485BPOS 1 d485bpos.txt MLI MO COVA VA POST-EFFECTIVE AMENDMENT NO. 33 As filed with the Securities and Exchange Commission on April 14, 2009 Registration Nos. 033-39100 811-05200 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 33 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 201 [X] METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE (Exact Name of Registrant) METLIFE INVESTORS INSURANCE COMPANY (Name of Depositor) 5 Park Plaza, Suite 1900 Irvine, CA 92614 (Address of Depositor's Principal Executive Offices) (Depositor's Telephone Number, including Area Code) (800) 989-3752 (Name and Address of Guarantor) GENERAL AMERICAN LIFE INSURANCE COMPANY 13045 Tesson Ferry Road St. Louis, MO 63128 (Name and Address of Agent for Service) Richard C. Pearson Vice President MetLife Investors Insurance Company 5 Park Plaza, Suite 1900 Irvine, CA 92614 (949) 223-5680 Copy to: Mary E. Thornton, Esquire Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, NW Washington, D.C. 20004 (202) 383-0698 (Approximate Date of Proposed Public Offering) It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485. [X] on May 1, 2009 pursuant to paragraph (b) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485. [ ] on (date) pursuant to paragraph (a) (1) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Registered: (1) Individual Variable Annuity Contracts ================================================================================ THE FIXED AND VARIABLE ANNUITY ISSUED BY METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE AND METLIFE INVESTORS INSURANCE COMPANY This prospectus describes the Fixed and Variable Annuity Contract issued by MetLife Investors Insurance Company (MetLife Investors, we or us). Currently, the contract is not available for new sales. However, you can continue to make additional purchase payments to your contract. The annuity contract has many investment choices - a fixed account which offers an interest rate which is guaranteed by MetLife Investors, and the available investment portfolios. You can put your money in the fixed account and/ or any of these investment portfolios (except as noted). CERTAIN PORTFOLIOS LISTED BELOW MAY NOT BE AVAILABLE WITH YOUR CONTRACT. APPENDIX B - PART 2 CONTAINS A LIST OF THE PORTFOLIOS AVAILABLE WITH YOUR CONTRACT. AIM VARIABLE INSURANCE FUNDS (SERIES I): AIM V.I. International Growth Fund FIDELITY(R) VARIABLE INSURANCE PRODUCTS (INITIAL CLASS): Equity-Income Portfolio Growth Opportunities Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1): Templeton Foreign Securities Fund Templeton Growth Securities Fund MET INVESTORS SERIES TRUST (CLASS A (OR CLASS B AS NOTED)): Clarion Global Real Estate Portfolio Lazard Mid Cap Portfolio Legg Mason Partners Aggressive Growth Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Emerging Markets Equity Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio (Class A and Class B) PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Comstock Portfolio (Class B) Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A (OR CLASS B AS NOTED)): Artio International Stock Portfolio (formerly Julius Baer International Stock Portfolio) BlackRock Bond Income Portfolio (Class A and Class B) BlackRock Money Market Portfolio Davis Venture Value Portfolio Jennison Growth Portfolio MFS(R) Total Return Portfolio Oppenheimer Global Equity Portfolio (Class B) T. Rowe Price Large Cap Growth Portfolio T. Rowe Price Small Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio PUTNAM VARIABLE TRUST (CLASS IB): Putnam VT Equity Income Fund Please read this prospectus before investing and keep it on file for future reference. It contains important information about the MetLife Investors Fixed and Variable Annuity Contract. To learn more about the MetLife Investors Fixed and Variable Annuity Contract, you can obtain a copy of the Statement of Additional Information (SAI) dated May 1, 2009. The SAI has been filed with the Securities and Exchange Commission (SEC) and is legally a part of the prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the SAI, material incorporated by reference, and other information regarding companies that file electronically with the SEC. The Table of Contents of the SAI is on Page 32 of this prospectus. For a free copy of the SAI, call us at (800) 989-3752 or complete and mail the enclosed form. The contracts: . are not bank deposits . are not FDIC insured . are not insured by any federal government agency . are not guaranteed by any bank or credit union . may be subject to loss of principal THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. May 1, 2009 1 TABLE OF CONTENTS PAGE INDEX OF SPECIAL TERMS.................. 2 SUMMARY................................. 3 FEE TABLES AND EXAMPLES................. 5 1. THE ANNUITY CONTRACT................. 9 Market Timing........................ 9 2. ANNUITY PAYMENTS (THE INCOME PHASE).. 9 Annuity Date......................... 9 Annuity Payments..................... 9 Annuity Options...................... 10 3. PURCHASE............................. 12 Purchase Payments.................... 12 Allocation of Purchase Payments...... 12 Accumulation Units................... 12 Account Value........................ 13 4. INVESTMENT OPTIONS................... 13 Transfers............................ 15 Market Timing........................ 16 Dollar Cost Averaging Program........ 17 Automatic Rebalancing Program........ 17 Voting Rights........................ 18 Substitution......................... 18 5. EXPENSES............................. 18 Insurance Charges.................... 18 Contract Maintenance Charge.......... 19 Withdrawal Charge.................... 19 Reduction or Elimination of the Withdrawal Charge................... 19 Premium Taxes and Other Taxes........ 20 Transfer Fee......................... 20 Investment Portfolio Expenses........ 20 6. ACCESS TO YOUR MONEY................. 20 Systematic Withdrawal Program........ 21 Suspension of Payments or Transfers.. 21 7. PERFORMANCE.......................... 21 8. DEATH BENEFIT........................ 22 Upon Your Death...................... 22 Death of Annuitant................... 25 Controlled Payout.................... 25 9. FEDERAL INCOME TAX STATUS............ 25 Taxation of Non-Qualified Contracts.. 25
Taxation of Qualified Contracts......... 27 Tax Credits and Deductions.............. 29 Possible Tax Law Changes................ 30 10. OTHER INFORMATION...................... 30 MetLife Investors....................... 30 The Separate Account.................... 30 Distributor............................. 31 Selling Firms........................... 31 Compensation Paid to All Selling Firms.. 31 Ownership............................... 31 Beneficiary............................. 31 Assignment.............................. 32 Financial Statements.................... 32 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................... 32
APPENDIX A CONDENSED FINANCIAL INFORMATION.............. A-1 APPENDIX B PARTICIPATING INVESTMENT PORTFOLIOS.......... B-1
INDEX OF SPECIAL TERMS Because of the complex nature of the contract, we have used certain words or terms in this prospectus which may need an explanation. We have identified the following as some of these words or terms. The page that is indicated here is where we believe you will find the best explanation for the word or term. These words and terms are in italics on the indicated page.
PAGE Accumulation Phase....... 9 Accumulation Unit........ 12 Annuitant................ 9 Annuity Date............. 9 Annuity Options.......... 10 Annuity Payments......... 9 Annuity Unit............. 12 Beneficiary.............. 31 Fixed Account............ 9 Income Phase............. 9 Investment Portfolios.... 12 Joint Owner.............. 31 Non-Qualified............ 25 Owner.................... 31 Purchase Payment......... 12 Qualified................ 25 Tax Deferral............. 9
2 SUMMARY THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THIS PROSPECTUS WHICH DISCUSS THE TOPICS IN MORE DETAIL. 1. THE ANNUITY CONTRACT: The fixed and variable annuity contract issued by MetLife Investors is a contract between you, the owner, and MetLife Investors, an insurance company. The contract provides a means for investing on a tax-deferred basis. The contract is intended for retirement savings or other long-term investment purposes and provides for a death benefit and guaranteed income options. New contracts are no longer offered by MetLife Investors. This contract offers investment portfolios. These portfolios are designed to offer a better return than the fixed account. However, this is NOT guaranteed. You can also lose your money. Appendix B contains a list of the portfolios available with your contract. The fixed account offers an interest rate that is guaranteed by the insurance company, MetLife Investors. While your money is in the fixed account, the interest your money will earn as well as your principal is guaranteed by MetLife Investors. Except as otherwise limited by MetLife Investors (see "Investment Options - Market Timing"), you can transfer between accounts up to 12 times a year without charge or tax implications. The contract, like all deferred annuity contracts, has two phases: the accumulation phase and the income phase. During the accumulation phase, earnings accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal. The income phase occurs when you begin receiving regular payments from your contract. The amount of money you are able to accumulate in your account during the accumulation phase will determine, in part, the amount of income payments during the income phase. 2. ANNUITY PAYMENTS (THE INCOME PHASE): If you want to receive regular income from your annuity, you can choose an annuity option. Once you begin receiving regular payments, you cannot change your payment plan. During the income phase, you have the same investment choices you had during the accumulation phase. You can choose to have payments come from the fixed account, the investment portfolios or both. If you choose to have any part of your payments come from the investment portfolios, the dollar amount of your payments may go up or down. 3. PURCHASE: Currently, this contract is not available for new sales. However, you can add $500 or more any time you like during the accumulation phase. This contract is designed for people seeking long-term tax-deferred accumulation of assets, generally for retirement or other long-term purposes. The tax-deferred feature is most attractive to people in high federal and state income tax brackets. 4. INVESTMENT OPTIONS: You can put your money in any or all of the investment portfolios which are briefly described in Appendix B and more fully described in the prospectuses for the funds. Currently, you can only invest in 15 investment portfolios at any one time. Depending upon market conditions and the performance of the portfolio(s) you select, you can make or lose money in any of the portfolios. Certain portfolios may not be available with your contract. Appendix B - Part 2 contains a list of the portfolios available with your contract. 5. EXPENSES: The contract has insurance features and investment features, and there are costs related to each. . Each year MetLife Investors deducts a $30 contract maintenance charge from your contract. During the accumulation phase, MetLife Investors currently waives this charge if the value of your contract is at least $50,000. . MetLife Investors also deducts for its insurance charges which total 1.40% of the average daily value of your contract allocated to the investment portfolios. . If you take your money out, MetLife Investors may assess a withdrawal charge which is equal to 5% of the purchase payment you withdraw. After MetLife 3 Investors has had a purchase payment for 5 years, there is no charge by MetLife Investors for a withdrawal of that purchase payment. . When you begin receiving regular income payments from your annuity, MetLife Investors will assess a state premium tax charge which ranges from 0%-3.5%, depending upon the state. . The first 12 transfers in a year are free. After that, a transfer fee of $25 or 2% of the amount transferred (whichever is less) is assessed. . There are also investment charges which range from 0.34% to 1.11% of the average daily value of the investment portfolio (before reimbursement or waiver), depending upon the investment portfolio. 6. ACCESS TO YOUR MONEY: You can take money out at any time during the accumulation phase. After the first contract year, you can take up to 10% of your total purchase payments each year without charge from MetLife Investors. Withdrawals of purchase payments in excess of that may be charged a withdrawal charge, depending on how long your money has been in the contract. However, MetLife Investors will never assess a withdrawal charge on earnings you withdraw. Earnings are defined as the value in your contract minus the remaining purchase payments in your contract. Of course, you may also have to pay income tax and a tax penalty on any money you take out. 7. DEATH BENEFIT: If you die before moving to the income phase, the person you have chosen as your beneficiary will receive a death benefit. 8. OTHER INFORMATION: NO PROBATE. In most cases, when you die, the person you choose as your beneficiary will receive the death benefit without going through probate. ADDITIONAL FEATURES. This contract has additional features you might be interested in. These include: . You can arrange to have money automatically sent to you each month while your contract is still in the accumulation phase. Of course, you'll have to pay taxes on money you receive. We call this feature the Systematic Withdrawal Program. . You can arrange to have a regular amount of money automatically invested in investment portfolios each month, theoretically giving you a lower average cost per unit over time than a single one time purchase. We call this feature Dollar Cost Averaging. . You can arrange to automatically readjust the money between investment portfolios periodically to keep the blend you select. We call this feature Automatic Rebalancing. . Under certain circumstances, MetLife Investors will give you your money without a withdrawal charge if you need it while you're in a nursing home. We call this feature the Nursing Home Waiver. These features are not available in all states and may not be suitable for your particular situation. 9. TAXES: Your earnings are not taxed until you take them out. If you take money out during the accumulation phase, earnings come out first and are taxed as income. If you are younger than 59 1/2 when you take money out, you may be charged a 10% federal tax penalty on the earnings. Payments during the income phase are considered partly a return of your original investment. That part of each payment is not taxable as income. 10. INQUIRIES: If you need more information, please contact the Annuity Service Center at: MetLife Investors Distribution Company P.O. Box 10366 Des Moines, IA 50306-0366 800-343-8496 4 FEE TABLES AND EXAMPLES THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY WHEN BUYING, OWNING, AND SURRENDERING THE CONTRACT. THE FIRST TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT, SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS. STATE PREMIUM TAXES MAY ALSO BE DEDUCTED. --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES TABLE WITHDRAWAL CHARGE (Note 1) 5% (as a percentage of purchase payments) TRANSFER FEE (Note 2) $0 (First 12 per year) Thereafter $25 or 2% of transfer, whichever is less
-------------------------------------------------------------------------------- Note 1. The withdrawal charge is 5% of the purchase payment. After we have the purchase payment for 5 years there is no charge for withdrawal of that purchase payment. See "Expenses - Withdrawal Charge" for 10% free withdrawal amount. Note 2. There is no charge for the first 12 transfers in a contract year; thereafter the fee is the lesser of $25 or 2% of the transfer. MetLife Investors will not charge you for the transfer fee even if there are more than 12 transfers in a year if the transfer is for dollar cost averaging or automatic rebalancing programs. THE NEXT TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING INVESTMENT PORTFOLIO FEES AND EXPENSES. -------------------------------------------------------------------------------- PERIODIC FEES AND EXPENSES TABLE CONTRACT MAINTENANCE CHARGE (Note 1) $30 SEPARATE ACCOUNT ANNUAL EXPENSES (referred to as Separate Account Product Charges) (as a percentage of average account value in the Separate Account) Mortality and Expense Charge* 1.25% Administration Expense Charge 0.15% ----- Total Separate Account Product Charges 1.40%
-------------------------------------------------------------------------------- * For Premier Advisor, Destiny Select and Prevail contracts we are waiving amounts of the Mortality and Expense Charge equal to the investment portfolio expenses that are in excess of (1) 0.67% for account value allocated to the T. Rowe Price Large Cap Growth Portfolio (Class A) and (2) 0.59% for account value allocated to the Lord Abbett Growth and Income Portfolio (Class A). Note 1. During the accumulation phase, we will not charge the contract maintenance charge if the value of your account is $50,000 or more, although, if you make a complete withdrawal, we will charge the contract maintenance charge. THE NEXT TABLE SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE INVESTMENT PORTFOLIOS THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. CERTAIN INVESTMENT PORTFOLIOS MAY IMPOSE A REDEMPTION FEE IN THE FUTURE. MORE DETAIL CONCERNING EACH INVESTMENT PORTFOLIO'S FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUSES FOR THE INVESTMENT PORTFOLIOS AND IN THE FOLLOWING TABLES. -------------------------------------------------------------------------------- Total Annual Investment Minimum Maximum Portfolio Operating 0.34% 1.11% Expenses (expenses that are deducted from investment portfolio assets, including management fees, 12b-1/service fees, and other expenses)
-------------------------------------------------------------------------------- FOR INFORMATION CONCERNING COMPENSATION PAID FOR THE SALE OF THE CONTRACTS, SEE "DISTRIBUTOR." 5 INVESTMENT PORTFOLIO EXPENSES (as a percentage of the average daily net assets of an investment portfolio) The following table is a summary. For more complete information on investment portfolio fees and expenses, please refer to the prospectus for each investment portfolio.
------------------------------------------------------------------------------------------------------------------------- Net Acquired Total Contractual Total Fund Annual Expense Annual Management 12b-1/Service Other Fees and Portfolio Subsidy Portfolio Fees Fees Expenses Expenses* Expenses or Deferral Expenses** ------------------------------------------------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS (SERIES I) ------------------------------------------------------------------------------------------------------------------------- AIM V.I. International Growth Fund 0.71% -- 0.35% 0.02% 1.08% 0.01% 1.07%/(1)/ ------------------------------------------------------------------------------------------------------------------------- FIDELITY(R) VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) ------------------------------------------------------------------------------------------------------------------------- Equity-Income Portfolio 0.46% -- 0.11% -- 0.57% -- 0.57% ------------------------------------------------------------------------------------------------------------------------- Growth Opportunities Portfolio 0.56% -- 0.15% -- 0.71% -- 0.71% ------------------------------------------------------------------------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1) ------------------------------------------------------------------------------------------------------------------------- Templeton Foreign Securities Fund 0.64% -- 0.15% 0.02% 0.81% 0.02% 0.79%/(2)/ ------------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund 0.74% -- 0.04% -- 0.78% -- 0.78% ------------------------------------------------------------------------------------------------------------------------- MET INVESTORS SERIES TRUST (CLASS A (OR CLASS B AS NOTED)) ------------------------------------------------------------------------------------------------------------------------- Clarion Global Real Estate Portfolio 0.63% -- 0.06% -- 0.69% -- 0.69% ------------------------------------------------------------------------------------------------------------------------- Lazard Mid Cap Portfolio 0.69% -- 0.05% -- 0.74% -- 0.74%/(3)/ ------------------------------------------------------------------------------------------------------------------------- Legg Mason Partners Aggressive Growth Portfolio 0.63% -- 0.02% -- 0.65% -- 0.65% ------------------------------------------------------------------------------------------------------------------------- Lord Abbett Bond Debenture Portfolio 0.50% -- 0.03% -- 0.53% -- 0.53% ------------------------------------------------------------------------------------------------------------------------- Lord Abbett Growth and Income Portfolio 0.50% -- 0.03% -- 0.53% -- 0.53% ------------------------------------------------------------------------------------------------------------------------- Lord Abbett Mid Cap Value Portfolio 0.68% -- 0.07% -- 0.75% -- 0.75%/(4)/ ------------------------------------------------------------------------------------------------------------------------- MFS(R) Emerging Markets Equity Portfolio 0.98% -- 0.13% -- 1.11% -- 1.11% ------------------------------------------------------------------------------------------------------------------------- MFS(R) Research International Portfolio 0.70% -- 0.07% -- 0.77% -- 0.77% ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Portfolio 0.59% -- 0.03% 0.62% -- 0.62% ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Portfolio (Class B) 0.59% 0.25% 0.04% 0.88% -- 0.88% ------------------------------------------------------------------------------------------------------------------------- PIMCO Total Return Portfolio 0.48% -- 0.04% 0.52% -- 0.52% ------------------------------------------------------------------------------------------------------------------------- Pioneer Fund Portfolio 0.70% 0.00% 0.29% 0.00% 0.99% 0.00% 0.99%/(5)/ ------------------------------------------------------------------------------------------------------------------------- Van Kampen Comstock Portfolio (Class B) 0.58% 0.25% 0.03% 0.86% -- 0.86% ------------------------------------------------------------------------------------------------------------------------- Van Kampen Mid Cap Growth Portfolio 0.70% -- 0.19% 0.89% -- 0.89%/(6)/ ------------------------------------------------------------------------------------------------------------------------- METROPOLITAN SERIES FUND, INC. (CLASS A (OR CLASS B AS NOTED)) ------------------------------------------------------------------------------------------------------------------------- Artio International Stock Portfolio 0.82% 0.00% 0.13% 0.00% 0.95% 0.03% 0.92%/(7)/ ------------------------------------------------------------------------------------------------------------------------- BlackRock Bond Income Portfolio 0.38% -- 0.05% -- 0.43% 0.01% 0.42%/(8)/ ------------------------------------------------------------------------------------------------------------------------- BlackRock Bond Income Portfolio (Class B) 0.38% 0.25% 0.05% -- 0.68% 0.01% 0.67%/(8)/ ------------------------------------------------------------------------------------------------------------------------- BlackRock Money Market Portfolio 0.32% -- 0.02% -- 0.34% 0.01% 0.33%/(9)/ -------------------------------------------------------------------------------------------------------------------------
6
---------------------------------------------------------------------------------------------------------------------- Net Aquired Total Contractual Total Fund Annual Expense Annual Management 12b-1/Service Other Fees and Portfolio Subsidy Portfolio Fees Fees Expenses (1) Expenses* Expenses or Deferral Expenses** ---------------------------------------------------------------------------------------------------------------------- Davis Venture Value Portfolio 0.70% -- 0.03% -- 0.73% 0.04% 0.69%/(10)/ ---------------------------------------------------------------------------------------------------------------------- Jennison Growth Portfolio 0.63% -- 0.04% -- 0.67% -- 0.67% ---------------------------------------------------------------------------------------------------------------------- MFS(R) Total Return Portfolio 0.53% -- 0.05% -- 0.58% -- 0.58% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Equity Portfolio (Class B) 0.52% 0.25% 0.09% -- 0.86% -- 0.86% ---------------------------------------------------------------------------------------------------------------------- T. Rowe Price Large Cap Growth Portfolio 0.60% -- 0.07% -- 0.67% -- 0.67% ---------------------------------------------------------------------------------------------------------------------- T. Rowe Price Small Cap Growth Portfolio 0.51% -- 0.08% -- 0.59% -- 0.59% ---------------------------------------------------------------------------------------------------------------------- Western Asset Management Strategic Bond Opportunities Portfolio 0.60% -- 0.05% -- 0.65% -- 0.65% ---------------------------------------------------------------------------------------------------------------------- PUTNAM VARIABLE TRUST (CLASS IB) ---------------------------------------------------------------------------------------------------------------------- Putnam VT Equity Income Fund 0.65% 0.25% 0.13% 0.02% 1.05% -- 1.05% ----------------------------------------------------------------------------------------------------------------------
* Acquired Fund Fees and Expenses are fees and expenses incurred indirectly by a portfolio as a result of investing in shares of one or more underlying portfolios. ** Net Total Annual Operating Expenses do not reflect (1) voluntary waivers of fees or expenses; (2) contractual waivers that are in effect for less than one year from the date of this Prospectus; or (3) expense reductions resulting from custodial fee credits or directed brokerage arrangements. (1) The Fund's adviser has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees Invesco Aim receives from affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. The Fee Waiver reflects this agreement. (2) The manager has agreed in advance to reduce its fee from assets invested by the Fund in a Franklin Templeton money market fund (the Sweep Money Fund which is the "acquired fund" in this case) to the extent of the Fund's fees and expenses of the acquired fund. This reduction is required by the Trust's board of trustees and an exemptive order by the Securities and Exchange Commission; this arrangement will continue as long as the exemptive order is relied upon. (3) Other Expenses include 0.02% of deferred expense reimbursement from a prior period. (4) Other Expenses include 0.03% of deferred expense reimbursement from a prior period. (5) The management fee has been restated to reflect an amended management fee agreement, as if the fees had been in effect during the preceding fiscal year. Other Expenses include 0.01% of deferred expense reimbursement from a prior period. (6) Other Expenses include 0.08% of deferred expense reimbursement from a prior period. (7) MetLife Advisers, LLC has contractually agreed, for the period May 1, 2009 through April 30, 2010, to reduce the management fee for each Class of the Portfolio to the annual rate of 0.81% for the first $500 million of the Portfolio's average daily net assets and 0.78% for the next $500 million. (8) MetLife Advisers, LLC has contractually agreed, for the period May 1, 2009 through April 30, 2010, to reduce the management fee for each Class of the Portfolio to the annual rate of 0.325% for the Portfolio's average daily net assets in excess of $1 billion but less than $2 billion. 7 (9) MetLife Advisers, LLC has contractually agreed, for the period May 1, 2009 through April 30, 2010, to reduce the management fee for each Class of the Portfolio to the annual rate of 0.345% for the first $500 million of the Portfolio's average daily net assets and 0.335% for the next $500 million. Other Expenses include Treasury Guarantee Program expenses of 0.012% incurred for the period September 19, 2008 through December 31, 2008. (10) MetLife Advisers, LLC has contractually agreed, for the period May 1, 2009 through April 30,2010, to reduce the management fee for each Class of the Portfolio to the annual rate of 0.75% for the first $50 million of the Portfolio's average daily net assets, 0.70% for the next $450 million, 0.65% for the next $4 billion, and 0.625% for amounts over $4.5 billion. EXAMPLES THESE EXAMPLES ARE INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE CONTRACT WITH THE COST OF INVESTING IN OTHER VARIABLE ANNUITY CONTRACTS. THESE COSTS INCLUDE CONTRACT OWNER TRANSACTION EXPENSES, CONTRACT FEES, SEPARATE ACCOUNT ANNUAL EXPENSES, AND INVESTMENT PORTFOLIO FEES AND EXPENSES. THE EXAMPLES ASSUME THAT YOU INVEST $10,000 IN THE CONTRACT FOR THE TIME PERIODS INDICATED. THE EXAMPLES ALSO ASSUME THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND ASSUME: A) MAXIMUM AND (B) MINIMUM FEES AND EXPENSES OF ANY OF THE INVESTMENT PORTFOLIOS (BEFORE REIMBURSEMENT AND/OR WAIVER). ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS, YOUR COSTS WOULD BE: (1) IF YOU SURRENDER YOUR CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD:
Time Periods 1 year 3 years 5 years 10 years --------------------------------------------------------------------------------------------------------------- (a)$760 (a)$1,247 (a)$1,810 (a)$2,887 (b)$682 (b)$1,014 (b)$1,421 (b)$2,103
(2) IF YOU DO NOT SURRENDER YOUR CONTRACT OR IF YOU ANNUITIZE AT THE END OF THE APPLICABLE TIME PERIOD:
Time Periods 1 year 3 years 5 years 10 years --------------------------------------------------------------------------------------------------------------- (a)$260 (a)$797 (a)$1,360 (a)$2,287 (b)$182 (b)$564 (b)$971 (b)$2,103
The Examples should not be considered a representation of past or future expenses or annual rates of return of any investment portfolio. Actual expenses and annual rates of return may be more or less than those assumed for the purpose of the Examples. 8 1. THE ANNUITY CONTRACT This Prospectus describes the Fixed and Variable Annuity Contract issued by MetLife Investors. Currently, MetLife Investors is not offering this contract for new sales. However, you may continue to make additional purchase payments to your contract. An annuity is a contract between you, the owner, and an insurance company (in this case MetLife Investors), where the insurance company promises to pay an income to you, in the form of annuity payments. Annuity payments must begin on a designated date that is at least 30 days in the future. Until you decide to begin receiving annuity payments, your annuity is in the ACCUMULATION PHASE. Once you begin receiving annuity payments, your contract switches to the INCOME PHASE. The contract benefits from TAX DEFERRAL. Tax deferral means that you are not taxed on earnings or appreciation on the assets in your contract until you take money out of your contract. The contract is called a variable annuity because you can choose among the investment portfolios and, depending upon market conditions, you can make or lose money in any of these portfolios. If you select the variable annuity portion of the contract, the amount of money you are able to accumulate in your contract during the accumulation phase depends upon the investment performance of the investment portfolio(s) you select. The amount of the annuity payments you receive during the income phase from the variable annuity portion of the contract also depends, in part, on the investment performance of the investment portfolios you select for the income phase. We do not guarantee the investment performance of the variable annuity portion. You bear the full investment risk for all amounts allocated to the variable annuity portion. The contract also contains a FIXED ACCOUNT. The fixed account is not offered by this prospectus. The fixed account offers an interest rate that is guaranteed by MetLife Investors. MetLife Investors guarantees that the interest rate credited to the fixed account will not be less than 3% per year with respect to contracts issued on or after May 1, 1996. If you select the fixed account, your money will be placed with the other general assets of MetLife Investors, and the amount of money you are able to accumulate in your contract during the accumulation phase depends upon the total interest credited to your contract. The amount of the annuity payments you receive during the income phase from the fixed account portion of the contract will remain level for the entire income phase. As owner of the contract, you exercise all interest and rights under the contract. You can change the owner at any time by notifying MetLife Investors in writing. You and your spouse can be named joint owners. We have described more information on this under "Other Information - Ownership." MARKET TIMING We have policies and procedures that attempt to detect transfer activity that may adversely affect other Contract Owners or investment portfolio shareholders in situations where there is potential for pricing inefficiencies or that involve certain other types of disruptive trading activity (i.e., market timing). We employ various means to try to detect such transfer activity, such as periodically examining the frequency and size of transfers into and out of particular investment portfolios made by Contract Owners within given periods of time and/or investigating transfer activity identified by the investment portfolios on a case-by-case basis. We may revise these policies and procedures in our sole discretion at any time without prior notice. Our market timing policies and procedures are discussed in more detail in "Investment Options - Transfers - Market Timing." 2. ANNUITY PAYMENTS (THE INCOME PHASE) ANNUITY DATE Under the contract you can receive regular income payments (referred to as annuity payments). You can choose the month and year in which those payments begin. We call that date the ANNUITY DATE. Your annuity date must be the first day of a calendar month. We ask you to choose your annuity date when you purchase the contract. You can change it at any time before the annuity date with 30 days notice to us. Your annuity date cannot be any earlier than one month after you buy the contract. ANNUITY PAYMENTS You will receive ANNUITY PAYMENTS during the income phase. In general, annuity payments must begin by the annuitant's 85th birthday or 10 years from the date the contract was issued, whichever is later (this requirement may differ slightly for special programs and may be changed by us). The ANNUITANT is the person whose life we look to when we make annuity payments. 9 During the income phase, you have the same investment choices you had just before the start of the income phase. At the annuity date, you can choose whether payments will come from the: . fixed account, . the investment portfolio(s) or . a combination of both. If you don't tell us otherwise, your annuity payments will be based on the investment allocations that were in place on the annuity date. If you choose to have any portion of your annuity payments come from the investment portfolio(s), the dollar amount of your payment will depend upon 3 things: 1) the value of your contract in the investment portfolio(s) on the annuity date, 2) the 3% assumed investment return used in the annuity table for the contract, and 3) the performance of the investment portfolios you selected. If the actual performance exceeds the 3% assumed investment return, your annuity payments will increase. Similarly, if the actual investment rate is less than 3%, your annuity payments will decrease. Annuity payments are made monthly unless you have less than $5,000 to apply toward a payment, except in New Jersey ($2,000 if the contract is issued in Massachusetts or Texas). In that case, MetLife Investors may pay your annuity payment in a single lump sum. Likewise, if your annuity payments would be less than $100 a month ($20 in Texas), MetLife Investors has the right to change the frequency of payments so that your annuity payments are at least $100 ($20 in Texas). ANNUITY OPTIONS You can choose among income plans. We call those ANNUITY OPTIONS. We ask you to choose an annuity option when you purchase the contract. You can change it at any time before the annuity date with 30 days notice to us. If you do not choose an annuity option at the time you purchase the contract, we will assume that you selected Option 2 which provides a life annuity with 10 years of guaranteed payments. You can choose one of the following annuity options or any other annuity option acceptable to MetLife Investors. After annuity payments begin, you cannot change the annuity option. OPTION 1. LIFE ANNUITY. Under this option, we will make an annuity payment each month so long as the annuitant is alive. After the annuitant dies, we stop making annuity payments. It is possible under this option to receive only one annuity payment if the annuitant dies before the due date of the second payment or only two annuity payments if death occurs before the due date of the third payment, and so on. OPTION 2. LIFE ANNUITY WITH 5, 10 OR 20 YEARS GUARANTEED. Under this option, we will make an annuity payment each month so long as the annuitant is alive. However, if, when the annuitant dies, we have made annuity payments for less than the selected guaranteed period, we will then continue to make annuity payments for the rest of the guaranteed period to the beneficiary. If the beneficiary does not want to receive annuity payments, he or she can ask us for a single lump sum. Due to underwriting or Internal Revenue Code considerations, there may be limitations on the payments or duration of the guarantee period under Option 2. OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make annuity payments each month so long as the annuitant and a second person are both alive. When either of these people dies, we will continue to make annuity payments, so long as the survivor continues to live. The amount of the annuity payments we will make to the survivor can be equal to 100%, 66 2/3% or 50% of the amount that we would have paid if both were alive. If both Annuitants die after the first payment and before the second payment, then we will make only one payment. Due to underwriting, administrative or Internal Revenue Code considerations, there may be limitations on payments to the survivor under Option 3 and/or the duration of the guarantee period under Option 2. We may require proof of age or sex of an annuitant before making any annuity payments under the contract that are measured by the annuitant's life. If the age or sex of the annuitant has been misstated, the amount payable will be the amount that the account value would have provided at the correct age or sex. Once annuity payments have begun, any underpayments will be made up in one sum with the next annuity payment. Any overpayments will be deducted from future annuity payments until the total is repaid. Where required by state law, the annuitant's sex will not be taken into consideration. If you were issued a contract 10 before state law mandated unisex annuity rates (if applicable in your state) and that contract had annuity rates that took the annuitant's sex into account, the annuity rates we use for that contract will not be less than the guaranteed rates in the contract when it was issued. You may not commute any option involving a life contingency, whether fixed or variable, prior to the death of the last surviving annuitant. Upon the death of the last surviving annuitant, the beneficiary may choose to continue receiving income payments or to receive the commuted value of the remaining guaranteed payments. For variable annuity options, the calculation of the commuted value will be done using the assumed investment return applicable to the Contract (See "Variable Annuity Payments"). For fixed annuity options, the calculation of the commuted value will be done using the then current annuity option rates. In addition to the annuity options described above, we may offer an additional payment option that would allow your beneficiary to take distribution of the contract value over a period not extending beyond his or her life expectancy. Under this option, annual distributions would not be made in the form of an annuity, but would be calculated in a manner similar to the calculation of required minimum distributions from IRAs. (See "Federal Income Tax Status.") We intend to make this payment option available to both tax qualified and non-tax qualified contracts. In the event that you purchased the contract as the beneficiary of a deceased person's IRA, you must take distribution of the contract value in accordance with the minimum required distribution rules set forth in applicable tax law. (See "Federal Income Tax Status.") You may choose any death benefit available under the contract, but certain other contract provisions and programs will not be available. Upon your death, the death benefit would be required to be distributed to your beneficiary at least as rapidly as under the method of distribution in effect at the time of your death. VARIABLE ANNUITY PAYMENTS The Adjusted Contract Value (the account value, less any applicable premium taxes, account fee, and any prorated rider charge) is determined at the annuity date. The first variable annuity payment will be based upon the Adjusted Contract Value, the annuity option elected, the annuitant's age and sex, and the appropriate variable annuity option table. In some states, the payment does not vary based on the sex of the annuitant. If, as of the annuity calculation date, the then current variable annuity option rates applicable to this class of contracts provide a first annuity payment greater than that which is guaranteed under the same annuity option under this contract, the greater payment will be made. The dollar amount of variable annuity payments after the first payment is determined as follows: . The dollar amount of the first variable annuity payment is divided by the value of an annuity unit for each applicable investment portfolio as of the annuity date. This establishes the number of annuity units for each payment. The number of annuity units for each applicable investment portfolio remains fixed during the annuity period, provided that transfers among the subaccounts will be made by converting the number of annuity units being transferred to the number of annuity units of the subaccount to which the transfer is made, and the number of annuity units will be adjusted for transfers to a fixed annuity option. Please see "Transfers During the Income Phase" for details. . The fixed number of annuity units per payment in each investment portfolio is multiplied by the annuity unit value for that investment portfolio for the last Valuation Period of the month preceding the month for which the payment is due. This result is the dollar amount of the payment for each applicable investment portfolio, less any account fee. The account fee will be deducted pro rata out of each annuity payment. . The total dollar amount of each variable annuity payment is the sum of all investment portfolio variable annuity payments. ANNUITY UNIT. The initial annuity unit value for each investment portfolio of the Separate Account was set by us. The subsequent annuity unit value for each investment portfolio is determined by multiplying the annuity unit value for the immediately preceding business day by the net investment factor (see the Statement of Additional Information for a definition) for the investment portfolio for the current business day and multiplying the result by a factor for each day since the last business day which represents the daily equivalent of the AIR. FIXED ANNUITY PAYMENTS The Adjusted Contract Value (defined above under "Variable Annuity Payments") on the day immediately preceding the annuity date will be used to determine a fixed annuity payment. The annuity payment will be based 11 upon the annuity option elected and the appropriate annuity option table. In some states, the payment does not vary based on the sex of the annuitant. If, as of the annuity calculation date, the then current annuity option rates applicable to this class of contracts provide an annuity payment greater than that which is guaranteed under the same annuity option under this contract, the greater payment will be made. You may not make a transfer from the fixed annuity option to the variable annuity option. 