the grace period is mailed, the Certificate will
terminate without value. The Certificate may, however, later be reinstated,
subject to certain conditions (see "Certificate Termination and Reinstatement
While the Group Policy is in Effect").
REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the
Final Date while the covered person is living. If not repaid, MetLife will
deduct indebtedness from any amount payable under the Certificate. As of the
Date of Receipt of the repayment, the Certificate's cash value in the
Certificate Loan Account securing indebtedness will be allocated among the Fixed
Account and the investment divisions of the
25
<PAGE>
Separate Account in the same proportion that net premiums are being allocated to
those accounts at the time of repayment. The Owner should designate whether a
payment is intended as a loan repayment or a premium payment. Any payment for
which no designation is made will be treated as a premium payment.
SURRENDER AND WITHDRAWAL PRIVILEGES
Subject to the limitations set forth below, at any time before the earlier
of the death of the covered person and the Final Date, the Owner may make a
partial withdrawal or totally surrender the Certificate by sending a written
request to Administrative Office. The maximum amount available for surrender or
withdrawal is the cash surrender value on the Date of Receipt of the request.
Certificates under some Group Policies may be subject to a transaction charge of
up to $25 (but no more than 2% of the amount withdrawn) for each surrender,
withdrawal or partial withdrawal. This charge would be used to defray MetLife's
costs on effecting the transaction and it would not be designed to yield any
profit to MetLife. No transaction charge will apply to the termination of a
Certificate due to the termination of the Group Policy by either the
participating entity or MetLife. For any tax consequences in connection with a
partial withdrawal or surrender, see "Federal Tax Matters."
SURRENDER. The Owner may surrender the Certificate for its cash surrender
value. If the Certificate is being surrendered, MetLife may require that the
Certificate itself be returned along with the request. An Owner may elect to
have the proceeds paid in a single sum. If the covered person dies after the
surrender of the Certificate and payment to the Owner of the cash surrender
value but before the end of the Certificate month in which the surrender
occurred, a death benefit will be payable to the beneficiary in an amount equal
to the difference between the Certificate's death benefit and cash value, both
computed as of the surrender date.
PARTIAL WITHDRAWALS. The Owner may make a partial withdrawal from the
Certificate's cash surrender value. The minimum partial withdrawal is $200. The
amount withdrawn will be deducted from the Certificate's cash value as of the
Date of Receipt. The amount will be deducted from the Fixed Account and the
investment divisions of the Separate Account on a Pro Rata Basis. The death
benefit will be reduced by the amount withdrawn.
In some cases, the maximum amount that may be withdrawn through a partial
withdrawal from the Fixed Account in any Certificate year is the greater of $200
or 25% of the largest amount in the Fixed Account over the last four Certificate
years, or, if the Certificate has been in force less than such period, since the
Date of Certificate. The Certificate includes a description of the Owner's
rights to make partial withdrawals.
EXCHANGE PRIVILEGE
During the first 24 Certificate months following the issuance of the
Certificate, the Owner may exercise the Certificate exchange privilege, which
results in the transfer at any one time of the entire amount in the Separate
Account to the Fixed Account, and the allocation of all future net premiums to
the Fixed Account. This will, in effect, serve as an exchange of the Certificate
for the equivalent of a flexible premium fixed benefit life insurance policy. No
charge will be imposed on such transfer in exercising this exchange privilege.
Moreover, the Owner may subsequently transfer amounts back to one or more of the
investment divisions of the Separate Account at any time, within the limitations
described in "Allocation of Premiums and Cash Value--Cash Value Transfers."
Similarly, during the first 24 months following an increase in the specified
face amount requested by the Owner, the Owner may request a one time charge-free
transfer of the Separate Account cash value attributable to the increase to the
Fixed Account, including a transfer in the amount of any premium payments that
have been deemed attributable to the increase.
In those states which require it, the Owner may also, during the first 24
Certificate months following the issuance of the Certificate, without charge, on
one occasion exchange any Certificate still in force for a flexible premium
fixed benefit life insurance policy issued by MetLife. Upon such exchange, the
Certificate's cash value will be transferred to the General Account of MetLife.
26
<PAGE>
THE FIXED ACCOUNT
An Owner may allocate net premiums and transfer cash value to the Fixed
Account, which is part of the General Account of MetLife. Because of exemptive
and exclusionary provisions, interests in the Fixed Account have not been
registered under the Securities Act of 1933 and neither the Fixed Account nor
the General Account has been registered as an investment company under the 1940
Act. Accordingly, neither the General Account, the Fixed Account nor any
interests therein are generally subject to the provisions of these Acts and
MetLife has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this Prospectus relating to the
Fixed Account. Disclosures regarding the Fixed Account may, however, be subject
to certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
This Prospectus is generally intended to serve as a disclosure document only
for the aspects of the Group Policy and Certificates involving the Separate
Account and contains only selected information regarding the Fixed Account. For
complete details regarding the Fixed Account, see the Certificate.
Subject to applicable law, MetLife has sole discretion over the investment
of the assets of the General Account, including those in the Fixed Account.
Unlike the assets of the Separate Account, the assets in the Fixed Account, as a
part of the General Account, are chargeable with liabilities arising out of any
other business of MetLife.
The allocation or transfer of funds to the Fixed Account does not entitle an
Owner to share in the investment experience of the General Account. Instead,
MetLife guarantees that cash value in the Fixed Account will accrue interest at
an effective annual rate of at least 4%, independent of the actual investment
experience of the General Account. MetLife is not obligated to credit interest
at any higher rate, although MetLife may do so, in its sole discretion.
FIXED ACCOUNT CASH VALUE
Net premiums allocated to the Fixed Account are credited to the Certificate.
The Certificate's cash value in the Fixed Account will reflect the amount and
frequency of premium payments allocated to the Fixed Account, the amount of
interest credited to amounts in the Fixed Account, any partial withdrawals, any
transfers from or to the investment divisions of the Separate Account, any
Certificate indebtedness and any charges imposed on amounts in the Fixed Account
in connection with the Certificate. ANY INTEREST METLIFE CREDITS ON THE
CERTIFICATE'S CASH VALUE IN THE FIXED ACCOUNT IN EXCESS OF THE GUARANTEED RATE
OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF METLIFE. THE OWNER
ASSUMES THE RISK THAT INTEREST CREDITED TO AMOUNTS OF CASH VALUE IN THE FIXED
ACCOUNT MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 4% PER YEAR. The cash
value in the Fixed Account will be calculated on each Valuation Date.
MetLife will declare a rate of excess interest which is guaranteed until the
end of the calendar year in which the Group Policy first becomes effective.
Thereafter, as of January 1 of each year, MetLife will declare the rate of
excess interest applicable to net premium payments allocated to the Fixed
Account during each such year. As of January 1 of each year, MetLife will also
declare the rate of excess interest applicable to cash value in the Fixed
Account. MetLife may also establish multiple bands of excess interest. This
means that different rates of excess interest may apply to premium payments
received in different years. Transfers made into the Fixed Account will be
treated as new premium payments for these purposes.
The guaranteed and excess interest are credited each Valuation Date. Once
credited, that interest will be guaranteed and become part of the Certificate's
cash value in the Fixed Account. The portion of the monthly deduction that is
deducted from the Fixed Account will be charged against the most recent premiums
paid and interest credited thereto.
27
<PAGE>
DEATH BENEFIT, TRANSFER, WITHDRAWAL, SURRENDER, AND CERTIFICATE LOAN RIGHTS
Amounts in the Fixed Account are generally subject to the same rights and
limitations as are amounts allocated to the investment divisions of the Separate
Account with respect to transfers, withdrawals, surrenders and Certificate loans
(see "Certificate Benefits--Death Benefit," "Allocation of Premiums and Cash
Value--Cash Value Transfers," "Loan Privileges" and "Surrender and Withdrawal
Privileges"). However, transfers from the Fixed Account may be subject to
additional limitations as described under "Allocation of Premiums and Cash
Value."
MetLife reserves the right to delay transfers, withdrawals, surrenders and
the payment of the Certificate loans allocated to the Fixed Account for up to
six months (see "Other Certificate Provisions--Payment and Deferment"). Payments
to pay premiums on another policy with MetLife will not be delayed.
RIGHTS RESERVED BY METLIFE
MetLife reserves the right to make certain changes if, in its judgment, they
would best serve the interests of the Owners or would be appropriate in carrying
out the purposes of the Certificates. Any changes will be made only to the
extent and in the manner permitted by applicable laws. Also, when required by
law, MetLife will obtain Owner approval of the changes and approval from any
appropriate regulatory authority. Examples of the changes MetLife may make
include:
- To operate the Separate Account in any form permitted under the 1940 Act
or in any other form permitted by law.
- To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act.
- To transfer any assets in any investment division to another investment
division, or to one or more separate accounts, or to the Fixed Account; or
to add, combine or remove investment divisions in the Separate Account.
- To substitute, for the Fund shares held in any investment division, the
shares of another portfolio of the Fund or the shares of another
investment company or any other investment permitted by law.
- To change the way MetLife assesses charges, but without increasing the
aggregate amount charged to the Fixed Account or the Separate Account in
connection with the Certificates.
- To make any other necessary technical changes in the Certificate in order
to conform with any action the above provisions permit MetLife to take.
If any of these changes result in a material change in the underlying
investments of an investment division to which the net premiums of a Certificate
are allocated, MetLife will notify the Owner of such change, and the Owner may
then make a new choice of investment divisions or the Fixed Account without
charge.
OTHER CERTIFICATE PROVISIONS
OWNER. The Owner of a Certificate is the covered person unless another
owner has been named in the enrollment form for the Certificate. Unless
otherwise reserved by the participating entity, the Owner is entitled to
exercise all rights under a Certificate while the covered person is alive,
including the right to name a new owner or a contingent owner who would become
the owner if the Owner should die before the covered person dies.
BENEFICIARY. The beneficiary is the person or persons to whom the insurance
proceeds are payable upon the covered person's death. The Owner may name a
contingent beneficiary to become the beneficiary if all the beneficiaries die
while the covered person is alive. If no beneficiary or contingent beneficiary
is alive when the covered person dies, the Owner (or the Owner's estate) will be
the beneficiary. While the covered person is alive, the Owner may change any
beneficiary or contingent beneficiary.
If more than one beneficiary is alive when the covered person dies, they
will be paid in equal shares, unless the Owner has chosen otherwise.
28
<PAGE>
INCONTESTABILITY. MetLife will not contest the validity of a Certificate
after it has been in force during the covered person's lifetime for up to two
years from the Date of Certificate (or date of reinstatement if a terminated
Certificate is reinstated) except with respect to certain optional insurance
benefits that may be added subsequent to the Date of Certificate. MetLife will
not contest the validity of any increase requested by an Owner in the death
benefit after such increase has been in force during the covered person's
lifetime for up to two years from its effective date.
SUICIDE. The insurance proceeds will not be paid if the covered person
commits suicide, while sane or insane, within two years (or less if required by
state law) from the Date of Certificate. Instead, MetLife will pay the
beneficiary an amount equal to all premiums paid for the Certificate, without
interest, less any outstanding Certificate loan and less any partial cash
withdrawal. If the covered person commits suicide, while sane or insane, more
than two years after the Date of Certificate but within two years (or less if
required by state law) from the effective date of any increase in the death
benefit, MetLife's liability with respect to such increase will be limited to
the cost thereof.
MISSTATEMENT OF AGE. If the covered person's age as stated in the
enrollment form for a Certificate is not correct, benefits under a Certificate
will be adjusted to reflect the correct age.
ASSIGNMENT. The Owner may assign a Certificate as collateral. All rights
under the Certificate will be transferred to the extent of the assignee's
interest. MetLife is not bound by an assignment or release thereof, unless it is
in writing and is recorded at the Administrative Office. MetLife is not
responsible for the validity of any assignment or release thereof. Any
assignment or other transfer of rights under a Certificate may have adverse tax
consequences, causing the death benefit to become taxable to the beneficiary, or
causing all or part of any value assigned to be taxed as a distribution to the
Owner. Therefore, it is very important to consult with a qualified tax adviser
before making any assignment.
PAYMENT AND DEFERMENT. With respect to amounts in the investment divisions
of the Separate Account, payment of the death benefit, all or a portion of the
cash surrender value, free look proceeds or a loan will ordinarily be made
within seven days after the Date of Receipt of all documents required for such
payment. MetLife will pay interest on the amount of death benefit at a rate
which is currently 6% per year (or such higher rate as may be required by state
law) from the date of death until the date of payment of the death benefit.
However, MetLife may defer the determination, application or payment of any
such amount or any transfer of cash value in the Separate Account for any period
during which the New York Stock Exchange is closed (other than customary weekend
and holiday closing), for any period during which any emergency exists as a
result of which it is not reasonably practicable for MetLife to determine the
investment experience for a Certificate or for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
Owners. MetLife will not defer a loan used to pay premiums on other policies or
certificates issued by it.
As with traditional life insurance, MetLife can delay payment of the entire
insurance proceeds or other Certificate benefits if entitlement to payment is
being questioned or is uncertain. Metropolitan Life may also defer payment of
any amounts attributable to a check for a reasonable time (not more than 15
days) to allow the check to clear.
DIVIDENDS. The Group Policies and Certificates are participating. However,
in view of the manner in which MetLife has determined the premium rates and
charges, it is not anticipated that the Group Policies and Certificates will be
entitled to any dividend. In this connection, when a participating entity
transfers coverage from a prior insurer or from a different MetLife policy to a
Group Policy, or transfers coverage from a Group Policy to a successor insurer,
certain amounts of surplus or reserves may also be transferred, respectively, to
MetLife for use with the Group Policy or to the successor insurance company,
rather than being declared as dividends.
The description throughout this Prospectus of the features of the
Certificates is subject to the specific terms of the Certificates.
29
<PAGE>
SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES
MetLife performs the sales and administrative services relating to the Group
Policies and Certificates. The offices of MetLife which administer the Group
Policies and Certificates are located in Aurora, Illinois and Tulsa, Oklahoma.
Each participating entity and Owner will be notified which office will be the
Administrative Office for servicing the Certificates. MetLife may name different
Administrative Offices for different transactions.
MetLife acts as the principal underwriter (distributor) of the Group
Policies and Certificates as defined in the 1940 Act (see "Distribution of the
Group Policies and Certificates"). In addition to selling insurance and
annuities, MetLife also serves as investment adviser to certain other advisory
clients, and is also principal underwriter for Metropolitan Tower Separate
Accounts One and Two of Metropolitan Tower Life Insurance Company, a
wholly-owned subsidiary of MetLife, and Metropolitan Life Separate Account E of
MetLife, each of which is registered as a unit investment trust under the 1940
Act. Finally, MetLife acts as principal underwriter for other forms of variable
universal life insurance policies, premiums for which may also be allocated to
the Separate Account.
Certain computer systems MetLife uses to process Policy and Certificate
transactions and valuations need to be adjusted to be able to continue to
administer Policies and Certificates beginning January 1, 2000. As is the case
with most system conversion projects, risks and uncertainties exist, due in part
to reliance on third party vendors, and a project could be delayed. MetLife is,
however, devoting substantial resources necessary to make these systems
modifications and expects that the necessary changes will be completed on time
and in a way that will result in no disruption to Policy and Certificate
servicing operations.
BONDING. The directors, officers and employees of MetLife are bonded in the
amount of $50,000,000, subject to a $5,000,000 deductible.
DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES
The Group Policies and Certificates will be sold by individuals who are
licensed life insurance sales representatives and registered representatives of
MetLife, the principal underwriter of the Certificates. MetLife 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. No commissions are paid to MetLife's registered
representatives for distribution of the Group Policies or Certificates, although
MetLife representatives may earn certain incentive award credits.
Group Policies and Certificates may also be sold through other registered
broker-dealers who have entered into selling agreements with MetLife.
Commissions or fees which are payable to a broker-dealer or third party
administrator ("TPA") are set forth in MetLife's schedules of group insurance
commission rates. Payments or commissions to broker-dealers or TPAs normally
consist of two elements. The first element is based on the cost of insurance
associated with the Certificate. Under this element, a commission is payable to
a maximum of 15% of the cost of insurance, as described, above, and may be based
upon the services provided by the broker-dealer or TPA. The second element is a
per Certificate payment, based upon total number of Certificates issued under
the Group Policy. Maximum first year payments and renewal payments per
Certificate are specified in MetLife's schedules of group insurance commission
rates. No commissions were paid to broker-dealers or TPA's during 1997.
Any payments and commissions are paid by MetLife. They do not result in any
charges against the Group Policy or Certificates in addition to those set forth
under "Charges and Deductions."
FEDERAL TAX MATTERS
The following description is a brief summary of some of the tax rules,
primarily related to federal income and estate taxes, which in the opinion of
MetLife are currently in effect.
30
<PAGE>
The Certificate receives the same federal income and estate tax treatment as
fixed benefit life insurance. The death benefit payable under the Certificate is
generally 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 Certificate until actual
withdrawal, or surrender or upon the Final Date.
Under existing tax law, an Owner generally will be taxed on cash value
withdrawn from the Certificate and cash value received upon surrender of the
Certificate or upon the Final Date. Under most circumstances, unless a
Certificate is a modified endowment contract as discussed below, and unless the
distribution occurs during the first 15 Certificate years, only the amount
withdrawn, received upon surrender or distributed at the Final Date of a
Certificate that exceeds the total premiums paid (less previous non-taxable
withdrawals) will be treated as ordinary income. During the first 15 Certificate
years, cash distributions from a Certificate, made as a result of a Certificate
change that reduces the death benefit or other benefits under a Certificate,
will be taxable to the Owner, under a complex formula, to the extent that cash
value exceeds the Owner's remaining investment in the Certificate.
Section 817(h) of Code and the Treasury Regulations thereunder set
diversification rules for the investments underlying the Group Policies, in
order for the Group Policies to be treated as life insurance. MetLife believes
that these diversification standards will be satisfied. There is a provision in
the regulations which allows for the correction of an inadvertent failure to
diversify. Failure to comply with the rules found in the regulations would
result in immediate taxation to Owners of all positive investment experience
credited to a Certificate for the period of non-compliance and until such time
as a settlement of the matter is reached with the Internal Revenue Service.
There is a possibility that regulations may be proposed or that a
controlling ruling may be issued in the future describing the extent to which
Owner control over allocation of cash value may cause Owners to be treated as
the owners of Separate Account assets for tax purposes. MetLife reserves the
right to amend the Group Policies in any way necessary to avoid any such result.
As of the date of this Prospectus, no such regulations or ruling have been
issued. Such regulations or ruling could limit the number of investment funds or
the frequency of transfers among such funds. It is not known whether any such
regulations or ruling would have a retroactive effect.
