<PAGE>
As filed with the Securities and Exchange Commission on April 13, 1999
Registration No. 333-40161
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Post-Effective Amendment No. 2
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
----------------
Title and amount of securities being offered:
An indefinite amount of separate account interests
under variable additional insurance options.
Amount of filing fee: None required.
It is proposed that the filing will become effective (check appropriate box)
[_] Immediately upon filing pursuant to paragraph (b)
[X] On April 30, 1999 pursuant to paragraph (b)
[_] On (date) pursuant to paragraph (a)(1) of Rule 485
[_] On (date), pursuant to paragraph (a) of Rule 485
----------------
Registrant elects to be governed by Rule 6e-3(T)(B) under the Investment
Company Act of 1940 with respect to variable additional insurance options.
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- -------------------------------------------------------------------------------
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
METROPOLITAN LIFE INSURANCE COMPANY
Cross-Reference Table
<TABLE>
<CAPTION>
Items of
Form N-8B-2 Captions in Prospectus
- ----------- ----------------------
<S> <C>
1...................... Cover Page
2...................... METLIFE
3...................... Inapplicable
4...................... SALES AND ADMINISTRATION OF THE POLICIES; METLIFE;
SUMMARY
5, 6, 7................ SEPARATE ACCOUNT UL; THE METROPOLITAN SERIES FUND,
INC.
8...................... FINANCIAL STATEMENTS
9...................... Inapplicable
10(a)................... OTHER POLICY PROVISIONS; EQUITY OPTIONS RIGHTS
10(c), 10(d)............ SUMMARY; EQUITY OPTIONS BENEFITS; EQUITY OPTIONS
RIGHTS; EQUITY OPTIONS PREMIUMS; OTHER POLICY PRO-
VISIONS
10(e)................... EQUITY OPTIONS PREMIUMS--Equity Options Termination
and Reinstatement
10(f)................... VOTING RIGHTS
10(g)(1)-(3), 10(h)(1)-
(3).................... RIGHTS WE RESERVE
10(g)(4), 10(h)(4)...... Inapplicable
10(i)................... EQUITY OPTIONS BENEFITS; EQUITY OPTIONS PREMIUMS;
ISSUING EQUITY OPTIONS
11...................... SUMMARY; SEPARATE ACCOUNT UL; METROPOLITAN SERIES
FUND, INC.
12(a)................... Cover Page
12(b), 12(e)............ Inapplicable
12(c), 12(d)............ SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND, INC.
13(a), 13(b), 13(c), SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND, INC.;
13(d).................. OTHER POLICY PROVISIONS; POLICY RIGHTS; SUMMARY--
Table of Charges and Expenses; EQUITY OPTIONS
CHARGES AND DEDUCTIONS
13(e)................... SALES AND ADMINISTRATION OF THE POLICIES
13(f), 13(g)............ Inapplicable
14...................... EQUITY OPTIONS PREMIUMS; SALES AND ADMINISTRATION OF
THE POLICIES
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Items of
Form N-8B-2 Captions in Prospectus
- ----------- ----------------------
<S> <C>
15...................... EQUITY OPTIONS PAYMENTS
16...................... SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND INC.
17(a), 17(b)............ Captions referenced under Items 10(c), 10(d), 10(e)
and 10(i) above
17(c)................... Inapplicable
18(a), 18(c)............ SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND INC.
18(b), 18(d)............ Inapplicable
19...................... SALES AND ADMINISTRATION OF THE POLICIES; VOTING
RIGHTS; REPORTS
20(a), 20(b)............ RIGHTS WE RESERVE; SEPARATE ACCOUNT UL; METROPOLITAN
SERIES FUND INC.
20(c), 20(d), 20(e),
20(f).................. Inapplicable
21(a), 21(b)............ EQUITY OPTIONS RIGHTS--Loan Privileges; EQUITY OP-
TIONS PREMIUMS; OTHER POLICY PROVISIONS
21(c), 22............... Inapplicable
23...................... SALES AND ADMINISTRATION OF THE POLICIES
24...................... EQUITY OPTIONS PREMIUMS; OTHER POLICY PROVISIONS
25...................... METLIFE
26...................... Inapplicable
27...................... METLIFE
28...................... MANAGEMENT
29...................... Inapplicable
30, 31, 32, 33, 34...... Inapplicable
35...................... GETTING MORE INFORMATION
36, 37.................. Inapplicable
38...................... SALES AND ADMINISTRATION OF THE POLICIES
39...................... METLIFE; SALES AND ADMINISTRATION OF THE POLICIES
40(a)................... Inapplicable
40(b)................... SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND INC.
41(a)................... METLIFE; SALES AND ADMINISTRATION OF THE POLICIES
41(b), 41(c), 42, 43.... Inapplicable
44(a)................... SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND INC.;
EQUITY OPTIONS BENEFITS--Equity Options Cash Value
44(b)................... Inapplicable
44(c)................... EQUITY OPTIONS CHARGES AND DEDUCTIONS
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Items of
Form N-8B-2 Captions in Prospectus
- ----------- ----------------------
<S> <C>
45......................... Inapplicable
46......................... Captions referenced under Item 44 above
47......................... Captions referenced under Items 10(c) and 16 above
</TABLE>
<TABLE>
<S> <C>
48, 49.................... Inapplicable
50........................ SEPARATE ACCOUNT UL; METROPOLITAN SERIES FUND INC.
51(a), 51(b).............. METLIFE; SUMMARY; EQUITY OPTIONS BENEFITS; EQUITY
OPTIONS RIGHTS
51(c), 51(d), 51(e)....... Captions referenced under Item 10(i) above
51(f)..................... EQUITY OPTIONS PREMIUMS--Equity Options Termination
and Reinstatement
51(g)..................... Captions referenced under Items 10(i) and 13 above
51(h), 51(j).............. Inapplicable
51(i)..................... SALES AND ADMINISTRATION OF THE POLICIES
52(a), 52(c).............. RIGHTS WE RESERVE
52(b), 52(d).............. Inapplicable
53(a)..................... FEDERAL TAX MATTERS
53(b), 54 through 58...... Inapplicable
59........................ FINANCIAL STATEMENTS
</TABLE>
iii
<PAGE>
E Q U I T Y O P T I O N S
PROSPECTUS
FOR
The Equity Options
Issued by Metropolitan Life Insurance Company
April 30, 1999
The Equity Options are the Equity Additions and the Equity Enricher. Each
option is designed to supplement benefits available under your MetLife fixed
benefit life insurance policy.
Equity Options are designed to provide:
. Life insurance coverage
. A death benefit
. A conditional guaranteed minimum death benefit
. A funding option for allocating premium payments to the MetLife Stock Index
investment division of Metropolitan Life Separate Account UL.
A word about risk:
This Prospectus discusses the risks associated with purchasing the Equity
Options. The Metropolitan Series Fund, Inc. (the "Fund") prospectus discusses
the risks associated with investment in the Fund. The Fund prospectus is being
provided to you in addition to this Prospectus, because the MetLife Stock Index
investment division invests in a corresponding portfolio of the Fund. This
Prospectus is not valid unless you also receive or have received a current Fund
prospectus.
The purchase of the Equity Options involves risk. You could lose money, as well
as the benefits provided under the Equity Options.
How to learn more:
Before selecting an Equity Option, read the information in this Prospectus and
in the prospectus for the Fund. Keep the prospectuses for future reference.
-----------
Neither the Securities and Exchange Commission ("SEC") nor any state securities
authority has approved or disapproved these securities, nor have they
determined if this Prospectus is accurate or complete. This prospectus does not
constitute an offering in any jurisdiction where such offering may not lawfully
be made. Any representation otherwise is a criminal offense. We do not
authorize any representations about this offering other than as contained in
this Prospectus or its supplements or in our authorized supplemental sales
material.
Metropolitan Life Insurance Company 1 Madison Avenue, New York, New York 10010
(800) 638-5000
<PAGE>
<TABLE>
<CAPTION>
Page
In this
Subject Prospectus
------- ----------
<S> <C>
Summary......................................... 2
MetLife......................................... 5
Separate Account UL............................. 6
Metropolitan Series Fund, Inc. ................. 6
The Base Policy and Benefits Options............ 7
Issuing Equity Options.......................... 8
Equity Options Benefits......................... 8
Equity Options Rights........................... 11
Equity Options Premiums......................... 13
Charges and Deductions.......................... 16
Federal Tax Matters............................. 17
Showing Performance............................. 19
Rights We Reserve............................... 19
Other Policy Provisions......................... 20
Sales and Administration of the Policies........ 21
Voting Rights................................... 22
Reports......................................... 22
Illustration of Equity Options Benefits......... 23
Getting More Information........................ 23
Legal, Accounting and Actuarial Matters......... 24
Management...................................... 25
Financial Statements............................ 28
</TABLE>
Summary
This summary gives an overview of the Equity Options and is qualified by the
more detailed information in this Prospectus, the Equity Options riders, and
the relevant fixed benefit life insurance policy.
Equity Options
MetLife issues the Equity Options as optional benefits to a fixed benefit life
insurance policy (the "base policy"). We also offer other optional benefits as
additions to the base policy. For ease of reference, we refer to the base
policy and all of the optional benefits that are added to the base policy as
the "Policy." The Equity Options allow you to experience the potential growth
of the equity markets while maintaining your base policy. There are two
different Equity Options, and you may elect to include either or both as
optional benefits to your base policy:
. Equity Additions (also known as Variable Additional Insurance)
. Equity Enricher (also known as Variable Additional Benefits). We anticipate
that we will begin to offer the Equity Enricher as an option for Policies
issued on or after September 15, 1999.
Equity Options Premiums
The Equity Options allow some flexibility in making premium payments.
. Equity Additions allows you to make premium payments by allocating dividends
or other payments from the base policy and from certain benefits options
(known as credit options) to the base policy.
. Equity Enricher allows you to make planned and unplanned premium payments.
2
<PAGE>
Equity Options Cash Value
Your cash value in an Equity Option reflects your Equity Option's premium
payments, the charges we deduct from the cash value, any investment experience
you have in our Separate Account, as well as your transfer, loan and withdrawal
activity. MetLife doesn't guarantee the investment performance of the MetLife
Stock Index investment division and you should consider your risk tolerance
before purchasing an Equity Option.
Transfers
You may transfer cash value from each Equity Option to pay base policy
premiums, charges or loan interest. You may also transfer cash value to or from
certain other benefit options to an Equity Option, subject to certain limits.
Equity Options Death Benefit
Generally, the death benefit is equal to the Equity Option cash value divided
by an applicable "net single premium amount" that is specified in your rider
and multiplied by $1,000.
The Conditional Guaranteed Minimum Death Benefit
Generally, you will receive a conditional guaranteed minimum death benefit. In
certain situations this guaranteed minimum death benefit can be reduced or
eliminated entirely.
Surrenders, Partial Withdrawals and Loans
Within certain limits, you may take partial withdrawals from and loans against
amounts in the Equity Options. You may also surrender your Equity Option for
its cash value, less any applicable charges.
Tax Treatment
In most cases, you will not pay income taxes on withdrawals or surrenders or at
the Final Date of the Policy until your cumulative withdrawn amounts exceed the
cumulative premiums you have paid under your Policy. If your Policy is a
modified endowment contract, you will pay income taxes on loans and withdrawals
to the extent of any gains (which is generally the excess of cash value over
the premiums paid). In this case, an additional 10% tax may also apply. If the
Policy is part of a collateral assignment equity split dollar arrangement with
an employer, increases in cash value that are not due to premium payments may
be taxed annually. The death benefit may be subject to federal and state estate
taxes, but your beneficiary will generally not be taxed on the death benefit.
As with any taxation matter, you should consult with and rely on the advice of
your own tax advisor.
3
<PAGE>
Table of Charges and Expenses
This table shows the charges and expenses that you pay under the Equity
Options. See "Charges and Deductions," below for more information on the Equity
Options charges:
<TABLE>
<CAPTION>
Type of Charge or Expense Amount of Charge or Expense
- --------------------------------------------------------------------------------
<C> <S>
Monthly Deduction from your Equity
Option's cash value
Cost of insurance charges: Amount varies depending on the specifics
of your Policy./1/
Mortality and expense risk and The charge is equivalent to an effective
administrative services charge: annual rate of .75% of the cash value in
the Separate Account on each monthly
anniversary for riders to base policies
that have a face amount less than
$250,000, or .50% for riders to base
policies that have a face amount of
$250,000 or greater.
- --------------------------------------------------------------------------------
Equity Enricher only:
Charges we deduct from each premium
payment
Sales charge: 2% of each premium payment
Charge for average expected state
taxes attributable to premiums: 2% of each premium payment
Charge for expected federal taxes
attributable to premiums: 1% of each premium payment
</TABLE>
- --------
/1/See "Cost of Insurance" under "Charges and Deductions" for a more detailed
discussion of factors affecting this charge. If you would like, we will provide
you with an illustration of the impact of these and other charges under the
Equity Options based on various assumptions.
Fund Investment Management Fees and Direct Expenses
MetLife receives an investment management fee from the Fund and the Fund incurs
direct expenses (see the Fund Prospectus and Statement of Additional
Information referred to therein). You bear indirectly your proportionate share
of the fees and expenses of the Portfolio of the Fund that corresponds to the
MetLife Stock Index investment division. The following sets forth that
Portfolio's fees and expenses for the year ending 12/31/98:
<TABLE>
<CAPTION>
Total
1998
Management Other Annual
Portfolio Fee Expenses Expenses
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MetLife Stock Index .25% .05 .30
</TABLE>
Other
Please refer to "Federal Tax Matters--Our Taxation" for a description of
certain charges that we currently do not impose but may impose in the future.
4
<PAGE>
MetLife
We are a mutual life insurance company. We were formed in 1868 in New York and
we currently conduct business in all 50 states, the District of Columbia,
Puerto Rico and Canada. We are one of the largest financial services companies
in the world with many of the largest United States corporations for clients.
As of December 31, 1998, we had total life insurance in force of approximately
$1.7 trillion and total assets under management of approximately $359 billion.
We have listed our directors and certain key officers under "Management", and
our financial information under "Financial Statements," below.
Giving us requests, instructions or notifications
[SIDEBAR: You can contact us at our Designated Office.]
Contacting us:
You can communicate all of your requests, instructions and notifications to us
by contacting us in writing at our Designated Office. We may require that
certain requests, instructions and notifications be made on forms that we
provide. These include: changing your beneficiary; taking a Policy loan; taking
a partial withdrawal; surrendering your Policy or an Equity Option; making
transfer requests or changing the benefit option to which you want to allocate
your policy credits. Our Designated Office is our home office at 1 Madison
Avenue, New York, NY 10010. We may name additional or alternate Designated
Offices. If we do, we will notify you in writing.
When your requests, instructions and notifications become effective:
. Generally, requests, premium payments and other instructions and
notifications are effective on the Date of Receipt. In those cases, the
effective time is at the end of a Valuation Period during which we receive
them at our Designated Office. (Some exceptions to this general rule are
noted below and elsewhere in this Prospectus.)
. A Valuation Period is the period between two successive Valuation Dates. It
begins at the close of regular trading on the New York Stock Exchange on a
Valuation Date and ends at the close of regular trading on the New York
Stock Exchange on the next succeeding Valuation Date. The close of regular
trading is 4:00 p.m., Eastern Time on most days.
. A Valuation Date is:
. Each day on which the New York Stock Exchange is open for trading.
. Other days, if we, as the Fund's investment manager, think that there has
been a sufficient degree of trading in the Fund's portfolio securities
that the current net asset value of its redeemable securities might be
materially affected.
. The initial effective time of your Equity Options' investment in the
Separate Account is the Investment State Date. The Investment State Date
is:
. For Equity Additions, the credit payment date of the first base policy
credit that is allocated to the option or, if sooner, the date of the
first transfer of cash value to Equity Additions from another benefit
option.
. For the Equity Enricher, the end of the first Valuation Date after any
free-look period on the base policy. We will place any premium payments
you make to the Equity Enricher in a fixed paid up additional insurance
benefit option (known as the "Enricher") until the Investment Start Date.
5
<PAGE>
[SIDEBAR: The MetLife Stock Index investment division invests in a
corresponding Portfolio of the Fund.]
Separate Account UL
We established the Separate Account under New York law on December 13, 1988.
The Separate Account receives premium payments from the Equity Options
described in this Prospectus and other variable life insurance policies that we
issue. We have registered the Separate Account as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act"). The assets in the Separate
Account legally belong to us; but they are held solely for the benefit of
investors in the Separate Account and no one else, including our other
creditors. We will keep an amount in the Separate Account that at least equals
the value of our commitments to policy owners that are based on their
investments in the Separate Account. We can also keep charges that we deduct
and other excess amounts in the Separate Account or we can transfer the excess
out of the Separate Account.
The Separate Account has subdivisions, called "investment divisions." Each
investment division invests its assets exclusively in shares of a corresponding
Portfolio of the Fund. Currently, only the MetLife Stock Index investment
division is available for use with the Equity Options. Amounts you allocate to
the MetLife Stock Index investment division receive the investment experience
of the investment division, and you bear this investment risk.
[SIDEBAR: You should carefully review the investment objective, strategies
and risks of the MetLife Stock Index Portfolio, which are contained in the
Fund prospectus you have also received.]
The Metropolitan Series Fund, Inc.
The Fund is a "series" type of mutual fund, which is registered as an open-end
management investment company under the 1940 Act. The Fund is divided into
Portfolios, each of which represents a different class of stock in which a
corresponding investment division of the Separate Account invests. You should
read the Fund prospectus, which you have also received. It contains information
about the Fund and the MetLife Stock Index Portfolio, including the investment
objective, strategies, risks and investment adviser that is associated with the
Portfolio. It also contains information on our different separate accounts and
our affiliates that invest in the Fund and the risks related thereto.
As of the end of each Valuation Period, we purchase and redeem Fund shares for
the Separate Account at their net asset value without any sales or redemption
charges. These purchases and redemptions reflect the amount of any of the
following transactions that take effect at the end of the Valuation Period:
. The allocation of premiums (less applicable charges) to the Separate Account.
. Dividends and distributions on Fund shares that are reinvested as of the
dates paid (which reduces the value of each share of the Fund and increases
the number of Fund shares outstanding, but has no affect on the cash value in
the Separate Account).
. Policy loans and loan repayments allocated to the Separate Account.
. Transfers to or from the Separate Account from other Policy parts.
. Withdrawals or surrenders taken from the Separate Account
6
<PAGE>
[SIDEBAR: The Policy includes the base policy and its benefit options.]
The Base Policy and its Benefit Options
The base policy and all of its benefit options form the entire Policy. In this
Prospectus, we refer to each portion of the Policy as a Policy part. The base
policy provides a fixed amount of life insurance. Benefit options may be added
to the base policy.
In this Prospectus, we refer to some of the benefit options as "credit
options." Credit options are methods under which dividends or other credits
that become payable under your Policy, as well as cash value that you transfer
from any other credit options that you have in effect, are applied to
accumulate additional cash value and purchase additional death benefits. The
amount of dividends or other credits on your Policy changes annually, is not
guaranteed, and is based on a variety of factors. These factors may include the
base policy face amount, the death benefit and credit class of the base policy,
as well as the amount of our earnings. Any credits due from any Policy part are
paid on the last day of a base policy year, as set forth in the benefit option.
Credit options include:
. Equity Additions: a benefit option described in this Prospectus
. Fixed Additional Insurance: a benefit option that is similar to Equity
Additions, except that cash value accumulates at fixed interest rates that we
declare.
. Dividends with Interest ("DWI"): a benefit option where cash value
accumulates with currently taxable interest that we declare periodically.
Other benefit options which are not credit options include:
. Equity Enricher: a benefit option described in this Prospectus.
. Enricher: a fixed paid-up additional insurance benefit option that is similar
to Equity Enricher, except that it has a guaranteed cash value which is
eligible for a dividend.
. Flexible Additional Insurance Rider ("FLAIR"): a benefit rider that provides
additional fixed benefit insurance and has a fixed benefit term insurance
element.
. Disability Waiver of Benefits Options: benefit options that waive certain
charges or premium requirements in the event of disability. (No such waiver
of premium benefit applies to the Equity Enricher).
. Acceleration of Death Benefits Option: a benefit option that can provide a
discounted present value of the death benefit, if the insured becomes
terminally ill, prior to the insured's death.
Subject to certain limits and conditions, we guarantee the cash value in the
base policy as well as all of the benefit options, other than the Equity
Options. We make this guarantee because these Policy parts provide fixed
benefits. Since these fixed benefits are not registered under the federal
securities laws, this Prospectus contains only limited information about them.
The Policy gives you more information on the operation of these fixed benefits.
7
<PAGE>
Issuing Equity Options
If you want an Equity Option, then you must complete an application. We will
issue an Equity Option to you only if you are also the owner of the base
policy. Your completed application must be received by the Designated Office.
The Equity Options are available to base policies meeting the minimum face
amount and eligibility requirements that we establish. You may not add the
Equity Enricher after your base policy is issued. You may not add the Equity
Additions while any term insurance is in effect under FLAIR. Once FLAIR becomes
fully funded, or you discontinue the term insurance provided by FLAIR, you may
add the Equity Additions. We reserve the right to reject an application for any
reason permitted by law, and our acceptance of an application is subject to our
underwriting rules.
The insured will be the same individual as the insured in the base policy. An
"insured" is the person upon whose life we issue the Policy. You do not have to
be the insured. For the purpose of computing the insured's age under the
Policy, we start with the insured's age on the Date of Policy, which is set
forth in the base policy. Age under the Policy at any other time is then
computed using that issue age and adding the number of full base policy years
completed.
[SIDEBAR: We will issue an Equity Option to you as owner. You will have
all the rights under the option.]
To elect the Equity Enricher you must complete the Equity Enricher application
at the same time you complete the application for the base policy. We will not
require evidence of insurability other than that required in connection with
the issuance of the base policy, unless the amount of premiums you actually pay
for the Equity Enricher during the first year is greater than the cumulative
voluntary planned periodic premium payments indicated in the application, or
you exceed certain other premium limitations described below after the first
year.
To elect the Equity Additions, you may complete the Equity Additions
application either at the same time as the application for the base policy or
after the base policy has been issued. If you decide to add Equity Additions
after you own the base policy, it may reduce the amount of premiums that you
could pay to your Policy before it would become a modified endowment contract.
If you contact us, we will tell you what these premium limits are. We will not
require additional evidence of insurability for the Equity Additions, unless
you desire to make a payment that is derived from another credit option that
does not itself have a death benefit.
Insurance coverage under an Equity Option commences on its Investment Start
Date, assuming coverage under the base policy is then in effect.
Equity Options Benefits
Insurance Proceeds
We will pay your beneficiary any insurance proceeds as of the end of the
Valuation Period that includes the insured's date of death. We will pay this
amount after we receive documents that we request as due proof of the insured's
death. The beneficiary can receive the death benefit in a single sum or under
an income plan described below. You may make this choice during the insured's
lifetime. If no selection is made we will place the amount in an account to
which we will credit interest, and the beneficiary will have immediate access
to all or part of that amount. The beneficiary has one year from the date the
insurance proceeds are paid to change the selection from a single sum payment
to an income plan, as long as we have made no payments
8
<PAGE>
from the interest-bearing account. If the terms of the income plan permit the
beneficiary to withdraw the entire amount from the plan, the beneficiary can
also name contingent beneficiaries.
The insurance proceeds equal the Equity Option's death benefit.
Equity Options Death Benefits
The Equity Option's death benefit is:
. the cash value (after we deduct the Mortality and Expense Risk and
Administrative Service Charge and the Cost of Insurance Charge, pro rated for
the appropriate period) at the end of the Valuation Period in which the
insured dies; divided by
. the net single premium for that day (see "Net Single Premium" below);
multiplied by
. $1,000.
Any increase or decrease in the cash value of an Equity Option also will
increase or decrease the death benefit that otherwise would apply. In such
cases, the death benefit will change by a larger amount than does the cash
value.
Any such increases in death benefit, however, will be partially or wholly
offset (and any decreases will be accentuated) by the fact that the net single
premium increases the longer your Policy is outstanding. Therefore, in order
for your Equity Option death benefit to increase or remain constant, your
Equity Option cash value must increase enough to compensate for the effect of
the increases in net single premium. If your Equity Option cash value declines
to zero (due to adverse investment results, the charges we deduct, and/or
insufficient premium payments) your Equity Option death benefit also will be
zero.
Alternate Death Benefit
In no event will the Policy death benefit be lower than the minimum amount
required to maintain the Policy as life insurance under the federal income tax
laws (which calculation shall exclude coverage provided under the DWI benefit
option).
[SIDEBAR: Equity Options offers a conditional guaranteed minimum death benefit.]
Conditional Guaranteed Minimum Death Benefit
We provide a conditional guaranteed minimum death benefit that will be in
effect during the first 7 years of your base policy or another 7 year period
beginning from any date your policy is "materially modified" (within the
meaning of the tax law test discussed under "Federal Tax Matters-modified
endowment contract status," below). During any such 7 year period, the
conditional guaranteed minimum death benefit generally will equal the Equity
Option's death benefit at the beginning of each such 7 year period. The
guaranteed minimum death benefit ends:
. if the Policy becomes a Modified Endowment Contract; or
. for the Equity Additions, if you change your credit option to a different
credit option for the next credit payment date.
The conditional guaranteed minimum death benefit is reduced for any:
. loan;
. withdrawal; or
. cash value transfer from the Equity Option.
9
<PAGE>
You should consult with your MetLife account representative before taking any
action listed above to find out whether the action will affect the conditional
guaranteed minimum death benefit.
