<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 33-57320
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 8
To
FORM S-6
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------
METROPOLITAN LIFE SEPARATE ACCOUNT UL
(Exact name of trust)
METROPOLITAN LIFE INSURANCE COMPANY
(Name of depositor)
1 MADISON AVENUE, NEW YORK, NEW YORK 10010
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL
METROPOLITAN LIFE INSURANCE COMPANY
1 MADISON AVENUE
NEW YORK, NEW YORK 10010
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
GARY O. COHEN, ESQ.
AND
THOMAS C. LAUERMAN, ESQ.
FREEDMAN, LEVY, KROLL & SIMONDS
1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
------------------------
It is proposed that the filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on April 30, 1999, pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a) of Rule 485
------------------------
This filing is made in reliance on Rule 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 to register an indefinite amount of interests in
Metropolitan Life Separate Account UL which funds certain variable universal
life insurance policies.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
METROPOLITAN LIFE SEPARATE ACCOUNT UL
METROPOLITAN LIFE INSURANCE COMPANY
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
--------------- -----------------------------------------------------------------------------------------
<S> <C>
1................................... Cover Page
2................................... SUMMARY; METLIFE
3................................... Inapplicable
4................................... SALES AND ADMINISTRATION OF THE POLICIES; METLIFE; SUMMARY
5, 6, 7............................. SEPARATE ACCOUNT UL; THE FUNDS
8................................... FINANCIAL STATEMENTS
9................................... Inapplicable
10(a)................................ OTHER POLICY PROVISIONS; POLICY RIGHTS
10(c), 10(d)......................... SUMMARY; POLICY BENEFITS; POLICY RIGHTS; PAYMENT AND ALLOCATION OF PREMIUMS; THE FIXED
ACCOUNT; OTHER POLICY PROVISIONS
10(e)................................ PAYMENT AND ALLOCATION OF PREMIUMS--Policy 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)................................ POLICY BENEFITS; PAYMENT AND ALLOCATION OF PREMIUMS; ISSUING A POLICY
11................................... SUMMARY; SEPARATE ACCOUNT UL; THE FUNDS
12(a)................................ Cover Page
12(b), 12(e)......................... Inapplicable
12(c), 12(d)......................... SEPARATE ACCOUNT UL; THE FUNDS
13(a), 13(b), 13(c), 13(d)........... SUMMARY--Table of Charges and Expenses, CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT UL; THE
FUNDS; POLICY BENEFITS; OTHER POLICY PROVISIONS
13(e)................................ SALES AND ADMINISTRATION OF THE POLICIES
13(f), 13(g)......................... Inapplicable
14................................... ISSUING A POLICY; SALES AND ADMINISTRATION OF THE POLICIES
15................................... PAYMENT AND ALLOCATION OF PREMIUMS
16................................... SEPARATE ACCOUNT UL; THE FUNDS
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; THE FUNDS
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; THE FUNDS
20(c), 20(d), 20(e), 20(f)........... Inapplicable
21(a), 21(b)......................... POLICY RIGHTS--Loan Privileges; PAYMENT AND ALLOCATION OF PREMIUMS; OTHER POLICY
PROVISIONS
21(c), 22............................ Inapplicable
23................................... SALES AND ADMINISTRATION OF THE POLICIES
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
ITEMS OF
FORM N-8B-2 CAPTIONS IN PROSPECTUS
--------------- -----------------------------------------------------------------------------------------
<S> <C>
24................................... PAYMENT AND ALLOCATION OF PREMIUMS; OTHER POLICY PROVISIONS
25................................... METLIFE
26................................... CHARGES AND DEDUCTIONS
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; THE FUNDS; CHARGES AND DEDUCTIONS
41(a)................................ SUMMARY; METLIFE; SALES AND ADMINISTRATION OF THE POLICIES
41(b), 41(c), 42, 43................. Inapplicable
44(a)................................ SEPARATE ACCOUNT UL; THE FUNDS; POLICY BENEFITS--Cash Value
44(b)................................ Inapplicable
44(c)................................ CHARGES AND DEDUCTIONS
45................................... Inapplicable
46................................... Captions referenced under Item 44 above
47................................... Captions referenced under Items 10(c) and 16 above
48, 49............................... Inapplicable
50................................... SEPARATE ACCOUNT UL; THE FUNDS
51(a), 51(b)......................... SUMMARY; METLIFE; POLICY BENEFITS; POLICY RIGHTS
51(c), 51(d), 51(e).................. Captions referenced under Item 10(i) above
51(f)................................ PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement
51(g)................................ Captions referenced under Items 10(i) and 13 above
51(h), 51(j)......................... Inapplicable
51(i)................................ 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>
I-2
<PAGE>
MetLife Flexible Premium
Variable Life
APRIL 30, 1999
METFLEX-SM-
FLEXIBLE PREMIUM
VARIABLE LIFE
PROSPECTUSES
- - Prospectus For Flexible Premium Variable Life Insurance Policies
issued by Metropolitan Life Insurance Company
- - Fund Prospectuses
METLIFE-Registered Trademark-
<PAGE>
PROSPECTUS
FOR
METFLEX,
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ("POLICY")
ISSUED BY
METROPOLITAN LIFE INSURANCE COMPANY ("METLIFE")
APRIL 30, 1999
The Policy is designed to provide:
- - Life insurance coverage
- - Flexible premium payments
- - A choice among three death benefit options
- - A method of financing certain deferred compensation plans, post-retirement
benefits and payroll deduction programs
- - Funding options for allocating premium payments to and transferring cash value
among a fixed interest account and the Metropolitan Life Separate Account UL
investment divisions which invest in the following corresponding fund ("Fund")
portfolios:
<TABLE>
<S> <C>
Metropolitan Series Fund, Inc. portfolios:
STATE STREET RESEARCH AGGRESSIVE GROWTH NEUBERGER BERMAN PARTNERS MID CAP VALUE
STATE STREET RESEARCH DIVERSIFIED SCUDDER GLOBAL EQUITY
STATE STREET RESEARCH GROWTH T. ROWE PRICE LARGE CAP GROWTH
STATE STREET RESEARCH INCOME T. ROWE PRICE SMALL CAP GROWTH
STATE STREET RESEARCH MONEY MARKET LEHMAN BROTHERS-REGISTERED TRADEMARK- AGGREGATE
SANTANDER INTERNATIONAL STOCK (FORMERLY STATE BOND INDEX
STREET RESEARCH INTERNATIONAL STOCK) METLIFE STOCK INDEX
HARRIS OAKMARK LARGE CAP VALUE MORGAN STANLEY EAFE-REGISTERED TRADEMARK- INDEX
JANUS MID CAP RUSSELL 2000 INDEX-REGISTERED TRADEMARK-
LOOMIS SAYLES HIGH YIELD BOND
The Janus Aspen Series portfolios:
JANUS GROWTH
The Invesco Variable Investment Funds, Inc. ("VIF") funds:
INVESCO VIF--HIGH YIELD INVESCO VIF--REALTY
INVESCO VIF--EQUITY INCOME
The Templeton Variable Products Series Fund portfolios:
TEMPLETON INTERNATIONAL--CLASS 1
</TABLE>
A WORD ABOUT RISK:
This Prospectus discusses the risks associated with purchasing the Policy. Other
prospectuses discuss the risks associated with investment in the Fund described
therein. These prospectuses are being provided to you in addition to this
Prospectus because each of the Separate Account UL investment divisions
identified above invests solely in a corresponding "Portfolio" of a Fund. The
Prospectus is not valid unless you also receive or have received a current
prospectus for each of the Funds available to you.
The purchase of the Policy involves risk. You could lose money. You might have
to pay additional amounts of premium to avoid losing the life insurance
protection you purchased through a Policy.
HOW TO LEARN MORE:
Before purchasing a Policy, read the information in this Prospectus and in the
prospectuses for the Funds. Keep these 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. Interests in the Separate
Account and the Fixed Account are not deposits or obligations of, or insured or
guaranteed by, the U.S. government, any bank or other depository institution
including the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency or entity or person. 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.
<TABLE>
<S> <C> <C>
METROPOLITAN LIFE INSURANCE COMPANY MAIN OFFICE: 1 MADISON AVE. NEW YORK, NY 10010 (732) 602-6400
</TABLE>
<PAGE>
TABLE OF CONTENTS FOR THIS PROSPECTUS
<TABLE>
<CAPTION>
PAGE
IN THIS
SUBJECT PROSPECTUS
- ---------------------------------------------------------------------- -----------------
<S> <C>
Summary............................................................... 2
MetLife............................................................... 6
Separate Account UL................................................... 7
The Fixed Account..................................................... 8
The Funds............................................................. 8
Issuing a Policy...................................................... 9
Policy Benefits....................................................... 10
Policy Rights......................................................... 15
Payment and Allocation of Premiums.................................... 18
Charges and Deductions................................................ 20
Federal Tax Matters................................................... 22
Showing Performance................................................... 24
Rights We Reserve..................................................... 24
Other Policy Provisions............................................... 24
Sales and Administration of the Policies.............................. 26
Voting Rights......................................................... 26
Reports............................................................... 27
Illustration of Policy Benefits....................................... 28
Getting More Information.............................................. 28
Legal, Accounting and Actuarial Matters............................... 28
Management............................................................ 29
Financial Statements.................................................. 32
</TABLE>
SUMMARY
This summary gives an overview of the Policy and is qualified by the more
detailed information in the Prospectus and the Policy.
MetLife issues the Policy. We offer the Policies to employers, employer
sponsored plans, or other organizations or individuals associated with such
employers, plans or organizations. We designed the Policies for financing
non-qualified deferred compensation plans, other post-employment benefits,
certain employer sponsored payroll deduction programs or other purposes. In
addition to the base Policy, optional insurance benefits may also be added to
your coverage.
PREMIUMS
The Policy allows flexibility in making premium payments. The Policy will remain
in force as long as the cash surrender value is large enough to cover one
monthly deduction, regardless of whether or not premium payments have been made.
2
<PAGE>
CASH VALUE
Your cash value in the Policy reflects your premium payments, the charges we
deduct, interest we credit if you have cash value in our fixed interest account,
any investment experience you have in our Separate Account, as well as your loan
and withdrawal activity. MetLife doesn't guarantee the investment performance of
the Separate Account UL investment divisions and you should consider your risk
tolerance before selecting any of these funding options.
TRANSFERS AND SYSTEMATIC INVESTMENT STRATEGIES
You may transfer cash value among the funding options, subject to certain
limits. You may also choose among four systematic investment strategies: the
Equity Generator-SM-, the Equalizer-SM-, the Allocator-SM-, and the
Rebalancer-SM-.
SPECIFIED FACE AMOUNT OF INSURANCE
Within certain limits, you may choose your specified face amount of insurance
when the Policy is issued. You may also change the amount at any time after the
first Policy year, subject to our rules and procedures.
DEATH BENEFIT OPTIONS
Generally, you have a choice among three options. These range from an amount
equal to the specified face amount to an amount equal to the specified face
amount plus the policy cash value at the date of death.
SURRENDERS, PARTIAL WITHDRAWALS AND LOANS
Within certain limits, you may take partial withdrawals and loans from the
Policy. You may also surrender your Policy for its cash surrender value.
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. 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, any
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 subject to income tax 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 your Policy. See
"Charges and Deductions," below for more information on your Policy's charges:
<TABLE>
<CAPTION>
TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE
<S> <C>
Charges we deduct from each premium
payment
Sales charge: For Policies issued prior to May 1, 1996 or in
connection with a large group(1), up to 1% of each
premium payment;
For Polices issued in connection with other
groups(2) on or after May 1, 1996,
- POLICY YEARS 1 TO 10--up to 9% of premiums paid
- POLICY YEARS 11 AND LATER--up to 3% of premiums
paid,
until the total of payments in each such Policy
year equals the annual target premium(2) for that
year.
- There is no sales charge for payments in excess
of the annual target premium(2) in any Policy
year.
Charge for average expected state 2.25% of each premium payment
taxes attributable to premiums:
Charge for expected federal taxes 1.2% of each premium payment
attributable to premiums:
Administrative charge: Up to 1.05% of each premium payment. We reduce the
charge to .05% on the portion of any premiums paid
in a Policy year above the annual target
premium(3).
Monthly Deduction from your Policy's cash
value
Cost of term insurance charges: Amount varies depending on the specifics of your
Policy(4)
Mortality and expense risk charge: The charge is currently equivalent to an effective
annual rate of up to .60% of the cash value in the
Separate Account. We intend to reduce this charge
after Policy year 9 to up to .39%. We may increase
this charge to not more than .90% at any time.
Underwriting charge: (applies only if A one time charge of up to $3 per thousand dollars
you request an increase in your of increase.
specified face amount)
Charges for optional rider Depends on terms of rider.
benefits(5):
Transfer charge: We do not charge for the first six transfers in a
Policy year; we charge $25 for each additional
transfer you make in a Policy year.
</TABLE>
- ---------------
(1) A large group is one that has a large number of individuals associated with
it as determined by us pursuant to our administrative standards that we apply
uniformly.
4
<PAGE>
(2) For other than large groups and except in certain states, if you surrender
your Policy during the first three Policy years, we will refund any sales load
deducted within 365 days prior to the date the request for surrender is received
at our Designated Office.
(3) See "Annual Target Premium" under "Charges and Deductions" for a detailed
discussion of the determination of the annual target premium. For some Policies,
an increase or decrease in the specified face amount will result in a
proportionate increase or decrease in the annual target premium. This could, in
turn, increase or decrease sales and administrative charges.
(4) See "Cost of Term 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 Policy based on various assumptions.
(5) Except for the interim term insurance rider, the charge for which is paid
for separately.
FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES
The investment manager of each of the funds (the "Funds") in which the Separate
Account investment divisions invest receives investment management fees. Each of
the Funds also incurs other direct expenses which may vary from year to year
(see the Prospectus and Statement of Additional Information referred to therein
for each Fund). You bear indirectly your proportionate share of the fees and
expenses of the Portfolios that correspond to the Separate Account investment
divisions you are using. The following sets forth the fees and expenses for each
Portfolio for the year ending 12/31/98:
<TABLE>
<CAPTION>
MANAGEMENT TOTAL 1998
PORTFOLIOS FEE OTHER EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
State Street Research Aggressive Growth(a) .71% .04% .75%
State Street Research Growth(a) .48% .05% .53%
State Street Research Diversified(a) .43% .05% .48%
State Street Research Income(a) .33% .06% .39%
Santander International Stock(a) .75% .27% 1.02%
Harris Oakmark Large Cap Value(b)(e) .75% .80% 1.55%
Janus Mid Cap(a) .72% .09% .81%
Loomis Sayles High Yield Bond(a)(e) .70% .35% 1.05%
State Street Research Money Market(a) .25% .23% .48%
Invesco VIF--Equity Income(a)(d)(e) .75% .42% 1.17%
Invesco VIF--Realty(a)(d)(e) .90% 7.88% 8.78%
Neuberger Berman Partners Mid Cap Value(b)(e) .70% .89% 1.59%
Scudder Global Equity(a) .74% .28% 1.02%
T. Rowe Price Large Cap Growth(b)(e) .70% 1.18% 1.88%
T. Rowe Price Small Cap Growth(a) .53% .14% .67%
Lehman Brothers Aggregate Bond Index(b)(e) .25% .32% .57%
MetLife Stock Index(a) .25% .05% .30%
Morgan Stanley EAFE Index(b)(e) .30% .99% 1.29%
Russell 2000 Index(b)(e) .25% .70% .95%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT TOTAL 1998
PORTFOLIOS FEE OTHER EXPENSES ANNUAL EXPENSES
<S> <C> <C> <C>
Janus Growth(a)(c) .65% .03% .68%
Invesco VIF--High Yield(a)(d) .60% .47% 1.07%
Templeton International--Class 1(a) .69% .17% .86%
</TABLE>
- ---------------
(a) Total annual expenses of these portfolios are expressed as a percentage of
average net assets.
(b) These portfolios commenced operations on 11/9/98. Total annual expenses of
these portfolios are expressed as a percentage of the year-end net assets.
Expenses (other than the management fees) are based on estimated amounts for
1999.
(c) Expenses for this portfolio are net of contractual waivers and fee
reductions by the investment manager and will be in effect for at least the
period May 1, 1999 to May 1, 2000. The total reduction for this portfolio is
.07%, applied to the management fee (.72%, reduced by .07% to an effective rate
of .65%).
(d) The total expenses for these portfolios are lower than the figures shown
because their transfer agent fees and/or custodian fees were reduced under
expense offset arrangements. The SEC does not permit the amounts shown to
reflect these reductions.
(e) During all or a portion of 1998, certain expenses for each of these
portfolios were borne by the investment manager of the portfolio. Therefore, the
expenses these portfolios paid were lower than those indicated in the chart
above. The chart below shows the actual expenses for these portfolios:
<TABLE>
<CAPTION>
TOTAL 1998
ANNUAL
OTHER EXPENSES EXPENSES WITH
WITH EXPENSE EXPENSE
PORTFOLIOS REIMBURSEMENT REIMBURSEMENT
<S> <C> <C>
Harris Oakmark Large Cap Value .20% .95%
T. Rowe Price Large Cap Growth .20% .90%
Loomis Sayles High Yield Bond .31% 1.01%
Russell 2000 Index .20% .45%
Invesco VIF--Realty 1.00% 1.90%
Neuberger Berman Partners Mid Cap Value .20% .90%
Lehman Brothers Aggregate Bond Index .23% .48%
Morgan Stanley EAFE Index .25% .55%
Invesco VIF--Equity Income .18% .93%
</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.
METLIFE
(SIDEBAR) YOU CAN CONTACT US AT OUR DESIGNATED OFFICE.
(END SIDEBAR)
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.
6
<PAGE>
We are the investment manager of the Metropolitan Series Fund, Inc., one of the
funds in which the investment divisions of the Separate Account invest. The
other funds are not affiliated with us.
GIVING US REQUESTS, INSTRUCTIONS OR NOTIFICATIONS
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;
changing your death benefit option; taking a partial withdrawal; surrendering
your Policy; making transfer requests (including elections with respect to the
systematic investment strategies) or changing your premium allocations. 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 the 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 think that there has been a sufficient degree of trading
in a Fund's portfolio securities that the current net asset value of its
shares might be materially affected.
- - The end of the free look period is the effective time of the premium
allocation instructions you make in your Policy application (and any changes
in allocation or transfer requests you make on or before the end of the free
look period). Your Investment Start Date is the date the first net premium is
applied to the Fixed Account and/or the Separate Account and is the later of
(1) the Date of Policy and (2) the Date of Receipt of your first premium
payment.
- - The effective date of your Systematic Investment Strategies will be that set
forth in the strategy chosen.