MetLife also believes that loans received under the Certificate will be
treated as indebtedness of an Owner for federal tax purposes, and, unless the
Certificate is or becomes a modified endowment contract as described below or
terminates, that no part of any loan received under a Certificate will
constitute income to the Owner. However, any remaining outstanding loan at the
time the Certificate is totally surrendered, exchanged, terminated or on the
Final Date may be subject to tax depending of the amount of gain in the
Certificate.
In the case of a modified endowment contract, amounts received before death
including Certificate 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 endowment contracts issued by the same
company (or affiliate) to the same Owner during any calendar year will be
treated as one modified endowment contract. Finally, an additional 10% income
tax is generally imposed on the taxable portion of pre-death amounts received
before age 59 1/2 under a modified endowment contract.
In general, a modified endowment contract is a life insurance contract
entered into or, generally, materially changed after June 20, 1988 that fails to
meet a "7-pay test". Each Certificate is tested separately for purposes of the
7-pay test. Under the 7-pay test, if the amount of premiums paid with respect to
a Certificate at any time during the first 7 Certificate years exceeds the sum
of the net level premiums which would have been paid if the Certificate provided
for paid-up future benefits after the payment of 7 level annual payments, the
Certificate is a modified endowment contract. A Certificate may have to be
reviewed under the 7-pay test even after the first seven Certificate years in
the case of certain events such as a material modification of the Certificate as
discussed below. If there is a reduction in benefits under the Certificate
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 Certificate
fails the 7-pay test may be treated as made in anticipation of such failure.
31
<PAGE>
Whether or not a particular Certificate meets these definitional
requirements is dependent on the date it was entered into, premium payments made
and the periodic premium payments to be made, the level of death benefit, 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 Certificate should be reviewed upon issuance, upon making a cash
withdrawal, upon making a change in future benefits and upon making a material
modification to the Certificate to determine to what extent, if any, these tax
rules apply. A material modification to a Certificate includes, but is not
limited to, any requested increase in the future benefits provided under the
Certificate. However, in general, increases that are attributable to the payment
of premiums necessary to fund the lowest death benefit payable in the first 7
Certificate years will not be considered material modifications. The annual
statement sent to each Owner will include information regarding the modified
endowment contract status of a Certificate (see "Premiums--Premium
Limitations").
Counsel and other competent advisors should be consulted to determine how
these rules apply to an individual situation and before making premium payments,
increasing or decreasing the Specified Face Amount, or adding or removing a
rider.
While "employee pay all" group variable universal life should generally be
treated as separate from any Code Section 79 Group Term Life Insurance Plan
concurrently in effect, in some circumstances group variable universal life
could be viewed as being part of such a plan, giving rise to adverse tax
consequences.
Congress may, in the future, consider other legislation that, if enacted,
could adversely affect the tax treatment of life insurance policies. In
addition, the Treasury Department may by regulation or interpretation modify the
above described tax effects. Any legislative or administrative action could be
applied retroactively.
The death benefit payable under the Certificate is includable in the covered
person's gross estate for federal estate tax purposes if the death benefit is
paid to the covered person's estate or if the death benefit is paid to a
beneficiary other than the estate and the covered person either possessed
incidents of ownership in the Certificate at the time of death or transferred
incidents of ownership in the Certificate 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 Certificate which is included in the covered person'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 $625,000 in 1998, gradually
increasing to $1 million in 2006 and thereafter. In addition, a death benefit
paid to a surviving spouse may not be taxable because of a 100% estate tax
marital deduction. Furthermore, a death benefit paid to a tax-exempt charity may
not be taxable because of the allowance of an estate tax charitable deduction.
If the Owner of the Certificate is not the covered person, and the Owner
dies before the covered person, the value of the Certificate, as determined
under Internal Revenue Service regulations, is includable in the federal gross
estate of the Owner for federal estate tax purposes. Whether a federal estate
tax is payable depends on a variety of factors, including those listed in the
preceding paragraph.
State and local income, estate, inheritance and other tax consequences of
ownership or receipt of Certificate proceeds depend on the circumstances of each
covered person, Owner or beneficiary.
Finally, employer involvement and other factors determine whether group
variable universal life is subject to the Employee Retirement Income Security
Act ("ERISA").
The foregoing summary does not purport to be complete or to cover all
situations. Counsel and other competent advisors should be consulted for more
complete information.
32
<PAGE>
MANAGEMENT
The present directors and the senior officers and secretary of MetLife 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 President, Chief Operating Officer
Officer, and Director
Metropolitan Life Insurance Company,
One Madison Avenue,
New York, NY 10010.
Gerald Clark.............................. Senior Executive Vice-President and Senior Executive Vice- President,
Chief Investment Officer, Chief Investment Officer and
Metropolitan Life Insurance Company, Director
One Madison Avenue,
New York, NY 10010.
Joan Ganz Cooney.......................... Chairman, Executive Committee, Director
Children's Television Workshop,
One Lincoln Plaza,
New York, NY 10023.
Burton A. Dole, Jr........................ Retired Chairman of the Board Director
Nellcor Puritan Bennett,
2000 Faraday Avenue,
Carlsbad, CA 92008-7208.
James R. Houghton......................... Retired Chairman of the Board, Director
Corning Incorporated,
80 East Market Street,
2nd Floor,
Corning, NY 14830.
Harry P. Kamen............................ Chairman and Chief Executive Officer, Chairman, Chief Executive Officer and
Metropolitan Life Insurance Company, Director
One Madison Avenue,
New York, NY 10010.
Helene L. Kaplan.......................... Of Counsel, Skadden, Arps, Director
Slate, Meagher & Flom,
919 Third Avenue,
New York, NY 10022.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE
- ------------------------------------------ ------------------------------------- -------------------------------------
<S> <C> <C>
Charles M. Leighton....................... Retired Chairman of the Board
CML Group, Inc.,
524 Main Street,
Acton, MA 01720.
Allen E. Murray........................... Retired Chairman of the Board and Director
Chief Executive Officer,
Mobil Corporation,
375 Park Avenue, Suite 2901,
New York, NY 10163.
Stewart Nagler............................ Senior Executive Vice-President and Senior Executive Vice- President,
Chief Financial Officer, Chief Financial Officer and Director
Metropolitan Life Insurance Company,
One Madison Avenue,
New York, NY 10010.
John J. Phelan, Jr........................ Retired Chairman and Chief Executive Director
Officer,
New York Stock Exchange, Inc.,
P.O. Box 312,
Mill Neck, NY 11765.
Hugh B. Price............................. President and Chief Executive Director
Officer,
National Urban League, Inc.,
500 East 62nd Street,
New York, NY 10021.
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,
North Hampton, MA 01063.
William C. Steere, Jr..................... Chairman of the Board Director
and Chief Executive Officer,
Pfizer, Inc.,
235 E. 42nd Street,
New York, NY 10017
</TABLE>
34
<PAGE>
OFFICERS*
<TABLE>
<CAPTION>
NAME OF OFFICER POSITION WITH METROPOLITAN LIFE
- ----------------------------------------- ----------------------------------------------------------------------
<S> <C>
Harry P. Kamen........................... Chairman of the Board and Chief Executive Officer
Robert H. Benmosche...................... President and Chief Operating Officer
Gerald Clark............................. Senior Executive Vice-President and Chief Investment Officer
Stewart G. Nagler........................ Senior Executive Vice-President and Chief Financial Officer
Gary A. Beller........................... Senior Executive Vice-President and General Counsel
Catherine A. Rein........................ Senior Executive Vice-President
C. Robert Henrikson...................... Senior Executive Vice-President
William J. Toppeta....................... Senior Executive Vice-President
Jeffrey J. Hodgman....................... Executive Vice-President
Terence I. Lennon........................ Executive Vice-President
David A. Levene.......................... Executive Vice-President
John H. Tweedie.......................... Executive Vice-President
Judy E. Weiss............................ Executive Vice-President and Chief Actuary
Alexander D. Brunini..................... Senior Vice-President
Richard M. Blackwell..................... Senior Vice-President
James B. Digney.......................... Senior Vice-President
Jon F. Danski............................ Senior Vice-President and Controller
William T. Friedewald.................... Senior Vice-President
Ira Friedman............................. Senior Vice-President
Anne E. Hayden........................... Senior Vice-President
Sibyl C. Jacobson........................ Senior Vice-President
Joseph W. Jordan......................... Senior Vice-President
Kernan F. King........................... Senior Vice-President
Nicholas D. Latrenta..................... Senior Vice-President
Leland C. Launer, Jr..................... Senior Vice-President
Gary E. Lineberry........................ Senior Vice-President
James L. Lipscomb........................ Senior Vice-President
William Livesey.......................... Senior Vice-President
James M. Logan........................... Senior Vice-President
Eugene Marks, Jr......................... Senior Vice-President
Dominick A. Prezzano..................... Senior Vice-President
Joseph A. Reali.......................... Senior Vice-President
Vincent P. Reusing....................... Senior Vice-President
Felix Schirripa.......................... Senior Vice-President
Robert E. Sollmann, Jr................... Senior Vice-President
Thomas L. Stapleton...................... Senior Vice-President & Tax Director
James F. Stenson......................... Senior Vice-President
Stanley J. Talbi......................... Senior Vice-President
Richard R. Tartre........................ Senior Vice-President
James A. Valentino....................... Senior Vice-President
Lisa Weber............................... Senior Vice-President
William J. Wheeler....................... Senior Vice-President and Treasurer
Anthony J. Williamson.................... Senior Vice-President
Louis J. Ragusa.......................... Vice-President and Secretary
</TABLE>
- ---------
* The principal occupation of each officer, except for the following officers,
during the last five years has been as an officer of Metropolitan Life or an
affiliate thereof. Gary A. Beller has been an officer of Metropolitan Life
since November, 1994; prior thereto, he was a Consultant and Executive
Vice-President and General Counsel of the American Express Company. Robert H.
Benmosche has been an officer of Metropolitan Life since September, 1995;
prior thereto, he was an Executive Vice-President of Paine Webber. Terence I.
Lennon has been an officer of Metropolitan Life since March, 1994; prior
thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New
York State Department of Insurance. Richard R. Tartre has been an officer of
Metropolitan Life since January 13, 1997, prior thereto he was President and
CEO of Astra Management Corp. William J. Wheeler became an officer of
Metropolitan Life since October 13, 1997; prior thereto he was Senior
Vice-President, Investment Banking of Donaldson, Lufkin and Jenrette. Lisa
Weber has been an officer of Metropolitan Life since March 16, 1998; prior
thereto she was a Director of Diversity Strategy and Development and an
Associate Director of Human Resources at PaineWebber. Jon F. Danski has been
an officer of Metropolitan Life since March 25, 1998; prior thereto he was
Senior Vice-President, Controller and General Auditor at I TT Corporation. The
business address of each officer is 1 Madison Avenue, New York, New York
10010.
35
<PAGE>
VOTING RIGHTS
RIGHT TO INSTRUCT VOTING OF FUND SHARES
In accordance with its view of present applicable law, MetLife usually will
vote the shares of each of the portfolios of the Fund which are deemed
attributable to Certificates at regular and special meetings of the shareholders
of the Fund based on instructions received from persons having the voting
interest in corresponding investment divisions of the Separate Account. However,
if the 1940 Act or any rules thereunder should be amended or if the present
interpretation thereof should change, and as a result MetLife 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 Certificate. The
number of shares held in each Separate Account investment division deemed
attributable to each Owner is determined by dividing a Certificate's cash value
in that division, if any, by the net asset value of one share in the
corresponding Fund portfolio in which the assets in that Separate Account
investment division are invested. Fractional votes will be counted. The number
of shares concerning which 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 MetLife or any
affiliate that are or are not attributable to life insurance policies (including
the Certificates) or annuity contracts and for which no timely instructions are
received will be voted in the same proportion as the shares for which voting
instructions are received by that separate account. Fund shares held in the
General Account or unregistered separate accounts of MetLife 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 MetLife or an affiliate
determines that it is permitted to vote any such shares of the Fund in its own
right, it may elect to do so subject to the then current interpretation of the
1940 Act or any rules thereunder.
The Owners may give instructions regarding, among other things, the election
of the Board of Directors of the Fund, ratification of the selection of the
Fund's independent auditors, and the approval of the Fund's investment manager
and sub-investment manager.
Each Owner having a voting interest will be sent voting instruction
soliciting material and a form for giving voting instructions to MetLife.
Current interpretations and rules under the 1940 Act permit Fund shares to
be voted in a manner contrary to Owner voting instructions under certain
circumstances. In the event that MetLife does disregard voting instructions, a
summary of the action and the reasons for such action will be included in the
next semiannual report to Owners.
REPORTS
Owners will receive promptly statements of significant transactions such as
changes in specified face amount, transfers among investment divisions, partial
withdrawals, increases in loan principal by the Owner, loan repayments,
termination for any reason, reinstatement and premium payments. Transactions
pursuant to systematic investment strategies (see "Payment and Allocation of
Premiums") may be confirmed quarterly. Owners whose premiums are automatically
remitted under payroll deduction plans do not receive individual confirmation of
premium payments from MetLife apart from that provided by their bank or
employer. A statement will be sent at least annually to the Owner within thirty
days after the period covered summarizing all of the above transactions and
deductions of charges occurring during that Certificate year and setting forth
the status of the death benefit, cash and cash surrender values, amounts in the
investment divisions and Fixed Account, any Certificate loan and unpaid loan
interest added to loan principal. Any statement will also discuss the modified
endowment contract status of a Certificate (see "Premiums--Premium
Limitations"). In addition, an Owner will be sent semiannual reports containing
financial statements for the Fund, as required by the 1940 Act.
36
<PAGE>
STATE REGULATION
MetLife 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 Group Policy
and form of Certificate has been filed with, and approved by, insurance
officials in each jurisdiction where the Group Policy and Certificates are sold.
MetLife intends to satisfy the necessary requirements to distribute the
Certificates in all fifty states and the District of Columbia as soon as
possible.
MetLife 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 solvency and
compliance with local insurance laws and regulations. Such statements are
available for public inspection at state insurance department offices.
REGISTRATION STATEMENT
A registration statement under the Securities Act of 1933 has been filed
with the Securities and Exchange Commission relating to the offering described
in this Prospectus. This Prospectus does not contain all the information set
forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for additional
information concerning the Separate Account, MetLife and the Certificates. The
additional information may be obtained at the Commission's main office in
Washington, D.C., upon payment of the prescribed fees.
LEGAL MATTERS
The legality of the Group Policies and Certificates described in this
Prospectus has been passed upon by Christopher P. Nicholas, Associate General
Counsel of MetLife. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C.,
have advised MetLife on certain matters relating to the federal securities laws.
EXPERTS
The financial statements included in this Prospectus of Metropolitan Life
Separate Account UL and Metropolitan Life Insurance Company have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and have been so included in reliance upon such reports given
upon the authority of such firm as experts in auditing and accounting.
Actuarial matters included in this Prospectus have been examined by Frank
Cassandra, FSA, MAAA, Assistant Vice-President and Actuary of MetLife, as stated
in his opinion filed as an exhibit to the registration statement.
FINANCIAL STATEMENTS
The financial statements of MetLife included in this Prospectus should be
considered only as bearing upon the ability of MetLife to meet its obligations
under the Group Policies and Certificates.
37
<PAGE>
(This page has been left blank intentionally.)
38
<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
State Street Research Growth, State Street Research Income, State Street
Research Money Market, State Street Research Diversified, State Street
Research Aggressive Growth, MetLife Stock Index, State Street Research
International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe
Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan
Life Separate Account UL (the "Separate Account") as of December 31, 1997, and
the related statements (i) of operations for the year then ended and of
changes in net assets for the years ended December 31, 1997 and 1996 of the
State Street Research Growth, State Street Research Income, State Street
Research Money Market, State Street Research Diversified, State Street
Research Aggressive Growth, MetLife Stock Index and State Street Research
International Stock Divisions and (ii) of operations and of changes in net
assets for the period March 3, 1997 (commencement of operations) to December
31, 1997 of the Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price
Small Cap Growth and Scudder Global Equity Divisions. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997
by correspondence with the custodian and depositor of the Separate Account. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the State Street Research Growth, State
Street Research Income, State Street Research Money Market, State Street
Research Diversified, State Street Research Aggressive Growth, MetLife Stock
Index, State Street Research International Stock, Loomis Sayles High Yield
Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity
Divisions of Metropolitan Life Separate Account UL at December 31, 1997 and
the results of their operations and the changes in their net assets for the
respective stated periods, in conformity with generally accepted accounting
principles.