3. PURCHASE PURCHASE PAYMENTS A PURCHASE PAYMENT is the money you give us to invest in the contract. The maximum aggregate purchase payments we accept is $1 million without our prior approval. You can make additional purchase payments of $500 or more during the accumulation phase. MetLife Investors reserves the right to reject any purchase payment (except in New Jersey). We reserve the right to refuse purchase payments made via a personal check in excess of $100,000. Purchase payments over $100,000 may be accepted in other forms, including but not limited to, EFT/wire transfers, certified checks, corporate checks, and checks written on financial institutions. The form in which we receive a purchase payment may determine how soon subsequent disbursement requests may be fulfilled. (See "Access To Your Money.") If you send your purchase payments or transaction requests to an address other than the one we have designated for receipt of such purchase payments or requests, we may return the purchase payment to you, or there may be a delay in applying the purchase payment or transaction to your contract. We will not accept purchase payments made with cash, money orders, or travelers checks. ALLOCATION OF PURCHASE PAYMENTS If you make additional purchase payments, we will allocate them in the same way as your first purchase payment unless you tell us otherwise. There is a $500 minimum allocation requirement for the fixed account and for each investment portfolio. If you make additional purchase payments, we will credit these amounts to your contract within one business day. Our business day closes when the New York Stock Exchange closes, usually 4:00 P.M. Eastern Time. ACCUMULATION UNITS The value of the variable annuity portion of your contract will go up or down depending upon the investment performance of the investment portfolio(s) you choose. In order to keep track of the value of your contract, we use a unit of measure we call an ACCUMULATION UNIT. (An accumulation unit works like a share of a mutual fund.) During the income phase of the contract we call the unit an ANNUITY UNIT. Every business day we determine the value of an accumulation unit for each of the investment portfolios by multiplying the accumulation unit value for the immediately preceding business day by a factor for the current business day. The factor is determined by: 1) dividing the net asset value of an investment portfolio at the end of the current business day, plus any dividend or capital gains per share declared on behalf of the investment portfolio as of that day, by the net asset value of an investment portfolio for the previous business day, and 2) multiplying it by one minus the daily amount of the insurance charges and any charges for each day since the last business day for taxes. The value of an accumulation unit may go up or down from day to day. When you make a purchase payment, we credit your contract with accumulation units. The number of accumulation units credited is determined by dividing the amount of the purchase payment allocated to an investment portfolio by the value of the accumulation unit for that investment portfolio. We calculate the value of an accumulation unit for each investment portfolio after the New York Stock Exchange closes each day (generally 4:00 P.M. Eastern Time) and then credit your contract. EXAMPLE: On Monday we receive an additional purchase payment of $5,000 from you before 4:00 P.M. Eastern Time. You have told us you want this to go to the Lord Abbett Bond Debenture Portfolio. When the New York Stock Exchange closes on that Monday, we determine that the value of an accumulation unit for the Lord Abbett Bond Debenture Portfolio is $13.90. We then divide $5,000 by $13.90 and credit your contract on Monday night with 359.71 accumulation units for the Lord Abbett Bond Debenture Portfolio. 12 ACCOUNT VALUE Account Value is equal to the sum of your interests in the investment portfolios and the fixed account. Your interest in each investment portfolio is determined by multiplying the number of accumulation units for that portfolio by the value of the accumulation unit. 4. INVESTMENT OPTIONS The contract offers the INVESTMENT PORTFOLIOS which are listed below for allocation of purchase payments and transfers. CERTAIN PORTFOLIOS LISTED BELOW MAY NOT BE AVAILABLE WITH YOUR CONTRACT. APPENDIX B - PART 2 CONTAINS A LIST OF THE PORTFOLIOS AVAILABLE WITH YOUR CONTRACT. Currently, you can only invest in 15 investment portfolios at any one time. Additional investment portfolios may be available in the future. YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY. YOU CAN OBTAIN COPIES OF THE FUND PROSPECTUSES BY CALLING OR WRITING TO US AT: METLIFE INVESTORS INSURANCE COMPANY, ANNUITY SERVICE OFFICE, P.O. BOX 10366, DES MOINES, IOWA, 50306-0366, (800) 343-8496. YOU CAN ALSO OBTAIN INFORMATION ABOUT THE FUNDS (INCLUDING A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION) BY ACCESSING THE SECURITIES & EXCHANGE COMMISSION WEBSITE AT HTTP://WWW.SEC.GOV. APPENDIX B CONTAINS A SUMMARY OF THE NAMES OF THE INVESTMENT ADVISERS AND SUBADVISERS OF THE INVESTMENT PORTFOLIOS AND THEIR INVESTMENT OBJECTIVES AND STRATEGIES. The investment objectives and policies of certain of the investment portfolios are similar to the investment objectives and policies of other mutual funds that certain of the same investment advisers manage. Although the objectives and policies may be similar, the investment results of the investment portfolios may be higher or lower than the results of such other mutual funds. The investment advisers cannot guarantee, and make no representation, that the investment results of similar funds will be comparable even though the funds have the same investment advisers. An investment portfolio's performance may be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities, initial public offerings (IPOs) or companies with relatively small market capitalizations. IPOs and other investment techniques may have a magnified performance impact on a fund with a small asset base. An investment portfolio may not experience similar performance as its assets grow. Shares of the investment portfolios may be offered in connection with certain variable annuity contracts and variable life insurance policies of various life insurance companies which may or may not be affiliated with MetLife Investors. Certain investment portfolios may also be sold directly to qualified plans. The investment portfolios believe that offering their shares in this manner will not be disadvantageous to you. CERTAIN PAYMENTS WE RECEIVE WITH REGARD TO THE INVESTMENT PORTFOLIOS. An investment adviser (other than our affiliate MetLife Advisers, LLC) or subadviser of an investment portfolio, or its affiliates, may make payments to us and/or certain of our affiliates. These payments may be used for a variety of purposes, including payment of expenses for certain administrative, marketing, and support services with respect to the contracts and, in the Company's role as an intermediary, with respect to the investment portfolios. The Company and its affiliates may profit from these payments. These payments may be derived, in whole or in part, from the advisory fee deducted from investment portfolio assets. Contract owners, through their indirect investment in the investment portfolios, bear the costs of these advisory fees (see the investment portfolios' prospectuses for more information). The amount of the payments we receive is based on a percentage of assets of the investment portfolios attributable to the contracts and certain other variable insurance products that we and our affiliates issue. These percentages differ and some advisers or subadvisers (or other affiliates) may pay us more than others. These percentages currently range up to 0.50%. Additionally, an investment adviser or subadviser of an investment portfolio or its affiliates may provide us with wholesaling services that assist in the distribution of the contracts and may pay us and/or certain of our affiliates amounts to participate in sales meetings. These amounts may be significant and may provide the adviser or subadviser (or their affiliate) with increased access to persons involved in the distribution of the contracts. We and/or certain of our affiliated insurance companies have joint ownership interests in affiliated investment adviser MetLife Advisers, LLC, which is formed as a "limited liability company". Our ownership interests in MetLife Advisers, LLC entitle us to profit distributions if 13 the adviser makes a profit with respect to the advisory fees it receives from the investment portfolios. We will benefit accordingly from assets allocated to the investment portfolios to the extent they result in profits to the adviser. (See "Fee Tables and Examples - Investment Portfolios Expenses" for information on the management fees paid by the investment portfolios and the Statement of Additional Information for the investment portfolios for information on the management fees paid by the adviser to the subadvisers.) Certain investment portfolios have adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. An investment portfolio's 12b-1 Plan, if any, is described in more detail in the investment portfolio's prospectus. (See "Fee Tables and Examples - Investment Portfolios Expenses" and "Other Information" - "Distributor") Any payments we receive pursuant to those 12b-1 Plans are paid to us or our distributor. Payments under an investment portfolio's 12b-1 Plan decrease the investment portfolio's investment return. We select the investment portfolios offered through this contract based on a number of criteria, including asset class coverage, the strength of the adviser's or subadviser's reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the investment portfolio's adviser or subadviser is one of our affiliates or whether the investment portfolio, its adviser, its subadviser(s), or an affiliate will make payments to us or our affiliates. In this regard, the profit distributions we receive from our affiliated investment advisers are a component of the total revenue that we consider in configuring the features and investment choices available in the variable insurance products that we and our affiliated insurance companies issue. Since we and our affiliated insurance companies may benefit more from the allocation of assets to investment portfolios advised by our affiliates than those that are not, we may be more inclined to offer investment portfolios advised by our affiliates in the variable insurance products we issue. We review the investment portfolios periodically and may remove an investment portfolio or limit its availability to new purchase payments and/or transfers of account value if we determine that the investment portfolio no longer meets one or more of the selection criteria, and/or if the investment portfolio/Eligible Fund has not attracted significant allocations from contract owners. In some cases, we have included investment portfolios based on recommendations made by selling firms. These selling firms may receive payments from the investment portfolios they recommend and may benefit accordingly from the allocation of contract value to such investment portfolios. WE DO NOT PROVIDE ANY INVESTMENT ADVICE AND DO NOT RECOMMEND OR ENDORSE ANY PARTICULAR INVESTMENT PORTFOLIO. YOU BEAR THE RISK OF ANY DECLINE IN THE ACCOUNT VALUE OF YOUR CONTRACT RESULTING FROM THE PERFORMANCE OF THE INVESTMENT PORTFOLIOS YOU HAVE CHOSEN. AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM Variable Insurance Funds is a mutual fund with multiple portfolios. Invesco Aim Advisors, Inc. is the investment adviser to each portfolio. The following Series I portfolio is available under the contract: AIM V.I. International Growth Fund FIDELITY(R) VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Fidelity Variable Insurance Products is a mutual fund with multiple portfolios. Fidelity Management & Research Company is the investment manager. The following Initial Class portfolios are available under the contract: Equity-Income Portfolio Growth Opportunities Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1) Franklin Templeton Variable Insurance Products Trust consists of multiple portfolios. Templeton Investment Counsel, LLC is the investment adviser for the Templeton Foreign Securities Fund; and Templeton Global Advisors Limited is the investment adviser for the Templeton Growth Securities Fund. The following Class 1 portfolios are available under the contract: Templeton Foreign Securities Fund Templeton Growth Securities Fund MET INVESTORS SERIES TRUST (CLASS A (OR CLASS B AS NOTED)) Met Investors Series Trust is a mutual fund with multiple portfolios. MetLife Advisers, LLC, an affiliate of MetLife Investors, is the investment manager of Met Investors Series Trust. MetLife Advisers, LLC has engaged subadvisers to provide investment advice for the individual 14 investment portfolios. The following Class A (or Class B as noted) portfolios are available under the contract: Clarion Global Real Estate Portfolio Lazard Mid Cap Portfolio Legg Mason Partners Aggressive Growth Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Emerging Markets Equity Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio (Class A and Class B) PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Comstock Portfolio (Class B) Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A (OR CLASS B AS NOTED)) Metropolitan Series Fund, Inc. is a mutual fund with multiple portfolios. MetLife Advisers, LLC is the investment adviser to the portfolios. MetLife Advisers, LLC has engaged subadvisers to provide investment advice for the individual investment portfolios. The following Class A (or Class B as noted) portfolios are available under the contract: Artio International Stock Portfolio BlackRock Bond Income Portfolio (Class A and Class B) BlackRock Money Market Portfolio Davis Venture Value Portfolio Jennison Growth Portfolio MFS(R) Total Return Portfolio Oppenheimer Global Equity Portfolio (Class B) T. Rowe Price Large Cap Growth Portfolio T. Rowe Price Small Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio PUTNAM VARIABLE TRUST (CLASS IB) Putnam Variable Trust is a mutual fund with multiple portfolios. Putnam Investment Management, LLC is the investment adviser to each portfolio. The following Class IB portfolio is available under the contract: Putnam VT Equity Income Fund TRANSFERS You can transfer a portion of your account value among the fixed account and the investment portfolios. MetLife Investors has reserved the right during the year to terminate or modify the transfer provisions described below, subject to applicable Federal and state laws and regulations. (See "Investment Options - Market Timing.") TELEPHONE TRANSFERS. You and/or your registered representative on your behalf, can make transfers by telephone, Internet or other means acceptable to MetLife Investors. Telephone transfers will be automatically permitted unless you tell us otherwise. If you own the contract with a joint owner, unless MetLife Investors is instructed otherwise, MetLife Investors will accept instructions from either you or the other owner. MetLife Investors will use reasonable procedures to confirm that instructions given us by telephone are genuine. MetLife Investors may tape record telephone instructions. We will consider telephone and Internet transfer requests received after 4:00 P.M. Eastern Time to be received the following business day. TRANSFERS DURING THE ACCUMULATION PHASE. You can make 12 transfers every year during the accumulation phase without charge. We measure a year from the anniversary of the day we issued your contract. You can make a transfer to or from the fixed account and to or from any investment portfolio. If you make more than 12 transfers in a year, there is a transfer fee deducted. The following apply to any transfer during the accumulation phase: 1. The minimum amount which you can transfer is $500 or your entire value in the investment portfolio or fixed account. 2. Your request for transfer must clearly state which investment portfolio(s) or the fixed account are involved in the transfer. 3. Your request for transfer must clearly state how much the transfer is for. 4. You cannot make any transfers within 7 calendar days of the annuity date. TRANSFERS DURING THE INCOME PHASE. You can only make transfers between the investment portfolios once each year. We measure a year from the anniversary of the day we issued your contract. You cannot transfer from the fixed account to an investment portfolio, but you can transfer from one or more investment portfolios to the fixed account at any time. 15 MARKET TIMING Frequent requests from Contract Owners to transfer account value may dilute the value of an investment portfolio's shares if the frequent trading involves an attempt to take advantage of pricing inefficiencies created by a lag between a change in the value of the securities held by the investment portfolio and the reflection of that change in the investment portfolio's share price ("arbitrage trading"). Regardless of the existence of pricing inefficiencies, frequent transfers may also increase brokerage and administrative costs of the underlying investment portfolios and may disrupt portfolio management strategy, requiring an investment portfolio to maintain a high cash position and possibly resulting in lost investment opportunities and forced liquidations ("disruptive trading"). Accordingly, arbitrage trading and disruptive trading activities (referred to collectively as "market timing") may adversely affect the long-term performance of the investment portfolios, which may in turn adversely affect Contract Owners and other persons who may have an interest in the Contracts (e.g., annuitants and beneficiaries). We have policies and procedures that attempt to detect and deter frequent transfers in situations where we determine there is a potential for arbitrage trading. Currently, we believe that such situations may be presented in the international, small-cap, and high-yield investment portfolios i.e., AIM V.I. International Growth Fund, Artio International Stock Portfolio, Clarion Global Real Estate Portfolio, Templeton Foreign Securities Fund, Templeton Growth Securities Fund, Lord Abbett Bond Debenture Portfolio, MFS(R) Emerging Markets Equity Portfolio, MFS(R) Research International Portfolio, Third Avenue Small Cap Value Portfolio, T. Rowe Price Small Cap Growth Portfolio, Western Asset Management Strategic Bond Opportunities Portfolio, Oppenheimer Global Equity Portfolio and T. Rowe Price Small Cap Growth Portfolio (the "Monitored Portfolios"), and we monitor transfer activity in those Monitored Portfolios. We employ various means to monitor transfer activity, such as examining the frequency and size of transfers into and out of the Monitored Portfolios within given periods of time. For example, we currently monitor transfer activity to determine if, for each category of international, small-cap and high-yield portfolios, in a 12-month period there were (1) six or more transfers involving the given category; (2) cumulative gross transfers involving the given category that exceed the current account value; and (3) two or more "round-trips" involving any portfolio in the given category. A round-trip generally is defined as a transfer in followed by a transfer out within the next seven calendar days or a transfer out followed by a transfer in within the next seven calendar days, in either case subject to certain criteria. We do not believe that other investment portfolios present a significant opportunity to engage in arbitrage trading and therefore do not monitor transfer activity in those investment portfolios. We may change the Monitored Portfolios at any time without notice in our sole discretion. In addition to monitoring transfer activity in certain investment portfolios, we rely on the underlying investment portfolios to bring any potential disruptive trading activity they identify to our attention for investigation on a case-by-case basis. We will also investigate any other harmful transfer activity that we identify from time to time. We may revise these policies and procedures in our sole discretion at any time without prior notice. Our policies and procedures may result in transfer restrictions being applied to deter market timing. Currently, when we detect transfer activity in the Monitored Portfolios that exceeds our current transfer limits, or other transfer activity that we believe may be harmful to other Contract Owners or other persons who have an interest in the Contracts, we require all future transfer requests to or from any Monitored Portfolios or other identified portfolios under that Contract to be submitted with an original signature. Transfers made under a Dollar Cost Averaging Program, a rebalancing program or, if applicable, any asset allocation program described in this prospectus are not treated as transfers when we evaluate trading patterns for market timing. The detection and deterrence of harmful transfer activity involves judgments that are inherently subjective, such as the decision to monitor only those investment portfolios that we believe are susceptible to arbitrage trading, or the determination of the transfer limits. Our ability to detect and/or restrict such transfer activity may be limited by operational and technological systems, as well as our ability to predict strategies employed by Contract Owners to avoid such detection. Our ability to restrict such transfer activity may also be limited by provisions of the Contract. Accordingly, there is no assurance that we will prevent all transfer activity that may adversely affect Contract Owners and other persons with interests in the Contracts. We do not accommodate market timing in any investment portfolios and there are no arrangements in place to permit 16 any Contract Owner to engage in market timing; we apply our policies and procedures without exception, waiver or special arrangement. The investment portfolios may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares and we reserve the right to enforce these policies and procedures. For example, investment portfolios may assess a redemption fee (which we reserve the right to collect) on shares held for a relatively short period. The prospectuses for the investment portfolios describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Although we may not have the contractual authority or the operational capacity to apply the frequent trading policies and procedures of the investment portfolios, we have entered into a written agreement, as required by SEC regulation, with each investment portfolio or its principal underwriter that obligates us to provide to the investment portfolio promptly upon request certain information about the trading activity of individual Contract Owners, and to execute instructions from the investment portfolio to restrict or prohibit further purchases or transfers by specific Contract Owners who violate the frequent trading policies established by the investment portfolio. In addition, contract owners and other persons with interests in the contracts should be aware that the purchase and redemption orders received by the investment portfolios generally are "omnibus" orders from intermediaries, such as retirement plans or separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and/or individual retirement plan participants. The omnibus nature of these orders may limit the investment portfolios in their ability to apply their frequent trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the investment portfolios (and thus Contract Owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the investment portfolios. If an investment portfolio believes that an omnibus order reflects one or more transfer requests from Contract Owners engaged in disruptive trading activity, the investment portfolio may reject the entire omnibus order. In accordance with applicable law, we reserve the right to modify or terminate the transfer privilege at any time. We also reserve the right to defer or restrict the transfer privilege at any time that we are unable to purchase or redeem shares of any of the investment portfolios, including any refusal or restriction on purchases or redemptions of their shares as a result of their own policies and procedures on market timing activities (even if an entire omnibus order is rejected due to the market timing activity of a single Contract Owner). You should read the investment portfolio prospectuses for more details. DOLLAR COST AVERAGING PROGRAM The Dollar Cost Averaging Program allows you to systematically transfer a set amount each month from the BlackRock Money Market Portfolio or the fixed account to any of the other investment portfolio(s) you select. By allocating amounts on a regular schedule as opposed to allocating the total amount at one particular time, you may be less susceptible to the impact of market fluctuations. The Dollar Cost Averaging Program is available only during the accumulation phase. The minimum amount which can be transferred each month is $500. You must have at least $6,000 in the BlackRock Money Market Portfolio or the fixed account, (or the amount required to complete your program, if less) in order to participate in the Dollar Cost Averaging Program. Currently, MetLife Investors does not charge for participating in the Dollar Cost Averaging Program. MetLife Investors will waive the minimum transfer amount and the minimum amount required to establish dollar cost averaging if you establish dollar cost averaging for 6 or 12 months at the time you bought the contract. MetLife Investors reserves the right to modify, terminate or suspend the Dollar Cost Averaging Program. If you participate in the Dollar Cost Averaging Program, the transfers made under the program are not taken into account in determining any transfer fee. You may not participate in the Dollar Cost Averaging Program and Automatic Rebalancing Program at the same time. MetLife Investors may, from time to time, offer other dollar cost averaging programs which may have terms different from those described above. AUTOMATIC REBALANCING PROGRAM Once your money has been allocated to the investment portfolios, the performance of each portfolio may cause your allocation to shift. You can direct us to automatically 17 rebalance your contract to return to your original percentage allocations by selecting our Automatic Rebalancing Program. You can tell us whether to rebalance quarterly, semi-annually or annually. An automatic rebalancing program is intended to transfer contract value from those portfolios that have increased in value to those that have declined or not increased as much in value. Over time, this method of investing may help you "buy low and sell high," although there can be no assurance that this objective will be achieved. Automatic rebalancing does not guarantee profits nor does it assure that you will not have losses. We will measure these periods from the anniversary of the date we issued your contract. The transfer date will be the 1st business day after the end of the period you selected. The Automatic Rebalancing Program is available only during the accumulation phase. Currently, MetLife Investors does not charge for participating in the Automatic Rebalancing Program. If you participate in the Automatic Rebalancing Program, the transfers made under the program are not taken into account in determining any transfer fee. EXAMPLE: Assume that you want your initial purchase payment split between 2 investment portfolios. You want 40% to be in the Lord Abbett Bond Debenture Portfolio and 60% to be in the Lord Abbett Growth and Income Portfolio. Over the next 2 1/2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the Lord Abbett Bond Debenture Portfolio now represents 50% of your holdings because of its increase in value. If you have chosen to have your holdings rebalanced quarterly, on the first day of the next quarter, MetLife Investors will sell some of your units in the Lord Abbett Bond Debenture Portfolio to bring its value back to 40% and use the money to buy more units in the Lord Abbett Growth and Income Portfolio to increase those holdings to 60%. VOTING RIGHTS MetLife Investors is the legal owner of the investment portfolio shares. However, MetLife Investors believes that when an investment portfolio solicits proxies in conjunction with a vote of shareholders, it is required to obtain from you and other affected owners instructions as to how to vote those shares. When we receive those instructions, we will vote all of the shares we own in proportion to those instructions. This will also include any shares that we own on our own behalf. The effect of this proportional voting is that a small number of contract owners may control the outcome of a vote. Should MetLife Investors determine that it is no longer required to comply with the above, it will vote the shares in its own right. SUBSTITUTION If investment in the investment portfolios or a particular investment portfolio is no longer possible, in our judgment becomes inappropriate for purposes of the contract or for any other reason in our sole discretion, we may substitute another investment portfolio or investment portfolios without your consent. The substituted investment portfolio may have different fees and expenses. Substitution may be made with respect to existing investments or the investment of the future purchase payments, or both. However, we will not make such substitution without any necessary approval of the Securities and Exchange Commission. Furthermore, we may close investment portfolios to allocation of purchase payments or account value, or both, at any time in our sole discretion. 5. EXPENSES There are charges and other expenses associated with the contracts that reduce the return on your investment in the contract. These charges and expenses are: INSURANCE CHARGES Each day, MetLife Investors makes a deduction for its insurance charges. MetLife Investors does this as part of its calculation of the value of the accumulation units and the annuity units (i.e., during the accumulation phase and the income phase). The insurance charge has two parts: . the mortality and expense risk premium, and . the administrative expense charge. MORTALITY AND EXPENSE RISK PREMIUM. This charge is equivalent, on an annual basis, to 1.25% of the average daily net asset value of each investment portfolio. This charge is for the insurance benefits, e.g., guarantee of annuity rates, the death benefits, for certain expenses of the contract, and for assuming the risk (expense risk) that the current charges will be insufficient in the future to cover the cost of administering the contract. If the charges under the contract are not sufficient, then MetLife Investors will bear the loss. MetLife Investors does, however, expect to profit from this charge. The mortality and expense risk premium cannot be increased. MetLife Investors may use 18 any profits it makes from this charge to pay for the costs of distributing the contract. ADMINISTRATIVE EXPENSE CHARGE. This charge is equal, on an annual basis, to 0.15% of the average daily net asset value of the each investment portfolio. This charge, together with the contract maintenance charge (see below), is for the expenses associated with the administration of the contract. Some of these expenses are: preparation of the contract, confirmations, annual reports and statements, maintenance of contract records, personnel costs, legal and accounting fees, filing fees, and computer and systems costs. Because this charge is taken out of every unit value, you may pay more in administrative costs than those that are associated solely with your contract. MetLife Investors does not intend to profit from this charge. However, if this charge and the contract maintenance charge are not enough to cover the costs of the contracts in the future, MetLife Investors will bear the loss. CONTRACT MAINTENANCE CHARGE During the accumulation phase, every year on the anniversary of the date when your contract was issued, MetLife Investors deducts $30 from your contract as a contract maintenance charge. (In South Carolina, the charge is the lesser of $30 or 2% of the value of the contract.) This charge is for administrative expenses (see above). This charge cannot be increased. MetLife Investors will not deduct this charge during the accumulation phase if when the deduction is to be made, the value of your contract is $50,000 or more. MetLife Investors may some time in the future discontinue this practice and deduct the charge. If you make a complete withdrawal from your contract, the contract maintenance charge will also be deducted. A pro rata portion of the charge will be deducted if the annuity date is other than an anniversary. After the annuity date, the charge will be collected monthly out of the annuity payment. WITHDRAWAL CHARGE During the accumulation phase, you can make withdrawals from your contract. MetLife Investors keeps track of each purchase payment. Once a year after the first year (and once a year during the first year for purposes of payment of charitable remainder trust administration fees), you can withdraw up to 10% of your total purchase payments and no withdrawal charge will be assessed on the 10%, if on the day you make your withdrawal (in New Jersey, on the day MetLife Investors processes the withdrawal) the value of your contract is $5,000 or more. Withdrawals for purposes of payment of charitable remainder trust administration fees are included in the 10% free withdrawal amount. Otherwise, the charge is 5% of each purchase payment you take out unless the purchase payment was made more than 5 years ago. After MetLife Investors has had a purchase payment for 5 years, there is no charge when you withdraw that purchase payment. MetLife Investors does not assess a withdrawal charge on earnings withdrawn from the contract. Earnings are defined as the value in your contract minus the remaining purchase payments in your contract. The withdrawal order for calculating the withdrawal charge is shown below. . 10% of purchase payments free. . Remaining purchase payments that are over 5 years old and not subject to a withdrawal charge. . Earnings in the contract free. . Remaining purchase payments that are less than 5 years old and are subject to a withdrawal charge. For purposes of calculating the withdrawal charge, slightly different rules may apply to Section 1035 exchanges. When the withdrawal is for only part of the value of your contract, the withdrawal charge is deducted from the remaining value in your contract. The withdrawal charge may apply to a full or partial withdrawal of your contract payment options pursuant to a request to divide the assets of the contract due to a divorce. MetLife Investors does not assess the withdrawal charge on any payments paid out as annuity payments or as death benefits. NOTE: For tax purposes, earnings are considered to come out first. REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE GENERAL. MetLife Investors may reduce or eliminate the amount of the withdrawal charge when the contract is sold under circumstances which reduce its sales expense. Some examples are: if there is a large group of individuals that will be purchasing the contract or a prospective purchaser already had a relationship with MetLife Investors. MetLife Investors may not deduct a withdrawal charge under a contract issued to an officer, director or employee of 19 MetLife Investors or any of its affiliates and we may not deduct a withdrawal charge under a contract issued to an officer, director or employee or family member of an officer, director or employee of a broker-dealer which is participating in the offering of the contract. NURSING HOME WAIVER. After you have owned the contract for one year, if you, or your joint owner, becomes confined to a nursing home or hospital for at least 90 consecutive days under a doctor's care and you need part or all of the money from your contract, MetLife Investors will not impose a withdrawal charge. You or your joint owner cannot have been so confined when you purchased your contract (confinement must begin after the first contract anniversary) if you want to take advantage of this provision. This is called the Nursing Home Waiver. This provision is not available in all states. PREMIUM TAXES AND OTHER TAXES Some states and other governmental entities (e.g., municipalities) charge premium taxes or similar taxes. MetLife Investors is responsible for the payment of these taxes and will make a deduction from the value of the contract for them. Some of these taxes are due when the contract is issued, others are due when annuity payments begin. It is MetLife Investors' current practice to not charge anyone for these taxes until annuity payments begin. MetLife Investors may, some time in the future, discontinue this practice and assess the charge when the tax is due. Premium taxes generally range from 0% to 3.5%, depending on the state. We also reserve the right to deduct from purchase payments, contract values, withdrawals or income payments, any taxes (including, but not limited to, premium taxes) paid by us to any government entity relating to the contracts. Examples of these taxes include, but are not limited to, generation skipping transfer tax or a similar excise tax under federal or state tax law which is imposed on payments we make to certain persons and income tax withholdings on withdrawals and income payments to the extent required by law. We will, at our sole discretion, determine when taxes relate to the contracts. We may, at our sole discretion, pay taxes when due and deduct that amount from the contract value at a later date. Payment at an earlier date does not waive any right we may have to deduct amounts at a later date. TRANSFER FEE You can make 12 free transfers every year. We measure a year from the day we issue your contract. If you make more than 12 transfers a year, we will deduct a transfer fee of $25 or 2% of the amount that is transferred, whichever is less. If the transfer is part of the Dollar Cost Averaging Program or the Automatic Rebalancing Program, it will not count in determining the transfer fee. INVESTMENT PORTFOLIO EXPENSES There are deductions from and expenses paid out of the assets of the various investment portfolios, which are described in the fee table in this prospectus and in the investment portfolio prospectuses. These deductions and expenses are not charges under the terms of the contract but are represented in the share values of the investment options. An investment portfolio may assess a redemption fee up to 2% on assets that are redeemed out of an investment portfolio in connection with a withdrawal or transfer. Each investment portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee is retained by or paid to the investment portfolio and is not retained by us. The redemption fee will be deducted from your account value. For more information, see the investment portfolio prospectus. 6. ACCESS TO YOUR MONEY You (or in the case of (3) below, your beneficiary) can have access to the money in your contract: (1)by making a withdrawal (either a partial or a complete withdrawal); (2)by electing to receive annuity payments; or (3)when a death benefit is paid to your beneficiary. Under most circumstances, withdrawals can only be made during the accumulation phase. When you make a complete withdrawal you will receive the withdrawal value of the contract. The withdrawal value of the contract is the value of the contract at the end of the business day when MetLife Investors receives a written request for a withdrawal prior to the close of trading on the New York Stock Exchange (currently 4:00 P.M. Eastern Time): . less any applicable withdrawal charge, . less any premium tax, and . less any contract maintenance charge. 20 Unless you instruct MetLife Investors otherwise, any partial withdrawal will be made pro-rata from all the investment portfolios and the fixed account. Under most circumstances, the amount of any partial withdrawal must be for at least $500. MetLife Investors requires that after a withdrawal is made you keep at least $500 in any selected investment portfolio. If the remaining withdrawal value would be less than $500 ($1,000 in New Jersey) after you make a partial withdrawal, the partial withdrawal amount will be the remaining withdrawal value. We may withhold payment of surrender or withdrawal proceeds if any portion of those proceeds would be derived from a contract owner's check that has not yet cleared (I.E., that could still be dishonored by your banking institution). We may use telephone, fax, Internet or other means of communications to verify that payment from the contract owner's check has been or will be collected. We will not delay payment longer than necessary for us to verify that payment has been or will be collected. Contract owners may avoid the possibility of delay in the disbursement of proceeds coming from a check that has not yet cleared by providing us with a certified check. When you make a withdrawal, the amount of the death benefit may be reduced. See "Death Benefits." There are limits to the amount you can withdraw from qualified plans, including 403(b) plans. For a more complete explanation see "Federal Income Tax Status" and the discussion in the Statement of Additional Information. INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE. SYSTEMATIC WITHDRAWAL PROGRAM You may use the Systematic Withdrawal Program. This program provides an automatic monthly payment to you of up to 10% of your total purchase payments each year. No withdrawal charge will be made for these payments. MetLife Investors does not have any charge for this program, but reserves the right to charge in the future. While the Systematic Withdrawal Program is in effect, you can make additional withdrawals. However, such withdrawals plus the systematic withdrawals will be considered when determining the applicability of any withdrawal charge. For a discussion of the withdrawal charge and the 10% free withdrawal, see "Expenses." INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO SYSTEMATIC WITHDRAWALS. (SEE "FEDERAL INCOME TAX STATUS.") SUSPENSION OF PAYMENTS OR TRANSFERS MetLife Investors may be required to suspend or postpone payments for withdrawals or transfers for any period when: . the New York Stock Exchange is closed (other than customary weekend and holiday closings); . trading on the New York Stock Exchange is restricted; . an emergency exists, as determined by the Securities and Exchange Commission, as a result of which disposal of shares of the investment portfolios is not reasonably practicable or MetLife Investors cannot reasonably value the shares of the investment portfolios; or . during any other period when the Securities and Exchange Commission, by order, so permits for the protection of owners. MetLife Investors has reserved the right to defer payment for a withdrawal or transfer from the fixed account for the period permitted by law but not for more than six months. Federal laws designed to counter terrorism and prevent money laundering might, in certain circumstances, require us to block a contract owner's ability to make certain transactions and thereby refuse to accept any requests for transfers, withdrawals, surrenders, or death benefits until instructions are received from the appropriate regulator. We may also be required to provide additional information about you and your contract to government regulators. 