SEPARATE ACCOUNT UL
We established the Separate Account under New York law on December 13, 1988. The
Separate Account receives premium payments from the Policy 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
7
<PAGE>
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.
(SIDEBAR)
EACH SEPARATE ACCOUNT INVESTMENT DIVISION INVESTS IN A CORRESPONDING PORTFOLIO
(END SIDEBAR) OF A FUND.
The Separate Account has subdivisions, called "investment divisions." Each
investment division invests its assets exclusively in shares of a corresponding
Portfolio of a Fund. We can add new investment divisions to or eliminate
investment divisions from the Separate Account. You can designate how you would
like your net premiums and cash value to be allocated among the available
investment divisions and our Fixed Account. Amounts you allocate to each
investment division receive the investment experience of the investment
division, and you bear this investment risk.
THE FIXED ACCOUNT
The Fixed Account is part of our general assets that are not in any legally-
segregated separate accounts. Amounts in the Fixed Account are credited with
interest at an effective annual rate of at least 3%, except where state law
requires 4% (for Policies issued prior to April 30, 1999, the rate is 4%). We
may also credit excess interest on such amounts. Different excess interest rates
may apply to different amounts based upon when such amounts were allocated to
the Fixed Account and whether they were premium payments or transfers from the
investment divisions. Any excess interest rate will be credited for at least 12
months before a new rate is credited. We can delay transfers, withdrawals,
surrender and payment of Policy loans from the Fixed Account for up to 6 months.
Since the Fixed Account is not registered under the federal securities laws,
this Prospectus contains only limited information about the Fixed Account. The
Policy gives you more information on the operation of the Fixed Account.
THE FUNDS
(SIDEBAR)
YOU SHOULD CAREFULLY REVIEW THE INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS OF
EACH PORTFOLIO WHICH ARE CONTAINED IN THE PROSPECTUS FOR EACH FUND YOU HAVE ALSO
RECEIVED.
(END SIDEBAR)
Each of the Funds is a "series" type of mutual fund, which is registered as an
open-end management investment company under the 1940 Act. Each 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 each Fund prospectus that you have also received. It contains information
about that Fund and its Portfolios, including the investment objectives,
strategies, risks and investment advisers that are associated with each
Portfolio. Each Fund prospectus also contains information on the different
separate accounts of certain insurance companies, including us and our
affiliates, that may invest in that Fund and the risks related thereto.
Some of the Portfolios have names and investment objectives that are very
similar to certain publicly available mutual funds that are managed by the same
money managers. These Portfolios are not those publicly available mutual funds
and will not have the same performance. Different performance will result from
such factors as different implementation of investment policies, different cash
flows into and out of the Portfolios, different fees and different sizes.
Our arrangements with certain of the unaffiliated Fund sponsors provide that
they or one of their affiliates will pay us based on a percentage (up to 0.25%
on an annual basis) of the net assets of a Portfolio attributable to the
Policies. The fees are not charged to you, the Separate Account or the
Portfolio.
8
<PAGE>
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 net premiums 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, 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 and among investment divisions.
- - Withdrawals and surrenders taken from the Separate Account.
ISSUING A POLICY
If you want to own a Policy, then you must complete an application, which must
be received by the Designated Office. 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.
We may choose one of three types of underwriting when selling Policies. We
decide which type to use based on the total number of eligible possible insureds
for whom you can purchase a Policy and the percentage of those insureds for whom
you actually purchase a Policy. The three types of underwriting are:
- - Guaranteed Issue--requires the least evidence of insurability and rating
classification
- - Simplified Underwriting--requires more evidence of insurability and rating
classification
- - Full Underwriting--requires the most evidence of insurability and rating
classification
An insured who is a standard risk under Simplified Underwriting or Guaranteed
Issue may have a higher cost of term insurance rate than would apply to the same
insured under Full Underwriting.
(SIDEBAR)
WE WILL ISSUE A POLICY TO YOU AS OWNER. YOU WILL HAVE ALL THE RIGHTS UNDER THE
POLICY INCLUDING THE ABILITY TO NAME A NEW OWNER OR CONTINGENT OWNER.
(END SIDEBAR)
Generally, we will issue a Policy only for insureds that are age 70 or less
(although we may decide to permit an insured that is older) that have provided
evidence of insurability that we find acceptable. An "insured" is the person
upon whose life we issue the Policy. 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 Policy. Age under the Policy at any other time is then
computed using that issue age and adding the number of full Policy years
completed.
The Date of Policy is usually the date the Policy application is approved. We
use the Date of Policy to calculate the Policy years (and Policy months and
monthly anniversaries). We may permit a Date of Policy that is earlier than the
date the application is approved if there have been no material
misrepresentations in the application in order to preserve a younger age for the
insured.
- - You may request that your Date of Policy be the same date the planned periodic
premium is received. In these cases, you would incur a charge for insurance
protection before insurance coverage starts. However, the earlier
9
<PAGE>
Date of Policy gives you the potential advantage of having the premium applied
to the Separate or Fixed Account on an earlier date if a payment is received.
Insurance coverage under the Policy will generally begin at the time the
application is approved. For coverage to be effective, the insured's health must
be the same as stated in the application and, in most states, the insured must
not have sought medical advice or treatment after the date of the application.
POLICY BENEFITS
This discussion generally does not take into account the effect of obtaining a
portion of the insurance coverage under the yearly renewable term rider. This
rider may be more economical in some cases than taking the full amount under the
Policy. See "Optional Benefits Added by Rider."
INSURANCE PROCEEDS
If the Policy is in force, we will pay your beneficiary the 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 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 death benefit under the death benefit option or alternate death benefit
that is then in effect; plus
- - Any additional insurance proceeds provided by rider; minus
- - Any unpaid Policy loans and accrued interest thereon, and any due and unpaid
charges accruing during a grace period.
DEATH BENEFIT OPTIONS
(SIDEBAR)
THE POLICY GENERALLY OFFERS A CHOICE OF THREE DEATH BENEFIT OPTIONS.
(END SIDEBAR)
Generally, you can choose among three options, although the choice may be
limited based upon availability in your state. You select which option you want
in the Policy application. The three options are:
- - Option A: The death benefit is a level amount and equals the specified face
amount of the Policy
- - Option B: The death benefit varies and equals the specified face amount of the
Policy plus the cash value on the date of death.
- - Option C: The death benefit varies and equals the specified face amount of the
Policy plus the amount by which the Policy premiums paid exceeds withdrawals
made.
In many states, you have the flexibility to include a yearly renewable term
rider. This rider is generally not available with Policies issued to or in
connection with large groups.
10
<PAGE>
There are issues that you should consider in choosing your death benefit option.
For example, under Options B and C, the cash value or other amounts are added to
the specified face amount. Therefore, the death benefit will generally be
greater under these options than under Option A, for Policies with the same
specified face amount and premium payments. By the same token, the cost of
insurance will generally be greater under Options B and C than under Option A.
You can change your death benefit option after the first Policy year, provided
that:
(SIDEBAR)
YOU CAN GENERALLY CHANGE YOUR DEATH BENEFIT OPTION.
(END SIDEBAR)
- - Your cash surrender value after the change would be enough to pay at least two
monthly deductions.
- - The specified face amount continues to be no less than the minimum we allow
after a decrease.
- - The total premiums you have paid do not exceed the then current maximum
premium limitations permitted under Internal Revenue Service rules.
- - You provide evidence satisfactory to us of the insured's insurability, as we
may require.
Any change will be effective on the monthly anniversary on or immediately
following the Date of Receipt of the request (or following the date we approve
it if we require evidence of insurability). A change in death benefit option
will cause us to automatically increase or decrease your specified face amount
so that the amount of the death benefit is not changed on the effective date of
the new death benefit option.
Before you change your death benefit option you should consider the following:
- - If the term insurance portion of your death benefit changes, as it may with a
change from Option A to B or C and vice versa, the term insurance charge will
also change. This will affect your cash value and, in some cases, the death
benefit levels.
- - If your specified face amount changes because of the change in death benefit
option, consider also the issues presented by changing your specified face
amount that are described under "Specified Face Amount," below. These issues
include the possibility: that your Policy would become a modified endowment
contract; that you would receive a taxable distribution; and of changes in the
maximum premium amounts that you can pay.
ALTERNATE DEATH BENEFIT
In no event will the Policy death benefit (plus the proceeds under any yearly
renewable term rider on the insured's life) be lower than the minimum amount
required to maintain the Policy as life insurance under the federal income tax
laws. We determine this minimum by applying either the:
I. Cash Value Accumulation Test or
II. Guideline Premium/Cash Value Corridor Test.
11
<PAGE>
You choose the Cash Value Accumulation Test or the Guideline Premium/Cash Value
Corridor Test before we issue your Policy. Before choosing between these two
tests you should consider the following:
- - The Cash Value Accumulation Test may allow you to pay a greater amount in
premiums for the same amount of death benefit under federal income tax laws
and still qualify as life insurance. You should ask for an illustration
comparing results under both tests.
- - Increases in death benefits by operation of the Cash Value Accumulation Test
will result in a higher monthly cost of term insurance. Such increases can
also occur under the Guideline Premium/Cash Value Corridor Test, although this
is less likely.
SPECIFIED FACE AMOUNT
(SIDEBAR)
YOU CAN GENERALLY INCREASE OR DECREASE YOUR POLICY'S SPECIFIED FACE AMOUNT.
(END SIDEBAR)
The specified face amount is the basic amount of insurance specified in your
Policy. The Minimum Initial Specified Face amount is the smallest amount of
specified face amount for which a Policy may be issued. Currently this amount is
$100,000. You should consider whether to take all of your coverage as specified
face amount or whether to take some coverage, if available, under our yearly
renewable term insurance benefit (see "Optional Benefits Added by Rider).
Generally, you may change your specified face amount at any time after the first
Policy year. Any change will be effective on: the monthly anniversary on or next
following the (a) Date of Receipt of your request; or (b) if we require evidence
of insurability, the date we approve your request.
No reduction may decrease the specified face amount below the Minimum Initial
Specified Face Amount during the first five Policy years or one half that amount
thereafter. These lowest available specified face amount requirements also apply
to decreases that result from partial withdrawals. If there have been previous
specified face amount increases, any decreases in specified face amount will be
made in the following order: (i) the specified face amount provided by the most
recent increase; (ii) the next most recent increases successively; and (iii) the
initial specified face amount.
You may increase the specified face amount only if the cash surrender value
after the change is large enough to cover at least two monthly deductions based
on your most recent cost of term insurance charge. Any increase may require that
we receive additional evidence of insurability that is satisfactory to us. We
may also impose a one-time underwriting charge.
Before you change your specified face amount you should consider the following:
- - The term insurance portion of your death benefit will likely change and so
will the term insurance charge. This will affect the insurance charges, cash
value and, in some cases, death benefit levels.
- - Reducing your specified face amount in the first 15 Policy years may result in
our returning an amount to you which could then be taxed on an income first
basis.
- - The amount of additional premiums that the tax laws permit you to pay into
your Policy may increase or decrease. The additional amount you can pay
without causing your Policy to be a modified endowment contract for tax
purposes may also increase or decrease.
- - In some circumstances, the Policy could become a modified endowment contract.
12
<PAGE>
- - For Policies issued on or after May 1, 1996 in connection with other than
large groups, the sales charge and the administration charge may change.
CASH VALUE
(SIDEBAR)
YOUR POLICY IS DESIGNED TO ACCUMULATE CASH VALUE.
(END SIDEBAR)
Your Policy's cash value equals:
- - The Fixed Account cash value, plus
- - The Policy Loan Account cash value, plus
- - The Separate Account cash value.
Your Policy's cash surrender value equals your cash value minus any outstanding
Policy loans (plus accrued interest).
The Separate Account cash value allocated to each investment division is
calculated as follows:
- - On your Investment Start Date, the Policy's cash value in an investment
division will equal the portion of any net premium allocated to the investment
division, reduced by the portion of any monthly deductions allocated to the
Policy's cash value in that investment division.
- - Thereafter, at the end of each Valuation Period the cash value in an
investment division will equal:
- The cash value in the investment division at the beginning of the Valuation
Period; plus
- All net premiums, loan repayments and cash value transfers into the
investment division during the Valuation Period; minus
- All partial cash withdrawals, loans and cash value transfers out of the
investment division during the Valuation Period; minus
- The portion of the 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.
BENEFIT AT FINAL DATE
The Final Date is the Policy anniversary on which the insured is Age 95. Subject
to certain conditions, we will allow you to extend that date where permitted by
state law. If the insured is living on the Final Date, we will pay you the cash
surrender value of the Policy. You can receive the cash surrender value in a
single sum, in an account that earns interest, or under an available income
plan.
OPTIONAL BENEFITS ADDED BY RIDER
You may be eligible for certain benefits provided by rider, subject to certain
underwriting requirements and the payment of additional premiums. We will deduct
any charges for the rider(s) (other than the charge for the interim term
insurance rider) as part of the monthly deduction. Each rider contains important
information, including limits and conditions that apply to the
13
<PAGE>
benefits. If you decide to purchase any of the riders, you should carefully
review their provisions to be sure if the benefit is something that you want.
You should also consider:
- - That the addition of certain riders can restrict your ability to exercise
certain rights under the Policy.
- - That the amount of benefits provided under the rider is not based on
investment performance of a separate account; but, if the Policy terminates
because of poor investment performance or any other reason, the riders
generally will also terminate.
- - The tax consequences. You should also consult with your tax advisor before
purchasing one of the riders.
- - That, as discussed below, there are special factors with respect to charges in
connection with the yearly renewable term insurance benefit.
Generally, we currently make the following benefits available by rider:
<TABLE>
<S> <C>
- - Disability Waiver of Monthly - Interim Term Insurance Benefit
Deduction Benefit(1)
- - Accidental Death Benefit - Yearly Renewable Term
Insurance Benefit(3)
- - Accelerated Death Benefit(2)
</TABLE>
- ------------
(1) An increase in specified face amount may not be covered by this rider. If
not, the portion of the monthly deduction associated with the increase will
continue to be deducted from the cash value, which if insufficient, could result
in the Policy's termination. For this reason, it may be advantageous for the
owner, at the time of total disability, to reduce the specified face amount to
that covered by this rider.
(2) Payment under this rider may affect eligibility for benefits under state or
federal law.
(3) Generally not available in connection with large groups.
The yearly renewable term insurance benefit provides coverage on the insured to
age 95. You may purchase this rider, if available, only at Policy issue, though
the amount of coverage of an existing rider can be decreased or, subject to
evidence of insurability, increased. Since the amount of annual target premium
(see "Annual Target Premium" under "Charges and Deductions") is not affected by
this rider, the amount of sales charge you pay may be less if coverage is
obtained through this rider rather than as part of the Policy. However, the
current charges for the cost of insurance are higher and commissions that we pay
our representatives may be lower under this rider. You should consider these
factors before allocating the insurance coverage between the Policy and this
rider.
INCOME PLANS
(SIDEBAR)
GENERALLY YOU CAN RECEIVE THE POLICY'S INSURANCE PROCEEDS, AMOUNTS PAYABLE AT
THE FINAL DATE OR AMOUNTS PAID UPON SURRENDER UNDER AN INCOME PLAN INSTEAD OF IN
(END SIDEBAR) A LUMP SUM.
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 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.
14
<PAGE>
Generally, we currently make the following income plans available:
<TABLE>
<S> <C>
- - Interest income - Installment Income for a
Stated Period
- - Installment Income of a Stated - Single Life Income-Guaranteed
Amount Payment Period
- - Joint and Survivor Life Income - Single Life Income-Guaranteed
Return
</TABLE>
POLICY RIGHTS
CASH VALUE TRANSFERS
(SIDEBAR)
YOU CAN TRANSFER YOUR CASH VALUE AMONG THE INVESTMENT DIVISIONS AND THE FIXED
ACCOUNT AT ANY TIME BEGINNING AFTER THE END OF THE FREE LOOK PERIOD.
(END SIDEBAR)
The minimum amount you may transfer is $50 or, if less, the total amount in an
investment option. You may make transfers at any time. The maximum amount that
you may transfer or withdraw from the Fixed Account in any Policy year is the
greater of $50 and 25% of the largest amount in the Fixed Account over the last
four Policy years. This limit does not apply to a full surrender, any loans
taken, or any transfers under a systematic investment strategy. We may also
limit the number of investment options to which you may transfer cash value,
and, under certain conditions, we may have to approve transfers to the Fixed
Account (see "Allocating Net Premiums" under "Payment and Allocation of
Premiums.").
We do not currently charge for the first six transfers in a Policy year. We
charge $25 for any additional amounts transferred in the same Policy year. (For
this purpose, all transfers made as part of the same request count as one
transfer). Transactions under the Systematic Investment Strategies are not
considered "transfers" for purposes of this charge. We reserve the right to
assess a charge in the future against all transfers. Currently, transfers are
not taxable transactions.
SYSTEMATIC INVESTMENT STRATEGIES: You can choose one of four currently
available strategies. You can also change or cancel your choice at any time.
- - EQUITY GENERATOR: allows you to transfer the interest earned on amounts in
the Fixed Account in any Policy month equal to at least $20 to the MetLife
Stock Index investment division or the State Street Research Aggressive Growth
investment division. The transfer will be made at the beginning of the Policy
month following the Policy month in which the interest was earned.
- - EQUALIZER: allows you to periodically equalize amounts in your Fixed Account
and either the MetLife Stock Index investment division or the State Street
Research Aggressive Growth investment division. We currently make equalization
at the end of each calendar quarter. We will terminate this strategy if you
make a transfer out of the investment division or the Fixed Account that isn't
part of the strategy. You may then reelect the Equalizer on your next Policy
anniversary.
- - REBALANCER: allows you to periodically redistribute amounts in the Fixed
Account and investment divisions in the same proportion that the net premiums
are then being allocated. We currently make the redistribution at the
beginning of each calendar quarter.
- - ALLOCATOR: allows you to systematically transfer money from the State Street
Research Money Market investment division to the Fixed Account and/or any
investment division(s). You must have enough cash value in the
15
<PAGE>
State Street Research Money Market investment division to enable the election
to be in effect for three months. The election can be to transfer each month:
- A specific amount until the cash value in the State Street Research Money
Market investment division is exhausted.
- A specific amount for a specific number of months.
- Amounts in equal installments until the total amount you have requested has
been transferred.
TRANSFERS BY TELEPHONE: We may, if permitted by state law, decide in the future
to allow you to make transfer requests, changes to Systematic Investment
Strategies and allocations of future net premium by phone. We may also allow you
to authorize your sales representative to make such requests. The following
procedures would 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.
- - 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.