As discussed in Note 4, the accompanying 1996 financial statements have been
restated.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1998
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
STATE STREET STATE STREET STATE STREET
STATE STREET STATE STREET RESEARCH STATE STREET RESEARCH METLIFE RESEARCH
RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL
GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ------------ ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Metropol-
itan Series Fund, Inc.
at Value (Note 1A):
State Street Research
Growth Portfolio
(7,500,517 shares; cost
$207,140,190).......... $239,416,510 -- -- -- -- -- --
State Street Research
Income Portfolio
(3,451,828 shares; cost
$43,468,874)........... -- $43,700,145 -- -- -- -- --
State Street Research
Money Market Portfolio
(770,408 shares; cost
$8,291,617)............ -- -- $7,996,630 -- -- -- --
State Street Research
Diversified Portfolio
(9,161,690 shares; cost
$143,847,786).......... -- -- -- $155,565,502 -- -- --
State Street Research
Aggressive Growth Port-
folio
(4,299,153 shares; cost
$110,480,495).......... -- -- -- -- $181,699,529 -- --
MetLife Stock Index
Portfolio
(2,992,597 shares; cost
$67,138,007)........... -- -- -- -- -- $86,126,949 --
State Street Research
International Stock
Portfolio
(2,324,516 shares; cost
$28,974,736)........... -- -- -- -- -- -- $27,127,110
Loomis Sayles High Yield
Bond Portfolio
(146,279 shares; cost
$1,553,369)............ -- -- -- -- -- -- --
Janus Mid Cap Portfolio
(302,556 shares; cost
$3,640,229)............ -- -- -- -- -- -- --
T. Rowe Price Small Cap
Growth Portfolio
(383,687 shares; cost
$4,511,133)............ -- -- -- -- -- -- --
Scudder Global Equity
Portfolio
(278,937 shares; cost
$3,035,018)............ -- -- -- -- -- -- --
------------ ----------- ---------- ------------ ------------ ----------- -----------
Total Assets........... 239,416,510 43,700,145 7,996,630 155,565,502 118,699,529 86,126,949 27,127,110
LIABILITIES............. 530,268 (749) 395 165,745 43,493 30,337 1,155
------------ ----------- ---------- ------------ ------------ ----------- -----------
NET ASSETS.............. $238,886,242 $43,700,894 $7,996,235 $155,399,757 $118,656,036 $86,096,612 $27,125,955
============ =========== ========== ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LOOMIS T. ROWE
SAYLES PRICE SCUDDER
HIGH YIELD JANUS SMALL CAP GLOBAL
BOND MID CAP GROWTH EQUITY
DIVISION DIVISION DIVISION DIVISION
---------- ---------- ---------- ----------
<S> <C> <C> <C>
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
$1,483,275 -- -- --
-- $3,863,631 -- --
-- -- $4,558,201 --
-- -- -- $3,026,461
---------- ---------- ---------- ----------
1,483,275 3,863,631 4,558,201 3,026,461
150 393 89 3,120
---------- ---------- ---------- ----------
$1,483,125 $3,863,238 $4,558,112 $3,023,341
========== ========== ========== ==========
</TABLE>
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------
STATE STATE STATE
STATE STATE STREET STATE STREET STREET
STREET STREET RESEARCH STREET RESEARCH METLIFE RESEARCH
RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL
GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------- ---------- -------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (Note 2)..... $42,138,867 $2,922,583 $421,931 $23,433,922 $4,355,881 $ 1,696,231 --
Expenses:
Mortality and expense
charges (Note 3)...... 1,720,073 304,795 68,737 1,130,927 885,075 509,584 $ 232,079
----------- ---------- -------- ----------- ---------- ----------- -----------
Net investment income
(loss)................. 40,418,794 2,617,788 353,194 22,302,995 3,470,806 1,186,647 (232,079)
----------- ---------- -------- ----------- ---------- ----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS: (Note
1B)
Net realized gain (loss)
from security transac-
tions.................. 1,080,724 32,950 68,458 418,723 136,827 1,210,648 (84,952)
Change in unrealized ap-
preciation (deprecia-
tion) of investments... 6,378,588 748,796 (49,717) 1,103,869 2,615,059 13,344,725 (691,181)
----------- ---------- -------- ----------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... 7,459,312 781,746 18,741 1,522,592 2,751,886 14,555,373 (776,133)
----------- ---------- -------- ----------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $47,878,106 $3,399,534 $371,935 $23,825,587 $6,222,692 $15,742,020 $(1,008,212)
=========== ========== ======== =========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997
-----------------------------------------------------------------------------------
T. ROWE
LOOMIS SAYLES PRICE SCUDDER
HIGH YIELD JANUS SMALL CAP GLOBAL
BOND MID CAP GROWTH EQUITY
DIVISION DIVISION DIVISION DIVISION
------------- ------------ ------------ -----------
<S> <C> <C> <C>
$ 63,593 $ 14,490 $ 471 $ 30,685
4,044 8,553 9,261 7,271
------------ ------------ ----------- -----------
59,549 5,937 (8,790) 23,414
------------ ------------ ----------- -----------
9,361 26,779 47,764 21,982
(70,093) 223,402 47,067 (8,556)
------------ ------------ ----------- -----------
(60,732) 250,181 94,831 13,426
------------ ------------ ----------- -----------
$ (1,183) $ 256,118 $ 86,041 $ 36,840
============ ============ =========== ===========
</TABLE>
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (AS RESTATED--SEE NOTE 4)
<TABLE>
<CAPTION>
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH
GROWTH DIVISION INCOME DIVISION MONEY MARKET DIVISION
-------------------------- ------------------------ -------------------------
AS RESTATED AS RESTATED AS RESTATED
1997 1996 1997 1996 1997 1996
------------ ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income
(loss)................ $ 40,418,794 $ 14,318,113 $ 2,617,788 $ 1,769,924 $ 353,194 $ 340,213
Net realized gain
(loss) from security
transactions.......... 1,080,724 3,249,072 32,950 13,127 68,458 21,159
Change in unrealized
appreciation (depreci-
ation) of invest-
ments................. 6,378,588 9,530,521 748,796 (824,310) (49,717) (111,136)
------------ ------------ ----------- ----------- ------------ -----------
Net increase (decrease)
in net assets result-
ing from operations... 47,878,106 27,097,706 3,399,534 958,741 371,935 250,236
------------ ------------ ----------- ----------- ------------ -----------
From capital
transactions:
Net premiums........... 59,834,638 51,991,970 13,090,983 11,838,904 13,691,749 13,703,314
Redemptions............ (7,416,220) (5,657,523) (1,082,695) (1,098,660) (357,692) (370,938)
Net portfolio trans-
fers.................. 3,569,720 (676,324) 1,296,485 (342,990) (12,877,177) (8,370,773)
Other net transfers.... (29,309,077) (23,203,846) (4,895,666) (4,686,537) (887,059) (1,089,670)
------------ ------------ ----------- ----------- ------------ -----------
Net increase (decrease)
in net assets result-
ing from capital
transactions.......... 26,679,061 22,454,277 8,409,107 5,710,717 (430,179) 3,871,933
------------ ------------ ----------- ----------- ------------ -----------
NET CHANGE IN NET
ASSETS................. 74,557,167 49,551,983 11,808,641 6,669,458 (58,244) 4,122,169
------------ ----------- -----------
NET ASSETS--BEGINNING OF
YEAR, AS PREVIOUSLY RE-
PORTED................. 112,440,622 22,311,472 2,974,740
ADJUSTMENT FOR EXCLUDED
CONTRACTS
(NOTE 4)............... 2,336,470 2,911,323 957,570
------------ ------------ ----------- ----------- ------------ -----------
NET ASSETS--BEGINNING OF
YEAR,
AS RESTATED............ 164,329,075 114,777,092 31,892,253 25,222,795 8,054,479 3,932,310
------------ ------------ ----------- ----------- ------------ -----------
NET ASSETS--END OF
YEAR................... $238,886,242 $164,329,075 $43,700,894 $31,892,253 $ 7,996,235 $ 8,054,479
============ ============ =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH
DIVERSIFIED AGGRESSIVE METLIFE STOCK INDEX INTERNATIONAL
DIVISION GROWTH DIVISION DIVISION STOCK DIVISION
---------------------------- ------------------------- ------------------------- ------------------------
AS RESTATED AS RESTATED AS RESTATED AS RESTATED
1997 1996 1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 22,302,995 $ 9,021,710 $ 3,470,806 $ 1,735,559 $ 1,186,647 $ 668,041 $ (232,079) $ 26,852
418,723 626,567 136,827 356,580 1,210,648 992,755 (84,952) 7,882
1,103,869 3,195,414 2,615,059 1,727,152 13,344,725 3,305,639 (691,181) (643,946)
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
23,825,587 12,843,691 6,222,692 3,819,291 15,742,020 4,966,435 (1,008,212) (609,212)
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
41,236,061 34,685,709 52,235,040 47,883,634 38,059,853 18,825,744 11,240,912 12,149,313
(4,829,385) (4,063,905) (3,613,975) (2,963,448) (1,198,193) (754,780) (1,139,393) (680,851)
1,557,340 444,154 (5,941,719) 2,977,777 9,580,428 6,207,785 (3,084,541) (323,788)
(19,209,913) (16,290,905) (20,670,473) (18,671,965) (13,547,536) (6,979,516) (5,008,528) (2,938,187)
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
18,754,103 14,775,053 22,008,873 29,225,998 32,894,552 17,299,233 2,008,450 8,206,487
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
42,579,690 27,618,744 28,231,565 33,045,289 48,636,572 22,265,668 1,000,238 7,597,275
------------ ----------- ----------- -----------
84,180,741 54,331,797 13,425,770 17,296, 137
1,020,582 3,047,385 1,768,602 1,232,305
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
112,820,067 85,201,323 90,424,471 57,379,182 37,460,040 15,194,372 26,125,717 18,528,442
------------ ------------ ------------ ----------- ------------ ----------- ----------- -----------
$155,399,757 $112,820,067 $118,656,036 $90,424,471 $ 86,096,612 $37,460,040 $27,125,955 $26,125,717
============ ============ ============ =========== ============ =========== =========== ===========
</TABLE>
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997
--------------------------------------------------------------
LOOMIS SAYLES T. ROWE PRICE
HIGH YIELD JANUS SMALL CAP SCUDDER GLOBAL
BOND DIVISION MID CAP DIVISION GROWTH DIVISION EQUITY DIVISION
------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income
(loss)................ $ 59,549 $ 5,937 $ (8,790) $ 23,414
Net realized gain from
security transac-
tions................. 9,361 26,779 47,764 21,982
Change in unrealized
appreciation (depreci-
ation)
of investments........ (70,093) 223,402 47,067 (8,556)
---------- ---------- ---------- ----------
Net increase (decrease)
in net assets result-
ing from
operations............ (1,183) 256,118 86,041 36,840
---------- ---------- ---------- ----------
From capital
transactions:
Net premiums........... 590,158 2,676,784 1,816,732 1,425,649
Redemptions............ (1,126) (46,974) (40,707) (7,873)
Net portfolio trans-
fers.................. 1,002,454 1,554,471 3,110,800 1,855,028
Other net transfers.... (107,178) (577,161) (414,754) (286,303)
---------- ---------- ---------- ----------
Net increase in net as-
sets resulting from
capital
transactions.......... 1,484,308 3,607,120 4,472,071 2,986,501
---------- ---------- ---------- ----------
NET CHANGE IN NET
ASSETS................. 1,483,125 3,863,238 4,558,112 3,023,341
NET ASSETS--BEGINNING OF
PERIOD................. -- -- -- --
---------- ---------- ---------- ----------
NET ASSETS--END OF PERI-
OD..................... $1,483,125 $3,863,238 $4,558,112 $3,023,341
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Metropolitan Life Separate Account UL (the "Separate Account") is a multi-
division unit investment trust registered under the Investment Company Act of
1940 and presently consists of eleven investment divisions used to support
variable universal life insurance policies. The assets in each division are
invested in shares of the corresponding portfolio of the Metropolitan Series
Fund, Inc. (the "Fund'). Each portfolio has varying investment objectives
relative to growth of capital and income.
The Separate Account was formed by Metropolitan Life Insurance Company
("Metropolitan Life") on December 13, 1988, and registered as a unit
investment trust on January 5, 1990. The assets of the Separate Account are
the property of Metropolitan Life. On March 3, 1997, operations commenced for
the four new investment divisions added to the Separate Account on that date:
the Loomis Sayles High Yield Bond Division, the Janus Mid Cap Division, the T.
Rowe Price Small Cap Growth Division and the Scudder Global Equity Division.
A summary of significant accounting policies, all of which are in accordance
with generally accepted accounting principles, is set forth below:
1. SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS
Investments in shares of the Fund are valued at the reported net asset
values of the respective portfolios. A summary of investments of the
eleven designated portfolios of the Fund in which the eleven investment
divisions of the Separate Account invests as of December 31, 1997 is
included as Note 5.
B. SECURITY TRANSACTIONS
Purchases and sales are recorded on the trade date. Realized gains and
losses on sales of investments are determined on the basis of identified
cost.
C. FEDERAL INCOME TAXES
In the opinion of counsel of Metropolitan Life, the Separate Account
will be treated as a part of Metropolitan Life and its operations, and
the Separate Account will not be taxed separately as a "regulated
investment company" under existing law. Metropolitan Life is taxed as a
life insurance company. The policies permit Metropolitan Life to charge
against the Separate Account any taxes, or reserves for taxes,
attributable to the maintenance or operation of the Separate Account.
Metropolitan Life is not currently charging any Federal income taxes
against the Separate Account arising from the earnings or realized
capital gains attributable to the Separate Account. Such charges may be
imposed in future years depending on market fluctuations and
transactions involving the Separate Account.
D. NET PREMIUMS
Metropolitan Life deducts a sales load and a state premium tax charge
from premiums before amounts are allocated to the Separate Account. In
the case of certain of the policies, Metropolitan Life also deducts a
Federal income tax charge before amounts are allocated to the Separate
Account. The Federal income tax charge is imposed in connection with
certain of the policies to recover a portion of the Federal income tax
adjustment attributable to policy acquisition expenses.
2. DIVIDENDS
On April 16, 1997 and December 18, 1997, the Fund declared dividends for all
shareholders of record on April 25, 1997 and December 30, 1997, respectively.
The amount of dividends received by the Separate Account was $75,078,657. The
dividends were paid to Metropolitan Life on April 25, 1997 and December 30,
1997, respectively, and were immediately reinvested in additional shares of
the portfolios in which the investment divisions invest. As a
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
result of this reinvestment, the number of shares of the Fund held by each of
the eleven investment divisions increased by the following: State Street
Research Growth Portfolio, 1,371,274 shares; State Street Research Income
Portfolio, 231,057 shares; State Street Research Money Market Portfolio,
40,663 shares; State Street Research Diversified Portfolio, 1,404,733 shares;
State Street Research Aggressive Growth Portfolio, 182,267 shares; MetLife
Stock Index Portfolio, 60,453 shares; State Street Research International
Stock Portfolio, 0 shares; Loomis Sayles High Yield Bond Portfolio, 6,294
shares; Janus Mid Cap Portfolio, 1,175 shares; T. Rowe Price Small Cap Growth
Portfolio, 41 shares; and Scudder Global Equity Portfolio, 2,836 shares.
3. EXPENSES
With respect to assets in the Separate Account that support certain
policies, Metropolitan Life applies a charge against the assets attributable
to the Separate Account for the mortality and expense risks assumed by
Metropolitan Life. This charge varies by policy type but will not be higher
than an effective annual rate of .90% of the average daily value of the net
assets or the monthly anniversary value of the net assets in the Separate
Account which are attributable to such policies.
4. RESTATEMENT FOR EXCLUDED CONTRACTS
Subsequent to the issuance of the Separate Account 1996 financial
statements, Metropolitan Life management determined that the 1996 and prior
year financial statements inadvertently excluded amounts related to two groups
of insurance contracts included in subsidiary accounting records applicable to
the Separate Account. As a result the 1996 financial statements have been
restated from the amounts previously reported to include such amounts. A
summary of the effects of the restatement on net increase (decrease) in net
assets resulting from operations ("Operations") and net increase in net assets
resulting from capital transactions ("Capital Transactions") for the year
ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
OPERATIONS CAPITAL TRANSACTIONS
------------------------ -----------------------
AS AS
PREVIOUSLY PREVIOUSLY
AS RESTATED REPORTED AS RESTATED REPORTED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
State Street Research Growth
Division.................... $27,097,706 $26,165,771 $22,454,277 $20,291,179
State Street Research Income
Division.................... 958,741 789,262 5,710,717 4,157,019
State Street Research Money
Market Division............. 250,236 162,166 3,871,933 2,982,949
State Street Research Diver-
sified Division............. 12,843,691 12,559,668 14,775,053 13,727,050
State Street Research Aggres-
sive Growth Division........ 3,819,291 3,487,444 29,225,998 25,921,962
MetLife Stock Index Divi-
sion........................ 4,966,435 4,138,300 17,299,233 14,469,444
State Street Research Inter-
national Stock Division..... (609,212) (550,732) 8,206,487 6,923,935
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997
Below are summarized information of the investments of the portfolios of the
Fund in which each of the investment divisions invest.
METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
STATE STREET STATE STREET STATE STREET STATE STREET
RESEARCH RESEARCH RESEARCH RESEARCH
GROWTH INCOME MONEY MARKET DIVERSIFIED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Aerospace.............. $ 55,477,881 (2.4%) $ 25,844,668 (1.3%)
Automotive............. 43,379,027 (1.8%) 20,079,121 (1.0%)
Banking................ 205,479,175 (8.7%) 95,552,627 (4.8%)
Broadcasting........... 124,133,525 (5.3%) 56,726,174 (2.9%)
Business Services...... 25,546,853 (1.1%) 11,853,663 (0.6%)
Chemicals.............. 105,409,887 (4.5%) 48,725,475 (2.5%)
Drugs & Health Care.... 150,504,102 (6.4%) 70,602,148 (3.6%)
Electrical Equipment... 94,815,937 (4.0%) 43,986,787 (2.2%)
Electronics............ 77,962,605 (3.3%) 36,467,790 (1.8%)
Entertainment &
Leisure............... 22,431,812 (1.0%) 10,385,217 (0.5%)
Financial Services..... 35,764,865 (1.5%) 16,588,059 (0.8%)
Food & Beverages....... 74,536,480 (3.2%) 34,639,368 (1.7%)
Forest Products &
Paper................. 45,897,963 (2.0%) 21,753,294 (1.1%)
Hospital Management.... 16,383,625 (0.7%) 7,608,812 (0.4%)
Household Products..... 36,627,032 (1.6%) 17,004,594 (0.9%)
Insurance.............. 101,332,113 (4.3%) 47,329,837 (2.4%)
Machinery.............. 16,361,400 (0.7%) 7,592,400 (0.4%)
Medical Supply......... 45,413,162 (1.9%) 21,172,712 (1.1%)
Metals--Steel & Iron... 23,359,400 (1.0%) 10,840,668 (0.5%)
Miscellaneous.......... 68,513,025 (2.9%) 31,886,225 (1.6%
Office & Business
Equipment............. 111,018,537 (4.7%) 51,900,043 (2.6%)
Oil.................... 40,733,670 (1.7%) 19,133,347 (1.0%)
Oil & Gas Exploration.. 54,241,001 (2.3%) 25,252,861 (1.3%)
Oil--Domestic.......... 47,151,675 (2.0%) 20,900,250 (1.1%)
Oil--International..... 23,614,913 (1.0%) 10,994,644 (0.6%)
Retail Grocery......... 74,417,500 (3.2%) 34,970,447 (1.8%)
Retail Trade........... 183,384,019 (7.8%) 85,473,643 (4.3%)
Software............... 25,740,375 (1.1%) 12,118,958 (0.6%)
Tobacco................ 47,328,906 (2.0%) 22,112,500 (1.1%)
Transportation--
Trucking.............. 0 (0.0%) 63 (0.0%)
Utilities--Electric.... 91,202,222 (3.9%) 25,835,899 (1.3%)
Utilities--Telephone... 43,652,700 (1.9%) 36,947,828 (1.8%)
-------------- --------------
Total Common Stock..... 2,111,815,387 (89.9%) 982,280,122 (49.6%)
-------------- --------------
LONG-TERM DEBT
SECURITIES
Corporate Bonds:
Asset Backed........... $ 12,067,182 (2.9%) 29,417,837 (1.5%)
Banking................ 23,128,825 (5.6%) 42,344,898 (2.1%)
Broadcasting........... 3,944,733 (1.0%) 7,737,746 (0.4%)
Collateralized Mortgage
Obligations........... 24,819,316 (6.0%) 49,612,357 (2.5%)
Financial Services..... 60,775,829 (14.8%) 129,445,268 (6.5%)
Government Sponsored :
Federally Chartered... 5,506,656 (1.3%) 6,323,235 (0.3%)
Government Sponsored :
State Chartered....... 2,042,474 (0.5%) 4,057,347 (0.2%)
Healthcare Services.... 10,036,465 (2.4%) 15,063,888 (0.8%)
Household Products..... 3,962,600 (1.0%) 7,724,563 (0.4%)
Industrials............ 24,078,102 (5.9%) 66,622,264 (3.4%)
Newspapers............. 4,677,541 (1.1%) 7,990,940 (0.4%)
Restaurant............. 3,362,275 (0.8%) 4,226,860 (0.2%)
Utilities--Electric.... 12,459,882 (3.0%) 13,174,510 (0.7%)
Utilities--Telephone... 0 (0.0%) 5,119,400 (0.2%)
------------ --------------
Total Corporate Bonds.. 190,861,880 (46.3%) 388,861,113 (19.6%)
------------ --------------
Federal Agency
Obligations........... 21,608,734 (5.2%) 32,463,133 (1.6%)
Federal Treasury
Obligations........... 121,993,026 (29.6%) 296,514,139 (15.0%)
Foreign Obligations.... 29,919,864 (7.3%) 64,010,479 (3.2%)
Yankee Bonds........... 22,911,597 (5.6%) 40,757,635 (2.1%)
------------ --------------
Total Bonds............ 387,295,101 (94.0%) 822,606,499 (41.5%)
------------ --------------
SHORT-TERM OBLIGATIONS
Banker's Acceptance.... $ 1,999,504 (5.1%)
Commercial Paper....... 35,110,031 (88.9%)
Federal Agency
Obligations........... 1,999,174 (5.1%)
Financial Services..... 260,576,843 (11.1%) 18,926,000 (4.6%) 175,117,291 (8.8%)
-------------- ------------ ----------- --------------
Total Short-Term
Obligations........... 260,576,843 (11.1%) 18,926,000 (4.6%) 39,108,709 (99.1%) 175,117,291 (8.8%)
-------------- ------------ ----------- --------------
TOTAL INVESTMENTS....... 2,372,392,230 (101.0%) 406,221,101 (98.6%) 39,108,709 (99.1%) 1,980,003,912 (99.9%)
Other Assets Less
Liabilities........... (23,330,647) (-1.0%) 5,969,530 (1.4%) 371,130 (0.9%) 2,227,802 (0.1%)
-------------- ------------ ----------- --------------
NET ASSETS.............. $2,349,061,583 (100.0%) $412,190,631 (100.0%) $39,479,839 (100.0%) $1,982,231,714 (100.0%)
============== ============ =========== ==============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED)
METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
STATE STREET STATE STREET
RESEARCH RESEARCH
METLIFE AGGRESSIVE INTERNATIONAL
STOCK INDEX GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Aerospace............... $ 40,637,466 (2.0%) $ 11,289,881 (0.8%) $ 2,387,852 (0.9%)
Automotive.............. 45,456,508 (2.3%) 28,967,250 (2.1%) 5,015,967 (1.9%)
Banking................. 184,244,814 (9.1%) 29,889,600 (2.1%) 40,150,993 (15.0%)
Broadcasting............ 34,958,314 (1.7%) 34,642,109 (2.5%) 3,027,948 (1.1%)
Building &
Construction............ 13,042,869 (0.7%) 1,588,198 (0.6%)
Business Services....... 25,038,859 (1.2%) 264,032,617 (19.0%) 5,966,734 (2.2%)
Chemicals............... 55,137,636 (2.7%) 4,039,673 (1.5%)
Computer Equipment &
Service................. 34,881,231 (2.5%)
Construction Materials.. 7,498,217 (2.8%)
Construction & Mining
Equipment............... 8,304,900 (0.6%)
Consumer Products....... 1,829,846 (0.7%)
Containers & Glass...... 5,472,575 (0.3%) 1,006,387 (0.4%)
Cosmetics............... 5,512,025 (0.3%) 11,648,975 (0.8%)
Drugs & Health Care..... 157,334,686 (7.8%) 42,144,363 (3.0%) 21,570,856 (8.1%)
Education............... 7,437,875 (0.5%)
Electrical Equipment.... 82,536,849 (4.1%) 2,041,231 (0.7%)
Electronics............. 84,752,427 (4.2%) 123,061,789 (8.8%) 7,720,814 (2.9%)
Energy.................. 1,160,064 (0.4%)
Entertainment &
Leisure................. 18,716,901 (0.9%) 46,907,107 (3.4%) 3,136,901 (1.2%)
Financial Services...... 84,711,977 (4.2%) 72,052,419 (5.2%) 982,925 (0.4%)
Food & Beverages........ 114,340,308 (5.7%) 9,929,888 (0.7%) 11,047,677 (4.1%)
Forest Products &
Paper................... 22,113,212 (1.1%) 4,201,571 (1.6%)
General Business........ 588,933 (0.2%)
Healthcare Services..... 43,554 (0.0%)
Hospital Management..... 11,028,388 (0.5%) 14,045,000 (1.0%)
Hotel & Motel........... 5,444,538 (0.3%) 23,227,899 (1.7%)
Household Appliances &
Home Furnishings........ 4,813,163 (0.2%) 2,290,994 (0.9%)
Household Products...... 64,582,375 (3.2%) 1,266,205 (0.5%)
Insurance............... 79,897,474 (4.0%) 35,200,306 (2.5%) 19,743,473 (7.4%)
Liquor.................. 2,688,400 (0.1%)
Machinery............... 21,529,430 (1.1%) 5,393,875 (2.0%)
Medical Supply.......... 52,060,343 (2.6%) 21,603,563 (1.6%)
Metals--Aluminum........ 4,689,262 (0.2%)
Metals--Gold............ 4,638,780 (0.2%)
Metals--Non-Ferrous..... 2,126,308 (0.1%) 5,000,016 (1.9%)
Metals--Steel & Iron.... 3,137,730 (0.2%) 1,647,825 (0.1%) 2,926,945 (1.1%)
Mining.................. 2,634,900 (0.1%) 1,189,500 (0.1%) 620,596 (0.2%)
Miscellaneous........... 12,701,499 (0.6%) 22,837,675 (1.6%) 1,002,644 (0.4%)
Multi-Industry.......... 12,758,726 (0.6%) 9,623,993 (3.6%)
Newspapers.............. 13,177,443 (0.7%) 789,576 (0.3%)
Office & Business
Equipment............... 108,801,022 (5.4%) 120,385,619 (8.7%)
Oil & Gas Exploration... 905,738 (0.0%) 3,386,080 (1.3%)
Oil--Domestic........... 34,654,774 (1.7%)
Oil--International...... 107,077,494 (5.3%) 14,022,941 (5.2%)
Oil--Services........... 24,773,387 (1.2%) 12,017,500 (0.9%)
Personal Care........... 618,289 (0.2%)
Photography............. 6,809,362 (0.3%)
Pollution Control....... 4,725,750 (0.2%) 3,842,575 (0.3%)
Printing & Publishing... 6,863,863 (0.3%) 10,278,600 (0.7%) 1,324,259 (0.5%)
Real Estate............. 3,294,667 (1.2%)
Restaurant.............. 9,458,756 (0.5%) 2,436,537 (0.2%)
Retail Grocery.......... 10,371,392 (0.5%) 21,435,425 (1.5%)
Retail Trade............ 85,410,978 (4.2%) 130,225,513 (9.4%) 9,107,736 (3.4%)[
Software................ 59,131,545 (2.9%) 68,992,501 (5.0%)
Telecommunications
Equipment & Services.... 15,880,518 (1.1%) 4,694,678 (1.8%)
Textiles & Apparel...... 6,077,783 (0.3%) 26,273,281 (1.9%) 954,522 (0.4%)
Tires & Rubber.......... 5,458,800 (0.3%) 1,191,661 (0.4%)
Tobacco................. 29,937,401 (1.5%) 14,880,625 (1.1%)
Toys & Amusements....... 4,075,259 (0.2%) 3,087,999 (1.2%)
Transportation--
Airlines................ 11,143,931 (0.6%) 2,799,020 (1.0%)
Transportation--
Railroad................ 13,732,100 (0.7%) 3,894,818 (1.5%)
Transportation--
Trucking................ 1,172,450 (0.1%)
Utilities--Electric..... 59,636,673 (3.0%) 4,866,641 (1.8%)
Utilities--Gas
Distribution &
Pipelines............... 14,279,257 (0.7%) 1,658,516 (0.6%)
Utilities--
Miscellaneous........... 8,432,787 (3.2%)
Utilities--Telephone.... 130,153,229 (6.4%) 27,899,850 (2.0%) 11,476,736 (4.3%)
-------------- -------------- ------------
Total Common Stock...... 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 248,432,454 (93.0%)
-------------- -------------- ------------
PREFERRED STOCK
Banking................. $ 1,885,762 (0.7%)
Chemicals............... 706,634 (0.3%)
Retail Trade............ 484,538 (0.2%)
Software................ 808,024 (0.3%)
-------------- -------------- ------------
Total Preferred Stock... 0 (0.0%) 0 (0.0%) 3,884,958 (1.5%)
-------------- -------------- ------------
Total Equity
Securities.............. 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 252,317,412 (94.5%)
SHORT-TERM OBLIGATIONS
Federal Treasury
Obligations............. 947,146 (0.1%)
Financial Services...... 82,499,000 (5.9%)
Finance................. 8,748,846 (0.4%)
Time Deposit............ 11,000,000 (4.1%)
-------------- -------------- ------------
Total Short-Term
Obligations............. 9,695,992 (0.5%) 82,499,000 (5.9%) 11,000,000 (4.1%)
-------------- -------------- ------------
TOTAL INVESTMENTS....... 2,016,263,121 (99.8%) 1,382,032,870 (99.3%) 263,317,412 (98.6%)
Other Assets Less
Liabilities............. 4,216,915 (0.2%) 9,922,742 (0.7%) 3,771,397 (1.4%)
-------------- -------------- ------------
NET ASSETS.............. $2,020,480,036 (100.0%) $1,391,955,612 (100.0%) $267,088,809 (100.0%)
============== ============== ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED)
METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
LOOMIS SAYLES
HIGH YIELD BOND
PORTFOLIO
---------------
<S> <C> <C>
COMMON STOCK
Banking............................................... $ 29,699 (0.1%)
Forest Products & Paper............................... 171,511 (0.6%)
Real Estate........................................... 299,587 (1.1%)
Utilities--Electric................................... 105,000 (0.4%)
Utilities--Telephone.................................. 8,409 (0.0%)
-----------
Total Common Stock.................................... 614,206 (2.2%)
-----------
PREFERRED STOCK
Metals--Steel & Iron.................................. 269,750 (1.0%)
Oil--Services......................................... 30,400 (0.1%)
Transportation--Trucking.............................. 66,800 (0.2%)
Utilities--Electric................................... 87,336 (0.3%)
-----------
Total Preferred Stock................................. 454,286 (1.6%)
-----------
LONG-TERM DEBT SECURITIES
Convertible Bonds:
Broadcasting.......................................... 96,750 (0.4%)
Business Services..................................... 152,250 (0.6%)
Computer Equipment & Service.......................... 1,038,775 (3.7%)
Electrical Equipment.................................. 32,800 (0.1%)
Electronics........................................... 638,250 (2.3%)
Entertainment & Leisure............................... 234,750 (0.9%)
Foreign Obligations................................... 1,350,438 (4.9%)
Industrials........................................... 633,650 (2.3%)
Medical Supply........................................ 298,500 (1.1%)
Metals--Steel & Iron.................................. 2,000 (0.0%)
Mining................................................ 522,250 (1.9%)
Miscellaneous......................................... 452,050 (1.6%)
Oil--International.................................... 37,167 (0.1%)
Pollution Control..................................... 255,469 (0.9%)
Real Estate........................................... 96,000 (0.3%)
Restaurant............................................ 682,625 (2.5%)
Retail Trade.......................................... 84,250 (0.3%)
Textiles & Apparel.................................... 317,000 (1.1%)
Transportation--Trucking.............................. 116,800 (0.4%)
Utilities--Telephone.................................. 310,000 (1.1%)
-----------
Total Convertible Bonds............................... 7,351,774 (26.5%)
-----------
Corporate Bonds:
Automotive............................................ 177,500 (0.6%)
Broadcasting.......................................... 1,445,555 (5.2%)
Collateralized Mortgage Obligations................... 98,000 (0.4%)
Computer Equipment & Service.......................... 1,017,754 (3.7%)
Electronics........................................... 275,525 (1.0%)
Financial Services.................................... 793,750 (2.9%)
Food & Beverages...................................... 997,719 (3.6%)
Industrials........................................... 525,236 (1.9%)
Metals--Steel & Iron.................................. 152,004 (0.5%)
Pollution Control..................................... 120,000 (0.4%)
Real Estate........................................... 247,500 (0.9%)
Retail Grocery........................................ 169,500 (0.6%)
Retail Trade.......................................... 526,625 (1.9%)
Telecommunications Equipment & Services............... 525,825 (1.9%)
Utilities--Electric................................... 778,000 (2.8%)
Utilities--Telephone.................................. 2,393,688 (8.6%)
-----------
Total Corporate Bonds................................. 10,244,181 (36.9%)
-----------
Foreign Obligations................................... 4,150,064 (14.9%)
Yankee Bonds.......................................... 3,152,009 (11.3%)
-----------
Total Bonds........................................... 24,898,028 (89.6%)
TOTAL SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.... 1,782,000 (6.4%)
-----------
TOTAL INVESTMENTS...................................... 27,748,520 (99.8%)
Other Assets Less Liabilities......................... 55,146 (0.2%)
-----------
NET ASSETS............................................. $27,803,666 (100.0%)
===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED)
METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
JANUS T. ROWE PRICE SCUDDER
MID CAP SMALL CAP GROWTH GLOBAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Aerospace............... $ 1,929,398 2.1%) $ 582,356 (1.0%)
Automotive.............. $ 868,848 (0.8%) 1,535,550 (1.6%) 334,050 (0.6%)
Banking................. 2,514,292 (2.4%) 3,793,175 (4.0%) 2,528,176 (4.2%)
Biotechnology........... 737,930 (0.8%) 109,238 (0.2%)
Broadcasting............ 9,592,084 (9.2%) 2,176,161 (2.3%) 668,014 (1.1%)
Building &
Construction........... 1,339,459 (1.4%)
Business Services....... 8,259,757 (8.0%) 9,108,644 (9.7%) 473,850 (0.8%)
Chemicals............... 488,150 (0.5%) 4,301,881 (7.1%)
Computer Equipment &
Service................ 1,355,650 (1.3%) 4,896,551 (5.2%)
Construction Materials.. 5,772,605 (5.6%) 911,288 (1.0%) 511,486 (0.8%)
Construction & Mining
Equipment.............. 512,742 (0.5%)
Consumer Products....... 327,816 (0.4%) 1,038,234 (1.7%)
Consumer Services....... 230,503 (0.4%)
Cosmetics............... 269,325 (0.3%)
Drugs & Health Care..... 9,479,980 (9.1%) 7,326,342 (7.8%) 1,893,125 (3.1%)
Education............... 4,412,464 (4.3%) 985,719 (1.0%)
Electrical Equipment.... 3,993,096 (3.9%) 2,149,376 (2.3%) 1,121,131 (1.7%)
Electronics............. 5,015,736 (4.8%) 6,660,654 (7.1%) 850,606 (1.4%)
Energy.................. 605,906 (0.6%)
Entertainment &
Leisure................ 2,498,617 (2.4%) 2,547,108 (2.7%)
Financial Services...... 9,266,979 (8.9%) 1,936,243 (2.1%) 1,252,399 (2.1%)
Food & Beverages........ 1,822,511 (1.8%) 552,782 (0.6%) 1,693,834 (2.8%)
Forest Products &
Paper.................. 52,594 (0.1%) 261,625 (0.4%)
Healthcare Services..... 1,858,959 (1.8%) 2,159,197 (2.3%)
Hotel & Motel........... 981,770 (1.0%)
Household Appliances &
Home Furnishings....... 617,587 (0.7%)
Insurance............... 2,665,512 (2.6%) 3,326,513 (3.5%) 7,298,843 (12.0%)
Machinery............... 69,400 (0.1%) 584,593 (1.0%)
Medical Supply.......... 1,846,006 (2.0%) 1,113,861 (1.8%)
Metals--Gold............ 14,688 (0.0%) 247,458 (0.4%)
Metals--Non-Ferrous..... 364,000 (0.4%) 213,760 (0.4%)
Metals--Steel & Iron.... 458,394 (0.8%)
Mining.................. 443,368 (0.7%)
Miscellaneous........... 1,842,291 (2.0%)
Multi-Industry.......... 1,319,463 (1.3%) 1,727,416 (2.8%)
Office & Business
Equipment.............. 1,772,944 (1.7%) 2,371,144 (2.5%) 1,768,470 (2.9%)
Oil & Gas Exploration... 1,892,111 (2.0%)
Oil--Domestic........... 46,575 (0.0%)
Oil--International...... 1,329,968 (2.2%)
Oil--Services........... 1,363,250 (1.4%) 523,959 (0.9%)
Plastics................ 1,356,956 (1.3%) 333,450 (0.4%)
Pollution Control....... 448,322 (0.5%)
Printing & Publishing... 38,375 (0.0%) 148,548 (0.2%)
Real Estate............. 2,574,758 (2.5%) 453,506 (0.5%) 326,281 (0.5%)
Restaurant.............. 9,003,672 (8.7%) 956,133 (1.0%)
Retail Grocery.......... 323,275 (0.3%) 565,025 (0.6%)
Retail Trade............ 3,673,828 (3.5%) 6,760,914 (7.2%) 264,075 (0.4%)
Shipbuilding............ 416,500 (0.4%)
Software................ 3,020,850 (2.9%) 6,090,820 (6.5%) 1,565,031 (2.6%)
Technology.............. 16,949 (0.0%)
Telecommunications
Equipment & Services... 4,621,813 (4.9%) 521,314 (0.9%)
Textiles & Apparel...... 1,289,919 (1.4%)
Tires & Rubber.......... 458,339 (0.8%)
Transportation.......... 327,750 (0.3%)
Transportation--
Airlines............... 1,388,156 (1.3%) 567,225 (0.6%) 1,067,700 (1.8%)
Transportation--
Railroad............... 494,413 (0.5%) 711,123 (1.2%)
Transportation--
Trucking............... 346,544 (0.4%)
Utilities--Electric..... 2,729,894 (2.6%) 3,366,089 (5.5%)
Utilities--Gas
Distribution &
Pipelines.............. 619,281 (1.0%)
Utilities--
Miscellaneous.......... 552,834 (0.5%)
Utilities--Telephone.... 1,637,908 (1.6%) 1,031,758 (1.1%) 963,189 (1.6%)
------------ ----------- -----------
Total Common Stock...... 99,244,370 (95.6%) 91,984,119 (97.8%) 43,571,568 (71.8%)
------------ ----------- -----------
PREFERRED STOCK
Food & Beverages........ 369,607 (0.6%)
Metals--Steel & Iron.... 651,921 (1.1%)
Oil--International...... 950,554 (1.6%)
Software................ 686,984 (1.1%)
------------ ----------- -----------
Total Preferred Stock... -- (0.0%) -- (0.0%) 2,659,066 (4.4%)
------------ ----------- -----------
Total Equity
Securities............. 99,244,370 (95.6%) 91,984,119 (97.8%) 46,230,634 (76.2%)
LONG-TERM DEBT
SECURITIES
Federal Treasury
Obligations............ 8,051,582 (13.2%)
Foreign Obligations..... 1,873,970 (3.1%)
------------ ----------- -----------
Total Long-Term Debt
Securities............. -- (0.0%) -- (0.0%) 9,925,552 (16.3%)
SHORT-TERM OBLIGATIONS
Commercial Paper........ 1,879,000 (3.1%)
Banking................. 410,282 (0.4%)
Federal Agency
Obligations............ 4,999,167 (4.8%) 1,518,800 (1.6%) 3,999,472 (6.6%)
Financial Services...... 4,899,088 (4.7%) 1,657,167 (1.8%)
------------ ----------- -----------
Total Short-Term
Obligations............ 9,898,255 (9.5%) 3,586,249 (3.8%) 5,878,472 (9.7%)
------------ ----------- -----------
TOTAL INVESTMENTS....... 109,142,625 (105.1%) 95,570,368 (101.6%) 62,034,658 (102.2%)
Other Assets Less
Liabilities............ (5,290,984) (-5.1%) (1,550,362) (-1.6%) (1,322,516) (-2.2%)
------------ ----------- -----------
NET ASSETS.............. $103,851,641 (100.0%) $94,020,006 (100.0%) $60,712,142 (100.0%)
============ =========== ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONCLUDED)
The value of the investments of the Fund's portfolios are determined using
the following valuation techniques. Portfolio securities that are traded on
domestic stock exchanges are valued at the last price as of the close of
business on the day the securities are being valued, or, lacking any sales, at
the mean between closing bid and asked prices (except for the Loomis Sayles
High Yield Bond Portfolio, which in the latter case would value such
securities at the last bid price). Securities trading primarily on non-
domestic exchanges are valued at the preceding closing price on the exchange
where it primarily trades (or, in the case of the Loomis Sayles High Yield
Bond and Scudder Global Equity Portfolios, the last sale). A security that is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for that security by the Board of
Directors or its delegates. If no closing price is available, then such
securities are valued by using the mean between the last current bid and asked
prices or, second, by using the last available closing price (except for the
Scudder Global Equity Portfolio which second values such securities at the
last current bid, and third by using the last available price). Domestic
securities traded in the over-the-counter market are valued at the mean
between the bid and asked prices or yield equivalent as obtained from two or
more dealers that make markets in the securities (except for the Loomis Sayles
High Yield Bond Portfolio, which, in the latter case, would value such
security at the last bid price; or the Scudder Global Equity Portfolio which
would value such security first at the last sale, and second at the bid
price). All non-U.S. securities traded in the over-the-counter securities
market are valued at the last sale quote, if market quotations are available,
or the last closing bid price, if there is no active trading in a particular
security for a given day. Where market quotations are not readily available
such non-domestic over-the-counter securities, then such securities will be
valued in good faith by a method that the Board of Directors, or it delegates,
believe accurately reflects fair value. Portfolio securities which are traded
both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market, and it is expected
that for debt securities this ordinarily will be the over-the-counter market.