If your conditional guaranteed minimum death benefit is reduced or ends, your
Policy may become a modified endowment contract.
Equity Options Cash Values
[SIDEBAR: Equity Options are designed to accumulate cash value.]
Your Equity Option's cash value equals the Separate Account cash value. The
Separate Account cash value is allocated to the MetLife Stock Index investment
division. For purposes of taking charges, loans and making transfers or
withdrawals, we divide your cash value into "components". Each component is the
portion of the Equity Option cash value that is attributable to payments made
from its corresponding Policy part. An Equity Option's cash value is calculated
as follows:
. On the Investment Start Date, we will allocate your cash value to the MetLife
Stock Index investment division.
. Thereafter, at the end of each Valuation Period the cash value in the
investment division will equal:
. The cash value in the investment division at the beginning of the Valuation
Period; plus
. All premiums (less applicable charges) and cash value transfers into the
investment division during the Valuation Period; minus
. All partial cash withdrawals, loan amounts and cash value transfers out of
the investment division during the Valuation Period; minus
. The portion of any charges and deductions allocated to the cash value in
the investment division during the Valuation Period; plus
. The net investment return for the Valuation Period on the amount of cash
value in the investment division at the beginning of the Valuation Period.
The net investment return currently equals the rate of increase or decrease
in the net asset value per share of the underlying Fund portfolio over the
Valuation Period, adjusted upward to take appropriate account of any
dividends and other distributions paid by the portfolio during the period.
The net investment return could in the future be reduced by a charge for
taxes that we have the right to impose.
If your Equity Option has no cash value, we will not provide any insurance
coverage under it, nor will we take a monthly deduction, until the Equity
Option does have cash value.
[SIDEBAR: Generally, the Policy's insurance proceeds, amounts payable at the
Final Date or amounts paid upon surrender of your Policy can be paid under
an income plan instead of in a lump sum.]
Benefit at Final Date
The Final Date is the Policy anniversary on which the insured is Age 100. We
will allow you to extend that date, however, where permitted by state law. If
the insured is living on the Final Date, we will pay you the cash value of the
Policy, reduced by any applicable charges and outstanding loans (plus accrued
interest). You can receive the cash value in a single sum, in an account that
earns interest, or under an available income plan.
Income Plans
Before you purchase an income plan you should consider:
. The tax consequences associated with the Policy proceeds, which can vary
considerably, depending on whether a plan is chosen. You or your
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beneficiary should consult with a qualified tax adviser about tax
consequences.
. That your Policy will terminate at the time you purchase an income plan and
you will receive a new contract, which describes the terms of the income
plan. You should carefully review the terms of the new contract, because it
contains important information about the terms and conditions of the income
plan.
. That these plans do not have a variable investment return.
Generally, we currently make the following income plans available:
<TABLE>
<S> <C>
. Interest Income . Installment Income for a
Stated Period
- --------------------------------------------------------------------
. Installment Income for a . Single Life Income--Guaranteed
Stated Amount Payment Period
- --------------------------------------------------------------------
. Joint and Survivor Life Income . Single Life Income--Guaranteed
Return
</TABLE>
[SIDEBAR: You may make transfers between each component of the Equity Options
and its eligible Policy parts at any time.]
Equity Options Rights
Cash Value Transfers
. For the Equity Additions, transfers can only be made among it and the other
credit options that are available to you at that time.
. For the Equity Enricher, transfers can only be made between it and the
Enricher.
You may only transfer cash value between a particular component and that
component's corresponding Policy Part. This limitation on transfers does not
currently affect the Equity Enricher, because cash value transfers can
currently only be made between it and the Enricher. We will adjust any credit
that would be due under a Policy part to reflect the timing and effect of any
transfer. Any transfer will reduce the conditional guaranteed minimum death
benefit by the same proportion as it reduces the Equity Options cash value.
There is no charge for cash value transfers.
If you would like to make a transfer, you must indicate which component and
which Policy part are involved in the transfer. Except for transfers to the
dividends with interest option, transfers among the Equity Options and other
Policy parts are not currently taxable transactions.
. Automated transfer: We may in the future allow you to make automatic
transfers of Equity Option cash values to pay the base policy premiums. If we
do, we will set forth the terms and conditions in the forms we provide to you
to establish the automatic transfers.
. Transfers by telephone: We may, if permitted by state law, allow you to make
transfer requests by phone. We may also allow you to authorize your sales
representative to make such requests. The following procedures apply:
. We must have received your authorization in writing satisfactory to us, to
act on instructions from any person that claims to be you or your sales
representative, as applicable, as long as that person follows our
procedures.
. We will institute reasonable procedures to confirm that instructions we
receive are genuine. Our procedures will include receiving from the caller
your personalized data.
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. All telephone calls will be recorded.
. You will receive a written confirmation of any transaction.
. Neither the Separate Account nor we will be liable for any loss, expense or
cost arising out of a telephone request if we reasonably believed the
request to be genuine.
. You should contact our Designated Office with any questions regarding the
procedures.
Loan Privileges
You may obtain a loan from us whenever your Policy has a loan value. The loan
value equals the Policy cash value less the anticipated loan interest for the
remainder of that base policy year.
[SIDEBAR: You can borrow from us and use your Policy as security for
the loan.]
When you request a loan, you may direct from where the loan will be taken among
the available cash value in the different Policy parts, including the available
cash value in the components of the Equity Options. If you do not so direct, we
will take the loan from available cash value in accordance with our
administrative procedures that are in effect at the time you take the loan.
As of the Date of Receipt, for any loan request that affects an Equity Option,
we will:
. Remove an amount equal to the loan from your Equity Option . We will place an
equal amount in the Fixed Additional Insurance option (if the loan is from
Equity Additions) or in the Enricher (if the loan is from the Equity
Enricher), where it will receive interest in accordance with the option's
terms.
. Charge you interest, which will accrue daily. We will tell you the initial
interest rate that applies to your loan and mail you advance notices of any
increases applicable to existing loans. Your interest payments are due at the
end of each Policy year. If you don't pay the interest within 31 days after
it is due, we will treat it as a new Policy loan, which will be taken from
the components of the Equity Option in the same manner that the original loan
amounts were taken. If one component does not have sufficient cash value, we
will take the excess from the remaining components in accordance with our
administrative procedures that are in effect at the time you take the loan.
The interest rate charged for a base policy year will never be more than the
maximum allowed by law and will generally be the greater of:
. the published monthly average for the calendar month ending two months
before the start of such year; or
. the rate used to calculate the guaranteed cash value of the base policy and
its riders for the base policy year plus 1%.
The published monthly average means (a) Moody's Corporate Bond Yield Average
Monthly Average Corporates, as published by Moody's Investors Service, Inc., or
any successor service; or (b) If the Moody's average is not published, a
substantially similar average established by regulation issued by the insurance
supervisory official of the state in which the base policy is delivered.
Repaying your loans (plus accrued interest) is done by sending in payments of
at least $50. We will allocate your repayment to the fixed additional
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insurance benefit rider to which we had transferred the Equity Options cash
value that you used as security for your loan. You may then transfer such
repaid amount to your Equity Option at any time.
Before taking a Policy loan, you should consider the following:
. Interest payments on loans are generally not deductible for tax purposes.
. Under certain situations, Policy loans could be considered taxable
distributions.
. If you surrender your Policy or if we terminate your Policy, or at the Final
Date, any outstanding loan amounts (plus accrued interest) will be taxed as a
distribution. (See "Federal Tax Matters--The Policy--Loans" below.)
. A Policy loan increases the chances of our terminating your Policy due to
insufficient cash value because amounts used as security for a loan are not
eligible to pay Policy charges.
. An Equity Option's conditional guaranteed minimum death benefit will be
reduced by the same proportion as the loan reduces the Equity Option's cash
value.
. Your Policy's death benefit will be reduced by any unpaid loan (plus accrued
interest).
[SIDEBAR: You can surrender your Equity Option for its cash value.]
Surrender and Withdrawal Privileges
If you surrender an Equity Option, you can choose to receive the option's cash
value or have the proceeds transferred to any benefit option that is permitted
to receive premiums at that time. In the event of any transfer, any credit that
might be payable on amounts in such option will be adjusted to reflect the
timing of receipt of such transfer. We will deem your request for surrender of
the base policy also to be a request for surrender of the Equity Option. You
may receive the surrender proceeds in a single sum or under an income plan.
If you would like to make a partial withdrawal, you may direct from which
components the amount will be taken, within the limits of the component's cash
value. If you do not so direct, we will withdraw cash value in accordance with
our administrative procedures that are in effect at the time of the withdrawal.
If you make a request for a partial withdrawal of an amount that exceeds the
cash value in the chosen component, we will tell you and you may then ask for a
smaller withdrawal, or a different allocation among the components or surrender
the Equity Option.
Before surrendering your Equity Option or requesting a partial withdrawal you
should consider the following:
. Amounts received may be taxable as income and, if your Policy is a modified
endowment contract, subject to certain tax penalties.
. Your Policy could become a modified endowment contract.
. For partial withdrawals, your death benefit will decrease.
. In some cases you may be better off taking a Policy loan, rather than a
withdrawal.
. The conditional guaranteed minimum death benefit will be reduced by the same
proportion as the withdrawal reduces the Equity Option's cash value.
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Equity Options Premiums
The payments into the Equity Options won't guarantee that your Equity Option
will have a death benefit. Rather, this depends on the Equity Option's cash
value and the conditional guaranteed minimum death benefit.
Paying Premiums
You can make premium payments, subject to certain limitations discussed below,
through:
. For the Equity Additions, dividends or other credits on the Policy provided
that you direct us in writing at least sixty days prior to the credit payment
date (unless Equity Additions is the credit option you currently are using).
If you had previously chosen Equity Additions to receive the dividend or
other credit, but want to change to a different credit option, you must elect
the different credit option at least sixty days prior to the credit payment
date. Only one election may be made for any credit payment date and will
apply to all credits payable under the Policy.
. For the Equity Enricher:
. through a voluntary planned periodic premium schedule. You choose the
schedule on your Equity Enricher application. The schedule sets forth the
amount of premiums, fixed payment intervals, and the period of time that
you intend to pay premiums. The schedule can be: (a) annual; (b) semi-
annual; (c) periodic automatic pre-authorized transfers from your checking
account ("check-o-matic"); (d) systematic through payment plans that your
employer makes available; or (e) through another method to which we agree.
You do not have to pay premiums in accordance with your voluntary planned
period premium schedule.
. Subject to the below limits, you can make unscheduled premium payments at
any time.
Maximum and Minimum Premium Payments
. Total premium payments under all benefit options (excluding the Equity
Additions, DWI and disability waiver of benefits options) may not exceed $2.5
million in the first base policy year and $500,000 in each year thereafter.
. You may not pay premiums that exceed tax law premium limitations for your
Policy to qualify as life insurance. We will return any amounts that exceed
these limits, except that we will keep any amounts that are required to keep
the Policy from terminating. We will let you make premium payments that would
turn your Policy into a modified endowment contract, but we will tell you of
this status in your annual statement, and if possible we will tell you how to
reverse the status.
. The following limitations apply to the Equity Enricher. When applying the
limits, we aggregate payments to the Equity Enricher with payments to the
Enricher:
I. You may not make any premium payments:
A. While we are considering your application for benefits on the base
policy under a disability waiver of benefits option or an acceleration
of death benefits option.
B. If we are paying benefits under the above options or if all benefits
due under one of those options have been paid.
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C. If you have made no payments to the Equity Enricher for any two
consecutive base policy years (unless, during any part of such period,
your right to make payments was terminated for reasons described in A,
or, unless you were taking withdrawals from the Equity Enricher to pay
for a child's education and you provide us with proof of such payment
that we find satisfactory).
D. After the later of the base policy anniversary on which the insured is
65, or the tenth base policy anniversary.
In any of these cases, you may elect to receive the cash value, transfer the
cash value to the Enricher, or leave the cash value in the Equity Enricher.
If you leave the cash value in the Equity Enricher, it will remain subject to
applicable fees and charges. If investment performance is not sufficient to
offset the amount of these expenses, the death benefit may decline or
terminate.
II. Your voluntary planned periodic payments must be at least:
A. $250 annually ($100 for policies that are part of our Tower or
Executive Series or where the insured was under 18 when the base
policy was issued).
B. $125 semi-annually ($50 for policies that are part of our Tower or
Executive Series or where the insured was under 18 when the base
policy was issued).
C. $25 for all monthly methods of payment ($10 for policies that are part
of our Tower or Executive Series or where the insured was under 18
when the base policy was issued).
D. $250 ($100 for the Tower or Executive Series or where the insured was
under age 18 when the base policy was issued) for each unscheduled
premium payment.
III. During the first base policy year, we reserve the right to reject any
amount that exceeds the cumulative amount of your first base policy
year's voluntary planned periodic premiums.
IV. During the first base policy year, the maximum annual payment we permit
is 15 times the nonsmoker standard annual premium (minus the base policy
fee) set forth in your base policy.
V. After the first base policy year, the maximum payment we permit is the
greater of
A. 3 times the base policy's nonsmoker standard annual premium (minus the
base policy fee) set forth in your base policy; or
B. $5,000
VI. We reserve the right to require evidence of insurability of premium
payments that exceed both $25,000 and 2 times the greater of the total
payments made in either of the prior two Policy years.
Equity Options Termination and Reinstatement
Termination
We will terminate Equity Options if we terminate the base policy. We will
terminate your base policy if we do not receive sufficient premium payments by
the end of a 31 day grace period. If the insured dies during the grace period,
the insurance proceeds will still be payable, but we will deduct any due and
unpaid base policy premiums and any Policy loan and loan interest from the
proceeds.
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At the end of the grace period, if you have elected to do so, and if there is
sufficient cash value in your Equity Option to do so, we will pay your premium
from the Equity Option cash value through an automatic loan feature. If the
automatic loan feature is not used to pay the base policy premium and the
Policy is terminated, we will transfer your Equity Additions cash value into
the fixed additional insurance option and your Equity Enricher cash value into
the Enricher in accordance with your Policy's provisions and our administrative
practices.
Reinstatement
We will reinstate the Equity Options if we reinstate your base policy. The
reinstated Equity Option will have no cash value until an Equity Option premium
payment is made. We will reinstate your base policy subject to certain terms
and conditions that the base policy provides. We must receive your
reinstatement request within 3 years (or within a longer period if required by
state law) after the end of the base policy's grace period and before its Final
Date.
[SIDEBAR: Carefully review the "Table of Charges and Expenses" in the
"Summary" which sets forth the charges that you pay under the Equity
Options.]
Equity Options Charges and Deductions
The Equity Options charges compensate us for our expenses and risks. The name
of a charge can suggest the purposes for which the charge is imposed. For
example, the "sales charge" for the Equity Enricher option is designed
primarily to defray commissions and other costs of marketing that option.
Nevertheless, any distinctions we make about the specific purposes of the
different charges are imprecise, and we are free to keep and use our revenues
or profits for any other purpose, including paying any of our costs and
expenses in connection with the Policies. The following sets forth additional
information about some (but not all) of the Equity Options charges.
Charge for average expected state taxes attributable to premiums: We make this
charge, with respect to the Equity Enricher, to reimburse us for the state
premium taxes that we must pay on premiums we receive. Premium taxes vary from
state to state and currently range from 0 to 3.5%. Our charge approximates the
average tax rate we expect to pay on premiums we receive from all states.
Charges included in the Monthly Deduction: We take the monthly deduction from
each component in proportion to the Equity Options Cash Value in that component
at the beginning of the base policy month, beginning with the first base policy
month during which an Equity Option is in effect. We deduct the monthly
deduction as of each base policy monthly anniversary. If there is no cash value
in the Equity Option, there is no insurance coverage provided under the Option
and therefore no monthly deduction is due.
. Cost of insurance: This charge varies monthly based on many factors. Each
month, we determine the charge by multiplying the applicable cost of
insurance percent by the cash value at the end of the prior Policy month.
. The cost of insurance percent is based on our expectations as to future
experience, taking into account the insured's sex (if permitted by law), age,
smoking status and rate class. The percentages will never exceed the
guaranteed cost of insurance percentages set forth in your Equity Options
rider. These guaranteed percentages are based on certain 1980 Commissioners
Standard Ordinary Mortality Tables and the insured's sex
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(if permitted by law), age and rate class. Our current percentages are lower
than the maximums in most cases. We review our percentages periodically and
may adjust them, but we will apply the same percentages to everyone who has
had their Equity Option for the same amount of time and who is the same age,
sex and rate class. As a general rule, the cost of insurance percentage
increases each year you own your Equity Option, as the insured's age
increases.
. Rate class relates to the level of mortality risk we assume with respect to
an insured. It can be the standard rate class, or one that is higher or
lower (and if the insured is 18 or older, we divide rate class by smoking
status). The insured's rate class will affect your charge for insurance
coverage.
. Mortality and Expense Risk and Administrative services charge: We make this
monthly charge primarily to compensate us for:
. expenses we incur in the administration of the Equity Option
. mortality risks that insureds may live for a shorter period than we expect;
and
. expense risks that our issuing and administrative expenses may be higher
than we expect.
If our estimates are correct, we will realize a profit from this charge;
otherwise, we could incur a loss. The amount of the charge is lower if the base
policy's face amount is at least $250,000 at the date we calculate the charge.
Therefore, changes you make in your base policy's face amount could affect the
rate at which this charge applies to you.
Net Single Premium
The net single premium varies from day to day and is based on the 1980
Commissioners Standard Ordinary Mortality Tables and the insured's sex (where
permitted by state law or unless the Policy is issued in connection with
certain types of employee benefit plans) and age. To determine a death benefit,
we divide an Equity Option's cash value by the net single premium. While it is
not a charge or expense, the lower the net single premium, the higher the death
benefit, and vice versa. The net single premium under your Equity Option will
increase each month, as the insured grows older. The amount of your net single
premium for each month is prescribed in the Equity Option itself and we will
not alter such amounts.
Federal Tax Matters
The following is a brief summary of some tax rules that may apply to your
Policy. You should consult with your own tax advisor to find out how taxes can
affect your benefits and rights under your Policy, especially before you make
unscheduled premium payments, change coverage provided by base policy or the
benefit options, take a loan or withdrawal, or assign or surrender the Policy.
The Policy
Insurance proceeds
. Generally excludable from your beneficiary's gross income.
. The proceeds may be subject to federal estate tax: (i) if paid to the
insured's estate; or (ii) if paid to a different beneficiary if the insured
possessed incidents of ownership at or within three years before death.
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. If you die before the insured, the value of your Policy (determined under IRS
rules) is included in your estate and may be subject to federal estate tax.
. Whether or not any federal estate tax is due is based on a number of factors
including the estate size.
Cash value (if your Policy is not a modified endowment contract)
. You are generally not taxed on your cash value (except with respect to the
DWI option) until you withdraw it, surrender your Policy or receive a
distribution on the Final Date. In these cases, you are generally permitted
to take withdrawals up to the amount of premiums paid without any tax
consequences. However, withdrawals will be subject to income tax after you
have received amounts equal to the total premiums you paid. Somewhat
different rules apply in the first 15 Policy years when a distribution may be
subject to tax if there is a gain in your Policy (which is generally when
your cash value exceeds the cumulative premiums you paid). Finally, if your
Policy is part of a collateral assignment equity split dollar arrangement,
there is a risk that increases in cash value may be taxed annually. For
income tax purposes, if you surrender an Equity Option for its cash value but
the base policy remains in force, you will be considered to have made a
partial withdrawal. A transfer to the DWI also will be taxed as a withdrawal.
Loans
. Loan amounts received will generally not be subject to income tax, unless
your Policy is or becomes a modified endowment contract or terminates.
. Interest on loans is generally not deductible. For businesses that own a
Policy, at least part of the interest deduction unrelated to the Policy may
be disallowed unless the insured is a 20% owner, officer, director or
employee of the business.
. If your Policy terminates (upon surrender, cancellation, lapse or the Final
Date) while any Policy loan is outstanding, the amount of the loan plus
accrued interest thereon will be deemed to be a "distribution" to you. Any
such distribution will have the same tax consequences as any other Policy
distribution.
Modified Endowment Contracts
These contracts are life insurance contracts where the premiums paid during the
first 7 years after the Policy is issued, or after a material change in the
Policy, exceeds tax law limits referred to as the "7-pay test." Material
changes in the Policy include changes in the level of benefits and certain
other changes to your Policy after the issue date. Reductions in benefits
during a 7-pay period may cause your Policy to become a modified endowment
contract. Generally, a life insurance policy that is received in exchange for a
modified endowment contract will also be considered a modified endowment
contract.
If your Policy is considered a modified endowment contract the following
applies:
. The death benefit will generally be income tax free to your beneficiary, as
discussed above.
. Amounts withdrawn or distributed before the insured's death, including loans,
assignments and pledges, are treated as income first and subject to income
tax. All modified endowment contracts you purchase from us and
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our affiliates during the same calendar year are treated as a single contract
for purposes of determining the amount of any such income.
. An additional 10% income tax generally applies to the taxable portion of the
amounts received before age 59 1/2, except generally if you are disabled or
if the distribution is part of a series of substantially equal periodic
payments.
Diversification
In order for your Policy to qualify as life insurance, we must comply with
certain diversification standards with respect to the investments underlying
the Equity Options. We believe that we satisfy and will continue to satisfy
these diversification standards. Inadvertent failure to meet these standards
may be able to be corrected. Failure to meet these standards would result in
immediate taxation to Policy owners of gains under their Policies.
Changes to tax rules and interpretations
Changes in applicable tax rules and interpretations can adversely affect the
tax treatment of your Policy. These changes may take effect retroactively. We
reserve the right to amend the Policy in any way necessary to avoid any adverse
tax treatment. Examples of changes that could create adverse tax consequences
include:
. Possible taxation of cash value transfers among the options within the
Policy.
. Possible taxation as if you were the owner of your allocable portion of the
Separate Account's assets.
. Possible changes in the tax treatment of Policy benefits and rights.
Our taxation
We don't expect to incur federal, state or local taxes upon the earnings or
realize capital gains attributable to the Separate Account. If we do incur such
taxes at some time in the future, we reserve the right to charge cash value
allocated to the Separate Account for these taxes.
Showing Performance
We may advertise or otherwise show:
. Investment division performance ranking and rating information as it compares
among similar investments as compiled by independent organizations.
. Comparisons of the investment division with performance of similar
investments and appropriate indices.
. Our insurance company ratings that are assigned by independent rating
agencies and that are relevant when considering our ability to honor our
guarantees.
. Personalized illustrations based on historical Separate Account performance.
Rights We Reserve
We reserve the right to make certain changes if we believe the changes are in
the best interest of our Policy owners or would help carry out the purposes of
the Policy. We will make these changes in the manner permitted
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by applicable law and only after getting any necessary owner and regulatory
approval. We will notify you of any changes that result in a material change in
the underlying investments in the investment divisions, and you will have a
chance to transfer out of the affected division (without charge). Some of the
changes we may make include:
. Operating the Separate Account in any other form that is permitted by
applicable law.
. Changes to obtain or continue exemptions from the 1940 Act.
. Transferring assets among investment divisions or to other separate accounts,
or our general account or combining or removing investment divisions from the
Separate Account.
. Substituting Fund shares in an investment division for shares of another
portfolio of the Fund or another fund or investment permitted by law.
. Changing the way we assess charges without exceeding the aggregate amount of
the Equity Option's guaranteed maximum charges.
. Making any necessary technical changes to the Policy to conform it to the
changes we have made.
[SIDEBAR: Carefully review your Policy which contains a full discussion
of all its provisions.]
Other Policy Provisions
You should read your Policy, including the Equity Options riders, for a full
discussion of their provisions. The following is a brief discussion of some of
the provisions that you should consider:
Free Look Period
You can return the Policy during this period. The period is the later of:
. 10 days after you receive the Policy (unless state law requires your Policy
to specify a longer period); and
. 45 days after we receive Part A of the completed application.
If you return your Policy, we will send you a complete refund of any premiums
paid within seven days.
Incontestability
We will not contest your Policy after 2 years from the base policy's issue or
reinstatement.
Suicide
If the insured commits suicide within the first two base policy years (or
another period specified in your base policy, if required by state law), your
beneficiary will receive all premiums paid to the Policy (without interest),
less any outstanding loans (plus accrued interest) and withdrawals taken.
Age and Sex
We will adjust benefits to reflect the correct age and sex of the insured if
this information isn't correct in any Policy application.
Assignment
You can designate a new owner or otherwise assign an Equity Option only as part
of an assignment of your Policy. You can assign your Policy as collateral if
you notify us in writing. The assignment or release of the assignment is
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effective when it is recorded at the Designated Office. We are not responsible
for determining the validity of the assignment or its release. Also, there
could be serious adverse tax consequences to you or your beneficiary, so you
should consult with your tax adviser before making any assignment.
Payment and Deferment
Generally, we will pay or transfer amounts from the Separate Account within
seven days after the Date of Receipt of all necessary documentation required
for such payment or transfer. We can defer this if:
. The New York Stock Exchange has an unscheduled closing.
. There is an emergency so that we could not reasonably determine the
investment experience of an Equity Option.
. The Securities and Exchange Commission by order permits us to do so for the
protection of Equity Option owners (provided that the delay is permitted
under New York State insurance law and regulations).
. With respect to the insurance proceeds, entitlement to a payment is being
questioned or is uncertain.
. We are paying amounts attributable to a check. In that case we can wait for a
reasonable time (15 days or less) to let the check clear.