LOAN PRIVILEGES
(SIDEBAR) YOU CAN BORROW FROM US AND USE YOUR POLICY AS SECURITY FOR THE LOAN.
(END SIDEBAR)
The amount of each loan must be:
- - At least $250.
- - No more than 75% of the cash surrender value (unless your Policy tells you
that state law requires a different percentage to be applied) when added to
all other outstanding Policy loans.
As of your loan request's Date of Receipt, we will:
- - Remove an amount equal to the loan from your cash value in the Fixed Account
and each investment division of the Separate Account in the same proportion as
the Policy's cash value in each such option bears to the total cash value of
the Policy in the Fixed Account and the investment divisions.
- - Transfer such cash value to the Policy loan account, where it will be credited
with interest at a rate equal to the loan rate charged less a percentage
charge, based on expenses associated with Policy loans, determined by us. This
percentage charge will not exceed 2%, and the minimum rate we will credit to
the Policy Loan Account will be 3% per year, except where state law requires
4% (for Policies issued prior to April 30, 1999, the rate is 4%). At least
once a year, we will transfer any interest earned in your Policy loan account
to the Fixed Account and the investment divisions, according to the way that
we then allocate your net premiums.
- - 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
16
<PAGE>
increases applicable to existing loans. The interest rate charged for a Policy
year will never be greater 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; and
- The guaranteed rate used to credit interest to the cash value allocated to
the Fixed Account for the Policy, plus no more than 1%.
The published monthly average means (a) Moody's Corporate Bond Yield Average
Monthly Average Corporates, as published by Moody's Investors Service, Inc. or
any successor 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 your Policy is delivered.
Your interest payments are due at the end of each Policy year and if you don't
pay the amount within 31 days after it is due, we will treat it as a new Policy
loan, which will be taken from the Fixed Account and the investment divisions by
the same method as other loans.
Repaying your loans (plus accrued interest) is done by sending in payments at
least equal to $25. You should designate whether a payment is intended as a loan
repayment or a premium payment, since we will treat any payment for which no
designation is made as a premium payment. We will allocate your repayment to the
Fixed Account and the investment divisions, in the same proportion that net
premiums are then allocated, except that amounts borrowed from the Fixed Account
will be repaid to the Fixed Account first.
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. We will terminate your Policy with no value if: (a)
on a monthly anniversary your loans (plus accrued interest) exceed your cash
value minus the monthly deduction; and (b) we tell you of the insufficiency
and you do not make a sufficient payment within 61 days of the monthly
anniversary.
- - Your Policy's death benefit will be reduced by any unpaid loan (plus accrued
interest).
SURRENDER AND WITHDRAWAL PRIVILEGES
(SIDEBAR)
YOU CAN SURRENDER YOUR POLICY FOR ITS CASH SURRENDER VALUE.
(END SIDEBAR)
We may ask you to return the Policy before we honor your request to surrender
your Policy. You can choose to have the proceeds paid in a single sum, or under
an income plan. If the insured dies after you surrender the Policy but before
the end of the Policy month in which you surrendered the Policy, we will pay
your beneficiary an amount equal to the difference between the Policy's death
benefit and its cash value, computed as of the surrender date.
You can make partial withdrawals if:
- - The withdrawal would not result in the cash surrender value being less than
sufficient to pay 2 monthly deductions.
- - The withdrawal is at least $250.
17
<PAGE>
- - The withdrawal would not result in total premiums paid exceeding any then
current maximum premium limitation determined by Internal Revenue Code Rules.
- - The withdrawal would not result in your specified face amount falling below
the minimum allowable amount after a decrease, as described under "Specified
Face Amount," above.
If you make a request for a partial withdrawal that is not permitted, we will
tell you and you may then ask for a smaller withdrawal or surrender the Policy.
We will deduct your withdrawal from the Fixed Account and the investment
divisions in the same proportion that the Policy's cash value in each such
option bears to the total cash value of the Policy in the Fixed Account and the
investment divisions.
Before surrendering your Policy 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, generally by the
amount of the withdrawal. For Option A Policies, your specified face amount
will also decrease, generally by the amount of the withdrawal.
- - In some cases you may be better off taking a Policy loan, rather than a
partial withdrawal.
EXCHANGE PRIVILEGE
If you decide that you no longer want to take advantage of the investment
divisions in the Separate Account, you may transfer all of your money into the
Fixed Account. No charge will be imposed on a transfer of your entire cash value
(or the cash value attributable to a specified face amount increase) to the
Fixed Account within the first 24 Policy months (or within 24 Policy months
after a specified face amount increase you have requested, as applicable). In
some states, in order to exercise your exchange privilege, you must transfer,
without charge, the Policy cash value (or the portion attributable to a
specified face amount increase) to a flexible premium fixed benefit life
insurance policy, which we make available.
PAYMENT AND ALLOCATION OF PREMIUMS
PREMIUMS
The payment of premiums won't guarantee that your Policy will remain in force.
Rather, this depends on your Policy's cash surrender value.
PAYING PREMIUMS
(SIDEBAR)
YOU CAN MAKE VOLUNTARY PLANNED PERIODIC PREMIUM PAYMENTS AND UNSCHEDULED PREMIUM
(END SIDEBAR) PAYMENTS.
You can make premium payments, subject to certain limitations discussed below,
through the:
- - VOLUNTARY PLANNED PERIODIC PREMIUM SCHEDULE: You choose the schedule on your
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; or (c) through another method to which we
agree. After payment of the first planned periodic premium, you do not have to
pay premiums in accordance with your voluntary planned period premium
schedule.
18
<PAGE>
- - UNSCHEDULED PREMIUM PAYMENT OPTION: You can make premium payments at any
time.
MAXIMUM AND MINIMUM PREMIUM PAYMENTS
- - The first premium may not be less than the planned premium.
- - After the first Policy year, your voluntary planned periodic payments must be
at least $100, whether on an annual or semi-annual basis.
- - Unscheduled premium payments must be at least $100 each. We may change this
minimum amount on 90 days' notice to you.
- - You may not pay premiums that exceed tax law premium limitations for life
insurance policies. 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.
- - We reserve the right not to sell a Policy to any group or individual
associated with such group if the total amount of annual premium that is
expected to be paid in connection with all Policies sold to the group or
individuals associated with such group is less than $250,000.
- - We may require evidence of insurability for premium payments that cause the
alternate death benefit to exceed the death benefit then in effect under the
death benefit option chosen.
ALLOCATING NET PREMIUMS
(SIDEBAR)
NET PREMIUMS ARE YOUR PREMIUMS MINUS THE CHARGES DEDUCTED FROM YOUR PREMIUMS.
(END SIDEBAR)
Your allocations of net premiums to the Fixed Account are effective as of the
Investment Start Date. Your allocations of net premiums to the investment
divisions of the Separate Account are effective as of the end of the free look
period. During the free look period, we allocate the net premium payments you
allocated to the investment divisions to the State Street Research Money Market
investment division. At the end of the free look period, we will then allocate
your cash value in that investment division among all the Separate Account
investment divisions according to your net premium allocation instructions in
your application.
You can instruct us to allocate your net premiums among the Fixed Account and
the investment divisions. The percentage of your net premium allocation into
each of these investment options must be in whole numbers. You can change your
allocations (effective after the end of the free look period) at any time by
giving us written notification at our Designated Office or in another manner
that we permit. If you have cash value of at least $60,000,000 in the Fixed
Account for all Policies you own, we will have to give prior approval to any
allocation of net premium or transfer of cash value to the Fixed Account.
Over the lifetime of your Policy, we may restrict you to allocating net premiums
and cash value to a maximum of 17 investment divisions of the Separate Account
(including the State Street Research Money Market Division) plus allocations to
the Fixed Account, if any. Once you reach the limit, you may re-allocate cash
value and net premiums among the 17 selected investment divisions, but you may
not allocate net premiums or cash value to any additional investment divisions.
We reserve the right to eliminate this restriction at any time.
19
<PAGE>
POLICY TERMINATION AND REINSTATEMENT
TERMINATION: We will terminate your Policy without any cash surrender value if:
- - The cash surrender value is less than the monthly deduction;
- - We do not receive a sufficient premium payment within the 61-day grace period
to cover the monthly deduction. We will mail you notice if any grace period
starts.
REINSTATEMENT: Upon your request, we will reinstate your Policy (without
reinstating any amounts in a Policy loan account), subject to certain terms and
conditions that the Policy provides. We must receive your request within 3 years
(or within a longer period if required by state law) after the end of the grace
period and before the Final Date. You also must provide us:
- - A written application for reinstatement (the date we approve the application
will be the effective date of the reinstatement).
- - Evidence of insurability that we find satisfactory.
- - An additional premium amount that the Policy prescribes for this purpose.
CHARGES AND DEDUCTIONS
(SIDEBAR)
CAREFULLY REVIEW THE "TABLE OF CHARGES AND EXPENSES" IN THE "SUMMARY" WHICH SETS
(END SIDEBAR) FORTH THE CHARGES THAT YOU PAY UNDER YOUR POLICY.
The Policy charges compensate us for our expenses and risks. 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
Policy charges.
ANNUAL TARGET PREMIUM: We use the concept of annual target premium to determine
certain limits on sales and administrative charges under the Policy. We define
the annual target premium to be:
- - For Policies issued prior to May 1, 1996 or issued in connection with large
groups, 50% of the estimated annual amount which satisfied the 7-Pay test
under federal tax law based on the issue age of the insured and the initial
specified face amount. (See "Modified Endowment Contracts" under "Federal Tax
Matters.")
- - For all other Policies, 100% of the estimated annual amount that satisfied the
7-Pay test based on the issue age of the insured, the specified face amount of
insurance and standard underwriting class. For such Policies, the annual
target premium amount is increased and decreased proportionately for increases
and decreases in the specified face amount of the Policy.
ADMINISTRATIVE CHARGE: We make this charge primarily to compensate us for
expenses we incur in the administration of the Policy, including our
underwriting and start-up expenses.
CHARGE FOR AVERAGE EXPECTED STATE TAXES ATTRIBUTABLE TO PREMIUMS: We make this
charge 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 allocate the monthly deduction
(except for the monthly mortality and expense risk charge) among the Fixed
Account and each investment division of the Separate Account in the same
proportion as the Policy's cash value in each such option bears to
20
<PAGE>
the total cash value of the Policy in the Fixed Account and the investment
divisions. We deduct the monthly deductions as of each monthly anniversary,
commencing with the Date of Policy.
- - COST OF TERM INSURANCE: This charge varies monthly based on many factors.
Each month, we determine the charge by multiplying your cost of insurance
rates by the term insurance amount.
- The term insurance amount is the death benefit at the beginning of the
Policy month divided by a discount factor to account for an assumed return;
minus the cash value at the beginning of the Policy month after deduction of
all other applicable charges. Factors that affect the term insurance amount
include the specified face amount, the cash value and the death benefit
option you choose (generally, the term insurance amount will be higher for
Options B and C).
- The term insurance rate is based on our expectations as to future
experience, taking into account the insured's sex (if permitted by law),
age, underwriting class and rate class. The rates will never exceed the
guaranteed rates, which are based on certain 1980 Commissioners Standard
Ordinary Mortality Tables and the insured's sex and age. Our current rates
are lower than the maximums in most cases. We review our rates periodically
and may adjust them, but we will apply the same rates to everyone who has
had their Policy for the same amount of time and who is the same age, sex
and rate class. As a general rule, the cost of insurance rate increases each
year you own your Policy, 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
(and if the insured is 20 or older, we may divide rate class by smoking
status). The insured's rate class will affect your cost of term insurance.
You can also have more than one rate class in effect, if the insured's
rate class has changed and you change your specified face amount. A better
rate class will lower the cost of term insurance on your entire Policy and
a worse rate class will affect the portion of your cost of term insurance
charge attributable to the specified face amount increase.
- - MORTALITY AND EXPENSE RISK CHARGE: We make this monthly charge primarily to
compensate us for:
- 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. This monthly charge is
allocated proportionately to the cash value in each investment division of
the Separate Account.
VARIATIONS IN CHARGES: We may vary a charge by group, based on anticipated
variations in our costs or risks associated with the group or individuals in the
group that the charge was intended to cover. Our variations in the charges will
be made in accordance with our established and uniformly applied administrative
procedures. We consider a variety of factors in determining charges, including
but not limited to:
- - The nature of the group and its organizational framework
- - The method by which sales will be made to the individuals associated with the
group
- - The facility by which premiums will be paid
- - The group's capabilities with respect to administrative tasks
- - Our anticipated persistency of the Policies
21
<PAGE>
- - The size of the group and the number or years it has been in existence
- - The aggregate amount of premiums we expect to be paid on the Policies owned by
the group or by individuals associated with the group
Any variations in charges will be reasonable and will not be unfairly
discriminatory to the interests of any Policy owner.
FEDERAL TAX MATTERS
(SIDEBAR)
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR TO FIND OUT HOW TAXES CAN AFFECT
(END SIDEBAR) YOUR BENEFITS AND RIGHTS UNDER YOUR POLICY.
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 your specified face amount, change your
death benefit option, change coverage provided by riders, take a loan or
withdrawal, or assign or surrender the Policy.
THE POLICY
INSURANCE PROCEEDS
- - Generally excludable from your beneficiary's gross income.
- - The proceeds may be subject to federal estate tax: (i) if paid to the
insured's estate; or (ii) if paid to a different beneficiary if the insured
possessed incidents of ownership at or within three years before death.
- - If you die before the insured, the value of your Policy (determined under IRS
rules) is included in your estate and may be subject to federal estate tax.
- - Whether or not any federal estate tax is due is based on a number of factors
including the estate size.
CASH VALUE (IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT)
- - You are generally not taxed on your cash value until you withdraw it,
surrender your Policy or receive a distribution 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.
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.
22
<PAGE>
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, exceed 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 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
made over life expectancy.
DIVERSIFICATION
In order for your Policy to qualify as life insurance, we must comply with
certain diversification standards with respect to the investments underlying the
Policy. We believe that we satisfy and will continue to satisfy these
diversification standards. Inadvertent failure to meet these standards may be
able to be corrected. Failure to meet these standards would result in immediate
taxation to Policy owners of gains under their Policies.
CHANGES TO TAX RULES AND INTERPRETATIONS
Changes in applicable tax rules and interpretations can adversely affect the tax
treatment of your Policy. These changes may take effect retroactively. We
reserve the right to amend the Policy in any way necessary to avoid any adverse
tax treatment. Examples of changes that could create adverse tax consequences
include:
- - Possible taxation of cash value transfers.
- - Possible taxation as if you were the owner of your allocable portion of the
Separate Account's assets.
- - Possible limits on the number of investment funds available or the frequency
of transfers among them.
- - Possible changes in the tax treatment of Policy benefits and rights.
OUR TAXATION
We don't expect to incur federal, state or local taxes upon the earnings or
realized capital gains attributable to the Separate Account. If we do incur
federal, state or local taxes at some time in the future, we reserve the right
to charge cash value allocated to the Separate Account for these taxes.
23
<PAGE>
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 divisions 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 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 a Fund or another fund or investment permitted by law.
- - Changing the way we assess charges without exceeding the aggregate amount of
the Policy's guaranteed maximum charges.
- - Making any necessary technical changes to the Policy to conform it to the
changes we have made.
OTHER POLICY PROVISIONS
(SIDEBAR)
CAREFULLY REVIEW YOUR POLICY WHICH CONTAINS A FULL DISCUSSION OF ALL ITS
PROVISIONS.
(END SIDEBAR)
You should read your Policy for a full discussion of its 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 specified period); and
- - the date we receive a receipt signed by you.
If you return your Policy, we will send you a complete refund of any premiums
paid within seven days.
24
<PAGE>
INCONTESTABILITY
We will not contest:
- - Your Policy after 2 Policy years from issue or reinstatement (excluding riders
added later).
- - An increase in a death benefit after it has been in effect for two years.
SUICIDE
If the insured commits suicide within the first two Policy years (or another
period required by state law), your beneficiary will receive all premiums paid
(without interest), less any outstanding loans (plus accrued interest) and
withdrawals taken. Similarly, we will pay the beneficiary only the cost of any
increase in specified face amount if the insured commits suicide within two
years of such increase.
AGE AND SEX
We will adjust benefits to reflect the correct age and sex of the insured, if
this information isn't correct in the Policy application.
ASSIGNMENT
You can assign your Policy as collateral if you notify us in writing. The
assignment or release of the assignment is 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
(SIDEBAR)
UNDER CERTAIN SITUATIONS, WE MAY DEFER PAYMENTS.
(END SIDEBAR)
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 a Policy.
- - The Securities and Exchange Commission by order permits us to do so for the
protection of Policy owners (provided that the delay is permitted under New
York State insurance law and regulations).
- - With respect to the insurance proceeds, if 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 4% per year (or
higher if state law requires) from the date of death until the date we pay the
benefit.
DIVIDENDS
The Policy is "nonparticipating," which means it is not eligible for dividends
from us and does not share in any distributions of our surplus.
25
<PAGE>
SALES AND ADMINISTRATION OF THE POLICIES
(SIDEBAR) WE PERFORM THE SALES AND ADMINISTRATIVE SERVICES FOR THE POLICIES.
(END SIDEBAR)
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.
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.
DISTRIBUTING THE POLICIES
We sell the Policies through licensed life insurance sales representatives:
- - Registered through us.
- - Registered through other broker-dealers, including a wholly owned subsidiary.
COMMISSIONS
We may pay commissions to representatives (or the broker-dealers through which
they are registered) for the sale of our products. The commissions do not result
in a charge against the Policy in addition to the charges already described
elsewhere in this Prospectus. We paid no commissions in 1996 or 1997.
Commissions paid in 1998 totaled $2,463,084. Maximum commissions are generally:
- - POLICY YEARS 1-10:
10% of premiums paid up to the target premium
3% of premiums paid above the target premium
- - POLICY YEARS 11 AND LATER: 3% of premiums paid.
- - POLICY YEARS 8 AND LATER: We may pay up to .15% of the cash value of a Policy
and administrative expenses in certain circumstances.
VOTING RIGHTS
(SIDEBAR)
YOU CAN GIVE US VOTING INSTRUCTIONS ON SHARES OF EACH PORTFOLIO OF A FUND THAT
(END SIDEBAR) ARE ATTRIBUTED TO YOUR POLICY.
The Funds have 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 a Fund.
26
<PAGE>
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
Policy 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 Policy's 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 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 such as:
- - Change in specified face amount.
- - Change in death benefit options.
- - Transfers among investment divisions (including those through Systematic
Investment Strategies, which are confirmed quarterly).
- - Partial withdrawals.
- - Loan amounts you request.
- - Loan repayments and premium payments.