7. PERFORMANCE MetLife Investors periodically advertises performance of the various investment portfolios. MetLife Investors will calculate performance by determining the percentage change in the value of an accumulation unit by dividing the increase (decrease) for that unit by the value of the accumulation unit at the beginning of the period. This performance number reflects the deduction of the insurance charges. It does not reflect the deduction of any applicable contract maintenance charge and withdrawal charge. The deduction of any applicable contract maintenance charge and withdrawal charges would reduce the percentage increase or make greater any percentage decrease. Any advertisement will also include total return figures which reflect the deduction of the insurance charges, contract maintenance charge, withdrawal charges and investment portfolio expenses. 21 For periods starting prior to the date the contracts were first offered, the performance will be based on the historical performance of the corresponding investment portfolios for the periods commencing from the date on which the particular investment portfolio was made available through the Separate Account. In addition, for certain investment portfolios performance may be shown for the period commencing from the inception date of the investment portfolio. These figures should not be interpreted to reflect actual historical performance of the Separate Account. We may, from time to time, include in our advertising and sales materials performance information for funds or investment accounts related to the investment portfolios and/or their investment advisers or subadvisers. Such related performance information also may reflect the deduction of certain contract charges. We may also include in our advertising and sales materials tax deferred compounding charts and other hypothetical illustration, which may include comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets. You should know that for any performance we illustrate, future performance will vary and results shown are not necessarily representative of future results. 8. DEATH BENEFIT UPON YOUR DEATH If you die before annuity payments begin, MetLife Investors will pay a death benefit to your beneficiary (see below). If you have a joint owner, the death benefit will be paid when the first of you dies. Joint owners must be spouses. The surviving joint owner will be treated as the beneficiary. For contracts issued on or after May 1, 1999, you can select Death Benefit Option B or E. If you do not choose an option on the forms provided by MetLife Investors, Option E will be your death benefit. If, at the time you buy the contract, the endorsement for Death Benefit Option E is not approved in your state, you can select Death Benefit Option A or B. If you do not choose an option on the forms provided by MetLife Investors, Option A will be your death benefit. If your contract was issued before May 1, 1998, you were given the opportunity to choose Death Benefit Option B or C on your next contract anniversary after May 1, 1998 (or during a 60 day period after both options were approved in your state). If you did not make an election during such time period, your death benefit was automatically enhanced to Death Benefit Option B. If on May 1, 1998, you or your joint owner were 80 or older, you were unaffected by the changes in the death benefits and Option D continues to be your death benefit. From May 1, 1998, to April 30, 1999, at the time you bought the contract, you were given the opportunity to select Death Benefit Option A or B. If you did not choose an option on the forms provided by MetLife Investors, Option A is your death benefit. The death benefits are described below. If you have a joint owner, the death benefit is determined based on the age of the oldest joint owner and the death benefit is payable on the death of the first joint owner. DEATH BENEFIT OPTION A: Prior to you, or your joint owner, reaching age 80, the death benefit will be the greatest of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest adjusted contract value (GACV) (as explained below). The GACV is evaluated at each contract anniversary prior to the date of your or your joint owner's death, and on each day a purchase payment or withdrawal is made. On the contract anniversary, if the current contract value is greater than the GACV, the GACV will be increased to the current value of your contract. If a purchase payment is made, the amount of the purchase payment will increase the GACV. If a withdrawal is made, the GACV will be reduced by the amount withdrawn (and any associated withdrawal charges) divided by the value of your contract immediately before the withdrawal multiplied by the GACV immediately prior to the withdrawal. The following example describes the effect of a withdrawal on the GACV: Example: Assumed facts for example: $10,000 current GACV $8,000 contract value $2,100 partial withdrawal ($ 2,000 withdrawal + $100 withdrawal charge) New GACV = $10,000 - [($2,100/$8,000) X $10,000] which results in the current GACV of $10,000 being reduced by $2,625 22 The new GACV is $7,375. After you, or your joint owner, reaches age 80, the death benefit will be the greatest of: 1. Total purchase payments made, less any withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest adjusted contract value (GACV) (as explained below). The GACV is evaluated at each contract anniversary on or before your, or your joint owner's, 80th birthday, and on each day a purchase payment or withdrawal is made. On the contract anniversary on or before your, or your joint owner's, 80th birthday, if the current contract value is greater than the GACV, the GACV will be increased to the current value of your contract. If a purchase payment is made, the amount of the purchase payment will increase the GACV. If a withdrawal is made, the example above explains the effect of a withdrawal on the GACV. DEATH BENEFIT OPTION B: Prior to you, or your joint owner, reaching age 80, the death benefit will be the greatest of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals) accumulated at an annual rate of 4% until the date of death; or 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest of the values of your contract resulting from taking the contract value on any five (5) year contract anniversary prior to your, or your joint owner's death; plus any payments you made subsequent to that contract anniversary, less any withdrawals (and any withdrawal charges paid on the withdrawals) subsequent to that contract anniversary. After you, or your joint owner, reaches age 80, the death benefit will be the greatest of: 1. Total purchase payments made on or before your, or your joint owner's, 80th birthday, less any withdrawals (and any withdrawal charges paid on the withdrawals) accumulated at an annual rate of 4% until you, or your joint owner, reach age 80, plus any subsequent purchase payments, less any subsequent withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest of the values of the contract resulting from taking the contract value on any prior five (5) year contract anniversary on or before your or your joint owner's 80th birthday, plus any purchase payments made after that contract anniversary, less any withdrawals (and any withdrawal charges paid on the withdrawals) made after that contract anniversary. DEATH BENEFIT OPTION C: Prior to you, or your joint owner, reaching age 80, the death benefit will be the greatest of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest adjusted contract value (GACV) as determined below. The GACV is initially the death benefit determined as of the day MetLife Investors receives notice that you have elected this death benefit option. This figure is based on your existing death benefit as defined in your contract, Option D (not as defined in the endorsement for this option). The GACV is then evaluated at each subsequent contract anniversary prior to your or your joint owner's death and on each subsequent day a purchase payment or withdrawal is made. On the contract anniversary, if the current contract value is greater than the GACV, the GACV will be increased to the current value of your contract. If a purchase payment is made, the amount of the purchase payment will increase the GACV. If a withdrawal is made, the GACV will be reduced by the amount withdrawn (and any associated withdrawal charges) divided by the value of your contract immediately before the withdrawal multiplied by the GACV immediately prior to the withdrawal. The example above under Death Benefit Option A explains the effect of a withdrawal on the GACV under this death benefit option. After you, or your joint owner, reaches age 80, the death benefit will be the greatest of: 1. Total purchase payments made, less any withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The GACV as determined below. 23 The GACV is initially the death benefit determined as of the day MetLife Investors receives notice that you have elected this death benefit option. This figure is based on your existing death benefit as defined in your contract, Option D (not as defined in the endorsement for this option). The GACV is then evaluated at each subsequent contract anniversary on or before your, or your joint owner's, 80th birthday, and on each subsequent day a purchase payment or withdrawal is made. On the contract anniversary on or before your, or your joint owner's, 80th birthday, if the current contract value is greater than the GACV, the GACV will be increased to the current value of your contract. If a purchase payment is made, the amount of the purchase payment will increase the GACV. If a withdrawal is made, the GACV will be reduced by the amount withdrawn (and any associated withdrawal charges) divided by the value of your contract immediately before the withdrawal, multiplied by the GACV immediately prior to the withdrawal. The example above under Death Benefit Option A explains the effect of a withdrawal on the GACV under this death benefit option. DEATH BENEFIT OPTION D: Prior to you, or your joint owner, reaching age 80, the death benefit will be the greater of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals) accumulated at an annual rate of 4% from the date your contract was issued until the date of death; or 2. The value of your contract at the time the death benefit is to be paid; or 3. The value of your contract on the most recent five year anniversary before the date of death, plus any subsequent purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals). After you, or your joint owner, reaches age 80, the death benefit will be the greater of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals) accumulated at an annual rate of 4% from the date your contract was issued until you, or your joint owner, reaches age 80, plus any subsequent purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals); or 2. The value of your contract at the time the death benefit is to be paid; or 3. The value of your contract on the most recent five year anniversary on or before you or your joint owner reaches 80, plus any purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals). DEATH BENEFIT OPTION E: Prior to you, or your joint owner, reaching age 80, the death benefit will be the greatest of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals); 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest contract value on any contract anniversary prior to your, or your joint owner's death; plus any purchase payments you made subsequent to that contract anniversary, less any withdrawals (and any withdrawal charges paid on the withdrawals) subsequent to that contract anniversary. After you, or your joint owner, reaches age 80, the death benefit will be the greatest of: 1. Total purchase payments, less any withdrawals (and any withdrawal charges paid on the withdrawals); 2. The value of your contract at the time the death benefit is to be paid; or 3. The greatest contract value on any prior contract anniversary on or before your, or your joint owner's 80th birthday; plus any purchase payments you made after that contract anniversary, less any withdrawals (and any withdrawal charges paid on the withdrawals) you made after that contract anniversary. CHECK YOUR CONTRACT AND APPLICABLE ENDORSEMENT FOR YOUR DEATH BENEFIT. The entire death benefit must be paid within 5 years of the date of death unless the beneficiary elects to have the death benefit payable under an annuity option. The death benefit payable under an annuity option must be paid over the beneficiary's lifetime or for a period not extending beyond the beneficiary's life expectancy. Payment must begin within one year of the date of death. We may also offer a payment option under which your beneficiary may receive payments, over a period not extending beyond his or her life expectancy, under a method of distribution similar to the distribution of required minimum distributions from Individual Retirement Accounts. If the beneficiary is the 24 spouse of the owner, he/she can continue the contract in his/her own name at the then current value. If a lump sum payment is elected and all the necessary requirements are met, the payment will be made within 7 days. Spousal continuation will not satisfy minimum required distribution rules for tax qualified contracts other than IRAs. There are comparable rules for distributions on the death of the annuitant under tax qualified plans. As noted, we may offer a payment option under which your beneficiary may receive payments over a period not extending beyond his or her life expectancy under a method of distribution similar to the distribution of required minimum distributions from individual accounts. For tax qualified plans, if this option is elected, we will issue a new contract to your beneficiary in order to facilitate the distribution of payments. Your beneficiary may be able to choose any available optional death benefit under the new contract, but certain other contract provisions and programs will not be available. Upon the death of your beneficiary, the death benefit would be required to be distributed to your beneficiary's beneficiary at least as rapidly as under the method of distribution in effect at the time of your beneficiary's death. Moreover, if the beneficiary under a tax qualified contract is the annuitant's spouse, the tax law also generally allows distributions to begin by the year in which the annuitant would have reached 70 1/2 (which may be more or less than five years after the annuitant's death). See "Federal Income Tax Status." Because the timing of distributions from a qualified contract must satisfy the requirements of the Internal Revenue Code, the right of a spouse to succeed the rights of a deceased owner are only available to a person who is defined as a spouse under the Federal Defense of Marriage Act, or any other applicable federal law. DEATH OF ANNUITANT If the annuitant, not an owner or joint owner, dies before annuity payments begin, you can name a new annuitant. If no annuitant is named within 30 days of the death of the annuitant, you will become the annuitant. However, if the owner is a non-natural person (for example, a corporation), then the death or change of annuitant will be treated as the death of the owner, and a new annuitant may not be named. Upon the death of the annuitant after annuity payments begin, the death benefit, if any, will be as provided for in the annuity option selected. CONTROLLED PAYOUT You may elect to have the death benefit proceeds paid to your beneficiary in the form of annuity payments for life or over a period of time that does not exceed your beneficiary's life expectancy. This election must be in writing in a form acceptable to us. You may revoke the election only in writing and only in a form acceptable to us. Upon your death, the beneficiary cannot revoke or modify your election. 9. FEDERAL INCOME TAX STATUS The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax adviser. No attempt is made to consider any applicable state tax or other tax laws, or to address any state and local estate, inheritance and other tax consequences of ownership or receipt of distributions under a contract. When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money - generally for retirement purposes. If you invest in an annuity contract as part of an individual retirement plan, pension plan or employer-sponsored retirement program, your contract is called a "QUALIFIED CONTRACT." The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. You should note that for any Qualified Contract, the tax deferred accrual feature is provided by the tax qualified retirement plan, and as a result there should be reasons other than tax deferral for acquiring the contract within a qualified plan. If your annuity is independent of any formal retirement or pension plan, it is termed a "NON-QUALIFIED CONTRACT." Under current federal income tax law, the taxable portion of distributions under variable annuity contracts and qualified plans (including IRAs) is not eligible for the reduced tax rate applicable to long-term capital gains and qualifying dividends. TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON. If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified Contract, the taxpayer generally must include in income any increase in the excess of the account value over the investment in the contract (generally, the premiums or other consideration paid for the contract) during the taxable year. There are 25 some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser. The following discussion generally applies to Non-Qualified Contracts owned by natural persons. WITHDRAWALS. When a withdrawal from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the account value immediately before the distribution over the owner's investment in the contract (generally, the premiums or other consideration paid for the contract, reduced by any amount previously distributed from the contract that was not subject to tax) at that time. In the case of a surrender under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the owner's investment in the contract. In the case of a withdrawal under a Qualified Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the "investment in the contract" to the individual's total account balance or accrued benefit under the retirement plan. The "investment in the contract" generally equals the amount of any non-deductible purchase payments paid by or on behalf of any individual. In many cases, the "investment in the contract" under a Qualified Contract can be zero. It is conceivable that charges for certain benefits under a variable contract may be considered as deemed distributions subject to immediate taxation. Consult your tax adviser. ADDITIONAL PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution (or a deemed distribution) from a Non-Qualified Contract, there may be imposed a federal tax penalty equal to 10% of the amount treated as income. In general, however, there is no penalty on distributions: . made on or after the taxpayer reaches age 59 1/2; . made on or after the death of an owner; . attributable to the taxpayer's becoming disabled; . made as part of a series of substantially equal periodic payments (at least annually) for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his or her designated beneficiary; or . under certain immediate income annuities providing for substantially equal payments made at least annually. Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. Also, additional exceptions apply to distributions from a Qualified Contract. You should consult a tax adviser with regard to exceptions from the penalty tax. ANNUITY PAYMENTS. Although tax consequences may vary depending on the payout option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of any annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income. In general, the amount of each payment under a variable annuity payment option that can be excluded from Federal income tax is the remaining after-tax cost in the amount annuitized at the time such payments commence, divided by the number of expected payments, subject to certain adjustments. No deduction is permitted for any excess of such excludable amount for a year over the annuity payments actually received in that year. However, you may elect to increase the excludable amount attributable to future years by a ratable portion of such excess. Consult your tax advisor as to how to make such election and also as to how to treat the loss due to any unrecovered investment in the contract when the income stream is terminated. The IRS has not furnished explicit guidance as to how the excludable amount is to be determined each year under variable income annuities that permit transfers between the fixed account and variable investment portfolios, as well as transfers between investment portfolios after the annuity starting date. Consult your own tax adviser. TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a Non-Qualified Contract because of your death or the death of the Annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the contract, or (ii) if distributed under a payout option, they are taxed in the same way as annuity payments. See the Statement of Additional Information and "Federal Income Tax Status" for a general discussion on the federal 26 income tax rules applicable to how death benefits must be distributed. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT. Where otherwise permitted under the terms of the contract, a transfer or assignment of ownership of a Non-Qualified Contract, the designation or change of an annuitant, the selection of certain maturity dates, or the exchange of a contract may result in certain adverse tax consequences to you that are not discussed herein. An owner contemplating any such transfer, assignment, exchange or event should consult a tax adviser as to the tax consequences. WITHHOLDING. Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owner's income when a taxable distribution occurs. OWNERSHIP OF THE INVESTMENTS. In certain circumstances, owners of variable annuity contracts have been considered to be the owners of the assets of the underlying Separate Account for Federal income tax purposes due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of the contract, such as the number of funds available and the flexibility of the contract owner to allocate premium payments and transfer amounts among the funding options, have not been addressed in public rulings. While we believe that the contract does not give the contract owner investment control over Separate Account assets, we reserve the right to modify the contract as necessary to prevent a contract owner from being treated as the owner of the Separate Account assets supporting the contract. FURTHER INFORMATION. We believe that the contracts will qualify as annuity contracts for Federal income tax purposes and the above discussion is based on that assumption. Further details can be found in the Statement of Additional Information under the heading "Tax Status of the Contracts." TAXATION OF QUALIFIED CONTRACTS The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the contract comply with the law. INDIVIDUAL RETIREMENT ACCOUNTS (IRA'S). IRA's, as defined in Section 408 of the Internal Revenue Code (Code), permit individuals to make annual contributions of up to the lesser of the applicable dollar amount for the year (for 2009, $5,000 plus, for an owner age 50 or older, $1,000) or the amount of compensation includible in the individual's gross income for the year. The contributions may be deductible in whole or in part, depending on the individual's income. Distributions from certain retirement plans may be "rolled over" into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than non-deductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59 1/2, unless an exception applies. The contract, together with the death benefit options and the IRA endorsement, has not been submitted to the Internal Revenue Service (IRS) for approval. To date the IRS has not addressed in a ruling of general applicability whether a death benefit provision such as the optional death benefit riders in the contract comports with IRA qualification requirements. The IRS could conceivably take the position that the offering of death benefits in excess of the greater of (a) account balance or (b) return of premium (adjusted for prior distributions) adversely affects the qualification of the contract as an IRA. Disqualification of the contract as an IRA could result in the immediate taxation of amounts held in the contract and the imposition of penalty taxes. Consult a tax adviser before electing an optional death benefit rider with an IRA. SIMPLE IRA. A SIMPLE IRA permits certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to $11,500 for 2009 (as may be increased in future years for cost of living adjustments). The sponsoring employer is generally required to make matching or non-elective contributions on behalf of employees. Distributions from SIMPLE IRA's are subject to 27 the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is increased to 25% if the distribution occurs within the first two years after the commencement of the employee's participation in the plan. ROTH IRA. A Roth IRA, as described in Code section 408A, permits certain eligible individuals to make non-deductible contributions to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax, and other special rules apply. The owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. PENSION PLANS. Corporate pension and profit-sharing plans under Section 401(a) of the Code allow corporate employers to establish various types of retirement plans for employees, and self-employed individuals to establish qualified plans for themselves and their employees. Adverse tax consequences to the retirement plan, the participant or both may result if the contract is transferred to any individual as a means to provide benefit payments, unless the plan complies with all the requirements applicable to such benefits prior to transferring the contract. The contract includes optional death benefits that in some cases may exceed the greater of the premium payments of the account value. TAX SHELTERED ANNUITIES. Tax Sheltered Annuities (TSA) that qualify under section 403(b) of the Code allow employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a contract that will provide an annuity for the employee's retirement. These premium payments may be subject to FICA (social security) tax. Distributions of (1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the close of the last year beginning before January 1, 1989, are not allowed prior to age 59 1/2, severance from employment, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. Income tax regulations issued in July 2007, will require fundamental changes to these arrangements including (a) a requirement that there be a written plan document in addition to the annuity contract (or section 403(b)(7) custodial account), (b) significant restrictions on the ability of participants to direct proceeds between 403(b) annuity contracts and(c) new restrictions on withdrawals of amounts attributable to contributions other than elective deferrals. The regulations are generally effective for taxable years beginning after December 31, 2008. However, certain aspects, including a proposed prohibition on use of new life insurance under section 403(b) arrangements and rules affecting payroll taxes on certain types of contributions are currently effective. SECTION 457(B) PLANS. An eligible 457 plan, while not actually providing for a qualified plan as that term is normally used, provides for certain eligible deferred compensation plans with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The contract can be used with such plans. Under such plans a participant may specify the form of investment in which his or her participation will be made. Under a non-governmental plan, which must be a tax-exempt entity under section 501(c) of the Code, all such investments, however, are owned by and are subject to, the claims of the general creditors of the sponsoring employer. In general, all amounts received under a non-governmental section 457(b) plan are taxable and are subject to federal income tax withholding as wages. SEPARATE ACCOUNT CHARGES FOR DEATH BENEFITS. For contracts purchased under section 401(a) plans or 403(b) plans, certain death benefits could conceivably be characterized as an incidental benefit, the amount of which is limited in any pension or profit-sharing plan. Because the death benefits, in certain cases, may exceed this limitation employers using the contract in connection with such plans should consult their tax adviser. Additionally, it is conceivable that the explicit charges for, or the amount of 28 the mortality and expense charges allocable to, such benefits may be considered taxable distributions. OTHER TAX ISSUES. Qualified Contracts (including contracts under section 457(b) plans) have minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan, adoption agreement, or consult a tax adviser for more information about these distribution roles. Failure to meet such rules generally results in the imposition of a 50% excise tax on the amount that should have been, but was not, distributed. Distributions from Qualified Contracts generally are subject to withholding for the owner's federal income tax liability. The withholding rate varies according to the type of distribution and the owner's tax status. The owner will be provided the opportunity to elect not to have tax withheld from distributions. "Taxable eligible rollover distributions" from section 401(a), 403(a), 403(b), and governmental section 457(b) plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution to an employee (or employee's spouse or former spouse as beneficiary or alternate payee) from such a plan, except certain distributions such as distributions required by the Code, distributions in a specified annuity form or hardship distributions. The 20% withholding does not apply, however, if the employee chooses a "direct rollover" from the plan to a tax-qualified plan, IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions. Recently, the IRS announced new regulations affecting 403(b) plans and arrangements. As part of these regulations, employers will need to meet certain requirements in order for their employees' annuity contracts that fund these programs to retain a tax deferred status under 403(b). These regulations are generally effective January 1, 2009. Prior to the new rules, transfers of one annuity contract to another would not result in a loss of tax deferred status under 403(b) under certain conditions (so-called "90-24 transfers"). The new regulations have the following effect regarding transfers: (1) a newly issued contract funded by a transfer which is completed after September 24, 2007, is subject to the employer requirements referred to above; (2) additional purchase payments made after September 24, 2007, to a contract that was funded by a 90-24 transfer on or before September 24, 2007, may subject the contract to this new employer requirement. If your Contract was issued previously in a 90-24 transfer completed on or before September 24, 2007, we urge you to consult with your tax advisor prior to making additional purchase payments. Under recently enacted legislation, you (and after your death, your designated beneficiaries) generally do not have to take the required minimum distribution ("RMD") for 2009. The waiver does not apply to any 2008 payments even if received in 2009, so for those payments, you are still required to receive your first RMD payment by April 1, 2009. In contrast, if your first RMD would have been due by April 1, 2010, you are not required to take such distribution; however, your 2010 RMD is due by December 31, 2010. For after-death RMDs, the five year rule is applied without regard to calendar year 2009. For instance, if you died in 2007, the five year period ends in 2013 instead of 2012. This RMD waiver does not apply if you are receiving annuitized payments under your contract. The RMD rules are complex, so consult with your tax advisor before waiving your 2009 RMD payment. TAX CREDITS AND DEDUCTIONS The Company may be entitled to certain tax benefits related to the assets of the Separate Account. These tax benefits, which may include foreign tax credits and corporate dividend received deductions, are not passed back to the Separate Account or to contract owners since the Company is the owner of the assets from which the tax benefits are derived. FEDERAL ESTATE TAXES. While no attempt is being made to discuss the Federal estate tax implications of the contract, you should keep in mind that the value of a variable annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent's gross estate. Depending on the terms of the variable annuity contract, the value of the variable annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning advisor for more information. GENERATION-SKIPPING TRANSFER TAX. Under certain circumstances, the Code may impose a "generation skipping transfer tax" when all or part of a variable annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the contract owner. Regulations issued under the Code may 29 require us to deduct the tax from your contract, or from any applicable payment, and pay it directly to the IRS. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. The discussion above provides general information regarding U.S. Federal income tax consequences to variable annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. Federal withholding tax on taxable distributions from variable annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser's country of citizenship or residence. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the contract could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the contract. We have the right to modify the contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of the contract and do not intend the above discussion as tax advice. 10. OTHER INFORMATION METLIFE INVESTORS MetLife Investors Insurance Company (MetLife Investors) was incorporated on August 17, 1981, as Assurance Life Company, a Missouri corporation, and changed its name to Xerox Financial Services Life Insurance Company in 1985. On June 1, 1995, a wholly-owned subsidiary of General American Life Insurance Company (General American Life) purchased Xerox Financial Services Life Insurance Company which on that date changed its name to Cova Financial Services Life Insurance Company. On January 6, 2000, Metropolitan Life Insurance Company acquired GenAmerica Financial Corporation, the ultimate parent company of General American Life. Cova Financial Services Company changed its name to MetLife Investors Insurance Company on January 30, 2001. On December 31, 2002, MetLife Investors became an indirect subsidiary of MetLife, Inc. (MetLife), the holding company of Metropolitan Life Insurance Company and a listed company on the New York Stock Exchange. MetLife is a leading provider of insurance and financial products and services to individual and group customers. For contracts issued on or before December 31, 2002, General American Life agreed to ensure that MetLife Investors will have sufficient funds to meet its obligations under the contracts. In the event an owner of such a contract presents a legitimate claim for payment, General American Life will pay such claim directly to the contract owner if MetLife Investors is unable to make such payment. This guarantee is enforceable by such contract owners against General American Life directly without any requirement that the contract owners first file a claim against MetLife Investors. The guarantee agreement is binding on General American Life, its successors or assignees, and shall terminate only if the guarantee is assigned to an organization having a financial rating from certain specified rating agencies equal to or better than General American Life's rating. With respect to the guarantee, General American Life is relying on the exemption provided by Rule 12h-7 under the Securities Exchange Act of 1934. We are licensed to do business in the District of Columbia and all states except Maine, New Hampshire, New York and Vermont. We are a member of the Insurance Marketplace Standards Association ("IMSA"). Companies that belong to IMSA subscribe to a set of ethical standards covering the various aspects of sales and service for individually sold life insurance and annuities. THE SEPARATE ACCOUNT MetLife Investors has established a separate account, MetLife Investors Variable Annuity Account One (Separate Account), to hold the assets that underlie the contracts. The Board of Directors of MetLife Investors adopted a resolution to establish the Separate Account under Missouri insurance law on February 24, 1987. We have registered the Separate Account with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. The Separate Account is divided into subaccounts. The assets of the Separate Account are held in our name on behalf of the Separate Account and legally belong to us. However, those assets that underlie the contracts, are not chargeable with liabilities arising out of any other business we may conduct. All the income, gains and losses (realized 30 or unrealized) resulting from these assets are credited to or charged against the contracts and not against any other contracts we may issue. We reserve the right to transfer assets of the Separate Account to another account, and to modify the structure or operation of the Separate Account, subject to necessary regulatory approvals. If we do so, we guarantee that the modification will not affect your account value. Any amount of the death benefit that exceeds the account value is paid from our general account. Death benefit amounts paid from the general account are subject to the claims-paying ability of MetLife Investors. DISTRIBUTOR We have entered into a distribution agreement with our affiliate, MetLife Investors Distribution Company ("Distributor"), 5 Park Plaza, Suite 1900, Irvine, California 92614, for the distribution of the contracts. Distributor is a member of the Financial Industry Regulatory Authority ("FINRA"). FINRA maintains a Public Disclosure Program for investors. A brochure that includes information describing the Program is available by calling FINRA's Public Disclosure Program hotline at 1-800-289-9999, or by visiting FINRA's website at www.finra.org. We and Distributor have entered into selling agreements with other broker-dealers ("selling firms") for the sale of the contracts. We pay compensation to Distributor for sales of the contracts by selling firms. We also pay amounts to Distributor that may be used for its operating and other expenses, including the following sales expenses: compensation and bonuses for the Distributor's management team, advertising expenses, and other expenses of distributing the contracts. Distributor's management team also may be eligible for non-cash compensation items that we may provide jointly with Distributor. Non-cash items include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items. SELLING FIRMS We and Distributor have entered into selling agreements with selling firms for the sale of the contracts. All selling firms receive commissions, and they may receive some form of non-cash compensation. These commissions and other incentives or payments are not charged directly to contract owners or the Separate Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the contract or from our General Account. A portion of the payments made to selling firms may be passed on to their sales representatives in accordance with their internal compensation programs. Those programs may also include other types of cash and non-cash compensation and other benefits. COMPENSATION PAID TO ALL SELLING FIRMS We and Distributor pay compensation to all selling firms in the form of commissions and may provide certain types of non-cash compensation. The maximum commission payable for contract sales by selling firms is 5.75% of purchase payments. Some selling firms may elect to receive a lower commission when a purchase payment is made, along with annual trail commissions up to 1.00% of account value (less purchase payments received within the previous 12 months). We also pay commissions when a contract owner elects to begin receiving regular income payments (referred to as annuity payments). (See "Annuity Payments - The Income Phase.") Distributor may also provide non-cash compensation items that we may provide jointly with Distributor. Non-cash items include expenses for conference or seminar trips and certain gifts. OWNERSHIP OWNER. You, as the OWNER of the contract, have all the interest and rights under the contract. Prior to the annuity date, the owner is as designated at the time the contract is issued, unless changed. On and after the annuity date, the annuitant is the owner (this may be a taxable event). The beneficiary becomes the owner when a death benefit is payable. When this occurs, some ownership rights may be limited. JOINT OWNER. The contract can be owned by JOINT OWNERS. Any joint owner must be the spouse of the other owner (except in Pennsylvania). Upon the death of either joint owner, the surviving spouse will be the designated beneficiary. Any other beneficiary designation at the time the contract was issued or as may have been later changed will be treated as a contingent beneficiary unless otherwise indicated. BENEFICIARY The BENEFICIARY is the person(s) or entity you name to receive any death benefit. The beneficiary is named at the time the contract is issued unless changed at a later date. Unless an irrevocable beneficiary has been named, you can change the beneficiary at any time before you die. 31 ASSIGNMENT You can assign the contract at any time during your lifetime. MetLife Investors will not be bound by the assignment until it receives the written notice of the assignment. MetLife Investors will not be liable for any payment or other action it takes in accordance with the contract before it receives notice of the assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT. If the contract is issued pursuant to a qualified plan, there may be limitations on your ability to assign the contract. FINANCIAL STATEMENTS The financial statements of MetLife Investors, the financial statements of the Separate Account, and the consolidated financial statements of General American Life have been included in the Statement of Additional Information. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Company Independent Registered Public Accounting Firm Custodian Distribution Calculation of Performance Information Annuity Provisions Tax Status of the Contracts Financial Statements 32 .
If you would like the Statement of Additional Information dated May 1, 2009, for the annuity contract issued by MetLife Investors, at no charge, please print and fill in all information and mail to: MetLife Investors Insurance Company Attn: Variable Products 5 Park Plaza, Suite 1900 Irvine, CA 92614 ________________________________________________________________________________ Name ________________________________________________________________________________ Address ________________________________________________________________________________ City State Zip Code Book-623 (5/09) SAI-COVA09 APPENDIX A CONDENSED FINANCIAL INFORMATION ACCUMULATION UNIT VALUE HISTORY The following schedule includes accumulation unit values for the periods indicated. This data has been extracted from the Separate Account's Financial Statements. This information should be read in conjunction with the Separate Account's Financial Statements and related notes which are included in the Statement of Additional Information.