Securities and assets for which market quotations are not readily available
(e.g. certain long-term bonds and notes) are valued at fair value as
determined in good faith by or under the direction of the Board of Directors
of the Fund, including valuations furnished by a pricing service retained for
this purpose and typically utilized by other institutional-sized trading
organizations. Forward foreign currency exchange contracts are valued based on
the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or
dealer. Short-term instruments with a remaining maturity of sixty days or less
are valued utilizing the amortized cost, method of valuation. If for any
reason the fair value of any security is not fairly reflected by such method,
such security will be valued by the same methods as securities having a
maturity of more than sixty days.
Options, whether on securities, indices, or futures contracts, are valued at
the last sales price available as of the close of business on the day of
valuation or, if no sale, at the mean between the bid and asked prices.
Options on currencies are valued at the spot price each day. As a general
matter, futures contracts are marked-to-market daily. The value of futures
contracts will be the sum of the margin deposit plus or minus the difference
between the value of the futures contract on each day the net asset value is
calculated and the value on the date the futures contract originated, value
being that established on a recognized commodity exchange, or by reference to
other customary sources, with gain or loss being realized when the futures
contract closes or expires.
<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, 1997 and 1996 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the company at
December 31, 1997 and 1996 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the company
has changed the method of accounting for investment income on certain
structured securities.
Deloitte & Touche LLP
New York, New York
February 12, 1998, except for Note 17,
as to which the date is March 12, 1998
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:.................................... 2,15
Available for Sale, at Estimated Fair Value........ $ 92,630 $ 75,039
Held to Maturity, at Amortized Cost................ -- 11,322
Equity Securities.................................... 2,15 4,250 2,816
Mortgage Loans on Real Estate........................ 2,15 20,247 18,964
Policy Loans......................................... 15 5,846 5,842
Real Estate.......................................... 2 6,111 7,498
Real Estate Joint Ventures........................... 4 680 851
Other Limited Partnership Interests.................. 4 855 1,004
Leases and Leveraged Leases.......................... 2 2,123 1,763
Short-Term Investments............................... 15 705 741
Other Invested Assets................................ 2,338 2,692
-------- --------
Total Investments.................................. 135,785 128,532
Cash and Cash Equivalents.............................. 15 2,871 2,325
Deferred Policy Acquisition Costs...................... 6,436 7,227
Accrued Investment Income.............................. 1,860 1,611
Premiums and Other Receivables......................... 5 3,280 2,916
Deferred Income Taxes Recoverable...................... 6 -- 37
Other Assets........................................... 3,055 2,340
Separate Account Assets................................ 48,620 43,763
-------- --------
Total Assets........................................... $201,907 $188,751
======== ========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................. 5 $ 72,125 $ 69,115
Policyholder Account Balances.......................... 15 48,533 47,674
Other Policyholder Funds............................... 4,681 4,758
Policyholder Dividends Payable......................... 1,373 1,348
Short- and Long-Term Debt.............................. 9,15 7,203 5,257
Income Taxes Payable:.................................. 6
Current.............................................. 480 599
Deferred............................................. 472 --
Other Liabilities...................................... 4,695 4,618
Separate Account Liabilities........................... 48,338 43,399
-------- --------
Total Liabilities...................................... 187,900 176,768
-------- --------
Commitments and Contingencies (Notes 2 and 10)
Equity
Retained Earnings...................................... 12,140 10,937
Net Unrealized Investment Gains........................ 3 1,898 1,028
Foreign Currency Translation Adjustments............... (31) 18
-------- --------
Total Equity........................................... 16 14,007 11,983
-------- --------
Total Liabilities and Equity........................... $201,907 $188,751
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 5 $11,299 $11,462 $11,178
Universal Life and Investment-Type Product
Policy Fee Income............................ 1,458 1,243 1,177
Net Investment Income......................... 3 9,475 8,993 8,837
Investment Gains (Losses), Net................ 3 798 231 (157)
Commissions, Fees and Other Income............ 1,344 1,256 834
------- ------- -------
Total Revenues............................ 24,374 23,185 21,869
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 5 12,328 12,399 11,915
Interest Credited to Policyholder Account Bal-
ances........................................ 2,874 2,868 3,143
Policyholder Dividends........................ 1,720 1,728 1,786
Other Operating Costs and Expenses............ 11 5,759 4,784 4,281
------- ------- -------
Total Benefits and Other Deductions....... 22,681 21,779 21,125
------- ------- -------
Earnings from Continuing Operations Before In-
come Taxes................................... 1,693 1,406 744
Income Taxes.................................. 6 476 482 407
------- ------- -------
Earnings from Continuing Operations........... 1,217 924 337
------- ------- -------
Discontinued Operations: 13
Loss from Discontinued Operations (Net of
Income Tax (Benefit) Expense of $(8) in
1997, $(18) in 1996 and $32 in 1995)....... (14) (52) (54)
(Loss) Gain on Disposal of Discontinued Op-
erations (Net of Income Tax (Benefit) Ex-
pense of $(11) in 1996 and $106 in 1995)... -- (19) 416
------- ------- -------
(Loss) Earnings from Discontinued Operations.. (14) (71) 362
------- ------- -------
Net Earnings.................................. 16 $ 1,203 $ 853 $ 699
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year.......... $10,937 $10,084 $ 9,385
Net Earnings.................................. 1,203 853 699
------- ------- -------
Retained Earnings, End of Year................ 12,140 10,937 10,084
------- ------- -------
Net Unrealized Investment Gains (Losses), Be-
ginning of Year.............................. 1,028 1,646 (955)
Change in Unrealized Investment Gains (Loss-
es).......................................... 3 870 (618) 2,601
------- ------- -------
Net Unrealized Investment Gains, End of Year.. 1,898 1,028 1,646
------- ------- -------
Foreign Currency Translation Adjustments, Be-
ginning of Year.............................. 18 24 (2)
Change in Foreign Currency Translation Adjust-
ments........................................ (49) (6) 26
------- ------- -------
Foreign Currency Translation Adjustments, End
of Year...................................... (31) 18 24
------- ------- -------
Total Equity, End of Year..................... 16 $14,007 $11,983 $11,754
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Earnings $ 1,203 $ 853 $ 699
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
<CAPTION>
Change in Deferred Policy Acquisition Costs, Net. (159) (391) (376)
<S> <C> <C> <C>
Change in Accrued Investment Income.............. (215) 350 (191)
Change in Premiums and Other Receivables......... (819) (106) (29)
Change in Undistributed Income of Real Estate
Joint Ventures and Other
Limited Partnership Interests................... 163 (45) (221)
Gains from Sales of Investments and Businesses,
Net............................................. (1,029) (428) (595)
Depreciation and Amortization Expenses........... 516 (18) 30
Interest Credited to Policyholder Account Bal-
ances........................................... 2,874 2,868 3,143
Universal Life and Investment-Type Product Policy
Fee Income...................................... (1,458) (1,243) (1,177)
Change in Future Policy Benefits................. 1,641 2,149 2,332
Change in Other Policyholder Funds............... 88 181 (66)
Change in Income Taxes Payable................... (99) (134) 327
Other, Net....................................... 512 (348) 947
-------- -------- --------
Net Cash Provided by Operating Activities.......... 3,218 3,688 4,823
-------- -------- --------
Cash Flows from Investing Activities
Sales, Maturities and Repayments of:
Fixed Maturities................................ 75,346 76,117 64,372
Equity Securities............................... 1,821 2,069 694
Mortgage Loans on Real Estate................... 2,381 2,380 3,182
Real Estate..................................... 1,875 1,948 1,193
Real Estate Joint Ventures...................... 205 410 387
Other Limited Partnership Interests............. 166 178 42
Leases and Leveraged Leases..................... 192 102 123
Purchases of:
Fixed Maturities................................ (76,603) (76,225) (66,693)
Equity Securities............................... (2,121) (2,742) (781)
Mortgage Loans on Real Estate................... (4,119) (4,225) (2,491)
Real Estate..................................... (387) (859) (904)
Real Estate Joint Ventures...................... (72) (130) (285)
Other Limited Partnership Interests............. (338) (307) (87)
Assets to be Leased............................. (738) (585) (383)
Net Change in Short-Term Investments.............. 37 1,028 (634)
Net Change in Policy Loans........................ 17 (128) (112)
Other, Net........................................ 442 45 (308)
-------- -------- --------
Net Cash Used by Investing Activities.............. (1,896) (924) (2,685)
-------- -------- --------
Cash Flows from Financing Activities
Policyholder Account Balances:
Deposits....................................... 16,061 17,167 16,017
Withdrawals.................................... (18,831) (19,321) (19,142)
Additions to Long-Term Debt....................... 828 -- 692
Repayments of Long-Term Debt...................... (99) (284) (389)
Net Increase (Decrease) in Short-Term Debt........ 1,265 69 (78)
-------- -------- --------
Net Cash Used by Financing Activities.............. (776) (2,369) (2,900)
-------- -------- --------
Change in Cash and Cash Equivalents................ 546 395 (762)
Cash and Cash Equivalents, Beginning of Year....... 2,325 1,930 2,692
-------- -------- --------
Cash and Cash Equivalents, End of Year............. $ 2,871 $ 2,325 $ 1,930
======== ======== ========
Supplemental Cash Flow Information
Interest Paid.................................... $ 422 $ 310 $ 280
======== ======== ========
Income Taxes Paid................................ $ 589 $ 497 $ 283
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE IN MILLIONS OF DOLLARS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "company") provide life insurance and annuity products and
pension, pension-related and investment-related products and services to
individuals, corporations and other institutions. The company also provides
nonmedical health, disability and property and casualty insurance and offers
investment management, investment advisory and commercial finance services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The New York State
Insurance Department (the "Department") recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company for determining solvency under the New York
Insurance Law. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determination.
The consolidated financial statements include the accounts of MetLife and
its subsidiaries, partnerships and joint venture interests in which MetLife
has control. Other equity investments in affiliated companies, partnerships
and joint ventures are generally reported on the equity basis. Minority
interest relating to certain consolidated entities amounted to $277 and $149
at December 31, 1997 and 1996, respectively, and is included in other
liabilities. Significant intercompany transactions and balances have been
eliminated in consolidation.
Prior years' amounts have been reclassified to conform to the 1997
presentation.
On December 31, 1995, the company reclassified (under one-time accounting
implementation guidance) to available for sale certain held to maturity
securities. On July 1, 1997, the company reclassified to available for sale
all securities classified as held to maturity on that date as management
concluded that all securities are now available for sale. As a result,
consolidated equity at July 1, 1997 and December 31, 1995 increased by $198
and $135, respectively, excluding the effects of deferred income taxes,
amounts attributable to participating pension contracts, and adjustments of
deferred policy acquisition costs and future policy benefit loss recognition.
During 1997 management changed to the retrospective interest method of
accounting for investment income on structured note securities in accordance
with authoritative guidance issued in late 1996. As a result, net investment
income increased by $175. The cumulative effect of this accounting change on
prior years' income is not material.
VALUATION OF INVESTMENTS
SECURITIES--As mentioned above, during 1997 management reclassified all of
the company's fixed maturity securities to available for sale. Accordingly, as
of December 31, 1997, all of the company's investment securities are carried
at estimated fair value. Prior to this reclassification, certain fixed
maturity securities (principally bonds and redeemable preferred stock) were
carried at amortized cost. Unrealized investment gains and losses on
investment securities are recorded directly as a separate component of equity
net of related deferred income taxes, amounts attributable to participating
pension contracts and adjustments of deferred policy acquisition costs and
future policy benefit loss recognition. Costs of securities are adjusted for
impairments in value considered other than temporary. Such adjustments are
recorded as realized investment losses.
All security transactions are recorded on a trade date basis.
MORTGAGE LOANS in good standing are carried at amortized cost. A provision
is made for a realized investment loss (and a corresponding allowance is
established) when it becomes probable that the company will be unable to
collect all amounts due under the terms of the loan agreement. The provision
generally is equal to the excess of the carrying value of the mortgage loan
over its estimated fair value. Estimated fair value is based on either the
present value of
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price or the fair value of the collateral.
Mortgage loans considered to be uncollectible are charged against the
allowance and subsequent recoveries are credited to the allowance. Interest
income earned on loans where the collateral value is used to measure
impairment is recorded on a cash basis. Interest income earned on loans where
the present value method is used to measure impairment is accrued on the net
carrying value amount of the loan at the interest rate used to discount the
cash flows.
POLICY LOANS are stated at unpaid principal balances.
INVESTMENT REAL ESTATE is generally stated at depreciated cost. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. If events or changes in circumstances indicate that the
carrying amount of the investment exceeds its expected future cash flows, a
realized investment loss is recorded for the impairment. Real estate
investments that management intends to sell in the near term are reported at
the lower of cost or estimated fair market value less allowances for the
estimated cost of sales. Changes in the allowance relating to real estate to
be disposed of and impairments of real estate are reported as realized
investment gains or losses.
Depreciation of real estate is computed evenly over the estimated useful
lives of the properties (20 to 40 years).
LEASES AND LEVERAGED LEASES--The company is the lessor of equipment in both
direct financing and operating lease transactions. At lease commencement, the
company records the aggregate future minimum lease payments due and the
estimated residual value of the leased equipment less the unearned lease
income for direct financing leases. The unearned lease income represents the
excess of aggregate future minimum lease receipts plus the estimated residual
value over the cost of the leased equipment. Lease income is recognized over
the term of the lease in a manner which reflects a level yield on the net
investment in the lease. Certain origination fees and costs are deferred and
recognized over the term of the lease using the interest method. For operating
lease transactions, the cost of equipment or its net realizable value is
depreciated evenly over its estimated economic life.
The company participates in leasing transactions in which it supplies only a
portion of the purchase price, but generally has the entire equity interest in
the equipment and rentals receivable (leveraged leases). These interests,
however, are subordinated to the interests of the lenders supplying the
nonequity portion of the purchase price. The financing is generally in the
form of long-term debt that provides for no recourse against the company and
is collateralized by the property. The investment in leveraged leases is
recorded net of the nonrecourse debt. Revenue, including related tax benefits,
is recorded over the term of the lease at a level rate of return. Management
regularly reviews residual values and writes down residuals to expected values
as needed.
SHORT-TERM INVESTMENTS are stated at amortized cost, which approximates fair
value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are deducted from asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses. Investment gains and losses are reduced by amounts attributable to
participating pension contracts and adjustments of deferred policy acquisition
costs and future policy benefit loss recognition.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other
assets, and are stated at cost, less accumulated depreciation and
amortization. Depreciation, including charges relating to capitalized leases,
is provided evenly or using sum of the years digits method over the lesser of
estimated useful lives of the assets or, where
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
appropriate, the term of the lease. Estimated lives range from 20 to 40 years
for real estate and 5 to 15 years for all other property and equipment.