If your premium payments are made through a systematic payment method, we will
not send you any confirmation in addition to the one you receive from your
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 and cash surrender values.
- - Amounts in the investment divisions and Fixed Account.
- - Status of Policy loans.
- - Automatic loans to pay interest.
- - Information on your modified endowment contract status (if applicable).
We will also send you a Fund's annual and semi-annual reports to shareholders.
27
<PAGE>
ILLUSTRATION OF POLICY BENEFITS
(SIDEBAR)
PERSONALIZED ILLUSTRATIONS CAN HELP YOU UNDERSTAND HOW YOUR POLICY VALUES CAN
(END SIDEBAR) VARY.
In order to help you understand how your Policy 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
specified face amount, death benefit option, 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 Policy
for approval in every jurisdiction in which the Policy is sold. The Policy may
not be available in every jurisdiction. You should ask your sales representative
whether the Policy is available in your jurisdiction.
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.
Rocco A. Mariano, Jr., FSA, MAAA, Assistant Vice-President and Actuary of
MetLife, has examined actuarial matters included in the registration statement,
as stated in his opinion filed as an exhibit to the registration statement.
28
<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 Chief Chairman of the Board,
Executive Officer President, Chief Executive
Metropolitan Life Insurance Company Officer and Director
One Madison Ave.
New York, NY 10010
Gerald Clark Vice Chairman of the Board and Chief Investment Vice Chairman of the Board,
Officer Chief Investment Officer and
Metropolitan Life Insurance Company Director
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 and Director Director
Corning Incorporated
80 East Market Street, 2nd Floor
Corning, NY 14830
Harry P. Kamen Chairman and Chief Executive Officer (Retired) Director
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 Chief Executive Director
Officer
Mobil Corporation
375 Park Ave., Suite 2901
New York, NY 10163
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH METLIFE
<S> <C> <C>
Stewart Nagler Vice Chairman of the Board and Chief Financial Vice Chairman of the Board and
Officer Chief Financial Officer and
Metropolitan Life Insurance Company Director
One Madison Avenue
New York, NY 10010
John J. Phelan, Jr. Retired Chairman and Chief Executive Officer Director
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, President and Chief Director
Executive Officer
Metropolitan Life Insurance Company
200 Park Ave., Suite 5700
New York, NY 10166
Ruth J. Simmons, Ph.D. President Smith College Director
College Hall 20
Northhampton, MA 01063
William C. Steere, Jr. Chairman of the Board and Chief Executive Officer Director
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
<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
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE
<S> <C>
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 American Express Company. Robert H. Benmosche has
been an officer of Metropolitan Life since September, 1995; prior thereto, he
was an Executive Vice-President of Paine Webber. 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. Jon F. Danski has been an officer of Metropolitan Life since March 25,
1998; prior thereto, he was Senior Vice-President, Controller and General
Auditor at ITT Corporation. The business address of each officer is 1 Madison
Avenue, New York, New York 10010.
31
<PAGE>
FINANCIAL STATEMENTS
(The balance of this page has been left blank intentionally.)
32
<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>
METLIFE-Registered Trademark-
1900002349(0499)Printed in U.S.A. 99042XJC(exp0500)MLIC-LD
<PAGE>
PART II
REPRESENTATION WITH RESPECT TO FEES AND CHARGES
Metropolitan Life represents that the fees and charges deducted under the
Policies offered and sold pursuant to this amended Registration Statement, in
the aggregate, are reasonable in relation to the services rendered, the expenses
to be incurred, and the risks assumed by Metropolitan Life under the Policies.
Metropolitan Life bases its representation on its assessment of all of the facts
and circumstances, including such relevant factors as: the nature and extent of
such services, expenses and risks, the need for Metropolitan Life to earn a
profit, the degree to which the Policies include innovative features, and
regulatory standards for exemptive relief under the Investment Company Act of
1940 used prior to October 1996, including the range of industry practice. This
representation applies to all policies issued pursuant this Registration
Statement, including those sold on the terms specifically described in the
prospectus contained herein, or any variations therein based on supplements,
amendments, endorsements or other riders to such policies or prospectus, or
otherwise.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Table.
The Prospectus, consisting of 83 pages.
Undertaking to File Reports as filed with the initial filing of this
Registration Statement on January 22, 1993.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933
as filed with the initial filing of this Registration Statement on
January 22, 1993.
Representation With Respect To Fees And Charges as Filed herewith.
The signatures.
Written Consents of the following persons:
Rocco A. Mariano, Jr. (filed with Exhibit 6 below).
Freedman, Levy, Kroll & Simonds as filed with the initial filing of
this Registration Statement on January 22, 1993.
Deloitte & Touche LLP
The following exhibits:
<TABLE>
<S> <C> <C> <C> <C> <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) Specimen Flexible Premium Variable Life Insurance Policy................................. *
-- (b) Alternate pages required by State Law.................................................... *
-- (c) Endorsement for calculation of minimum death benefit using the Cash Value Accumulation
test......................................................................................... *
-- (d) Accelerated Death Benefit and Zero Cost Loan riders...................................... *
-- (e) Yearly Renewable Term rider.............................................................. +++++
-- (f) Refund of sales load rider............................................................... +++++
-- (g) Amended Policy Specifications Page indicating alternate premium expense charges.......... +++++
-- (h) (1) Participation Agreements with Invesco and Janus...................................... +
(2) Form of Participation Agreement with Templeton....................................... +
-- (i) Form of personalized illustration........................................................ +
(6) -- (a) Charter and By-Laws of Metropolitan Life................................................. ++
-- (b) Amendment to By-laws..................................................................... ++
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(7) -- Not Applicable
(8) -- Not Applicable
(9) -- Not Applicable
(10) -- (a) Amended Application Forms for Policy and Form of Receipt
(including State variations)................................................................. *
3. -- Opinion and consent of Counsel as to the legality of the securities being registered......... +++++
4. -- Not Applicable
5. -- See Exhibit 27 below.
6. -- Opinion and consent of Rocco A. Mariano, Jr., relating to the Policies....................... +
7. -- Not Applicable
8. -- Powers of Attorney........................................................................... ++++
11. -- Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)........... *
27. -- Financial Data Schedule (not applicable)
</TABLE>
- ------------------------
+ Filed herewith.
++ Included in the filing of Post-Effective Amendment No. 4 to this
Registration Statement on March 1, 1996.
+++ Incorporated by reference from "Distribution of the Policies" in the
Prospectus included herein.
++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5
to the Registration Statement of Separate Account UL (File No. 33-47927)
on April 30, 1997, except for Robert H. Benmosche's power of attorney,
which is incorporated by reference to the Registration Statement of
Separate Account UL (File No. 333-40161) filed on November 13, 1997,
Stewart G. Nagler's power of attorney, which is incorporated by reference
to the filing of Post-Effective Amendment No. 6 to the Registration
Statement of Separate Account UL (File No. 33-47927) on December 23,
1997, Jon F. Danski's power of attorney which is incorporated by
reference to the filing of Pre-Effective Amendment No. 1 to the
Registration Statement of Separate Account UL (File No. 333-40161) on
April 2, 1998 and William C. Steere, Jr.'s power of attorney which is
filed herewith.
+++++ Included in the filing of Post-Effective Amendment No. 5 to this
Registration Statement on April 26, 1996.
* Included in the filing of Post-Effective Amendment No. 6 to this
Registration Statement on April 30, 1997.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, METROPOLITAN
LIFE INSURANCE COMPANY certifies that it meets all of the requirements for
effectness of this amended Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this amended Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
New York, State of New York, this 23rd day of April, 1999.
<TABLE>
<S> <C>
Metropolitan Life Insurance Company
(Seal)
By: /s/ GARY A. BELLER
--------------------------------------
Gary A. Beller
Senior Executive Vice-President &
General Counsel
Attest: /s/ CHERYL D. MARTINO
--------------------------------------
Cheryl D. Martino
Assistant Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- -------------------
<C> <C> <S> <C>
Chairman, President, and
* Chief Executive Officer
------------------------------------------- and Director (Principal
Robert H. Benmosche Executive Officer)
* Vice-Chairman of the Board
------------------------------------------- and Chief Investment
Gerald Clark Officer and Director
Vice-Chairman of the Board
* and Chief Financial
------------------------------------------- Officer (Principal
Stewart G. Nagler Financial Officer)
* Senior Vice-President and
------------------------------------------- Controller (Principal
Jon F. Danski Accounting Officer)
*
------------------------------------------- Director
Curtis H. Barnette
*
------------------------------------------- Director
Joan Ganz Cooney
*
------------------------------------------- Director
Burton A. Dole, Jr.
*By /s/ CHRISTOPHER P. NICHOLAS
---------------------------------------
Christopher P. Nicholas, Esq.
Attorney-in-fact
April 23, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- -------------------
<C> <C> <S> <C>
*
------------------------------------------- Director
James R. Houghton
* Chairman and Chief
------------------------------------------- Executive Officer
Harry P. Kamen (Retired) and Director
*
------------------------------------------- Director
Helene L. Kaplan
*
------------------------------------------- Director
Charles M. Leighton
*
------------------------------------------- Director
Allen E. Murray
*
------------------------------------------- Director
John J. Phelan, Jr.
*
------------------------------------------- Director
Hugh B. Price
*
------------------------------------------- Director
Robert G. Schwartz
*
------------------------------------------- Director
Ruth J. Simmons, Ph.D
*
------------------------------------------- Director
William C. Steere
*By /s/ CHRISTOPHER P. NICHOLAS
--------------------------------------- April 23, 1999
Christopher P. Nicholas, Esq.
Attorney-in-fact
</TABLE>
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
METROPOLITAN LIFE SEPARATE ACCOUNT UL, certifies that it meets all of the
requirements for effectiveness of this amended Registration Statement pursuant
to Rule 485(b) and has duly caused this amended Registration Statement to be
signed, on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of New York, State of New
York this 23rd day of April 1999.
Metropolitan Life Separate Account UL
(Registrant)
By: Metropolitan Life Insurance Company
(Depositor)
(Seal)
By: /s/ GARY A. BELLER, ESQ.
---------------------------------------
Senior Executive Vice-President and
General Counsel
Attest: /s/ 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. 8 to the
Registration Statement No. 33-57320 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.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
New York, New York
April 23, 1999
II-6
<PAGE>
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
INVESCO DISTRIBUTORS, INC.
and
METROPOLITAN LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 17 day of, August, 1998 by and
among METROPOLITAN LIFE INSURANCE COMPANY, (hereinafter the "Insurance
Company"), a New York corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a Maryland
corporation (the "Company"), INVESCO DISTRIBUTORS, INC., a Delaware corporation
("Distributors"), and INVESCO FUNDS GROUP, INC. ("INVESCO"), a Delaware
corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into or will enter into
and maintain participation agreements substantially identical to this Agreement
("Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities; and
WHEREAS, Distributors is duly registered as a broker dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Insurance Company has registered interests in the separate
account under the 1933 Act, or will register such interests under the 1933 Act,
as identified in Schedule B attached hereto, which may be amended from time to
time; and
1
<PAGE>
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and Distributors is authorized to
sell such shares to unit investment trusts such as the Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company, Distributors, and INVESCO agree as follows:
ARTICLE I. SALE OF COMPANY SHARES
1.1 Distributors agrees to sell to the Insurance Company those shares of
the Company which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Company or its designee
of the order for the shares of the Company. For purposes of this Section 1.1,
the Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts that correspond to Contract transactions that are not
within the Insurance Company's discretion and receipt by such designee shall
constitute receipt by the Company; provided that the Company receives notice of
such order by 8:00 a.m., Mountain Time, on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Company calculates its net asset value pursuant to
the rules of the Commission.
1.2 The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund. When
practicable, the Company will provide Insurance Company with thirty (30) days
written notice of its intention to refuse to sell Company shares pursuant to
this Agreement.
2
<PAGE>
1.3. The Company and Distributors agree that shares of the Company will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Fund will be sold to the general public.
1.4. The Company and Distributors will not sell Company shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 2.4, 3.4, 3.5, 4.2, 4.6 and 8.1 and
Article VII of this Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account that correspond
to Contract transactions that are not within the Insurance Company's discretion
and receipt by that designee shall constitute receipt by the Company; provided
that the Company receives notice of the request for redemption by 8:00 a.m.,
Mountain Time, on the next following Business Day.
1.6. (a) The Insurance Company shall pay for Company shares by 9:00
a.m., Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon transmission by Insurance Company of the federal funds so wired,
such funds shall cease to be the responsibility of the Insurance Company and
shall become the responsibility of the Company.
(b) Payment of aggregate redemption proceeds (aggregate redemptions
of a Fund's shares by an Account) of less than $1 million for a given Business
Day will be made by wiring federal funds to the Insurance Company on the next
Business Day after receipt of the redemption request. Payment of aggregate
redemption proceeds of $1 million or more will be by wiring federal funds within
seven days after receipt of the redemption request. Notwithstanding the
foregoing, in the event that one or more Funds has insufficient cash on hand to
pay aggregate redemptions on the next Business Day, and if such Fund has
determined to settle redemption transactions for all of its shareholders on a
delayed basis (more than one Business Day, but in no event more than seven
calendar days, after the date on which the redemption order is received, unless
otherwise permitted by an order of the Commission under Section 22(e) of the
1940 Act), the Company shall be permitted to delay sending redemption proceeds
to the Insurance Company by the same number of days that the Company is delaying
sending redemption proceeds to the other shareholders of the Fund.
3
<PAGE>
(c) Redemptions of up to the lesser of $250,000 or 1% of the net
asset value of the Fund whose shares are to be redeemed in any 90-day period
will be made in cash. Redemptions in excess of that amount in any 90-day period
may, in the sole discretion of the Company, be in-kind redemptions, with the
securities to be delivered in payment of redemptions selected by the Company and
valued at the value assigned to them in computing the Fund's net asset value per
share.
(d) The Company anticipates making delayed-settlement redemptions or
in-kind redemptions, pursuant to Paragraphs 1.6(b) and 1.6(c), only in
circumstances where extraordinary market conditions, or the size of the
redemption relative to the size of a given Fund, will work to the detriment of
remaining shareholders if made immediately, in cash. INVESCO and Company agree
to consult with Insurance Company, in good faith, to determine a plan for the
orderly disposition of assets to meet redemption requests from contract owners
prior to invoking the provisions of Paragraphs 1.6(b) and 1.6(c), None of the
foregoing provisions shall diminish the Company's rights under the Investment
Company Act of 1940.
1.7. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.8. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.9. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis, in accordance with mutually
agreed upon guidelines for electronic transmission, as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 6:00 p.m.,
Mountain Time.
1.10. INVESCO represents and warrants that any sale or redemption by a
participating Insurance Company of the Company's shares that does not
correspond to Contract transactions that are outside that Participating
Insurance Company's discretion, will receive the next net asset value
computed after actual receipt by the Company of the order for such sale or
redemption of and that the Participating Insurance Company shall not be
deemed to be the Company's designee with respect to such discretionary orders.
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ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Insurance Company represents and warrants that interests in the
Separate Account funding the Contracts are, or will be, registered under the
1933 Act; that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall comply in all material respects with applicable state
insurance suitability requirements. The Insurance Company further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under
Section 4240 of the New York Insurance Code and has registered, or prior to any
issuance or sale of the Contracts will register, the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with all applicable State and federal
securities laws and that the Company is and shall remain registered under the
1940 Act. The Company shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Company shall register and
qualify the shares for sale in accordance with all applicable state and federal
laws.
2.3. The Company represents and warrants that it is currently qualified as
a Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended, (the "Code") and that it will maintain that qualification
(under Subchapter M or any successor or similar provision) and that it will
notify the Insurance Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as [annuity / life insurance / endowment / modified endowment]
contracts, under applicable provisions of the Code and that it will make
commercially reasonable efforts to maintain such treatment and that it will
notify the Company and INVESCO upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so treated
in the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future provided however that in such
event, the Company will provide 60 days prior written notice thereof to the
Insurance Company. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Company undertakes to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
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2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states,
except to the extent that any such aspect is subject to insurance laws and
regulations.
2.7. INVESCO Distributors, Inc. represents and warrants that it is a
member in good standing of the NASD and is registered as a broker-dealer with
the Commission. INVESCO Distributors, Inc. further represents and warrants that
it will sell and distribute the Company shares in accordance with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Company represents and warrants that it is lawfully organized
and validly existing under the laws of the State of Maryland and that it does
and will comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Company in compliance in all material
respects with the laws of the State of Colorado and all applicable state and
federal laws; and that all Participating Insurance Companies have entered into
or will enter into and continue to be subject to participation agreements
containing provisions substantially identical to Sections 2.1, 2.4, 3.4, 3.5,
4.2, 4.6 and 8.1 and Article VII of this Agreement.
2.10. The Company, Distributors, and INVESCO represent and warrant that
all of their officers, employees, investment advisers, investment sub-advisers,
and other individuals or entities dealing with the money and/or securities of
the Company are, and shall continue to be at all times, covered by a blanket
fidelity bond or similar coverage for the benefit of the Company in an amount
not less than the minimum coverage required currently by Section 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. That
fidelity bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers and other individuals that are so required by Rule 17g-1 of the 1940
Act are and shall continue to be at all times covered by a blanket fidelity bond
or similar coverage in an amount not less than the minimum coverage required
currently for entities subject to the requirements of Rule 17g-1 of the 1940 Act
or related provisions or may be promulgated from time to time. The Insurance
Company further represents and warrants that the employees of Insurance Company,
or such other persons designated by Insurance Company, listed on Schedule C have
been authorized by all necessary action of Insurance Company to give directions,
instructions and certifications to the Company and INVESCO on behalf of
Insurance Company. The Company and INVESCO are authorized to act and rely upon
any directions, instructions and certifications received from such persons
unless and until they have been notified in writing by the Insurance Company of
a change in such persons, and the Company and INVESCO shall incur no liability
in doing so.
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2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
2.13 The Company represents that it has obtained an order from the
Securities and Exchange Commission (the "Commission"), dated December 29, 1993
(File No. 812-8590), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a),
and 15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act")
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Company to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (the "Mixed and Shared Funding
Exemptive Order"); and
2.14. INVESCO represents and warrants that the investment advisory or
management fees paid to INVESCO by the Company are legitimate and not excessive
and are derived from an advisory contract which does not result in a breach of
fiduciary duty.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 At least 5 business days prior to the legally required distribution
dates, INVESCO shall provide Insurance Company with the following documents on
diskette (post-script format), and such other formats as Insurance Company shall
reasonably request. Insurance Company will be responsible for distributing the
documents to its contract owner.
a. Alternate forms of prospectus for each funding option or any combination of
funding options that Insurance Company is offering and that is reasonably
requested by Insurance Company.
b. Periodic financial reports for the Company.