We currently pay interest on the amount of insurance proceeds at 6% per year
(or higher if state law requires) from the date of death until the date we pay
the benefit.
Dividends
The Equity Options are "nonparticipating," which means they are not eligible
for dividends from us and do not share in any distributions of our surplus.
Sales and Administration of the Policies
[SIDEBAR: We perform the sales and administrative services for the Policies.]
We serve as the "principal underwriter," as defined in the 1940 Act, for the
Policy and other variable life insurance and variable annuity contracts issued
by a subsidiary and us. We are registered under the Securities Exchange Act of
1934 as a broker-dealer and are a member of the National Association of
Securities Dealers, Inc. We are an investment manager to the Fund and may also
provide advisory services to other clients.
Computer Systems
We use computer systems to process Policy transactions and valuations. These
systems need to be adjusted to be able to continue to administer the Policies
beginning January 1, 2000. As is the case with most systems conversion
projects, risks and uncertainties exist due, in part to reliance on third party
vendors and a project could be delayed. Although we cannot give you assurances,
we are devoting substantial resources necessary to make these systems
modifications and expect that necessary changes will be completed on time and
in a way that will result in no disruption to Policy servicing operations.
Bonding
Our directors, officers and employees are bonded in the amount of $50,000,000,
subject to a $5,000,000 deductible.
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[SIDEBAR: You can give us voting instructions on shares of the Fund
portfolio that are attributable to your Equity Option.]
Distributing the Policies
We sell the Policies that include an Equity Option through licensed life
insurance sales representatives:
. Registered through us.
. Registered through other broker-dealers, including a wholly owned subsidiary.
Commissions
We do not pay commissions for the sale of the Equity Additions. However,
representatives who write the Policy receive compensation calculated by adding
the cash value in the Policy and in certain other products offered by MetLife
and our affiliates. This compensation will not exceed .12% per year of the
total aggregate cash value. We pay commissions on the sale of the base policy
and certain riders.
We pay maximum commissions on the Equity Enricher of 2% of the gross amount
paid for each premium payment. The commissions do not increase the charges
deducted from the Policy. No commissions have been paid on this product because
it we will not begin offering it before September 1999.
We also pay the sales manager of a sales representative employed by us an
override commission based on many factors including the commissions paid to the
representative who sold the Equity Option and to other representatives the
sales manager supervises.
Voting Rights
The Fund has shareholder meetings from time to time to, for example, elect
directors and approve investment managers. We will vote the shares of each
Portfolio that are attributed to your Policy based on your instructions. Should
we determine that the 1940 Act no longer requires us to do this, we may decide
to vote Fund shares in our own right, without input from you or any other
owners of variable life insurance policies or variable annuity contracts that
participate in the Fund.
If you are eligible to give us voting instructions, we will send you
informational material and a form to send back to us. We are entitled to
disregard voting instructions in certain limited circumstances prescribed by
the SEC. If we do so, we will give you our reasons in the next semi-annual
report to Equity Option owners.
The number of shares for which you can give us voting instructions is
determined as of the record date for the Fund shareholder meeting by dividing:
. Your cash value in the corresponding investment division; by
. The net asset value of one share of that Portfolio.
We will count fractional votes.
If we do not receive timely voting instructions from Policy owners and other
insurance and annuity owners that are entitled to give us voting instructions,
we will vote those shares in the same proportion as the shares held in the same
separate account for which we did receive voting instructions. Also, we will
vote Fund shares that are not attributable to insurance or annuity
22
<PAGE>
owners (including shares that we hold in our general account) or that are held
in separate accounts that are not registered under the 1940 Act in the same
proportion as the aggregate of the shares for which we received voting
instructions from all insurance and annuity owners.
Reports
Generally, you will promptly receive statements confirming your significant
transactions involving Equity Options such as:
. Changes in guarantees.
. Transfers between Equity Options and other Policy parts.
. Partial withdrawals.
. Loan amounts you request.
. Premium Payments.
If your premium payments are made through check-o-matic or another systematic
payment method, we will not send you any confirmation in addition to the one
you receive from your bank or employer.
We will also send you an annual statement within 30 days after a Policy year
that will summarize the year's transactions and include information on:
. Deductions and charges.
. Status of the death benefit.
. Cash values.
. Amounts in the investment division.
. Status of Policy loans.
. Automatic loans to pay interest.
. Information on your modified endowment contract status (if applicable).
We will also send you the Fund's annual and semi-annual reports to
shareholders.
[SIDEBAR: Personalized illustrations can help you understand how your Equity
Options values can vary.]
Illustration of Equity Options Benefits
In order to help you understand how your Equity Option values would vary over
time under different sets of assumptions, we will provide you with certain
illustrations upon request. These will be based on the age and insurance risk
characteristics of the insured under your Policy and such factors as the
premium payment amounts and rates of return (within limits) that you request.
You can request such illustrations at any time. We have filed an example of
such an illustration as an exhibit to the registration statement referred to
below.
Getting More Information
We are regulated by the New York Insurance Department and periodically are
examined by them. We are also subject to the laws and regulations of all the
jurisdictions in which we do business and, if required, we have filed the
Equity Options for approval in every jurisdiction in which the Equity Options
are sold. The Equity Options may not be available in every jurisdiction. You
should ask your sales representative whether the Equity Options are available
in your jurisdiction.
23
<PAGE>
We file annual statements on our operations, including financial statements,
with insurance departments of various jurisdictions so that they can review our
solvency and compliance with applicable laws and regulations. You can review
these statements which are available at the offices of the various insurance
departments.
This Prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission under the Securities Act of 1933. The
registration statement includes additional information, amendments and
exhibits. You can get this information from the Securities and Exchange
Commission (a copying fee may apply) by visiting or writing to its Public
Reference Room or using its Internet site at:
. Securities and Exchange Commission
Public Reference Room
Washington, D.C. 20549
Call 1-800-SEC-0330 (for information about using the Public Reference Room)
Internet site: http://www.sec.gov
Legal, Accounting and Actuarial Matters
Christopher P. Nicholas, Associate General Counsel at MetLife, has passed upon
the legality of the Policies. Messrs. Freedman, Levy, Kroll & Simonds,
Washington, D.C., have advised us on certain matters relating to the federal
securities laws.
Deloitte & Touche LLP, independent auditors, audited the financial statements
included in this Prospectus, as stated in their reports appearing herein. The
financial statements are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing. Our financial
statements should be considered only as bearing upon our ability to meet our
obligations under the Policy.
Marian Zeldin, FSA, MAAA, Vice-President and Actuary of MetLife, has examined
actuarial matters included in the registration statement, as stated in her
opinion filed as an exhibit to the registration statement.
24
<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 MetLife
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Curtis H. Barnette Chairman and Chief Executive Officer Director
Bethlehem Steel Corp.
1170 Eight Ave. -- Martin Tower 2118
Bethlehem, PA 18016
- -------------------------------------------------------------------------------------------------
Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, President,
Chief Executive Officer Chief Executive Officer and Director
Metropolitan Life Insurance Company
One Madison Ave.
New York, NY 10010
- -------------------------------------------------------------------------------------------------
Gerald Clark Vice Chairman of the Board and Vice Chairman of the Board,
Chief Investment Officer Chief Investment Officer and Director
Metropolitan Life Insurance Company
One Madison Ave.
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, President and Director
Chief Executive Officer
Puritan Bennett
Overland Park, KS
- -------------------------------------------------------------------------------------------------
James R. Houghton Chairman of the Board Emeritus Director
and Director
Corning Incorporated
80 East Market Street, 2nd Floor
Corning, NY 14830
- -------------------------------------------------------------------------------------------------
Harry P. Kamen Chairman and Chief Director
Executive Officer (Retired)
Metropolitan Life Insurance Company
One Madison Ave.
New York, NY 10010
- -------------------------------------------------------------------------------------------------
Helene L. Kaplan Of Counsel Director
Skadden Arps, Slate, Meagher & Flom
919 Third Ave.
New York, NY 10022
- -------------------------------------------------------------------------------------------------
Charles M. Leighton Retired Chairman and Director
Chief Executive Officer
CML Group, Inc.
Bolton, MA 01720
- -------------------------------------------------------------------------------------------------
Allen E. Murray Retired Chairman of the Board and Director
Chief Executive Officer
Mobil Corporation
375 Park Ave., Suite 2901
New York, NY 10163
- -------------------------------------------------------------------------------------------------
Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Board and
Chief Financial Officer Chief Financial Officer and Director
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation & Positions and Offices
Name Business Address with MetLife
- -------------------------------------------------------------------------------------
<S> <C> <C>
John J. Phelan, Jr. Retired Chairman and Director
Chief Executive Officer
New York Stock Exchange, Inc.
P.O. Box 312
Mill Neck, NY 11765
- -------------------------------------------------------------------------------------
Hugh B. Price President and Chief Executive Officer Director
National Urban League, Inc.
12 Wall Street
New York, NY 10005
- -------------------------------------------------------------------------------------
Robert G. Schwartz Retired Chairman of the Board, Director
President and Chief Executive Officer
Metropolitan Life Insurance Company
200 Park Ave., Suite 5700
New York, NY 10166
- -------------------------------------------------------------------------------------
Ruth J. Simmons, Ph.D. President Director
Smith College
College Hall 20
Northhampton, MA 01063
- -------------------------------------------------------------------------------------
William C. Steere, Jr. Chairman of the Board and Director
Chief Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name of Officer* Position with Metropolitan Life
- ---------------------------------------------------------------------------------------
<S> <C>
Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer
- ---------------------------------------------------------------------------------------
Gerald Clark Vice Chairman of the Board
- ---------------------------------------------------------------------------------------
Stewart G. Nagler Vice Chairman of the Board
- ---------------------------------------------------------------------------------------
Gary A. Beller Senior Executive Vice-President and General Counsel
- ---------------------------------------------------------------------------------------
C. Robert Henrikson Senior Executive Vice-President
- ---------------------------------------------------------------------------------------
William J. Toppeta Senior Executive Vice-President
- ---------------------------------------------------------------------------------------
John H. Tweedie Senior Executive Vice-President
- ---------------------------------------------------------------------------------------
Daniel J. Cavanagh Executive Vice-President
- ---------------------------------------------------------------------------------------
Jeffrey J. Hodgman Executive Vice-President
- ---------------------------------------------------------------------------------------
Terence I. Lennon Executive Vice-President
- ---------------------------------------------------------------------------------------
David A. Levene Executive Vice-President
- ---------------------------------------------------------------------------------------
John D. Moynahan, Jr. Executive Vice-President
- ---------------------------------------------------------------------------------------
Judy E. Weiss Executive Vice-President and Chief Actuary
- ---------------------------------------------------------------------------------------
Alexander D. Brunini Senior Vice-President
- ---------------------------------------------------------------------------------------
Jon F. Danski Senior Vice-President and Controller
- ---------------------------------------------------------------------------------------
Richard M. Blackwell Senior Vice-President
- ---------------------------------------------------------------------------------------
James B. Digney Senior Vice-President
- ---------------------------------------------------------------------------------------
William T. Friedman Senior Vice-President
- ---------------------------------------------------------------------------------------
Ira Friedman Senior Vice-President
- ---------------------------------------------------------------------------------------
Anne E. Hayden Senior Vice-President
- ---------------------------------------------------------------------------------------
Sybil C. Jacobsen Senior Vice-President
- ---------------------------------------------------------------------------------------
Joseph W. Jordan Senior Vice-President
- ---------------------------------------------------------------------------------------
Kernan F. King Senior Vice-President
- ---------------------------------------------------------------------------------------
Nicholas D. Latrenta Senior Vice-President
- ---------------------------------------------------------------------------------------
Leland C. Launer, Jr. Senior Vice-President
- ---------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------
William R. Prueter Senior Vice-President
- ---------------------------------------------------------------------------------------
Joseph A. Reali Senior Vice-President
- ---------------------------------------------------------------------------------------
Vincent P. Reusing Senior Vice-President
- ---------------------------------------------------------------------------------------
Felix Schirripa Senior Vice-President
- ---------------------------------------------------------------------------------------
Robert E. Sollmann, Jr. Senior Vice-President
- ---------------------------------------------------------------------------------------
Thomas L. Stapleton Senior Vice-President and Tax Director
- ---------------------------------------------------------------------------------------
James F. Stenson Senior Vice-President
- ---------------------------------------------------------------------------------------
Stanley J. Talbi Senior Vice-President
- ---------------------------------------------------------------------------------------
Richard R. Tartre Senior Vice-President
- ---------------------------------------------------------------------------------------
James A. Valentino Senior Vice-President
- ---------------------------------------------------------------------------------------
Lisa M. 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 Americana 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. Terrence
I. Lennon has been an officer of Metropolitan 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 Strategies and Development
and an Associate Director of Human Resources of Paine Webber. John F. Danski
has been an officer of Metropolitan Life since March 25, 1998; prior
thereto, he was Senior Vice-President, Controller and General Auditor at ITT
Corporation. The business address of each officer is 1 Madison Avenue, New
York, New York 10010.
27
<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, Santander 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, 1998, and the related
statements (i) of operations for the year ended December 31, 1998 and of
changes in net assets for the years ended December 31, 1998 and 1997 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 Santander International
Stock Divisions and (ii) of operations for the year ended December 31, 1998
and of changes in net assets for the year ended December 31, 1998 and 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, 1998
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, Santander 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, 1998 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.
DELOITTE & TOUCHE LLP
New York, New York
March 15, 1999
1
<PAGE>
Metropolitan Life Separate Account UL
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
State Street
State Street State Street State Street State Street Research MetLife Santander
Research Research Research Research Aggressive Stock International
Growth Income Money Market Diversified Growth Index Stock
Division Division Division Division Division Division Division
------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in
Metropolitan Series
Fund,Inc. at Value
(Note 1A):
State Street Research
Growth Portfolio
(8,991,252 shares; cost
$262,836,766).......... $333,575,453 -- -- -- -- -- --
State Street Research
Income Portfolio
(4,419,504 shares; cost
$56,262,271)........... -- $56,481,257 -- -- -- -- --
State Street Research
Money Market Portfolio
(2,150,767 shares; cost
$22,944,978)........... -- -- $22,265,813 -- -- -- --
State Street Research
Diversified Portfolio
(11,376,036 shares;
cost $184,766,024)..... -- -- -- $209,205,308 -- -- --
State Street Research
Aggressive Growth
Portfolio (5,227,911
shares; cost
$136,845,160).......... -- -- -- -- $154,380,221 -- --
MetLife Stock Index
Portfolio (4,498,549
shares; cost
$118,596,732).......... -- -- -- -- -- $159,158,678 --
Santander International
Stock Portfolio
(2,566,510 shares; cost
$32,397,518)........... -- -- -- -- -- -- $36,290,449
Loomis Sayles High Yield
Bond Portfolio (303,096
shares; cost
$3,041,405)............ -- -- -- -- -- -- --
Janus Mid Cap Portfolio
(1,214,612 shares; cost
$16,647,482)........... -- -- -- -- -- -- --
T. Rowe Price Small Cap
Growth Portfolio
(1,084,560 shares; cost
$12,826,959)........... -- -- -- -- -- -- --
Scudder Global Equity
Portfolio (671,753
shares; cost
$7,767,908)............ -- -- -- -- -- -- --
------------ ----------- ----------- ------------ ------------ ------------ -----------
Total Assets........... 333,575,453 56,481,257 22,265,813 209,205,308 154,380,221 159,158,678 36,290,449
LIABILITIES............. 1,013,304 41,286 5,651 384,868 298,061 292,002 37,716
------------ ----------- ----------- ------------ ------------ ------------ -----------
NET ASSETS.............. $332,562,149 $56,439,971 $22,260,162 $208,820,440 $154,082,160 $158,866,676 $36,252,733
============ =========== =========== ============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements.
2
<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>
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
$2,542,977 -- -- --
-- $21,170,685 -- --
-- -- $13,329,240 --
-- -- -- $8,316,299
- ---------- ----------- ----------- ----------
2,542,977 21,170,685 13,329,240 8,316,299
3,066 44,138 23,779 13,441
- ---------- ----------- ----------- ----------
$2,539,911 $21,126,547 $13,305,461 $8,302,858
========== =========== =========== ==========
</TABLE>
3
<PAGE>
Metropolitan Life Separate Account UL
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
State
State State State State Street
Street Street Street Street Research MetLife Santander
Research Research Research Research Aggressive Stock International
Growth Income Money 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)..... $30,285,471 $4,298,707 $1,166,116 $19,448,803 $ 8,619,767 $ 6,486,305 $ 404,896
Expenses:
Mortality and expense
charges
(Note 3).............. 2,500,061 420,836 143,978 1,610,657 1,146,158 1,020,115 284,929
----------- ---------- ---------- ----------- ----------- ----------- ----------
Net investment income
(loss)................. 27,785,410 3,877,871 1,022,138 17,838,146 7,473,609 5,466,190 119,967
----------- ---------- ---------- ----------- ----------- ----------- ----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS: (Note
1B)
Net realized gain (loss)
from security
transactions........... 1,828,922 239,248 139,583 522,086 390,678 2,060,324 251,518
Change in unrealized
appreciation
(depreciation) of
investments............ 38,462,367 (12,424) (384,125) 12,721,568 9,316,026 21,573,004 5,740,557
----------- ---------- ---------- ----------- ----------- ----------- ----------
Net realized and
unrealized gain (loss)
on investments......... 40,291,289 226,824 (244,542) 13,243,654 9,706,704 23,633,328 5,992,075
----------- ---------- ---------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $68,076,699 $4,104,695 $ 777,596 $31,081,800 $17,180,313 $29,099,518 $6,112,042
=========== ========== ========== =========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
4
<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>
$ 256,747 $ 98,545 $ 0 $125,120
15,303 88,984 71,325 42,804
--------- ---------- -------- --------
241,444 9,561 (71,325) 82,316
--------- ---------- -------- --------
(15,746) 178,428 (14,908) 35,936
(428,334) 4,299,801 455,213 556,946
--------- ---------- -------- --------
(444,080) 4,478,229 440,305 592,882
--------- ---------- -------- --------
$(202,636) $4,487,790 $368,980 $675,198
========= ========== ======== ========
</TABLE>
5
<PAGE>
Metropolitan Life Separate Account UL
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
State Street Research State Street Research State Street Research
Growth Division Income Division Money Market Division
-------------------------- -------------------------- --------------------------
For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income
(loss)................ $ 27,785,410 $ 40,418,794 $ 3,877,871 $ 2,617,788 $ 1,022,138 $ 353,194
Net realized gain
(loss) from security
transactions.......... 1,828,922 1,080,724 239,248 32,950 139,583 68,458
Change in unrealized
appreciation
(depreciation) of
investments........... 38,462,367 6,378,588 (12,424) 748,796 (384,125) (49,717)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 68,076,699 47,878,106 4,104,695 3,399,534 777,596 371,935
------------ ------------ ----------- ----------- ----------- -----------
From capital
transactions:
Net premiums........... 68,697,236 59,834,638 13,501,414 13,090,983 28,800,532 13,691,749
Redemptions............ (9,651,413) (7,416,220) (1,455,088) (1,082,695) (292,311) (357,692)
Net portfolio
transfers............. 462,907 3,569,720 2,032,607 1,296,485 (12,984,969) (12,877,177)
Other net transfers.... (33,909,522) (29,309,077) (5,444,551) (4,895,666) (2,036,921) (887,059)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from capital
transactions.......... 25,599,208 26,679,061 8,634,382 8,409,107 13,486,331 (430,179)
------------ ------------ ----------- ----------- ----------- -----------
NET CHANGE IN NET AS-
SETS................... 93,675,907 74,557,167 12,739,077 11,808,641 14,263,927 (58,244)
NET ASSETS--BEGINNING OF
YEAR................... 238,886,242 164,329,075 43,700,894 31,892,253 7,996,235 8,054,479
------------ ------------ ----------- ----------- ----------- -----------
NET ASSETS--END OF
YEAR................... $332,562,149 $238,886,242 $56,439,971 $43,700,894 $22,260,162 $ 7,996,235
============ ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
State Street Research Santander
State Street Research Aggressive Growth MetLife International Stock
Diversified Division Division Stock Index Division Division
- -------------------------- -------------------------- -------------------------- --------------------------
For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 17,838,146 $ 22,302,995 $ 7,473,609 $ 3,470,806 $ 5,466,190 $ 1,186,647 $ 119,967 $ (232,079)
522,086 418,723 390,678 136,827 2,060,324 1,210,648 251,518 (84,952)
12,721,568 1,103,869 9,316,026 2,615,059 21,573,004 13,344,725 5,740,557 (691,181)
- ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
31,081,800 23,825,587 17,180,313 6,222,692 29,099,518 15,742,020 6,112,042 (1,008,212)
- ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
48,746,380 41,236,061 48,080,744 52,235,040 59,343,787 38,059,853 10,224,172 11,240,912
(5,712,146) (4,829,385) (4,373,459) (3,613,975) (2,361,734) (1,198,193) (1,153,624) (1,139,393)
2,809,643 1,557,340 (6,687,894) (5,941,719) 9,729,932 9,580,428 (2,377,311) (3,084,541)
(23,504,994) (19,209,913) (18,773,580) (20,670,473) (23,041,439) (13,547,536) (3,678,501) (5,008,528)
- ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
22,338,883 18,754,103 18,245,811 22,008,873 43,670,546 32,894,552 3,014,736 2,008,450
- ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
53,420,683 42,579,690 35,426,124 28,231,565 72,770,064 48,636,572 9,126,778 1,000,238
155,399,757 112,820,067 118,656,036 90,424,471 86,096,612 37,460,040 27,125,955 26,125,717
- ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
$208,820,440 $155,399,757 $154,082,160 $118,656,036 $158,866,676 $86,096,612 $36,252,733 $27,125,955
============ ============ ============ ============ ============ =========== =========== ===========
</TABLE>
7
<PAGE>
Metropolitan Life Separate Account UL
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
Loomis Sayles Janus
High Yield Bond Division Mid Cap Division
--------------------------- ----------------------------
For the Period For the Period
For the Year March 3, 1997 For the Year March 3, 1997
Ended to Ended to
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
From operations:
Net investment income
(loss)................ $ 241,444 $ 59,549 $ 9,561 $ 5,937
Net realized gain
(loss) from security
transactions.......... (15,746) 9,361 178,428 26,779
Change in unrealized
appreciation
(depreciation) of
investments........... (428,334) (70,093) 4,299,801 223,402
---------- ---------- ----------- ----------
Net increase (decrease)
in net assets
resulting from
operations............ (202,636) (1,183) 4,487,790 256,118
---------- ---------- ----------- ----------
From capital
transactions:
Net premiums........... 1,559,975 590,158 13,796,446 2,676,784
Redemptions............ (29,635) (1,126) (179,560) (46,974)
Net portfolio
transfers............. 180,422 1,002,454 4,280,509 1,554,471
Other net transfers.... (451,340) (107,178) (5,121,876) (577,161)
---------- ---------- ----------- ----------
Net increase in net
assets resulting from
capital transactions.. 1,259,422 1,484,308 12,775,519 3,607,120
---------- ---------- ----------- ----------
NET CHANGE IN NET
ASSETS................. 1,056,786 1,483,125 17,263,309 3,863,238
NET ASSETS--BEGINNING OF
PERIOD................. 1,483,125 -- 3,863,238 --
---------- ---------- ----------- ----------
NET ASSETS--END OF
PERIOD................. $2,539,911 $1,483,125 $21,126,547 $3,863,238
========== ========== =========== ==========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price Scudder
Small Cap Growth Division Global Equity Division
------------------------------------ ----------------------------------------------
For the Period For the Period
For the Year March 3, 1997 For the Year March 3, 1997
Ended to Ended to
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C>
$ (71,325) $ (8,790) $ 82,316 $ 23,414
(14,908) 47,764 35,936 21,982
455,213 47,067 556,946 (8,556)
----------- ---------- ----------- ----------
368,980 86,041 675,198 36,840
----------- ---------- ----------- ----------
8,413,079 1,816,732 3,660,518 1,425,649
(87,656) (40,707) (44,451) (7,873)
3,021,876 3,110,800 2,251,711 1,855,028
(2,968,930) (414,754) (1,263,459) (286,303)
----------- ---------- ----------- ----------
8,378,369 4,472,071 4,604,319 2,986,501
----------- ---------- ----------- ----------
8,747,349 4,558,112 5,279,517 3,023,341
4,558,112 -- 3,023,341 --
----------- ---------- ----------- ----------
$13,305,461 $4,558,112 $ 8,302,858 $3,023,341
=========== ========== =========== ==========
</TABLE>
9
<PAGE>
Metropolitan Life Separate Account UL
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Metropolitan Life Separate Account UL (the "Separate Account") is a multi-
division unit investment trust registered under the Investment Company Act of
1940 and 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, 1998 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 May 5, 1998 and December 16, 1998, the Fund declared dividends for all
shareholders of record on May 7, 1998 and December 23, 1998, respectively. The
amount of dividends received by the Separate Account was $71,190,477. The
dividends were paid to Metropolitan Life on May 8, 1998 and December 24, 1998,
respectively, and were immediately reinvested in additional shares of the
portfolios in which the investment divisions invest. As a result of
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 827,171 shares; State Street Research Income Portfolio, 339,329
shares; State Street Research Money Market Portfolio, 112,807 shares; State
Street Research Diversified Portfolio, 1,066,122 shares; State Street Research
Aggressive Growth Portfolio, 304,920 shares; MetLife Stock Index Portfolio,
183,724 shares; Santander International Stock Portfolio, 28,929 shares; Loomis
Growth Sayles High Yield Bond Portfolio, 30,811 shares; Janus Mid Cap
Portfolio, 6,072 shares; T. Rowe Price Small Cap Growth Portfolio, 0 shares
and Scudder Global Equity Portfolio, 10,237 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.CHANGE OF NAME
Effective November 9, 1998, Santander Global Advisors, Inc. became the sub-
investment manager of the Santander International Stock Portfolio (formerly
State Street Research International Stock Portfolio) of the Metropolitan
Series Fund, Inc. Simultaneously with that change, the corresponding
investment division had its name changed to the Santander International Stock
Division.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998
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
Automotive............. $ 50,517,664 (1.6%) $ 22,855,593 (0.9%)
Banking................ 172,519,438 (5.5%) 80,028,947 (3.0%)
Broadcasting........... 225,213,831 (7.2%) 105,681,212 (4.0%)
Business Services...... 18,336,219 (0.6%) 8,507,594 (0.3%)
Chemicals.............. 62,797,294 (2.0%) 29,250,869 (1.1%)
Computer Equipment & 41,206,377 (1.3%) 19,014,400 (0.7%)
Service...............