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- AIM V.I. - CAPITAL APPRECIATION FUND - SERIES I 01/01/1998 to 12/31/1998 10.00 11.77 183,488 01/01/1999 to 12/31/1999 11.77 16.79 901,235 01/01/2000 to 12/31/2000 16.79 14.75 3,126,329 01/01/2001 to 12/31/2001 14.75 11.18 3,737,754 01/01/2002 to 12/31/2002 11.18 8.34 3,126,907 01/01/2003 to 12/31/2003 8.34 10.65 2,649,823 01/01/2004 to 12/31/2004 10.65 11.20 2,158,509 01/01/2005 to 12/31/2005 11.20 12.02 1,652,443 01/01/2006 to 12/31/2006 12.02 12.60 954,755 01/01/2007 to 04/27/2007 12.60 13.45 0 -------------------------------------------------------------------- AIM V.I. - INTERNATIONAL GROWTH FUND - SERIES I 01/01/1999 to 12/31/1999 11.39 17.42 277,998 01/01/2000 to 12/31/2000 17.42 12.64 604,303 01/01/2001 to 12/31/2001 12.64 9.55 664,626 01/01/2002 to 12/31/2002 9.55 7.94 568,165 01/01/2003 to 12/31/2003 7.94 10.11 476,838 01/01/2004 to 12/31/2004 10.11 12.36 396,902 01/01/2005 to 12/31/2005 12.36 14.38 361,297 01/01/2006 to 12/31/2006 14.38 18.18 272,122 01/01/2007 to 12/31/2007 18.18 20.56 243,216 01/01/2008 to 12/31/2008 20.56 12.09 177,979 -------------------------------------------------------------------- AIM V.I. - PREMIER EQUITY FUND - SERIES I 01/01/1998 to 12/31/1998 10.00 13.06 521,890 01/01/1999 to 12/31/1999 13.06 16.73 2,544,761 01/01/2000 to 12/31/2000 16.73 14.08 5,573,084 01/01/2001 to 12/31/2001 14.08 12.15 6,321,722 01/01/2002 to 12/31/2002 12.15 8.36 5,277,324 01/01/2003 to 12/31/2003 8.36 10.31 4,466,131 01/01/2004 to 04/30/2004 10.31 10.12 4,181,195 --------------------------------------------------------------------
A-1 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD --------------------------------------------------------------------- ALLIANCE BERNSTEIN VPS PREMIER GROWTH - CLASS A (NOW MIST LEGG MASON PARTNERS AGGRESSIVE GROWTH) 01/01/1998 to 12/31/1998 10.00 14.60 667,854 01/01/1999 to 12/31/1999 14.60 19.04 2,065,459 01/01/2000 to 12/31/2000 19.04 15.67 3,937,242 01/01/2001 to 12/31/2001 15.67 12.79 4,644,437 01/01/2002 to 12/31/2002 12.79 8.75 3,763,649 01/01/2003 to 12/31/2003 8.75 10.67 3,417,300 01/01/2004 to 04/30/2004 10.67 10.56 3,293,839 --------------------------------------------------------------------- ALLIANCE BERNSTEIN VPS REAL ESTATE INVEST - CLASS A (NOW MIST CLARION GLOBAL REAL ESTATE) 01/01/1998 to 12/31/1998 10.00 7.99 191,411 01/01/1999 to 12/31/1999 7.99 7.47 475,475 01/01/2000 to 12/31/2000 7.47 9.34 941,017 01/01/2001 to 12/31/2001 9.34 10.20 1,096,694 01/01/2002 to 12/31/2002 10.20 10.32 1,012,013 01/01/2003 to 12/31/2003 10.32 14.18 936,692 01/01/2004 to 12/31/2004 14.18 18.96 762,560 01/01/2005 to 04/29/2005 18.96 18.21 693,766 --------------------------------------------------------------------- DWS (FORMERLY SCUDDER SVS II) DREMAN HIGH RETURN EQUITY VIP - CLASS A 05/15/1998 to 12/31/1998 10.00 10.49 9,223 01/01/1999 to 12/31/1999 10.49 9.19 18,808 01/01/2000 to 12/31/2000 9.19 11.83 11,685 01/01/2001 to 12/31/2001 11.83 11.86 11,398 01/01/2002 to 12/31/2002 11.86 9.58 26,662 01/01/2003 to 12/31/2003 9.58 12.47 18,967 01/01/2004 to 04/30/2004 12.47 12.44 18,839 --------------------------------------------------------------------- DWS (FORMERLY SCUDDER SVS II) DREMAN SMALL CAP VALUE VIP - CLASS A (NOW MIST THIRD AVENUE SMALL CAP VALUE - CLASS A) 01/01/1998 to 12/31/1998 10.00 8.75 245,092 01/01/1999 to 12/31/1999 8.75 8.87 496,083 01/01/2000 to 12/31/2000 8.87 9.10 518,884 01/01/2001 to 12/31/2001 9.10 10.58 524,101 01/01/2002 to 12/31/2002 10.58 9.25 495,020 01/01/2003 to 12/31/2003 9.25 12.95 407,422 01/01/2004 to 12/31/2004 12.95 16.10 245,905 01/01/2005 to 04/29/2005 16.10 15.12 225,068 ---------------------------------------------------------------------
A-2 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD ---------------------------------------------------------------------------- DWS (FORMERLY SCUDDER SVS II) GOVERNMENT & AGENCY SECURITIES VIP - CLASS A 01/01/1999 to 12/31/1999 10.56 10.48 218,804 01/01/2000 to 12/31/2000 10.48 11.47 201,531 01/01/2001 to 12/31/2001 11.47 12.24 227,714 01/01/2002 to 12/31/2002 12.24 13.04 260,901 01/01/2003 to 12/31/2003 13.04 13.15 190,394 01/01/2004 to 12/31/2004 13.15 13.46 135,211 01/01/2005 to 12/31/2005 13.46 13.61 104,232 01/01/2006 to 12/31/2006 13.61 13.98 44,325 01/01/2007 to 12/31/2007 13.98 14.61 38,012 01/01/2008 to 12/31/2008 14.61 15.11 28,244 ---------------------------------------------------------------------------- DWS (FORMERLY SCUDDER SVS II) SMALL CAP GROWTH VIP - CLASS A 01/01/1998 to 12/31/1998 10.00 11.68 76,492 01/01/1999 to 12/31/1999 11.68 15.49 113,560 01/01/2000 to 12/31/2000 15.49 13.64 249,067 01/01/2001 to 12/31/2001 13.64 9.58 262,419 01/01/2002 to 12/31/2002 9.58 6.29 236,462 01/01/2003 to 12/31/2003 6.29 8.24 245,672 01/01/2004 to 12/31/2004 8.24 9.02 202,226 01/01/2005 to 12/31/2005 9.02 9.53 158,987 01/01/2006 to 12/31/2006 9.53 9.89 124,814 01/01/2007 to 04/27/2007 9.89 10.59 0 ---------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND 02/17/1998 to 12/31/1998 10.00 12.36 32,354 01/01/1999 to 12/31/1999 12.36 15.14 119,923 01/01/2000 to 12/31/2000 15.14 13.93 279,709 01/01/2001 to 12/31/2001 13.93 12.06 295,900 01/01/2002 to 12/31/2002 12.06 10.78 266,313 01/01/2003 to 12/31/2003 10.78 13.65 252,860 01/01/2004 to 12/31/2004 13.65 15.55 208,701 01/01/2005 to 04/29/2005 15.55 15.03 220,480 ---------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME - INITIAL CLASS 01/01/1999 to 12/31/1999 10.63 11.14 110,182 01/01/2000 to 12/31/2000 11.14 11.91 166,995 01/01/2001 to 12/31/2001 11.91 11.16 207,842 01/01/2002 to 12/31/2002 11.16 9.14 182,656 01/01/2003 to 12/31/2003 9.14 11.75 162,472 01/01/2004 to 12/31/2004 11.75 12.92 135,230 01/01/2005 to 12/31/2005 12.92 13.49 112,188 01/01/2006 to 12/31/2006 13.49 15.99 73,969 01/01/2007 to 12/31/2007 15.99 16.01 60,486 01/01/2008 to 12/31/2008 16.01 9.05 52,152 ----------------------------------------------------------------------------
A-3 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- FIDELITY VIP GROWTH - INITIAL CLASS 01/01/1999 to 12/31/1999 13.08 17.72 103,240 01/01/2000 to 12/31/2000 17.72 15.56 232,002 01/01/2001 to 12/31/2001 15.56 12.63 295,355 01/01/2002 to 12/31/2002 12.63 8.71 252,608 01/01/2003 to 12/31/2003 8.71 11.40 216,529 01/01/2004 to 12/31/2004 11.40 11.63 188,866 01/01/2005 to 12/31/2005 11.63 12.13 132,056 01/01/2006 to 12/31/2006 12.13 12.78 0 01/01/2007 to 12/31/2007 12.78 16.00 0 01/01/2008 to 12/31/2008 16.00 8.33 0 -------------------------------------------------------------------- FIDELITY VIP GROWTH & INCOME - INITIAL CLASS 02/17/1998 to 12/31/1998 10.00 12.20 69,833 01/01/1999 to 12/31/1999 12.20 13.14 188,911 01/01/2000 to 12/31/2000 13.14 12.49 262,946 01/01/2001 to 12/31/2001 12.49 11.23 237,682 01/01/2002 to 12/31/2002 11.23 9.24 215,072 01/01/2003 to 12/31/2003 9.24 11.27 195,123 01/01/2004 to 12/31/2004 11.27 11.76 164,353 01/01/2005 to 12/31/2005 11.76 12.48 103,638 01/01/2006 to 04/30/2006 12.48 13.15 97,584 -------------------------------------------------------------------- FIDELITY VIP GROWTH OPPORTUNITIES - INITIAL CLASS 01/01/1999 to 12/31/1999 11.74 12.07 60,394 01/01/2000 to 12/31/2000 12.07 9.87 97,533 01/01/2001 to 12/31/2001 9.87 8.33 96,742 01/01/2002 to 12/31/2002 8.33 6.42 74,740 01/01/2003 to 12/31/2003 6.42 8.22 65,087 01/01/2004 to 12/31/2004 8.22 8.69 52,541 01/01/2005 to 12/31/2005 8.69 9.33 37,228 01/01/2006 to 12/31/2006 9.33 9.71 23,148 01/01/2007 to 12/31/2007 9.71 11.79 16,783 01/01/2008 to 12/31/2008 11.79 5.23 20,661 -------------------------------------------------------------------- FIRSTAR BALANCED 06/30/1997 to 12/31/1997 10.00 10.53 38,079 01/01/1998 to 12/31/1998 10.53 11.77 286,511 01/01/1999 to 12/31/1999 11.77 12.43 678,937 01/01/2000 to 12/31/2000 12.43 12.47 665,772 01/01/2001 to 12/14/2001 12.47 11.47 676,088 --------------------------------------------------------------------
A-4 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- FIRSTAR EQUITY INCOME 06/30/1997 to 12/31/1997 10.00 11.19 49,725 01/01/1998 to 12/31/1998 11.19 12.07 286,953 01/01/1999 to 12/31/1999 12.07 12.20 467,721 01/01/2000 to 12/31/2000 12.20 13.80 435,002 01/01/2001 to 12/14/2001 13.80 12.72 403,104 -------------------------------------------------------------------- FIRSTAR GROWTH & INCOME EQUITY 06/30/1997 to 12/31/1997 10.00 10.76 121,673 01/01/1998 to 12/31/1998 10.76 12.19 641,789 01/01/1999 to 12/31/1999 12.19 13.97 1,072,066 01/01/2000 to 12/31/2000 13.97 13.00 1,054,184 01/01/2001 to 12/14/2001 13.00 10.02 1,047,473 -------------------------------------------------------------------- FRANKLIN TEMPLETON DEVELOPING MARKETS SECURITIES - CLASS 1 (NOW MIST - MFS(R) EMERGING MARKETS EQUITY - CLASS A) 01/01/1999 to 12/31/1999 7.55 11.46 304,489 01/01/2000 to 12/31/2000 11.46 7.71 697,304 01/01/2001 to 12/31/2001 7.71 6.99 976,427 01/01/2002 to 12/31/2002 6.99 6.89 843,855 01/01/2003 to 12/31/2003 6.89 10.45 768,313 01/01/2004 to 12/31/2004 10.45 12.86 663,058 01/01/2005 to 12/31/2005 12.86 16.21 554,323 01/01/2006 to 12/31/2006 16.21 20.53 395,792 01/01/2007 to 12/31/2007 20.53 26.13 308,204 01/01/2008 to 04/25/2008 26.13 23.81 0 -------------------------------------------------------------------- FRANKLIN TEMPLETON FOREIGN SECURITIES - CLASS 1 01/01/1999 to 12/31/1999 9.14 11.15 826,137 01/01/2000 to 12/31/2000 11.15 10.75 1,393,831 01/01/2001 to 12/31/2001 10.75 8.93 1,553,542 01/01/2002 to 12/31/2002 8.93 7.19 1,451,378 01/01/2003 to 12/31/2003 7.19 9.39 1,450,366 01/01/2004 to 12/31/2004 9.39 11.01 1,355,505 01/01/2005 to 12/31/2005 11.01 12.00 1,211,193 01/01/2006 to 12/31/2006 12.00 14.40 992,053 01/01/2007 to 12/31/2007 14.40 16.44 816,174 01/01/2008 to 12/31/2008 16.44 9.69 674,497 -------------------------------------------------------------------- FRANKLIN TEMPLETON GLOBAL INCOME SECURITIES - CLASS 1 (NOW MIST PIMCO TOTAL RETURN) 03/01/1999 to 12/31/1999 10.00 9.68 33,720 01/01/2000 to 12/31/2000 9.68 10.05 84,168 01/01/2001 to 12/31/2001 10.05 10.17 92,996 01/01/2002 to 12/31/2002 10.17 12.17 90,150 01/01/2003 to 12/31/2003 12.17 14.73 85,639 01/01/2004 to 04/30/2004 14.73 14.35 75,494 --------------------------------------------------------------------
A-5 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- FRANKLIN TEMPLETON GROWTH SECURITIES - CLASS 1 01/19/1999 to 12/31/1999 10.00 12.56 42,835 01/01/2000 to 12/31/2000 12.56 13.30 204,140 01/01/2001 to 12/31/2001 13.30 12.99 249,434 01/01/2002 to 12/31/2002 12.99 10.46 224,785 01/01/2003 to 12/31/2003 10.46 13.68 200,039 01/01/2004 to 12/31/2004 13.68 15.68 191,081 01/01/2005 to 12/31/2005 15.68 16.86 139,670 01/01/2006 to 12/31/2006 16.86 20.32 103,941 01/01/2007 to 12/31/2007 20.32 20.55 84,549 01/01/2008 to 12/31/2008 20.55 11.73 60,844 -------------------------------------------------------------------- FRANKLIN TEMPLETON LARGE CAP GROWTH - CLASS 1 (NOW MIST PIMCO TOTAL RETURN) 03/01/1999 to 12/31/1999 10.00 14.67 69,488 01/01/2000 to 12/31/2000 14.67 15.23 95,144 01/01/2001 to 12/31/2001 15.23 13.32 505,404 01/01/2002 to 12/31/2002 13.32 10.12 445,943 01/01/2003 to 12/31/2003 10.12 12.69 389,275 01/01/2004 to 04/30/2004 12.69 12.73 356,284 -------------------------------------------------------------------- FRANKLIN TEMPLETON MUTUAL SHARES SECURITIES - CLASS 1 05/01/1998 to 12/31/1998 10.00 9.63 106,035 01/01/1999 to 12/31/1999 9.63 10.41 247,806 01/01/2000 to 12/31/2000 10.41 11.58 709,561 01/01/2001 to 12/31/2001 11.58 12.25 1,022,355 01/01/2002 to 12/31/2002 12.25 10.69 874,411 01/01/2003 to 12/31/2003 10.69 13.22 810,909 01/01/2004 to 04/30/2004 13.22 13.44 799,072 -------------------------------------------------------------------- FRANKLIN TEMPLETON SMALL CAP - CLASS 1 (NOW MSF T. ROWE PRICE SMALL CAP GROWTH) 03/01/1999 to 12/31/1999 10.00 17.68 55,398 01/01/2000 to 12/31/2000 17.68 14.58 338,504 01/01/2001 to 12/31/2001 14.58 12.22 405,503 01/01/2002 to 12/31/2002 12.22 8.61 426,059 01/01/2003 to 12/31/2003 8.61 11.69 420,674 01/01/2004 to 04/30/2004 11.69 11.92 403,327 -------------------------------------------------------------------- GACC MONEY MARKET (NOW MSF BLACKROCK MONEY MARKET) 06/03/1996 to 12/31/1996 10.00 10.23 34,964 01/01/1997 to 12/31/1997 10.23 10.67 311,051 01/01/1998 to 12/31/1998 10.67 11.11 1,473,737 01/01/1999 to 12/31/1999 11.11 11.53 3,709,173 01/01/2000 to 12/31/2000 11.53 12.10 2,265,284 01/01/2001 to 12/31/2001 12.10 12.41 2,923,506 01/01/2002 to 12/31/2002 12.41 12.44 2,887,332 01/01/2003 to 04/25/2003 12.44 12.43 2,879,801 --------------------------------------------------------------------
A-6 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- MFS BOND SERIES - INITIAL CLASS (NOW MIST PIMCO TOTAL RETURN) 05/15/1998 to 12/31/1998 10.00 10.49 16,538 01/01/1999 to 12/31/1999 10.49 10.18 21,525 01/01/2000 to 12/31/2000 10.18 10.97 148,025 01/01/2001 to 12/31/2001 10.97 11.76 147,949 01/01/2002 to 12/31/2002 11.76 12.63 100,188 01/01/2003 to 12/31/2003 12.63 13.62 74,664 01/01/2004 to 04/30/2004 13.62 13.59 65,273 -------------------------------------------------------------------- MFS/VIT EMERGING GROWTH SERIES - INITIAL CLASS (NOW MSF T. ROWE PRICE LARGE CAP GROWTH) 01/01/1998 to 12/31/1998 10.00 13.23 539,659 01/01/1999 to 12/31/1999 13.23 23.06 1,237,361 01/01/2000 to 12/31/2000 23.06 18.28 1,710,417 01/01/2001 to 12/31/2001 18.28 11.99 1,651,486 01/01/2002 to 12/31/2002 11.99 7.83 1,337,953 01/01/2003 to 12/31/2003 7.83 10.06 1,168,700 01/01/2004 to 04/30/2004 10.06 10.27 1,091,223 -------------------------------------------------------------------- MFS/VIT HIGH INCOME SERIES - INITIAL CLASS 01/01/1998 to 12/31/1998 10.00 9.85 219,209 01/01/1999 to 12/31/1999 9.85 10.33 437,876 01/01/2000 to 12/31/2000 10.33 9.51 546,225 01/01/2001 to 12/31/2001 9.51 9.57 780,005 01/01/2002 to 12/31/2002 9.57 9.68 853,177 01/01/2003 to 12/31/2003 9.68 11.26 863,525 01/01/2004 to 12/31/2004 11.26 12.12 676,432 01/01/2005 to 04/29/2005 12.12 11.74 634,726 -------------------------------------------------------------------- MFS/VIT INVESTORS TRUST SERIES - INITIAL CLASS 01/01/1998 to 12/31/1998 10.00 12.07 581,434 01/01/1999 to 12/31/1999 12.07 12.70 1,373,014 01/01/2000 to 12/31/2000 12.70 12.50 2,041,279 01/01/2001 to 12/31/2001 12.50 10.36 2,514,762 01/01/2002 to 12/31/2002 10.36 8.07 2,271,135 01/01/2003 to 12/31/2003 8.07 9.73 2,198,563 01/01/2004 to 12/31/2004 9.73 10.68 1,775,231 01/01/2005 to 04/29/2005 10.68 10.22 1,656,416 --------------------------------------------------------------------
A-7 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------------------- MFS/VIT RESEARCH SERIES - INITIAL CLASS (NOW MIST OPPENHEIMER CAPITAL APPRECIATION) 01/01/1998 to 12/31/1998 10.00 12.17 464,786 01/01/1999 to 12/31/1999 12.17 14.89 1,098,586 01/01/2000 to 12/31/2000 14.89 13.97 1,487,387 01/01/2001 to 12/31/2001 13.97 10.85 1,538,541 01/01/2002 to 12/31/2002 10.85 8.07 1,234,964 01/01/2003 to 12/31/2003 8.07 9.93 1,049,818 01/01/2004 to 04/30/2004 9.93 10.12 1,008,156 -------------------------------------------------------------------------------- MFS/VIT STRATEGIC INCOME SERIES - INITIAL CLASS (NOW MSF WESTERN ASSET MANAGEMENT STRATEGIC BOND OPPORTUNITIES) 01/01/1998 to 12/31/1998 10.00 10.67 2,082 01/01/1999 to 12/31/1999 10.67 10.26 7,473 01/01/2000 to 12/31/2000 10.26 10.61 14,766 01/01/2001 to 12/31/2001 10.61 10.96 20,273 01/01/2002 to 12/31/2002 10.96 11.72 141,790 01/01/2003 to 12/31/2003 11.72 12.75 136,455 01/01/2004 to 04/30/2004 12.75 12.73 126,381 -------------------------------------------------------------------------------- MIST - CLARION GLOBAL REAL ESTATE - CLASS A (FORMERLY MIST - NEUBERGER BERMAN REAL ESTATE) 05/01/2005 to 12/31/2005 18.16 20.89 577,966 01/01/2006 to 12/31/2006 20.89 28.41 408,587 01/01/2007 to 12/31/2007 28.41 23.87 273,519 01/01/2008 to 12/31/2008 23.87 13.76 227,187 -------------------------------------------------------------------------------- MIST - J.P. MORGAN ENHANCED INDEX - CLASS A 04/30/1996 to 12/31/1996 10.00 11.33 1,389,606 01/01/1997 to 12/31/1997 11.33 14.89 1,473,929 01/01/1998 to 12/31/1998 14.89 19.43 4,178,035 01/01/1999 to 12/31/1999 19.43 22.55 10,050,149 01/01/2000 to 12/31/2000 22.55 19.66 10,667,988 01/01/2001 to 12/31/2001 19.66 17.18 9,604,542 01/01/2002 to 12/31/2002 17.18 12.71 7,712,034 01/01/2003 to 04/25/2003 12.71 13.03 7,219,008 -------------------------------------------------------------------------------- MIST - J.P. MORGAN INTERNATIONAL EQUITY - CLASS A 04/30/1996 to 12/31/1996 10.21 10.97 1,306,892 01/01/1997 to 12/31/1997 10.97 11.46 5,440,592 01/01/1998 to 12/31/1998 11.46 12.89 7,309,325 01/01/1999 to 12/31/1999 12.89 16.33 7,578,951 01/01/2000 to 12/31/2000 16.33 13.41 7,802,123 01/01/2001 to 12/31/2001 13.41 10.54 6,798,044 01/01/2002 to 12/31/2002 10.54 8.69 5,234,918 01/01/2003 to 04/25/2003 8.69 8.33 4,859,536 --------------------------------------------------------------------------------
A-8 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD ------------------------------------------------------------------------------------ MIST - J.P. MORGAN QUALITY BOND - CLASS A 04/30/1996 to 12/31/1996 9.90 10.37 508,830 01/01/1997 to 12/31/1997 10.37 11.16 1,433,081 01/01/1998 to 12/31/1998 11.16 11.91 3,323,343 01/01/1999 to 12/31/1999 11.91 11.57 7,608,610 01/01/2000 to 12/31/2000 11.57 12.71 6,709,012 01/01/2001 to 12/31/2001 12.71 13.41 6,655,731 01/01/2002 to 12/31/2002 13.41 14.41 6,096,575 01/01/2003 to 12/31/2003 14.41 14.78 5,085,444 01/01/2004 to 11/19/2004 14.78 15.20 4,107,037 ------------------------------------------------------------------------------------ MIST - J.P. MORGAN SELECT EQUITY - CLASS A 04/30/1996 to 12/31/1996 10.08 10.84 2,044,523 01/01/1997 to 12/31/1997 10.84 14.05 6,903,606 01/01/1998 to 12/31/1998 14.05 16.99 10,544,818 01/01/1999 to 12/31/1999 16.99 18.38 12,271,286 01/01/2000 to 12/31/2000 18.38 17.00 12,047,555 01/01/2001 to 12/31/2001 17.00 15.75 10,844,584 01/01/2002 to 12/31/2002 15.75 11.55 8,484,458 01/01/2003 to 12/31/2003 11.55 15.21 7,250,220 01/01/2004 to 11/19/2004 15.21 16.41 5,985,944 ------------------------------------------------------------------------------------ MIST - LARGE CAP RESEARCH - CLASS A 01/01/1997 to 12/31/1997 10.00 9.90 124,559 01/01/1998 to 12/31/1998 9.90 11.83 1,094,920 01/01/1999 to 12/31/1999 11.83 14.64 2,260,424 01/01/2000 to 12/31/2000 14.64 16.25 2,796,457 01/01/2001 to 02/09/2001 16.25 16.10 2,874,281 ------------------------------------------------------------------------------------ MIST - LAZARD MID CAP PORTFOLIO - CLASS A 04/30/2007 to 12/31/2007 17.00 15.12 1,481,882 01/01/2008 to 12/31/2008 15.12 9.22 1,269,327 ------------------------------------------------------------------------------------ MIST - LEGG MASON AGGRESSIVE GROWTH PORTFOLIO - CLASS A 05/01/2004 to 12/31/2004 9.08 9.89 3,095,338 01/01/2005 to 12/31/2005 9.89 11.10 2,310,326 01/01/2006 to 12/31/2006 11.10 10.77 1,691,832 01/01/2007 to 12/31/2007 10.77 10.90 1,229,428 01/01/2008 to 12/31/2008 10.90 6.56 1,036,196 ------------------------------------------------------------------------------------ MIST - LEGG MASON VALUE EQUITY PORTFOLIO - CLASS B 05/01/2006 to 12/31/2006 10.42 11.17 3,235 01/01/2007 to 12/31/2007 11.17 10.36 6,018 01/01/2008 to 12/31/2008 10.36 4.64 5,072 ------------------------------------------------------------------------------------
A-9 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- MIST - LORD ABBETT AMERICA'S VALUE - CLASS B 05/01/2004 to 12/31/2004 12.32 13.92 611,462 01/01/2005 to 12/31/2005 13.92 14.27 765,591 01/01/2006 to 12/31/2006 14.27 16.15 340,148 01/01/2007 to 04/27/2007 16.15 17.21 0 -------------------------------------------------------------------- MIST - LORD ABBETT BOND DEBENTURE - CLASS A 01/01/1999 to 12/31/1999 13.50 13.77 11,413,993 01/01/2000 to 12/31/2000 13.77 13.68 10,379,151 01/01/2001 to 12/31/2001 13.68 14.00 9,987,878 01/01/2002 to 12/31/2002 14.00 13.76 9,082,056 01/01/2003 to 12/31/2003 13.76 16.21 8,247,095 01/01/2004 to 12/31/2004 16.21 17.33 6,997,284 01/01/2005 to 12/31/2005 17.33 17.40 5,920,743 01/01/2006 to 12/31/2006 17.40 18.77 4,549,243 01/01/2007 to 12/31/2007 18.77 19.77 3,650,480 01/01/2008 to 12/31/2008 19.77 15.91 2,930,362 -------------------------------------------------------------------- MIST - LORD ABBETT DEVELOPING GROWTH - CLASS A 08/19/1997 to 12/31/1997 10.00 10.53 148,658 01/01/1998 to 12/31/1998 10.53 11.07 1,342,201 01/01/1999 to 12/31/1999 11.07 14.45 2,153,899 01/01/2000 to 12/31/2000 14.45 11.57 3,364,546 01/01/2001 to 12/31/2001 11.57 10.63 3,007,893 01/01/2002 to 12/31/2002 10.63 7.44 2,431,192 01/01/2003 to 04/25/2003 7.44 7.48 2,306,133 -------------------------------------------------------------------- MIST - LORD ABBETT GROWTH AND INCOME - CLASS A 01/08/1999 to 12/31/1999 35.90 39.46 21,128,621 01/01/2000 to 12/31/2000 39.46 44.62 19,739,469 01/01/2001 to 12/31/2001 44.62 41.48 19,653,991 01/01/2002 to 12/31/2002 41.48 33.56 17,487,100 01/01/2003 to 12/31/2003 33.56 43.37 18,337,534 01/01/2004 to 12/31/2004 43.37 48.29 17,755,836 01/01/2005 to 12/31/2005 48.29 49.37 14,382,114 01/01/2006 to 12/31/2006 49.37 57.47 10,701,249 01/01/2007 to 12/31/2007 57.47 58.94 8,534,977 01/01/2008 to 12/31/2008 58.94 37.08 6,910,389 -------------------------------------------------------------------- MIST - LORD ABBETT MID CAP VALUE - CLASS A 01/01/1999 to 12/31/1999 10.44 10.88 2,528,900 01/01/2000 to 12/31/2000 10.88 16.40 3,377,783 01/01/2001 to 12/31/2001 16.40 17.48 3,949,594 01/01/2002 to 12/31/2002 17.48 15.63 4,352,632 01/01/2003 to 12/31/2003 15.63 19.45 4,295,222 01/01/2004 to 12/31/2004 19.45 23.94 4,370,738 01/01/2005 to 12/31/2005 23.94 25.56 3,683,994 01/01/2006 to 12/31/2006 25.56 28.35 2,673,192 01/01/2007 to 12/31/2007 28.35 28.21 2,119,334 01/01/2008 to 12/31/2008 28.21 17.06 1,636,076 --------------------------------------------------------------------
A-10 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD ----------------------------------------------------------------------------------- MIST - MET/PUTNAM CAPITAL OPPORTUNITIES - CLASS A 01/01/1998 to 12/31/1998 13.49 12.58 5,532,610 01/01/1999 to 12/31/1999 12.58 17.93 5,435,852 01/01/2000 to 12/31/2000 17.93 15.82 5,473,303 01/01/2001 to 12/31/2001 15.82 14.28 4,744,773 01/01/2002 to 12/31/2002 14.28 11.12 3,725,339 01/01/2003 to 12/31/2003 11.12 14.12 3,095,716 01/01/2004 to 12/31/2004 14.12 16.50 2,474,085 01/01/2005 to 12/31/2005 16.50 17.91 1,914,223 01/01/2006 to 12/31/2006 17.91 20.29 1,464,477 01/01/2007 to 04/27/2007 20.29 22.09 0 ----------------------------------------------------------------------------------- MIST - MFS RESEARCH INTERNATIONAL - CLASS A 01/01/2003 to 12/31/2003 10.00 13.28 3,703,698 01/01/2004 to 12/31/2004 13.28 15.69 3,605,317 01/01/2005 to 12/31/2005 15.69 18.07 3,955,480 01/01/2006 to 12/31/2006 18.07 22.62 3,042,974 01/01/2007 to 12/31/2007 22.62 25.35 2,410,788 01/01/2008 to 12/31/2008 25.35 14.44 2,005,101 ----------------------------------------------------------------------------------- MIST - OPPENHEIMER CAPITAL APPRECIATION - CLASS A 05/01/2004 to 12/31/2004 9.63 10.24 1,419,760 01/01/2005 to 12/31/2005 10.24 10.60 3,198,574 01/01/2006 to 12/31/2006 10.60 11.27 2,299,212 01/01/2007 to 12/31/2007 11.27 12.72 1,664,715 01/01/2008 to 12/31/2008 12.72 6.80 1,409,365 ----------------------------------------------------------------------------------- MIST - OPPENHEIMER CAPITAL APPRECIATION - CLASS B 05/01/2005 to 12/31/2005 7.95 8.63 1,490,314 01/01/2006 to 12/31/2006 8.63 9.16 25,588 01/01/2007 to 12/31/2007 9.16 10.32 70,781 01/01/2008 to 12/31/2008 10.32 5.50 90,842 ----------------------------------------------------------------------------------- MIST - PIMCO TOTAL RETURN - CLASS A 05/01/2004 to 12/31/2004 11.76 12.21 5,497,879 01/01/2005 to 12/31/2005 12.21 12.34 4,580,153 01/01/2006 to 12/31/2006 12.34 12.75 3,735,873 01/01/2007 to 12/31/2007 12.75 13.56 3,119,436 01/01/2008 to 12/31/2008 13.56 13.46 2,744,292 ----------------------------------------------------------------------------------- MIST - VAN KAMPEN COMSTOCK - CLASS B 05/01/2005 to 12/31/2005 10.00 10.48 956,701 01/01/2006 to 12/31/2006 10.48 11.99 383,654 01/01/2007 to 12/31/2007 11.99 11.53 445,777 01/01/2008 to 12/31/2008 11.53 7.28 388,974 -----------------------------------------------------------------------------------
A-11 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- MIST - VAN KAMPEN MID CAP GROWTH PORTFOLIO - CLASS A 05/01/2001 to 12/31/2001 9.64 8.83 85,446 01/01/2002 to 12/31/2002 8.83 6.60 254,179 01/01/2003 to 12/31/2003 6.60 8.87 2,811,310 01/01/2004 to 12/31/2004 8.87 9.87 2,401,597 01/01/2005 to 12/31/2005 9.87 10.19 1,863,080 01/01/2006 to 12/31/2006 10.19 10.92 1,465,142 01/01/2007 to 12/31/2007 10.92 13.33 1,149,432 01/01/2008 to 12/31/2008 13.33 7.01 929,875 -------------------------------------------------------------------- MSF - BLACKROCK BOND INCOME - CLASS A 05/01/2004 to 12/31/2004 45.55 47.26 208,616 01/01/2005 to 12/31/2005 47.26 47.73 204,201 01/01/2006 to 12/31/2006 47.73 49.15 159,816 01/01/2007 to 12/31/2007 49.15 51.51 141,190 01/01/2008 to 12/31/2008 51.51 49.05 115,929 -------------------------------------------------------------------- MSF - BLACKROCK MONEY MARKET - CLASS A 01/01/2003 to 12/31/2003 10.01 9.96 2,218,170 01/01/2004 to 12/31/2004 9.96 9.91 2,068,226 01/01/2005 to 12/31/2005 9.91 10.06 1,455,551 01/01/2006 to 12/31/2006 10.06 10.40 1,358,206 01/01/2007 to 12/31/2007 10.40 10.77 1,450,986 01/01/2008 to 12/31/2008 10.77 10.92 1,712,270 -------------------------------------------------------------------- MSF - CAPITAL GUARDIAN U.S. EQUITY - CLASS A 05/01/2003 to 12/31/2003 8.45 10.63 227,428 01/01/2004 to 12/31/2004 10.63 11.45 8,961,130 01/01/2005 to 12/31/2005 11.45 11.95 7,043,342 01/01/2006 to 12/31/2006 11.95 12.97 5,461,828 01/01/2007 to 12/31/2007 12.97 12.78 4,344,903 01/01/2008 to 12/31/2008 12.78 7.53 3,620,341 -------------------------------------------------------------------- MSF - DAVIS VENTURE VALUE - CLASS A 05/01/2003 to 12/31/2003 22.55 28.43 62,347 01/01/2004 to 12/31/2004 28.43 31.50 96,358 01/01/2005 to 12/31/2005 31.50 34.26 144,107 01/01/2006 to 12/31/2006 34.26 38.72 155,618 01/01/2007 to 12/31/2007 38.72 39.92 136,573 01/01/2008 to 12/31/2008 39.92 23.88 127,801 --------------------------------------------------------------------
A-12 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------- MSF - JENNISON GROWTH - CLASS A 05/01/2005 to 12/31/2005 4.16 5.01 68,816 01/01/2006 to 12/31/2006 5.01 5.08 50,716 01/01/2007 to 12/31/2007 5.08 5.59 26,367 01/01/2008 to 12/31/2008 5.59 3.51 22,613 -------------------------------------------------------------------- MSF - JENNISON GROWTH - CLASS B 05/01/2004 to 12/31/2004 9.64 10.48 1,028,049 01/01/2005 to 12/31/2005 10.48 11.73 1,242,714 01/01/2006 to 12/31/2006 11.73 11.86 130,351 01/01/2007 to 12/31/2007 11.86 13.03 98,544 01/01/2008 to 12/31/2008 13.03 8.15 64,311 -------------------------------------------------------------------- MSF - JULIUS BAER INTERNATIONAL STOCK - CLASS A (FORMERLY MSF - FI INTERNATIONAL STOCK) 09/11/2000 to 12/31/2000 10.00 9.41 21,346 01/01/2001 to 12/31/2001 9.41 7.37 54,113 01/01/2002 to 12/31/2002 7.37 5.99 44,695 01/01/2003 to 12/31/2003 5.99 7.57 34,170 01/01/2004 to 12/31/2004 7.57 8.82 49,871 01/01/2005 to 12/31/2005 8.82 10.26 39,486 01/01/2006 to 12/31/2006 10.26 11.79 33,115 01/01/2007 to 12/31/2007 11.79 12.83 23,519 01/01/2008 to 12/31/2008 12.83 7.07 21,916 -------------------------------------------------------------------- MSF - MET/PUTNAM VOYAGER - CLASS A 09/11/2000 to 12/31/2000 10.00 7.34 22,721 01/01/2001 to 12/31/2001 7.34 5.01 109,052 01/01/2002 to 12/31/2002 5.01 3.51 85,734 01/01/2003 to 12/31/2003 3.51 4.36 86,409 01/01/2004 to 12/31/2004 4.36 4.51 75,528 01/01/2005 to 04/29/2005 4.51 4.15 73,488 -------------------------------------------------------------------- MSF - MET/PUTNAM VOYAGER - CLASS B 05/01/2003 to 12/31/2003 10.00 11.73 62,193 01/01/2004 to 12/31/2004 11.73 12.11 91,991 01/01/2005 to 04/29/2005 12.11 11.14 103,021 -------------------------------------------------------------------- MSF - MFS TOTAL RETURN - CLASS A 05/01/2003 to 12/31/2003 34.25 38.42 64,286 01/01/2004 to 12/31/2004 38.12 42.15 110,572 01/01/2005 to 12/31/2005 42.15 42.86 117,288 01/01/2006 to 12/31/2006 42.86 47.43 104,400 01/01/2007 to 12/31/2007 47.43 48.81 97,479 01/01/2008 to 12/31/2008 48.81 37.47 80,014 --------------------------------------------------------------------
A-13 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD -------------------------------------------------------------------------------- MSF - OPPENHEIMER GLOBAL EQUITY - CLASS B 05/01/2005 to 12/31/2005 14.37 16.82 68,042 01/01/2006 to 12/31/2006 16.82 19.30 103,679 01/01/2007 to 12/31/2007 19.30 20.23 122,560 01/01/2008 to 12/31/2008 20.23 11.86 115,357 -------------------------------------------------------------------------------- MSF - T. ROWE PRICE LARGE CAP GROWTH - CLASS A 05/01/2004 to 12/31/2004 11.28 12.24 1,353,696 01/01/2005 to 12/31/2005 12.24 12.86 1,154,265 01/01/2006 to 12/31/2006 12.86 14.37 1,056,525 01/01/2007 to 12/31/2007 14.37 15.51 838,882 01/01/2008 to 12/31/2008 15.51 8.89 742,579 -------------------------------------------------------------------------------- MSF - T. ROWE PRICE SMALL CAP GROWTH - CLASS A 05/01/2004 to 12/31/2004 12.53 13.38 361,121 01/01/2005 to 12/31/2005 13.38 14.64 330,601 01/01/2006 to 12/31/2006 14.64 15.00 291,424 01/01/2007 to 12/31/2007 15.00 16.25 309,116 01/01/2008 to 12/31/2008 16.25 10.22 279,597 -------------------------------------------------------------------------------- MSF - WESTERN ASSET MANAGEMENT STRATEGIC BOND OPPORTUNITIES - CLASS A 05/01/2004 to 12/31/2004 19.04 20.23 69,596 01/01/2005 to 12/31/2005 20.23 20.52 67,853 01/01/2006 to 12/31/2006 20.52 21.26 55,301 01/01/2007 to 12/31/2007 21.26 21.80 46,044 01/01/2008 to 12/31/2008 21.80 18.27 42,983 -------------------------------------------------------------------------------- OPPENHEIMER BOND FUND/VA (NOW MSF BLACKROCK BOND INCOME) 01/01/1998 to 12/31/1998 10.00 10.53 401,990 01/01/1999 to 12/31/1999 10.53 10.23 1,030,539 01/01/2000 to 12/31/2000 10.23 10.70 1,183,539 01/01/2001 to 12/31/2001 10.70 11.37 1,161,929 01/01/2002 to 12/31/2002 11.37 12.23 1,151,840 01/01/2003 to 12/31/2003 12.23 12.88 942,696 01/01/2004 to 04/30/2004 12.88 12.87 907,918 -------------------------------------------------------------------------------- OPPENHEIMER CAPITAL APPRECIATION FUND/VA (NOW MIST OPPENHEIMER CAPITAL APPRECIATION) 01/01/1998 to 12/31/1998 10.00 12.23 97,161 01/01/1999 to 12/31/1999 12.23 17.09 436,692 01/01/2000 to 12/31/2000 17.09 16.81 721,879 01/01/2001 to 12/31/2001 16.81 14.49 772,904 01/01/2002 to 12/31/2002 14.49 10.45 643,117 01/01/2003 to 12/31/2003 10.45 13.50 685,140 01/01/2004 to 12/31/2004 13.50 14.23 535,465 01/01/2005 to 04/29/2005 14.23 13.50 505,314 --------------------------------------------------------------------------------
A-14 APPENDIX A CONDENSED FINANCIAL INFORMATION (CONTINUED)
AUV AT AUV AT ACCUM. UNITS BEGINNING END END OF OF PERIOD OF PERIOD PERIOD ------------------------------------------------------------------------ OPPENHEIMER HIGH INCOME FUND/VA 01/01/1998 to 12/31/1998 10.00 9.89 78,513 01/01/1999 to 12/31/1999 9.89 10.17 238,266 01/01/2000 to 12/31/2000 10.17 9.66 294,225 01/01/2001 to 12/31/2001 9.66 9.71 298,630 01/01/2002 to 12/31/2002 9.71 9.35 272,760 01/01/2003 to 12/31/2003 9.35 11.42 275,782 01/01/2004 to 04/30/2004 11.42 11.56 231,643 ------------------------------------------------------------------------ OPPENHEIMER MAIN STREET GROWTH AND INCOME FUND/VA 01/01/1998 to 12/31/1998 10.00 10.33 284,830 01/01/1999 to 12/31/1999 10.33 12.39 618,771 01/01/2000 to 12/31/2000 12.39 11.15 1,218,285 01/01/2001 to 12/31/2001 11.15 9.88 1,357,695 01/01/2002 to 12/31/2002 9.88 7.91 1,030,883 01/01/2003 to 12/31/2003 7.91 9.88 955,112 01/01/2004 to 04/30/2004 9.88 9.89 930,357 ------------------------------------------------------------------------ OPPENHEIMER STRATEGIC BOND FUND/VA 01/01/1998 to 12/31/1998 10.00 10.15 107,869 01/01/1999 to 12/31/1999 10.15 10.29 306,527 01/01/2000 to 12/31/2000 10.29 10.42 364,302 01/01/2001 to 12/31/2001 10.42 10.77 338,891 01/01/2002 to 12/31/2002 10.77 11.41 299,605 01/01/2003 to 12/31/2003 11.41 13.29 260,052 01/01/2004 to 04/30/2004 13.29 13.24 235,162 ------------------------------------------------------------------------ PUTNAM VT EQUITY INCOME - CLASS IB 05/01/2003 to 12/31/2003 10.00 12.04 79,685 01/01/2004 to 12/31/2004 12.04 13.27 179,474 01/01/2005 to 12/31/2005 13.27 13.81 226,591 01/01/2006 to 12/31/2006 13.81 16.18 153,076 01/01/2007 to 12/31/2007 16.18 16.47 134,924 01/01/2008 to 12/31/2008 16.47 11.18 90,271 ------------------------------------------------------------------------ PUTNAM VT GROWTH AND INCOME - CLASS IB 05/01/2003 to 12/31/2003 9.15 11.26 156,210 01/01/2004 to 12/31/2004 11.26 12.34 143,453 01/01/2005 to 12/31/2005 12.34 12.80 147,652 01/01/2006 to 12/31/2006 12.80 14.64 23,282 01/01/2007 to 12/31/2007 14.64 13.56 19,925 01/01/2008 to 12/31/2008 13.56 8.20 10,244 ------------------------------------------------------------------------