The Company and INVESCO agree that they will cooperate with the Insurance
Company to make the Prospectuses of the Funds available to Insurance Company in
a format which will facilitate making the Prospectuses available to contract
holders and prospects on the internet. (E.g. in HTML or PDF file formats). The
Insurance Company will be familiar with all federal, state, and SRO rules and
regulations concerning: the electronic offer and sale of securities; and the
electronic distribution of advertising and sales literature, and will conform
its material and procedures to these rules and regulations, in the event that
these means are used by the Insurance Company with respect to any offer or sale
of the Company's shares.
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the company), at its expense shall print the SAI
free of charge to the Insurance Company and to any owner of a Contract or
prospective owner who requests the SAI.
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3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, voting instruction material as required under
Section 3.4, reports to stockholders and other communications to stockholders in
such quantity as the Insurance Company shall reasonably require for distributing
to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners in each Account; and
(iii) vote Company shares in each Account, for which no instructions
have been received in the same proportion as Company shares of
such Fund in that Account for which instructions have been
received:
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order as described in this
paragraph.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
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ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company represents and warrants that it is familiar
with all NASD requirements for the filing and review of investment company
advertising and sales literature. Insurance Company assumes all responsibility
for filing with the NASD of advertising and sales literature created by
Insurance Company pursuant to this Agreement. Insurance Company intends to
create, and provide to contract holders, monthly performance reports of
participating Funds. Insurance Company will initially provide a sample format
of these monthly performance reports to INVESCO for INVESCO's approval.
Thereafter, Insurance Company will be required to provide INVESCO with samples
of the monthly performance reports, for approval by INVESCO, only if the content
or format of the monthly performance reports changes substantially. Generally,
INVESCO and Insurance Company agree to good faith mutual cooperation in the
resolution of novel or controversial issues concerning advertising and sales
literature that may arise pursuant to this Agreement.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company and/or
its separate account(s), is named at least fifteen calendar days prior to its
use. No such material shall be used if the Insurance Company or its designee
reasonably object to such use within ten calendar days after receipt of that
material.
4.4. The Company, distributors, and INVESCO shall not give any information
or make any representations on behalf of the Insurance Company or concerning the
Insurance Company, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as that registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
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4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no action letter, and any amendment to any of the above, that
relates to use of the Company in the Contracts or the Account, contemporaneously
with the filing of the document with the Commission, the NASD, or other
regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (I.E., any communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all relevant records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all relevant
records pertaining to the performance of services under this Agreement pursuant
to the requirements of any state insurance regulator(s). However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
4.9. If the Fund provides incorrect share net asset value information,
the Insurance Company shall receive adjustment to the number of shares purchased
or redeemed to reflect the correct net asset value per share (and, if and to the
extent necessary, the Insurance Company shall make adjustments to the number of
units credited, and/or unit values for the Contracts for the periods affected).
In the event adjustments are required to correct any error in the computation of
the Company's net asset value per share, or dividend or capital gain
distribution, INVESCO or the Fund shall promptly notify the Insurance Company
after discovering the need for such adjustments. If an adjustment is necessary
to correct an error which has caused Contract owners to be credited with more
or less than the amount to which they are entitled, INVESCO shall make all
necessary
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adjustments to the number of shares owned by the Account and distribute to the
Account the amount of the underpayment. The Insurance Company will adjust the
number of units of each Contract owner and credit the appropriate amount of such
payment to each Contract owner. In no event shall the Insurance Company be
liable to Contract owners for any such adjustments or underpayments amounts,
provided that the underpayments was not caused by the Insurance Company. In no
event shall the Insurance Company be liable to the Fund or the Adviser for any
such adjustments or overpayment amounts, provided that the overpayment was not
caused by the Insurance Company. In the event that any known overpayments are
made to Contract owners, as a result of any such error, Insurance Company will
take commercially reasonable steps, within the constraints of state and federal
law, to recover overpaid amounts on behalf of the Fund, and promptly notify
INVESCO of the existence of the overpayment and the steps taken to attempt to
recover overpayment amounts. All of the Insurance Company's reasonable expenses
incident to any adjustments required hereunder (including any uncollected,
overpaid amounts) shall be borne by INVESCO, provided that the need for the
adjustment was not caused by the Insurance Company.
4.10. The Company shall send to the Insurance Company, (i) confirmations
of activity in the Separate Account within five (5) business days after each
date on which a purchase or redemptions of shares of the Company is effected for
the Account, and (ii) statements detailing activity in the Account no less
frequently than quarterly.
4.11. The Company and INVESCO shall provide the Insurance Company with any
information it reasonably requests from time to time, in connection with the
Insurance Company's performance of this Agreement, and reporting to management
and customers. This information will be provided by the Company or INVESCO
within five (5) days after receiving such requests from the Insurance Company.
ARTICLE V. FEES AND EXPENSES
5.1. In order to appropriately adjust the respective interest of INVESCO
and the Insurance Company (taking into consideration, among other things, the
services to be provided and the expenses and risks to be borne by each, as well
as the revenues and other benefits expected to accrue to each, directly or
indirectly as a result of this Agreement), INVESCO shall pay a fee to the
Insurance Company for services provided by Insurance Company under this
agreement, at the rate designated in Schedule E attached hereto. No such
payments shall be made by the Company. It is understood that the Insurance
Company may make prospectus disclosure of the amount of this compensation. The
parties to this Agreement recognize and agree that INVESCO's payments to the
Insurance Company are in consideration of administrative services provided by
Insurance Company to the Company only, and do not constitute payment in any
manner for administrative services provided by the Insurance Company to the
Accounts or to the Contracts, for investment advisory services or for costs of
distributions of Contracts or of shares of the Company, and that these payments
are not otherwise related to investment advisory or distributions services or
expenses.
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5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all
its shares are registered and authorized for issuance in accordance with any
applicable federal law and, in accordance with applicable state laws prior to
their sale. The Company shall bear the expenses for the cost of registration
and qualification of the Company's shares, preparation and filing of the
Company's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Company's shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
ARTICLE VI. DIVERSIFICATION
6.1. The Company represents, warrants and covenants that each Account may
"look through" to the investments of each Fund in which it holds shares in
accordance with the "look through" rules found in Treasury Regulation 1.817-5
and that each Fund will at all times, comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5 relating to the diversification requirements for
variable annuity, endowment, modified endowment or life insurance contracts and
any amendments or other modifications to that Section or Regulation. The
Company shall provide the Insurance Company with a certificate of compliance
with such diversification requirement for each fund within 20 days of the close
of each calendar quarter in substantially the form attached hereto as Schedule
F.
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ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The Board shall
immediately inform the Insurance Company in writing if it determines that an
irreconcilable material conflict exists and the implications thereof. The Board
shall have sole authority to determine whether an irreconcilable material
conflict exists and such determination shall be binding upon the Insurance
Company.
7.2 The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Insurance Company to inform the Board
whenever Contract owner voting instructions are to be disregarded. Such
responsibilities shall be carried out by Insurance Company with a view only to
the interests of the Contract owners.
7.3. If it is reasonably determined by a majority of the Board, or a
majority of its directors who are not interested persons of the Company,
INVESCO, or any sub-adviser to any of the Funds (the "Independent Directors"),
that a material irreconcilable conflict exists, the Insurance Company and/or
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the Independent
Directors), take commercially reasonable steps to remedy or eliminate the
irreconcilable material conflict, which may include (1), withdrawing the assets
allocable to some or all of the separate accounts from the Company or any Fund
and reinvesting those assets in a different investment medium, including (but
not limited to) another Fund of the Company, or submitting the question whether
such segregation should be implemented to a vote of all affected variable
contract owners and, as appropriate, segregating the assets of any appropriate
group (E.G., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected variable
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account and
obtaining approval thereof by the Commission.
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7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's reasonable election, to
withdraw the affected Account's investment in the Company and terminate this
Agreement with respect to that Account; provided, however that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as reasonably determined by a majority of the
Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Company gives written notice that this provision
is being implemented, and until the end of that six month period INVESCO and the
Company shall continue to accept and implement orders by the Insurance Company
in accordance with the terms of this Agreement for the purchase (and redemption)
of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the Board's reasonable determination and notice thereof to the Insurance Company
in writing that the state insurance regulator's decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Until the end of the foregoing six month period, INVESCO and the
Company shall continue to accept and implement orders by the Insurance Company
for the purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall reasonably determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Company be required to establish a new funding medium for the
Contracts. In the event that the Board reasonably determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Insurance Company will withdraw the Account's investment in the Company and
terminate this Agreement within six (6) months after the Board informs the
Insurance Company in writing of the foregoing determination, provided, however,
that the withdrawal and termination shall be limited to the extent required by
the material irreconcilable conflict, as reasonably determined by a majority of
the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b)
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Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue
in effect only to the extent that terms and conditions substantially identical
to those Sections are contained in the Rule(s) as so amended or adopted.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company), which consent
shall not be withheld for any settlement that would be commercially reasonable
for the indemnified Parties in the absence of this Section 8.1) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, holding , or
acquisition of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Company for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
shares of the Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Company
not supplied by the Insurance Company, or persons under its control)
or wrongful conduct of the Insurance Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Company Shares; or
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(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
or sales literature of the Company or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon, and in conformity with,
information furnished in writing to the Company by the Insurance
Company; or
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Insurance Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Insurance
Company shall be entitled to participate, at its own expense, in the defense of
the action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; PROVIDED,
HOWEVER, that if the Indemnified Party shall
17
<PAGE>
have reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the Insurance Company, the
Insurance Company shall not have the right to assume said defense, but shall pay
the costs and expenses thereof (except that in no event shall the Insurance
Company be liable for the fees and expenses of more than one counsel for
Indemnified Parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances). After notice from the Insurance Company to the
Indemnified Party of the Insurance Company's election to assume the defense
thereof, and in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Insurance Company will not be liable to that party under
this Agreement for any legal or other expenses subsequently incurred by the
party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Company's shares or the Contracts or the
operation of the Company.
8.2. INDEMNIFICATION BY INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors, officers and, contract owners, each person,
if any, who controls the Insurance Company within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
reasonable amounts paid in settlement with the written consent of INVESCO, which
consent shall not be withheld for any settlement that would be commercially
reasonable for the Indemnified Parties in the absence of this Section 8.2) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale, holding, or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Company (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if the statement
or omission or alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to INVESCO or
the Company by or on behalf of the
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<PAGE>
Insurance Company for use in the registration statement or prospectus
for the Company or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Company shares: or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by INVESCO or persons under its control) or
wrongful conduct of the Company, INVESCO or persons under their
control, with respect to the sale or distribution of the Contracts or
shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
in writing to the Insurance Company by or on behalf of INVESCO or the
Company;
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
without in any way limiting or restricting any other remedies
available to the Insurance Company, INVESCO will pay all costs
associated with, or arising out of any failure, or any anticipated or
reasonably foreseeable failure to comply with Section 6.1 hereof, and
all costs associated with correcting or responding to any such
failure, on behalf of Insurance Company or its contract owners; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this Agreement or
arise out of or result from any other material breach of this
Agreement by INVESCO; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
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<PAGE>
8.2(b) INVESCO shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c) INVESCO shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified INVESCO in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any
Indemnified Party to give notice as provided herein shall not relieve INVESCO of
its obligations hereunder except to the extent that INVESCO has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify INVESCO of any such claim shall not relieve INVESCO from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, INVESCO will be
entitled to participate, at its own expense, in the defense thereof. Unless the
Indemnified Party releases INVESCO from any further obligation under this
Section 8.2, INVESCO also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action; PROVIDED, HOWEVER, that
if the Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to INVESCO, INVESCO shall not have the right to assume said defense,
but shall pay the costs and expenses thereof (except that in no event shall
INVESCO be liable for the fees and expenses of more than one counsel for
Indemnified Parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances). After notice from INVESCO to the Indemnified
Party of INVESCO's election to assume the defense thereof, and in the absence of
such a reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and INVESCO will not be
liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation. Notwithstanding any other
provision of this Paragraph 8.2(c) the Insurance Company shall be entitled to
refuse any request by INVESCO to assume the defense of any action brought
against Insurance Company by the Internal Revenue Service ("IRS") or any other
tax authority, provided that following such refusal, INVESCO shall be released
from any further obligation for costs of defense under this section 8.2. If
they are so allowed by rules of procedure, however, INVESCO and Company will be
entitled to participate in the defense of any action brought against Insurance
Company by the IRS or any other tax authority, with any and all costs associated
with INVESCO's or the Company's defense to be the responsibility of INVESCO or
the Company.
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<PAGE>
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE COMPANY
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company, which consent shall not
be withheld for any settlement that would be commercially reasonable for the
Indemnified Parties in the absence of this Section 8.3) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as those losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith, willful misconduct, or
reckless disregard of duty of the Board , the directors, officers, employees, or
agents that are related to the operations of the Company and:
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent).
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<PAGE>
Notwithstanding the foregoing, the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Company of its obligations
hereunder except to the extent that the Company has been prejudiced by such
failure to give notice. In addition, any failure by the Indemnified Party to
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Company will be
entitled to participate, at its own expense, in the defense thereof. Unless the
Indemnified Party releases Company from any further obligation under this
Section 8.3, the Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action; PROVIDED, HOWEVER,
that if the Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Company, the Company shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except that in no event
shall the Company be liable for the fees and expenses of more than one counsel
for Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from the Company to the
Indemnified Party of the Company's election to assume the defense thereof, and
in the absence of such a reasonable conclusion that there may be different or
additional defenses available to the Indemnified Party, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by that party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
8.4 INVESCO Distributors, Inc., shall be jointly and severally liable for
all of INVESCO's obligations under this Article VIII.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
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<PAGE>
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six (6) months advance written
notice to the other parties; provided, however such notice shall not
be given earlier than one year following the date of this Agreement;
or
(b) at the option of the Insurance Company to the extent that shares
of Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided however,
that such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for
such cause shall be furnished by the Insurance Company; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or any
other comparable regulatory body regarding the Insurance Company's
duties under this Agreement, the operation of any Account, or the
purchase of the Company's shares, provided, however, that the Company
determines in its judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Insurance Company to perform its obligations under
this Agreement. Prompt written notice of election to terminate for
such cause shall be furnished by the Company to the Insurance Company;
or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or
INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other comparable regulatory body,
provided, however, that the Insurance Company determines in its
judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of
the Company or INVESCO to perform its obligations under this
Agreement. Prompt written notice of election to terminate for such
cause shall be furnished by Insurance Company to Company.; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the
Contracts for which those Fund shares had been selected to serve as
the underlying investment media. The Insurance Company will give at
least 30 days' prior written notice to the Company of the date of any
proposed vote to replace the Company's shares; or
23
<PAGE>
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such
law precludes the use of those shares as the underlying investment
media of the Contracts issued or to be issued by the Insurance
Company; or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the
Code or under any successor or similar provision, or if the Insurance
Company reasonably believes that the Company may fail to so qualify;
or
(h) at the option of the Insurance Company, if the Company fails to
meet the diversification requirements specified in Article VI hereof;
or
(i) at the option of either the Company or INVESCO, if (1) the
Company or INVESCO, respectively, shall determine, in their judgment
reasonably exercised in good faith, that the Insurance Company has
suffered a material adverse change in its business or financial
condition that will have a material adverse impact upon the business
and operations of either the Company or INVESCO, (2) the Company or
INVESCO shall notify the Insurance Company in writing of that
determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and any
other changes in circumstances since the giving of such a notice, the
determination of the Company or INVESCO shall continue to apply on the
sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its judgment reasonably exercised in good
faith, that either the Company or INVESCO has suffered a material
adverse change in its business or financial condition that will have a
material adverse impact upon the business and operations of the
Insurance Company, (2) the Insurance Company shall notify the Company
and INVESCO in writing of the determination and its intent to
terminate the Agreement, and (3) after considering the actions taken
by the Company and/or INVESCO and any other changes in circumstances
since the giving of such a notice, the determination shall continue to
apply on the sixtieth (60th) day following the giving of the notice,
which sixtieth day shall be the effective date of termination.
10.2 NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
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<PAGE>
(a) in the event that any termination is based upon the provisions of
Article VII, or the provisions of Section 10.1(a), 10.1(i), 10.1(j),
or 10.1(k) of this Agreement, the prior written notice shall be given
in advance of the effective date of termination as required by those
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.3. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to maintain their investments in the Company, to reallocate
investments in the Company, redeem investments in the Company and/or invest in
the Company upon the making of additional purchase payments under the Existing
Contracts and that all relevant provisions of this Agreement shall remain in
effect for those purposes (including any payments due to Insurance Company
pursuant to Section 5.1). The parties agree that this Section 10.3 shall not
apply to any terminations under Article VII and the effect of Article VII
terminations shall be governed by Article VII of this Agreement.
10.4. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, (ii) as permitted by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Permitted Redemption"), or (iii) as otherwise specified
in the insurance contract. Upon request, the Insurance Company will promptly
furnish to the Company and INVESCO the opinion of counsel for the Insurance
Company (which counsel shall be reasonably satisfactory to the Company and
INVESCO) to the effect that any redemption pursuant to clause (ii) above is a
Legally Permitted Redemption.
10.5. In the event of any termination of this Agreement pursuant to
this Article X or Article VII, the following provisions shall survive: Sections
4.9, 5.1 and 12.1 and Article VIII.
ARTICLE XI. NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
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If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company
Metropolitan Life Insurance
485-B Route 1 South, Suite 420
Iselin, NJ 08830
Attention: Mr. G. Denis Dwyer-Vice-President
With a copy to:
Metropolitan Life Insurance
1 Madison Avenue - Law Department
New York NY 10010
Attention: Ms. Robin Wagner
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement or as required by applicable law, shall not disclose, disseminate
or utilize such names and addresses and other confidential information without
the express written consent of the affected party unless and until that
information may come into the public domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
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<PAGE>
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its relevant books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written consent
of the others.
THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Insurance Company:
METROPOLITAN LIFE INSURANCE COMPANY
By its authorized officer,
By: John J. Ryan /s/ John J. Ryan Title: Vice-President
----------------------------
Date: August 13, 1998
-----------------
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: Ronald L. Grooms /s/ Ronald L. Grooms Title: Treasurer
------------------------
Date: August 18, 1998
-----------------
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: Glen A. Payne /s/ Glen A. Payne Title: Sr. Vice-President
----------------------
Date: August 17, 1998
-----------------
INVESCO DISTRIBUTORS, INC.