Drugs & Health Care.... 131,563,219 (4.2%) 60,383,637 (2.3%)
Electrical Equipment... 138,582,619 (4.5%) 63,888,537 (2.4%)
Electronics............ 138,832,022 (4.5%) 64,421,153 (2.4%)
Entertainment & 27,114,300 (0.9%) 12,803,681 (0.5%)
Leisure...............
Financial Services..... 191,024,825 (6.1%) 88,565,588 (3.3%)
Food & Beverages....... 134,094,937 (4.3%) 60,573,275 (2.3%)
Forest Products & 32,516,000 (1.0%) 14,948,000 (0.6%)
Paper.................
Hotel & Motel.......... 19,960,981 (0.6%) 9,194,031 (0.3%)
Household Products..... 46,167,600 (1.5%) 21,275,813 (0.8%)
Insurance.............. 141,994,575 (4.6%) 64,324,269 (2.4%)
Medical Equipment & 117,281,881 (3.8%) 54,248,912 (2.0%)
Supply................
Miscellaneous.......... 44,334,619 (1.7%)
Multi-Industry......... 95,549,138 (3.1%)
Office & Business 191,625,919 (6.2%) 88,440,600 (3.3%)
Equipment.............
Oil & Gas Exploration.. 7,017,606 (0.2%) 3,077,344 (0.1%)
Oil.................... 45,891,390 (1.5%) 21,240,514 (0.8%)
Oil-Domestic........... 53,123,188 (1.7%) 24,575,613 (0.9%)
Oil-International...... 54,448,875 (1.7%) 25,169,625 (1.0%)
Pollution Control...... 16,542,550 (0.5%) 7,697,788 (0.3%)
Restaurant............. 56,595,225 (1.8%) 26,450,950 (1.0%)
Retail Grocery......... 96,199,400 (3.1%) 44,458,550 (1.7%)
Retail Trade........... 203,995,450 (6.6%) 94,199,631 (3.5%)
Software............... 82,984,778 (2.7%) 38,365,860 (1.4%)
Telecommunications 20,702,053 (0.7%) 9,738,909 (0.4%)
Equipment & Services..
Tobacco................ 55,233,400 (1.8%) 26,279,200 (1.0%)
Transportation- 288 (0.0%)
Trucking..............
Utilities-Electric..... 85,602,613 (2.8%) 38,564,994 (1.5%)
Utilities-Gas 28,536,956 (0.9%) 13,312,681 (0.5%)
Distribution &
Pipelines.............
Utilities-Telephone.... 178,222,078 (5.7%) 82,338,872 (3.1%)
-------------- --------------
Total Common Stock..... 2,961,994,401 (95.2%) 1,368,211,549 (51.5%)
-------------- --------------
LONG-TERM DEBT
SECURITIES
Corporate Bonds:
Asset Backed........... $ 5,952,261 (1.1%) 55,261 (0.0%)
Banking................ 4,912,622 (0.9%) 17,413,654 (0.7%)
Collateralized Mortgage 23,365,521 (4.4%) 44,988,869 (1.7%)
Obligations...........
Drugs & Health Care.... 4,023,433 (0.8%) 9,762,956 (0.4%)
Electrical Equipment... 5,669,210 (0.2%)
Finance & Banking...... 12,285,984 (0.5%)
Financial Services..... 88,530,073 (16.8%) 187,150,983 (7.0%)
Food & Beverages....... 7,991,697 (1.5%)
Healthcare Services.... 10,514,202 (2.0%) 19,278,706 (0.7%)
Household Products..... 4,022,759 (0.8%) 5,804,994 (0.2%)
Industrials............ 25,394,604 (4.8%) 96,688,722 (3.6%)
Insurance.............. 2,999,260 (0.6%) 6,981,640 (0.3%)
Miscellaneous.......... 2,397,587 (0.5%) 9,052,290 (0.3%)
Mortgage Related....... 2,067,088 (0.4%) 18,490,416 (0.7%)
Multi-Industry......... 4,255,312 (0.8%) 14,878,388 (0.6%)
Newspapers............. 10,184,873 (1.9%) 20,021,470 (0.7%)
Pollution Control...... 6,608,464 (1.3%) 17,460,438 (0.7%)
Restaurant............. 3,312,855 (0.6%) 4,164,732 (0.2%)
Retail Grocery......... 5,018,800 (0.9%) 10,149,300 (0.4%)
Utilities-Electric..... 11,597,255 (2.2%) 11,922,582 (0.4%)
Utilities-Telephone.... 4,725,144 (0.9%) 15,953,880 (0.6%)
------------ --------------
Total Corporate Bonds.. 227,873,810 (43.2%) 528,174,475 (19.9%)
Federal Agency 43,969,433 (8.3%) 99,933,906 (3.8%)
Obligations............
Federal Treasury 190,468,139 (36.2%) 413,509,607 (15.6%)
Obligations............
Foreign Obligations..... 14,827,292 (2.8%) 31,091,792 (1.2%)
State Agency 20,142,424 (3.8%) 50,582,786 (1.9%)
Obligation.............
Yankee Bonds............ 21,382,026 (4.1%) 43,966,468 (1.6%)
------------ --------------
Total Bonds............ 518,663,124 (98.4%) 1,167,259,034 (44.0%)
------------ --------------
SHORT-TERM OBLIGATIONS
Commercial Paper....... 153,385,000 (4.9%) 24,658,252 (4.7%) $38,907,115 (94.5%) 144,348,000 (5.4%)
-------------- ------------ ----------- --------------
FOREIGN OBLIGATIONS .... 1,978,317 (4.8%)
-----------
TOTAL INVESTMENTS....... 3,115,379,401 (100.1%) 543,321,376 (103.1%) 40,885,432 (99.3%) 2,679,818,583 (100.9%)
Other Assets Less (3,298,290) (-0.1%) (16,467,003) (-3.1%) 299,303 (0.7%) (22,831,517) (-0.9%)
Liabilities...........
-------------- ------------ ----------- --------------
NET ASSETS.............. $3,112,081,111 (100.0%) $526,854,373 (100.0%) $41,184,735 (100.0%) $2,656,987,066 (100.0%)
============== ============ =========== ==============
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED)
Metropolitan Series Fund, Inc.
<TABLE>
<CAPTION>
State Street
Research Santander
MetLife Aggressive International
Stock Index Growth Stock
Portfolio Portfolio Portfolio
-------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Aerospace............... $ 39,162,797 (1.3%) $ 19,058,175 (1.3%) $ 1,022,761 (0.3%)
Automotive.............. 50,697,557 (1.6%) 50,687,806 (3.6%) 9,542,116 (3.2%)
Banking................. 226,942,249 (7.3%) 13,915,069 (1.0%) 43,646,670 (14.7%)
Broadcasting............ 68,923,306 (2.2%) 129,192,089 (9.0%)
Business Services....... 182,199,234 (12.7%)
Building & 11,707,369 (0.4%) 6,667,401 (2.2%)
Construction............
Business Services....... 44,921,087 (1.4%)
Chemicals............... 56,423,606 (1.8%) 52,643,156 (3.7%) 539,483 (0.2%)
Computer Equipment & 117,894,780 (3.8%) 39,012,934 (2.7%)
Service.................
Construction & Mining 148,738 (0.0%)
Equipment...............
Construction Materials.. 8,604,883 (2.9%)
Consumer Products....... 581,507 (0.2%)
Containers & Glass...... 5,030,406 (0.2%) 11,219,387 (0.8%)
Cosmetics............... 5,524,500 (0.2%)
Drugs & Health Care..... 275,280,674 (8.8%) 57,715,516 (4.0%) 30,583,278 (10.3%)
Education............... 21,623,094 (1.5%)
Electrical Equipment.... 133,697,394 (4.3%) 7,149,188 (0.5%) 5,308,380 (1.8%)
Electronics............. 162,610,341 (5.2%) 72,071,731 (5.0%) 8,966,121 (3.0%)
Entertainment & 29,081,710 (0.9%) 89,647,425 (6.3%)
Leisure.................
Financial Services...... 155,792,983 (5.0%) 26,278,875 (1.8%) 10,369,932 (3.5%)
Food & Beverages........ 142,667,553 (4.6%) 3,010,144 (1.0%)
Forest Products & 27,901,546 (0.9%) 593,175 (0.2%)
Paper...................
Healthcare Services..... 1,019,313 (0.0%) 20,341,956 (1.4%)
Homebuilders............ 1,575,306 (0.1%) 3,931,488 (1.3%)
Hospital Management..... 9,035,485 (0.3%) 16,403,625 (1.2%)
Hotel & Motel........... 5,102,388 (0.2%) 20,250,769 (1.4%)
Household Appliances & 5,126,825 (0.2%) 4,650,482 (1.6%)
Home Furnishings........
Household Products...... 88,111,919 (2.8%)
Industrial Components & 231,000 (0.0%)
Material................
Insurance............... 100,057,086 (3.2%) 42,106,469 (2.9%) 28,578,219 (9.6%)
Liquor.................. 4,647,400 (0.1%)
Machinery............... 21,152,778 (0.7%)
Medical Equipment & 86,922,531 (2.8%) 13,084,500 (0.9%)
Supply..................
Metals-Aluminum......... 7,229,194 (0.2%)
Metals-Gold............. 5,043,754 (0.2%)
Metals-Non-Ferrous...... 1,590,626 (0.1%) 2,856,153 (1.0%)
Metals-Steel & Iron..... 2,500,224 (0.1%) 649,136 (0.2%)
Mining.................. 1,733,106 (0.1%)
Miscellaneous........... 21,171,351 (0.7%) 12,238,669 (0.9%) 3,109,774 (1.0%)
Multi-Industry.......... 11,674,256 (0.4%) 2,932,702 (1.0%)
Newspapers.............. 14,141,700 (0.5%)
Office & Business 139,575,075 (4.5%) 38,931,731 (2.7%) 1,794,427 (0.6%)
Equipment...............
Oil & Gas Exploration... 2,982,744 (0.1%) 15,520,862 (1.1%) 5,273,395 (1.8%)
Oil-Domestic............ 23,193,860 (0.7%)
Oil-International....... 133,887,606 (4.3%) 10,485,842 (3.5%)
Oil-Services............ 17,001,025 (0.5%)
Photography............. 7,522,413 (0.2%) 3,083,591 (1.0%)
Pollution Control....... 9,371,951 (0.3%) 24,137,762 (1.7%)
Printing & Publishing... 8,504,231 (0.3%) 32,332,737 (2.3%)
Restaurant.............. 20,110,638 (0.6%)
Retail Grocery.......... 24,447,469 (0.8%) 4,145,160 (1.4%)
Retail Trade............ 177,505,612 (5.7%) 190,272,119 (13.3%) 7,371,495 (2.5%)
Software................ 148,059,255 (4.8%) 99,577,969 (7.0%)
Telecommunications 73,478,888 (5.1%) 12,397,259 (4.2%)
Equipment & Services....
Textiles & Apparel...... 7,063,863 (0.2%) 10,687,669 (0.8%)
Tires & Rubber.......... 3,766,669 (0.1%) 1,421,457 (0.5%)
Tobacco................. 45,493,656 (1.5%) 9,957,902 (3.3%)
Toys & Amusements....... 3,494,528 (0.1%) 11,522,594 (0.8%) 1,598,187 (0.5%)
Transportation.......... 624,855 (0.2%)
Transportation- 9,437,948 (0.3%) 3,280,800 (1.1%)
Airlines................
Transportation- 3,068,259 (1.0%)
Miscellaneous...........
Transportation- 14,912,864 (0.5%) 508,639 (0.2%)
Railroad................
Transportation- 572,000 (0.0%)
Trucking................
Utilities-Electric...... 75,968,625 (2.4%) 11,213,151 (3.8%)
Utilities-Gas 13,329,126 (0.4%) 16,061,906 (1.1%) 3,019,359 (1.0%)
Distribution &
Pipelines...............
Utilities- 1,886,504 (0.1%) 2,707,194 (0.9%)
Miscellaneous...........
Utilities-Telephone..... 259,132,899 (8.3%) 33,505,139 (11.3%)
-------------- -------------- ------------
Total Common Stock...... 3,089,695,399 (99.3%) 1,409,363,904 (98.5%) 291,599,916 (98.0%)
------------
PREFERRED STOCK
Retail Trade............ 269,563 (0.1%)
------------
Total Preferred Stock... 269,563 (0.1%)
------------
Total Equity 291,869,479
Securities..............
SHORT-TERM OBLIGATIONS-- 6,447,000 (2.2%)
REPURCHASE AGREEMENTS...
------------
SHORT-TERM OBLIGATIONS-- 1,574,324 (0.1%)
COMMERCIAL PAPER........
-------------- --------------
TOTAL INVESTMENTS....... 3,089,695,399 (99.3%) 1,410,938,228 (98.6%) 298,316,479 (100.3%)
Other Assets Less 22,223,585 (0.7%) 20,398,358 (1.4%) (935,567) (-0.3%)
Liabilities.............
-------------- -------------- ------------
NET ASSETS.............. $3,111,918,984 (100.0%) $1,431,336,586 (100.0%) $297,380,912 (100.0%)
============== ============== ============
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(CONTINUED)
Metropolitan Series Fund, Inc.
<TABLE>
<CAPTION>
Loomis Sayles
High Yield Bond
Portfolio
---------------
<S> <C> <C>
COMMON STOCK
Banking............................................... $ 15,557 (0.0%)
Forest Products & Paper............................... 870,986 (2.1%)
Oil & Gas Exploration................................. 52,216 (0.1%)
Real Estate........................................... 539,556 (1.3%)
Restaurant............................................ 12,460 (0.0%)
Utilities-Electric.................................... 89,870 (0.2%)
-----------
Total Common Stock.................................... 1,580,645 (3.7%)
-----------
PREFERRED STOCK
Banking............................................... 212,295 (0.4%)
Construction Materials................................ 62,344 (0.2%)
Financial Services.................................... 164,529 (0.4%)
Metals-Steel & Iron................................... 265,687 (0.6%)
Office & Business Equipment........................... 820,589 (1.9%)
Oil-Services.......................................... 112,219 (0.3%)
Transportation-Shipping............................... 232,000 (0.6%)
Transportation-Trucking............................... 51,000 (0.1%)
Utilities-Electric.................................... 320,200 (0.8%)
Utilities-Telephone................................... 213,750 (0.5%)
-----------
Total Preferred Stock................................. 2,454,613 (5.8%)
-----------
LONG-TERM DEBT SECURITIES
Convertible Bonds:
Automotive............................................ 351,750 (0.8%)
Building & Construction............................... 84,000 (0.2%)
Computer Equipment & Service.......................... 3,652,187 (8.6%)
Drugs & Health Care................................... 1,117,000 (2.6%)
Electronics........................................... 1,819,762 (4.3%)
Entertainment & Leisure............................... 75,580 (0.2%)
Foreign Obligation.................................... 4,378,810 (10.3%)
Healthcare Services................................... 171,313 (0.4%)
Industrial Components & Material...................... 73,750 (0.2%)
Industrials........................................... 117,975 (0.3%)
Medical Equipment & Supply............................ 407,825 (1.0%)
Metals-Steel & Iron................................... 0 (0.0%)
Mining................................................ 354,875 (0.8%)
Oil & Gas Exploration................................. 136,000 (0.3%)
Oil-Services.......................................... 261,056 (0.6%)
Pollution Control..................................... 375,458 (0.9%)
Real Estate........................................... 94,000 (0.2%)
Restaurant............................................ 608,630 (1.4%)
Retail Trade.......................................... 81,000 (0.2%)
Telecommunications Equipment & Services............... 190,000 (0.5%)
Textiles & Apparel.................................... 411,162 (1.0%)
Transportation-Shipping............................... 241,125 (0.6%)
Transportation-Trucking............................... 128,000 (0.3%)
-----------
Total Convertible Bonds............................... 15,131,258 (35.7%)
-----------
Corporate Bonds:
Broadcasting.......................................... 1,762,079 (4.2%)
Food & Beverages...................................... 588,209 (1.4%)
Industrials........................................... 484,325 (1.1%)
Oil & Gas Exploration................................. 856,500 (2.0%)
Retail Grocery........................................ 216,000 (0.5%)
Retail Trade.......................................... 389,250 (0.9%)
Telecommunications Equipment & Services............... 2,226,525 (5.3%)
Transportation........................................ 412,500 (1.0%)
Transportation-Shipping............................... 360,000 (0.9%)
Utilities-Electric.................................... 783,500 (1.8%)
Utilities-Telephone................................... 1,162,125 (2.7%)
-----------
Total Corporate Bonds................................. 9,241,013 (21.8%)
-----------
Foreign Obligations.................................... 9,503,947 (22.4%)
-----------
Yankee Bonds........................................... 2,867,825 (6.7%)
-----------
Total Bonds........................................... 36,744,043 (96.1%)
-----------
SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.......... 794,000 (1.9%)
-----------
TOTAL INVESTMENTS...................................... 41,573,301 (98.0%)
Other Assets Less Liabilities......................... 829,690 (2.0%)
-----------
NET ASSETS............................................. $42,402,991 (100.0%)
===========
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(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............... $3,727,399 (1.0%) $ 4,229,684 2.2%) $ 1,879,388 (1.7%)
Automotive.............. 2,564,169 (1.4%)
Banking................. 9,622,934 (2.6%) 4,461,345 (2.4%) 4,198,216 (3.7%)
Biotechnology........... 11,305,260 (3.0%) 1,266,294 (0.7%) 1,453,650 (1.3%)
Broadcasting............ 56,634,368 (15.2%) 8,249,688 (4.4%) 5,551,477 (4.9%)
Building & 2,130,563 (1.1%)
Construction...........
Business Services....... 28,673,398 (7.7%) 20,708,402 (11.0%) 1,494,872 (1.3%)
Chemicals............... 1,736,627 (0.9%) 7,465,971 (6.6%)
Computer Equipment & 24,005,995 (6.5%) 13,056,117 (6.9%)
Service................
Construction Materials.. 1,041,569 (0.6%) 804,892 (0.7%)
Construction & Mining 1,196,531 (0.6%)
Equipment..............
Consumer Products....... 810,937 (0.4%) 1,847,336 (1.6%)
Consumer Services....... 314,036 (0.3%)
Drugs & Health Care..... 29,539,775 (8.0%) 15,080,999 (8.0%) 4,157,539 (3.7%)
Education............... 49,914,109 (13.4%) 2,946,847 (1.6%)
Electrical Equipment.... 1,206,631 (0.6%) 1,451,842 (1.3%)
Electronics............. 31,345,472 (8.5%) 15,441,078 (8.2%) 2,655,535 (2.3%)
Entertainment & 3,353,212 (0.9%) 4,214,784 (2.2%)
Leisure................
Financial Services...... 18,747,329 (5.0%) 5,415,602 (2.9%) 645,360 (0.6%)
Food & Beverages........ 2,135,359 (1.1%) 2,954,732 (2.6%)
Forest Products & 55,000 (0.0%) 319,973 (0.3%)
Paper..................
General Business........ 3,927,964 (1.1%)
Healthcare Services..... 4,612,719 (2.4%)
Hospital Management..... 638,575 (0.3%)
Hotel & Motel........... 340,747 (0.2%)
Household Appliances & 403,925 (0.2%)
Home Furnishings.......
Insurance............... 3,745,319 (2.0%) 11,857,700 (10.4%)
Machinery............... 669,592 (0.6%)
Medical Equipment & 4,249,506 (2.2%) 1,516,833 (1.3%)
Supply.................
Metals--Gold............ 2,892,048 (2.5%)
Metals--Non-Ferrous..... 215,600 (0.1%) 2,869,241 (2.5%)
Metals--Steel & Iron.... 1,047,581 (0.9%)
Mining.................. 876,832 (0.8%)
Miscellaneous........... 1,838,275 (1.0%)
Multi-Industry.......... 3,295,292 (0.9%) 3,397,089 (3.0%)
Newspapers.............. 1,033,000 (0.5%)
Office & Business 4,521,756 (2.4%) 3,408,501 (3.0%)
Equipment..............
Oil & Gas Exploration... 697,450 (0.4%) 1,039,598 (0.9%)
Oil..................... 213,875 (0.2%)
Oil--Domestic........... 1,949,213 (1.7%)
Oil--International...... 1,961,332 (1.7%)
Oil--Services........... 1,409,228 (0.7%) 904,951 (0.8%)
Photography............. 450,056 (0.2%)
Pollution Control....... 923,737 (0.5%)
Printing & Publishing... 1,210,744 (0.6%) 1,014,244 (0.9%)
Real Estate............. 1,252,440 (0.7%) 1,934,002 (1.7%)
Restaurant.............. 19,240,018 (5.2%) 3,582,490 (1.9%)
Retail Grocery.......... 1,872,900 (1.0%)
Retail Trade............ 13,958,932 (3.8%) 16,684,107 (8.8%)
Shipbuilding............ 717,072 (0.4%)
Software................ 13,719,159 (3.7%) 14,046,833 (7.4%) 3,141,600 (2.8%)
Telecommunications 27,154,008 (7.3%) 10,619,403 (5.6%) 1,177,250 (1.0%)
Equipment & Services...
Textiles & Apparel...... 1,837,403 (1.0%)
Transportation-- 6,419,241 (1.7%) 1,762,225 (0.9%) 2,026,000 (1.8%)
Airlines...............
Transportation-- 883,047 (0.5%) 1,918,670 (1.7%)
Railroad...............
Transportation-- 1,206,775 (0.6%)
Trucking...............
Utilities--Electric..... 7,631,561 (6.7%)
Utilities--Gas 2,852,129 (2.5%)
Distribution &
Pipelines..............
Utilities--Telephone.... 103,469 (0.1%) 2,664,242 (2.3%)
------------ ------------ ------------
Total Common Stock...... 354,583,865 (95.5%) 188,807,027 (99.8%) 96,158,903 (84.6%)
------------ ------------ ------------
PREFERRED STOCK
Food & Beverages........ 227,228 (0.2%)
Metals--Steel & Iron.... 327,140 (0.3%)
Oil--International...... 244,426 (0.2%)
Software................ 1,099,328 (1.0%)
------------ ------------ ------------
Total Preferred Stock... -- -- 1,898,122 (1.7%)
------------ ------------ ------------
Total Equity 354,583,865 (95.5%) 188,807,027 (99.8%) 98,057,025 (86.3%)
Securities.............
------------ ------------ ------------
LONG-TERM DEBT
SECURITIES
Federal Treasury 7,775,488 (6.8%)
Obligations............
Foreign Obligations..... 2,113,840 (1.9%)
------------
Total Long-Term Debt 9,889,328 (8.7%)
Securities.............
------------
SHORT-TERM OBLIGATIONS
Commercial Paper........ 14,593,552 (3.9%) 1,170,561 (0.6%)
Federal Agency 7,884,076 (4.2%)
Obligations............
Repurchase Agreements... 6,398,000 (5.6%)
------------ ------------ ------------
Total Short-Term 14,593,552 (3.9%) 9,054,637 (4.8%) 6,398,000 (5.6%)
Obligations............
------------ ------------ ------------
TOTAL INVESTMENTS....... 369,177,417 (99.4%) 197,861,664 (104.6%) 114,344,353 (100.6%)
Other Assets Less 2,326,494 (0.6%) (8,729,698) (-4.6%) (629,356) (-0.6%)
Liabilities............
------------ ------------ ------------
NET ASSETS.............. $371,503,911 (100.0%) $189,131,966 (100.0%) $113,714,997 (100.0%)
============ ============ ============
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Concluded)
5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1998--(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.