Amortization of leasehold improvements is provided evenly over the lesser of
the term of the lease or the estimated useful life of the improvements.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with and are primarily related
to the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over 40 years for participating traditional life and 30 years for universal
life and investment-type products. Amortization is recorded based on a
constant percentage of estimated gross margins or profits (arising principally
from surrender charges and interest, mortality and expense margins based on
historical and anticipated future experience). Changes to amounts previously
amortized are reflected in earnings in the period related estimates are
revised.
For nonparticipating traditional life and annuity policies with life
contingencies, deferred policy acquisition costs are amortized in proportion
to anticipated premiums. Assumptions as to anticipated premiums are made at
the date of policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in earnings when
they occur. For these contracts, the amortization periods generally are for
the estimated life of the policy.
For nonmedical health insurance contracts, deferred policy acquisition costs
are amortized over the estimated life of the contracts (generally 10 years) in
proportion to anticipated premium revenue at the time of issue.
For property and liability insurance, deferred policy acquisition costs are
amortized over the terms of policies or reinsurance treaties.
OTHER INTANGIBLE ASSETS
The value of insurance acquired and the excess of purchase price over the
fair value of net assets acquired are included in other assets. The value of
insurance acquired is amortized over the expected policy or contract duration
in relation to the present value of estimated gross profits from such policies
and contracts. The excess of purchase price over the fair value of net assets
acquired is amortized evenly over 10 years.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of (a) net level premium
reserves for death and endowment policy benefits (calculated based on the
nonforfeiture interest rate, ranging from 2.5 percent to 7.0 percent, and
mortality rates guaranteed in calculating the cash surrender values described
in such contracts), (b) the liability for terminal dividends, and (c) premium
deficiency reserves, which are established when the liabilities for future
policy benefits plus the present value of expected future gross premiums are
insufficient to provide for expected future policy benefits and expenses after
deferred policy acquisition costs are written off.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 6.0 percent to 8.25
percent.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of an
accumulation of gross premium payments plus credited interest less expense and
mortality charges and withdrawals.
Benefit liabilities for nonmedical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals
and interest, which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For property and liability insurance, the liability for unpaid reported
losses is based on a case by case or overall estimate using the company's past
experience. A provision is also made for losses incurred but not reported on
the basis of estimates and past experience. Revisions of estimates are
reflected in net earnings in the year such refinements are made.
RECOGNITION OF INCOME AND EXPENSE
Premiums from traditional life and annuity policies with life contingencies
are recognized as income when due. Benefits and expenses are matched with such
income resulting in the recognition of profits over the life of the contract.
This match is accomplished through the provision for future policy benefits
and the deferral and subsequent amortization of policy acquisition costs.
Premiums due over a significantly shorter period than the total period over
which benefits are provided are recorded as income when due with any excess
profit deferred and recognized as income in a constant relationship to
insurance in-force or, for annuities, the amount of expected future benefit
payments.
Premiums from nonmedical health contracts are recognized as income on a pro
rata basis over the contract term.
Premiums from universal life and investment-type contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality, policy
administration and surrender charges. Amounts that are charged to expense
include benefit claims incurred in the period in excess of related
policyholder account balances and interest credited to policyholder account
balances.
Property and liability premiums are generally recognized as revenue on a pro
rata basis over the policy term. Unearned premiums are included in other
liabilities.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by
the board of directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for
the year and management's judgment as to the appropriate level of statutory
surplus to be retained by the company.
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated U.S. federal income tax return and separate income tax
returns as required. The future tax consequences of temporary differences
between financial reporting and tax bases of assets and liabilities are
measured as of the balance sheet dates and are recorded as deferred income tax
assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business
of the company. Separate Account assets are subject to general account claims
only to the extent the value of such assets exceeds the Separate Account
liabilities.
Investments held in the Separate Accounts (stated at estimated fair value)
and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
DISCONTINUED OPERATIONS
Certain operations have been discontinued and, accordingly, are segregated
in the consolidated statements of earnings.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations and subsidiaries are translated
at the exchange rate in effect at year-end. Revenues and benefits and other
expenses are translated at the average rate prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are charged or credited directly to equity.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 125 Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
and SFAS No. 127 Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125 provide accounting and reporting standards relating to
transfers of security interests, repurchase agreements, dollar rolls,
securities lending and similar transactions which will be effective in 1998.
The company believes that the application of these standards will not have a
material impact on the company's results of operations, financial position or
liquidity.
SFAS No. 130 Reporting Comprehensive Income establishes standards for
reporting and presentation of comprehensive income and its components and will
be effective in 1998. Comprehensive income, which includes all changes to
equity except those resulting from investments by owners or distributions to
owners, was $2,024, $229 and $3,326 in 1997, 1996 and 1995, respectively.
Consolidated statements of comprehensive income have not been presented, as
the company has not determined the individual amounts to be displayed in such
statements.
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The cost or amortized cost, gross unrealized gain and loss, and estimated
fair value of fixed maturity and equity securities, by category, were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- -----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Available for Sale Securities:
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies............ $ 10,619 $ 1,511 $ 2 $ 12,128
States and political subdivisions..... 486 22 -- 508
Foreign governments................... 3,420 371 52 3,739
Corporate............................. 41,191 2,343 290 43,244
Mortgage-backed securities............ 22,191 572 21 22,742
Other................................. 9,463 428 134 9,757
-------- --------- ------ --------
Total bonds......................... 87,370 5,247 499 92,118
Redeemable preferred stocks............. 494 19 1 512
-------- --------- ------ --------
Total fixed maturities.............. $ 87,864 $ 5,266 $ 500 $ 92,630
======== ========= ====== ========
Equity Securities:
Common stocks........................... $ 2,444 $ 1,716 $ 105 $ 4,055
Nonredeemable preferred stocks.......... 201 5 11 195
-------- --------- ------ --------
Total equity securities............. $ 2,645 $ 1,721 $ 116 $ 4,250
======== ========= ====== ========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- ------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Available for Sale Securities:
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies........... $12,949 $ 901 $128 $13,722
States and political subdivisions.... 536 13 1 548
Foreign governments.................. 2,597 266 6 2,857
Corporate............................ 32,520 1,102 294 33,328
Mortgage-backed securities........... 21,200 407 91 21,516
Other................................ 2,511 90 30 2,571
------- --------- ------- -------
Total bonds........................ 72,313 2,779 550 74,542
Redeemable preferred stocks............ 500 -- 3 497
------- --------- ------- -------
Total fixed maturities............. $72,813 $ 2,779 $ 553 $75,039
======= ========= ======= =======
Equity Securities:
Common stocks.......................... $ 1,882 $ 648 $ 55 $ 2,475
Nonredeemable preferred stocks......... 371 51 81 341
------- --------- ------- -------
Total equity securities............ $ 2,253 $ 699 $ 136 $ 2,816
======= ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Held to Maturity Securities:
Fixed Maturities:
Bonds:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and
agencies............................ $ 48 $ 3 $ 51
States and political subdivisions.... 58 1 59
Foreign governments.................. 260 5 265
Corporate............................ 7,520 236 $ 64 7,692
Mortgage-backed securities........... 689 1 16 674
Other................................ 2,746 85 24 2,807
------- -------- -------- -------
Total bonds........................ 11,321 331 104 11,548
Redeemable preferred stocks............ 1 -- -- 1
------- -------- -------- -------
Total fixed maturities............. $11,322 $ 331 $ 104 $11,549
======= ======== ======== =======
</TABLE>
The amortized cost and estimated fair value of bonds, by contractual
maturity, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1997
Due in one year or less.............................. $ 1,916 $ 1,927
Due after one year through five years................ 15,830 16,260
Due after five years through 10 years................ 23,023 24,067
Due after 10 years................................... 24,410 27,122
------- -------
Subtotal........................................... 65,179 69,376
Mortgage-backed securities........................... 22,191 22,742
------- -------
Total.............................................. $87,370 $92,118
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above table
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1997, approximately
15 percent, 7 percent and 6 percent of the properties were located in
California, Illinois and Florida, respectively. Generally, the company (as the
lender) requires that a minimum of one-fourth of the purchase price of the
underlying real estate be paid by the borrower.
The mortgage loan investments were categorized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings................................................ 32% 30%
Retail.......................................................... 16% 19%
Residential..................................................... 15% 16%
Agricultural.................................................... 18% 18%
Other........................................................... 19% 17%
---- ----
Total......................................................... 100% 100%
==== ====
</TABLE>
Many of the company's real estate joint ventures have mortgage loans with
the company. The carrying values of such mortgages were $753 and $869 at
December 31, 1997 and 1996, respectively.
Mortgage loan valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................... $ 444 $ 466 $ 483
Additions charged to income...................... 61 144 107
Deductions for writedowns and dispositions....... (241) (166) (124)
------ ------ ------
Balance, December 31............................. $ 264 $ 444 $ 466
====== ====== ======
Impaired mortgage loans and related valuation allowances were as follows:
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
DECEMBER 31
Impaired mortgage loans with valuation allow-
ances........................................... $1,231 $1,677
Impaired mortgage loans with no valuation allow-
ances........................................... 306 165
------ ------
Recorded investment in impaired mortgage loans... 1,537 1,842
Valuation allowances............................. (250) (427)
------ ------
Net impaired mortgage loans...................... $1,287 $1,415
====== ======
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Average recorded investment in impaired mortgage
loans........................................... $1,680 $2,113 $2,365
====== ====== ======
</TABLE>
Interest income on impaired mortgage loans recorded on a cash basis totaled
$110 , $122 and $169 for the years ended December 31, 1997, 1996 and 1995,
respectively.
REAL ESTATE
Accumulated depreciation on real estate was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................ $2,109 $2,187 $2,757
Depreciation expense.............................. 332 348 427
Deductions for dispositions....................... (475) (426) (997)
------ ------ ------
Balance, December 31.............................. $1,966 $2,109 $2,187
====== ====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Real estate valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................... $ 529 $ 743 $ 622
(Credited) charged to income......................... (52) 127 358
Deductions for writedowns and dispositions........... (436) (341) (237)
----- ----- -----
Balance, December 31................................. $ 41 $ 529 $ 743
===== ===== =====
</TABLE>
The above table does not include valuation allowances of $55, $118 and $167
at December 31, 1997, 1996 and 1995, respectively, relating to investments in
real estate joint ventures.
Prior to 1996, the company established valuation allowances for all impaired
real estate investments including real estate held for investment. During
1996, $150 of allowances relating to real estate held for investment were
applied as writedowns to specific properties. During 1997, allowances of $94
relating to real estate held for sale were applied as writedowns to specific
properties. The balances in the real estate valuation allowances at December
31, 1997 and 1996, relate to properties that management has committed to a
plan of sale. The carrying values, net of valuation allowances, of properties
committed to a plan of sale were $206 and $1,844 at December 31, 1997 and
1996, respectively. Net investment income relating to such properties was $8
and $60 for the years ended December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the company owned real estate acquired in
satisfaction of debt of $218 and $456, respectively.
LEASES AND LEVERAGED LEASES
The company's investment in direct financing leases and leveraged leases was
as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING LEVERAGED
LEASES LEASES TOTAL
-------------- ------------- --------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Investment................ $1,137 $1,247 $ 851 $ 387 $1,988 $1,634
Estimated residual values. 183 238 641 543 824 781
------ ------ ------ ----- ------ ------
Total................... 1,320 1,485 1,492 930 2,812 2,415
Unearned income........... (261) (336) (428) (316) (689) (652)
------ ------ ------ ----- ------ ------
Net investment............ $1,059 $1,149 $1,064 $ 614 $2,123 $1,763
====== ====== ====== ===== ====== ======
</TABLE>
The investment amounts set forth above are generally due in monthly
installments. The payment periods generally range from three to eight years,
but in certain circumstances are as long as 20 years. Average yields range
from 7 percent to 12 percent. These receivables are generally collateralized
by the related property.
Scheduled aggregate receipts for the investment and estimated residual
values in direct financing leases were as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
1998......................................... $ 229 $ 14 $ 243
1999......................................... 211 19 230
2000......................................... 192 25 217
2001......................................... 147 19 166
2002......................................... 114 22 136
Thereafter................................... 244 84 328
------ ---- ------
Total........................................ $1,137 $183 $1,320
====== ==== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Historical collection experience indicates that a portion of the above
amounts will be paid prior to contractual maturity. Accordingly, the future
receipts, as shown above, should not be regarded as a forecast of future cash
flows.
FINANCIAL INSTRUMENTS
The company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
Company policy requires a minimum of 102 percent of the fair value of the
loaned securities to be separately maintained as collateral for the loans. The
collateral is recorded in memorandum records and is not reflected in the
consolidated balance sheets. To further minimize the credit risks related to
this lending program, the company regularly monitors the financial condition
of the borrowers.
The company engages in a variety of derivative transactions. Certain
derivatives, such as forwards, futures, options and swaps, which do not
themselves generate interest or dividend income, are acquired or sold in order
to hedge or reduce risks applicable to assets held, or expected to be
purchased or sold, and liabilities incurred or expected to be incurred. The
company also may occasionally sell covered call options. The company does not
engage in trading of derivatives.
Derivative financial instruments involve varying degrees of market risk
resulting from changes in the volatility of interest rates, foreign currency
exchange rates or market values of the underlying financial instruments. The
company's risk of loss is typically limited to the fair value of these
instruments and not by the notional or contractual amounts which reflect the
extent of involvement but not necessarily the amounts subject to risk. Credit
risk arises from the possible inability of counterparties to meet the terms of
the contracts. Credit risk due to counterparty nonperformance associated with
these instruments is the unrealized gain, if any, reflected by the fair value
of such instruments.
During the three year period ended December 31, 1997, the company employed
several ongoing derivatives strategies. The company entered into a number of
anticipatory hedge agreements using securities forwards, futures and interest
rate swaps to limit the interest rate exposure of investments expected to be
acquired or sold within one year. The company also executed swaps and foreign
currency forwards to hedge, including on an anticipatory basis, the foreign
currency risk of foreign currency denominated investments. The company also
used interest rate swaps and forwards to reduce risks from changes in interest
rates and exposures arising from mismatches between assets and liabilities. In
addition, the company has used interest rate caps to reduce the market and
interest rate risks relating to certain assets and liabilities.
Income and expense related to derivatives used to hedge or manage risks are
recorded on the accrual basis as an adjustment to the yield of the related
securities over the periods covered by the derivative contracts. Gains and
losses relating to early terminations of interest rate swaps used to hedge or
manage interest rate risk are deferred and amortized over the remaining period
originally covered by the swap. Gains and losses relating to derivatives used
to hedge the risks associated with anticipated transactions are deferred and
utilized to adjust the basis of the transaction once it has closed. If it is
determined that the transaction will not close, such gains and losses are
included in realized investment gains and losses.
ASSETS ON DEPOSIT
As of December 31, 1997 and 1996, the company had assets on deposit with
regulatory agencies of $4,695 and $4,062, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 6,455 $ 6,042 $ 6,006
Equity securities........................... 50 60 45
Mortgage loans on real estate............... 1,684 1,523 1,501
Policy loans................................ 368 399 394
Real estate................................. 1,566 1,647 1,833
Real estate joint ventures.................. 42 21 41
Other limited partnership interests......... 302 215 149
Leases and leveraged leases................. 131 135 113
Cash, cash equivalents and short-term in-
vestments.................................. 169 214 231
Other investment income..................... 235 281 326
------- ------- -------
Gross investment income..................... 11,002 10,537 10,639
Investment expenses......................... (1,527) (1,544) (1,802)
------- ------- -------
Investment income, net...................... $ 9,475 $ 8,993 $ 8,837
======= ======= =======
Investment gains (losses), including changes in valuation allowances, were as
follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 118 $ 234 $ 621
Equity securities........................... 224 78 (5)
Mortgage loans on real estate............... 56 (86) (51)
Real estate................................. 249 165 (375)
Real estate joint ventures.................. 117 61 (142)
Other limited partnership interests......... 103 82 117
Other....................................... 162 (76) (92)
------- ------- -------
Subtotal................................ 1,029 458 73
Investment gains relating to:
Participating pension contracts........... (35) (20) --
Amortization of deferred policy acquisi-
tion costs............................... (70) (4) (78)
Future policy benefit loss recognition.... (126) (203) (152)
------- ------- -------
Net investment gains (losses)............... $ 798 $ 231 $ (157)
======= ======= =======
Sales of bonds were as follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Bonds classified as available for sale
Proceeds.................................. $72,396 $74,580 $58,537
Gross realized gains...................... 691 1,069 1,013
Gross realized losses..................... 584 842 402
Bonds classified as held to maturity
Proceeds.................................. $ 352 $ 1,281 $ 1,806
Gross realized gains...................... 5 10 17
Gross realized losses..................... 1 1 4
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity, and the changes for the
corresponding years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31
Balance, comprised of:
Unrealized investment gains on:
Fixed maturities.......................... $4,766 $2,226 $ 5,166
Equity securities......................... 1,605 563 210
Other..................................... 294 474 380
------ ------ -------
6,665 3,263 5,756
------ ------ -------
Amounts allocable to:
Participating pension contracts............. 312 9 350
Loss recognition............................ 2,189 1,219 2,064
Deferred policy acquisition cost............ 1,147 420 748
Deferred income taxes....................... 1,119 587 948
------ ------ -------
4,767 2,235 4,110
------ ------ -------
Total................................... $1,898 $1,028 $ 1,646
====== ====== =======
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................ $1,028 $1,646 $ (955)
Unrealized investment gains (losses) during
year......................................... 3,402 (2,493) 7,665
Unrealized investment (gains) losses allocable
to:
Participating pension contracts............. (303) 341 (258)
Loss recognition............................ (970) 845 (2,063)
Deferred policy acquisition costs........... (727) 328 (1,247)
Deferred income taxes......................... (532) 361 (1,496)
------ ------ -------
Balance, December 31.......................... $1,898 $1,028 $ 1,646
====== ====== =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. JOINT VENTURES AND OTHER LIMITED PARTNERSHIPS
Combined financial information for real estate joint ventures and other
limited partnership interests accounted for under the equity method, in which
the company has an investment of at least $10 and an equity interest of at
least 10 percent, was as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Assets:
Investments in real estate, at depreciated cost........ $ 938 $1,030
Investments in securities, at estimated fair value..... 717 621
Cash and cash equivalents.............................. 141 37
Other.................................................. 984 1,030
------ ------
Total assets......................................... 2,780 2,718
------ ------
Liabilities:
Borrowed funds--third party............................ 384 243
Borrowed funds--MetLife................................ 136 69
Other.................................................. 678 915
------ ------
Total liabilities.................................... 1,198 1,227
------ ------
Partners' capital........................................ $1,582 $1,491
====== ======
MetLife equity in partners' capital included above....... $ 822 $ 786
====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Operations:
Revenues of real estate joint ventures......... $ 291 $ 275 $ 364
Revenues of other limited partnership inter-
ests.......................................... 276 297 417
Interest expense--third party.................. (25) (11) (26)
Interest expense--MetLife...................... (16) (19) (31)
Other expenses................................. (396) (411) (501)
----- ----- -----
Net earnings..................................... $ 130 $ 131 $ 223
===== ===== =====
MetLife earnings from real estate joint ventures
and other limited partnership interests included
above........................................... $ 59 $ 34 $ 28
===== ===== =====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The company assumes and cedes insurance with other insurance companies. The
consolidated statements of earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Direct premiums............................ $12,749 $12,569 $11,944
Reinsurance assumed........................ 360 508 812
Reinsurance ceded.......................... (1,810) (1,615) (1,578)
------- ------- -------
Net premiums earned........................ $11,299 $11,462 $11,178
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits..................... $ 1,689 $ 1,667 $ 1,523
======= ======= =======
</TABLE>
Premiums and other receivables in the consolidated balance sheets include
reinsurance recoverables of $1,579 and $700 at December 31, 1997 and 1996,
respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Activity in the liability for unpaid losses and loss adjustment expenses
relating to property and casualty and group accident and nonmedical health
policies and contracts was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance at January 1........................... $3,345 $3,296 $2,670
Reinsurance recoverables..................... (215) (214) (104)
------ ------ ------
Net balance at January 1....................... 3,130 3,082 2,566
------ ------ ------
Incurred related to:
Current year................................. 2,855 2,951 3,420
Prior years.................................. 88 (114) (68)
------ ------ ------
Total incurred............................. 2,943 2,837 3,352
------ ------ ------
Paid related to:
Current year................................. 1,832 1,998 2,053
Prior years.................................. 815 791 783
------ ------ ------
Total paid................................. 2,647 2,789 2,836
------ ------ ------
Net balance at December 31..................... 3,426 3,130 3,082
Plus reinsurance recoverables................ 229 215 214
------ ------ ------
Balance at December 31......................... $3,655 $3,345 $3,296
====== ====== ======
</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.