By its authorized officer,
By: Glen A. Payne /s/ Glen A. Payne Title: Sr. Vice-President
------------------------
Date: August 17, 1998
-----------------
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<PAGE>
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Insurance Company's Board which
Established the Account
Separate Account UL December 13, 1988
29
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form 7FV-93 Flexible Premium Variable Life Insurance Policy
(a.k.a. MetFlex-SM-)
30
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
As of August 17, 1998
NAME ADDRESS AND PHONE NUMBER
(1) G. Denis Dwyer, Vice-President 485-B Route One South, Iselin, NJ 08830
Print or Type Name
Phone: 732-602-6404
------------------------------------
Signature
(2) Michael Rogalski, Vice-President 485-B Route One South, Iselin, NJ 08830
& Actuary
Print or Type Name
Phone: 732-602-6420
------------------------------------
Signature
(3) Irene Baranello, Director 485-B Route One South, Iselin, NJ 08830
Print or Type Name
Phone: 732-602-6406
------------------------------------
Signature
It is understood that the above names are subject to change. Changes to this
schedule will be done in writing.
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Schedule D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time INVESCO will inform the Insurance Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contract owner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best
efforts to provide all required contract holder information to
INVESCO, as soon as possible, but no later than one week after
the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Company. The Company or INVESCO
, at its expense, shall produce and personalize the Voting Instruction
cards. The Legal Department of INVESCO ("INVESCO Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the Company).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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4. During this time, INVESCO Legal will develop, produce, and the Company will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance Company
for insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed
to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
6. Package mailed by the Insurance Company.
* The Company MUST allow at least a 15-day solicitation
time to the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but NOT including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
8. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," I.E.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
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<PAGE>
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of SHARES.) INVESCO Legal
must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provide a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
15. INVESCO will bear all costs associated with producing voting instruction
materials, whether such materials are produced by INVESCO or by Insurance
Company. Insurance Company will bear all costs associated with
distributing voting materials to contract holders, tabulating votes, and
archiving voting Cards, as described herein, whether such activities are
performed by Insurance Company or INVESCO.
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Schedule E
SERVICE FEE
In consideration of the administrative services performed by the Insurance
Company on behalf of INVESCO, INVESCO agrees to pay the Insurance Company a
fee ("Service Fee"). This fee will be computed daily and paid quarterly in
arrears, at an annual rate equal to XXXXXXXXX of the average quarterly value
of the shares of the Company held in the accounts, such payments to commence
with the first dollar of contribution or purchase of shares.
For purposes of this Schedule E, the average quarterly value of the shares of
the Company will be based on the sum of the daily net asset values of the Funds
(as calculated by the Funds) on each calendar day in a quarter divided by the
number of calendar days in the quarter. The applicable portion of the Service
Fee is payable within 15 business days following the end of each calendar
quarter.
The Insurance Company reserves the right to have the service fee paid in a
payment frequency other than quarterly. The Insurance Company will provide
INVESCO with reasonable notice thereof.
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Schedule F
CERTIFICATE OF COMPLIANCE
Name of Funds:
Variable Universal Life Insurance Policy
To:
G. Denis Dwyer
Vice President
Metropolitan Life Insurance Company
485-B Route One South, Suite 420
Iselin NJ 08830
We have reviewed compliance of the Fund(s) named above with respect to
certain investment diversification requirements for the Fund(s) for the quarter
ending ______________. The review was limited to verifying whether the Fund
complied with the quarterly diversification requirements described in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Section 817(h) Diversification Requirements").
The Review did not include testing compliance with any other investment
limitations in the prospectus or Statement of Additional Information of the
Fund(s).
As of ____________ the Fund was in compliance with the Section 817(h)
Diversification Requirements.
Dated:
--------------------
By:
--------------------
Name:
--------------------
Title:
--------------------
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JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 12th day of March, 1999, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION, a Colorado corporation
(the "Adviser"), and METROPOLITAN LIFE INSURANCE COMPANY, a life insurance
company organized under the laws of the State of New York (the "Company"), on
its own behalf and on behalf of each segregated asset account of the Company set
forth on Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Participating Plans") (the "Exemptive
Order"); and
WHEREAS, the Adviser serves as the Trust investment adviser; and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
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WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law in proper reliance on Section 3(c)(11) of
the 1940 Act) each Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
SALE OF TRUST SHARES
1.1 The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio, upon prior written notice to the Company, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
reasonable discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner reasonably established from time to time by the Trust, but in no event
shall payment be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments and
other transactions under the Contracts that are not within the Company's
discretion. Receipt by the Company shall constitute receipt by the Trust
provided that (i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and (ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
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1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be
made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.7 The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis in accordance with mutually agreed
upon guidelines for electronic transmission (which transmission will be by
electronic file) as soon as reasonably practical after the net asset value per
share is calculated and shall use its best efforts to make such net asset value
per share available by 6 p.m. New York time.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain Participating
Plans to the extent permitted by the Exemptive Order. No shares of any
Portfolio will be sold directly to the general public. The Company agrees that
Trust shares will be used only for the purposes of funding the Contracts and
Accounts listed in Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.8 and Article IV of
this Agreement.
1.10 The Trust and the Adviser agree that Trust shares will not be sold to
any Participating Insurance Company or Plan that owns more than 10% of the
outstanding shares of the Trust that has not entered into an agreement that
imposes on that purchaser substantially the same obligations as are imposed on
the Company by the following provisions of this Agreement: 1.8, 5.1, 6.2, 6.3.
ARTICLE II
OBLIGATIONS OF THE PARTIES
2.1 The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all reports and other
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documentation for which filing is required, including but not limited to
shareholder reports, notices, proxy materials (or similar materials such as
voting instruction solicitation materials), prospectuses and statements of
additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report for any specific Portfolio, semi-annual report and
other shareholder communications, including any amendments or supplements to any
of the foregoing, as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy of such documents in a form suitable for
printing, or in a computer diskette or Internet format that cannot be changed by
the Company (i.e. read-only or PDF format). The Trust will provide the Company
with the prospectus (pursuant to either (a) or (b) above) as soon as reasonably
possible after it receives final SEC comments and before the date of the
prospectus (if reasonably possible). If the Company elects to include any
materials provided by the Trust, specifically prospectuses, SAIs, shareholder
reports and proxy materials, on its web site or any other computer or electronic
format, the Company assumes sole responsibility for maintaining such materials
in the form provided by the Trust and for replacing such materials with all
updates provided by the Trust. The prospectus will contain only those
Portfolios specified by the Company, upon reasonable notice by the Company. The
Trust shall provide the Company with a copy of its statement of additional
information in a form suitable for duplication by the Company. The Trust (at
its expense) shall provide the Company with copies of any Trust-sponsored proxy
materials in such quantity as the Company shall reasonably require for
distribution to Contract owners. The Trust or the Adviser shall bear the costs
of distributing such proxy materials (or similar materials such as voting
solicitation instructions) to the Company's Contract owners, including expenses
associated with the production and personalization of the voting instruction
materials.
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
assumes responsibility for ensuring the delivery of such materials as well as
proxy materials to Contract owners in accordance with applicable federal and
state securities laws pursuant to the terms of the letter agreement between the
Company and Janus Capital Corporation dated ___________, 1998.
2.4
(a) The Adviser represents that it is the sole owner of the name and mark
"Janus." Based on that representation the Company agrees that all use of any
designation comprised in whole or part of Janus (a "Janus Mark") under this
Agreement shall inure to the benefit of the
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Adviser. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
(b) The Company represents that it is the sole owner of the name and mark
"MetLife." Based on that representation the Trust agrees that all use of any
designation comprised in whole or part of MetLife (a "MetLife Mark") under this
Agreement shall inure to the benefit of the Company. Upon termination of this
Agreement for any reason, the Trust shall cease all use of any MetLife Mark(s)
as soon as reasonably practicable.
2.5
(a) The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange Commission. The
Company shall furnish, or shall cause to be furnished, to the Trust or its
designee, each piece of sales literature or other promotional material in which
the Trust or its investment adviser is described in a material manner, at least
ten Business Days prior to its use. No such material shall be used if the Trust
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
(b) The Trust shall furnish, or cause to be furnished, to the Company or
its designee, a copy of each Trust prospectus or statement of additional
information in which the Company is named prior to the filing of such document
with the Securities and Exchange Commission. The Trust shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company is described in a
material manner, at least ten Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within ten Business Days after receipt of such material.
(c) The Company intends to create and provide Contract owners with "fact
sheets" of participating funds on a regular basis. The Company will initially
provide a template fact sheet to the Trust for the Trust's approval.
Thereafter, the Company will provide the Trust with samples of the fact sheets
for approval by the Trust only if the content or format of the report changes
substantially. Generally, the Trust and the Company agree to good faith mutual
cooperation in the resolution of novel or controversial issues concerning sales
literature that may arise pursuant to this Agreement. The Trust and the Adviser
agree to provide the Company with the information necessary to complete the fact
sheet no later than 7 to 10 business days after the end of a calendar quarter.
2.6 The Company shall not give any material information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust
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shares (as such registration statement and prospectus may be amended or
supplemented from time to time), reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee. The
Company assumes all responsibility for filing with the NASD of advertising and
sales literature created by the Company pursuant to this Agreement.
2.7 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received.
2.8 The Company shall notify the Trust of any applicable state insurance
laws of which it is aware that restrict the Portfolios' investments or otherwise
materially affect the operation of the Trust and shall notify the Trust of any
material changes in such laws.
2.9 The Adviser agrees to establish and carry out written procedures
reasonably designed to ensure that (a) all contracts of any Participating
Insurance Company that invest in the Trust are and will continue to be treated
as annuity, life insurance or endowment contracts, under applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations thereunder; (b) each separate account that funds any such contracts
is and will be a "segregated asset account" and that interests in such accounts
are offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817 of the Code and
the regulations thereunder; and (c) each Participating Plan is a "qualified
pension or retirement plan" within the meaning of those terms under such
regulations. The Adviser will notify the Company immediately upon having a
reasonable basis for believing that any of such requirements has ceased to be
met or might not be met in the future.
2.10 At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all relevant records, data and access to
operating procedures that may be reasonably requested. Trust agrees that
Company shall have the right to inspect, audit and copy all relevant records
pertaining to the performance of services under this Agreement pursuant to the
requirements of any state insurance regulator(s). However, Trust and Adviser
shall own and control all of their respective records pertaining to their
performance of the services under this Agreement.
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2.11 The Trust shall send to the Company, monthly confirmations of activity
in the Separate Account detailing activity in the Account, and shall provide
daily electronic account look-up functions.
2.12 The Trust and Adviser shall provide the Company with any information
it reasonably requests from time to time, in connection with the Company's
performance of this Agreement, and reporting to management and customers. This
information will be provided by the Trust or Adviser within a commercially
reasonable time after receiving any such request from the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of New York and
that it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the interests in the Accounts
(1) are or, prior to issuance, will be registered as securities under the 1933
Act or, alternatively (2) are not registered because they are properly exempt
from registration under the 1933 Act or will be offered exclusively in
transactions that are properly exempt from registration under the 1933 Act. The
Company further represents and warrants that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
3.4 The Company represents and warrants that it is actively working on
necessary changes to its computer systems that interact with the Trust via any
form of automated feed so that the systems can distinguish the year 2000 from
the year 1900. The Company expects that its systems will be adapted in time for
that event although there cannot be assurance of success.
3.5 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.6 The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be
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registered under the 1940 Act prior to any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify its shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust.
3.7 The Trust represents, warrants and covenants that the Trust is managed
so that each Account may "look through" to the investments of each Portfolio in
which it holds shares in accordance with the "look through" rules found in
Treasury Regulation 1.817-5 and that each Portfolio will at all times comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation. Upon the request of the Company, the Trust shall provide
the Company with a certificate of compliance with such diversification
requirement for each Portfolio within 20 days of the close of each calendar
quarter in substantially the form attached hereto as Schedule B.
3.8 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Code, and the rules and regulations thereunder; that each
Portfolio of the Trust does and will at all times continue to qualify as a
regulated investment company under subchapter M of the Code, and that no other
Participating Insurance Company or Participating Plan will purchase shares in
any Portfolio for any purpose or under any circumstances that would preclude the
Company from "looking through" to the investment of each Portfolio in which it
invests, pursuant to the "look through" rules found in Treasury Regulation
1.817-5; and the Trust and the Adviser will promptly notify the Company if at
any time they have a reasonable basis for believing that any of such
representations and warranties have become, or are likely to become, untrue.
3.9 The Trust represents and warrants that it has received an order from
the Securities and Exchange Commission granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain Participating Plans.
3.10 The Adviser represents and warrants that the investment advisory or
management fees paid to the Adviser by the Trust are and will be legitimate and
not excessive and are derived from an advisory contract which does not result in
a breach of fiduciary duty.
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ARTICLE IV
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies and Plans. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall immediately inform the Company in writing if they
determine that an irreconcilable material conflict exists and the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is reasonably determined by a majority of the Trustees, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists that affects the interests of Contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract owners
are also affected, and any affected Participating Plans, at its expense and to
the extent reasonably practicable (as determined by the Trustees) take
commercially reasonable steps to remedy or eliminate the irreconcilable material
conflict, which steps could include: (a) withdrawing the assets allocable to
some or all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting the question of whether or not such
segregation should be implemented to a vote of all affected Contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (b) establishing a new registered management investment
company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position
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or would preclude a majority vote, the Company may be required, at the Trust's
reasonable election, to withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account; provided, however
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as reasonably determined by a
majority of the disinterested Trustees. Any such withdrawal and termination
must take place within six (6) months after the Trust gives written notice that
this provision is being implemented. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by the Company in
accordance with the terms of this Agreement for the purchase and redemption of
shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees' reasonable
determination and notice thereof to the Company in writing that such decision
has created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall reasonably determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees reasonably determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7
(a) The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may carry out the duties imposed upon them by the Exemptive Order, and
said reports, materials and data shall be submitted more frequently if
reasonably deemed appropriate by the Trustees.
(b) The Trust shall at least annually submit to the Company such reports,
materials or data as the Company may reasonably request so that the Company may
carry out the duties
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imposed upon it under this Agreement, and said reports, materials and data shall
be submitted more frequently if reasonably deemed appropriate by the Company.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Trust and each of its trustees, officers, employees and agents
and each person, if any, who controls the Trust within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 5.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company, which
consent shall not be withheld for any settlement that would be commercially
reasonable for the Indemnified Parties in the absence of this Section 5.1) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
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(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined
in Section 5.2(a) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company.
5.2 INDEMNIFICATION BY THE TRUST. The Trust agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 5.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust, which consent
shall not be withheld for any settlement that would be commercially reasonable
for the Indemnified Parties in the absence of this Section 5.2) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Trust or the Adviser
by or on behalf of the
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<PAGE>
Company for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under
its control, with respect to the sale or acquisition of the Contracts
or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Company
by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust.
5.3 INDEMNIFICATION BY THE ADVISER. The Adviser agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees, agents
and Contract owners and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 5.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser, which consent shall not be withheld for any settlement that would
be commercially reasonable for the Indemnified Parties in the absence of this
Section 5.3), or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Trust Documents, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and was accurately derived from written information
furnished to the Trust or the Adviser by or on behalf of the
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<PAGE>
Company for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust, the Adviser or
persons under their control, with respect to the sale or acquisition
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company documents or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon
and accurately derived from written information furnished to the
Company by or on behalf of the Trust or the Adviser; or
(d) arise out of or result from any failure by the Trust or the Adviser to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Trust or the Adviser in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Trust.
Without in any way limiting the effect of this Section 5.3 and without in
any way limiting or restricting any other remedies available to the Company, the
Adviser will pay all costs associated with or arising out of any failure, or any
anticipated or reasonably foreseeable failure, to comply with Section 3.6
hereof, and all costs of the Company associated with correcting or responding to
any such failure on behalf of itself or of Contract owners.
5.4 Neither the Company nor the Trust nor the Adviser shall be liable
under the indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable,
with respect to any Losses incurred or assessed against an Indemnified Party
that arise from such Indemnified Party's willful misfeasance, bad faith or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.5 Neither the Company nor the Trust nor the Adviser shall be liable
under the indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable,
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification, giving
information of the nature of the claim shall have been served upon or otherwise
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<PAGE>
received by such Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any designated agent),
but failure to notify the party against whom indemnification is sought of any
such claim shall not relieve that party from any liability which it may have to
the Indemnified Party in the absence of Sections 5.1, 5.2 and 5.3.
5.6 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. Unless the Indemnified Party releases indemnifying
party from any further obligation under this Article V the indemnifying party
also shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume such
defense, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to the Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation. Notwithstanding any other
provision of this Article V, the Company shall be entitled to refuse any request
by the Adviser or the Trust, as the case may be, to assume the defense of any
action brought against the Company by the Internal Revenue Service ("IRS") or
any other tax authority; provided that, following any such refusal, the Adviser
or the Trust, as the case may be, shall be released from any obligation for
further costs of defense under this Article V. If allowed by the applicable
rules of procedure, however, the Adviser and/or the Trust will be entitled to
participate in the defense of any action brought against the Company by the IRS
or any other tax authority, with any and all costs of such participation being
the responsibility of the Adviser and/or the Trust.
ARTICLE VI
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by
ninety (90) days advance written notice delivered to the other party.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the applicable costs set
forth in Section 2.3; and all relevant provisions of this Agreement shall remain
in effect for these purposes.
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<PAGE>
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.7 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Metropolitan Life Insurance Company
485-B Route 1 South
Iselin, New Jersey 08830
Attention: Mr. William Rhatigan
Vice President
cc: Ms. Robin Wagner, Esq.
If to Janus Capital Corporation:
Janus Capital Corporation
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
ARTICLE VIII
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state insurance regulators) and shall permit such
authorities and each other reasonable access to its relevant books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
JANUS ASPEN SERIES
By: /s/ Bonnie M. Howe
----------------------------------------------
Name: Bonnie M. Howe
----------------------------------------------
Title: Assistant Vice-President
---------------------------------------------
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ John Ryan
----------------------------------------------
Name: John Ryan
----------------------------------------------
Title: Vice-President
----------------------------------------------
JANUS CAPITAL CORPORATION
By: /s/ Bonnie M. Howe
----------------------------------------------
Name: Bonnie M. Howe
----------------------------------------------
Title: Assistant Vice-President
----------------------------------------------
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SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- --------------------
Separate Account UL Contract Form 7FV-93
Date of Resolution: December 13, 1998 Flexible Premium Variable
Life Insurance Policy
(a.k.a. MetFlexK)
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<PAGE>
SCHEDULE B
CERTIFICATE OF COMPLIANCE
NAME OF FUND(S):
- ----------------
Janus Aspen Series -
To:
William Rhatigan
Vice President
Metropolitan Life Insurance Company
485-B Route One South, Suite 420
Iselin, NY 08830
We have reviewed compliance of the Fund(s) named above with respect to
certain investment diversification requirements for the Fund(s) for the quarter
ending ____________. The review was limited to verifying whether the Fund
complied with the quarterly diversification requirements described in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Section 817(h) Diversification Requirements").