A-15 DISCONTINUED INVESTMENT PORTFOLIOS. The following investment portfolios are no longer available under any of the products described herein for allocations of new purchase payments or transfers of account value (excluding rebalancing and dollar cost averaging programs in existence at the time of closing): (a) DWS Variable Series II (formerly Scudder Variable Series II): DWS Government & Agency Securities VIP (Class A) (formerly Scudder Government & Agency Securities Portfolio) (Class A) (closed May 1, 2002); (b) Metropolitan Series Fund, Inc. ("MSF"): Davis Venture Value Portfolio (Class E) and MFS(R) Total Return Portfolio (Class B) (closed May 1, 2003); (c) Met Investors Series Trust ("MIST") (Class B): MFS(R) Research International Portfolio and T. Rowe Price Mid Cap Growth Portfolio (closed as of May 1, 2003); (d) MSF: Artio International Stock Portfolio (Class B) (closed December 19, 2003); (e) MIST: Third Avenue Small Cap Value Portfolio (Class A) (closed May 1, 2005); (f) MSF: Jennison Growth Portfolio (Class B) (closed May 1, 2005); (g) MIST: Legg Mason Value Equity Portfolio (Class B) (added and closed May 1, 2006); (h) Putnam Variable Trust: Putnam VT Growth and Income Portfolio (Class IB) (closed May 1, 2006); (i) MIST: Lord Abbett Bond Debenture Portfolio (Class B) and Lord Abbett Mid Cap Value Portfolio (Class B) (added and closed April 30, 2007); (j) MSF: T. Rowe Price Small Cap Value Portfolio (Class A) (added and closed April 30, 2007); (k) MSF: BlackRock Legacy Large Cap Growth Portfolio (added and closed effective May 4, 2009). Effective as of April 28, 2003, the General American Money Market Fund was merged into the State Street Research Money Market Portfolio of Metropolitan Series Fund, Inc. and the following investment portfolios of the Met Investors Series Trust were merged: J.P. Morgan Enhanced Index Portfolio merged into the Lord Abbett Growth and Income Portfolio; J.P. Morgan International Equity Portfolio merged into the MFS(R) Research International Portfolio; and Lord Abbett Developing Growth Portfolio merged into the Lord Abbett Growth Opportunities Portfolio. Effective as of May 1, 2004, the following investment portfolios were replaced: (a) AIM Variable Insurance Fund: AIM VI Premier Equity Fund (Series I) was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of Met Investors Series Trust ("MIST"); (b) AllianceBernstein Variable Products Series Fund, Inc.: AllianceBernstein Premier Growth Portfolio (Class A) was replaced with the Janus Aggressive Growth Portfolio (Class A) of MIST; (c) Franklin Templeton Variable Insurance Products Trust (Class 1): Franklin Large Cap Growth Securities Fund was replaced with the T. Rowe Price Large Cap Growth Portfolio (Class A) of Metropolitan Series Fund, Inc. ("MSF"); Franklin Small Cap Fund was replaced with the T. Rowe Price Small Cap Growth Portfolio (Class A) of MSF; Mutual Shares Securities Fund (Class 1 and Class 2) was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of MIST; Templeton Global Income Securities Fund was replaced with the PIMCO Total Return Portfolio (Class A) of MIST; (d) MFS(R) Variable Insurance Trust (Initial Class): MFS(R) Bond Series was replaced with the PIMCO Total Return Portfolio (Class A) of MIST; MFS(R) Emerging Growth Series was replaced with the T. Rowe Price Large Cap Growth Portfolio (Class A) of MSF; MFS(R) Research Series was replaced with the Oppenheimer Capital Appreciation Portfolio (Class A) of MIST; MFS(R) Strategic Income Series was replaced with the Western Asset Management Strategic Bond Opportunities Portfolio (Class A) (formerly Salomon Brothers Strategic Bond Opportunities Portfolio) (Class A) of MSF; (e) Oppenheimer Variable Account Funds (Class A): Oppenheimer Bond Fund/VA was replaced with the State Street Research Bond Income Portfolio (Class A) of MSF; Oppenheimer High Income Fund/VA was replaced with the Lord Abbett Bond Debenture Portfolio (Class A) of MIST; Oppenheimer Main Street Fund/VA was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of MIST; Oppenheimer Strategic Bond Fund/VA was replaced with the PIMCO Total Return Portfolio (Class A) of MIST; (f) Scudder Variable Series II: SVS Dreman High Return Equity Portfolio (Class A) was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of MIST. Effective as of September 3, 2004, the Equity Income Portfolio of the First American Insurance Portfolios, Inc. was liquidated. Effective as of November 22, 2004, the J.P. Morgan Quality Bond Portfolio (Class A) of the Met Investors Series Trust was merged into the PIMCO Total Return Portfolio (Class A) of the Met Investors Series Trust and the J.P. Morgan Select Equity Portfolio (Class A) of the Met Investors Series Trust was merged into the Capital Guardian U.S. Equity Portfolio (Class A) of the Metropolitan Series Fund, Inc. Effective as of May 1, 2005, the Met/Putnam Voyager Portfolio (Class B) of the Metropolitan Series Fund, Inc. merged into the Jennison Growth Portfolio (Class B) of the Metropolitan Series Fund, Inc. A-16 Effective as of May 1, 2005, the following investment portfolios were replaced: (a) AllianceBernstein Variable Products Series Fund, Inc.: the AllianceBernstein Real Estate Investment Portfolio (Class A) was replaced with the Neuberger Berman Real Estate Portfolio (Class A) of the Met Investors Series Trust; (b) MFS(R) Variable Insurance Trust: the MFS(R) High Income Series (Initial Class) was replaced with the Lord Abbett Bond Debenture Portfolio (Class A) of the Met Investors Series Trust and the MFS(R) Investors Trust Series (Initial Class) was replaced with the Oppenheimer Capital Appreciation Portfolio (Class A) of the Met Investors Series Trust; (c) Oppenheimer Variable Account Funds: the Oppenheimer Capital Appreciation Fund/VA (Class A) (closed for Premier Adviser and Prevail Contracts effective May 1, 2004) was replaced with the Oppenheimer Capital Appreciation Portfolio (Class A) of the Met Investors Series Trust; (d) Scudder Variable Series II: the SVS Dreman Small Cap Value Portfolio (Class A) (closed effective May 1, 2002) was replaced with the Third Avenue Small Cap Value Portfolio (Class A) of the Met Investors Series Trust; (e) Fidelity Variable Insurance Products: the VIP Contrafund(R) Portfolio (Initial Class) was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of the Met Investors Series Trust. Effective as of May 1, 2006, the MFS Investors Trust Portfolio (Class B) of the Metropolitan Series Fund, Inc. was merged into the Legg Mason Value Equity Portfolio (Class B) of the Met Investors Series Trust. Effective as of May 1, 2006, the following investment portfolios were replaced: (a) Fidelity Variable Insurance Products: the VIP Growth Portfolio (Initial Class) was replaced with the T. Rowe Price Large Cap Growth Portfolio (Class A) of the Metropolitan Series Fund, Inc. and the VIP Growth and Income Portfolio (Initial Class) was replaced with the Lord Abbett Growth and Income Portfolio (Class A) of the Met Investors Series Trust. Effective as of April 30, 2007, the following investment portfolios were merged: (a) the Met/Putnam Capital Opportunities Portfolio (Class A) of the Met Investors Series Trust merged into the Lazard Mid-Cap Portfolio (Class A) of the Met Investors Series Trust; (b) approximately 65% of the Lord Abbett America's Value Portfolio (Class B) of the Met Investors Series Trust merged into the Lord Abbett Mid-Cap Value Portfolio (Class B) (added and closed April 30, 2007) of the Met Investors Series Trust, and the remainder (approximately 35%) of the Lord Abbett America's Value Portfolio (Class B) of the Met Investors Series Trust merged into the Lord Abbett Bond Debenture Portfolio (Class B) (added and closed April 30, 2007) of the Met Investors Series Trust. Effective as of April 30, 2007, (a) AIM Variable Insurance Funds: AIM V.I Capital Appreciation Fund (Series I) (closed effective May 1, 2006) was replaced with the Met Investors Series Trust: Met/AIM Capital Appreciation Portfolio (Class A) (added and closed April 30, 2007); and (b) DWS Variable Series II: DWS Small Cap Growth VIP (Class A ) ( closed 5/1/02) was replaced with the Metropolitan Series Fund: T. Rowe Price Small Cap Growth Portfolio (Class A) (added and closed 4/30/07). Effective as of April 28, 2008, the Templeton Developing Markets Securities Fund (Class I) of the Franklin Templeton Variable Insurance Products Trust was replaced with the MFS(R) Emerging Markets Equity Portfolio (Class A) of the Met Investors Series Trust. Effective as of May 4, 2009, the Met/AIM Capital Appreciation Portfolio (Class A) of the Met Investors Series Trust merged into the BlackRock Legacy Large Cap Growth Portfolio (Class A) of the Metropolitan Series Fund, Inc.; and the Capital Guardian U.S. Equity Portfolio (Class A and Class B) of the Metropolitan Series Fund, Inc. merged into the Pioneer Fund Portfolio (Class A) of the Met Investors Series Trust. YOU SHOULD READ THE PROSPECTUSES FOR THESE DISCONTINUED INVESTMENT PORTFOLIOS FOR MORE INFORMATION ON FEES, CHARGES, INVESTMENT OBJECTIVES AND RISKS. A COPY OF THE FUND PROSPECTUSES HAS PREVIOUSLY BEEN PROVIDED TO YOU. A-17 APPENDIX B PARTICIPATING INVESTMENT PORTFOLIOS PART 1. INVESTMENT OBJECTIVES Below is a listing of the investment advisers and subadvisers, if any, and the investment objectives of each investment portfolio available under the contract. The fund prospectuses contain more complete information including a description of the investment objectives, policies, restrictions and risks. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE ACHIEVED. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE WITH YOUR CONTRACT. SEE PART 2 OF THIS APPENDIX FOR A LIST OF THE PORTFOLIOS AVAILABLE WITH YOUR CONTRACT. AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM Variable Insurance Funds is a mutual fund with multiple portfolios. Invesco Aim Advisors, Inc. is the investment adviser to each portfolio. The following Series I portfolio is available under the contract: AIM V.I. INTERNATIONAL GROWTH FUND SUBADVISERS: Invesco Asset Management Deutschland GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; Invesco Senior Secured Management, Inc.; Invesco Trimark Investment Management Inc. INVESTMENT OBJECTIVE: Seeks long-term growth of capital. FIDELITY(R) VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Fidelity Variable Insurance Products is a mutual fund with multiple portfolios. Fidelity Management & Research Company is the investment manager. The following Initial Class portfolios are available under the contract: EQUITY-INCOME PORTFOLIO SUBADVISERS: FMR Co., Inc.; Fidelity Research & Analysis Company INVESTMENT OBJECTIVE: Seeks reasonable income. The Portfolio will also consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500(R) Index (S&P 500(R)). GROWTH OPPORTUNITIES PORTFOLIO INVESTMENT OBJECTIVE: Seeks to provide capital growth. Franklin Templeton Variable Insurance Products Trust consists of multiple portfolios. Templeton Investment Counsel, LLC is the investment adviser for the Templeton Foreign Securities Fund. Templeton Global Advisors Limited is the investment adviser for the Templeton Growth Securities Fund. The following Class 1 portfolios are available under the contract: TEMPLETON FOREIGN SECURITIES FUND SUBADVISER: Franklin Templeton Investment Management Limited INVESTMENT OBJECTIVE: Seeks long-term capital growth. TEMPLETON GROWTH SECURITIES FUND INVESTMENT OBJECTIVE: Seeks long-term capital growth. MET INVESTORS SERIES TRUST (CLASS A (OR CLASS B AS NOTED)) Met Investors Series Trust is a mutual fund with multiple portfolios. MetLife Advisers, LLC, an affiliate of MetLife Investors, is the investment manager of Met Investors Series Trust. MetLife Advisers, LLC has engaged subadvisers to provide investment advice for the individual investment portfolios. The following Class A (or Class B as noted) portfolios are available under the contract: CLARION GLOBAL REAL ESTATE PORTFOLIO SUBADVISER: ING Clarion Real Estate Securities L.P. INVESTMENT OBJECTIVE: Total return through investment in real estate securities, emphasizing both capital appreciation and current income. B-1 LAZARD MID CAP PORTFOLIO SUBADVISER: Lazard Asset Management LLC INVESTMENT OBJECTIVE: Seeks long-term growth of capital. LEGG MASON PARTNERS AGGRESSIVE GROWTH PORTFOLIO SUBADVISER: ClearBridge Advisors, LLC INVESTMENT OBJECTIVE: Seeks capital appreciation. LORD ABBETT BOND DEBENTURE PORTFOLIO SUBADVISER: Lord, Abbett & Co. LLC INVESTMENT OBJECTIVE: Seeks to provide high current income and the opportunity for capital appreciation to produce a high total return. LORD ABBETT GROWTH AND INCOME PORTFOLIO SUBADVISER: Lord, Abbett & Co. LLC INVESTMENT OBJECTIVE: Seeks long-term growth of capital and income without excessive fluctuation in market value. LORD ABBETT MID CAP VALUE PORTFOLIO SUBADVISER: Lord, Abbett & Co. LLC INVESTMENT OBJECTIVE: Seeks capital appreciation through investments primarily in equity securities which are believed to be undervalued in the marketplace. MFS(R) EMERGING MARKETS EQUITY PORTFOLIO SUBADVISER: Massachusetts Financial Services Company INVESTMENT OBJECTIVE: Seeks capital appreciation. MFS(R) RESEARCH INTERNATIONAL PORTFOLIO SUBADVISER: Massachusetts Financial Services Company INVESTMENT OBJECTIVE: Seeks capital appreciation. OPPENHEIMER CAPITAL APPRECIATION PORTFOLIO (CLASS A AND CLASS B) SUBADVISER: OppenheimerFunds, Inc. INVESTMENT OBJECTIVE: Seeks capital appreciation. PIMCO TOTAL RETURN PORTFOLIO SUBADVISER: Pacific Investment Management Company LLC INVESTMENT OBJECTIVE: Seeks maximum total return, consistent with the preservation of capital and prudent investment management. PIONEER FUND PORTFOLIO SUBADVISER: Pioneer Investment Management, Inc. INVESTMENT OBJECTIVE: Seeks reasonable income and capital growth. VAN KAMPEN COMSTOCK PORTFOLIO (CLASS B) SUBADVISER: Morgan Stanley Investment Management, Inc. (d/b/a Van Kampen) INVESTMENT OBJECTIVE: Seeks capital growth and income. VAN KAMPEN MID CAP GROWTH PORTFOLIO SUBADVISER: Morgan Stanley Investment Management, Inc. (d/b/a Van Kampen) INVESTMENT OBJECTIVE: Seeks capital appreciation. METROPOLITAN SERIES FUND, INC. (CLASS A (OR CLASS B AS NOTED)) Metropolitan Series Fund, Inc. is a mutual fund with multiple portfolios. MetLife Advisers, LLC is the investment adviser to the portfolios. MetLife Advisers, LLC has engaged subadvisers to provide investment advice for the individual portfolios. The following Class A (or Class B as noted) portfolios are available under the contract: ARTIO INTERNATIONAL STOCK PORTFOLIO SUBADVISER: Artio Global Management, LLC* INVESTMENT OBJECTIVE: Long-term growth of capital. BLACKROCK BOND INCOME PORTFOLIO (CLASS A AND CLASS B) SUBADVISER: BlackRock Advisors, LLC INVESTMENT OBJECTIVE: Seeks competitive total return primarily from investing in fixed-income securities. B-2 BLACKROCK MONEY MARKET PORTFOLIO SUBADVISER: BlackRock Advisors, LLC INVESTMENT OBJECTIVE: Seeks a high level of current income consistent with preservation of capital. DAVIS VENTURE VALUE PORTFOLIO SUBADVISER: Davis Selected Advisers, L.P. INVESTMENT OBJECTIVE: Seeks growth of capital. JENNISON GROWTH PORTFOLIO SUBADVISER: Jennison Associates LLC INVESTMENT OBJECTIVES: Seeks long-term growth of capital. MFS(R) TOTAL RETURN PORTFOLIO SUBADVISER: Massachusetts Financial Services Company INVESTMENT OBJECTIVE: Seeks a favorable total return through investment in a diversified portfolio. OPPENHEIMER GLOBAL EQUITY PORTFOLIO (CLASS B) SUBADVISER: OppenheimerFunds, Inc. INVESTMENT OBJECTIVE: Seeks capital appreciation. T. ROWE PRICE LARGE CAP GROWTH PORTFOLIO SUBADVISER: T. Rowe Price Associates, Inc. INVESTMENT OBJECTIVE: Seeks long-term growth of capital and, secondarily, dividend income. T. ROWE PRICE SMALL CAP GROWTH PORTFOLIO SUBADVISER: T. Rowe Price Associates, Inc. INVESTMENT OBJECTIVE: Seeks long-term capital growth. WESTERN ASSET MANAGEMENT STRATEGIC BOND OPPORTUNITIES PORTFOLIO SUBADVISER: Western Asset Management Company INVESTMENT OBJECTIVE: Seeks to maximize total return consistent with preservation of capital. PUTNAM VARIABLE TRUST (CLASS IB) Putnam Variable Trust is a mutual fund with multiple portfolios. Putnam Investment Management, Inc. is the investment adviser to each portfolio. The following Class IB portfolio is available under the contract: PUTNAM VT EQUITY INCOME FUND INVESTMENT OBJECTIVE: Seeks capital growth and current income. *Prior to May 1, 2009, Julius Baer Investment Management, LLC was the subadviser to this Portfolio. B-3 APPENDIX B PARTICIPATING INVESTMENT PORTFOLIOS PART 2. PORTFOLIOS AVAILABLE WITH YOUR CONTRACT If you purchased the COVA VARIABLE ANNUITY, the following portfolios are available: MET INVESTORS SERIES TRUST (CLASS A (OR CLASS B AS NOTED)) Lazard Mid Cap Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio (Class B) PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Comstock Portfolio (Class B) Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A (OR CLASS B AS NOTED)) BlackRock Bond Income Portfolio (Class B) BlackRock Money Market Portfolio Davis Venture Value Portfolio MFS(R) Total Return Portfolio Oppenheimer Global Equity Portfolio (Class B) T. Rowe Price Small Cap Growth Portfolio PUTNAM VARIABLE TRUST (CLASS IB) Putnam VT Equity Income Fund CLOSED PORTFOLIOS FOR THIS PRODUCT* AIM V.I. International Growth Fund (Series I) 5/1/02 Templeton Growth Securities Fund (Class 1) 5/1/02 Davis Venture Value Portfolio (Class E) 5/1/03 MFS(R) Research International Portfolio (Class B) 5/1/03 MFS(R) Total Return Portfolio (Class B) 5/1/03 Templeton Foreign Securities Fund (Class 1) 5/1/03 T. Rowe Price Mid Cap Growth Portfolio (Class B) 5/1/03 Artio International Stock Portfolio (Class B) 12/19/03 T. Rowe Price Large Cap Growth Portfolio (Class A) 5/1/04 Jennison Growth Portfolio (Class B) 5/1/05 Legg Mason Value Equity Portfolio (Class B) 5/1/06 Putnam VT Growth and Income Fund (Class IB) 5/1/06 Lord Abbett Bond Debenture Portfolio (Class B) 4/30/07 Lord Abbett Mid Cap Value Portfolio (Class B) 4/30/07 BlackRock Legacy Large Cap Growth Portfolio (Class A) 4/30/07 -------------------------------------------------------------------------------- If you purchased the FIRSTAR SUMMIT VARIABLE ANNUITY, the following portfolios are available: AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM V.I. International Growth Fund FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1) Templeton Foreign Securities Fund MET INVESTORS SERIES TRUST (CLASS A) Lazard Mid Cap Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio MFS(R) Emerging Markets Equity Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio PIMCO Total Return Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A) Artio International Stock Portfolio BlackRock Money Market Portfolio Jennison Growth Portfolio CLOSED PORTFOLIOS FOR THIS PRODUCT* BlackRock Legacy Large Cap Growth Portfolio (Class A) 4/30/07 -------------------------------------------------------------------------------- If you purchased a PREMIER ADVISOR VARIABLE ANNUITY, the following portfolios are available: AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM V.I. International Growth Fund B-4 FIDELITY VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Equity-Income Portfolio Growth Opportunities Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1) Templeton Foreign Securities Fund Templeton Growth Securities Fund MET INVESTORS SERIES TRUST (CLASS A) Clarion Global Real Estate Portfolio Lazard Mid Cap Portfolio Legg Mason Partners Aggressive Growth Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Emerging Markets Equity Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A) BlackRock Bond Income Portfolio BlackRock Money Market Portfolio T. Rowe Price Large Cap Growth Portfolio T. Rowe Price Small Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio CLOSED PORTFOLIOS FOR THIS PRODUCT* BlackRock Legacy Large Cap Growth Portfolio (Class A) 4/30/07 -------------------------------------------------------------------------------- If you purchased a DESTINY SELECT VARIABLE ANNUITY, the following portfolios are available: AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM V.I. International Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Equity-Income Portfolio Growth Opportunities Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (CLASS 1) Templeton Foreign Securities Fund Templeton Growth Securities Fund MET INVESTORS SERIES TRUST (CLASS A) Clarion Global Real Estate Portfolio Lazard Mid Cap Portfolio Legg Mason Partners Aggressive Growth Portfolio Lord Abbett Bond Debenture Portfolio Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Emerging Markets Equity Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A) BlackRock Money Market Portfolio T. Rowe Price Large Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio CLOSED PORTFOLIOS FOR THIS PRODUCT* DWS Government & Agency Securities VIP (Class A) 5/1/02 Third Avenue Small Cap Value Portfolio (Class A) 5/1/05 T. Rowe Price Small Cap Growth Portfolio (Class A) 4/30/07 BlackRock Legacy Large Cap Growth Portfolio (Class A) 4/30/07 -------------------------------------------------------------------------------- If you purchased a PREVAIL VARIABLE ANNUITY, the following portfolios are available: AIM VARIABLE INSURANCE FUNDS (SERIES I) AIM V.I. International Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Equity-Income Portfolio Growth Opportunities Portfolio MET INVESTORS SERIES TRUST (CLASS A) Lazard Mid Cap Portfolio Lord Abbett Bond Debenture Portfolio B-5 Lord Abbett Growth and Income Portfolio Lord Abbett Mid Cap Value Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio PIMCO Total Return Portfolio Pioneer Fund Portfolio Van Kampen Mid Cap Growth Portfolio METROPOLITAN SERIES FUND, INC. (CLASS A) BlackRock Bond Income Portfolio BlackRock Money Market Portfolio T. Rowe Price Large Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio CLOSED PORTFOLIOS FOR THIS PRODUCT* BlackRock Legacy Large Cap Growth Portfolio (Class A) 4/30/07 *These portfolios are closed for allocations of new purchase payments or transfers of account value (excluding rebalancing and dollar cost averaging programs in existence at the time of closing). B-6 STATEMENT OF ADDITIONAL INFORMATION INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT ISSUED BY METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE AND METLIFE INVESTORS INSURANCE COMPANY THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 2009, FOR THE INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN. THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE TO THE COMPANY AT: P.O. BOX 10366, DES MOINES, IOWA 50306-0366, (800) 343-8496. THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 2009. SAI-COVAVA09 TABLE OF CONTENTS PAGE COMPANY................................ 3 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM........................ 3 CUSTODIAN.............................. 4 DISTRIBUTION........................... 4 CALCULATION OF PERFORMANCE INFORMATION. 5 Total Return........................ 5 Historical Unit Values.............. 5 Reporting Agencies.................. 6 ANNUITY PROVISIONS..................... 6 Variable Annuity.................... 6 Fixed Annuity....................... 6 Annuity Unit Value.................. 6 Net Investment Factor............... 7 Mortality and Expense Guarantee..... 7 TAX STATUS OF THE CONTRACTS............ 7 FINANCIAL STATEMENTS................... 8
2 COMPANY MetLife Investors Insurance Company (MetLife Investors) was incorporated on August 17, 1981, as Assurance Life Company, a Missouri corporation, and changed its name to Xerox Financial Services Life Insurance Company in 1985. On June 1, 1995, a wholly-owned subsidiary of General American Life Insurance Company (General American Life) purchased MetLife Investors which on that date changed its name to Cova Financial Services Life Insurance Company. On January 6, 2000, Metropolitan Life Insurance Company acquired GenAmerica Financial Corporation, the ultimate parent company of General American Life. Cova Financial Life Insurance Services Company changed its name to MetLife Investors Insurance Company on January 30, 2001. On December 31, 2002, MetLife Investors became an indirect subsidiary of MetLife, Inc. (MetLife), the holding company of Metropolitan Life Insurance Company and a listed company on the New York Stock Exchange. MetLife is a leading provider of insurance and financial products and services to individual and group customers. On December 31, 2002, MetLife entered into a net worth maintenance agreement with MetLife Investors. Under the agreement, MetLife agreed, without limitation as to the amount, to cause MetLife Investors to have certain minimum capital and surplus levels and liquidity necessary to enable it to meet its current obligations on a timely basis. At December 31, 2008, the capital and surplus of MetLife Investors was in excess of these minimum capital and surplus levels. MetLife and MetLife Investors entered into the agreement in part to enhance and maintain the financial strength of MetLife Investors as set forth in the agreement. Creditors of MetLife Investors (including its Policy Owners) have certain rights under the agreement to enforce the provisions of the agreement through certain state insurance regulators. However, the agreement provides, among other things, that it does not provide any creditor of MetLife Investors with recourse to or against any of the assets of MetLife. MetLife has the right to terminate the agreement upon thirty days written notice to MetLife Investors. MetLife has agreed not to terminate the agreement unless one of certain designated events occur, including if the Company attains a financial strength rating from Moody's Investors Service, Inc., without giving weight to the support of the agreement, that is the same as or better than its rating of such rating agency with such support. In addition, General American Life entered into a contingent reinsurance agreement with MetLife Investors. Under this agreement, in the event that MetLife Investors' statutory capital and surplus fall below certain levels, General American Life would assume as assumption reinsurance, subject to regulatory approvals and required consents, all of MetLife Investors' life insurance and annuity contracts. At December 31, 2008, the capital and surplus of MetLife Investors was in excess of these minimum capital and surplus levels. The Company presently is licensed to do business in the District of Columbia and all states except Maine, New Hampshire, New York and Vermont. We are a member of the Insurance Marketplace Standards Association ("IMSA"). Companies that belong to IMSA subscribe to a set of ethical standards covering the various aspects of sales and service for individually sold life insurance and annuities. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements of each of the Sub-Accounts of MetLife Investors Variable Annuity Account One included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The principal address of Deloitte & Touche LLP is 201 East Kennedy Boulevard, Suite 1200, Tampa, Florida 33602-5827. The financial statements of MetLife Investors Insurance Company (the "Company") included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the fact that the Company changed its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and changed its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The principal address of 3 Deloitte & Touche LLP is 201 East Kennedy Boulevard, Suite 1200, Tampa, Florida 33602-5827. The consolidated financial statements of General American Life Insurance Company and subsidiaries (the "Guarantor") included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the fact that the Guarantor changed its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and changed its method of accounting for deferred acquisition costs and for income taxes as required by accounting guidance adopted on January 1, 2007), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The principal address of Deloitte & Touche LLP is 201 East Kennedy Boulevard, Suite 1200, Tampa, Florida 33602-5827. The consolidated financial statements, and the related financial statement schedules, incorporated in this Statement of Additional Information by reference from the MetLife, Inc. and subsidiaries' ("MetLife") Annual Report on Form 10-K, and the effectiveness of MetLife's internal control over financial reporting for the year ended December 31, 2008, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports (which (1) express an unqualified opinion on the consolidated financial statements and financial statement schedules and include an explanatory paragraph regarding changes in MetLife's method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and its method of accounting for deferred acquisition costs and for income taxes as required by accounting guidance adopted on January 1, 2007, and (2) express an unqualified opinion on MetLife's effectiveness of internal control over financial reporting), which are incorporated herein by reference. Such consolidated financial statements and financial statement schedules have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION As noted above in the "The Company" section of this Statement of Additional Information, MetLife has entered into a net worth maintenance agreement with the Company. As permitted by SEC rules, we are incorporating by reference into this Statement of Additional Information the following documents which have been filed with the SEC, which means that these documents are legally a part of this Statement of Additional Information. The consolidated financial statements and financial schedules from MetLife and Subsidiaries' Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009 (File No. 001-15787), can be viewed on the SEC website at www.sec.gov. You should only consider MetLife's financial statements (including notes and financial statement schedules thereto) and other financial information that we have incorporated by reference as noted above as bearing on the ability of MetLife to meet its obligations under the net worth maintenance agreement. CUSTODIAN MetLife Investors Insurance Company, 5 Park Plaza, Suite 1900, Irvine, California 92614 is the custodian of the assets of the Separate Account. The custodian has custody of all cash of the Separate Account and handles the collection of proceeds of shares of the underlying funds bought and sold by the Separate Account. DISTRIBUTION Information about the distribution of the contracts is contained in the prospectus. (See "Other Information -- Distribution of Contracts.") Additional information is provided below. The contracts are not currently offered for sale. MetLife Investors Distribution Company ("Distributor") serves as principal underwriter for the contracts. Distributor is a Missouri corporation and its home office is located at 5 Park Plaza, Suite 1900, Irvine, California 92614. Distributor is an indirect, wholly-owned subsidiary of MetLife, Inc. Distributor is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and is a member of FINRA. Distributor is not a member of the Securities Investor Protection Corporation. Distributor has entered into selling agreements with other broker-dealers ("selling firms") and compensates them for their services. 4 Distributor (including its predecessor) received sales compensation with respect to all contracts issued from the Separate Account in the following amounts during the periods indicated:
AGGREGATE AMOUNT OF AGGREGATE COMMISSIONS AMOUNT OF RETAINED BY COMMISSIONS DISTRIBUTOR AFTER PAID TO PAYMENTS TO FISCAL YEAR DISTRIBUTOR SELLING FIRMS ----------- ----------- ----------------- 2006 $77,984,153 $0 2007 $93,514,576 $0 2008 $85,020,359 $0
Distributor passes through commissions to selling firms for their sales. In addition we pay compensation to Distributor to offset its expenses, including compensation costs, marketing and distribution expenses, advertising, wholesaling, printing and other expenses of distributing the contracts. CALCULATION OF PERFORMANCE INFORMATION TOTAL RETURN From time to time, the Company may advertise performance data. Such data will show the percentage change in the value of an Accumulation Unit based on the performance of an investment portfolio over a period of time, usually a calendar year, determined by dividing the increase (decrease) in value for that unit by the Accumulation Unit value at the beginning of the period. Any such advertisement will include total return figures for the time periods indicated in the advertisement. Such total return figures will reflect the deduction of a 1.25% Mortality and Expense Risk Premium, a 0.15% Administrative Expense Charge, the expenses for the underlying investment portfolio being advertised and any applicable Contract Maintenance Charges and Withdrawal Charges. The hypothetical value of a contract purchased for the time periods described in the advertisement will be determined by using the actual Accumulation Unit values for an initial $1,000 purchase payment, and deducting any applicable Contract Maintenance Charges and any applicable Withdrawal Charge to arrive at the ending hypothetical value. The average annual total return is then determined by computing the fixed interest rate that a $1,000 purchase payment would have to earn annually, compounded annually, to grow to the hypothetical value at the end of the time periods described. The formula used in these calculations is: P (1 + T)/n/ = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value at the end of the time periods used (or fractional portion thereof) of a hypothetical $1,000 payment made at the beginning of the time periods used. The Company may also advertise performance data which will be calculated in the same manner as described above but which will not reflect the deduction of any Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any percentage increase or make greater any percentage decrease. You should note that the investment results of each investment portfolio will fluctuate over time, and any presentation of the investment portfolio's total return for any period should not be considered as a representation of what an investment may earn or what your total return may be in any future period. HISTORICAL UNIT VALUES The Company may also show historical Accumulation Unit values in certain advertisements containing illustrations. These illustrations will be based on actual Accumulation Unit values. In addition, the Company may distribute sales literature which compares the percentage change in Accumulation Unit values for any of the investment portfolios against established market indices such as the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average or other management investment companies which have investment objectives similar to the investment portfolio being compared. The Standard & Poor's 500 Composite Stock Price Index is an unmanaged, unweighted average of 500 stocks, the majority of which are listed on the New York Stock Exchange. The Dow Jones Industrial Average is an unmanaged, weighted average of thirty blue chip industrial corporations listed on the New York Stock Exchange. Both the Standard & Poor's 500 Composite 5 Stock Price Index and the Dow Jones Industrial Average assume quarterly reinvestment of dividends. REPORTING AGENCIES The Company may also distribute sales literature which compares the performance of the Accumulation Unit values of the Contracts with the unit values of variable annuities issued by other insurance companies. Such information will be derived from the Lipper Variable Insurance Products Performance Analysis Service, the VARDS Report or from Morningstar. The Lipper Variable Insurance Products Performance Analysis Service is published by Lipper Analytical Services, Inc., a publisher of statistical data which currently tracks the performance of almost 4,000 investment companies. The rankings compiled by Lipper may or may not reflect the deduction of asset-based insurance charges. The Company's sales literature utilizing these rankings will indicate whether or not such charges have been deducted. Where the charges have not been deducted, the sales literature will indicate that if the charges had been deducted, the ranking might have been lower. The VARDS Report is a monthly variable annuity industry analysis compiled by Variable Annuity Research & Data Service of Roswell, Georgia and published by Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the deduction of asset-based insurance charges. In addition, VARDS prepares risk adjusted rankings, which consider the effects of market risk on total return performance. This type of ranking may address the question as to which funds provide the highest total return with the least amount of risk. Other ranking services may be used as sources of performance comparison, such as CDA/Weisenberger. Morningstar rates a variable annuity against its peers with similar investment objectives. Morningstar does not rate any variable annuity that has less than three years of performance data. ANNUITY PROVISIONS VARIABLE ANNUITY A variable annuity is an annuity with payments which: (1) are not predetermined as to dollar amount; and (2) will vary in amount with the net investment results of the applicable investment portfolio(s) of the Separate Account. At the Annuity Date, the Contract Value in each investment portfolio will be applied to the applicable Annuity Tables. The Annuity Table used will depend upon the Annuity Option chosen. If, as of the Annuity Date, the then current Annuity Option rates applicable to this class of Contracts provide a first Annuity Payment greater than guaranteed under the same Annuity Option under this Contract, the greater payment will be made. The dollar amount of Annuity Payments after the first is determined as follows: (1)the dollar amount of the first Annuity Payment is divided by the value of an Annuity Unit as of the Annuity Date. This establishes the number of Annuity Units for each monthly payment. The number of Annuity Units remains fixed during the Annuity Payment period. (2)the fixed number of Annuity Units is multiplied by the Annuity Unit value for the last Valuation Period of the month preceding the month for which the payment is due. This result is the dollar amount of the payment. The total dollar amount of each Variable Annuity Payment is the sum of all investment portfolios' Variable Annuity Payments reduced by the applicable Contract Maintenance Charge. FIXED ANNUITY A fixed annuity is a series of payments made during the Annuity Period which are guaranteed as to dollar amount by the Company and do not vary with the investment experience of the Separate Account. The General Account Value on the day immediately preceding the Annuity Date will be used to determine the Fixed Annuity monthly payment. The monthly Annuity Payment will be based upon the Annuity Option elected and the appropriate Annuity Option Table. ANNUITY UNIT VALUE The value of an Annuity Unit for each investment portfolio was arbitrarily set initially at $10. This was done when the first investment portfolio shares were purchased. The investment portfolio Annuity Unit value at the end of any subsequent Valuation Period is determined by multiplying the investment portfolio Annuity Unit value for the immediately preceding Valuation Period by the product of (a) the Net Investment Factor for the day for which the Annuity Unit value is being calculated, and (b) 0.999919. 6 NET INVESTMENT FACTOR The Net Investment Factor for any investment portfolio for any Valuation Period is determined by dividing: (a)the Accumulation Unit value as of the close of the current Valuation Period, by (b)the Accumulation Unit value as of the close of the immediately preceding Valuation Period. The Net Investment Factor may be greater or less than one, as the Annuity Unit value may increase or decrease. MORTALITY AND EXPENSE GUARANTEE The Company guarantees that the dollar amount of each Annuity Payment after the first Annuity Payment will not be affected by variations in mortality or expense experience. TAX STATUS OF THE CONTRACTS Tax law imposed several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts. DIVERSIFICATION REQUIREMENTS. The Internal Revenue Code (Code) requires that the investments of each investment division of the separate account underlying the contracts be "adequately diversified" in order for the contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that each investment portfolio will satisfy these diversification requirements. If investment portfolio shares are sold directly to either tax qualified retirement plans that later lose their tax-qualified status or to non-qualified plans, the separate accounts investing in the investment portfolio may fail the diversification requirements of Section 817(h) of the Code. Failing such diversification requirements could have adverse tax consequences for variable contract owners, including losing the benefit of tax deferral. OWNER CONTROL. In some circumstances, owners of variable annuity contracts who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although published guidance in this area does not address certain aspects of the contracts, we believe that the owner of a contract should not be treated as the owner of the separate account assets. We reserve the right to modify the contract to bring it into conformity with applicable standards should such modification be necessary to prevent an owner of the contract from being treated as the owner of the underlying separate account assets. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for Federal income tax purposes, Section 72(s) of the Code generally requires any Non-Qualified Contract to contain certain provisions specifying how your interest in the contract will be distributed in the event of the death of an owner of the contract (or on the death of, or change in, any primary annuitant where the contract is owned by a non-natural person). Specifically, Section 72(s) requires that: (a) if any owner dies on or after the annuity starting date, but prior to the time the entire interest in the contract has been distributed, the entire interest in the contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such owner's death; and (b) if any owner dies prior to the annuity starting date, the entire interest in the contract will be distributed within five years after the date of such owner's death. These requirements will be considered satisfied as to any portion of an owner's interest which is payable to or for the benefit of a designated beneficiary and which is distributed over the life of such designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the owner's death. The designated beneficiary refers to a natural person designated by the owner as a beneficiary and to whom ownership of the contract passes by reason of death. However, if the designated beneficiary is the surviving spouse of the deceased owner, the contract may be continued with the surviving spouse as the new owner. The Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS. Federal tax law requires that minimum annual distributions begin by April 1st of the calendar year following the calendar year in which an IRA owner attains age 70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum distributions until the later of April 1st of the calendar year following the calendar year in which they attain age 70 1/2 or the year of retirement (except for 5% or more owners). If you own 7 more than one individual retirement annuity and/or account, you may satisfy the minimum distribution rules on an aggregate basis (i.e., determine the total amount of required distributions from all IRAs and take the required amount from any one or more IRAs). A similar aggregate approach is available to meet your 403(b) minimum distribution requirements if you have multiple 403(b) annuities. Recently promulgated Treasury regulations changed the distribution requirements; therefore, it is important that you consult your tax adviser as to the impact of these regulations on your personal situation. Final income tax regulations regarding minimum distribution requirements were released in June 2004. These regulations affect both deferred and income annuities. Under these new rules, effective with respect to minimum distributions required for the 2006 distribution year, in general, the value of all benefits under a deferred annuity (including death benefits in excess of cash value) must be added to the account value in computing the amount required to be distributed over the applicable period. We will provide you with additional information as to the amount of your interest in the contract that is subject to required minimum distributions under this new rule and either compute the required amount for you or offer to do so at your request. The new rules are not entirely clear and you should consult your tax adviser as to how these rules affect your contract. MINIMUM DISTRIBUTIONS FOR BENEFICIARIES UPON THE CONTRACT OWNER'S DEATH. Upon the death of the contract owner and/or annuitant of a Qualified Contract, the funds remaining in the contract must be completely withdrawn within 5 years from the date of death (including in a single lump sum) or minimum distributions may be taken over the life expectancy of the individual beneficiaries (and in certain situations, trusts for individuals), provided such distributions are payable at least annually and begin within one year from the date of death. Special rules apply in the case of an IRA where the beneficiary is the surviving spouse which allow the spouse to assume the contract as owner. Alternative rules permit a spousal beneficiary under a qualified contract, including an IRA, to defer the minimum distribution requirements until the end of the year in which the deceased spouse would have attained age 70 1/2 or to rollover the death proceeds to his or her own IRA or to another eligible retirement plan in which he or she participates. FINANCIAL STATEMENTS The financial statements of the Separate Account, the Company and General American Life Insurance Company are included herein. The financial statements of the Company included herein should be considered only as bearing upon the ability of the Company to meet its obligations under the contract. The financial statements of General American Life Insurance Company are included because for contracts issued on or before December 31, 2002, General American Life Insurance Company agreed to ensure that the Company will have sufficient funds to meet its obligations under the contracts. 8 ANNUAL REPORT DECEMBER 31, 2008 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Contract Owners of MetLife Investors Variable Annuity Account One and the Board of Directors of MetLife Investors Insurance Company: We have audited the accompanying statements of assets and liabilities of MetLife Investors Variable Annuity Account One (the "Separate Account") of MetLife Investors Insurance Company (the "Company") comprising each of the individual Sub-Accounts listed in Appendix A as of December 31, 2008, the related statements of operations for each of the periods presented in the year then ended, and the statements of changes in net assets for each of the periods presented in the two years then ended. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Separate Account is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Separate Account's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts constituting the Separate Account of the Company as of December 31, 2008, the results of their operations for each of the periods presented in the year then ended, and the changes in their net assets for each of the periods presented in the two years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, FL March 31, 2009 APPENDIX A MIST Lord Abbett Growth and Income Sub-Account MIST Lord Abbett Bond Debenture Sub-Account MIST Van Kampen Mid Cap Growth Sub-Account MIST Lord Abbett Mid Cap Value Sub-Account MIST Oppenheimer Capital Appreciation Sub-Account MIST PIMCO Inflation Protected Bond Sub-Account MIST Legg Mason Partners Aggressive Growth Sub-Account MIST PIMCO Total Return Sub-Account MIST RCM Technology Sub-Account MIST T. Rowe Price Mid Cap Growth Sub-Account MIST MFS Research International Sub-Account MIST Met/AIM Small Cap Growth Sub-Account MIST Lazard Mid Cap Sub-Account MIST Harris Oakmark International Sub-Account MIST Third Avenue Small Cap Value Sub-Account MIST Clarion Global Real Estate Sub-Account MIST Turner Mid Cap Growth Sub-Account MIST Goldman Sachs Mid Cap Value Sub-Account MIST MetLife Defensive Strategy Sub-Account MIST MetLife Moderate Strategy Sub-Account MIST MetLife Balanced Strategy Sub-Account MIST MetLife Growth Strategy Sub-Account MIST MetLife Aggressive Strategy Sub-Account MIST Van Kampen Comstock Sub-Account MIST SSgA Growth ETF Sub-Account MIST SSgA Growth and Income ETF Sub-Account MIST Legg Mason Value Equity Sub-Account MIST Met/AIM Capital Appreciation Sub-Account MIST Pioneer Fund Sub-Account MIST Pioneer Strategic Income Sub-Account MIST MFS Emerging Markets Equity Sub-Account MIST Loomis Sayles Global Markets Sub-Account MIST Rainier Large Cap Equity Sub-Account MIST American Funds Growth Sub-Account MIST American Funds Balanced Allocation Sub-Account MIST American Funds Bond Sub-Account MIST American Funds Growth Allocation Sub-Account MIST American Funds International Sub-Account MIST American Funds Moderate Allocation Sub-Account MIST BlackRock High Yield Sub-Account MIST Dreman Small Cap Value Sub-Account MIST Met/Templeton Growth Sub-Account MIST Met/Franklin Mutual Shares Sub-Account MIST Met/Franklin Templeton Founding Strategy Sub-Account Russell Multi-Style Equity Sub-Account Russell Aggressive Equity Sub-Account Russell Non-U.S. Sub-Account Russell Core Bond Sub-Account Russell Real Estate Securities Sub-Account AIM V.I. International Growth Sub-Account DWS Government & Agency Securities Sub-Account MSF Davis Venture Value Sub-Account MSF Harris Oakmark Focused Value Sub-Account MSF Jennison Growth Sub-Account MSF MFS Total Return Sub-Account MSF Capital Guardian U.S. Equity Sub-Account MSF Julius Baer International Stock Sub-Account MSF BlackRock Money Market Sub-Account MSF MetLife Stock Index Sub-Account MSF BlackRock Bond Income Sub-Account MSF BlackRock Strategic Value Sub-Account MSF Franklin Templeton Small Cap Growth Sub-Account MSF Western Asset Management Strategic Bond Opportunities Sub-Account MSF Western Asset Management U.S. Government Sub-Account MSF T. Rowe Price Small Cap Growth Sub-Account MSF T. Rowe Price Large Cap Growth Sub-Account MSF Oppenheimer Global Equity Sub-Account MSF MFS Value Sub-Account MSF Met/Dimensional International Small Company Sub-Account Putnam VT Growth and Income Sub-Account Putnam VT Vista Sub-Account Putnam VT Equity Income Sub-Account FTVIPT Templeton Growth Securities Sub-Account FTVIPT Templeton Foreign Securities Sub-Account Fidelity VIP Growth Opportunities Sub-Account Fidelity VIP Equity-Income Sub-Account PIMCO VIT High Yield Sub-Account PIMCO VIT Low Duration Sub-Account PIMCO VIT StocksPLUS Growth and Income Sub-Account PIMCO VIT Total Return Bond Sub-Account American Funds Global Growth Sub-Account American Funds Global Small Capitalization Sub-Account American Funds Growth Sub-Account METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2008 MIST LORD ABBETT MIST LORD ABBETT MIST VAN KAMPEN MIST LORD ABBETT GROWTH AND INCOME BOND DEBENTURE MID CAP GROWTH MID CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ---------------- --------------- ---------------- ASSETS: Investments at fair value $ 576,806,455 $ 202,718,885 $ 30,205,990 $ 157,250,699 Due from MetLife Investors Insurance Company -- -- -- -- ----------------- ---------------- --------------- ---------------- Total Assets 576,806,455 202,718,885 30,205,990 157,250,699 ----------------- ---------------- --------------- ---------------- LIABILITIES: Due to MetLife Investors Insurance Company 1,265 1,251 766 1,177 ----------------- ---------------- --------------- ---------------- Total Liabilities 1,265 1,251 766 1,177 ----------------- ---------------- --------------- ---------------- NET ASSETS $ 576,805,190 $ 202,717,634 $ 30,205,224 $ 157,249,522 ================= ================ =============== ================ CONTRACT OWNERS' EQUITY Net Assets from accumulation units 572,974,097 202,010,152 30,142,257 156,821,357 Net Assets from contracts in payouts 3,831,093 707,482 62,967 428,165 ----------------- ---------------- --------------- ---------------- Total Net Assets $ 576,805,190 $ 202,717,634 $ 30,205,224 $ 157,249,522 ================= ================ =============== ================
The accompanying notes are an integral part of these financial statements. 1 MIST PIMCO MIST LEGG MASON MIST OPPENHEIMER INFLATION PROTECTED PARTNERS AGGRESSIVE MIST PIMCO TOTAL MIST RCM MIST T. ROWE PRICE CAPITAL APPRECIATION BOND GROWTH RETURN TECHNOLOGY MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- ------------------- ------------------- ---------------- ----------- ------------------ $ 63,889,877 $ 52,630,531 $ 46,377,707 $ 284,742,732 $ 6,573,875 $ 47,741,931 -- 6 -- -- -- -- -------------------- ------------------- ------------------- ---------------- ----------- ------------------ 63,889,877 52,630,537 46,377,707 284,742,732 6,573,875 47,741,931 -------------------- ------------------- ------------------- ---------------- ----------- ------------------ 1,489 559 698 1,185 987 1,313 -------------------- ------------------- ------------------- ---------------- ----------- ------------------ 1,489 559 698 1,185 987 1,313 -------------------- ------------------- ------------------- ---------------- ----------- ------------------ $ 63,888,388 $ 52,629,978 $ 46,377,009 $ 284,741,547 $ 6,572,888 $ 47,740,618 ==================== =================== =================== ================ =========== ================== 63,758,294 52,598,208 46,336,039 284,444,781 6,572,479 47,703,376 130,094 31,770 40,970 296,766 409 37,242 -------------------- ------------------- ------------------- ---------------- ----------- ------------------ $ 63,888,388 $ 52,629,978 $ 46,377,009 $ 284,741,547 $ 6,572,888 $ 47,740,618 ==================== =================== =================== ================ =========== ==================
The accompanying notes are an integral part of these financial statements. 2 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MIST MIST MFS RESEARCH MIST MET/AIM MIST LAZARD HARRIS OAKMARK INTERNATIONAL SMALL CAP GROWTH MID CAP INTERNATIONAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ---------------- ------------ -------------- ASSETS: Investments at fair value $ 103,319,918 $ 37,770,050 $ 31,592,293 $ 44,092,227 Due from MetLife Investors Insurance Company -- -- -- -- ----------------- ---------------- ------------ -------------- Total Assets 103,319,918 37,770,050 31,592,293 44,092,227 ----------------- ---------------- ------------ -------------- LIABILITIES: Due to MetLife Investors Insurance Company 1,665 785 1,397 476 ----------------- ---------------- ------------ -------------- Total Liabilities 1,665 785 1,397 476 ----------------- ---------------- ------------ -------------- NET ASSETS $ 103,318,253 $ 37,769,265 $ 31,590,896 $ 44,091,751 ================= ================ ============ ============== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 102,996,927 37,745,595 31,506,060 44,086,783 Net Assets from contracts in payouts 321,326 23,670 84,836 4,968 ----------------- ---------------- ------------ -------------- Total Net Assets $ 103,318,253 $ 37,769,265 $ 31,590,896 $ 44,091,751 ================= ================ ============ ==============
The accompanying notes are an integral part of these financial statements. 3 MIST MIST THIRD AVENUE MIST CLARION GLOBAL MIST TURNER GOLDMAN SACHS MIST METLIFE MIST METLIFE SMALL CAP VALUE REAL ESTATE MID CAP GROWTH MID CAP VALUE DEFENSIVE STRATEGY MODERATE STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ------------------- -------------- ------------- ------------------ ----------------- $ 45,190,547 $ 26,465,801 $ 7,842,048 $ 15,273,123 $ 171,856,462 $ 402,407,116 -- -- -- -- -- -- ----------------- ------------------- -------------- ------------- ------------------ ----------------- 45,190,547 26,465,801 7,842,048 15,273,123 171,856,462 402,407,116 ----------------- ------------------- -------------- ------------- ------------------ ----------------- 1,007 972 947 838 642 448 ----------------- ------------------- -------------- ------------- ------------------ ----------------- 1,007 972 947 838 642 448 ----------------- ------------------- -------------- ------------- ------------------ ----------------- $ 45,189,540 $ 26,464,829 $ 7,841,101 $ 15,272,285 $ 171,855,820 $ 402,406,668 ================= =================== ============== ============= ================== ================= 45,180,397 26,400,984 7,840,517 15,270,479 171,855,820 402,406,668 9,143 63,845 584 1,806 -- -- ----------------- ------------------- -------------- ------------- ------------------ ----------------- $ 45,189,540 $ 26,464,829 $ 7,841,101 $ 15,272,285 $ 171,855,820 $ 402,406,668 ================= =================== ============== ============= ================== =================
The accompanying notes are an integral part of these financial statements. 4 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MIST METLIFE MIST METLIFE MIST METLIFE MIST VAN KAMPEN BALANCED STRATEGY GROWTH STRATEGY AGGRESSIVE STRATEGY COMSTOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- --------------- ------------------- --------------- ASSETS: Investments at fair value $ 1,162,918,426 $ 1,094,835,460 $ 142,626,675 $ 53,621,066 Due from MetLife Investors Insurance Company -- -- -- -- ----------------- --------------- ------------------- --------------- Total Assets 1,162,918,426 1,094,835,460 142,626,675 53,621,066 ----------------- --------------- ------------------- --------------- LIABILITIES: Due to MetLife Investors Insurance Company 557 473 555 1,329 ----------------- --------------- ------------------- --------------- Total Liabilities 557 473 555 1,329 ----------------- --------------- ------------------- --------------- NET ASSETS $ 1,162,917,869 $ 1,094,834,987 $ 142,626,120 $ 53,619,737 ================= =============== =================== =============== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 1,162,634,697 1,094,816,185 142,626,120 53,560,869 Net Assets from contracts in payouts 283,172 18,802 -- 58,868 ----------------- --------------- ------------------- --------------- Total Net Assets $ 1,162,917,869 $ 1,094,834,987 $ 142,626,120 $ 53,619,737 ================= =============== =================== ===============
The accompanying notes are an integral part of these financial statements. 5 MIST MIST SSGA GROWTH MIST LEGG MASON MIST MET/AIM MIST PIONEER SSGA GROWTH ETF AND INCOME ETF VALUE EQUITY CAPITAL APPRECIATION MIST PIONEER FUND STRATEGIC INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ---------------- --------------- -------------------- ----------------- ---------------- $ 19,273,074 $ 48,008,036 $ 14,356,638 $ 7,733,536 $ 1,434,084 $ 2,519,478 -- -- -- -- -- -- --------------- ---------------- --------------- -------------------- ----------------- ---------------- 19,273,074 48,008,036 14,356,638 7,733,536 1,434,084 2,519,478 --------------- ---------------- --------------- -------------------- ----------------- ---------------- 352 241 1,071 1,219 841 944 --------------- ---------------- --------------- -------------------- ----------------- ---------------- 352 241 1,071 1,219 841 944 --------------- ---------------- --------------- -------------------- ----------------- ---------------- $ 19,272,722 $ 48,007,795 $ 14,355,567 $ 7,732,317 $ 1,433,243 $ 2,518,534 =============== ================ =============== ==================== ================= ================ 19,272,722 48,007,795 14,353,033 7,700,468 1,433,243 2,518,534 -- -- 2,534 31,849 -- -- --------------- ---------------- --------------- -------------------- ----------------- ---------------- $ 19,272,722 $ 48,007,795 $ 14,355,567 $ 7,732,317 $ 1,433,243 $ 2,518,534 =============== ================ =============== ==================== ================= ================
The accompanying notes are an integral part of these financial statements. 6 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MIST MFS EMERGING MIST LOOMIS SAYLES MIST RAINIER MIST AMERICAN MARKETS EQUITY GLOBAL MARKETS LARGE CAP EQUITY FUNDS GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ------------------ ---------------- ------------- ASSETS: Investments at fair value $ 23,850,369 $ 6,019,119 $ 4,430,243 $ 8,376,255 Due from MetLife Investors Insurance Company -- -- -- -- ----------------- ------------------ ---------------- ------------- Total Assets 23,850,369 6,019,119 4,430,243 8,376,255 ----------------- ------------------ ---------------- ------------- LIABILITIES: Due to MetLife Investors Insurance Company 1,095 843 929 599 ----------------- ------------------ ---------------- ------------- Total Liabilities 1,095 843 929 599 ----------------- ------------------ ---------------- ------------- NET ASSETS $ 23,849,274 $ 6,018,276 $ 4,429,314 $ 8,375,656 ================= ================== ================ ============= CONTRACT OWNERS' EQUITY Net Assets from accumulation units 23,835,908 6,018,276 4,429,314 8,375,656 Net Assets from contracts in payouts 13,366 -- -- -- ----------------- ------------------ ---------------- ------------- Total Net Assets $ 23,849,274 $ 6,018,276 $ 4,429,314 $ 8,375,656 ================= ================== ================ =============
The accompanying notes are an integral part of these financial statements. 7 MIST AMERICAN MIST AMERICAN MIST AMERICAN FUNDS BALANCED MIST AMERICAN FUNDS GROWTH MIST AMERICAN FUNDS MODERATE MIST BLACKROCK ALLOCATION FUNDS BOND ALLOCATION FUNDS INTERNATIONAL ALLOCATION HIGH YIELD SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- ------------- ------------- ------------------- -------------- -------------- $ 82,849,897 $ 5,095,717 $ 90,490,433 $ 5,547,055 $ 50,407,172 $ 717,586 -- -- -- -- -- -- -------------- ------------- ------------- ------------------- -------------- -------------- 82,849,897 5,095,717 90,490,433 5,547,055 50,407,172 717,586 -------------- ------------- ------------- ------------------- -------------- -------------- 517 545 493 634 437 476 -------------- ------------- ------------- ------------------- -------------- -------------- 517 545 493 634 437 476 -------------- ------------- ------------- ------------------- -------------- -------------- $ 82,849,380 $ 5,095,172 $ 90,489,940 $ 5,546,421 $ 50,406,735 $ 717,110 ============== ============= ============= =================== ============== ============== 82,849,380 5,095,172 90,489,940 5,546,421 50,406,735 717,110 -- -- -- -- -- -- -------------- ------------- ------------- ------------------- -------------- -------------- $ 82,849,380 $ 5,095,172 $ 90,489,940 $ 5,546,421 $ 50,406,735 $ 717,110 ============== ============= ============= =================== ============== ==============
The accompanying notes are an integral part of these financial statements. 8 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MIST MET/FRANKLIN MIST DREMAN MIST MET/TEMPLETON MIST MET/FRANKLIN TEMPLETON FOUNDING SMALL CAP VALUE GROWTH MUTUAL SHARES STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------------ ----------------- ------------------ ASSETS: Investments at fair value $ 799,104 $ 2,342,436 $ 12,244,161 $ 50,104,077 Due from MetLife Investors Insurance Company -- -- -- -- --------------- ------------------ ----------------- ------------------ Total Assets 799,104 2,342,436 12,244,161 50,104,077 --------------- ------------------ ----------------- ------------------ LIABILITIES: Due to MetLife Investors Insurance Company 348 469 929 823 --------------- ------------------ ----------------- ------------------ Total Liabilities 348 469 929 823 --------------- ------------------ ----------------- ------------------ NET ASSETS $ 798,756 $ 2,341,967 $ 12,243,232 $ 50,103,254 =============== ================== ================= ================== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 798,756 2,341,967 12,243,232 50,103,254 Net Assets from contracts in payouts -- -- -- -- --------------- ------------------ ----------------- ------------------ Total Net Assets $ 798,756 $ 2,341,967 $ 12,243,232 $ 50,103,254 =============== ================== ================= ==================
The accompanying notes are an integral part of these financial statements. 9 RUSSELL RUSSELL RUSSELL AIM V.I. MULTI-STYLE EQUITY AGGRESSIVE EQUITY RUSSELL NON-U.S. RUSSELL CORE BOND REAL ESTATE SECURITIES INTERNATIONAL GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- $ 9,661,339 $ 2,064,259 $ 4,740,878 $ 11,537,831 $ 1,174,461 $ 6,039,726 -- -- 55 -- -- -- ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- 9,661,339 2,064,259 4,740,933 11,537,831 1,174,461 6,039,726 ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- 91 58 112 72 988 1,122 ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- 91 58 112 72 988 1,122 ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- $ 9,661,248 $ 2,064,201 $ 4,740,821 $ 11,537,759 $ 1,173,473 $ 6,038,604 ================== ================= ================ ================= ====================== ==================== 9,570,548 2,043,447 4,732,146 11,520,306 1,173,473 5,968,754 90,700 20,754 8,675 17,453 -- 69,850 ------------------ ----------------- ---------------- ----------------- ---------------------- -------------------- $ 9,661,248 $ 2,064,201 $ 4,740,821 $ 11,537,759 $ 1,173,473 $ 6,038,604 ================== ================= ================ ================= ====================== ====================
The accompanying notes are an integral part of these financial statements. 10 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MSF DWS GOVERNMENT & MSF DAVIS VENTURE HARRIS OAKMARK MSF AGENCY SECURITIES VALUE FOCUSED VALUE JENNISON GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- -------------- --------------- ASSETS: Investments at fair value $ 854,318 $ 158,678,559 $ 30,546,719 $ 39,059,312 Due from MetLife Investors Insurance Company -- -- 11 -- ----------------- ----------------- -------------- --------------- Total Assets 854,318 158,678,559 30,546,730 39,059,312 ----------------- ----------------- -------------- --------------- LIABILITIES: Due to MetLife Investors Insurance Company 367 1,149 685 1,623 ----------------- ----------------- -------------- --------------- Total Liabilities 367 1,149 685 1,623 ----------------- ----------------- -------------- --------------- NET ASSETS $ 853,951 $ 158,677,410 $ 30,546,045 $ 39,057,689 ================= ================= ============== =============== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 850,301 158,590,949 30,527,475 39,034,038 Net Assets from contracts in payouts 3,650 86,461 18,570 23,651 ----------------- ----------------- -------------- --------------- Total Net Assets $ 853,951 $ 158,677,410 $ 30,546,045 $ 39,057,689 ================= ================= ============== ===============
The accompanying notes are an integral part of these financial statements. 11 MSF MFS TOTAL MSF CAPITAL MSF JULIUS BAER MSF BLACKROCK MSF METLIFE STOCK MSF BLACKROCK RETURN GUARDIAN U.S. EQUITY INTERNATIONAL STOCK MONEY MARKET INDEX BOND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- -------------------- ------------------- ------------- ----------------- ------------- $ 63,254,843 $ 77,349,333 $ 4,668,174 $ 220,018,483 $ 22,343,375 $ 33,140,320 19 -- -- 27 -- 2 ------------- -------------------- ------------------- ------------- ----------------- ------------- 63,254,862 77,349,333 4,668,174 220,018,510 22,343,375 33,140,322 ------------- -------------------- ------------------- ------------- ----------------- ------------- 792 832 876 884 741 1,187 ------------- -------------------- ------------------- ------------- ----------------- ------------- 792 832 876 884 741 1,187 ------------- -------------------- ------------------- ------------- ----------------- ------------- $ 63,254,070 $ 77,348,501 $ 4,667,298 $ 220,017,626 $ 22,342,634 $ 33,139,135 ============= ==================== =================== ============= ================= ============= 63,114,210 76,919,408 4,665,691 219,951,276 22,342,634 33,135,545 139,860 429,093 1,607 66,350 -- 3,590 ------------- -------------------- ------------------- ------------- ----------------- ------------- $ 63,254,070 $ 77,348,501 $ 4,667,298 $ 220,017,626 $ 22,342,634 $ 33,139,135 ============= ==================== =================== ============= ================= =============
The accompanying notes are an integral part of these financial statements. 12 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 MSF MSF WESTERN ASSET MSF WESTERN ASSET MSF BLACKROCK FRANKLIN TEMPLETON MANAGEMENT STRATEGIC MANAGEMENT STRATEGIC VALUE SMALL CAP GROWTH BOND OPPORTUNITIES U.S. GOVERNMENT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------------ -------------------- ----------------- ASSETS: Investments at fair value $ 1,539,234 $ 9,058,898 $ 4,233,316 $ 6,538,078 Due from MetLife Investors Insurance Company -- -- -- -- --------------- ------------------ -------------------- ----------------- Total Assets 1,539,234 9,058,898 4,233,316 6,538,078 --------------- ------------------ -------------------- ----------------- LIABILITIES: Due to MetLife Investors Insurance Company 512 978 403 878 --------------- ------------------ -------------------- ----------------- Total Liabilities 512 978 403 878 --------------- ------------------ -------------------- ----------------- NET ASSETS $ 1,538,722 $ 9,057,920 $ 4,232,913 $ 6,537,200 =============== ================== ==================== ================= CONTRACT OWNERS' EQUITY Net Assets from accumulation units 1,538,722 9,057,243 4,227,207 6,537,200 Net Assets from contracts in payouts -- 677 5,706 -- --------------- ------------------ -------------------- ----------------- Total Net Assets $ 1,538,722 $ 9,057,920 $ 4,232,913 $ 6,537,200 =============== ================== ==================== =================
The accompanying notes are an integral part of these financial statements. 13 MSF MET/DIMENSIONAL MSF T. ROWE PRICE MSF T. ROWE PRICE MSF OPPENHEIMER INTERNATIONAL SMALL PUTNAM VT SMALL CAP GROWTH LARGE CAP GROWTH GLOBAL EQUITY MSF MFS VALUE COMPANY GROWTH AND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- --------------- ------------- ------------------- ----------------- $ 6,523,956 $ 37,443,067 $ 11,110,916 $ 2,098,943 $ 36,420 $ 7,865,238 -- -- -- -- -- -- ----------------- ----------------- --------------- ------------- ------------------- ----------------- 6,523,956 37,443,067 11,110,916 2,098,943 36,420 7,865,238 ----------------- ----------------- --------------- ------------- ------------------- ----------------- 1,019 690 1,239 620 23 1,221 ----------------- ----------------- --------------- ------------- ------------------- ----------------- 1,019 690 1,239 620 23 1,221 ----------------- ----------------- --------------- ------------- ------------------- ----------------- $ 6,522,937 $ 37,442,377 $ 11,109,677 $ 2,098,323 $ 36,397 $ 7,864,017 ================= ================= =============== ============= =================== ================= 6,512,093 37,395,262 11,098,511 2,098,323 36,397 7,841,544 10,844 47,115 11,166 -- -- 22,473 ----------------- ----------------- --------------- ------------- ------------------- ----------------- $ 6,522,937 $ 37,442,377 $ 11,109,677 $ 2,098,323 $ 36,397 $ 7,864,017 ================= ================= =============== ============= =================== =================
The accompanying notes are an integral part of these financial statements. 14 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2008 PUTNAM VT EQUITY FTVIPT TEMPLETON FTVIPT TEMPLETON PUTNAM VT VISTA INCOME GROWTH SECURITIES FOREIGN SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ---------------- ----------------- ------------------ ASSETS: Investments at fair value $ 1,714,861 $ 26,039,909 $ 10,774,636 $ 25,905,267 Due from MetLife Investors Insurance Company -- -- -- -- --------------- ---------------- ----------------- ------------------ Total Assets 1,714,861 26,039,909 10,774,636 25,905,267 --------------- ---------------- ----------------- ------------------ LIABILITIES: Due to MetLife Investors Insurance Company 434 930 1,094 707 --------------- ---------------- ----------------- ------------------ Total Liabilities 434 930 1,094 707 --------------- ---------------- ----------------- ------------------ NET ASSETS $ 1,714,427 $ 26,038,979 $ 10,773,542 $ 25,904,560 =============== ================ ================= ================== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 1,707,015 25,980,532 10,739,333 25,842,287 Net Assets from contracts in payouts 7,412 58,447 34,209 62,273 --------------- ---------------- ----------------- ------------------ Total Net Assets $ 1,714,427 $ 26,038,979 $ 10,773,542 $ 25,904,560 =============== ================ ================= ==================
The accompanying notes are an integral part of these financial statements. 15 PIMCO VIT FIDELITY VIP GROWTH FIDELITY VIP PIMCO VIT PIMCO VIT STOCKSPLUS GROWTH PIMCO VIT OPPORTUNTIES EQUITY-INCOME HIGH YIELD LOW DURATION AND INCOME TOTAL RETURN SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------- ------------- ----------- ------------ ----------------- ------------ $ 108,077 $ 3,778,768 $ 5,373,780 $ 9,399,958 $ 939,267 $ 14,101,854 -- -- -- -- -- -- ------------------- ------------- ----------- ------------ ----------------- ------------ 108,077 3,778,768 5,373,780 9,399,958 939,267 14,101,854 ------------------- ------------- ----------- ------------ ----------------- ------------ 40 552 588 447 685 198 ------------------- ------------- ----------- ------------ ----------------- ------------ 40 552 588 447 685 198 ------------------- ------------- ----------- ------------ ----------------- ------------ $ 108,037 $ 3,778,216 $ 5,373,192 $ 9,399,511 $ 938,582 $ 14,101,656 =================== ============= =========== ============ ================= ============ 108,037 3,778,216 5,372,272 9,398,581 937,658 13,842,747 -- -- 920 930 924 258,909 ------------------- ------------- ----------- ------------ ----------------- ------------ $ 108,037 $ 3,778,216 $ 5,373,192 $ 9,399,511 $ 938,582 $ 14,101,656 =================== ============= =========== ============ ================= ============
The accompanying notes are an integral part of these financial statements. 16 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONCLUDED) DECEMBER 31, 2008 AMERICAN FUNDS AMERICAN FUNDS GLOBAL SMALL AMERICAN FUNDS GLOBAL GROWTH CAPITALIZATION GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- -------------- -------------- ASSETS: Investments at fair value $ 22,462,556 $ 3,144,617 $ 14,184,467 Due from MetLife Investors Insurance Company -- -- -- -------------- -------------- -------------- Total Assets 22,462,556 3,144,617 14,184,467 -------------- -------------- -------------- LIABILITIES: Due to MetLife Investors Insurance Company 1,204 532 703 -------------- -------------- -------------- Total Liabilities 1,204 532 703 -------------- -------------- -------------- NET ASSETS $ 22,461,352 $ 3,144,085 $ 14,183,764 ============== ============== ============== CONTRACT OWNERS' EQUITY Net Assets from accumulation units 22,461,352 3,144,085 14,183,764 Net Assets from contracts in payouts -- -- -- -------------- -------------- -------------- Total Net Assets $ 22,461,352 $ 3,144,085 $ 14,183,764 ============== ============== ==============
The accompanying notes are an integral part of these financial statements. 17 This page is intentionally left blank. METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 MIST LORD ABBETT MIST LORD ABBETT MIST VAN KAMPEN MIST LORD ABBETT GROWTH AND INCOME BOND DEBENTURE MID CAP GROWTH MID CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- ------------------- ------------------ ------------------- INVESTMENT INCOME: Dividends $ 14,337,957 $ 11,221,674 $ 688,687 $ 1,440,691 -------------------- ------------------- ------------------ ------------------- EXPENSES: Mortality and expense risk charges 9,777,346 2,956,698 473,118 2,350,871 Administrative charges 1,681,919 583,434 107,840 527,607 -------------------- ------------------- ------------------ ------------------- Total expenses 11,459,265 3,540,132 580,958 2,878,478 -------------------- ------------------- ------------------ ------------------- Net investment income (loss) 2,878,692 7,681,542 107,729 (1,437,787) -------------------- ------------------- ------------------ ------------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 88,950,508 4,023,045 4,588,507 34,968,912 Realized gains (losses) on sale of investments (13,462,487) (3,366,096) (116,515) (14,235,301) -------------------- ------------------- ------------------ ------------------- 75,488,021 656,949 4,471,992 20,733,611 -------------------- ------------------- ------------------ ------------------- Change in unrealized gains (losses) on investments (447,777,295) (61,541,630) (32,591,068) (130,229,067) -------------------- ------------------- ------------------ ------------------- Net realized and unrealized gains (losses) on investments (372,289,274) (60,884,681) (28,119,076) (109,495,456) -------------------- ------------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from operations $ (369,410,582) $ (53,203,139) $ (28,011,347) $ (110,933,243) ==================== =================== ================== ===================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 19 MIST PIMCO MIST LEGG MASON MIST OPPENHEIMER INFLATION PROTECTED PARTNERS AGGRESSIVE MIST PIMCO TOTAL MIST RCM MIST T. ROWE PRICE CAPITAL APPRECIATION BOND GROWTH RETURN TECHNOLOGY MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- $ 3,763,046 $ 2,142,577 $ 1,550 $ 10,623,530 $ 1,448,645 $ 8,872 ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- 1,351,588 856,155 915,514 3,446,927 150,533 983,968 243,830 146,021 162,510 668,648 25,972 180,064 ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- 1,595,418 1,002,176 1,078,024 4,115,575 176,505 1,164,032 ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- 2,167,628 1,140,401 (1,076,474) 6,507,955 1,272,140 (1,155,160) ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- 29,691,783 118,412 581,238 6,794,178 3,069,712 9,029,882 (4,068,951) 426,379 (1,321,529) 1,450,706 (695,078) (517,709) ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- 25,622,832 544,791 (740,291) 8,244,884 2,374,634 8,512,173 ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- (86,056,623) (6,836,010) (30,593,166) (17,376,018) (9,505,545) (42,460,534) ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- (60,433,791) (6,291,219) (31,333,457) (9,131,134) (7,130,911) (33,948,361) ----------------------- ---------------------- ---------------------- ------------------- --------------- --------------------- $ (58,266,163) $ (5,150,818) $ (32,409,931) $ (2,623,179) $ (5,858,771) $ (35,103,521) ======================= ====================== ====================== =================== =============== =====================