The income tax expense (benefit) of continuing operations was as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997
Federal......................................... $432 $(26) $406
State and local................................. 10 9 19
Foreign......................................... 26 25 51
---- ---- ----
Total......................................... $468 $ 8 $476
==== ==== ====
1996
Federal......................................... $346 $ 66 $412
State and local................................. 25 6 31
Foreign......................................... 27 12 39
---- ---- ----
Total......................................... $398 $ 84 $482
==== ==== ====
1995
Federal......................................... $241 $ 65 $306
State and local................................. 52 3 55
Foreign......................................... 22 24 46
---- ---- ----
Total......................................... $315 $ 92 $407
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Earnings from continuing operations before
income taxes................................... $1,693 $1,406 $744
Income tax rate................................. 35% 35% 35%
------ ------ ----
Expected income tax expense at federal statutory
income tax rate................................ 593 492 260
Tax effect of:
Tax exempt investment income.................. (30) (18) (9)
Goodwill...................................... 9 -- --
Differential earnings amount.................. (40) 38 67
State and local income taxes.................. 15 23 37
Foreign operations............................ 7 (7) 25
Tax credits................................... (15) (15) (15)
Prior year taxes.............................. (2) (46) (3)
Sale of subsidiary............................ (41) -- --
Other, net.................................... (20) 15 45
------ ------ ----
Income taxes.................................... $ 476 $ 482 $407
====== ====== ====
</TABLE>
The deferred income tax assets or liabilities recorded at December 31, 1997
and 1996 represent the net temporary differences between the tax bases of
assets and liabilities and their amounts for financial reporting. The
components of the net deferred income tax asset or liability were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Deferred income tax assets:
Policyholder liabilities and receivables........ $3,010 $2,889
Net operating loss carryforwards................ 33 38
Other, net...................................... 938 698
------ ------
Total gross deferred income tax assets........ 3,981 3,625
Less valuation allowance........................ 24 14
------ ------
Deferred income tax assets, net of valuation al-
lowance.......................................... 3,957 3,611
------ ------
Deferred income tax liabilities:
Investments..................................... 1,227 848
Deferred policy acquisition costs............... 1,890 1,940
Net unrealized capital gains.................... 1,119 587
Other, net...................................... 193 199
------ ------
Total deferred income tax liabilities......... 4,429 3,574
------ ------
Net deferred income tax (liability) asset......... $ (472) $ 37
====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Policyholder liabilities and receivables........... $(109) $ 53 $(105)
Net operating loss carryforwards................... 5 (19) 89
Investments........................................ 382 50 199
Deferred policy acquisition costs.................. (51) 55 49
Change in valuation allowance...................... 10 4 (6)
Other, net......................................... (229) (59) (134)
----- ----- -----
Total............................................ $ 8 $ 84 $ 92
===== ===== =====
The valuation allowance for the tax benefits of net operating loss
carryforwards reflects management's assessment, based on available information,
that it is more likely than not that the deferred income tax asset for net
operating loss carryforwards will not be realized. The benefit will be
recognized when management believes that it is more likely than not that the
deferred income tax asset is realizable. U.S. tax basis net operating loss
carryforwards of $15 are available, subject to statutory limitation, to offset
taxable income through the year 2012.
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The company is both the sponsor and administrator of defined benefit pension
plans covering all eligible employees and sales representatives of MetLife and
certain of its subsidiaries. Retirement benefits are based on years of credited
service and final average earnings history.
Components of the net periodic pension (credit) cost for the defined benefit
qualified and nonqualified pension plans were as follows:
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost....................................... $ 73 $ 77 $ 62
Interest cost on projected benefit obligation...... 244 232 222
Actual return on assets............................ (318) (273) (280)
Net amortization and deferrals..................... (5) (12) (13)
----- ----- -----
Net periodic pension (credit) cost................. $ (6) $ 24 $ (9)
===== ===== =====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the qualified and nonqualified defined benefit pension
plans and a comparison of the accumulated benefit obligation, plan assets and
projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31
Actuarial present value of
obligations:
Vested.................... $2,804 $ 251 $2,668 $223
Nonvested................. 33 2 36 2
------ ----- ------ ----
Accumulated benefit obliga-
tion...................... $2,837 $ 253 $2,704 $225
====== ===== ====== ====
Projected benefit obliga-
tion...................... $3,170 $ 353 $2,958 $310
Plan assets (principally
company investment
contracts) at contract
value 3,831 151 3,495 133
------ ----- ------ ----
Plan assets in excess of
(less than) projected
benefit obligation........ 661 (202) 537 (177)
Unrecognized prior service
cost...................... 125 25 139 26
Unrecognized net (gain)
loss from past experience
different from that
assumed................... (130) 21 (27) 60
Unrecognized net asset at
transition................ (140) -- (176) --
------ ----- ------ ----
Prepaid (accrued) pension
cost at December 31....... $ 516 $(156) $ 473 $(91)
====== ===== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 7.75
percent for 1997 and 7.25 percent to 8.0 percent for 1996. The weighted
average assumed rate of increase in future compensation levels ranged from 4.5
percent to 8.5 percent in 1997 and from 4.0 percent to 8.0 percent in 1996.
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.75 percent in 1997 and ranged from 8.0 percent to
8.5 percent in 1996. In addition, several other factors, such as expected
retirement dates and mortality, enter into the determination of the actuarial
present value of the accumulated benefit obligation.
SAVINGS AND INVESTMENT PLANS
The company sponsors savings and investment plans available for
substantially all employees under which the company matches a portion of
employee contributions. During 1997, 1996 and 1995, the company contributed
$44, $42 and $49, respectively, to the plans.
OTHER POSTRETIREMENT BENEFITS
The company also provides certain postretirement health care and life
insurance benefits for retired employees through insurance contracts.
Substantially all of the company's employees may, in accordance with the plans
applicable to such benefits, become eligible for these benefits if they attain
retirement age, with sufficient service, while working for the company.
The components of the net periodic nonpension postretirement benefit cost
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost......................................... $ 31 $ 41 $ 28
Interest cost on accumulated postretirement benefit
obligation.......................................... 122 127 115
Actual return on plan assets (company insurance
contracts).......................................... (66) (58) (63)
Net amortization and deferrals....................... (5) 2 (9)
---- ---- ----
Net periodic nonpension postretirement benefit cost.. $ 82 $112 $ 71
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the postretirement health care and life
insurance plans' combined status reconciled with the amount included in the
company's consolidated balance sheets.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Accumulated postretirement benefit obligation:
Retirees............................................. $1,251 $1,228
Fully eligible active employees...................... 115 145
Active employees not eligible to retire.............. 397 400
------ ------
Total............................................... 1,763 1,773
Plan assets (company insurance contracts) at contract
value................................................ 1,004 897
------ ------
Plan assets less than accumulated postretirement
benefit obligation................................... (759) (876)
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions.... (173) (60)
------ ------
Accrued nonpension postretirement benefit cost at
December 31.......................................... $ (932) $ (936)
====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.0 percent in
1997, gradually decreasing to 5.25 percent over five years and generally 9.5
percent in 1996 decreasing to 5.25 percent over 12 years. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation ranged from 7.25 percent to 7.75 percent at December 31, 1997 and
7.0 percent to 7.75 percent at December 31, 1996.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1997
would be increased 6.75 percent. The effect of this change on the sum of the
service and interest cost components of the net periodic postretirement
benefit cost for the year ended December 31, 1997, would be an increase of 9.7
percent.
8. LEASES
RENTAL INCOME ON REAL ESTATE OWNED AND LEASE EXPENSE
In accordance with industry practice, certain of the company's lease
agreements with retail tenants result in income that is contingent on the
level of the tenants' sales revenues. Additionally, the company, as lessee,
has entered into various lease and sublease agreements for office space, data
processing and other equipment. Future minimum rental income, gross minimum
rental payments and minimum sublease rental income relating to these lease
agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL RENTAL SUBLEASE
INCOME PAYMENTS INCOME
------ -------- --------
<S> <C> <C> <C>
DECEMBER 31
1998.......................................... $ 697 $146 $55
1999.......................................... 657 127 52
2000.......................................... 604 103 50
2001.......................................... 560 82 44
2002.......................................... 496 59 36
2003 and thereafter........................... 2,724 103 68
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
SCHEDULED
MATURITY 1997 1996
--------- ------ ------
<S> <C> <C> <C>
DECEMBER 31
Surplus notes:
6.300% 2003 $ 397 $ 396
7.000% 2005 249 248
7.700% 2015 198 197
7.450% 2023 296 296
7.875% 2024 148 148
7.800% 2025 248 248
Floating rate notes, interest rates
based on LIBOR................................. 1999-2007 358 49
Fixed rate notes, interest rates ranging from
5.80%-10.50%................................... 1998-2007 519 135
Zero coupon Eurobonds........................... 1999 79 71
Other........................................... 124 158
------ ------
Total long-term debt............................ 2,616 1,946
Short-term debt................................. 4,587 3,311
------ ------
Total........................................... $7,203 $5,257
====== ======
</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, in whole or in part, at the
election of the company at any time on or after November 1, 2003.
At December 31, 1997, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1998 and the succeeding four years
amounted to $80, $377, $178, $9 and $11, respectively, and $1,979 thereafter.
10. CONTINGENCIES
The company is currently a defendant in numerous state and federal lawsuits
(including individual suits and putative class actions) raising allegations of
improper marketing of individual life insurance. Litigation seeking
compensatory and/or punitive damages relating to the marketing by the company
of individual life insurance (including putative class and individual actions)
continues to be brought by or on behalf of policyholders and others. These
cases, most of which are in the early stages of litigation, seek substantial
damages, including in some cases claims for punitive and treble damages and
attorneys' fees, and raise, among other claims, allegations that individual
life insurance policies were improperly sold in replacement transactions or
with inadequate or inaccurate disclosure as to the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
Putative classes have been certified, conditionally or subject to appeal, in
state court actions covering certain policyholders in California and West
Virginia; class certification has been denied in a state court action in Ohio
thus far. A number of the federal cases alleging improper marketing of
individual life insurance have been consolidated in the United States District
Court for the Western District of Pennsylvania and the United States District
Court in Massachusetts for pretrial proceedings. Additional litigation
relating to the company's marketing of individual life insurance may be
commenced in the future. The company is vigorously defending itself in these
actions.
Regulatory authorities in a small number of states, including both insurance
departments and attorneys general, have ongoing investigations of the
company's sales of individual life insurance, including investigations of
alleged improper replacement transactions and alleged improper sales of
insurance with inaccurate or inadequate disclosures
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
as to the period for which premiums would be payable. In addition, an
investigation by the Office of the United States Attorney for the Middle
District of Florida, which commenced in 1994, into certain of the retirement
and savings plan selling allegations that have been a subject of regulatory
inquiries, has not been closed.
In addition to the foregoing matters, the company is a defendant in a large
number of asbestos lawsuits relating to allegations regarding certain
research, advice and publication activity that occurred decades ago. While the
company believes that it has significant defenses to these claims and has
effected settlements in many of these cases and has prevailed in certain
cases, it is not possible to predict the number of such cases that may be
brought or the aggregate amount of any liability that may ultimately be
incurred by the company.
Various litigation, claims and assessments against the company, in addition
to the aforementioned and those otherwise provided for in the company's
financial statements, have arisen in the course of the company's business,
including in connection with its activities as an insurer, employer, investor
and taxpayer. Further, state insurance regulatory authorities and other state
authorities regularly make inquiries and conduct investigations concerning the
company's compliance with applicable insurance and other laws and regulations.
In certain of the matters referred to above, very large and/or indeterminate
amounts, including punitive and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome in all
such matters, it is the opinion of the company's management that their
outcome, after consideration of the provisions made in the company's financial
statements, is not likely to have a material adverse effect on the company's
financial position.
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Compensation costs............................. $2,072 $1,813 $1,607
Commissions.................................... 766 722 853
Interest and debt issue costs.................. 453 311 285
Amortization of policy acquisition costs....... 771 633 606
Capitalization of policy acquisition costs..... (1,000) (1,028) (1,060)
Rent expense, net of sublease.................. 179 180 184
Restructuring charges.......................... -- 18 88
Minority interest.............................. 51 30 22
Other.......................................... 2,467 2,105 1,696
------ ------ ------
Total.......................................... $5,759 $4,784 $4,281
====== ====== ======
</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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER INTANGIBLE ASSETS
The value of business acquired and the excess of purchase price over the
fair value of net assets acquired and changes thereto were as follows:
<TABLE>
<CAPTION>
EXCESS OF PURCHASE PRICE
OVER FAIR VALUE OF
VALUE OF BUSINESS ACQUIRED NET ASSETS ACQUIRED
---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net Balance, January 1.. $ 358 $ 381 $ 6 $ 544 $ 377 $ 413
Acquisitions............ 176 7 396 387 197 221
Dispositions............ -- -- -- -- -- (236)
Amortization............ (36) (30) (21) (47) (30) (21)
-------- -------- -------- -------- -------- --------
Net balance, December
31..................... $ 498 $ 358 $ 381 $ 884 $ 544 $ 377
======== ======== ======== ======== ======== ========
<CAPTION>
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Accumulated amortiza-
tion................... $ 87 $ 51 $ 21 $ 148 $ 101 $ 71
======== ======== ======== ======== ======== ========
</TABLE>
13. DISCONTINUED OPERATIONS
In January 1995 the company contributed its group medical benefits
businesses to a corporate joint venture, The MetraHealth Companies, Inc.
("MetraHealth"). In October 1995, the company sold its investment in
MetraHealth to United HealthCare Corporation. For its interest in MetraHealth,
the company received $485 face amount of United HealthCare Corporation
convertible preferred stock and $326 in cash (including additional
consideration of $50 in 1996). The sale resulted in an aftertax loss of $36 in
1996 and an aftertax gain of $372 in 1995. Operating losses in 1997 and 1996
related principally to the finalization of the transfer of group medical
contracts to United HealthCare Corporation.
During 1995 the company also sold its real estate brokerage, mortgage
banking and mortgage administration operations for an aggregate consideration
of $251 (including additional cash consideration of $25 in 1996), resulting in
aftertax gains of $17 in 1996 and $44 in 1995.
14. CONSOLIDATED CASH FLOWS INFORMATION
During 1997 the company acquired assets of $3,777 and assumed liabilities of
$3,347 through the acquisition of certain insurance and noninsurance
companies. The aggregate purchase prices were allocated to the assets and
liabilities acquired based upon their estimated fair values. During 1997 the
company also reduced assets and liabilities by $4,342 and $4,207,
respectively, through the sale of certain insurance operations, resulting in a
pretax gain of $139. During 1995 the company also reduced assets and
liabilities by $919 and $413, respectively, through the sale of its real
estate brokerage, mortgage banking and mortgage administration operations.
During 1997 the company assumed liabilities of $227 and received assets of
$227 and during 1995 the company assumed liabilities of $1,573 and received
assets of $1,573 through assumption of certain businesses from other insurance
companies.
For the years ended December 31, 1997, 1996 and 1995, respectively, real
estate of $151, $189 and $429 was acquired in satisfaction of debt.
During 1997 and 1995, fixed maturity securities with an amortized cost of
$11,682 and $3,058, respectively, were transferred from held to maturity to
available for sale.
15. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below
have been determined by the company using market information available as of
December 31, 1997 and 1996, and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The estimates presented below were not necessarily indicative of the amounts
the company could have realized in a market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1997
Assets:
Fixed maturities................................ $92,630 $92,630
Equity securities............................... 4,250 4,250
Mortgage loans on real estate................... 20,247 21,133
Policy loans.................................... 5,846 6,110
Short-term investments.......................... 705 705
Cash and cash equivalents....................... 2,871 2,871
Liabilities:
Policyholder account balances................... 36,433 36,664
Short- and long-term debt....................... 7,203 7,258
Other financial instruments:
Interest rate swaps............................. $1,464 (1) (19)
Interest rate caps.............................. 1,545 16 12
Foreign currency swaps.......................... 254 -- (28)
Foreign currency forwards....................... 150 -- --
Covered call options............................ 88 (31) (31)
Other options................................... 565 -- (2)
Futures contracts............................... 2,262 10 10
Unused lines of credit.......................... 2,310 -- 2
<CAPTION>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1996
Assets:
Fixed maturities................................ $86,361 $86,588
Equity securities............................... 2,816 2,816
Mortgage loans on real estate................... 18,964 19,342
Policy loans.................................... 5,842 5,796
Short-term investments.......................... 741 741
Cash and cash equivalents....................... 2,325 2,325
Liabilities:
Policyholder account balances................... 30,470 30,611
Short- and long-term debt....................... 5,257 5,223
Other Financial Instruments:
Interest rate swaps............................. $1,242 -- (14)
Interest rate caps.............................. 1,946 20 14
Foreign currency swaps.......................... 207 -- (23)
Foreign currency forwards....................... 151 3 3
Covered call options............................ 25 (2) (2)
Unused lines of credit.......................... 1,821 -- 1
</TABLE>
Estimated fair values were determined as follows: publicly traded fixed
maturities (approximately 78 percent of the estimated fair value of total
fixed maturities) from an independent market pricing service; all other bonds
at estimated fair value determined by management (based primarily on interest
rates, maturity, credit quality and average life); equity securities, on
quoted market prices; mortgage loans, based on discounted projected cash flows
using interest rates offered for loans to borrowers with comparable credit
ratings and for the same maturities; policy loans, based on
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
discounted projected cash flows using U.S. Treasury rates to approximate
interest rates and company experience to project patterns of loan accrual and
repayment; cash and cash equivalents and short-term investments, at carrying
amount, which is considered to be a reasonable estimate of fair value.