16
<PAGE>
Metropolitan Life Insurance Company
Consolidated Financial Statements
as of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998, 1997 and 1996
and
Independent Auditors' Report
<PAGE>
Independent Auditors' Report
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 Metropolitan
Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1997 the
Company changed the method of accounting for investment income on certain
structured securities.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1999
2
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums............................................... $11,503 $11,278 $11,345
Universal life and investment-type product policy fees. 1,360 1,418 1,243
Net investment income.................................. 10,228 9,491 8,978
Other revenues......................................... 1,965 1,491 1,246
Net realized investment gains.......................... 2,021 787 231
------- ------- -------
27,077 24,465 23,043
------- ------- -------
EXPENSES
Policyholder benefits and claims....................... 12,488 12,234 12,286
Interest credited to policyholder account balances..... 2,731 2,884 2,868
Policyholder dividends................................. 1,653 1,742 1,728
Other expenses......................................... 8,118 5,934 4,755
------- ------- -------
24,990 22,794 21,637
------- ------- -------
Income before provision for income taxes, discontinued
operations and extraordinary item..................... 2,087 1,671 1,406
Provision for income taxes............................. 740 468 482
------- ------- -------
Income before discontinued operations and extraordinary
item.................................................. 1,347 1,203 924
Loss from discontinued operations...................... -- -- 71
------- ------- -------
Income before extraordinary item....................... 1,347 1,203 853
Extraordinary item--demutualization expense............ 4 -- --
------- ------- -------
Net income............................................. $ 1,343 $ 1,203 $ 853
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997 (In millions)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value......... $100,767 $ 92,630
Equity securities, at fair value........................... 2,340 4,250
Mortgage loans on real estate.............................. 16,827 20,193
Real estate and real estate joint ventures................. 6,287 7,080
Policy loans............................................... 5,600 5,846
Other limited partnership interests........................ 964 855
Short-term investments..................................... 1,369 679
Other invested assets...................................... 1,567 4,456
-------- --------
135,721 135,989
Cash and cash equivalents.................................... 3,301 2,911
Accrued investment income.................................... 1,994 1,860
Premiums and other receivables............................... 5,972 3,319
Deferred policy acquisition costs............................ 6,560 6,436
Other........................................................ 3,448 3,641
Separate account assets...................................... 58,350 48,620
-------- --------
$215,346 $202,776
======== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits....................................... $ 72,701 $ 73,848
Policyholder account balances................................ 46,494 48,543
Other policyholder funds..................................... 4,061 3,998
Policyholder dividends payable............................... 947 969
Short-term debt.............................................. 3,585 4,587
Long-term debt............................................... 2,903 2,884
Income taxes payable, current and deferred................... 948 952
Other........................................................ 10,772 4,650
Separate account liabilities................................. 58,068 48,338
-------- --------
200,479 188,769
-------- --------
Commitments and contingencies (Note 9)
Equity:
Retained earnings............................................ 13,483 12,140
Accumulated other comprehensive income....................... 1,384 1,867
-------- --------
14,867 14,007
-------- --------
$215,346 $202,776
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
----------------------------------------------
Net Foreign Minimum
Unrealized Currency Pension
Comprehensive Retained Investment Translation Liability
Total Income Earnings Gains Adjustment Adjustment
------- ------------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $11,754 $10,084 $ 1,646 $ 24 $ --
Comprehensive income:
Net income............. 853 $ 853 853
------
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (618) (618)
Foreign currency
translation
adjustments......... (6) (6)
------
Other comprehensive
loss.................. (624) (624)
------
Comprehensive income. $ 229
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1996................... 11,983 10,937 1,028 18 --
Comprehensive income:
Net income............. 1,203 $1,203 1,203
------
Other comprehensive
income:
Unrealized investment
gains, net of
related offsets,
reclassification
adjustments and
income taxes........ 870 870
Foreign currency
translation
adjustments......... (49) (49)
------
Other comprehensive
income................ 821 821
------
Comprehensive income. $2,024
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1997................... 14,007 12,140 1,898 (31) --
Comprehensive income:
Net income............. 1,343 $1,343 1,343
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (358) (358)
Foreign currency
translation
adjustments......... (113) (113)
Minimum pension
liability
adjustment.......... (12) (12)
------
Other comprehensive
loss.................. (483) (483)
-------
------
Comprehensive income. $ 860
------- ------- ------------- ------------ ------------
======
Balance at December 31,
1998................... $14,867 $13,483 $ 1,540 $ (144) $ (12)
======= ======= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................... $ 1,343 $ 1,203 $ 853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expenses....... 56 (36) (18)
Gains from sales of investments and
businesses, net............................. (2,629) (1,018) (428)
Change in undistributed income of real estate
joint ventures and other limited partnership
interests................................... (91) 157 (45)
Interest credited to policyholder account
balances.................................... 2,731 2,884 2,868
Universal life and investment-type product
policy fees................................. (1,360) (1,418) (1,243)
Change in accrued investment income.......... (181) (215) 350
Change in premiums and other receivables..... (2,681) (792) (125)
Change in deferred policy acquisition costs,
net......................................... (188) (159) (391)
Change in insurance related liabilities...... 1,493 2,364 2,349
Change in income taxes payable............... 211 (99) (134)
Change in other liabilities.................. 2,390 (206) 902
Other, net................................... (253) 207 (1,250)
-------- -------- --------
Net cash provided by operating activities........ 841 2,872 3,688
-------- -------- --------
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturities............................. 57,857 75,346 76,117
Equity securities............................ 3,085 1,821 2,069
Mortgage loans on real estate................ 2,296 2,784 2,380
Real estate and real estate joint ventures... 1,122 2,046 2,358
Other limited partnership interests.......... 146 166 178
Purchases of:
Fixed maturities............................. (67,543) (76,603) (76,225)
Equity securities............................ (854) (2,121) (2,742)
Mortgage loans on real estate................ (2,610) (4,119) (4,225)
Real estate and real estate joint ventures... (423) (624) (989)
Other limited partnership interests.......... (723) (338) (307)
Net change in short-term investments........... (761) 63 1,028
Net change in policy loans..................... 133 17 (128)
Proceeds from sales of businesses.............. 7,372 274 --
Net change in investment collateral............ 3,769 -- --
Other, net..................................... (183) (378) (438)
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... 2,683 (1,666) (924)
-------- -------- --------
Cash flows from financing activities
Policyholder account balances:
Deposits..................................... $ 19,361 $ 16,061 $ 17,167
Withdrawals.................................. (21,706) (18,831) (19,321)
Short-term debt, net........................... (1,001) 1,265 69
Long-term debt issued.......................... 693 989 --
Long-term debt repaid.......................... (481) (104) (284)
-------- -------- --------
Net cash used in financing activities............ (3,134) (620) (2,369)
-------- -------- --------
Change in cash and cash equivalents.............. 390 586 395
Cash and cash equivalents, beginning of year..... 2,911 2,325 1,930
-------- -------- --------
Cash and cash equivalents, end of year........... $ 3,301 $ 2,911 $ 2,325
======== ======== ========
Supplemental disclosures of cash flow
information:
Interest....................................... $ 367 $ 422 $ 310
======== ======== ========
Income taxes................................... $ 579 $ 589 $ 497
======== ======== ========
</TABLE>
Cash paid during the year for:
See accompanying notes to consolidated financial statements.
6
<PAGE>
Metropolitan Life Insurance Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts are in millions unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the
"Company") is a leading provider of insurance and financial services to a
broad section of institutional and individual customers. The Company offers
life insurance, annuities and mutual funds to individuals and group insurance
and retirement and savings products and services to corporations and other
institutions.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. The most significant estimates include those used
in determining deferred policy acquisition costs, investment allowances and
the liability for future policyholder benefits. Actual results could differ
from those estimates.
During 1997, management changed to the retrospective interest method of
accounting for investment income on structured notes 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 was not material.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint ventures in which MetLife
has a controlling interest. All material intercompany accounts and
transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Minority interest relating to consolidated entities included in other
liabilities was $274 and $277 at December 31, 1998 and 1997, respectively.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
Mortgage loans on real estate are stated at amortized cost, net of valuation
allowances. Valuation allowances are established for the excess carrying value
of the mortgage loan over its estimated fair value when it is probable that,
based upon current information and events, the Company will be unable to
collect all amounts due under the
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
contractual terms of the loan agreement. Valuation allowances are based upon
the present value of expected future cash flows discounted at the loan's
original effective interest rate or the collateral value if the loan is
collateral dependent. Interest income earned on impaired loans is accrued on
the net carrying value amount of the loan based on the loan's effective
interest rate.
Real estate, including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis
over the estimated useful life of the asset (typically 20 to 40 years). Cost
is adjusted for impairment whenever events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable. Impaired
real estate is written down to estimated fair value with the impairment loss
being included in realized losses on investments. Impairment losses are based
upon the estimated fair value of real estate, which is generally computed
using the present value of expected future cash flows from the real estate
discounted at a rate commensurate with the underlying risks. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. Valuation allowances on real estate held-for-sale are
computed using the lower of depreciated cost or estimated fair value, net of
disposition costs.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost, which approximates fair
value.
Derivative Instruments
The Company uses derivative instruments to manage market risk through one of
four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
The Company's derivative strategy employs a variety of instruments including
financial futures, financial forwards, interest rate and foreign currency
swaps, floors, foreign exchange contracts, caps and options.
The Company's derivative program is monitored by senior management. The
Company's risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments and, with respect to over-the-counter transactions, from the
possible inability of counterparties to meet the terms of the contracts. The
Company has strict policies regarding the financial stability and credit
standing of its major counterparties.
The Company's derivative instruments are designated as hedges and are highly
correlated to the underlying risk at contract inception. The Company monitors
the effectiveness of its hedges throughout the contract term using an offset
ratio of 80 to 125 percent as its minimum acceptable threshold for hedge
effectiveness. Derivative instruments that lose their effectiveness are marked
to market through net investment income.
Gains or losses on financial futures contracts entered into in anticipation
of investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, recorded as an adjustment to the basis of
the purchased assets or to the proceeds on disposition. Gains or losses on
financial futures used in asset risk management are deferred and amortized
into net investment income over the remaining term of the investment. Gains or
losses on financial futures used in portfolio risk management are deferred and
amortized into net investment income or policyholder benefits over the
remaining life of the hedged sector of the underlying portfolio.
Financial forward contracts that are entered into to purchase securities are
marked to fair value through other comprehensive income, similar to the
accounting for the investment security. Such contracts are accounted for at
settlement by recording the purchase of the specified securities at fair
value. Gains or losses resulting from the termination of forward contracts are
recognized immediately as a component of net investment income.
Interest rate and certain foreign currency swaps involve the periodic
exchange of payments without the exchange of underlying principal or notional
amounts. Net receipts or payments are accrued and recognized over the term of
the swap agreement as an adjustment to net investment income or other expense.
Gains or losses resulting from swap terminations are amortized over the
remaining term of the underlying asset or liability. Gains and losses on swaps
and certain foreign forward exchange contracts entered into in anticipation of
investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, reflected as an adjustment to the basis of
the purchased
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
assets or to the proceeds of disposition. In the event the asset or liability
underlying a swap is disposed of, the swap position is closed immediately and
any gain or loss is recorded as an adjustment to the proceeds from
disposition.
The Company periodically enters into collars, which consist of purchased put
and written call options, to lock in unrealized gains on equity securities.
Collars are marked to market through other comprehensive income, similar to
the accounting for the underlying equity securities. Purchased interest rate
caps and floors are used to offset the risk of interest rate changes related
to insurance liabilities. Premiums paid on floors, caps and options are split
into two components, time value and intrinsic value. Time value is amortized
over the life of the applicable derivative instrument. The intrinsic value and
any gains or losses relating to these derivative instruments adjust the basis
of the underlying asset or liability and are recognized as a component of net
investment income over the term of the underlying asset or liability being
hedged as an adjustment to the yield.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using either the straight-line or sum-of-the-years-
digits method over the estimated useful lives of the assets. Estimated lives
range from 20 to 40 years for real estate and 5 to 15 years for all other
property and equipment. Accumulated depreciation on property and equipment and
accumulated amortization of leasehold improvements was $1,048 at both December
31, 1998 and 1997. Related depreciation and amortization expense was $95, $103
and $78 for the years ended December 31, 1998, 1997 and 1996, respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new insurance business that vary with, and are
primarily related to, the production of new business are deferred. Such costs,
which consist principally of commissions, agency and policy issue expenses,
are amortized over the expected life of the contract for participating
traditional life, universal life and investment-type products. Generally,
deferred policy acquisition costs are amortized in proportion to the present
value of estimated gross margins or profits from investment, mortality,
expense margins and surrender charges. Actual gross margins or profits can
vary from management's estimates resulting in increases or decreases in the
rate of amortization. Management periodically updates these estimates and
evaluates the recoverability of deferred policy acquisition costs. When
appropriate, management revises its assumptions of the estimated gross margins
or profits of these contracts, and the cumulative amortization is re-estimated
and adjusted by a cumulative charge or credit to current operations.
Deferred policy acquisition costs for non-participating traditional life,
non-medical health and annuity policies with life contingencies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Deferred policy acquisition costs for property and liability insurance
contracts, which are primarily comprised of commissions and certain
underwriting expenses, are deferred and amortized on a pro rata basis over the
applicable contract term or reinsurance treaty.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired ("goodwill")
and the value of business acquired are included in other assets. Goodwill is
amortized on a straight-line basis over a period ranging from 10 to 30 years.
The Company continually reviews goodwill to assess recoverability from future
operations using undiscounted cash flows.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impairments are recognized in operating results if a permanent diminution in
value is deemed to have occurred. The value of business 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.
<TABLE>
<CAPTION>
Value of Business Acquired Goodwill
-------------------------- ----------------
Years Ended December 31 1998 1997 1996 1998 1997 1996
- ----------------------- -------- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Balance at January 1........ $ 498 $ 358 $ 381 $884 $544 $377
Acquisitions.................... 32 176 7 80 387 197
Amortization.................... (55) (36) (30) (59) (47) (30)
-------- -------- -------- ---- ---- ----
Net Balance at December 31...... $ 475 $ 498 $ 358 $905 $884 $544
======== ======== ======== ==== ==== ====
<CAPTION>
December 31 1998 1997 1998 1997
- ----------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulated Amortization........ $ 142 $ 87 $207 $148
======== ======== ==== ====
</TABLE>
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 upon the
nonforfeiture interest rate, ranging from 2% to 7%, 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 5% to 8%. Future policy
benefit liabilities for non-medical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals
and interest, which provide a margin for adverse deviation. Interest rates
used in establishing such liabilities range from 4% to 7%. Future policy
benefit liabilities for disabled lives are estimated using the present value
of benefits method and experience assumptions as to claim terminations,
expenses and interest. Interest rates used in establishing such liabilities
range from 4% to 8%.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of an
accumulation of gross premium payments plus credited interest, ranging from 3%
to 17%, less expenses, mortality charges and withdrawals.
The liability for unpaid claims and claim expenses for property and casualty
insurance represents the amount estimated for claims that have been reported
but not settled and claims incurred but not reported. Liabilities for unpaid
claims are estimated based upon the Company's historical experience and other
actuarial assumptions that consider the effects of current developments,
anticipated trends and risk management programs. Revisions of these estimates
are reflected in operations in the year such refinements are made.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated lives
of the policies. When premiums are due over a significantly shorter period
than the period over which benefits are provided, any excess profit is
deferred and recognized into operations in a constant relationship to
insurance in-force or, for annuities, the amount of expected future policy
benefit payments.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Premiums related to non-medical health contracts are recognized on a pro
rata basis over the applicable contract term.
Premiums related to 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 operations include interest credited and benefit claims incurred in
excess of related policyholder account balances.
Premiums related to property and casualty contracts are recognized as
revenue on a pro rata basis over the applicable contract term. Unearned
premiums are included in other liabilities.
Dividends to Policyholders
Dividends to policyholders are determined annually by the Board of
Directors. The aggregate amount of policyholders' dividends is related to
actual interest, mortality, morbidity and expense experience for the year, as
well as management's judgment as to the appropriate level of statutory surplus
to be retained by the Company.
Participating Business
Participating business represented approximately 21% and 22% of the
Company's life insurance in-force, and 81% and 87% of the number of life
insurance policies in-force, at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 39% and 40%, 41% and 41%, and
40% and 44% of gross and net life insurance premiums for the years ended
December 31, 1998, 1997 and 1996, respectively.
Income Taxes
MetLife and its includable life insurance and non-life insurance
subsidiaries file a consolidated U.S. Federal income tax return in accordance
with the provisions of the Internal Revenue Code, 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 based upon a
prescribed formula that incorporates a differential earnings rate between
stock and mutual life insurance companies. 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 and liabilities.
Reinsurance
The Company has reinsured certain of its life insurance and property and
casualty insurance contracts with other insurance companies under various
agreements. Amounts due from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Policy and contract liabilities are reported
gross of reinsurance credits.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business
of the Company. Separate account assets are subject to general account claims
only to the extent the value of such assets exceeds the separate account
liabilities. Investments (stated at estimated fair value) and liabilities of
the separate accounts are reported separately as assets and liabilities.
Deposits to separate accounts, investment income and realized and unrealized
gains and losses on the investments of the separate accounts accrue directly
to contractholders and, accordingly, are not reflected in the Company's
consolidated statements of income and cash flows. Mortality, policy
administration and surrender charges to all separate accounts are included in
revenues.
Foreign Currency Translation
Balance sheet accounts of foreign operations are translated at the exchange
rates in effect at each year-end and income and expense accounts are
translated at the average rates of exchange prevailing during the year. The
local currencies of foreign operations are generally the functional
currencies. Translation adjustments are charged or
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
credited directly to other comprehensive income. Gains and losses from foreign
currency transactions are reported in other expenses and were insignificant
for all years presented.
Extraordinary Item--Demutualization Expense
On November 24, 1998, the Board of Directors authorized management to
develop a plan to convert from a mutual life insurance company to a stock life
insurance company (the "demutualization"). A final plan to convert to a
publicly traded stock company is subject to the approval of the Board of
Directors, the policyholders and the New York Superintendent of Insurance
("Superintendent"). The Department has not yet reviewed or approved any
materials relating to the demutualization.
The accompanying consolidated statements of income reflect an extraordinary
charge of $4 (net of income taxes of $2) for the year ended December 31, 1998
related to costs associated with the demutualization.
Application of Accounting Pronouncements
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7").
SOP 98-7 provides guidance on the method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, defined in the SOP
as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts
for which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires,
among other things, that all derivatives be recognized in the consolidated
balance sheets as either assets or liabilities and measured at fair value. The
corresponding derivative gains and losses should be reported based upon the
hedge relationship, if such a relationship exists. Changes in the fair value
of derivatives that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133 are required to be reported in income. The
Company is required to adopt SFAS 133 as of January 1, 2000. The Company is in
the process of quantifying the impact of SFAS 133 on its consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-
5 requires costs of start-up activities and organization costs to be expensed
as incurred. The Company is required to adopt SOP 98-5 as of January 1, 1999.
Adoption of SOP 98-5 is not expected to have a material effect on the
Company's consolidated financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-
1 provides guidance for determining when an entity should capitalize or
expense external and internal costs of computer software developed or obtained
for internal use. The Company is required to adopt SOP 98-1 as of January 1,
1999. Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial statements.
In December 1997, the AICPA issued SOP 97-3, Accounting for Insurance and
Other Enterprises for Insurance Related Assessments ("SOP 97-3"). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial statements.
In 1998, the Company adopted SFAS 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for reporting financial information and related disclosures about
products and services, geographic areas and major customers relating to
operating segments in annual financial statements. Adoption of SFAS 131 had no
effect on the Company's consolidated financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Adoption of
SFAS 130 had no effect on the Company's consolidated financial statements.
In 1998, the Company adopted the provisions of SFAS 125 which were deferred
by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125. The deferred provisions provide accounting and reporting
standards related to repurchase agreements, dollar rolls, securities lending
and similar transactions. Adoption of the provisions had the effect of
increasing assets and liabilities by $3,769 at December 31, 1998 and
increasing revenues and expenses by $266 for the year ended December 31, 1998.
2. INVESTMENTS
The components of net investment income were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 6,563 $ 6,445 $ 6,042
Equity securities.......................... 78 50 60
Mortgage loans on real estate.............. 1,572 1,684 1,523
Real estate and real estate joint ventures. 1,529 1,718 1,668
Policy loans............................... 387 368 399
Other limited partnership interests........ 196 302 215
Cash, cash equivalents and short-term
investments 187 169 214
Other...................................... 841 368 401
-------- ------- --------
11,353 11,104 10,522
Less: Investment expenses.................. 1,125 1,613 1,544
-------- ------- --------
$10,228 $ 9,491 $ 8,978
======== ======= ========
Net realized investment gains, including changes in valuation allowances,
were as follows:
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 573 $ 118 $ 234
Equity securities.......................... 994 224 101
Mortgage loans on real estate.............. 23 56 (86)
Real estate and real estate joint ventures. 424 446 371
Other limited partnership interests........ 13 12 (129)
Sale of subsidiaries....................... 531 139 --
Other...................................... 71 23 (33)
-------- ------- --------
2,629 1,018 458
Amounts allocable to:
Future policy benefit loss recognition... (300) (126) (203)
Deferred policy acquisition costs........ (240) (70) (4)
Participating pension contracts.......... (68) (35) (20)
-------- ------- --------
$ 2,021 $ 787 $ 231
======== ======= ========
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of net unrealized investment gains, included in accumulated
other comprehensive income, were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities............................. $ 4,809 $ 4,766 $ 2,226
Equity securities............................ 832 1,605 563
Other invested assets........................ 125 294 474
------- ------- -------
5,766 6,665 3,263
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition..... (2,248) (2,189) (1,219)
Deferred policy acquisition costs.......... (902) (1,147) (420)
Participating pension contracts............ (212) (312) (9)
Deferred income taxes........................ (864) (1,119) (587)
------- ------- -------
(4,226) (4,767) (2,235)
------- ------- -------
$ 1,540 $ 1,898 $ 1,028
======= ======= =======
The changes in net unrealized investment gains were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1......................... $ 1,898 $ 1,028 $ 1,646
Unrealized investment gains (losses) during
the year.................................... (899) 3,402 (2,493)
Unrealized investment (gains) losses relating
to:
Future policy benefit loss recognition..... (59) (970) 845
Deferred policy acquisition costs.......... 245 (727) 328
Participating pension contracts............ 100 (303) 341
Deferred income taxes........................ 255 (532) 361
------- ------- -------
Balance at December 31....................... $ 1,540 $ 1,898 $ 1,028
======= ======= =======
Net change in unrealized investment gains.... $ (358) $ 870 $ (618)
======= ======= =======
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fixed Maturities and Equity Securities
Fixed maturities and equity securities at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................. $ 6,640 $ 1,117 $ 10 $ 7,747
States and political subdivisions......... 597 26 -- 623
Foreign governments....................... 3,435 254 88 3,601
Corporate................................. 46,377 2,471 260 48,588
Mortgage and asset-backed securities 26,456 569 46 26,979
Other..................................... 12,438 1,069 293 13,214
------- ------- ---- --------
95,943 5,506 697 100,752
Redeemable preferred stocks............... 15 -- -- 15
------- ------- ---- --------
$95,958 $ 5,506 $697 $100,767
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 1,286 $ 923 $ 77 $ 2,132
Nonredeemable preferred stocks............ 222 4 18 208
------- ------- ---- --------
$ 1,508 $ 927 $ 95 $ 2,340
======= ======= ==== ========
Fixed maturities and equity securities at December 31, 1997 were as follows:
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U. S. government
corporations and agencies................ $ 8,708 $ 1,010 $ 2 $ 9,716
States and political subdivisions......... 486 22 -- 508
Foreign governments....................... 3,420 371 52 3,739
Corporate................................. 41,012 2,337 291 43,058
Mortgage and asset-backed securities...... 22,370 579 21 22,928
Other..................................... 11,374 929 134 12,169
------- ------- ---- --------
87,370 5,248 500 92,118
Redeemable preferred stocks............... 494 19 1 512
------- ------- ---- --------
$87,864 $ 5,267 $501 $ 92,630
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 2,444 $ 1,716 $105 $ 4,055
Nonredeemable preferred stocks............ 201 5 11 195
------- ------- ---- --------
$ 2,645 $ 1,721 $116 $ 4,250
======= ======= ==== ========
</TABLE>
The Company held foreign currency derivatives with notional amounts of $716
and $408 to hedge the exchange rate risk associated with foreign bonds at
December 31, 1998 and 1997, respectively. The Company also held options with
fair values of $(11) and $33 to hedge the market value of common stocks at
December 31, 1998 and 1997, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, fixed maturities held by the Company that were below
investment grade or not rated by an independent rating agency totaled $8,289.
At December 31, 1998, non-income producing fixed maturities were
insignificant.
The amortized cost and estimated fair value of bonds at December 31, 1998,
by contractual maturity date, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 2,380 $ 2,462
Due after one year through five years................. 17,062 17,527
Due after five years through 10 years................. 23,769 24,714
Due after 10 years.................................... 26,276 29,070
-------- --------
69,487 73,773
Mortgage and asset-backed securities.................. 26,456 26,979
-------- --------
$ 95,943 $100,752
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above table in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale:
Proceeds..................................... $43,828 $67,454 $67,239
Gross realized gains......................... $ 928 $ 672 $ 1,067
Gross realized losses........................ $ 355 $ 558 $ 842
Fixed maturities classified as held-to-
maturity:
Proceeds..................................... $ -- $ 352 $ 1,281
Gross realized gains......................... $ -- $ 5 $ 10
Gross realized losses........................ $ -- $ 1 $ 1
Equity securities:
Proceeds..................................... $ 3,085 $ 1,821 $ 2,069
Gross realized gains......................... $ 1,125 $ 293 $ 150
Gross realized losses........................ $ 131 $ 69 $ 49
</TABLE>
During 1997, fixed maturities with an amortized cost of $11,682 were
transferred from held-to-maturity to available-for-sale. Other comprehensive
income at the date of reclassification was increased by $198 excluding the
effects of deferred income taxes and policyholder related amounts.
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
Securities Lending Program
The Company participates in securities lending programs whereby large blocks
of securities are loaned to third parties, primarily major brokerage firms.