The accompanying notes are an integral part of these financial statements. 20 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MIST MIST MFS RESEARCH MIST MET/AIM MIST LAZARD HARRIS OAKMARK INTERNATIONAL SMALL CAP GROWTH MID CAP INTERNATIONAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- ------------------- ---------------- ----------------- INVESTMENT INCOME: Dividends $ 3,299,582 $ -- $ 520,260 $ 1,088,152 -------------------- ------------------- ---------------- ----------------- EXPENSES: Mortality and expense risk charges 1,965,768 758,316 602,329 953,316 Administrative charges 358,085 135,403 99,890 163,838 -------------------- ------------------- ---------------- ----------------- Total expenses 2,323,853 893,719 702,219 1,117,154 -------------------- ------------------- ---------------- ----------------- Net investment income (loss) 975,729 (893,719) (181,959) (29,002) -------------------- ------------------- ---------------- ----------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 18,285,739 5,286,646 3,744,249 11,330,154 Realized gains (losses) on sale of investments (3,599,802) (501,334) (3,057,544) (2,977,790) -------------------- ------------------- ---------------- ----------------- 14,685,937 4,785,312 686,705 8,352,364 -------------------- ------------------- ---------------- ----------------- Change in unrealized gains (losses) on investments (100,286,811) (29,976,745) (21,651,761) (42,639,657) -------------------- ------------------- ---------------- ----------------- Net realized and unrealized gains (losses) on investments (85,600,874) (25,191,433) (20,965,056) (34,287,293) -------------------- ------------------- ---------------- ----------------- Net increase (decrease) in net assets resulting from operations $ (84,625,145) $ (26,085,152) $ (21,147,015) $ (34,316,295) ==================== =================== ================ =================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 21 MIST MIST THIRD AVENUE MIST CLARION MIST TURNER GOLDMAN SACHS MIST METLIFE MIST METLIFE SMALL CAP VALUE GLOBAL REAL ESTATE MID CAP GROWTH MID CAP VALUE DEFENSIVE STRATEGY MODERATE STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- $ 495,301 $ 717,937 $ -- $ 195,465 $ 2,423,629 $ 8,182,429 -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- 917,997 527,760 196,474 356,342 2,458,467 6,380,142 158,159 95,633 34,161 61,352 441,605 1,164,245 -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- 1,076,156 623,393 230,635 417,694 2,900,072 7,544,387 -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- (580,855) 94,544 (230,635) (222,229) (476,443) 638,042 -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- 4,464,671 4,123,365 1,341,414 2,115,254 3,408,935 12,396,107 (506,225) (1,313,799) (386,265) (1,519,446) (1,969,090) (2,600,487) -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- 3,958,446 2,809,566 955,149 595,808 1,439,845 9,795,620 -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- (24,557,518) (22,764,007) (8,720,370) (10,493,383) (43,824,472) (156,198,486) -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- (20,599,072) (19,954,441) (7,765,221) (9,897,575) (42,384,627) (146,402,866) -------------------- --------------------- ----------------- ---------------- --------------------- -------------------- $ (21,179,927) $ (19,859,897) $ (7,995,856) $ (10,119,804) $ (42,861,070) $ (145,764,824) ==================== ===================== ================= ================ ===================== ====================
The accompanying notes are an integral part of these financial statements. 22 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MIST METLIFE MIST METIFE MIST METLIFE MIST VAN KAMPEN BALANCED STRATEGY GROWTH STRATEGY AGGRESSIVE STRATEGY COMSTOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- ------------------ ---------------------- ------------------ INVESTMENT INCOME: Dividends $ 56,918,603 $ 42,711,247 $ 3,501,880 $ 1,231,530 -------------------- ------------------ ---------------------- ------------------ EXPENSES: Mortality and expense risk charges 15,684,760 16,492,125 1,532,988 636,100 Administrative charges 2,975,385 3,051,812 266,649 171,912 -------------------- ------------------ ---------------------- ------------------ Total expenses 18,660,145 19,543,937 1,799,637 808,012 -------------------- ------------------ ---------------------- ------------------ Net investment income (loss) 38,258,458 23,167,310 1,702,243 423,518 -------------------- ------------------ ---------------------- ------------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 77,056,274 84,334,841 12,202,932 2,716,657 Realized gains (losses) on sale of investments (6,067,431) (5,309,568) (3,774,213) (1,321,755) -------------------- ------------------ ---------------------- ------------------ 70,988,843 79,025,273 8,428,719 1,394,902 -------------------- ------------------ ---------------------- ------------------ Change in unrealized gains (losses) on investments (561,336,623) (666,449,701) (60,284,139) (32,472,657) -------------------- ------------------ ---------------------- ------------------ Net realized and unrealized gains (losses) on investments (490,347,780) (587,424,428) (51,855,420) (31,077,755) -------------------- ------------------ ---------------------- ------------------ Net increase (decrease) in net assets resulting from operations $ (452,089,322) $ (564,257,118) $ (50,153,177) $ (30,654,237) ==================== ================== ====================== ==================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 23 MIST MIST SSGA GROWTH MIST LEGG MASON MIST MET/AIM MIST PIONEER SSGA GROWTH ETF AND INCOME ETF VALUE EQUITY CAPITAL APPRECIATION MIST PIONEER FUND STRATEGIC INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- $ 374,733 $ 1,000,565 $ 3,825 $ 253,553 $ 7,105 $ 139,338 ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- 296,103 648,085 264,524 151,001 6,498 17,589 61,742 137,204 52,797 24,294 2,279 5,682 ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- 357,845 785,289 317,321 175,295 8,777 23,271 ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- 16,888 215,276 (313,496) 78,258 (1,672) 116,067 ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- 562,898 1,243,459 936,183 1 -- -- (343,174) (932,489) (675,910) (834,450) (11,061) (8,044) ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- 219,724 310,970 260,273 (834,449) (11,061) (8,044) ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- (10,587,025) (17,291,850) (16,435,096) (6,020,995) (390,089) (418,059) ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- (10,367,301) (16,980,880) (16,174,823) (6,855,444) (401,150) (426,103) ------------------ ------------------- ------------------ ----------------------- -------------------- ------------------- $ (10,350,413) $ (16,765,604) $ (16,488,319) $ (6,777,186) $ (402,822) $ (310,036) ================== =================== ================== ======================= ==================== ===================
The accompanying notes are an integral part of these financial statements. 24 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MIST MFS EMERGING MIST LOOMIS SAYLES MIST RAINIER MIST AMERICAN MARKETS EQUITY GLOBAL MARKETS LARGE CAP EQUITY FUNDS GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------------- --------------------- ------------------- ------------------ INVESTMENT INCOME: Dividends $ 194,862 $ 412,704 $ -- $ 332,037 -------------------- --------------------- ------------------- ------------------ EXPENSES: Mortality and expense risk charges 377,531 124,983 81,104 42,637 Administrative charges 65,935 21,414 14,904 7,941 -------------------- --------------------- ------------------- ------------------ Total expenses 443,466 146,397 96,008 50,578 -------------------- --------------------- ------------------- ------------------ Net investment income (loss) (248,604) 266,307 (96,008) 281,459 -------------------- --------------------- ------------------- ------------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 1,416,999 541,712 85,791 -- Realized gains (losses) on sale of investments (1,259,832) (1,665,761) (588,888) (244,423) -------------------- --------------------- ------------------- ------------------ 157,167 (1,124,049) (503,097) (244,423) -------------------- --------------------- ------------------- ------------------ Change in unrealized gains (losses) on investments (26,807,070) (3,950,906) (1,839,760) (3,082,009) -------------------- --------------------- ------------------- ------------------ Net realized and unrealized gains (losses) on investments (26,649,903) (5,074,955) (2,342,857) (3,326,432) -------------------- --------------------- ------------------- ------------------ Net increase (decrease) in net assets resulting from operations $ (26,898,507) $ (4,808,648) $ (2,438,865) $ (3,044,973) ==================== ===================== =================== ==================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 25 MIST AMERICAN MIST AMERICAN MIST AMERICAN FUNDS BALANCED MIST AMERICAN FUNDS GROWTH MIST AMERICAN FUNDS MODERATE MIST BLACKROCK ALLOCATION FUNDS BOND ALLOCATION FUNDS INTERNATIONAL ALLOCATION HIGH YIELD SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ $ 2,959,810 $ 254,922 $ 3,907,447 $ 364,947 $ 1,802,636 $ -- ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ 393,531 23,374 507,874 27,598 216,513 5,565 71,522 4,415 92,737 5,199 39,491 1,021 ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ 465,053 27,789 600,611 32,797 256,004 6,586 ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ 2,494,757 227,133 3,306,836 332,150 1,546,632 (6,586) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ 4,616 -- 1,652 117 1,612 -- (92,303) (47,436) (158,181) (333,117) (32,387) (93,076) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ (87,687) (47,436) (156,529) (333,000) (30,775) (93,076) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ (19,128,434) (480,363) (31,509,925) (1,746,438) (7,661,392) (148,411) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ (19,216,121) (527,799) (31,666,454) (2,079,438) (7,692,167) (241,487) ------------------ ------------------ ------------------ ---------------------- ------------------ ------------------ $ (16,721,364) $ (300,666) $ (28,359,618) $ (1,747,288) $ (6,145,535) $ (248,073) ================== ================== ================== ====================== ================== ==================
The accompanying notes are an integral part of these financial statements. 26 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MIST MET/FRANKLIN MIST DREMAN MIST MET/TEMPLETON MIST MET/FRANKLIN TEMPLETON FOUNDING SMALL CAP VALUE GROWTH MUTUAL SHARES STRATEGY SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) SUB-ACCOUNT (A) ------------------ --------------------- -------------------- --------------------- INVESTMENT INCOME: Dividends $ -- $ 11,126 $ 342,153 $ 920,644 ------------------ --------------------- -------------------- --------------------- EXPENSES: Mortality and expense risk charges 1,610 4,780 27,899 168,072 Administrative charges 599 1,808 8,866 40,497 ------------------ --------------------- -------------------- --------------------- Total expenses 2,209 6,588 36,765 208,569 ------------------ --------------------- -------------------- --------------------- Net investment income (loss) (2,209) 4,538 305,388 712,075 ------------------ --------------------- -------------------- --------------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions -- -- -- -- Realized gains (losses) on sale of investments (2,760) (8,281) (1,777) (22,288) ------------------ --------------------- -------------------- --------------------- (2,760) (8,281) (1,777) (22,288) ------------------ --------------------- -------------------- --------------------- Change in unrealized gains (losses) on investments (110,891) (434,777) (2,457,683) (9,495,004) ------------------ --------------------- -------------------- --------------------- Net realized and unrealized gains (losses) on investments (113,651) (443,058) (2,459,460) (9,517,292) ------------------ --------------------- -------------------- --------------------- Net increase (decrease) in net assets resulting from operations $ (115,860) $ (438,520) $ (2,154,072) $ (8,805,217) ================== ===================== ==================== =====================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 27 RUSSELL RUSSELL RUSSELL AIM V.I. MULTI-STYLE EQUITY AGGRESSIVE EQUITY RUSSELL NON-U.S. RUSSELL CORE BOND REAL ESTATE SECURITIES INTERNATIONAL GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- $ 210,131 $ 26,750 $ -- $ 511,891 $ 35,771 $ 43,745 --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- 181,062 39,692 87,837 163,104 23,341 119,478 21,727 4,761 10,539 19,572 2,800 20,506 --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- 202,789 44,453 98,376 182,676 26,141 139,984 --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- 7,342 (17,703) (98,376) 329,215 9,630 (96,239) --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- 150,888 769 69,789 258,721 -- 114,488 (323,155) (157,381) (171,738) (124,083) (71,213) 416,096 --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- (172,267) (156,612) (101,949) 134,638 (71,213) 530,584 --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- (7,030,963) (1,520,429) (3,571,608) (1,131,063) (663,582) (5,341,219) --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- (7,203,230) (1,677,041) (3,673,557) (996,425) (734,795) (4,810,635) --------------------- -------------------- ------------------- -------------------- ------------------------- --------------------- $ (7,195,888) $ (1,694,744) $ (3,771,933) $ (667,210) $ (725,165) $ (4,906,874) ===================== ==================== =================== ==================== ========================= =====================
The accompanying notes are an integral part of these financial statements. 28 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MSF DWS GOVERNMENT & MSF DAVIS VENTURE HARRIS OAKMARK MSF AGENCY SECURITIES VALUE FOCUSED VALUE JENNISON GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- -------------------- ----------------- ---------------- INVESTMENT INCOME: Dividends $ 43,970 $ 2,761,410 $ 20,431 $ 1,274,205 -------------------- -------------------- ----------------- ---------------- EXPENSES: Mortality and expense risk charges 11,888 2,859,980 738,715 778,947 Administrative charges 1,890 563,430 125,745 142,387 -------------------- -------------------- ----------------- ---------------- Total expenses 13,778 3,423,410 864,460 921,334 -------------------- -------------------- ----------------- ---------------- Net investment income (loss) 30,192 (662,000) (844,029) 352,871 -------------------- -------------------- ----------------- ---------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions -- 1,316,244 6,230,725 4,977,419 Realized gains (losses) on sale of investments 2,741 2,495,398 (4,575,794) (617,242) -------------------- -------------------- ----------------- ---------------- 2,741 3,811,642 1,654,931 4,360,177 -------------------- -------------------- ----------------- ---------------- Change in unrealized gains (losses) on investments (3,036) (113,323,254) (29,688,547) (30,142,871) -------------------- -------------------- ----------------- ---------------- Net realized and unrealized gains (losses) on investments (295) (109,511,612) (28,033,616) (25,782,694) -------------------- -------------------- ----------------- ---------------- Net increase (decrease) in net assets resulting from operations $ 29,897 $ (110,173,612) $ (28,877,645) $ (25,429,823) ==================== ==================== ================= ================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 29 MSF MFS TOTAL MSF CAPITAL MSF JULIUS BAER MSF BLACKROCK MSF METLIFE STOCK MSF BLACKROCK RETURN GUARDIAN U.S. EQUITY INTERNATIONAL STOCK MONEY MARKET INDEX BOND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- $ 2,591,335 $ 1,226,197 $ 190,125 $ 3,992,860 $ 520,372 $ 1,467,185 ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- 611,737 1,243,416 79,776 2,151,507 431,121 310,853 184,834 251,671 16,371 382,010 76,320 68,931 ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- 796,571 1,495,087 96,147 2,533,517 507,441 379,784 ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- 1,794,764 (268,890) 93,978 1,459,343 12,931 1,087,401 ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- 6,019,035 16,755,615 808,514 -- 1,309,842 -- (956,044) (4,760,426) 3,164 -- (1,415,744) (61,016) ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- 5,062,991 11,995,189 811,678 -- (105,902) (61,016) ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- (26,370,639) (69,902,195) (4,769,119) -- (14,143,982) (2,502,023) ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- (21,307,648) (57,907,006) (3,957,441) -- (14,249,884) (2,563,039) ---------------- ----------------------- ---------------------- ------------- -------------------- -------------- $ (19,512,884) $ (58,175,896) $ (3,863,463) $ 1,459,343 $ (14,236,953) $ (1,475,638) ================ ======================= ====================== ============= ==================== ==============
The accompanying notes are an integral part of these financial statements. 30 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 MSF WESTERN MSF ASSET MANAGEMENT MSF WESTERN ASSET MSF BLACKROCK FRANKLIN TEMPLETON STRATEGIC MANAGEMENT STRATEGIC VALUE SMALL CAP GROWTH BOND OPPORTUNITIES U.S. GOVERNMENT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------ --------------------- --------------------- ------------------ INVESTMENT INCOME: Dividends $ 4,333 $ -- $ 228,765 $ 104,389 ------------------ --------------------- --------------------- ------------------ EXPENSES: Mortality and expense risk charges 24,284 123,675 68,855 53,631 Administrative charges 4,868 28,140 12,973 9,148 ------------------ --------------------- --------------------- ------------------ Total expenses 29,152 151,815 81,828 62,779 ------------------ --------------------- --------------------- ------------------ Net investment income (loss) (24,819) (151,815) 146,937 41,610 ------------------ --------------------- --------------------- ------------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 193,762 1,181,016 35,644 -- Realized gains (losses) on sale of investments (178,468) (332,527) (161,643) (54,425) ------------------ --------------------- --------------------- ------------------ 15,294 848,489 (125,999) (54,425) ------------------ --------------------- --------------------- ------------------ Change in unrealized gains (losses) on investments (925,119) (6,718,746) (987,962) (64,899) ------------------ --------------------- --------------------- ------------------ Net realized and unrealized gains (losses) on investments (909,825) (5,870,257) (1,113,961) (119,324) ------------------ --------------------- --------------------- ------------------ Net increase (decrease) in net assets resulting from operations $ (934,644) $ (6,022,072) $ (967,024) $ (77,714) ================== ===================== ===================== ==================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 31 MSF MET/DIMENSIONAL MSF T. ROWE PRICE MSF T. ROWE PRICE MSF OPPENHEIMER INTERNATIONAL SMALL PUTNAM VT SMALL CAP GROWTH LARGE CAP GROWTH GLOBAL EQUITY MSF MFS VALUE COMPANY GROWTH AND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (B) SUB-ACCOUNT -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ $ -- $ 203,530 $ 293,974 $ -- $ -- $ 291,972 -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ 112,506 688,518 127,203 3,445 17 135,958 19,140 131,868 37,060 1,323 3 20,925 -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ 131,646 820,386 164,263 4,768 20 156,883 -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ (131,646) (616,856) 129,711 (4,768) (20) 135,089 -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ 1,866,055 3,289,435 592,386 -- -- 2,218,415 (197,984) (618,346) (390,534) (2,047) -- (1,328,521) -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ 1,668,071 2,671,089 201,852 (2,047) -- 889,894 -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ (5,486,077) (31,591,773) (8,211,330) (275,836) 1,427 (6,641,584) -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ (3,818,006) (28,920,684) (8,009,478) (277,883) 1,427 (5,751,690) -------------------- -------------------- ------------------ ------------------ ---------------------- ------------------ $ (3,949,652) $ (29,537,540) $ (7,879,767) $ (282,651) $ 1,407 $ (5,616,601) ==================== ==================== ================== ================== ====================== ==================
The accompanying notes are an integral part of these financial statements. 32 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2008 PUTNAM VT EQUITY FTVIPT TEMPLETON FTVIPT TEMPLETON PUTNAM VT VISTA INCOME GROWTH SECURITIES FOREIGN SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------ ------------------- -------------------- --------------------- INVESTMENT INCOME: Dividends $ -- $ 719,718 $ 293,262 $ 960,307 ------------------ ------------------- -------------------- --------------------- EXPENSES: Mortality and expense risk charges 34,801 274,016 124,698 473,354 Administrative charges 4,515 88,868 38,393 87,947 ------------------ ------------------- -------------------- --------------------- Total expenses 39,316 362,884 163,091 561,301 ------------------ ------------------- -------------------- --------------------- Net investment income (loss) (39,316) 356,834 130,171 399,006 ------------------ ------------------- -------------------- --------------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions -- 1,724,992 1,139,119 3,803,892 Realized gains (losses) on sale of investments (96,973) (948,491) (667,674) 346,936 ------------------ ------------------- -------------------- --------------------- (96,973) 776,501 471,445 4,150,828 ------------------ ------------------- -------------------- --------------------- Change in unrealized gains (losses) on investments (1,415,151) (14,412,375) (9,081,182) (24,255,313) ------------------ ------------------- -------------------- --------------------- Net realized and unrealized gains (losses) on investments (1,512,124) (13,635,874) (8,609,737) (20,104,485) ------------------ ------------------- -------------------- --------------------- Net increase (decrease) in net assets resulting from operations $ (1,551,440) $ (13,279,040) $ (8,479,566) $ (19,705,479) ================== =================== ==================== =====================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 33 PIMCO VIT FIDELITY VIP GROWTH FIDELITY VIP PIMCO VIT PIMCO VIT STOCKSPLUS GROWTH PIMCO VIT OPPORTUNTIES EQUITY-INCOME HIGH YIELD LOW DURATION AND INCOME TOTAL RETURN SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------- ---------------- --------------- --------------- -------------------- --------------- $ 782 $ 129,554 $ 565,478 $ 400,286 $ 82,351 $ 745,669 ---------------------- ---------------- --------------- --------------- -------------------- --------------- 2,068 77,774 88,122 124,037 14,469 211,036 247 14,053 17,911 24,100 2,768 37,843 ---------------------- ---------------- --------------- --------------- -------------------- --------------- 2,315 91,827 106,033 148,137 17,237 248,879 ---------------------- ---------------- --------------- --------------- -------------------- --------------- (1,533) 37,727 459,445 252,149 65,114 496,790 ---------------------- ---------------- --------------- --------------- -------------------- --------------- -- 6,668 17,989 157,489 -- 271,222 (972) (723,605) (285,605) (39,754) (21,068) 138,297 ---------------------- ---------------- --------------- --------------- -------------------- --------------- (972) (716,937) (267,616) 117,735 (21,068) 409,519 ---------------------- ---------------- --------------- --------------- -------------------- --------------- (121,192) (2,670,905) (2,115,063) (573,936) (667,123) (399,549) ---------------------- ---------------- --------------- --------------- -------------------- --------------- (122,164) (3,387,842) (2,382,679) (456,201) (688,191) 9,970 ---------------------- ---------------- --------------- --------------- -------------------- --------------- $ (123,697) $ (3,350,115) $ (1,923,234) $ (204,052) $ (623,077) $ 506,760 ====================== ================ =============== =============== ==================== ===============
The accompanying notes are an integral part of these financial statements. 34 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONCLUDED) FOR THE YEAR ENDED DECEMBER 31, 2008 AMERICAN FUNDS AMERICAN FUNDS GLOBAL SMALL AMERICAN FUNDS GLOBAL GROWTH CAPITALIZATION GROWTH SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT (A) ----------------- ------------------ ------------------ INVESTMENT INCOME: Dividends $ 513,658 $ -- $ 139,071 ----------------- ------------------ ------------------ EXPENSES: Mortality and expense risk charges 117,780 5,084 23,234 Administrative charges 41,365 2,089 9,476 ----------------- ------------------ ------------------ Total expenses 159,145 7,173 32,710 ----------------- ------------------ ------------------ Net investment income (loss) 354,513 (7,173) 106,361 ----------------- ------------------ ------------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions 1,300,253 51,632 169,546 Realized gains (losses) on sale of investments (407,936) (145) (2,619) ----------------- ------------------ ------------------ 892,317 51,487 166,927 ----------------- ------------------ ------------------ Change in unrealized gains (losses) on investments (9,875,582) (925,619) (3,403,192) ----------------- ------------------ ------------------ Net realized and unrealized gains (losses) on investments (8,983,265) (874,132) (3,236,265) ----------------- ------------------ ------------------ Net increase (decrease) in net assets resulting from operations $ (8,628,752) $ (881,305) $ (3,129,904) ================= ================== ==================
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 35 This page is intentionally left blank. METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST LORD ABBETT GROWTH MIST LORD ABBETT BOND MIST VAN KAMPEN MID CAP AND INCOME DEBENTURE GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- --------------------------------- ---------------------------- 2008 2007 2008 2007 2008 2007 ---------------- ----------------- ---------------- ---------------- --------------- ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 2,878,692 $ (4,994,131) $ 7,681,542 $ 11,452,349 $ 107,729 $ (751,452) Net realized gains (losses) 75,488,021 115,178,646 656,949 6,040,166 4,471,992 8,239,289 Change in unrealized gains (losses) on investments (447,777,295) (79,135,154) (61,541,630) (2,410,074) (32,591,068) 4,492,175 ---------------- ----------------- ---------------- ---------------- --------------- ----------- Net increase (decrease) in net assets resulting from operations (369,410,582) 31,049,361 (53,203,139) 15,082,441 (28,011,347) 11,980,012 ---------------- ----------------- ---------------- ---------------- --------------- ----------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 7,681,417 11,212,350 2,953,663 4,240,291 1,187,834 1,504,132 Net transfers (including fixed account) (30,488,682) (54,262,515) (13,437,194) 11,783,676 215,484 (117,997) Contract charges (1,544,323) (1,668,932) (645,941) (612,646) (90,732) (85,621) Transfers for contract benefits and terminations (105,238,732) (164,838,040) (30,892,819) (40,523,084) (5,809,831) (7,307,159) ---------------- ----------------- ---------------- ---------------- --------------- ----------- Net increase (decrease) in net assets resulting from contract transactions (129,590,320) (209,557,137) (42,022,291) (25,111,763) (4,497,245) (6,006,645) ---------------- ----------------- ---------------- ---------------- --------------- ----------- Net increase (decrease) in net assets (499,000,902) (178,507,776) (95,225,430) (10,029,322) (32,508,592) 5,973,367 NET ASSETS: Beginning of period 1,075,806,092 1,254,313,868 297,943,064 307,972,386 62,713,816 56,740,449 ---------------- ----------------- ---------------- ---------------- --------------- ----------- End of period $ 576,805,190 $1,075,806,092 $ 202,717,634 $ 297,943,064 $ 30,205,224 $62,713,816 ================ ================= ================ ================ =============== ===========
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 37 MIST OPPENHEIMER CAPITAL MIST PIMCO INFLATION MIST LEGG MASON PARTNERS MIST LORD ABBETT MID CAP VALUE APPRECIATION PROTECTED BOND AGGRESSIVE GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------- -------------------------------- ------------------------------- ------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- $ (1,437,787) $ (1,949,084) $ 2,167,628 $ (2,158,233) $ 1,140,401 $ 293,469 $ (1,076,474) $ (1,466,510) 20,733,611 63,221,508 25,622,832 12,572,235 544,791 (311,237) (740,291) 12,102,031 (130,229,067) (66,496,374) (86,056,623) 6,087,101 (6,836,010) 5,102,007 (30,593,166) (9,681,223) ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- (110,933,243) (5,223,950) (58,266,163) 16,501,103 (5,150,818) 5,084,239 (32,409,931) 954,298 ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- 2,738,203 4,043,298 1,042,536 2,855,465 2,668,082 1,107,113 826,015 1,029,435 (8,691,481) 30,314,787 (4,986,998) (5,712,512) 3,170,544 (4,135,018) (3,473,834) (11,218,628) (548,249) (587,954) (333,836) (370,835) (255,613) (212,872) (248,809) (260,696) (25,494,498) (32,984,406) (10,774,536) (18,448,880) (6,187,370) (8,108,229) (6,190,991) (11,475,909) ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- (31,996,025) 785,725 (15,052,834) (21,676,762) (604,357) (11,349,006) (9,087,619) (21,925,798) ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- (142,929,268) (4,438,225) (73,318,997) (5,175,659) (5,755,175) (6,264,767) (41,497,550) (20,971,500) 300,178,790 304,617,015 137,207,385 142,383,044 58,385,153 64,649,920 87,874,559 108,846,059 ---------------- ---------------- --------------- ---------------- --------------- --------------- --------------- --------------- $ 157,249,522 $ 300,178,790 $ 63,888,388 $ 137,207,385 $ 52,629,978 $ 58,385,153 $ 46,377,009 $ 87,874,559 ================ ================ =============== ================ =============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements. 38 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST T. ROWE PRICE MIST PIMCO TOTAL RETURN MIST RCM TECHNOLOGY MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------- ------------------------------ ------------------------------- 2008 2007 2008 2007 2008 2007 ---------------- ---------------- -------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 6,507,955 $ 5,229,885 $ 1,272,140 $ (193,572) $ (1,155,160) $ (1,506,226) Net realized gains (losses) 8,244,884 2,331,006 2,374,634 1,611,755 8,512,173 18,345,680 Change in unrealized gains (losses) on investments (17,376,018) 8,899,903 (9,505,545) 1,394,620 (42,460,534) (2,363,951) ---------------- ---------------- -------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations (2,623,179) 16,460,794 (5,858,771) 2,812,803 (35,103,521) 14,475,503 ---------------- ---------------- -------------- --------------- --------------- --------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 14,360,343 6,705,950 313,863 623,149 2,098,306 1,858,117 Net transfers (including fixed account) 17,043,691 (36,672,842) 62,062 1,020,488 (5,518,318) (21,806,132) Contract charges (906,270) (746,145) (50,202) (39,441) (299,770) (304,641) Transfers for contract benefits and terminations (26,667,003) (29,825,925) (1,273,202) (1,857,208) (5,759,962) (9,828,883) ---------------- ---------------- -------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from contract transactions 3,830,761 (60,538,962) (947,479) (253,012) (9,479,744) (30,081,539) ---------------- ---------------- -------------- --------------- --------------- --------------- Net increase (decrease) in net assets 1,207,582 (44,078,168) (6,806,250) 2,559,791 (44,583,265) (15,606,036) NET ASSETS: Beginning of period 283,533,965 327,612,133 13,379,138 10,819,347 92,323,883 107,929,919 ---------------- ---------------- -------------- --------------- --------------- --------------- End of period $ 284,741,547 $ 283,533,965 $ 6,572,888 $ 13,379,138 $ 47,740,618 $ 92,323,883 ================ ================ ============== =============== =============== ===============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 39 MIST MFS RESEARCH MIST MET/AIM MIST HARRIS OAKMARK INTERNATIONAL SMALL CAP GROWTH MIST LAZARD MID CAP INTERNATIONAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------- ------------------------------- ------------------------------- ------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 975,729 $ (234,867) $ (893,719) $ (1,253,245) $ (181,959) $ (849,008) $ (29,002) $ (961,214) 14,685,937 53,178,619 4,785,312 5,567,084 686,705 3,649,383 8,352,364 19,096,850 (100,286,811) (28,438,195) (29,976,745) 2,748,635 (21,651,761) (8,367,898) (42,639,657) (20,427,971) ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- (84,625,145) 24,505,557 (26,085,152) 7,062,474 (21,147,015) (5,567,523) (34,316,295) (2,292,335) ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- 1,564,709 3,091,828 770,644 1,104,874 1,212,086 970,650 1,854,893 3,589,805 (8,854,055) (20,789,635) (2,702,702) (11,524,866) (1,658,871) 38,717,032 (7,695,975) (7,371,011) (440,880) (467,382) (225,926) (248,344) (116,437) (122,812) (281,959) (366,378) (16,861,098) (27,464,298) (5,003,155) (8,793,334) (4,694,679) (8,322,280) (6,704,144) (14,345,886) ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- (24,591,324) (45,629,487) (7,161,139) (19,461,670) (5,257,901) 31,242,590 (12,827,185) (18,493,470) ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- (109,216,469) (21,123,930) (33,246,291) (12,399,196) (26,404,916) 25,675,067 (47,143,480) (20,785,805) 212,534,722 233,658,652 71,015,556 83,414,752 57,995,812 32,320,745 91,235,231 112,021,036 ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 103,318,253 $ 212,534,722 $ 37,769,265 $ 71,015,556 $ 31,590,896 $ 57,995,812 $ 44,091,751 $ 91,235,231 ================ ================ =============== =============== =============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements. 40 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST THIRD AVENUE SMALL CAP VALUE MIST CLARION GLOBAL REAL ESTATE MIST TURNER MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- ---------------------------------- -------------------------- 2008 2007 2008 2007 2008 2007 --------------- -------------- --------------- ------------------ -------------- ------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (580,855) $ (617,092) $ 94,544 $ (394,985) $ (230,635) $ (230,973) Net realized gains (losses) 3,958,446 12,461,171 2,809,566 13,924,010 955,149 1,182,006 Change in unrealized gains (losses) on investments (24,557,518) (15,368,056) (22,764,007) (22,726,254) (8,720,370) 1,656,841 --------------- -------------- --------------- ------------------ -------------- ------------- Net increase (decrease) in net assets resulting from operations (21,179,927) (3,523,977) (19,859,897) (9,197,229) (7,995,856) 2,607,874 --------------- -------------- --------------- ------------------ -------------- ------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 1,747,128 2,373,546 1,111,512 1,380,038 632,260 316,041 Net transfers (including fixed account) (7,020,888) (9,566,979) (464,633) (16,110,806) 1,687,752 1,405,514 Contract charges (267,497) (306,577) (137,301) (172,173) (67,583) (49,879) Transfers for contract benefits and terminations (5,543,381) (11,509,670) (3,920,981) (5,909,025) (1,669,608) (1,551,821) --------------- -------------- --------------- ------------------ -------------- ------------- Net increase (decrease) in net assets resulting from contract transactions (11,084,638) (19,009,680) (3,411,403) (20,811,966) 582,821 119,855 --------------- -------------- --------------- ------------------ -------------- ------------- Net increase (decrease) in net assets (32,264,565) (22,533,657) (23,271,300) (30,009,195) (7,413,035) 2,727,729 NET ASSETS: Beginning of period 77,454,105 99,987,762 49,736,129 79,745,324 15,254,136 12,526,407 --------------- -------------- --------------- ------------------ -------------- ------------- End of period $ 45,189,540 $ 77,454,105 $ 26,464,829 $ 49,736,129 $ 7,841,101 $ 15,254,136 =============== =============== =============== ================== ============== =============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 41 MIST GOLDMAN SACHS MID CAP VALUE MIST METLIFE DEFENSIVE STRATEGY MIST METLIFE MODERATE STRATEGY MIST METLIFE BALANCED STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- --------------------------------- ------------------------------- --------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- $ (222,229) $ (461,424) $ (476,443) $ 72,624 $ 638,042 $ 793,370 $ 38,258,458 $ (594,130) 595,808 5,857,376 1,439,845 5,763,804 9,795,620 11,340,759 70,988,843 33,913,027 (10,493,383) (4,801,691) (43,824,472) (1,339,403) (156,198,486) 3,240,393 (561,336,623) (6,671,966) --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- (10,119,804) 594,261 (42,861,070) 4,497,025 (145,764,824) 15,374,522 (452,089,322) 26,646,931 --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- 113,289 1,763,452 23,335,865 18,083,629 64,203,413 88,123,674 145,691,405 248,140,018 (5,169,433) (2,913,613) 66,071,547 50,416,359 39,435,766 90,812,816 307,409,420 161,679,772 (107,326) (131,808) (884,121) (421,775) (2,215,505) (1,418,022) (6,189,656) (3,691,226) (2,464,874) (4,431,382) (17,858,871) (20,031,173) (33,630,419) (28,457,799) (72,023,161) (94,872,655) --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- (7,628,344) (5,713,351) 70,664,420 48,047,040 67,793,255 149,060,669 374,888,008 311,255,909 --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- (17,748,148) (5,119,090) 27,803,350 52,544,065 (77,971,569) 164,435,191 (77,201,314) 337,902,840 33,020,433 38,139,523 144,052,470 91,508,405 480,378,237 315,943,046 1,240,119,183 902,216,343 --------------- ------------- ---------------- ----------------- --------------- --------------- ----------------- --------------- $ 15,272,285 $33,020,433 $ 171,855,820 $ 144,052,470 $ 402,406,668 $ 480,378,237 $1,162,917,869 $1,240,119,183 =============== ============= ================ ================= =============== =============== ================= ===============