Included in fixed maturities are loaned securities with estimated fair
values of $6,537 and $7,293 at December 31, 1997 and 1996, respectively.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
The estimated fair value of short- and long-term debt was determined using
rates currently available to the company for debt with similar terms and
remaining maturities.
For interest rate and foreign currency swaps, interest rate caps, foreign
currency forwards, covered call options, other options and futures contracts,
estimated fair value is the amount at which the contracts could be settled
based on estimates obtained from dealers. The estimated fair values of unused
lines of credit were based on fees charged to enter into similar agreements.
16. STATUTORY FINANCIAL INFORMATION
The reconciliation of the net change in statutory surplus and statutory
surplus determined in accordance with accounting practices prescribed or
permitted by insurance regulatory authorities with net earnings and equity on
a GAAP basis was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net change in statutory surplus...................... $ 227 $366 $229
Adjustments for GAAP:
Future policy benefits and policyholder account
balances.......................................... (445) (165) (17)
Deferred policy acquisition costs.................. 159 391 376
Deferred income taxes.............................. 62 (74) (97)
Valuation of investments........................... (387) (84) 106
Statutory asset valuation reserves................. 1,170 599 30
Statutory interest maintenance reserve............. 53 19 284
Surplus notes...................................... -- -- (622)
Other, net......................................... 364 (199) 410
------ ---- ----
Net earnings..................................... $1,203 $853 $699
====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
DECEMBER 31
Statutory surplus..................................... $ 7,378 $ 7,151
Adjustments for GAAP:
Future policy benefits and policyholder account bal-
ances (7,305) (5,742)
Deferred policy acquisition costs................... 6,436 7,227
Deferred income taxes............................... (242) 264
Valuation of investments............................ 3,474 610
Statutory asset valuation reserves.................. 3,854 2,684
Statutory interest maintenance reserve.............. 1,261 1,208
Surplus notes....................................... (1,396) (1,393)
Other, net.......................................... 601 (26)
------- -------
Equity............................................ $14,061 $11,983
======= =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENT
On March 12, 1998 the company reached an agreement, subject to regulatory
approval, to sell substantially all of its Canadian operations to a
nonaffiliated life insurance company at a gain. Financial information for the
Canadian operations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Total revenue......................................... $ 969 $ 920 $903
Total benefits and other deductions................... 831 802 804
Net earnings.......................................... 87 83 22
<CAPTION>
1997 1996
----- -----
<S> <C> <C> <C>
DECEMBER 31
Total assets.......................................... 5,881 5,826
Total equity.......................................... 957 917
</TABLE>
<PAGE>
APPENDIX TO PROSPECTUS
OPTIONAL INCOME PLANS
The insurance proceeds when the covered person dies, the proceeds payable on
the Final Date, or the cash surrender value payable on full surrender of a
Certificate, 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 have significant federal income tax consequences associated with the
Certificate 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 MetLife's approval.
CHOICE OF INCOME PLANS. See "Certificate Benefits--Optional Income Plans"
and "Certificate Rights-- Surrenders," regarding how optional income plans may
be chosen. When an income plan starts, a separate contract will be issued
describing the terms of the plan. Specimen contracts may be obtained from the
Administrative Office, 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 MetLife'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
MetLife but never less than 3% per year. Life income payments will be based on a
rate set by MetLife and in effect on the date the amount to be applied becomes
payable, but never less than the minimum payments guaranteed in the Certificate.
Such minimum guaranteed payments are based on certain assumed mortality rates
and an interest rate of 3%.
82
<PAGE>
OPTIONAL INSURANCE BENEFITS
Optional insurance benefit riders may be attached to a Certificate, subject
to, their availability under the Group Policy, their availability under state
law, certain insurance underwriting requirements and the payment of additional
premiums. These riders are described in general terms below. Limitations and
conditions are contained in the riders, and the description below is subject to
the specific terms of the riders. A prospective purchaser may obtain a specimen
Certificate with riders from the Administrative Office. The duration, but not
the amount, of rider benefits may depend on the investment experience of a
separate account.
The following riders will be provided to all Owners if elected by the
participating entity:
WAIVER OF MONTHLY DEDUCTION DURING TOTAL DISABILITY. This rider waives the
entire monthly deduction during the "Total Disability" of the covered person if
the covered person is "Totally Disabled" for at least six months beginning prior
to age 60. "Total Disability" or "Totally Disabled" means that because of
sickness or an injury the covered person cannot do his or her job, and cannot do
any other job for which they are fit by education, training or experience.
Monthly deductions will continue to be waived until the earliest of the
following: (a) the date the covered person is no longer totally disabled, or (b)
the date the covered person does not give MetLife proof of Total Disability when
required, or (c) the day before the date the covered person becomes 65 years
old. If there has been an increase in the death benefit resulting from a request
by the Owner and the Owner at the time of the increase did not request or did
not qualify for this rider with respect to such increase, monthly deductions for
charges related to such increase will continue to be made against the cash value
of the Certificate. This could result in the cash value being insufficient to
cover the monthly deductions related to the increase. In such a case, the grace
period and termination provisions of the Certificate would apply only to such
increase in death benefit. Since the monthly deduction with respect to the
increase in the death benefit could reduce the cash value of the Certificate to
zero, it may be advantageous for the Owner, at the time of the total disability,
to reduce the death benefit to that amount which is subject to this rider.
ACCELERATED DEATH BENEFIT. This rider provides for a one-time discounted
payment of all or a portion of the death benefit to the Owner if the covered
person's life span has been drastically limited so that the covered person is
expected to die within six months or twelve months, as specified in the rider,
or is not expected recover from the cause of reduction in life span. In addition
some riders also provide this benefit if the covered person is permanently
confined to a Nursing Home and has a life expectancy of less than two years. The
size of the benefit payment and the maximum benefit are stated in the rider.
There are no premiums or rider fees for this rider.
Upon payment of a portion of the death benefit, the death benefit under the
Certificate is reduced to reflect the amount of the payment. In addition, the
specified face amount, the cash value and the cash surrender value are reduced
by the same proportion as the amount of the reduction of the death benefit
divided by the death benefit prior to the payment. Any outstanding loan is
reduced and paid out of the proceeds of the portion only if such reduction is
necessary to keep the Certificate in force. Moreover, in the case of payment of
all of the death benefit, the amount of any outstanding Certificate loan will be
deducted from the payment.
The payment under this rider may affect eligibility for benefits under state
or federal law. Generally, payments under this rider should be income tax free
as amounts paid by reason of the death of the insured. Counsel and other
competent advisors should be consulted to determine the effect on an individual
situation.
The following riders may be elected by either the participating entity or
the Owner, as set forth in the Policy or Certificate:
ACCIDENTAL DEATH BENEFIT. This rider provides additional insurance equal to
an amount stated in the Certificate if the covered person dies from an accident
prior to age 70. It also provides an additional amount equal to twice the stated
amount if the covered person dies from an accident occurring while the covered
person is a fare-paying passenger on a common carrier. This rider is available
at issue only.
ACCIDENTAL DEATH OR DISMEMBERMENT BENEFIT. In addition to benefits
described under "Accidental Death Benefit," above, this rider provides benefits
if a covered person is injured in an accident if the covered loss
83
<PAGE>
occurs not more than 90 days after the date of an accident and prior to age 70.
Covered losses may include loss of life, a hand, foot or sight of an eye. The
amount of benefits on account of a covered person is the amount specified in the
Certificate.
DEPENDENT LIFE BENEFITS. This rider provides insurance on the life of a
dependent payable to the Owner or other designated beneficiary while the
benefits are in effect for that dependent on the date of death as set forth in
this rider. A dependent may be the Owner's spouse, domestic partner or unmarried
child. A child who may be covered includes a child who is supported solely by
you and permanently living in the home of which you are the head, a child who is
legally adopted or a stepchild who lives in your home. A child may be covered
until age 19 and in some cases up to 23 years of age. A dependent child with a
physical handicap or mental retardation may continue to be a dependent. The
amount of dependent term insurance will be specified in the rider.
84
<PAGE>
METLIFE -REGISTERED TRADEMARK-
GVUL
GROUP VARIABLE UNIVERSAL LIFE
PROSPECTUSES FOR
- GROUP VARIABLE UNIVERSAL LIFE
INSURANCE POLICIES AND CERTIFICATES
ISSUED BY
METROPOLITAN LIFE INSURANCE
COMPANY
- METROPOLITAN SERIES FUND, INC.
ML-GVUL (5/98 EDITION) PRINTED IN U.S.A.
POLICY FORM NO. 2130-S
97061YU7 (EXP 0599) MLIC-LD
18000136683 (0598)
[LOGO]
METLIFE CUSTOMER SERVICE CENTER BULK RATE
177 SOUTH COMMONS DRIVE ZIP+4 BARCODED
AURORA, ILLINOIS 60507 U.S. POSTAGE PAID
ADDRESS CORRECTION REQUESTED RUTLAND, VT
FORWARDING AND RETURN PERMIT 220
POSTAGE GUARANTEED
<PAGE>
PART II
REPRESENTATION WITH RESPECT TO FEES AND CHARGES
MetLife represents that the fees and charges deducted under the Group
Policies and Certificates described in this amended Registration Statement, in
the aggregate, are reasonable in relation to the services rendered, the expenses
to be incurred, and the risks assumed by MetLife under the Group Policies and
Certificates. MetLife 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 MetLife to earn a
profit, the degree to which the Group Policies and Certificates include
innovative features, and regulatory standards for exemptive relief under the
Investment Company Act of 1940 used prior to October 1996, including the range
of industry practice. This representation applies to all Group Policies and
Certificates 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 group policies, certificates 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 84 pages.
Undertaking to File Reports, filed with the initial filing of this
Registration Statement on April 14, 1995.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933,
filed with the initial filing of this Registration Statement on April 14,
1995.
Representation with respect to fees and charges filed herewith.
The signatures.
Written Consents of the following persons:
Christopher P. Nicholas, filed with the initial filing of this
Registration Statement on April 14, 1995.
Frank Cassandra (filed with Exhibit 6 below)
Deloitte & Touche LLP
The following exhibits:
<TABLE>
<C> <C> <S> <C>
1.A (1) --Resolution of Board of Directors of Metropolitan Life effecting the
establishment of Metropolitan Life Separate Account........................... *
(2) --Not Applicable
(3) --(a) Not Applicable
--(b) Form of Selected Broker Agreement......................................... +++
--(c) Schedule of sales commissions............................................. **
(4) --Not applicable
(5) --(a) Specimen Group Variable Universal Life Insurance Policy (including any
alternate pages as required by state law) with form of riders, if any..... ++
--(b) Specimen Group Variable Universal Life Insurance Certificate issued under
the Group Variable Universal Life Policy (including any alternate pages as
required by state law) with form of riders, if any........................ ++
(6) --(a) Charter and By-Laws of Metropolitan Life.................................. ++++
--(b) Amendment to By-Laws...................................................... ++++
(7) --Not Applicable
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S> <C>
(8) --Not Applicable
(9) --Not Applicable
(10) --(a) Application Form for Policy and Form of Receipt........................... +++
--(b) Enrollment Form for Certificate and Form of Receipt....................... +++
--(c) Request For Systematic Transfer Option Form............................... +++
2. --See Exhibit 1.A(5) above
3. --Opinion and consent of Counsel as to the legality of the securities being
sold.......................................................................... ++
4. --Not Applicable
5. --Not Applicable
6. --Opinion and consent of Frank Cassandra relating to the Group Variable
Universal Life Insurance Policies............................................. +
7. --Powers of Attorney............................................................ +++++
10. --Memorandum describing certain procedures filed pursuant to Rule
6e-3(T)(b)(12)(iii)........................................................... ++
27. --Financial Data Schedule (inapplicable)
</TABLE>
- ---------
+ Filed herewith.
* Incorporated herein 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 from the sections entitled "Distribution of the
Group Policies and Certificates" in the prospectuses that are included in
this amended Registration Statement.
++ Included in the initial filing of this Registration Statement of Separate
Account UL (File No. 33-91226) on April 14, 1995.
+++ Included in the filing of Pre-Effective Amendment No. 1 of this
Registration Statement of Separate Account UL (File No. 33-91226) on
September 8, 1995.
++++ Incorporated herein 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 herein by reference to the filing of Post-Effective Amendment
No. 5 to the Registration Statement of Separate Account UL (File No.
33-47927) on April 30, 1997, except for Robert H. Benmosche's power of
attorney, which is incorporated by reference to the filing of the
Registration Statement of Separate Account UL (File No. 333-40161) on
November 13, 1997 and Jon F. Danski's power of attorney, which is
incorporated by reference to the filing of Pre-Effective Amendment No. 1
of Separate Account UL (File No. 333-40161) on April 2, 1998.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, METROPOLITAN
LIFE INSURANCE COMPANY CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR
EFFECTIVENESS OF THIS AMENDED REGISTRATION STATEMENT PURSUANT TO RULE 485(B)
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS AMENDED REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY OF
NEW YORK, STATE OF NEW YORK, THIS 23RD DAY OF APRIL, 1998.
<TABLE>
<S> <C>
METROPOLITAN LIFE
INSURANCE COMPANY
(SEAL)
By: /s/ GARY A. BELLER
-------------------------------------------
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE-PRESIDENT & GENERAL
COUNSEL
Attest: /s/ RUTH GLUCK
----------------------------------------
RUTH GLUCK, ESQ.
ASSISTANT SECRETARY
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ------------------------------------------------ -------------------
<C> <S> <C>
* Chairman, Chief Executive
---------------------------------------- Officer and Director (Principal
HARRY P. KAMEN Executive Officer)
* President, Chief Operating
---------------------------------------- Officer and Director
ROBERT H. BENMOSCHE
* Senior Executive Vice-
---------------------------------------- President and Chief
STEWART G. NAGLER Financial Officer and Director (Principal
Financial Officer)
* Senior Vice-President and Controller (Principal
---------------------------------------- Accounting Officer)
JON F. DANSKI
* Director
----------------------------------------
CURTIS H. BARNETTE
* Senior Executive Vice-President, Chief
---------------------------------------- Investment Officer and Director
GERALD CLARK
* Director
----------------------------------------
JOAN GANZ COONEY
*By /s/ CHRISTOPHER P. NICHOLAS April 23, 1998
------------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ------------------------------------------------ -------------------
<C> <S> <C>
* Director
----------------------------------------
BURTON A. DOLE, JR.
* Director
----------------------------------------
JAMES R. HOUGHTON
* Director
----------------------------------------
HELENE L. KAPLAN
* Director
----------------------------------------
CHARLES M. LEIGHTON
* Director
----------------------------------------
ALLEN E. MURRAY
* Director
----------------------------------------
JOHN J. PHELAN, JR.
* Director
----------------------------------------
HUGH B. PRICE
* Director
----------------------------------------
ROBERT G. SCHWARTZ
* Director
----------------------------------------
RUTH J. SIMMONS, PH.D.
* Director
----------------------------------------
WILLIAM C. STEERE, JR.
*By /s/ CHRISTOPHER P. NICHOLAS April 23, 1998
------------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
METROPOLITAN LIFE SEPARATE ACCOUNT UL, CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDED REGISTRATION STATEMENT PURSUANT
TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS AMENDED
REGISTRATION STATEMENT TO BE SIGNED, ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO
DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE
CITY OF NEW YORK, STATE OF NEW YORK THIS 23RD DAY OF APRIL, 1998.
<TABLE>
<C> <S>
METROPOLITAN LIFE
SEPARATE ACCOUNT UL
(REGISTRANT)
By: METROPOLITAN LIFE
INSURANCE COMPANY
(DEPOSITOR)
By: /s/ GARY A. BELLER
----------------------------------
(SEAL) GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE-PRESIDENT
AND GENERAL COUNSEL
Attest: /s/ RUTH GLUCK
------------------------------------
RUTH GLUCK, ESQ.
ASSISTANT SECRETARY
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Metropolitan Life Insurance Company:
We consent to the use in this Post-Effective Amendment No. 4 to the
Registration Statement No. 33-91226 of Metropolitan Life Separate Account UL on
Form S-6 of our report dated March 31, 1998 relating to Metropolitan Life
Separate Account UL appearing in the Prospectus, which is a part of such
Registration Statement and our report dated February 12, 1998, except for Note
17, as to which the date is March 12, 1998, relating to Metropolitan Life
Insurance Company also appearing in the Prospectus, and to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
April 20, 1998
II-6
<PAGE>
April 6, 1998
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Dear Sirs:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 4 to Registration Statement No. 33-91226 on Form S-6
("Registration Statement") which covers premiums received under Group Variable
Universal Life Insurance Policies and Certificates ("Policies") offered by the
Metropolitan Life Insurance Company ("MLIC") in each State where they have been
approved by appropriate State insurance authorities.
As an Assistant Vice-President and Actuary of MLIC, I have reviewed the Policies
and I am familiar with the Registration Statement and Exhibits thereto.
In my opinion, the illustrations of the death benefit, cash values, and
accumulated premiums for the Group Policy under "Illustrations of Death Benefit,
Cash Values and Accumulated Premiums" in the prospectus included in the
Registration Statement, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policies. Such assumptions, including
the assumed current charge levels, are reasonable.
The Policies have not been designed so as to make the relationship between
premiums and benefits, as shown in these illustrations, appear to be
correspondingly more favorable to a prospective purchaser of a certificate under
the Policies for males age 40 in the underwriting categories specified in the
illustrations, than to prospective purchasers of certificates under the Policies
for a male at other ages or in other underwriting classes or for a female. Nor
were the particular illustrations shown selected for the purpose of making this
relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Very truly yours,
/s/ Frank Cassandra
Frank Cassandra
Assistant Vice-President and Actuary