The Company requires a minimum of 102% of the fair value of the loaned
securities to be separately maintained as collateral for the loans. Securities
with a cost or amortized cost of $4,005 and $6,068 and estimated fair value of
$4,552 and $6,653 were on loan under the program at December 31, 1998 and
1997, respectively. The Company is liable for cash collateral of $3,769 at
December 31, 1998. This liability is included in other liabilities. Rebates of
$266 were paid and accrued on the cash collateral for the year ended
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998. The rebates paid and accrued during 1998 are included in
other operating costs and expenses. Security collateral is returnable on short
notice and is not reflected in the consolidated financial statements.
Statutory Deposits
The Company had investment assets on deposit with regulatory agencies of
$466 and $4,695 as of December 31, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
Mortgage loans were categorized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
---------------- ----------------
Amount Percent Amount Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial mortgage loans.................... $12,503 74% $14,945 73%
Agriculture mortgage loans................... 4,256 25% 3,753 18%
Residential mortgage loans................... 241 1% 272 1%
Other loans.................................. -- -- 1,512 8%
------- ------ ------- -----
17,000 100% 20,482 100%
====== =====
Less: Valuation allowances................... 173 289
------- -------
$16,827 $20,193
======= =======
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 1998, approximately 15%,
9% and 7% of the properties were located in California, New York and Florida,
respectively. Generally, the Company (as the lender) requires that a minimum
of one-fourth of the purchase price of the underlying real estate be paid by
the borrower.
Certain of the Company's real estate joint ventures have mortgage loans with
the Company. The carrying values of such mortgages were $606 and $725 at
December 31, 1998 and 1997, respectively.
Changes in mortgage loan valuation allowances were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Balance at January 1......................... $ 289 $ 469 $ 491
Additions.................................... 40 61 144
Deductions for writedowns and dispositions... (130) (241) (166)
Deductions for disposition of affiliates..... (26) -- --
------- ------ -------
Balance at December 31....................... $ 173 $ 289 $ 469
======= ====== =======
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C> <C>
Impaired mortgage loans with valuation
allowances.................................. $ 823 $1,231
Impaired mortgage loans without valuation
allowances.................................. 375 306
------- ------
1,198 1,537
Less: Valuation allowances................... 149 250
------- ------
$ 1,049 $1,287
======= ======
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The average recorded investment in impaired mortgage loans on real estate
was $1,282, $1,680 and $2,113 for the years ended December 31, 1998, 1997 and
1996, respectively. Interest income on impaired mortgages was $109, $110 and
$119 for the years ended December 31, 1998, 1997 and 1996, respectively.
Restructured mortgage loans on real estate were $1,036 and $1,207 at
December 31, 1998 and 1997, respectively. Interest income of $74, $91 and $135
was recognized on restructured loans for the years ended December 31, 1998,
1997 and 1996, respectively. Gross interest income that would have been
recorded in accordance with the original terms of such loans amounted to $87,
$116 and $198 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Mortgage loans on real estate with scheduled payments 60 days (90 days for
agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $65 and $255 as of December 31, 1998 and 1997, respectively.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- ------
<S> <C> <C>
Real estate and real estate joint ventures held-for-
investment............................................ $ 6,301 $6,731
Impairments............................................ (408) (407)
------- ------
5,893 6,324
------- ------
Real estate and real estate joint ventures held-for-
sale.................................................. 546 915
Impairments............................................ (119) (49)
Valuation allowance.................................... (33) (110)
------- ------
394 756
------- ------
$ 6,287 $7,080
======= ======
</TABLE>
Accumulated depreciation on real estate was $2,065 and $2,030 at December
31, 1998 and 1997, respectively. Related depreciation expense was $282, $338
and $348 for the years ended December 31, 1998, 1997 and 1996, respectively.
Real estate and real estate joint ventures were categorized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
--------------- --------------
Amount Percent Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Office..................................... $ 4,265 68% $4,730 67%
Retail..................................... 640 10% 804 11%
Apartments................................. 418 7% 406 6%
Land....................................... 313 5% 346 5%
Agriculture................................ 195 3% 214 3%
Other...................................... 456 7% 580 8%
------- --- ------ ---
$ 6,287 100% $7,080 100%
======= === ====== ===
</TABLE>
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 1998, approximately 23%, 23% and 12% of the
Company's real estate holdings were located in New York, California and Texas,
respectively.
Changes in real estate and real estate joint ventures held-for-sale
valuation allowance were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1.... $ 110 $ 661 $ 924
Additions charged
(credited) to
operations............. (5) (76) 127
Deductions for
writedowns and
dispositions........... (72) (475) (390)
-------- -------- --------
Balance at December 31.. $ 33 $ 110 $ 661
======== ======== ========
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Investment income (expense) relating to impaired real estate and real estate
joint ventures held-for-investment was $105, $28 and $(10) for the years ended
December 31, 1998, 1997 and 1996, respectively. Investment income relating to
real estate and real estate joint ventures held-for-sale was $3, $11 and $70
for the years ended December 31, 1998, 1997 and 1996, respectively. The
carrying value of non-income producing real estate and real estate joint
ventures was insignificant at December 31, 1998 and 1997, respectively.
The Company owned real estate acquired in satisfaction of debt of $154 and
$218 at December 31, 1998 and 1997, respectively.
Direct Financing and Leveraged Leases
Direct financing and leveraged leases, included in other invested assets,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
Direct Financing Leveraged
Leases Leases Total
----------------- -------------- --------------
1998 1997 1998 1997 1998 1997
----------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Investment................... $ -- $ 1,137 $1,067 $ 851 $1,067 $1,988
Estimated residual values.... -- 183 607 641 607 824
------- --------- ------ ------ ------ ------
-- 1,320 1,674 1,492 1,674 2,812
Unearned income.............. -- (261) (471) (428) (471) (689)
------- --------- ------ ------ ------ ------
Net investment............... $ -- $ 1,059 $1,203 $1,064 $1,203 $2,123
======= ========= ====== ====== ====== ======
</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% to 12%. These receivables are generally collateralized by the related
property.
3. DERIVATIVE INSTRUMENTS
The table below provides a summary of the carrying value, notional amount
and current market or fair value of derivative financial instruments (other
than equity options) held at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -------------------------------------
Current Market or Current Market or
Fair Value Fair Value
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrying Notional Carrying Notional
Value Amount Assets Liabilities Value Amount Assets Liabilities
-------- -------- ------ ----------- -------- -------- ------ -----------
Financial futures....... $ 3 $ 2,190 $ 8 $ 6 $ 10 $ 2,262 $ 17 $ 7
Foreign exchange
contracts.............. -- 136 -- 2 -- 150 2 --
Interest rate swaps..... (9) 1,621 17 50 (11) 1,464 9 28
Foreign currency swaps.. (1) 580 3 62 -- 258 3 30
Caps.................... -- 8,391 -- -- -- 1,545 13 --
Options (fixed income).. -- -- -- -- 2 275 -- 2
-------- -------- ------ ----------- -------- -------- ------ -----------
Total contractual
commitments............ $ (7) $ 12,918 $ 28 $ 120 $ 1 $ 5,954 $ 44 $ 67
======== ======== ====== =========== ======== ======== ====== ===========
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the notional amounts by derivative type
and strategy as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1997 Terminations/ December 31, 1998
Notional Amount Additions Maturities Notional Amount
----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Financial futures....... $2,262 $25,073 $(25,145) $ 2,190
Foreign exchange
contracts.............. 150 1,231 (1,245) 136
Interest rate swaps..... 1,464 788 (631) 1,621
Foreign currency swaps.. 258 386 (64) 580
Caps.................... 1,545 8,250 (1,404) 8,391
Options (fixed income).. 275 -- (275) --
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
BY STRATEGY
Liability hedging....... $1,860 $ 8,419 $ (1,538) $ 8,741
Invested asset hedging.. 817 1,666 (1,619) 864
Portfolio hedging....... 2,787 25,643 (25,600) 2,830
Anticipated transaction
hedging................ 490 -- (7) 483
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
</TABLE>
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 1998:
<TABLE>
<CAPTION>
Remaining Life
---------------------------------------
<S> <C> <C> <C> <C> <C>
After Five
After One Years After
One Year Year Through Through Ten Ten
or Less Five Years Years Years Total
-------- ------------ ----------- ----- -------
Financial futures.............. $2,190 $ -- $ -- $ -- $ 2,190
Foreign exchange contracts..... 136 -- -- -- 136
Interest rate swaps............ 470 774 162 215 1,621
Foreign currency swaps......... 39 182 343 16 580
Caps........................... 1,875 6,496 20 -- 8,391
-------- ------------ ----------- ----- -------
Total contractual commitments.. $4,710 $ 7,452 $ 525 $ 231 $12,918
======== ============ =========== ===== =======
</TABLE>
In addition to the derivative instruments above, the Company uses equity
option contracts as invested asset hedges. There were 92 thousand and 7
million equity option contracts outstanding with carrying values of $(11) and
$27 and market values of $(11) and $33, as of December 31, 1998 and 1997,
respectively. The outstanding contracts have a remaining life of one year or
less as of December 31, 1998.
4. REINSURANCE
The Company assumes and cedes insurance with other insurance companies. The
Company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The amounts in the consolidated
statements of income are presented net of reinsurance ceded.
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 diversify its risk
portfolio.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Direct premiums............................... $12,763 $12,728 $12,452
Reinsurance assumed........................... 409 360 508
Reinsurance ceded............................. (1,669) (1,810) (1,615)
------- ------- -------
Net premiums.................................. $11,503 $11,278 $11,345
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits........................ $ 1,751 $ 1,648 $ 1,667
======= ======= =======
</TABLE>
Reinsurance recoverables, included in other receivables, were $2,956 and
$1,511 at December 31, 1998 and 1997, respectively. Reinsurance and ceded
commissions payables, included in other liabilities, were $105 and $158 at
December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to property and casualty and group accident and non-medical
health policies and contracts:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 3,655 $ 3,345 $ 3,296
Reinsurance recoverables..................... (229) (215) (214)
------- ------- -------
Net balance at January 1....................... 3,426 3,130 3,082
------- ------- -------
Incurred related to:
Current year................................. 2,726 2,855 2,951
Prior years.................................. (245) 88 (114)
------- ------- -------
2,481 2,943 2,837
------- ------- -------
Paid related to:
Current year................................. (1,967) (1,832) (1,998)
Prior years.................................. (853) (815) (791)
------- ------- -------
(2,820) (2,647) (2,789)
------- ------- -------
Balance at December 31......................... 3,087 3,426 3,130
Add: Reinsurance recoverables................ 233 229 215
------- ------- -------
Balance at December 31......................... $ 3,320 $ 3,655 $ 3,345
======= ======= =======
</TABLE>
5. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 821 $424 $346
State and local..................................... 60 10 25
Foreign............................................. 99 26 27
------ ---- ----
980 460 398
------ ---- ----
Deferred:
Federal............................................. (178) (26) 66
State and local..................................... (8) 9 6
Foreign............................................. (54) 25 12
------ ---- ----
(240) 8 84
------ ---- ----
Provision for income taxes............................ $ 740 $468 $482
====== ==== ====
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reconciliations of the income tax provision at the U.S. statutory rate to
the provision for income taxes as reported were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate................ $ 730 $ 585 $492
Tax effect of:
Tax exempt investment income...................... (40) (30) (18)
Goodwill.......................................... 5 9 --
Surplus tax....................................... 18 (40) 38
State and local income taxes...................... 31 15 23
Foreign operations................................ 12 7 (7)
Tax credits....................................... (25) (15) (15)
Prior year taxes.................................. 4 (2) (46)
Sale of subsidiaries.............................. (19) (41) --
Other, net........................................ 24 (20) 15
------ ------ ----
Provision for income taxes.......................... $ 740 $ 468 $482
====== ====== ====
Deferred income taxes represent the tax effect of the differences between
the book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C> <C>
Deferred income tax assets:
Policyholder liabilities and receivables.......... $3,239 $3,174
Net operating losses.............................. 22 33
Employee benefits................................. 174 187
Non-deductible liabilities........................ 441 162
Other, net........................................ 158 223
------ ------
4,034 3,779
Less: Valuation allowance......................... 21 24
------ ------
4,013 3,755
------ ------
Deferred income tax liabilities:
Investments....................................... 1,417 1,118
Deferred policy acquisition costs................. 1,774 1,890
Net unrealized investment gains................... 864 1,119
Other, net........................................ 18 100
------ ------
4,073 4,227
------ ------
Net deferred income tax liability................... $ (60) $ (472)
====== ======
</TABLE>
Foreign net operating loss carryforwards generated a deferred income tax
benefit of $21. The Company has recorded a valuation allowance related to
these tax benefits. The valuation allowance reflects management's assessment,
based on available information, that it is more likely than not that the
deferred income tax asset for foreign net operating loss carryforwards will
not be realized. The benefit will be recognized at such time management
believes that it is more likely than not that the portion of the deferred
income tax asset is realizable.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Policyholder liabilities and receivables............... $ (65) $(93) $ 27
Net operating losses................................... 11 5 (19)
Investments............................................ 230 245 (6)
Deferred policy acquisition costs...................... (116) (51) 55
Employee benefits...................................... 13 (40) (4)
Non-deductible liabilities............................. (279) (66) (24)
Change in valuation allowances......................... (3) 10 4
Other, net............................................. (31) (2) 51
----- ---- ----
$(240) $ 8 $ 84
===== ==== ====
</TABLE>
The Company has been audited by the Internal Revenue Service for the years
through and including 1993. The Company is being audited for the years 1994,
1995 and 1996. The Company believes that any adjustments that might be
required for open years will not have a material effect on the Company's
consolidated financial statements.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. EMPLOYEE BENEFIT PLANS
Pension Benefit and Other Benefit Plans
The Company is both the sponsor and administrator of defined benefit pension
plans covering all eligible employees and sales representatives of MetLife and
certain of its subsidiaries. Retirement benefits are based upon years of
credited service and final average earnings history.
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.
<TABLE>
<CAPTION>
December 31,
------------------------------------
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning
of year................................. $ 3,523 $ 3,268 $ 1,763 $ 1,773
Service cost............................. 88 73 31 30
Interest cost............................ 254 244 114 122
Actuarial gain........................... 205 160 (74) (57)
Divestitures, curtailments and
terminations............................ 24 (9) (13) 2
Change in benefits....................... 12 6 -- (2)
Benefits paid............................ (245) (219) (113) (105)
-------- -------- ------- -------
Projected benefit obligation at end of
year.................................... 3,861 3,523 1,708 1,763
-------- -------- ------- -------
Change in plan assets:
Contract value of plan assets at
beginning of year....................... 3,982 3,628 1,004 897
Actual return on plan assets............. 671 566 171 128
Employer contribution.................... 15 7 61 84
Benefits paid............................ (245) (219) (113) (105)
Other payments........................... (100) -- -- --
-------- -------- ------- -------
Contract value of plan assets at end of
year.................................... 4,323 3,982 1,123 1,004
-------- -------- ------- -------
Over (under) funded...................... 462 459 (585) (759)
Unrecognized net asset at transition..... (95) (140) -- --
Unrecognized net actuarial gains......... (81) (109) (322) (171)
Unrecognized prior service cost.......... 144 150 (3) (2)
-------- -------- ------- -------
Prepaid (accrued) benefit cost........... $ 430 $ 360 $ (910) $ (932)
======== ======== ======= =======
Qualified plan prepaid pension cost...... $ 546 $ 516 $ -- $ --
Non-qualified plan accrued pension cost.. (116) (156) -- --
-------- -------- ------- -------
Prepaid benefit cost..................... $ 430 $ 360 $ -- $ --
======== ======== ======= =======
</TABLE>
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan Total
--------------- ------------------ -------------
1998 1997 1998 1997 1998 1997
------- ------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected benefit
obligation................ $ 3,638 $ 3,170 $ 223 $ 353 $3,861 $3,523
Aggregate contract value of
plan assets (principally
Company contracts)........ 4,323 3,831 -- 151 4,323 3,982
------- ------- --------- --------- ------ ------
Over (under) funded........ $ 685 $ 661 $ (223) $ (202) $ 462 $ 459
======= ======= ========= ========= ====== ======
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The assumptions used in determining the aggregate projected benefit
obligation and aggregate contract value for the pension and other benefits
were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- --------------------
Weighted average assumptions as of
December 31, 1998 1997 1998 1997
- ---------------------------------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Discount rate...................... 7%-7.25% 7.25%-7.75% 7% 7.25%-7.75%
Expected return on plan assets..... 8.5% 8.75% 7.25%-9% 8.75%
Rate of compensation increase...... 4.5%-8.5% 4.5%-8.5% n/a n/a
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was 6.5% per year for pre-
Medicare eligible claims and 6% for Medicare eligible claims in 1998. The
assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9% in 1997,
gradually decreasing to 5.25% over 5 years.
Assumed health care cost trend rates may have a significant effect on the
amounts reported for health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One One
Percent Percent
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 16 $ 18
Effect on accumulated postretirement benefit
obligation........................................... $124 $183
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------- ----------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................ $ 88 $ 73 $ 77 $ 31 $ 30 $ 41
Interest cost........................... 254 244 232 114 122 127
Expected return on plan assets.......... (330) (318) (273) (79) (66) (58)
Amortization of prior actuarial (gain)
loss................................... (11) (5) (12) (12) (4) 2
Curtailment (credit) cost............... (10) -- -- 4 -- --
----- ----- ----- ---- ---- ----
Net periodic benefit cost (credit)...... $ (9) $ (6) $ 24 $ 58 $ 82 $112
===== ===== ===== ==== ==== ====
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $43, $44 and $42 for the years ended December 31,
1998, 1997 and 1996, respectively.
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenues. Additionally, the Company, as lessee, has entered
into various lease and sublease agreements for office space, data processing
and other equipment. Future minimum rental and subrental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Gross
Rental Sublease Rental
Income Income Payments
------ -------- --------
<S> <C> <C> <C>
1999...................................... $1,213 $10 $126
2000...................................... 1,150 11 109
2001...................................... 1,052 11 94
2002...................................... 942 10 72
2003...................................... 787 9 51
Thereafter................................ 2,636 35 242
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
<S> <C> <C>
MetLife:
6.300% surplus notes due 2003.................................. $ 397 $ 397
7.000% surplus notes due 2005.................................. 249 249
7.700% surplus notes due 2015.................................. 198 198
7.450% surplus notes due 2023.................................. 296 296
7.875% surplus notes due 2024.................................. 148 148
7.800% surplus notes due 2025.................................. 248 248
Other.......................................................... 207 436
------- ------
1,743 1,972
------- ------
Investment Related:
Exchangeable subordinated debt, interest based on LIBOR plus
factors, due 1999........................................... 212 374
Exchangeable subordinated debt, interest rates ranging from
4.90% to 6.18%, due 2001
and 2002.................................................... 371 --
------- ------
583 374
------- ------
Total MetLife.................................................... 2,326 2,346
------- ------
Nvest:
7.060% senior notes due 2003................................... 110 110
7.290% senior notes due 2007................................... 160 160
------- ------
270 270
------- ------
Other Companies:
Fixed rate notes, interest rates ranging from 6.96% to 8.51%,
maturity dates ranging from 1999 to 2008 179 --
Floating rate notes, interest based on LIBOR plus factors...... -- 146
Other.......................................................... 128 122
------- ------
307 268
------- ------
Total long-term debt............................................. 2,903 2,884
Total short-term debt............................................ 3,585 4,587
------- ------
$ 6,488 $7,471
======= ======
</TABLE>
Short-term debt consisted of commercial paper with a weighted average
interest rate of 5.31% and 5.75% and a weighted average maturity of 44 and 71
days as of December 31, 1998 and 1997, respectively.
The Company maintains an unsecured credit facility of $2,000 under which
bank loans and other short-term debt are drawn. This facility is maintained
for general corporate purposes and to provide additional support to the
Company's commercial paper program. At December 31, 1998 there were no
outstanding borrowings under the facility.
Payments of interest and principal on the surplus notes, subordinated to all
other indebtedness, may be made only with the prior approval of the
Superintendent. Subject to the prior approval of the Superintendent, the 7.45%
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.
The exchangeable subordinated debt is payable in cash or by the delivery of
the underlying common stock collateral owned by the Company. The value
ascribed to the common stock at the date of delivery is the greater of the
market value at the date of the debt issuance or date of delivery. The debt
provides for additional interest if the market value of the common stock
appreciates above certain levels at the date of delivery as compared with the
market value at the date of issuance.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate maturities of long-term debt are $413 in 1999, $45 in 2000,
$191 in 2001, $221 in 2002, $527 in 2003 and $1,518 thereafter.
Interest expense related to the Company's outstanding indebtedness was $333,
$344 and $311, for the years ended December 31, 1998, 1997 and 1996,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company and certain of its subsidiaries are currently defendants in
approximately 400 lawsuits, including over 40 putative or certified class
action lawsuits, raising allegations of improper marketing and sales of
individual life insurance or annuities (hereafter "sales practices claims").
Two of these putative class actions are filed in Canada and the remainder are
filed in the United States. These cases are brought by or on behalf of
policyholders and others and allege, among other claims, that individual life
insurance policies were improperly sold in replacement transactions or with
inadequate or inaccurate disclosure concerning the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
The classes proposed in the pending class actions are defined broadly enough,
in the aggregate, to include a substantial number of active and lapsed
policyholders who purchased individual life insurance policies from the
Company during the 1980's and 1990's. In California, Ohio and West Virginia,
courts have certified or deemed certifiable classes on behalf of policyholders
in those states who allegedly did not receive proper notice of replacement. A
Federal Court in Massachusetts has certified a mandatory class involving
certain former policyholders of New England Mutual Life Insurance Company
which merged into the Company in 1996. The United States Court of Appeals
remanded the case to the trial court for further consideration. A number of
the sales practices claims pending in federal courts have been consolidated as
a multidistrict proceeding for pre-trial purposes in the United States
District Court for the Western District of Pennsylvania and, as to former New
England Mutual Life Insurance Company policyholders, in the United States
District Court in Massachusetts. In another case, a New York federal court has
certified or conditionally certified some subclasses of purchasers of the
Company's policies and annuity contracts outside the United States. While most
of these cases are in the early stages of litigation, they seek substantial
damages, including in some cases punitive and treble damages and attorneys'
fees. Additional litigation relating to the Company's marketing and sale of
individual life insurance may be commenced in the future.
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 or annuities, including
investigations of alleged improper replacement transactions and alleged
improper sales of insurance with inaccurate or inadequate disclosures as to
the period for which premiums would be payable. Over the past several years, a
number of investigations by other regulatory authorities have been resolved by
the Company for monetary payments and certain other relief.
The Company is also a defendant in numerous lawsuits seeking compensatory
and punitive damages for personal injuries allegedly caused by exposure to
asbestos or asbestos-containing products. The Company has never engaged in the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits, currently numbering in
the thousands, have principally been based upon allegations relating to
certain research, publication and other activities of one or more of the
Company's employees during the period from the 1920's through approximately
the 1950's and alleging that the Company learned or should have learned of
certain health risks posed by asbestos and, among other things, improperly
publicized or failed to disclose those health risks. Legal theories asserted
against the Company have included negligence, intentional tort claims and
conspiracy claims concerning the health risks associated with asbestos. While
the Company believes it has meritorious defenses to these claims, and has not
suffered any adverse judgments in respect thereof, most of the cases have been
resolved by settlements. The Company intends to continue to exercise its best
judgment regarding settlement or defense of such cases. The number of such
cases that may be brought or the aggregate amount of any liability that may
ultimately be incurred by the Company is uncertain. Significant portions of
amounts paid in settlement of such cases have been funded with proceeds from a
previously resolved dispute with its primary, umbrella and first level excess
liability insurance carriers. The Company is presently in litigation with
several of its excess liability insurers regarding amounts payable under the
Company's policies with respect to coverage for these claims.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company believes that the claims and the amount of damages asserted in
the aforementioned sales practices and asbestos personal injury litigations
are without merit, and it intends to continue to defend its interests
vigorously.
During 1998, the Company obtained certain excess reinsurance and insurance
policies providing coverage for risks associated primarily with sales
practices claims and claims for personal injuries caused by exposure to
asbestos or asbestos-containing products. In 1998, the Company recorded a
charge of $1,715, included in other expenses, for related insurance and
reinsurance premiums and for potential liabilities related to certain of these
claims.
Various litigation, claims and assessments against the Company, in addition
to the aforementioned and those otherwise provided for in the Company's
consolidated 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 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, it is the opinion of the Company's
management that their outcomes, after consideration of available insurance and
reinsurance and the provisions made in the Company's consolidated financial
statements, are not likely to have a material adverse effect on the Company's
financial position. However, given the large and/or indeterminable amounts
sought in certain of these matters and the inherent unpredictability of
litigation, it is possible that an adverse outcome in certain matters could,
from time to time, have a material adverse effect on the Company's operating
results in particular quarterly or annual periods.
Year 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in major
system failures or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $210 (unaudited) of which
approximately $149 has been incurred through December 31, 1998.