The Review did not include testing compliance with any other
investment limitations in the prospectus or Statement of Additional Information
of the Fund(s).
As of ________________ the Fund was in compliance with the Section
817(h) Diversification Requirements.
Dated:
----------------------------------
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
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PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
METROPOLITAN LIFE INSURANCE COMPANY
THIS AGREEMENT made as of May 1, 1999, among Templeton Variable Products
Series Fund (the "Trust"), an open-end management investment company organized
as a business trust under Massachusetts law, Franklin Templeton Distributors,
Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Metropolitan Life Insurance Company, a life insurance
company organized as a corporation under New York law (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust represents that it has received an order from the SEC,
dated November 16, 1993 (File No. 812-8546), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, as amended, and Rules 6e-2(b)
(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Trust to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies and certain qualified pension and retirement plans (the "Shared
Funding Exemptive Order");
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WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register interests in the separate account listed on Schedule C
attached hereto which may be amended from time to time, under which the
portfolios are to be made available as investment vehicles (the "Contracts")
under the 1933 Act unless such interests under the Contracts in the Accounts are
exempt from registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1 For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 10:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
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accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio. Except for market timing issues, when practicable, the Trust
will provide the Company with thirty (30) days written notice of its intention
to refuse to sell Portfolio shares pursuant to this Agreement. The Company
acknowledges receipt of the Trustees' December 1, 1998 resolution addressing
market timing.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. The Trust will use good faith in determining when
payments will be delayed and currently anticipates delaying redemption only in
circumstances where extraordinary market conditions, or the size of the
redemption relative to the size of a given Fund will detriment remaining
shareholders if made immediately. The Trust and
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Underwriter agree to consult with the Company, in good faith, to determine a
plan for the orderly disposition of assets to meet redemption requests from
contract owners in the event of such a delay.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis in accordance with mutually agreed upon guidelines for
electronic transmission (which transmission will be by electronic file) as soon
as reasonably practical after the net asset value per share is calculated
(normally by 6:30 p.m. Eastern time) and shall use reasonable efforts to make
such net asset value per share available by 7:00 p.m. Eastern time each Business
Day.
1.9 The Trust and Underwriter agree that Portfolio shares will be sold only
to Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those required by the Shared Funding Exemptive
Order, including 2.3 and Article IV of this Agreement.
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1.11 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
1.12 The Trust shall send to the Company, (i) confirmations of activity in
the Separate Account within five (5) business days after each date on which a
purchase or redemption of shares of the Company is effected for the Account, and
(ii) statements detailing activity in the Account upon request.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company with as many copies of the Trust's current prospectus, annual report for
any specific Portfolio or combination thereof, semi-annual report and other
shareholder communications, including any amendments or supplements to any of
the foregoing, as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy of such documents in a form suitable for
printing, or in a computer diskette or Internet format that cannot be changed by
the Company (i.e. read-only or PDF format). The Trust will provide the Company
with the prospectus (pursuant to either (a) or (b) above) as soon as reasonably
possible after it receives final SEC comments and before the date of the
prospectus (if reasonably possible). If the Company elects to include any
materials provided by the Trust, specifically prospectuses, SAIs, shareholder
reports and proxy materials, on its web site or any other computer or electronic
format, the Company assumes sole responsibility for maintaining such materials
in the form provided by the Trust and for replacing such materials with all
updates provided by the Trust. The prospectus will contain only those
Portfolios specified by the Company, upon reasonable notice by the Company. The
Trust shall provide the Company with a copy of its statement of additional
information in a form suitable for duplication by the Company. The Trust (at
its expense) shall provide the Company with copies of any Trust-sponsored proxy
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materials in such quantity as the Company shall reasonably require for
distribution to Contract owners. The Trust or Underwriter shall bear the costs
of distributing such proxy materials (or similar materials such as voting
solicitation instructions) to the Company's Contract owners. Expenses of
printing and furnishing prospectuses, SAIs and shareholder reports of the
Contract and the Trust for marketing purposes shall be borne by the Company.
Expenses for furnishing such documents of the Trust for current Contract owners
invested in the Trust shall be borne by the Trust or Underwriter, and shall be
pro-rated if such Trust documents are combined with those of the contract or
other investment companies.
2.3 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares in each Account for which no instructions have been received in the
same proportion as Trust shares of such Portfolio in that Account for which
instructions have been received; so long as and to the extent that the SEC
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Trust
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Trust and Underwriter agree that Participating Insurance
Companies shall be contractually obligated to assure that each of their separate
accounts participating in the Trust calculates voting privileges in a manner
consistent with the Shared Funding Exemptive Order. The Company shall abide by
the terms and conditions of the Shared Funding Exemptive Order. The Company
shall be responsible for assuring that the Accounts calculate voting privileges
in a manner consistent with the standards set forth in Schedule E which
procedures may be adjusted by the parties on a case-by-case basis. The Company
and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the Contracts without
the prior written consent of the Trust, which consent may be withheld in the
Trust's sole discretion.
2.4 Except as provided in section 2.5, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark of or relating to the Trust, the Underwriter
or their affiliates without prior written consent, and upon termination of this
Agreement for any reason, the Company shall cease all use of any such name or
mark as soon as reasonably practicable. Notwithstanding the prior sentence, the
Company may use "Franklin" or "Templeton" in the name of the funding option
offered under the Contracts as long as it invests exclusively in a Franklin or
Templeton Portfolio.
2.5 (a) The Company shall furnish, or cause to be furnished to the Trust or
its designee, at least one complete copy of each registration statement,
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prospectus, statement of additional information, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "disclosure documents"), as well as any report, solicitation for
voting instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. Except for provision 2.5(b), the Company shall
furnish, or shall cause to be furnished, to the Trust or its designee each piece
of sales literature or other promotional material in which the Trust or an
Adviser is named, at least 15 Business Days prior to its use. No such material
shall be used if the Trust or its designee reasonably objects to such use within
five Business Days after receipt of such material. The Trust shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company is described in a
material manner, at least fifteen (15) Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within five Business Days after receipt of such material.
(b) The Company intends to create and provide Contract owners with "fact
sheets" of participating funds on a regular basis. The Company will initially
provide a template fact sheet to the Underwriter for its approval. Thereafter,
the Company will provide the Underwriter with samples of the fact sheets for
approval only if the content or format of the report changes substantially.
Generally, the parties agree to good faith mutual cooperation in the resolution
of novel or controversial issues concerning sales literature that may arise
pursuant to this Agreement.
(c) For purposes of this Section 2.5, "sales literature or other
promotional material" includes, but is not limited to, portions of the following
that use any Trademark related to the Trust or Underwriter or refer to the Trust
or affiliates of the Trust: advertisements (such as material published or
designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.6 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from
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the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from time
to time), annual and semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
2.7 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.8 Neither the Trust nor the Distributor shall give any information or
make any representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from disclosure documents
for the Contracts (as such disclosure documents may be amended or supplemented
from time to time), or in materials approved by the Company for distribution
including sales literature or other promotional materials, except as required by
legal process or regulatory authorities or with the written permission of the
Company.
2.9 The Underwriter or an affiliate may make payments (other than pursuant
to a Rule 12b-1 Plan) to the Company or its affiliates or to the Contracts'
underwriter in amounts agreed to in a separate written agreement and such
payments may be made out of fees otherwise payable to the Underwriter or its
affiliates, profits of the Underwriter or its affiliates, or other resources
available to the Underwriter or its affiliates. This Agreement, however, shall
not obligate the Trust or the Underwriter to pay any fee or other compensation
to the Company.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of New York and
that it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each Account,
(1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
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the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the interests in the Separate Account funding the Contract will be
registered under the 1933 Act, or (2) if the Separate Account is exempt from
registration under Section 3(a)(2) of the 1933 Act or under Section 4(2) and
Regulation D of the 1933 Act, the Company will make every effort to maintain
such exemption and will notify the Trust and the Adviser immediately upon having
a reasonable basis for believing that such exemption no longer applies or might
not apply in the future. The Company further represents and warrants that the
Contracts will be sold by broker-dealers, or their registered representatives,
who are registered with the SEC under the 1934 Act and who are members in good
standing of the NASD; the interests in the separate Account funding the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the '40
Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company represents
and warrants that:
(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
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(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the '40 Act.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder (including without limitation provisions relating to shareholder
voting and investment advisory contracts and fees).
3.5 The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust (i) acknowledges that each Account intends to "look-through"
to the investments of each Portfolio in which it holds shares in accordance with
the "look-through" rules found in Treas. Reg. 1.817-5(f) and (ii) represents and
warrants that the investments of each Portfolio will comply with the
diversification requirements for variable annuity, endowment or life insurance
contracts set forth in Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and (iii) will notify the Company
immediately upon having a reasonable basis for believing any Portfolio has
ceased to comply or might not so comply and will in that event immediately take
all reasonable steps to adequately diversify the Portfolio to achieve compliance
within the grace period afforded by Regulation 1.817-5. The Trust shall provide
in a form substantially identical to Schedule D attached hereto, the Company
with a certificate of compliance with section 817(h) diversification rules
within 45 days of the close of each calendar quarter.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses of the Class 1 shares available
under this Agreement pursuant to Rule 12b-1 under the 1940 Act, the Trustees,
including a majority who are not "interested persons" of the Trust under the
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1940 Act ( "disinterested Trustees" ), will formulate and approve any plan under
Rule 12b-1 to finance distribution expenses. In the event a Rule 12b-1 plan is
adopted with respect to shares available under this Agreement, the Trust will
provide commercially reasonable prior written notice thereof to the Company.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its officers and other
individuals that are so required by Rule 17g-1 of the 1940 Act are and shall be
at all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust, in an amount not less than an amount not less than the
minimum coverage required currently for entities subject to Rule 17g-1 or
related provisions, as may be promulgated from time to time. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Trust and the
Underwriter in the event that such coverage no longer applies.
3.11 The Underwriter represents that each Adviser (i) is duly organized and
validly existing under applicable corporate law and (ii) is and shall remain
duly registered under all applicable federal and state securities laws and (iii)
shall perform its obligations for the Trust in compliance in all material
respects with all applicable state and federal laws.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under Rule 12b-1, the Trust represents and warrants that it will comply with
any then current SEC and SEC staff interpretations concerning Rule 12b-1 or any
successor provisions.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material
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irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company in writing of any
determination by the Trustees that an irreconcilable material conflict exists
and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees) take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the Accounts
from the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting the question of whether or not such withdrawal should be
implemented to a vote of all affected Contract owners and, as appropriate,
withdrawal of the assets of any appropriate group (i.e., annuity contract
owners, life insurance policy owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such withdrawal, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
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may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust in accordance
with the terms of this Agreement.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust in accordance with the terms of this Agreement.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
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funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be withheld for any settlement that
would be commercially reasonable for the Indemnified Parties in the
absence of this Section 5.1) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses are
related to the sale or acquisition of Trust Shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to
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the Company by or on behalf of the Trust for use in Company
Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished to
the Trust by the Company; or
(iv) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of 5.1(b) and
5.1(c).
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable.
(c) The Company shall also not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
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claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent). Failure to notify the Company of any such
claim shall not relieve the Company from any liability except to the
extent that the Company has been prejudiced by such failure to give
notice, or from any other liability it may have to the Indemnified
Party. In case any such action is brought against the Indemnified
Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action, subject to the Indemnified
Parties' consent, which shall not be unreasonably withheld. The
Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded
that there may be defenses available to it which are different from or
additional to those available to the Company, the Company shall not
have the right to assume said defense, but shall pay the costs and
expenses thereof except that in no event shall the Company be liable
for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same
general allegations or circumstances. After notice from the Company to
such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
5.2 INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter agrees to indemnify and hold harmless the Company,
the underwriter of the Contracts and each of its directors and officers and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually an "Indemnified Party" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which
consent shall not be withheld for any settlement that would be
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commercially reasonable for the Indemnified Parties in the absence of this
Section 5.2) or expenses (including the reasonable costs of investigating
or defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such
Losses are related to the sale or acquisition of the Trust's Shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing)
(collectively, the "Trust Documents") or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Trust by or on behalf of the Company for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure
documents or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Trust shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a disclosure document or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good
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faith or otherwise, to comply with the qualification representation
specified in Section 3.7 of this Agreement and the diversification
requirements specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter,
as limited by and in accordance with the provisions of Sections 5.2(b) and
5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from its obligations hereunder except to the extent that the
Underwriter has been prejudiced by such failure to give notice, or from any
other liability it may have to the Indemnified Party. In case any such
action is brought against the Indemnified Parties, the Underwriter will be
entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from
the Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the Underwriter will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
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officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 INDEMNIFICATION BY THE TRUST
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 5.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust, which consent shall not
be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions
of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor any Trustee,
officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort to be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from
such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it
19
<PAGE>
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Trust will be
entitled to participate, at its own expense, in the defense thereof. The
Trust also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Trust
to such party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Trust will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
the Account, or the sale or acquisition of shares of the Trust.
ARTICLE VI.
TERMINATION
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios with or without cause by six (6) months
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment, as that term is used in the 1940
Act.
6.2 This Agreement may be terminated at the option of either the Trust or
the Underwriter, under the following circumstances:
(a) by written notice to the Company with respect to any
Portfolio, Account or Contract in the event any Account or Contract is
not registered, issued or sold in accordance with applicable law as
warranted above, or such law precludes the Trust from selling its
shares for use as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(b) in the event that formal administrative proceedings are
instituted against the Company by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, if
the Trust or the Underwriter reasonably
20
<PAGE>
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Company to perform its obligations under this
Agreement; or
(c) by written notice to the Company with respect to any
Portfolio if the Trust or the Underwriter reasonably believes that the
Company will fail to comply with the Shared Fund Order; or
(d) if (i) the Trust or Underwriter, respectively, shall
determine, in its sole judgment reasonably exercised in good faith,
that the Company has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and that material adverse change or publicity will have a
material adverse impact on the Company's ability to perform its
obligations under this Agreement, (ii) the Trust or Underwriter
notifies the Company of that determination and its intent to terminate
this Agreement, AND (iii) after considering the actions taken by the
Company and any other changes in circumstances since the giving of
such a notice, which consideration shall be presumed and shall not
require any action by the Trust or the Underwriter, the Trust or
Underwriter have not revoked their notice by on the sixtieth (60th)
day following the giving of that notice, which sixtieth day shall be
the effective date of termination.
6.3 This Agreement may be terminated at the option of the Company under the
following circumstances:
(a) by written notice to the other parties with respect to any
Portfolio based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the
Contracts; or
(b) by written notice to the other parties with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold to the Company in accordance with
applicable law as warranted above, or such law precludes the use of
such shares as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(c) in the event that formal administrative proceedings are
instituted against the Trust, the Underwriter or the Adviser by the
NASD, the SEC, or any state securities or insurance
21
<PAGE>
department or any other regulatory body, if the Company reasonably
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Trust, the Underwriter or the Adviser to perform
their obligations under this Agreement; or
(d) by written notice to the Trust with respect to any Portfolio
if the Company reasonably believes that the Portfolio will fail to
meet the Section 817(h) diversification requirements or Subchapter M
qualifications specified herein; or
(e) if (i) the Company shall determine, in its sole judgment
reasonably exercised in good faith, that the Trust or Underwriter has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or publicity will have a material adverse
impact on the Trust's or Underwriter's Adviser's ability to perform
its obligations under this Agreement, (ii) the Company notifies the
Trust or Underwriter, as appropriate, of that determination and its
intent to terminate this Agreement, AND (iii) after considering the
actions taken by the Trust or Underwriter and any other changes in
circumstances since the giving of such a notice, which consideration
shall be presumed and shall not require any action by the Company, the
Company has not revoked its notice by the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall be the
effective date of termination.
6.4 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement ("Existing Contracts"). Owners of Existing Contracts shall be
permitted to maintain their investments in the Trust, to reallocate investments
in the Trust, to redeem investments in the Trust and/or invest in the Trust by
making additional purchase payments under the Existing Contracts. All relevant
provisions of this Agreement shall remain if effect for purposes of Existing
Contracts. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
22
<PAGE>
6.5 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.4, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.6 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions (including the deduction of applicable fees and charges),
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption"), (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Trust and the Underwriter the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the Trust and the
Underwriter) to the effect that any redemption pursuant to clause (ii) above is
a Legally Required Redemption.
ARTICLE VII.
NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Associate General Counsel
23
<PAGE>
If to the Company:
Metropolitan Life Insurance Company
Specialized Benefit Resources
485-B U.S. Highway One South, Suite 420
Iselin, NJ 08830
Attention: William Rhatigan, Vice President
WITH A COPY TO
Robin Wagner, Esq.
Metropolitan Life Insurance Company
485-B U.S. Highway One South, Suite 420
Iselin, NJ 08830
ARTICLE VIII.
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders. Copies of any such orders shall be
promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
24
<PAGE>
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors all relevant records,
data and access to operating procedures that pertain to the performance of
services under this Agreement and may be reasonably requested. However, the
Trust shall own and control all of its records pertaining to its performance of
the services under this Agreement.
8.8 The Trust, and the Underwriter shall treat as confidential the names
and addresses of the Contract owners and each party shall treat as confidential
all information reasonably identified as confidential in writing by any other
party hereto, and, except as permitted by this Agreement or as required by legal
process or regulatory authorities, shall not disclose, disseminate, or utilize
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party. Without limiting the foregoing, no party hereto shall disclose
any information that such party has been advised is proprietary, except such
information that such party is required to disclose by any appropriate
governmental authority (including, without limitation, the SEC, the NASD, and
state securities and insurance regulators).
Each party shall use reasonable efforts to provide non-confidential
information related to this Agreement that may be reasonably requested by
another party from time to time, in connection with the performance of this
Agreement, and reporting to management and customers. This information will be
provided within a commercially reasonable time after receiving such requests.
8.9 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.10 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.11 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
25
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
METROPOLITAN LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ John Ryan
-----------------------------------
Name: John Ryan
Title: Vice-President
The Trust:
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By its authorized officer
By: /s/ Karen L. Skidmore
-----------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President,
Assistant Secretary
The Underwriter:
FRANKLIN TEMPLETON DISTRIBUTORS, INC.