Guaranty Funds
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company pursuant to these laws may
be used as credits for a portion of the Company's premium taxes. The Company
paid guaranty fund assessments of $35, $23 and $25 in 1998, 1997 and 1996,
respectively, of which $24, $20 and $19 were estimated to be credited against
future premium taxes.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. OTHER EXPENSES
Other expenses were comprised of the following:
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Compensation.................................. $ 2,478 $2,072 $ 1,813
Commissions................................... 902 766 722
Interest and debt issue costs................. 379 453 311
Amortization of policy acquisition costs...... 587 771 633
Capitalization of policy acquisition costs.... (1,025) (1,000) (1,028)
Rent, net of sublease......................... 155 179 183
Minority interest............................. 67 56 30
Restructuring charge.......................... 81 -- --
Other......................................... 4,494 2,637 2,091
------- ------ -------
$ 8,118 $5,934 $ 4,755
======= ====== =======
</TABLE>
11. DISCONTINUED OPERATIONS
The 1996 loss from discontinued operations resulted from the finalization of
the transfer of certain group medical contracts in connection with the
Company's disposal of its group medical benefits business during 1995. The
components of discontinued operations for the year ended December 31, 1996
were as follows:
<TABLE>
<S> <C>
Loss from discontinued operations, net of
income tax benefit of $18........................................ $ 52
Loss on disposal of discontinued operations, net of
income tax benefit of $11........................................ 19
----
Loss from discontinued operations................................. $ 71
====
</TABLE>
12. CONSOLIDATED CASH FLOW INFORMATION
During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial
financing company) and substantially all of its Canadian and Mexican insurance
operations, which resulted in realized investment gains of $531. During 1997,
the Company sold its United Kingdom insurance operations, which resulted in a
realized investment gain of $139. Such sales caused a reduction in assets by
$10,663 and $4,342 and liabilities by $3,691 and $4,207 in 1998 and 1997,
respectively.
In 1997, the Company also 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.
Real estate of $69, $151 and $189 was acquired in satisfaction of debt for
the years ended December 31, 1998, 1997 and 1996, respectively.
13. FAIR VALUE INFORMATION
The estimated fair values of financial instruments have been determined by
using available market information and the valuation methodologies described
below. Considerable judgment is often required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
may not necessarily be indicative of amounts that could be realized in a
current market exchange. The use of different assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Amounts related to the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1998 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $100,767 $100,767
Equity securities................................. 2,340 2,340
Mortgage loans on real estate..................... 16,827 17,793
Policy loans...................................... 5,600 6,143
Short-term investments............................ 1,369 1,369
Cash and cash equivalents......................... 3,301 3,301
Mortgage loan commitments......................... 472 -- 14
Liabilities:
Policyholder account balances..................... 37,088 37,304
Short-term debt................................... 3,585 3,585
Long-term debt.................................... 2,903 2,995
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1997 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $ 92,630 $ 92,630
Equity securities................................. 4,250 4,250
Mortgage loans on real estate..................... 20,193 21,084
Policy loans...................................... 5,846 6,110
Short-term investments............................ 679 679
Cash and cash equivalents......................... 2,911 2,911
Mortgage loan commitments......................... 334 -- 4
Liabilities:
Policyholder account balances..................... 37,034 37,265
Short-term debt................................... 4,587 4,587
Long-term debt.................................... 2,884 2,939
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities are based upon
quotations published by applicable stock exchanges or received from other
reliable sources. For securities in which the market values were not readily
available, fair values were estimated using quoted market prices of comparable
investments.
Mortgage Loans on Real Estate and Mortgage Loan Commitments
Fair values for mortgage loans on real estate and mortgage loan commitments
are estimated by discounting expected future cash flows using current interest
rates for similar loans with similar credit risk.
Policy Loans
Fair values for policy loans are estimated by discounting expected future
cash flows using U.S. treasury rates to approximate interest rates and the
Company's past experiences to project patterns of loan accrual and repayment
characteristics.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based upon interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
agreements being valued.
Short-term and Long-term Debt
The fair values of short-term and long-term debt are determined by
discounting expected future cash flows, using risk rates currently available
for debt with similar terms and remaining maturities.
Derivative Instruments
The fair value of derivative instruments, including financial futures,
financial forwards, interest rate and foreign currency swaps, floors, foreign
exchange contracts, caps and options are based upon quotations obtained from
dealers or other reliable sources. See Note 3 for derivative fair value
disclosures.
14. STATUTORY FINANCIAL INFORMATION
The reconciliation of MetLife's statutory surplus and net change in
statutory surplus, determined in accordance with accounting practices
prescribed or permitted by insurance regulatory authorities, with equity and
net income determined in conformity with generally accepted accounting
principles were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C>
Statutory surplus..................................... $ 7,388 $ 7,378
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... (6,830) (6,807)
Deferred policy acquisition costs................... 6,560 6,438
Deferred income taxes............................... 295 (242)
Valuation of investments............................ 3,981 3,474
Statutory asset valuation reserves.................. 3,381 3,854
Statutory interest maintenance reserve.............. 1,486 1,261
Surplus notes....................................... (1,595) (1,555)
Other, net.......................................... 201 206
------- -------
Equity................................................ $14,867 $14,007
======= =======
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Net change in statutory surplus....................... $ 10 $ 227 $ 366
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... 127 (38) (165)
Deferred policy acquisition costs................... 224 149 391
Deferred income taxes............................... 234 62 (74)
Valuation of investments............................ 1,158 (387) (84)
Statutory asset valuation reserves.................. (461) 1,136 599
Statutory interest maintenance reserve.............. 312 53 19
Other, net.......................................... (261) 1 (199)
------- ------- -----
Net income............................................ $ 1,343 $ 1,203 $ 853
======= ======= =====
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $39,490 and $32,893 at December 31, 1998 and 1997,
respectively, in which the policyholder assumes the investment risk, and
guaranteed separate accounts totaling $18,578 and $15,445 at December 31, 1998
and 1997, respectively, in which MetLife contractually guarantees either a
minimum return or account value to the policyholder.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees and totaled $413, $287 and $216 in 1998, 1997 and 1996, respectively.
Guaranteed separate accounts consisted primarily of Met Managed Guaranteed
Interest Contracts and participating close out contracts. The average interest
rate credited on these contracts was 7% at December 31, 1998. The assets that
support these liabilities were comprised of $16,639 in fixed maturities as of
December 31, 1998. The portfolios are segregated from other investments and
are managed to minimize liquidity and interest rate risk. In order to minimize
the risk of disintermediation associated with early withdrawals, these
investment products carry a graded surrender charge as well as a market value
adjustment.
16. OTHER COMPREHENSIVE INCOME
The following tables set forth the reclassification adjustments required for
the years ended December 31, 1998, 1997 and 1996 to avoid double-counting in
comprehensive income items that are included as part of net income for the
current year that have been reported as a part of other comprehensive income
in the current or prior year:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Holding gains (losses) on investments arising during
the year........................................... $ 1,556 $ 4,479 $(1,494)
Income tax effect of holding gains or losses........ (646) (1,698) 550
Transfer of securities from held-to-maturity to
available-for-sale:
Holding gains on investments...................... -- 198 --
Income tax effect................................. -- (75) --
Reclassification adjustments:
Realized holding gains included in current year
net income....................................... (2,043) (868) (367)
Amortization of premium and discount on
investments...................................... (411) (406) (631)
Realized holding gains (losses) allocated to other
policyholder amounts............................. 608 231 227
Income tax effect................................. 766 394 285
Allocation of holding (gains) losses on investments
relating to other
policyholder amounts............................... (322) (2,231) 1,286
Income tax effect of allocation of holding gains and
losses to other
policyholder amounts............................... 134 846 (474)
------- ------- -------
Net unrealized investment (losses) gains............ (358) 870 (618)
------- ------- -------
Foreign currency translation adjustments arising
during the year.................................... (115) (46) (6)
Reclassification adjustment for sale of investment
in foreign operation............................... 2 (3) --
------- ------- -------
Foreign currency translation adjustment............. (113) (49) (6)
------- ------- -------
Minimum pension liability adjustment................ (12) -- --
------- ------- -------
Other comprehensive (loss) income................... $ (483) $ 821 $ (624)
======= ======= =======
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
17. RESTRUCTURING
During 1998, the Company restructured headquarters operations and
consolidated certain agencies and other operations. The impacts of these
actions on a segment basis are as follows:
<TABLE>
<CAPTION>
Severance
and Related Facility
Number of Termination Consolidation
Positions Costs Costs Total
--------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Individual............................ 488 $15 $16 $31
Institutional......................... 320 8 2 10
Auto & Home........................... 357 4 -- 4
Corporate and Other................... 1,102 30 6 36
----- --- --- ---
2,267 $57 $24 $81
===== === === ===
</TABLE>
These programs are expected to be completed by the third quarter of 1999. As
of December 31, 1998, $28 of these restructuring costs had been paid and the
unpaid balance was $53.
18. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe and Asia. The
Company's business is divided into six segments: Individual, Institutional,
Auto & Home, International, Asset Management and Corporate. These segments are
managed separately because they either provide different products and
services, require different strategies or have different technology
requirements.
Individual offers a wide variety of individual insurance and investment
products, including life insurance, annuities and mutual funds. Institutional
offers a broad range of group insurance and retirement and savings products
and services, including group life insurance, non-medical health insurance
such as short and long-term disability, long-term care and dental insurance
and other insurance products and services. Auto & Home provides insurance
coverages including private passenger automobile, homeowners and personnel
excess liability insurance. International provides life insurance, accident
and health insurance, annuities and retirement and savings products to both
individuals and groups, and auto and homeowners coverage to individuals. Asset
Management provides a broad variety of asset management products and services
to individuals and institutions such as mutual funds for savings and
retirement needs, commercial real estate advisory and management services, and
institutional and retail investment management. Through its Corporate segment,
the Company reports items that are not allocated to any of the business
segments.
Set forth in the tables below is certain financial information with respect
to the Company's operating segments for the years ended December 31, 1998,
1997 and 1996. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies, except for the
method of capital allocation. The Company allocates capital to each segment
based upon an internal capital allocation system that allows the Company to
more effectively manage its capital. The Company has divested operations that
did not meet targeted rates of return, including its medical insurance
operations, commercial leasing business, and insurance operations in the
United Kingdom and substantially all of its Canadian operations. The Company
evaluates the performance of each operating segment based upon income or loss
from operations before provision for income taxes and non-recurring items
(e.g. items of unusual or infrequent nature). The Company allocates non-
recurring items to the Corporate segment.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1998 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,381 $ 5,101 $1,403 $ 618 $ -- $ -- $ -- $11,503
Universal life and
investment-type product
policy fees 817 475 -- 68 -- -- -- 1,360
Net investment income... 5,501 3,864 81 343 76 808 (445) 10,228
Other revenues.......... 523 574 36 33 814 35 (50) 1,965
Net realized investment
gains.................. 663 552 122 117 -- 683 (116) 2,021
Policyholder benefits
and claims............. 4,659 6,373 869 597 -- (10) -- 12,488
Interest credited to
policyholder account
balances............... 1,443 1,199 -- 89 -- -- -- 2,731
Policyholder dividends.. 1,447 142 -- 64 -- -- -- 1,653
Other expenses.......... 2,609 1,592 546 352 799 2,632 (412) 8,118
Income before provision
for income taxes....... 1,727 1,260 227 77 91 (1,096) (199) 2,087
Income after provision
for income taxes....... 1,091 833 161 56 47 (675) (166) 1,347
Total assets............ 103,974 88,356 2,771 3,432 1,165 20,652 (5,004) 215,346
Deferred policy
acquisition costs...... 6,255 43 57 205 -- -- -- 6,560
Separate account assets. 23,038 35,286 -- 26 -- -- -- 58,350
Policyholder
liabilities............ 71,989 49,045 1,477 2,043 -- 1 (352) 124,203
Separate account
liabilities............ $23,013 $35,029 $ -- $ 26 $ -- $ -- $ -- $58,068
</TABLE>
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1997 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $11,278
Universal life and
investment-type product
policy fees............ 855 426 -- 137 -- -- -- 1,418
Net investment income... 4,754 3,754 71 504 87 895 (574) 9,491
Other revenues.......... 338 357 25 54 682 19 16 1,491
Net realized investment
gains.................. 356 45 9 142 -- 326 (91) 787
Policyholder benefits
and claims............. 4,597 5,934 834 869 -- -- -- 12,234
Interest credited to
policyholder account
balances............... 1,428 1,319 -- 137 -- -- -- 2,884
Policyholder dividends.. 1,340 305 -- 97 -- -- -- 1,742
Other expenses.......... 2,384 1,178 520 497 679 1,118 (442) 5,934
Income before provision
for income taxes....... 881 535 105 145 90 122 (207) 1,671
Income after provision
for income taxes....... 603 339 74 126 52 210 (201) 1,203
Total assets............ 95,990 83,481 2,542 7,412 1,147 18,494 (6,290) 202,776
Deferred policy
acquisition costs...... 5,912 40 56 428 -- -- -- 6,436
Separate account assets. 17,368 30,732 -- 520 -- -- -- 48,620
Policyholder
liabilities............ 70,686 49,550 1,509 5,615 -- 1 (3) 127,358
Separate account
liabilities............ $17,345 $30,473 $ -- $ 520 $ -- $ -- $ -- $48,338
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1996 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,559 $ 4,676 $1,316 $ 794 $-- $ -- $ -- $11,345
Universal life and
investment-type product
policy fees............ 729 375 -- 139 -- -- -- 1,243
Net investment income... 4,604 3,446 71 523 60 761 (487) 8,978
Other revenues.......... 74 475 26 37 495 89 50 1,246
Net realized investment
gains (losses) ....... 282 28 24 13 -- (112) (4) 231
Policyholder benefits
and claims............. 4,690 6,006 891 700 -- (1) -- 12,286
Interest credited to
policyholder account
balances 1,354 1,358 -- 156 -- -- -- 2,868
Policyholder dividends.. 1,333 284 -- 111 -- -- -- 1,728
Other expenses.......... 2,019 1,008 490 418 498 706 (384) 4,755
Income before provision
for income taxes....... 852 344 56 121 57 33 (57) 1,406
Income after provision
for income taxes....... 511 217 34 86 47 85 (56) 924
Total assets............ 86,042 75,872 2,801 11,714 901 18,900 (6,954) 189,276
Deferred policy
acquisition costs...... 6,495 29 56 647 -- -- -- 7,227
Separate account assets. 12,403 27,715 -- 3,645 -- -- -- 43,763
Policyholder
liabilities............ 67,220 48,253 1,562 6,045 -- 1 (55) 123,026
Separate account
liabilities............ $12,386 $27,368 $ -- $3,645 $-- $ -- $ -- $43,399
</TABLE>
The individual segment includes an equity ownership interest in Nvest
Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has
been included within the asset management segment due to the types of products
and strategies employed by the entity. The individual segment's equity in
earnings of Nvest, which is included in net investment income, was $49, $45
and $43 for the years ended December 31, 1998, 1997 and 1996, respectively.
The investment in Nvest was $252, $216 and $152 at December 31, 1998, 1997 and
1996, respectively.
Net investment income and net realized investment gains are based upon the
actual results of each segment's specifically identifiable asset portfolio.
Other costs and operating costs were allocated to each of the segments based
upon: (i) a review of the nature of such costs, (ii) time studies analyzing
the amount of employee compensation costs incurred by each segment, and (iii)
cost estimates included in the Company's product pricing.
The consolidation/elimination column includes the elimination of all
intersegment amounts and the individual segment's ownership interest in Nvest.
The principal component of the intersegment amounts related to intersegment
loans, which bore interest at rates commensurate with related borrowings.
Revenues derived from any customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $25,643, $22,664 and $21,762 for
the years ended December 31, 1998, 1997 and 1996, respectively, which
represented 96%, 93% and 94%, respectively, of consolidated revenues.
35
<PAGE>
PART II
REPRESENTATION WITH RESPECT TO FEES AND CHARGES
Metropolitan Life represents that the fees and charges deducted under the
riders described in this Registration Statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses to be incurred,
and the risks assumed by Metropolitan Life under the riders. Metropolitan Life
bases its representation on its assessment of all of the facts and
circumstances, including such relevant factors as: the nature and extent of
such services, expenses and risks, the need for Metropolitan Life to earn a
profit, the degree to which the riders 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 riders issued pursuant to this Registration
Statement, including those sold on the terms specifically described in the
prospectus contained herein, or any variations therein based on supplements,
amendments, endorsements or other riders to such riders or any related base
policies or prospectus, or otherwise.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Table.
The Prospectus, consisting of 80 pages.
Undertaking to File Reports (filed with the initial filing of this
Registration Statement on November 13, 1997).
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933
(filed with the initial filing of this Registration Statement on
November 13, 1997).
Representation with respect to fees and charges.
The signatures.
Written Consents of the following persons:
Independent Auditors
Counsel (included in Exhibit 2 listed below)
Company Actuary (included in Exhibit 5 listed below)
The following exhibits:
<TABLE>
<C> <S> <C>
1.A (1) --Resolution of Board of Directors of Metropolitan Life
effecting the establishment of Metropolitan Life
Separate Account UL.................................... ++++
(2) --Not Applicable
(3) --(a) Not Applicable
--(b) Form of Selected Broker Agreement................. ++++
--(c) Schedule of Sales Commissions..................... ++
(4) --Not applicable
(5) --(a) Variable Additional Insurance Rider............... +
--(b) L98 fixed benefit Life Insurance Policy........... ++++++
--(c) Form of Variable Additional Benefit Rider......... *
--(d) Form of Personalized Illustrations................ *
(6) --(a) Charter and By-Laws of Metropolitan Life.......... +++
--(b) Amendment to By-laws.............................. +++
(7) --Not Applicable
(8) --Not Applicable
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S> <C>
(9) --Not Applicable
(10) --Form of Application for Riders (included in Exhibits 5(a),
(b), and (c) listed above)
2. --Opinion and consent of Counsel as to the legality of the
securities being registered
--For Equity Additions...................................... ++++++
--For Equity Enricher....................................... *
3. --Not Applicable
4. --Not Applicable
5. --Opinion and consent of Marian Zeldin, FSA, MAAA relating
to the Equity Options...................................... *
6. --Powers of Attorney........................................ +++++
7. --Method of Computing Exchange pursuant to Rule 6e-
3(T)(b)(13)(v)(B) under the Investment Company Act of 1940
(not required because there will be no cash value
adjustments)
8. --Memoranda describing certain procedures filed pursuant to
Rule 6e-3(T)(b)(12)(iii)................................... ++++
27. --Financial Data Schedule (not applicable)
</TABLE>
- --------
+ Incorporated by reference to the filing of Pre-Effective Amendment No.
1 to this Registration Statement dated April 20, 1998.
++ Incorporated by reference from "Commissions" in the Prospectus included
herein.
+++ Incorporated by reference to the filing of Post-Effective Amendment No.
4 to the Registration Statement of Separate Account UL (File No. 33-
57320) on March 1, 1996.
++++ Incorporated by reference to the filing of Post-Effective Amendment No.
5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997.
+++++ Incorporated by reference to the filing of Post-Effective Amendment No.
5 to the Registration Statement of Separate Account UL (File No. 33-
47927) on April 30, 1997 except for Robert H. Benmosche whose power of
attorney was filed with this Registration Statement on November 13,
1997 and Jon F. Danski whose power of attorney is incorporated by
reference to the filing of Pre-Effective Amendment No. 1 to this
Registration Statement on April 2, 1998.
++++++ Included in the filing of this Registration Statement on November 13,
1997.
* Filed herewith.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant 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 13th day of
April, 1999.
METROPOLITAN LIFE
INSURANCE COMPANY
(Seal)
By: /s/ Gary A. Beller
---------------------------------
Gary A. Beller, Esq.
Senior Executive Vice-President
General Counsel
Attest: /s/ Cheryl D. Martino
-------------------------------
Cheryl D. Martino
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
* Chairman of the
- ------------------------------------- Board, President,
Robert H. Benmosche and Chief Executive
Officer and
Director (Principal
Executive Officer)
* Vice Chairman of the
- ------------------------------------- Board and Chief
Gerald Clark Investment Officer
* Chairman and Chief
- ------------------------------------- Executive Officer
(Retired)
Harry P. Kamen
* Vice-Chairman of the
- ------------------------------------- Board and Chief
Stewart G. Nagler Financial Officer
(Principal
Financial Officer)
* Senior Vice-
- ------------------------------------- President and
Jon F. Danski Controller
(Principal
Accounting Officer)
* Director
- -------------------------------------
Curtis H. Barnette
* Director
- -------------------------------------
Joan Ganz Cooney
/s/ Christopher P. Nicholas
*By _________________________________ April 13, 1999
Christopher P. Nicholas, Esq.
Attorney-in-fact
II-3
<PAGE>
Signature Title Date
* Director
- -------------------------------------
Burton A. Dole, Jr.
* Director
- -------------------------------------
James R. Houghton
* Director
- -------------------------------------
Helene L. Kaplan
* Director
- -------------------------------------
Harry P. Kamen
* 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.
/s/ Christopher P. Nicholas
*By _________________________________ April 13, 1999
Christopher P. Nicholas, Esq.
Attorney-in-fact
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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, in the City of New York, State of New York this 13th day of April,
1999.
METROPOLITAN LIFE SEPARATE ACCOUNT
UL
(Registrant)
By: METROPOLITAN LIFE INSURANCE
COMPANY
(Depositor)
(Seal)
/s/ Gary A. Beller
By: _____________________________
Gary A. Beller, Esq.
Senior Executive Vice-President and
General Counsel
/s/ Cheryl D. Martino
Attest: _____________________________
Cheryl D. Martino
Assistant Secretary
II-5
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Metropolitan Life Insurance Company:
We consent to the use in this Post-Effective Amendment No. 2 to the
Registration Statement No. 333-40161 of Metropolitan Life Separate Account UL
on Form S-6 of our report dated March 15, 1999 relating to Metropolitan Life
Separate Account UL appearing in the Prospectus, which is a part of such
Registration Statement, and our report dated February 4, 1999, relating to
Metropolitan Life Insurance Company also appearing in the Prospectus, and to
the reference to us under the heading "Legal, Accounting and Actuarial
Matters" in such Prospectus.
Deloitte & Touche LLP
New York, New York
April 12, 1999
II-6
<PAGE>
EXHIBIT 1(A)5(C)
Rider: Option for Variable Additional Insurance
This rider is a part of the policy if it is referred to on page 3.
THE AMOUNT OR DURATION OF THE DEATH BENEFIT PROVIDED BY THIS RIDER IS VARIABLE
AND MAY INCREASE OR DECREASE. SEE THE VARIABLE ADDITIONAL INSURANCE DEATH
BENEFIT PROVISION.
THE CASH VALUE OF THE INVESTMENT DIVISION IN THE SEPARATE ACCOUNT IS BASED ON
ITS INVESTMENT EXPERIENCE AND MAY INCREASE OR DECREASE DAILY. IT IS NOT
GUARANTEED.
This rider allows you to buy variable life insurance on the life of the insured
while both the policy and your right to buy variable life insurance under this
rider are in force.
Definitions
The "Date of Rider" is shown on page 3. It is the effective date of this rider.
The "Final Date" for premium payments under this rider is the policy anniversary
on which the insured is age 65 or the 10th policy anniversary, whichever is
later.
The "Investment Start Date" is the date the first premium paid under this option
is applied to the Separate Account.
A "Valuation Date" is each day on which there is enough trading in a portfolio's
securities that the current value of its shares could change materially. In
general, Valuation Dates will be days when the New York Stock Exchange is open
for trading. We reserve the right, on 30 days notice, to change the basis for
such valuation, as long as the basis is not inconsistent with applicable law.
-1-
<PAGE>
A "Valuation Period" is the period between two successive Valuation Dates
starting at 4:00 PM, New York City time, on each Valuation Date and ending at
4:00 PM., New York City time, on the next succeeding Valuation Date. We reserve
the right, on 30 days notice, to change the basis for such Valuation Period as
long as the basis is not inconsistent with applicable law.
The "Separate Account" is the Metropolitan Life Separate Account UL, the account
to which we will apply your premiums. The Separate Account is a unit investment
trust registered under the Investment Company Act of 1940 and has multiple
subdivisions called investment divisions.
The "Cash Value" is the value of your funds in the Separate Account. The cash
value is based on the premiums applied to the Separate Account. The cash value
reflects the investment experience of the Separate Account and may increase or
decrease daily. It is not guaranteed.
The "Conditional Guaranteed Death Benefit" is the amount of death benefit needed
to prevent your policy from becoming a Modified Endowment Contract under the
Internal Revenue Code. It protects you from the adverse tax consequences
associated with your policy being treated as a Modified Endowment Contract
instead of a life insurance policy as defined by the Internal Revenue Code.
Your death benefit during any 7-year pay test period, as required by the
Internal Revenue Code, will not be less than your death benefit at the beginning
of that 7-year test period. Any transfer of insurance from this option will
reduce or eliminate the Conditional Guaranteed Death Benefit.
"Net Single Premiums" are used to calculate the amount of variable additional
insurance under this benefit. A table showing the net single premiums for each
policy anniversary is attached to this rider.
A "Cost of Insurance Charge" is deducted each month from the cash value of your
account. We may change these charges, but they will never be more than the
guaranteed monthly percentages shown in the table at the end of this rider.
-2-
<PAGE>
The Mortality and Expense Risk and Administrative Services Charge", also called
the "Separate Account Charge", is a percentage of the value at the end of the
prior month of the net assets in the Separate Account that are attributable to
this rider. The charge is .75% a year if your policy has a face amount of less
than $250,000. This is equal to a monthly charge of .062286%. If your policy's
face amount is $250,000 or more, your charge is .50% a year. This is equal to a
monthly charge of .41571%. The Separate Account Charge covers our
administrative costs and the mortality and expense risks that we assume. It is
deducted each month from the cash value.
The "net cash value" is the cash value of your variable additional insurance
minus the monthly cost of insurance and separate account charges.
VARIABLE ADDITIONAL INSURANCE DEATH BENEFIT--The variable additional insurance
purchased under this option will be included in the insurance proceeds payable
on the death of the insured. The variable additional insurance death benefit is
the net cash value divided by the net single premium for that day. The amount
of variable additional insurance is subject to change on each Valuation Date.