By its authorized officer
By: /s/ Deborah R. Gatzek
-----------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant
Secretary
26
<PAGE>
SCHEDULE A
SEPARATE ACCOUNT OF
METROPOLITAN LIFE INSURANCE COMPANY
1. Separate Account UL
Date Established: December 13, 1988
SEC Registration Number: 33-57320
27
<PAGE>
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
Templeton Variable Products Series Adviser
- ---------------------------------- -------
Templeton International Fund Templeton Investment Counsel, Inc.
-Class 1
28
<PAGE>
SCHEDULE C
VARIABLE LIFE INSURANCE CONTRACT
ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY
REPRESENTATIVE
CONTRACT FORM NUMBER
- -------- -----------
1. Separate Account UL
Title: Metflex Form:
SEC Registration Number:
29
<PAGE>
SCHEDULE D
FORM OF COMPLIANCE LETTER
Metropolitan Life Insurance Company
Attn: William Rhatigan
485-B U.S. Highway One South
Suite 420
Iselin, NJ 08830
Dear ___________:
Based upon the review of procedures performed by Franklin Templeton Services,
Inc. for the quarter ended _________, 1999, the Templeton Variable Products
Series Fund - Templeton International Fund is in compliance with the Section
817(h) requirements as outlined in the Internal Revenue Code. For your
reference, I have included a copy of the portfolio holdings as of _________,
1999.
If you have any questions, please do not hesitate to contact me at (954)
527-7634.
Sincerely,
Tax Manager
30
<PAGE>
SCHEDULE E
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by the Underwriter and the Company.
The defined terms herein shall have the meanings assigned in the Participation
Agreement except that the term "Company" shall also include the department or
third party assigned by the Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Company by the Trust as early
as possible before the date set by the Trust for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting
dates. This will be done verbally approximately two months before the
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customer's account as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to
provide all required contract holder information to the Trust, as soon
as possible, but no later than one week after the Record Date.
3. The test and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Trust. The Trust, at its expense, shall
produce and personalize the Voting Instruction cards. The Legal Department
of the Trust must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
a.. Names (legal name as found on account registration)
b. Address
c. Portfolio or account number
d. Coding to state number of units
31
<PAGE>
e. Individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Company). (These related steps
may occur later in the chronological process due to possible
uncertainties relating to the proposals.)
4. During this time, the Trust's Legal Department will develop, produce, and
the Trust will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to the
Company for insertion into envelopes (envelopes and return envelopes as
provided and paid for by the Company). Contents of envelope sent to
customers by the Company will include:
a. Voting Instruction Card(s)
b. One Proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed to
the Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that request Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Company.)
e. Cover letter - optional, supplied by Company and reviewed and approved
in advance by the Trust's Legal Department.
5. The above contents should be received by the Company approximately 3-5
business days before the mail date. Individuals in charge at the Company
review and approve the contents of the mailing package to ensure
correctness and completeness. Copy of this approval is sent to Trust's
Legal Department.
6. Package mailed by the Company.
* The Trust must allow at least a 15 day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including) the meeting, counting
backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin date entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to Company's internal procedure.
32
<PAGE>
8. If Cards are mutilated, or for any reason are illegible or not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did note complete the system. Any questions on
those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; and
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) The Trust's
Legal Department must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Company to the Trust's
Legal Department on the morning not later than 8:00 a.m. Eastern time. The
Trust's Legal Department may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The
Trust's Legal Department will provide a standard form for each
Certification.
13. The Trust will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Trust's Legal
Department will be permitted reasonable access to such Cards.
14. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
33
<PAGE>
EXHIBIT 1.A (5)(i)
Hypothetical Illustrations:
The following illustrations use hypothetical examples to show the way a Policy
works. 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:
premium and cash value allocations or transfers among the investment divisions
and the Fixed Account made by an owner; and different rates of returns of the
various Fund portfolios (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 any of the Funds make 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, the specified face amount or premium amount requested, frequency of
planned premium payments, death benefit option selected and any rider requested.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION C
GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest -----------------------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,230 1,318 1,405 102,000 102,000 102,000
2 4,305 2,397 2,647 2,907 104,000 104,000 104,000
3 6,620 3,499 3,986 4,516 106,000 106,000 106,000
4 9,051 4,532 5,333 6,239 108,000 108,000 108,000
5 11,604 5,491 6,681 8,082 110,000 110,000 110,000
6 14,284 6,372 8,024 10,053 112,000 112,000 112,000
7 17,098 7,163 9,352 12,155 114,000 114,000 114,000
8 20,053 7,856 10,655 14,397 116,000 116,000 116,000
9 23,156 8,440 11,920 16,782 118,000 118,000 118,000
10 26,414 8,904 13,135 19,319 120,000 120,000 120,000
15 45,315 9,666 18,734 35,583 130,000 130,000 130,000
20 69,439 5,131 20,545 58,621 140,000 140,000 140,000
25 100,227 0 (4) 12,974 92,921 0 (4) 150,000 150,000
30 139,522 0 (4) 0 (4) 151,199 * 0 (4) 0 (4) 162,313 * (3)
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57% of
the average daily value of the aggregate net assets of the Funds (which
represents a simple average of the maximum management fees applicable to
the 22 available portfolios of the Funds), and .21% for other direct
Fund expenses (the average of the expenses indicated in the chart
in the MetFlex prospectus under "Fund Investment Management Fees and
Direct Expenses"). If these fees and expenses were taken into account,
the gross investment rates of return of 0%, 6%, and 12% correspond to
actual (or net) annual rates of: -.77%, 5.18%, and 11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
(3) Minimum death benefit applies; see "Death Benefit Options -- Minimum
Death Benefit" for further details.
(4) Zero values in cash value and death benefit indicate termination of
coverage in the absence of a sufficient additional premium payment; see
"Payment and Allocation of Premiums - Termination" for further details.
* If the Cash Value Accumulation test had been used, the following changes
would apply:
<TABLE>
<CAPTION>
12% 12%
Cash Death
Yr. Value Benefit
-- ----- --------
<S> <C> <C>
30 144,278 207,283
</TABLE>
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION A
GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest ----------------------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,240 1,327 1,415 100,000 100,000 100,000
2 4,305 2,427 2,678 2,940 100,000 100,000 100,000
3 6,620 3,561 4,053 4,588 100,000 100,000 100,000
4 9,051 4,641 5,452 6,368 100,000 100,000 100,000
5 11,604 5,663 6,872 8,293 100,000 100,000 100,000
6 14,284 6,626 8,311 10,376 100,000 100,000 100,000
7 17,098 7,521 9,763 12,628 100,000 100,000 100,000
8 20,053 8,344 11,224 15,063 100,000 100,000 100,000
9 23,156 9,088 12,688 17,697 100,000 100,000 100,000
10 26,414 9,747 14,150 20,549 100,000 100,000 100,000
15 45,315 12,216 22,032 39,952 100,000 100,000 100,000
20 69,439 11,492 29,348 71,387 * 100,000 100,000 100,000 *
25 100,227 5,313 34,682 124,254 * 100,000 100,000 144,607 * (3)
30 139,522 0 (4) 35,064 208,136 * 0 (4) 100,000 223,434 * (3)
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57% of
the average daily value of the aggregate net assets of the Funds (which
represents a simple average of the maximum management fees applicable to
the 22 available portfolios of the Funds), and .21% for other
direct Fund expenses (the average of the expenses indicated in the chart
in the MetFlex prospectus under "Fund Investment Management Fees and
Direct Expenses"). If these fees and expenses were taken into account,
the gross investment rates of return of 0%, 6%, and 12% correspond to
actual (or net) annual rates of: -.77%, 5.18%, and 11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
(3) Minimum death benefit applies; see "Death Benefit Options -- Minimum
Death Benefit" for further details.
(4) Zero values in cash value and death benefit indicate termination of
coverage in the absence of a sufficient additional premium payment; see
"Payment and Allocation of Premiums - Termination" for further details.
* If the Cash Value Accumulation test had been used, the following changes
would apply:
<TABLE>
<CAPTION>
12% 12%
Cash Death
Yr. Value Benefit
--- ----- -------
<S> <C> <C>
20 70,580 124,678
25 114,709 181,488
30 175,521 252,169
</TABLE>
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest -----------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,564 1,662 1,759 101,564 101,662 101,759
2 4,305 3,097 3,389 3,693 103,097 103,389 103,693
3 6,620 4,597 5,183 5,816 104,597 105,183 105,816
4 9,051 6,066 7,047 8,150 106,066 107,047 108,150
5 11,604 7,499 8,979 10,711 107,499 108,979 110,711
6 14,284 8,893 10,980 13,519 108,893 110,980 113,519
7 17,098 10,248 13,050 16,600 110,248 113,050 116,600
8 20,053 11,560 15,191 19,978 111,560 115,191 119,978
9 23,156 12,835 17,408 23,688 112,835 117,408 123,688
10 26,414 14,098 19,743 27,820 114,098 119,743 127,820
15 45,315 20,326 33,390 56,400 120,326 133,390 156,400
20 69,439 25,051 49,298 102,398 125,051 149,298 202,398
25 100,227 27,534 67,118 176,275 * 127,534 167,118 276,275 *
30 139,522 25,842 85,022 293,886 * 125,842 185,022 393,886 *
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57% of
the average daily value of the aggregate net assets of the Funds (which
represents a simple average of the maximum management fees applicable to
the 22 available portfolios of the Funds), and .21% for other direct
Fund expenses (the average of the expenses indicated in the chart in the
MetFlex prospectus under "Fund Investment Management Fees and Direct
Expenses"). If these fees and expenses were taken into account, the
gross investment rates of return of 0%, 6%, and 12% correspond to
actual (or net) annual rates of: -.77%, 5.18%, and 11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
* If the Cash Value Accumulation test had been used, the following changes
would apply:
<TABLE>
<CAPTION>
12% 12%
Cash Death
Yr. Value Benefit
--- ------- -------
<S> <C> <C>
25 176,272 278,891
30 292,441 420,147
</TABLE>
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION B
GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest -----------------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,233 1,320 1,407 101,233 101,320 101,407
2 4,305 2,406 2,655 2,915 102,406 102,655 102,915
3 6,620 3,519 4,005 4,533 103,519 104,005 104,533
4 9,051 4,570 5,367 6,268 104,570 105,367 106,268
5 11,604 5,555 6,737 8,127 105,555 106,737 108,127
6 14,284 6,471 8,110 10,118 106,471 108,110 110,118
7 17,098 7,308 9,476 12,244 107,308 109,476 112,244
8 20,053 8,062 10,828 14,511 108,062 110,828 114,511
9 23,156 8,723 12,155 16,924 108,723 112,155 116,924
10 26,414 9,286 13,448 19,488 109,286 113,448 119,488
15 45,315 11,017 19,774 35,704 111,017 119,774 135,704
20 69,439 9,093 23,530 57,371 109,093 123,530 157,371
25 100,227 1,587 21,559 84,925 101,587 121,559 184,925
30 139,522 0 (4) 8,460 117,419 0 (4) 108,460 217,419
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57%
of the average daily value of the aggregate net assets of the Funds
(which represents a simple average of the maximum management fees
applicable to the 22 available portfolios of the Funds), and .21%
for other direct Fund expenses (the average of the expenses indicated in
the chart in the MetFlex prospectus under "Fund Investment Management
Fees and Direct Expenses"). If these fees and expenses were taken into
account, the gross investment rates of return of 0%, 6%, and 12%
correspond to actual (or net) annual rates of: -.77%, 5.18%, and
11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
(4) Zero values in cash value and death benefit indicate termination of
coverage in the absence of a sufficient additional premium payment; see
"Payment and Allocation of Premiums - Termination" for further details.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION C
CURRENT CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest ---------------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,563 1,661 1,759 102,000 102,000 102,000
2 4,305 3,095 3,388 3,692 104,000 104,000 104,000
3 6,620 4,593 5,180 5,814 106,000 106,000 106,000
4 9,051 6,059 7,042 8,148 108,000 108,000 108,000
5 11,604 7,488 8,972 10,708 110,000 110,000 110,000
6 14,284 8,876 10,970 13,519 112,000 112,000 112,000
7 17,098 10,222 13,037 16,604 114,000 114,000 114,000
8 20,053 11,524 15,174 19,991 116,000 116,000 116,000
9 23,156 12,786 17,388 23,715 118,000 118,000 118,000
10 26,414 14,033 19,720 27,871 120,000 120,000 120,000
15 45,315 20,111 33,389 56,884 130,000 130,000 130,000
20 69,439 24,455 49,516 104,954 * 140,000 140,000 140,000 *
25 100,227 25,969 68,183 185,350 * 150,000 150,000 215,710 * (3)
30 139,522 21,521 88,813 317,684 * 160,000 160,000 341,035 * (3)
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57% of
the average daily value of the aggregate net assets of the Funds (which
represents a simple average of the maximum management fees applicable to
the 22 available portfolios of the Funds), and .21% for other direct
Fund expenses (the average of the expenses indicated in the chart in the
MetFlex prospectus under "Fund Investment Management Fees and Direct
Expenses"). If these fees and expenses were taken into account, the
gross investment rates of return of 0%, 6%, and 12% correspond to actual
(or net) annual rates of: -.77%, 5.18%, and 11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
(3) Minimum death benefit applies; see "Death Benefit Options -- Minimum
Death Benefit" for further details.
* If the Cash Value Accumulation test had been used, the following changes
would apply:
<TABLE>
<CAPTION>
12% 12%
Cash Death
Yr. Value Benefit
--- ----- -------
<S> <C> <C>
20 104,414 184,444
25 180,287 285,244
30 298,830 429,325
</TABLE>
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1)
MALE ISSUE AGE 45
STANDARD NONSMOKER FULL UNDERWRITING RISK
SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2)
Assuming Hypothetical Assuming Hypothetical
Premiums Gross Annual Investment Gross Annual Investment
End Of Accumulated Rates of Return of Rates of Return of
Policy at 5% Interest -----------------------------------------------------------------------------------------------
Year Per Year 0% 6% 12% 0% 6% 12%
---- -------- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,566 1,664 1,762 100,000 100,000 100,000
2 4,305 3,104 3,397 3,702 100,000 100,000 100,000
3 6,620 4,612 5,200 5,836 100,000 100,000 100,000
4 9,051 6,092 7,078 8,186 100,000 100,000 100,000
5 11,604 7,539 9,029 10,771 100,000 100,000 100,000
6 14,284 8,951 11,055 13,615 100,000 100,000 100,000
7 17,098 10,330 13,160 16,745 100,000 100,000 100,000
8 20,053 11,671 15,345 20,190 100,000 100,000 100,000
9 23,156 12,980 17,618 23,989 100,000 100,000 100,000
10 26,414 14,285 20,024 28,239 100,000 100,000 100,000
15 45,315 20,863 34,360 58,169 100,000 100,000 100,000
20 69,439 26,320 52,076 108,302 100,000 100,000 132,561 (3)
25 100,227 30,222 74,331 * 190,965 * 100,000 100,000 * 222,245 * (3)
30 139,522 31,295 103,195 * 326,927 * 100,000 110,780 * (3) 350,957 * (3)
</TABLE>
(1) Assumes annual planned premium payments of $2,000 paid in full at
beginning of each Policy Year. The values would vary from those shown if
the amount or frequency of payments varies.
(2) Amounts shown take into account deductions from premiums, the monthly
deduction from cash value (including the cost of insurance and mortality
and expense risks charge), and the daily charge to the Funds for
investment management services equivalent to an annual rate of .57% of
the average daily value of the aggregate net assets of the Funds (which
represents a simple average of the maximum management fees applicable to
the 22 available portfolios of the Funds), and .21% for other direct
Fund expenses (the average of the expenses indicated in the chart in the
MetFlex prospectus under "Fund Investment Management Fees and Direct
Expenses"). If these fees and expenses were taken into account, the
gross investment rates of return of 0%, 6%, and 12% correspond to
actual (or net) annual rates of: -.77%, 5.18%, and 11.13%, respectively.
Amounts shown assume no policy loan or partial withdrawal has been made.
Excessive loans or withdrawals, adverse investment performance or
insufficient premium payments may cause the Policy to terminate because
of insufficient cash value. Amounts do not reflect the refund of sales
load and do not show the impact of any available riders.
(3) Minimum death benefit applies; see "Death Benefit Options -- Minimum
Death Benefit" for further details.
* If the Cash Value Accumulation test had been used, the following changes
would apply:
<TABLE>
<CAPTION>
6% 12% 6% 12%
Cash Cash Death Death
Yr. Value Value Yr. Benefit Benefit
--- ----- ----- --- ------- -------
<S> <C> <C> <C> <C> <C>
15 n/a 58,115 15 n/a 116,174
20 n/a 106,528 20 n/a 188,179
25 73,969 183,687 25 117,030 290,623
30 99,638 304,233 30 143,148 437,088
</TABLE>
<PAGE>
EXHIBIT 6
April 23, 1999
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Dear Sirs:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 8 to Registration Statement No. 33-57320 on Form S-6
("Registration Statement") which covers premiums received under Flexible Premium
Variable Life Insurance Policies ("Policies") offered by Metropolitan Life
Insurance Company ("MLIC") in each State where they have been approved by
appropriate State insurance authorities. As an Assistant Vice-President and
Actuary of MLIC, I have reviewed the Policy form and I am familiar with the
Registration Statement, including the Prospectus contained therein, and
Exhibits thereto.
In my opinion, the illustrations of death benefits, cash values, cash surrender
values and accumulated premiums for the Policy in Exhibit 1A. (5) (i) included
in the Registration Statement, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policies. Such
assumptions, including the assumed current charge levels, are reasonable.
The rate structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in these illustrations
appear to be correspondingly more favorable to a prospective purchaser of the
Policy for males age 45, than to prospective purchasers of Policies for a male
at other ages or for a female. Nor were the particular illustrations shown
selected for the purpose of making this relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Legal, Accounting
and Actuarial Matters" in the Prospectus.
Very truly yours,
/s/ Rocco A. Mariano, Jr.
- -----------------------------
Rocco A. Mariano, Jr., FSA, MAAA
Assistant Vice-President and Actuary
<PAGE>
EXHIBIT 8
POWER OF ATTORNEY
William C. Steere, Jr.
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director of Metropolitan Life
Insurance Company, do hereby appoint Gary A. Beller, Louis J. Ragusa, Richard G.
Mandel and Christopher P. Nicholas, and each of them severally, my true and
lawful attorney-in-fact, for me and in my name, place and stead to execute and
file any instrument or document to be filed as part of or in connection with or
in any way related to the Registration Statements and any and all amendments
thereto, filed by said Company under the Securities Act of 1933 and/or the
Investment Company Act of 1940, in connection with Metropolitan Life Separate
Account UL, Metropolitan Life Separate Account E, The New England Variable
Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day
of April , 1997.
William C. Steere, Jr.
Signature