If the Conditional Guaranteed Death Benefit is larger, we will pay that amount
instead. The amount payable will be reduced by any loans and loan interest
taken from this rider's cash value.
PREMIUM PAYMENTS -You may make either scheduled or unscheduled premium payments
as described below. Any premium payment will be reduced by a premium load to
determine the amount of the net premium. The amount of insurance that each net
premium buys will be based on the insured's attained age on the date of payment.
SCHEDULED PAYMENTS--Premiums under this rider are payable as shown in the
- ------------------
schedule on page 3 of your policy. The first premium is due on the effective
date of the rider. You may, however, change the amount of your payment, stop
scheduled payments at any time, or resume making scheduled payments that have
been stopped.
UNSCHEDULED PAYMENTS--You may also make additional premium payments at any time
- --------------------
provided the total premiums (scheduled and unscheduled) do not exceed the annual
maximum limit set by us.
We will send you a statement confirming the amount of any unscheduled payment,
the date we received it, the number of units purchased in the separate account
and the amount of insurance your payment purchased.
All scheduled and unscheduled payments must be at least equal to the minimum
payment limits we set from time to time.
-3-
<PAGE>
ACCEPTANCE OF PREMIUM PAYMENTS--The insured must be alive on the date we receive
your payment. We will accept your payments under this rider if:
1. we receive your premiums for the policy and any other benefit riders as due;
2. we are not paying benefits under a rider that provides for the accelerated
payment of your insurance proceeds;
3. your total payments for the year under this rider do not exceed our maximum
annual limit;
4. premiums for the policy are not being waived under the insured's waiver of
premiums benefit; and
5. your right to make payments under this rider have not been terminated
We will refund any unaccepted payments.
In addition, if your total payments during the first year exceed the intended
first-year payments shown on your application for this rider, we may require
further evidence of the insured's insurability satisfactory to us or we may
refund the excess amount.
If premiums for the policy are being waived under an applicant's or an insured's
waiver of premiums benefit or are being paid under an automatic premium loan
provision, your scheduled premium payments under this rider will not be waived
or automatically paid. You may, however, continue to make unscheduled payments
while the applicant's waiver benefit or premium loan provision is in effect. You
may also continue to make scheduled payments while the applicant's waiver
benefit is in effect. You may not make any payments while the insured's waiver
benefit is in effect.
Unless you tell us otherwise, we will apply all payments received for your
policy and benefit riders in the following order:
1. to pay any premium due for the policy and any other benefit riders attached
to the policy;
2. to pay the interest due on a policy loan;
3. to purchase additional insurance under the paid-up additional insurance and
variable additional insurance options. The amount allocated to the paid-up
additional insurance option and variable additional insurance option will be
in the same proportion that the billed premiums for these two options bear
to one another.
-4-
<PAGE>
SEPARATE ACCOUNT
Separate Account UL is an investment account set up and kept by us, apart from
our general account or other separate investment accounts. It is used for
variable additional insurance and for other policies and contracts as permitted
by law.
We own the assets of the Separate Account. Assets equal to our reserves and
other liabilities of the Separate Account will not be charged with the
liabilities that arise from any other business that we conduct. We may from
time to time transfer to our general account assets in excess of such reserves
and liabilities.
Income and realized and unrealized gains or losses from the assets of the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains or losses.
The Separate Account will be valued at the end of each Valuation Period, but at
least monthly.
INVESTMENT DIVISIONS - The "Investment Divisions" are part of the Separate
Account. Each division holds a separate class (or series) of stock of a
designated investment company or companies. Each class of stock represents a
separate portfolio of an investment company.
The Investment Divisions available on the Date of Rider are described in the
table attached to this rider. We may from time to time make other Investment
Divisions available to you. We will provide you with written notice of all
material details including investment objectives and all charges.
OWNER'S RIGHT TO CHANGE ALLOCATION--If we make other Investment Divisions
available to you, you can change the allocation of future net premiums to the
Investment Divisions of the Separate Account. You must allocate at least 1% of
net premiums to each alternative you choose. Percentages must be in whole
numbers. (For example, 33 1/3 % may not be chosen.) Your must notify us in
writing, or by other means as determined by us, of a change in the allocation
percentages. The change will take effect immediately upon receipt at our
Designated Office.
OUR RIGHT TO MAKE CHANGES--We reserve the right to make certain changes if, in
our judgment, they would best serve the interests of the owners of benefits such
as this one, or would be appropriate in carrying out the purposes of such
benefits. Any changes will be made only to the extent and in the manner
permitted by applicable laws and with the approval of the insurance
superintendent of our state of domicile, New York.
-5-
<PAGE>
The approval process is on file with the commissioner of your state. Also, when
required by law, we will obtain your approval of the changes.
Examples of the changes we may make include:
. To operate the Separate Account in any form permitted under the Investment
Company Act of 1940, or in any form permitted by law.
. To take any action necessary to comply with or obtain any exemptions from the
Investment Company Act of 1940.
. To transfer any assets in the Investment Division to one or more separate
accounts, or to our general account, or to add Investment Divisions to the
Separate Account.
. To substitute, for the investment company shares held in the Investment
Division, the shares of another class of the investment company or the shares
of another investment company or any other investment permitted by law.
. To change the way we assess charges, but without increasing the aggregate
charged to the Separate Account.
. To make any other necessary technical changes in this benefit in order to
conform with any action this provision permits us to take.
If any of these changes result in a material change in the underlying
investments of the Separate Account, we will notify you of such change. Any
such change will be made only with the prior approval of the New York Insurance
Department.
TRANSFERS--You may transfer to this rider existing paid-up insurance under the
paid-up additional insurance option described in your policy . You may also
transfer the variable additional insurance under this rider to the paid-up
additional insurance option in your policy. For both types of transfers, you
must request the transfer in writing, or by other means as determined by us. We
will take the cash value of the existing additional insurance, determined on the
date of your request, and add it to the cash value of the additional insurance
to which you have asked it to be transferred. We will then apply the total cash
value as a net single premium, based on the insured's sex and attained age, to
buy additional insurance under that option. No transfer will take effect before
the Investment Start Date.
-6-
<PAGE>
WITHDRAWALS--You may withdraw all or part of the cash value of this option at
any time. To do so, you must request the withdrawal in writing, or by other
means as determined by us. A withdrawal will reduce the amount of variable
additional insurance payable as of the date of withdrawal. The reduced amount
of insurance will be the amount of additional insurance that the remaining net
cash value, if any, will buy at the net single premium for the Insured's sex and
attained age on the date of withdrawal. When we receive your request, we will
transfer the amount requested to the paid-up additional insurance option
described in your policy and then pay you the cash value.
DEFERMENT--We reserve the right to defer the calculation and payment of the
variable additional insurance benefit under certain circumstances. Generally,
it will not be practical for us to determine the value of the Investment
Division of the Separate Account during any period when the New York Stock
Exchange is closed for trading (except for customary weekend and holiday
closings) or when the Securities and Exchange Commission restricts trading or
determines an emergency exists. In these cases, we reserve the right to defer:
(a) the determination, application, or payment of a cash withdrawal; (b) the
transfer of a cash value amount; and (c) the payment of the variable additional
insurance as part of the policy's insurance proceeds.
ANNUAL REPORT--Each year we will send you a statement showing the current amount
of variable additional insurance and cash value. The report will also show the
amount and type of credits to and deductions from the cash value during the past
year. It will also include any other information required by state laws and
regulations.
DIVIDENDS-- This rider is not eligible for dividends.
CASH VALUE--The cash value of the variable additional insurance under this rider
is determined as follows:
1. On the Investment Start Date, the cash value is equal to the sum of any net
premiums credited.
2. For each Valuation Date, the cash value will equal:
a. the cash value as of the last Valuation Date; plus
b. any net premiums and cash value transfers into the Investment
Division during the Valuation Period; minus
c. any partial cash withdrawals, loan amounts and cash value transfers
out of the Investment Division during the Valuation Period; minus
d. any Mortality and Expense Risk and Administrative Services Charge;
minus
e. any Cost of Insurance Charge; plus or minus
f. the net investment return on the net cash value in the Investment
Division.
-7-
<PAGE>
REINSTATMENT--If your policy has ended because premiums due were not paid before
the end of the grace period, your rider will be reinstated when you reinstate
your policy unless your right to make payments under this rider had terminated
prior to the lapse.
AGE AND SEX--If the Insured's age or sex on the Date of Rider is not correct as
shown on page 3 of the policy, we will recalculate the amount of variable
additional insurance by using the Cost of Insurance Charges and the Net Single
Premiums applicable to the Insured's correct age and sex.
INCONTESTABILITY AND SUICIDE--The "Incontestability" and "Suicide" provisions in
the policy will apply to this rider but will be measured from the date of this
rider. For this purpose, the "Date of the Policy" in those provisions means the
date of this rider.
TERMINATION OF RIGHT TO MAKE PAYMENTS--You may continue to make payments under
this rider until the earliest of the following dates:
1. The Final Date of this rider;
2. the date your policy becomes fully paid-up;
3. the date your policy lapses and is continued as either reduced paid-up or
extended term insurance;
4. the date we receive your application for benefits under an Acceleration of
Death Benefits or a Disability Waiver of Premiums Benefit rider; however, if
we decline your application, you may resume making payments under this
rider;
5. the 31st day after the first rider anniversary if you have made neither a
scheduled or an unscheduled payment during the year;
6. the 31st day after the rider anniversary at the end of any 2-year period
during which you have not made a payment (either scheduled or unscheduled).
-8-
<PAGE>
EXHIBIT 1(a)(5)(d)
Hypothetical Illustrations:
The following illustrations use hypothetical examples to show the way the Equity
Options work. The illustrations are illustrative only and are not a
representation of past or future investment rates of return. Actual investment
rates of return will be different from those shown depending on a number of
factors including: the amount and timing of payments made by an owner (and for
Equity Additions, the level of dividends declared by MetLife on the base
Policy); different rates of returns of the Fund portfolio (which would include
variations due to differences in annual rates of return, even if the rates of
return averaged 0%, 6% and 12% over a period of years). Neither we nor the Fund
makes any representation that the hypothetical rates of return shown in these
illustrations can be achieved in any one year or sustained over any period of
time.
Upon request, we will furnish an illustration reflecting the proposed insured's
age, sex, or premium amount requested, frequency of planned periodic premium
payments for Equity Options, and Equity Options death benefit option.
<PAGE>
VAI(1)
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK(2)
GUARANTEED COST OF INSURANCE COVERAGE CHARGES
<TABLE>
<CAPTION>
TOTAL VAI CASH VALUE(3) TOTAL VAI DEATH BENEFIT(3)
Payments Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Investment Gross Annual Investment
End of at 5% Rates of Return of Rates of Return of
base policy Annual Interest ----------------------------------- -----------------------------------
Year Payments Per Year 0% 6% 12% 0% 6% 12%
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 0 0 0 0 0 0 0
2 0 0 0 0 0 0 0 0
3 5 5 4 5 5 14 15 16
4 6 12 10 11 12 31 33 36
5 91 108 99 106 113 282 302 322
6 187 310 281 305 330 772 839 908
7 285 624 555 614 676 1,480 1,636 1,803
8 381 1,056 918 1,034 1,162 2,374 2,675 3,005
9 478 1,610 1,368 1,571 1,801 3,434 3,945 4,521
10 519 2,236 1,849 2,172 2,548 4,506 5,293 6,208
11 559 2,935 2,359 2,837 3,410 5,582 6,712 8,069
12 601 3,712 2,899 3,570 4,402 6,664 8,205 10,118
13 640 4,570 3,465 4,370 5,531 7,739 9,760 12,354
14 679 5,511 4,055 5,238 6,809 8,804 11,373 14,785
15 719 6,542 4,669 6,178 8,251 9,861 13,047 17,426
16 758 7,665 5,306 7,189 9,870 10,904 14,775 20,283
17 796 8,884 5,963 8,274 11,680 11,929 16,553 23,367
18 875 10,247 6,679 9,476 13,743 13,014 18,463 26,777
19 953 11,760 7,453 10,797 16,080 14,148 20,497 30,526
20 1,038 13,438 8,287 12,248 18,722 15,333 22,662 34,641
25 1,519 24,751 13,413 21,674 37,623 21,994 35,539 61,692
30 1,986 42,014 19,949 35,051 69,323 29,391 51,640 102,132
35 2,478 66,733 27,419 52,460 119,316 36,844 70,493 160,330
</TABLE>
(1) Assumes annual payments of the base policy dividend (under the 1999
dividend scale) paid in full at the dividend declaration dates. The values
would vary from those shown if the amount or frequency of payments varies.
(2) Illustrations for an insured in MetLife's standard smoker underwriting risk
classification would show, for the same age and premium payments, lower
cash values and cash surrender values and, therefore, a lower death
benefit.
(3) The amounts shown take into account:
. deductions from premiums;
. the monthly deduction from cash value;
. the daily charge to the Fund for investment management services equivalent
to an annual rate of .25% of the average daily value of the aggregate net
assets of the MetLife Stock Index Portfolio and .05% for other direct
expenses of the portfolio which are each indicated in the chart under "Fund
Investment Management Fees and Direct Expenses" chart in the prospectus).
If these fees and expenses were taken into account, the gross annual
investment rates of return of 0%, 6% and 12% correspond to actual (or
net) annual rates of: -.30%, 5.70% and 11.70%, respectively.
The table does not reflect:
. Any charges for income taxes against the Separate Account because no such
charges are currently made. If any such charges were made, the rates of
return would have to exceed 0%, 6% or 12% by a sufficient amount to cover
the tax charges.
. Any Policy loans or partial withdrawals.
<PAGE>
<TABLE>
<CAPTION>
VAI(1)
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK (2)
CURRENT COST OF INSURANCE COVERAGE CHARGES
TOTAL VAI CASH VALUE(3) TOTAL VAI DEATH BENEFIT(3)
Payments Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Investment Gross Annual Investment
End of at 5% Rates of Return of Rates of Return of
base policy Annual Interest ----------------------------------- -----------------------------------
Year Payments Per Year 0% 6% 12% 0% 6% 12%
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0 0 0 0 0 0 0 0
2 0 0 0 0 0 0 0 0
3 5 5 4 5 5 14 15 16
4 6 12 10 11 12 31 33 36
5 91 108 100 107 114 284 303 324
6 187 310 283 308 333 779 846 916
7 285 624 561 620 684 1,496 1,654 1,823
8 381 1,056 930 1,048 1,178 2,405 2,711 3,046
9 478 1,610 1,389 1,596 1,831 3,488 4,007 4,595
10 519 2,236 1,883 2,213 2,598 4,588 5,392 6,330
11 559 2,935 2,409 2,899 3,489 5,699 6,860 8,256
12 601 3,712 2,968 3,660 4,519 6,822 8,411 10,387
13 640 4,570 3,557 4,494 5,700 7,945 10,038 12,730
14 679 5,511 4,175 5,406 7,044 9,066 11,738 15,296
15 719 6,542 4,822 6,399 8,571 10,184 13,513 18,101
16 758 7,665 5,496 7,473 10,296 11,295 15,358 21,158
17 796 8,884 6,196 8,633 12,237 12,395 17,271 24,482
18 875 10,247 6,959 9,922 14,461 13,560 19,332 28,175
19 953 11,760 7,786 11,347 16,996 14,781 21,540 32,264
20 1,038 13,438 8,681 12,917 19,879 16,062 23,901 36,782
25 1,519 24,751 14,249 23,318 40,996 23,365 38,235 67,223
30 1,986 42,014 21,490 38,528 77,805 31,662 56,762 114,628
35 2,478 66,733 29,997 59,099 138,630 40,308 79,414 186,283
</TABLE>
(1) Assumes annual payments of the base policy dividend (under the 1999
dividend scale) paid in full at the dividend declaration dates. The values
would vary from those shown if the amount or frequency of payments varies.
(2) Illustration for an insured in MetLife's standard smoker underwriting risk
classification would show, for the same age and premium payments. lower
cash values and cash surrender values and, therefore, a lower death
benefits.
(3) The amounts shown take into account:
. deductions from premiums;
. the monthly deduction from cash value;
. the daily charge to the Fund for investment management services equivalent to
an annual rate of .25% of the average daily value of the aggregate net assets
of the MetLife Stock Index Portfolio and .05% for other direct expenses of
the portfolio which are each indicated in the chart under "Fund Investment
Management Fees and Direct Expenses" chart in the prospectus). If these fees
and expenses were taken into account, the gross annual investment rates of
return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -.30%,
5.70% and 11.70%, respectively .
The table does not reflect:
. Any charges for income taxes against the Separate Account because no such
charges are currently made. If any such charges were made, the rates of return
would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax
charges.
. Any Policy loans or partial withdrawals.
<PAGE>
<TABLE>
<CAPTION>
VABR
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK (1)
GUARANTEED INSURANCE COVERAGE CHARGES
TOTAL VABR CASH VALUE(1) TOTAL VABR DEATH BENEFIT(1)
Payments Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Investment Gross Annual Investment
End of at 5% Rates of Return of Rates of Return of
base policy Annual Interest ----------------------------------- -----------------------------------
Year Payments Per Year 0% 6% 12% 0% 6% 12%
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 933 989 1,045 2,998 3,179 3,359
2 0 1,103 916 1,030 1,150 2,852 3,206 3,581
3 0 1,158 899 1,072 1,266 2,713 3,234 3,818
4 0 1,216 883 1,116 1,392 2,582 3,262 4,070
5 0 1,276 866 1,161 1,531 2,456 3,291 4,339
6 0 1,340 850 1,208 1,683 2,336 3,319 4,625
7 0 1,407 834 1,256 1,850 2,223 3,348 4,931
8 0 1,477 817 1,306 2,032 2,115 3,378 5,256
9 0 1,551 801 1,357 2,232 2,012 3,407 5,603
10 0 1,629 785 1,410 2,451 1,914 3,436 5,973
11 0 1,710 769 1,465 2,691 1,820 3,466 6,367
12 0 1,796 753 1,521 2,953 1,732 3,496 6,788
13 0 1,886 737 1,579 3,240 1,648 3,527 7,236
14 0 1,980 722 1,638 3,552 1,567 3,557 7,713
15 0 2,079 706 1,699 3,893 1,491 3,588 8,223
16 0 2,183 690 1,761 4,265 1,418 3,619 8,765
17 0 2,292 674 1,824 4,671 1,349 3,651 9,344
18 0 2,407 659 1,890 5,113 1,284 3,682 9,962
19 0 2,527 643 1,956 5,594 1,221 3,715 10,620
20 0 2,653 628 2,025 6,118 1,162 3,747 11,321
25 0 3,386 552 2,385 9,505 905 3,912 15,587
30 0 4,322 479 2,774 14,574 705 4,086 21,471
35 0 5,516 409 3,180 22,032 550 4,273 29,606
</TABLE>
(1) Illustration for an insured in MetLife's standard smoker underwriting risk
classification would show, for the same age and premium payments. lower
cash values and cash surrender values and, therefore, a lower death
benefits.
(2) The amounts shown take into account:
. deductions from premiums;
. the monthly deduction from cash value;
. the daily charge to the Fund for investment management services equivalent to
an annual rate of .25% of the average daily value of the aggregate net assets
of the MetLife Stock Index Portfolio and .05% for other direct expenses of
the portfolio which are each indicated in the chart under "Fund Investment
Management Fees and Direct Expenses" chart in the prospectus). If these fees
and expenses were taken into account, the gross annual investment rates of
return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -.30%,
5.70% and 11.70%, respectively.
The table does not reflect:
. Any charges for income taxes against the Separate Account because no such
charges are currently made. If any such charges were made, the rates of return
would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax
charges.
. Any Policy loans or partial withdrawals.
<PAGE>
VABR
MALE ISSUE AGE 40
STANDARD NONSMOKER UNDERWRITING RISK (1)
CURRENT INSURANCE COVERAGE CHARGES
<TABLE>
<CAPTION>
TOTAL VABR CASH VALUE(1) TOTAL VABR DEATH BENEFIT(1)
Payments Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Investment Gross Annual Investment
End of at 5% Rates of Return of Rates of Return of
base policy Annual Interest ----------------------------------- -----------------------------------
Year Payments Per Year 0% 6% 12% 0% 6% 12%
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 938 995 1,052 3,016 3,198 3,379
2 0 1,103 927 1,042 1,164 2,887 3,245 3,624
3 0 1,158 916 1,092 1,289 2,763 3,294 3,887
4 0 1,216 905 1,143 1,426 2,645 3,343 4,170
5 0 1,276 893 1,197 1,578 2,533 3,393 4,473
6 0 1,340 882 1,253 1,746 2,425 3,445 4,799
7 0 1,407 871 1,312 1,931 2,322 3,497 5,149
8 0 1,477 860 1,373 2,136 2,224 3,551 5,525
9 0 1,551 848 1,436 2,362 2,130 3,606 5,929
10 0 1,629 837 1,503 2,611 2,040 3,662 6,363
11 0 1,710 826 1,572 2,886 1,954 3,719 6,829
12 0 1,796 814 1,643 3,189 1,872 3,777 7,330
13 0 1,886 803 1,718 3,523 1,793 3,837 7,869
14 0 1,980 791 1,795 3,891 1,718 3,898 8,449
15 0 2,079 779 1,875 4,296 1,647 3,960 9,073
16 0 2,183 768 1,958 4,741 1,578 4,024 9,743
17 0 2,292 756 2,044 5,231 1,513 4,090 10,465
18 0 2,407 744 2,133 5,769 1,450 4,157 11,240
19 0 2,527 732 2,226 6,361 1,390 4,226 12,075
20 0 2,653 720 2,322 7,011 1,333 4,296 12,974
25 0 3,386 661 2,855 11,368 1,084 4,682 18,641
30 0 4,322 601 3,477 18,254 885 5,123 26,893
35 0 5,516 540 4,192 29,011 726 5,633 38,984
</TABLE>
(1) Illustration for an insured in MetLife's standard smoker underwriting risk
classification would show for the same age and premium payments. lower cash
values and cash surrender values and, therefore, a lower death benefits.
(2) The amounts shown take into account:
. deductions from premiums;
. the monthly deduction from cash value;
. the daily charge to the Fund for investment management services equivalent to
an annual rate of .25% of the average daily value of the aggregate net assets
of the MetLife Stock Index Portfolio and .05% for other direct expenses of
the Portfolio which are each indicated in the chart under "Fund Investment
Management Fees and Direct Expenses" chart in the prospectus). If these fees
and expenses were taken into account, the gross annual investment rates of
return of 0%, 6% and 12% correspond to actual (or net) annual rates of:
-.30%, 5.70% and 11.70%, respectively.
The table does not reflect:
. Any charges for income taxes against the Separate Account because no such
charges are currently made. If any such charges were made, the rates of return
would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax
charges.
. Any Policy loans or partial withdrawals.
<PAGE>
EXHIBIT 2
Metropolitan Life Insurance Company
One Madison Avenue, New York, NY 10010-3690
212 578-2211
METLIFE(R)
Christopher P. Nicholas
Associate General Counsel
Law Department
Tel 212 578-4487 Fax 212 578-8144
April 13, 1999
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Dear Sirs:
This opinion is furnished in connection with the offering of a variable
additional benefits rider ("Rider") of Metropolitan Life Insurance Company
("Metropolitan Life") under a Registration Statement to be filed by Metropolitan
Life and Metropolitan Life Separate Account UL ("Account") on April 13, 1999
under the Securities Act of 1933, as amended ("Act").
I have made such examination of the law and examined such corporate
records and such other documents as in my judgment are necessary and appropriate
to enable me to render the opinion that:
1. Metropolitan Life has been duly organized under the laws of the
State of New York and is a validly existing corporation.
2. The Account is duly created and validly existing as a separate
account pursuant to Section 4240 of Chapter 28 of the Consolidated Laws of New
York.
3. The portion of the assets to be held in the Account equal to the
reserves and other liabilities under the Riders and under other life insurance
policies the premium in which may be allocated to the Account is not chargeable
with liabilities arising out of any other business Metropolitan Life may
conduct.
4. The Riders have been duly authorized by Metropolitan Life and, when
issued as contemplated by the Registration Statement, as amended, will
constitute legal, validly issued and binding obligations of Metropolitan Life in
accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal,
Accounting and Actuarial Matters" in the Prospectus contained in the
Registration Statement.
Very truly yours,
/s/ Christopher P. Nicholas
Christopher P. Nicholas
Associate General Counsel
<PAGE>
EXHIBIT 5
April 12, 1999
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. 2 to Registration Statement No. 333-40161 on Form S-6
("Registration Statement") which covers premiums received under the Equity
Options offerd by Metropolitan Life Insurance Company ("MLIC") in each State
where they have been approved by appropriate State insurance authorities. As a
Vice-President and Actuary of MLIC, I have reviewed the Equity Options forms and
I am familiar with the Registration Statement and Exhibits thereto. In my
opinion the illustrations of Equity Options death benefits, cash values and cash
surrender values in Exhibit 1(A)(5)(d) included in the Registration Statement,
based on the assumptions stated therein, are consistent with the provisions of
the Equity Options forms. The rate structure of each Equity Options form has not
been designed so as to make the relationship between premiums and benefits, as
shown in these illustrations appear to be correspondingly more favorable to a
prospective purchaser of the FPMLI for males age 40, than to prospective
purchasers of FPMLI for a male at other ages or for a female.
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 "Legal, Accounting
and Actuarial Matters" in the Prospectuses.
Very truly yours,
/s/ Marian Zeldin
-----------------
Marian Zeldin
Vice-President and
Actuary