The accompanying notes are an integral part of these financial statements. 42 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST METLIFE GROWTH STRATEGY MIST METLIFE AGGRESSIVE STRATEGY MIST VAN KAMPEN COMSTOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------------- ----------------------------------- ---------------------------- 2008 2007 2008 2007 2008 2007 --------------- -------------- ------------- -------------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 23,167,310 $ (6,635,427) $ 1,702,243 $ (606,381) $ 423,518 $ 129,545 Net realized gains (losses) 79,025,273 40,655,333 8,428,719 19,847,925 1,394,902 2,986,429 Change in unrealized gains (losses) on investments (666,449,701) (9,782,182) (60,284,139) (16,495,905) (32,472,657) (6,500,013) --------------- --------------- ------------- -------------- ------------ ------------ Net increase (decrease) in net assets resulting from operations (564,257,118) 24,237,724 (50,153,177) 2,745,639 (30,654,237) (3,384,039) --------------- --------------- ------------- -------------- ------------ ------------ CONTRACT TRANSACTIONS: Purchase payments received from contract owners 144,008,397 359,280,576 4,299,562 8,773,830 3,019,266 5,084,048 Net transfers (including fixed account) 203,930,812 100,035,711 72,518,370 (16,236,835) 5,672,326 5,074,707 Contract charges (7,218,167) (4,214,074) (506,808) (521,857) (195,629) (178,491) Transfers for contract benefits and terminations (63,568,795) (83,736,881) (9,086,394) (23,365,665) (6,547,124) (6,023,327) --------------- --------------- ------------- -------------- ------------ ------------ Net increase (decrease) in net assets resulting from contract transactions 277,152,247 371,365,332 67,224,730 (31,350,527) 1,948,839 3,956,937 --------------- --------------- ------------- -------------- ------------ ------------ Net increase (decrease) in net assets (287,104,871) 395,603,056 17,071,553 (28,604,888) (28,705,398) 572,898 NET ASSETS: Beginning of period 1,381,939,858 986,336,802 125,554,567 154,159,455 82,325,135 81,752,237 --------------- --------------- ------------- -------------- ------------ ------------ End of period $1,094,834,987 $1,381,939,858 $142,626,120 $ 125,554,567 $ 53,619,737 $ 82,325,135 =============== =============== ============= ============== ============ ============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 43 MIST SSGA GROWTH AND MIST MET/AIM CAPITAL MIST SSGA GROWTH ETF INCOME ETF MIST LEGG MASON VALUE EQUITY APPRECIATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------------------- ------------------------------- ------------------------------ 2008 2007 2008 2007 2008 2007 2008 2007 --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- $ 16,888 $ (482,507) $ 215,276 $ (598,720) $ (313,496) $ (493,962) $ 78,258 $ (270,530) 219,724 688,517 310,970 493,233 260,273 717,707 (834,449) (1,083,063) (10,587,025) 961,089 (17,291,850) 992,983 (16,435,096) (2,403,673) (6,020,995) 3,322,820 --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- (10,350,413) 1,167,099 (16,765,604) 887,496 (16,488,319) (2,179,928) (6,777,186) 1,969,227 --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- 1,014,397 6,953,032 5,296,169 21,569,605 566,166 610,917 2,976 27,164 (5,756,466) 641,745 4,436,746 10,800,285 2,999,774 (7,944,133) (750,162) (1,443,656) (92,437) (99,194) (288,857) (86,387) (82,171) (109,257) (20,818) (23,940) (785,691) (1,304,305) (1,929,541) (1,492,568) (1,296,955) (1,930,339) (2,165,781) (3,664,772) --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- (5,620,197) 6,191,278 7,514,517 30,790,935 2,186,814 (9,372,812) (2,933,785) (5,105,204) --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- (15,970,610) 7,358,377 (9,251,087) 31,678,431 (14,301,505) (11,552,740) (9,710,971) (3,135,977) 35,243,332 27,884,955 57,258,882 25,580,451 28,657,072 40,209,812 17,443,288 20,579,265 --------------- --------------- --------------- --------------- --------------- --------------- -------------- --------------- $ 19,272,722 $ 35,243,332 $ 48,007,795 $ 57,258,882 $ 14,355,567 $ 28,657,072 $ 7,732,317 $ 17,443,288 =============== =============== =============== =============== =============== =============== ============== ===============
The accompanying notes are an integral part of these financial statements. 44 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST MFS EMERGING MIST PIONEER FUND MIST PIONEER STRATEGIC INCOME MARKETS EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------- -------------------------------- ------------------------------ 2008 2007 2008 2007 2008 2007 -------------- -------------- -------------- ----------------- --------------- -------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (1,672) $ (1,134) $ 116,067 $ (4,342) $ (248,604) $ (81,160) Net realized gains (losses) (11,061) 14,144 (8,044) 1,498 157,167 1,806,676 Change in unrealized gains (losses) on investments (390,089) (1,486) (418,059) 60,651 (26,807,070) (483,026) -------------- -------------- -------------- ----------------- --------------- -------------- Net increase (decrease) in net assets resulting from operations (402,822) 11,524 (310,036) 57,807 (26,898,507) 1,242,490 -------------- -------------- -------------- ----------------- --------------- -------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 232,593 37,715 169,689 120,856 1,313,055 816,921 Net transfers (including fixed account) 962,060 342,557 1,322,095 1,042,216 45,043,323 (6,771,533) Contract charges (1,859) (1,078) (4,109) (1,762) (85,645) (22,391) Transfers for contract benefits and terminations (50,715) (70,842) (174,342) (67,625) (2,307,931) (627,808) -------------- -------------- -------------- ----------------- --------------- -------------- Net increase (decrease) in net assets resulting from contract transactions 1,142,079 308,352 1,313,333 1,093,685 43,962,802 (6,604,811) -------------- -------------- -------------- ----------------- --------------- -------------- Net increase (decrease) in net assets 739,257 319,876 1,003,297 1,151,492 17,064,295 (5,362,321) NET ASSETS: Beginning of period 693,986 374,110 1,515,237 363,745 6,784,979 12,147,300 -------------- -------------- -------------- ----------------- --------------- -------------- End of period $ 1,433,243 $ 693,986 $ 2,518,534 $ 1,515,237 $ 23,849,274 $ 6,784,979 ============== ============== ============== ================= =============== ==============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 45 MIST AMERICAN MIST AMERICAN MIST LOOMIS SAYLES MIST AMERICAN FUNDS BALANCED MIST AMERICAN FUNDS GROWTH GLOBAL MARKETS MIST RAINIER LARGE CAP EQUITY FUNDS GROWTH ALLOCATION FUNDS BOND ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ -------------------------------- ---------------- ----------------- ---------------- -------------- 2008 2007 2008 2007 (A) 2008 (B) 2008 (B) 2008 (B) 2008 (B) -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- $ 266,307 $ (54,750) $ (96,008) $ (536) $ 281,459 $ 2,494,757 $ 227,133 $ 3,306,836 (1,124,049) 83,104 (503,097) 27 (244,423) (87,687) (47,436) (156,529) (3,950,906) 384,134 (1,839,760) 11,289 (3,082,009) (19,128,434) (480,363) (31,509,925) -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- (4,808,648) 412,488 (2,438,865) 10,780 (3,044,973) (16,721,364) (300,666) (28,359,618) -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- 2,281,996 740,921 270,825 10,612 5,932,527 54,106,258 3,651,708 66,217,183 (4,739,324) 12,610,746 6,836,351 1,132,471 5,542,435 46,719,640 1,782,471 53,565,291 (30,205) (5,199) (39,719) (486) (3,837) (86,818) (3,008) (104,701) (708,070) (99,502) (1,348,908) (3,747) (50,496) (1,168,336) (35,333) (828,215) -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- (3,195,603) 13,246,966 5,718,549 1,138,850 11,420,629 99,570,744 5,395,838 118,849,558 -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- (8,004,251) 13,659,454 3,279,684 1,149,630 8,375,656 82,849,380 5,095,172 90,489,940 14,022,527 363,073 1,149,630 -- -- -- -- -- -------------- --------------- -------------- ----------------- ---------------- ----------------- ---------------- -------------- $ 6,018,276 $ 14,022,527 $ 4,429,314 $ 1,149,630 $ 8,375,656 $ 82,849,380 $ 5,095,172 $ 90,489,940 ============== =============== ============== ================= ================ ================= ================ ==============
The accompanying notes are an integral part of these financial statements. 46 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST AMERICAN MIST AMERICAN FUNDS MIST MIST DREMAN MIST MET/ MIST MET/ FUNDS MODERATE BLACKROCK SMALL CAP TEMPLETON FRANKLIN INTERNATIONAL ALLOCATION HIGH YIELD VALUE GROWTH MUTUAL SHARES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- ---------------- -------------- -------------- -------------- ---------------- 2008 (B) 2008 (B) 2008 (B) 2008 (B) 2008 (B) 2008 (B) ---------------- ---------------- -------------- -------------- -------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 332,150 $ 1,546,632 $ (6,586) $ (2,209) $ 4,538 $ 305,388 Net realized gains (losses) (333,000) (30,775) (93,076) (2,760) (8,281) (1,777) Change in unrealized gains (losses) on investments (1,746,438) (7,661,392) (148,411) (110,891) (434,777) (2,457,683) ---------------- ---------------- -------------- -------------- -------------- ---------------- Net increase (decrease) in net assets resulting from operations (1,747,288) (6,145,535) (248,073) (115,860) (438,520) (2,154,072) ---------------- ---------------- -------------- -------------- -------------- ---------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 3,386,433 24,835,473 698,261 172,090 674,944 4,406,661 Net transfers (including fixed account) 3,938,494 32,363,334 544,700 744,639 2,113,934 10,058,873 Contract charges (2,742) (53,075) (156) (119) (266) (1,776) Transfers for contract benefits and terminations (28,476) (593,462) (277,622) (1,994) (8,125) (66,454) ---------------- ---------------- -------------- -------------- -------------- ---------------- Net increase (decrease) in net assets resulting from contract transactions 7,293,709 56,552,270 965,183 914,616 2,780,487 14,397,304 ---------------- ---------------- -------------- -------------- -------------- ---------------- Net increase (decrease) in net assets 5,546,421 50,406,735 717,110 798,756 2,341,967 12,243,232 NET ASSETS: Beginning of period -- -- -- -- -- -- ---------------- ---------------- -------------- -------------- -------------- ---------------- End of period $ 5,546,421 $ 50,406,735 $ 717,110 $ 798,756 $ 2,341,967 $ 12,243,232 ================ ================ ============== ============== ============== ================
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 47 MIST MET/ FRANKLIN TEMPLETON FOUNDING STRATEGY RUSSELL MULTI-STYLE EQUITY RUSSELL AGGRESSIVE EQUITY RUSSELL NON-U.S. SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------------------------ ----------------------------- ----------------------------- 2008 (B) 2008 2007 2008 2007 2008 2007 --------------- -------------- --------------- -------------- -------------- -------------- -------------- $ 712,075 $ 7,342 $ (84,295) $ (17,703) $ (50,324) $ (98,376) $ 103,834 (22,288) (172,267) 1,394,489 (156,612) 806,705 (101,949) 2,710,802 (9,495,004) (7,030,963) 592,416 (1,520,429) (630,885) (3,571,608) (1,924,328) --------------- -------------- --------------- -------------- -------------- -------------- -------------- (8,805,217) (7,195,888) 1,902,610 (1,694,744) 125,496 (3,771,933) 890,308 --------------- -------------- --------------- -------------- -------------- -------------- -------------- 27,288,722 41,600 3,000 9,517 5,463 1,450 1,500 32,165,020 (64,063) (885,723) 11,466 (111,636) 121,349 (424,537) (23,373) (5,035) (5,573) (980) (1,152) (2,187) (2,554) (521,898) (1,893,953) (6,311,113) (390,627) (1,170,972) (924,644) (2,539,176) --------------- -------------- --------------- -------------- -------------- -------------- -------------- 58,908,471 (1,921,451) (7,199,409) (370,624) (1,278,297) (804,032) (2,964,767) --------------- -------------- --------------- -------------- -------------- -------------- -------------- 50,103,254 (9,117,339) (5,296,799) (2,065,368) (1,152,801) (4,575,965) (2,074,459) -- 18,778,587 24,075,386 4,129,569 5,282,370 9,316,786 11,391,245 --------------- -------------- --------------- -------------- -------------- -------------- -------------- $ 50,103,254 $ 9,661,248 $ 18,778,587 $ 2,064,201 $ 4,129,569 $ 4,740,821 $ 9,316,786 =============== ============== =============== ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. 48 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 RUSSELL CORE BOND RUSSELL REAL ESTATE SECURITIES AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------- --------------------------------- -------------------------------- 2008 2007 2008 2007 2008 2007 ------------- --------------- -------------- ------------------ -------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 329,215 $ 552,643 $ 9,630 $ 22,552 $ (96,239) $ (147,117) Net realized gains (losses) 134,638 (2,625) (71,213) 654,085 530,584 2,774,652 Change in unrealized gains (losses) on investments (1,131,063) 269,128 (663,582) (1,146,552) (5,341,219) (916,127) ------------- --------------- -------------- ------------------ -------------- ----------------- Net increase (decrease) in net assets resulting from operations (667,210) 819,146 (725,165) (469,915) (4,906,874) 1,711,408 ------------- --------------- -------------- ------------------ -------------- ----------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners -- -- 2,250 -- 57,336 237,958 Net transfers (including fixed account) (687,594) 591,776 12,936 (83,243) (1,817,140) (2,862,172) Contract charges (3,369) (3,283) (451) (565) (25,210) (29,000) Transfers for contract benefits and terminations (1,578,395) (2,287,628) (228,543) (550,204) (1,109,135) (1,612,501) ------------- --------------- -------------- ------------------ -------------- ----------------- Net increase (decrease) in net assets resulting from contract transactions (2,269,358) (1,699,135) (213,808) (634,012) (2,894,149) (4,265,715) ------------- --------------- -------------- ------------------ -------------- ----------------- Net increase (decrease) in net assets (2,936,568) (879,989) (938,973) (1,103,927) (7,801,023) (2,554,307) NET ASSETS: Beginning of period 14,474,327 15,354,316 2,112,446 3,216,373 13,839,627 16,393,934 ------------- --------------- -------------- ------------------ -------------- ----------------- End of period $ 11,537,759 $ 14,474,327 $ 1,173,473 $ 2,112,446 $ 6,038,604 $ 13,839,627 ============= =============== ============== ================== ============== =================
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 49 DWS GOVERNMENT & AGENCY SECURITIES MSF DAVIS VENTURE VALUE MSF HARRIS OAKMARK FOCUSED VALUE MSF JENNISON GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------------- --------------------------------- ----------------------------------- ------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- $ 30,192 $ 44,208 $ (662,000) $ (2,716,298) $ (844,029) $ (1,127,587) $ 352,871 $ (1,046,814) 2,741 (2,240) 3,811,642 26,405,264 1,654,931 14,505,871 4,360,177 7,883,237 (3,036) 3,658 (113,323,254) (14,384,112) (29,688,547) (19,716,259) (30,142,871) (53,240) ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- 29,897 45,626 (110,173,612) 9,304,854 (28,877,645) (6,337,975) (25,429,823) 6,783,183 ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- 1,281 767 7,585,238 9,227,908 748,033 1,561,994 1,105,987 2,021,231 (60,257) (62,290) (4,358,461) (36,082,691) (4,258,045) (5,363,293) (2,359,853) (12,266,830) (1,376) (1,213) (826,197) (894,124) (214,593) (280,871) (232,382) (241,555) (164,359) (255,573) (20,193,584) (29,176,963) (4,325,206) (10,713,648) (4,750,130) (9,657,087) ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- (224,711) (318,309) (17,793,004) (56,925,870) (8,049,811) (14,795,818) (6,236,378) (20,144,241) ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- (194,814) (272,683) (127,966,616) (47,621,016) (36,927,456) (21,133,793) (31,666,201) (13,361,058) 1,048,765 1,321,448 286,644,026 334,265,042 67,473,501 88,607,294 70,723,890 84,084,948 ------------ ---------------- ---------------- ---------------- --------------- ------------------- --------------- --------------- $ 853,951 $ 1,048,765 $ 158,677,410 $ 286,644,026 $ 30,546,045 $ 67,473,501 $ 39,057,689 $ 70,723,890 ============ ================ ================ ================ =============== =================== =============== ===============
The accompanying notes are an integral part of these financial statements. 50 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MSF CAPITAL GUARDIAN MSF JULIUS BAER MSF MFS TOTAL RETURN U.S. EQUITY INTERNATIONAL STOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------------------- ----------------------------- 2008 2007 2008 2007 2008 2007 --------------- --------------- --------------- --------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 1,794,764 $ 764,627 $ (268,890) $ (1,581,140) $ 93,978 $ (56,061) Net realized gains (losses) 5,062,991 4,238,118 11,995,189 19,980,858 811,678 2,741,083 Change in unrealized gains (losses) on investments (26,370,639) (2,480,780) (69,902,195) (19,731,356) (4,769,119) (1,871,753) --------------- --------------- --------------- --------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations (19,512,884) 2,521,965 (58,175,896) (1,331,638) (3,863,463) 813,269 --------------- --------------- --------------- --------------- -------------- -------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 1,844,816 2,971,797 577,040 1,826,006 80,963 118,021 Net transfers (including fixed account) 1,666,610 5,661,719 (5,878,278) (5,604,110) 88,103 (3,454,663) Contract charges (167,407) (154,144) (217,655) (240,222) (30,089) (32,136) Transfers for contract benefits and terminations (7,347,556) (8,149,348) (12,860,790) (21,814,215) (528,760) (555,807) --------------- --------------- --------------- --------------- -------------- -------------- Net increase (decrease) in net assets resulting from contract transactions (4,003,537) 330,024 (18,379,683) (25,832,541) (389,783) (3,924,585) --------------- --------------- --------------- --------------- -------------- -------------- Net increase (decrease) in net assets (23,516,421) 2,851,989 (76,555,579) (27,164,179) (4,253,246) (3,111,316) NET ASSETS: Beginning of period 86,770,491 83,918,502 153,904,080 181,068,259 8,920,544 12,031,860 --------------- --------------- --------------- --------------- -------------- -------------- End of period $ 63,254,070 $ 86,770,491 $ 77,348,501 $153,904,080 $ 4,667,298 $ 8,920,544 =============== =============== =============== =============== ============== ==============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 51 MSF BLACKROCK MONEY MARKET MSF METLIFE STOCK INDEX MSF BLACKROCK BOND INCOME MSF BLACKROCK STRATEGIC VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------------------- ------------------------------- -------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- $ 1,459,343 $ 3,239,963 $ 12,931 $ (329,656) $ 1,087,401 $ 432,948 $ (24,819) $ (37,534) -- -- (105,902) 4,282,606 (61,016) (157,357) 15,294 229,921 -- -- (14,143,982) (2,637,207) (2,502,023) 1,003,600 (925,119) (324,702) --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- 1,459,343 3,239,963 (14,236,953) 1,315,743 (1,475,638) 1,279,191 (934,644) (132,315) --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- 25,860,624 24,525,877 706,646 831,403 1,786,820 1,231,591 7,237 28,675 150,514,889 82,824,803 (154,326) 266,696 6,670,340 (7,094,151) 166,031 (319,905) (518,549) (318,953) (118,449) (123,990) (70,103) (54,741) (8,607) (8,907) (67,186,602) (91,619,481) (2,269,533) (3,686,152) (3,172,434) (2,251,227) (80,705) (179,167) --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- 108,670,362 15,412,246 (1,835,662) (2,712,043) 5,214,623 (8,168,528) 83,956 (479,304) --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- 110,129,705 18,652,209 (16,072,615) (1,396,300) 3,738,985 (6,889,337) (850,688) (611,619) 109,887,921 91,235,712 38,415,249 39,811,549 29,400,150 36,289,487 2,389,410 3,001,029 --------------- --------------- --------------- --------------- --------------- --------------- -------------- ----------------- $220,017,626 $109,887,921 $ 22,342,634 $ 38,415,249 $ 33,139,135 $ 29,400,150 $ 1,538,722 $ 2,389,410 =============== =============== =============== =============== =============== =============== ============== =================
The accompanying notes are an integral part of these financial statements. 52 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MSF FRANKLIN TEMPLETON MSF WESTERN ASSET MANAGEMENT MSF WESTERN ASSET MANAGEMENT SMALL CAP GROWTH STRATEGIC BOND OPPORTUNITIES U.S. GOVERNMENT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------- ------------------------------- 2008 2007 2008 2007 2008 2007 -------------- --------------- -------------- ---------------- -------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ (151,815) $ (200,740) $ 146,937 $ 56,877 $ 41,610 $ 5,790 Net realized gains (losses) 848,489 1,840,066 (125,999) 31,871 (54,425) 6,291 Change in unrealized gains (losses) on investments (6,718,746) (1,127,390) (987,962) 45,831 (64,899) 22,512 -------------- --------------- -------------- ---------------- -------------- ---------------- Net increase (decrease) in net assets resulting from operations (6,022,072) 511,936 (967,024) 134,579 (77,714) 34,593 -------------- --------------- -------------- ---------------- -------------- ---------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 739,587 1,211,623 18,349 138,787 1,076,198 588,059 Net transfers (including fixed account) 1,736,129 (8,429,640) (204,765) 11,202 4,028,292 309,580 Contract charges (38,339) (40,179) (18,508) (16,322) (7,352) (2,997) Transfers for contract benefits and terminations (720,716) (610,551) (472,449) (545,786) (422,821) (57,170) -------------- --------------- -------------- ---------------- -------------- ---------------- Net increase (decrease) in net assets resulting from contract transaction 1,716,661 (7,868,747) (677,373) (412,119) 4,674,317 837,472 -------------- --------------- -------------- ---------------- -------------- ---------------- Net increase (decrease) in net assets (4,305,411) (7,356,811) (1,644,397) (277,540) 4,596,603 872,065 NET ASSETS: Beginning of period 13,363,331 20,720,142 5,877,310 6,154,850 1,940,597 1,068,532 -------------- --------------- -------------- ---------------- -------------- ---------------- End of period $ 9,057,920 $ 13,363,331 $ 4,232,913 $ 5,877,310 $ 6,537,200 $ 1,940,597 ============== =============== ============== ================ ============== ================
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 53 MSF MET/ DIMENSIONAL MSF T. ROWE PRICE SMALL CAP MSF T. ROWE PRICE LARGE CAP MSF MFS INTERNATIONAL GROWTH GROWTH MSF OPPENHEIMER GLOBAL EQUITY VALUE SMALL COMPANY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------- ------------------------------- -------------------------------- ---------------------------- 2008 2007 2008 2007 2008 2007 2008 (B) 2008 (C) ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- $ (131,646) $ (174,843) $ (616,856) $ (966,497) $ 129,711 $ (35,192) $ (4,768) $ (20) 1,668,071 613,009 2,671,089 6,886,356 201,852 678,988 (2,047) -- (5,486,077) 540,791 (31,591,773) 497,289 (8,211,330) 247,590 (275,836) 1,427 ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- (3,949,652) 978,957 (29,537,540) 6,417,148 (7,879,767) 891,386 (282,651) 1,407 ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- 83,282 128,842 590,582 1,180,528 308,140 593,732 530,667 34,889 (347,798) (482,627) (1,877,989) (42,288,504) 494,518 2,688,988 1,861,328 610 (23,340) (22,563) (194,280) (219,216) (33,937) (34,234) (419) -- (844,938) (1,438,408) (4,764,742) (6,567,377) (1,276,247) (1,775,559) (10,602) (509) ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- (1,132,794) (1,814,756) (6,246,429) (47,894,569) (507,526) 1,472,927 2,380,974 34,990 ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- (5,082,446) (835,799) (35,783,969) (41,477,421) (8,387,293) 2,364,313 2,098,323 36,397 11,605,383 12,441,182 73,226,346 114,703,767 19,496,970 17,132,657 -- -- ------------- ------------- --------------- --------------- --------------- ---------------- -------------- ----------- $ 6,522,937 $ 11,605,383 $ 37,442,377 $ 73,226,346 $ 11,109,677 $ 19,496,970 $ 2,098,323 $ 36,397 ============= ============= =============== =============== =============== ================ ============== ===========
The accompanying notes are an integral part of these financial statements. 54 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 PUTNAM VT GROWTH AND INCOME PUTNAM VT VISTA PUTNAM VT EQUITY INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ----------------------------- ------------------------------- 2008 2007 2008 2007 2008 2007 -------------- --------------- -------------- -------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 135,089 $ 37,708 $ (39,316) $ (62,496) $ 356,834 $ 121,566 Net realized gains (losses) 889,894 3,284,631 (96,973) (91,634) 776,501 3,453,450 Change in unrealized gains (losses) on investments (6,641,584) (4,429,636) (1,415,151) 303,960 (14,412,375) (2,799,230) -------------- --------------- -------------- -------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations (5,616,601) (1,107,297) (1,551,440) 149,830 (13,279,040) 775,786 -------------- --------------- -------------- -------------- --------------- --------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 154,486 173,693 37,962 45,530 329,561 2,042,424 Net transfers (including fixed account) (1,033,975) (332,401) (21,599) (640,816) (1,601,167) 5,143,454 Contract charges (12,089) (13,766) (1,759) (2,196) (85,355) (82,070) Transfers for contract benefits and terminations (1,371,375) (3,855,070) (413,006) (952,330) (3,716,681) (3,298,665) -------------- --------------- -------------- -------------- --------------- --------------- Net increase (decrease) in net assets resulting from contract transaction (2,262,953) (4,027,544) (398,402) (1,549,812) (5,073,642) 3,805,143 -------------- --------------- -------------- -------------- --------------- --------------- Net increase (decrease) in net assets (7,879,554) (5,134,841) (1,949,842) (1,399,982) (18,352,682) 4,580,929 NET ASSETS: Beginning of period 15,743,571 20,878,412 3,664,269 5,064,251 44,391,661 39,810,732 -------------- --------------- -------------- -------------- --------------- --------------- End of period $ 7,864,017 $ 15,743,571 $ 1,714,427 $ 3,664,269 $ 26,038,979 $ 44,391,661 ============== =============== ============== ============== =============== ===============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 55 FTVIPT TEMPLETON GROWTH FTVIPT TEMPLETON FOREIGN SECURITIES SECURITIES FIDELITY VIP GROWTH OPPORTUNTIES FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------- ------------------------------- ----------------------------------- ----------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- $ 130,171 $ 37,661 $ 399,006 $ 267,150 $ (1,533) $ (3,102) $ 37,727 $ 9,362 471,445 1,071,572 4,150,828 11,333,908 (972) 1,990 (716,937) 1,052,696 (9,081,182) (1,077,442) (24,255,313) (4,646,750) (121,192) 44,671 (2,670,905) (1,072,377) --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- (8,479,566) 31,791 (19,705,479) 6,954,308 (123,697) 43,559 (3,350,115) (10,319) --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- 329,132 2,446,243 338,447 1,159,342 17,178 1,250 78,119 68,011 1,122,885 6,683,188 (3,325,795) (18,625,145) 25,413 (6,290) (1,121,943) 518,279 (34,758) (26,308) (121,029) (131,977) (148) (189) (20,905) (24,212) (1,152,048) (1,105,032) (3,456,818) (4,984,549) (8,566) (65,156) (654,528) (860,963) --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- 265,211 7,998,091 (6,565,195) (22,582,329) 33,877 (70,385) (1,719,257) (298,885) --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- (8,214,355) 8,029,882 (26,270,674) (15,628,021) (89,820) (26,826) (5,069,372) (309,204) 18,987,897 10,958,015 52,175,234 67,803,255 197,857 224,683 8,847,588 9,156,792 --------------- ---------------- --------------- --------------- ------------ ------------------ -------------- -------------- $ 10,773,542 $ 18,987,897 $ 25,904,560 $ 52,175,234 $ 108,037 $ 197,857 $ 3,778,216 $ 8,847,588 =============== ================ =============== =============== ============ ================== ============== ==============
The accompanying notes are an integral part of these financial statements. 56 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONCLUDED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 PIMCO VIT HIGH YIELD PIMCO VIT LOW DURATION SUB-ACCOUNT SUB-ACCOUNT ----------------------------- ----------------------------- 2008 2007 2008 2007 -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss) $ 459,445 $ 509,321 $ 252,149 $ 292,400 Net realized gains (losses) (267,616) 107,324 117,735 (23,753) Change in unrealized gains (losses) on investments (2,115,063) (393,524) (573,936) 232,553 -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations (1,923,234) 223,121 (204,052) 501,200 -------------- -------------- -------------- -------------- CONTRACT TRANSACTIONS: Purchase payments received from contract owners 45,484 236,367 105,035 85,852 Net transfers (including fixed account) (588,046) (5,917,985) 1,239,819 (109,712) Contract charges (29,574) (29,500) (37,730) (28,171) Transfers for contract benefits and terminations (577,569) (499,934) (696,452) (1,159,110) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from contract transaction (1,149,705) (6,211,052) 610,672 (1,211,141) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets (3,072,939) (5,987,931) 406,620 (709,941) NET ASSETS: Beginning of period 8,446,130 14,434,061 8,992,891 9,702,832 -------------- -------------- -------------- -------------- End of period $ 5,373,192 $ 8,446,130 $ 9,399,511 $ 8,992,891 ============== ============== ============== ==============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. The accompanying notes are an integral part of these financial statements. 57 AMERICAN FUNDS AMERICAN PIMCO VIT STOCKSPLUS GROWTH GLOBAL SMALL FUNDS AND INCOME PIMCO VIT TOTAL RETURN AMERICAN FUNDS GLOBAL GROWTH CAPITALIZATION GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------- ------------------------------- ----------------- --------------- 2008 2007 2008 2007 2008 2007 2008 (B) 2008 (B) ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- $ 65,114 $ 96,156 $ 496,790 $ 646,032 $ 354,513 $ 149,045 $ (7,173) $ 106,361 (21,068) 51,946 409,519 90,176 892,317 220,803 51,487 166,927 (667,123) (69,013) (399,549) 558,878 (9,875,582) 111,988 (925,619) (3,403,192) ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- (623,077) 79,089 506,760 1,295,086 (8,628,752) 481,836 (881,305) (3,129,904) ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- 3,912 55,775 5,666 5,445 3,599,210 1,764,876 802,399 4,160,363 158,854 2,522 (2,359,150) (3,013,968) 17,940,820 8,265,449 3,239,814 13,240,482 (3,880) (4,149) (36,973) (33,199) (23,611) (5,398) (224) (1,596) (110,206) (75,136) (2,580,385) (2,974,796) (943,913) (314,508) (16,599) (85,581) ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- 48,680 (20,988) (4,970,842) (6,016,518) 20,572,506 9,710,419 4,025,390 17,313,668 ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- (574,397) 58,101 (4,464,082) (4,721,432) 11,943,754 10,192,255 3,144,085 14,183,764 1,512,979 1,454,878 18,565,738 23,287,170 10,517,598 325,343 -- -- ------------ ----------------- --------------- --------------- --------------- --------------- ----------------- --------------- $ 938,582 $ 1,512,979 $ 14,101,656 $ 18,565,738 $ 22,461,352 $ 10,517,598 $ 3,144,085 $ 14,183,764 ============ ================= =============== =============== =============== =============== ================= ===============
The accompanying notes are an integral part of these financial statements. 58 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS 1. ORGANIZATION MetLife Investors Variable Annuity Account One (the "Separate Account"), a separate account of MetLife Investors Insurance Company (the "Company"), was established by the Company's Board of Directors on February 24, 1987 to support operations of the Company with respect to certain variable annuity contracts (the "Contracts"). The Company is a direct wholly-owned subsidiary of MetLife, Inc., a Delaware corporation. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and exists in accordance with the regulations of the Missouri Department of Insurance. The Separate Account is divided into Sub-Accounts, each of which is treated as an individual accounting entity for financial reporting purposes. Each Sub-Account invests in shares of the corresponding portfolio, series, or fund (with the same name) of registered investment management companies (the "Trusts"), which are presented below: Met Investors Series Trust ("MIST")* Russell Investment Funds ("Russell") AIM Variable Insurance Funds ("AIM V.I.") DWS Variable Series II ("DWS") Metropolitan Series Fund, Inc. ("MSF")* Putnam Variable Trust ("Putnam VT") Franklin Templeton Variable Insurance Products Trust ("FTVIPT") Fidelity Variable Insurance Products ("Fidelity VIP") PIMCO Variable Insurance Trust ("PIMCO VIT") American Funds Insurance Series ("American Funds") * See Note 3 for discussion of additional information on related party transactions. The assets of each of the Sub-Accounts of the Separate Account are registered in the name of the Company. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from the Company's other assets and liabilities. The portion of the Separate Account's assets applicable to the Contracts is not chargeable with liabilities arising out of any other business the Company may conduct. Purchase payments, less any applicable charges, applied to the Separate Account are invested in one or more Sub-Accounts in accordance with the selection made by the contract owner. The following Sub-Accounts were available for investment as of December 31, 2008: MIST Lord Abbett Growth and Income Sub-Account* MIST Lord Abbett Bond Debenture Sub-Account* MIST Van Kampen Mid Cap Growth Sub-Account MIST Lord Abbett Mid Cap Value Sub-Account* MIST Oppenheimer Capital Appreciation Sub-Account* MIST PIMCO Inflation Protected Bond Sub-Account MIST Legg Mason Partners Aggressive Growth Sub-Account* MIST PIMCO Total Return Sub-Account* MIST RCM Technology Sub-Account MIST T. Rowe Price Mid Cap Growth Sub-Account* MIST MFS Research International Sub-Account* MIST Met/AIM Small Cap Growth Sub-Account* MIST Lazard Mid Cap Sub-Account* MIST Harris Oakmark International Sub-Account MIST Third Avenue Small Cap Value Sub-Account* MIST Clarion Global Real Estate Sub-Account* MIST Turner Mid Cap Growth Sub-Account MIST Goldman Sachs Mid Cap Value Sub-Account MIST MetLife Defensive Strategy Sub-Account MIST MetLife Moderate Strategy Sub-Account MIST MetLife Balanced Strategy Sub-Account MIST MetLife Growth Strategy Sub-Account MIST MetLife Aggressive Strategy Sub-Account MIST Van Kampen Comstock Sub-Account MIST SSgA Growth ETF Sub-Account MIST SSgA Growth and Income ETF Sub-Account 59 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONTINUED) MIST Legg Mason Value Equity Sub-Account MIST Met/AIM Capital Appreciation Sub-Account* MIST Pioneer Fund Sub-Account MIST Pioneer Strategic Income Sub-Account MIST MFS Emerging Markets Equity Sub-Account* MIST Loomis Sayles Global Markets Sub-Account MIST Rainier Large Cap Equity Sub-Account MIST American Funds Growth Sub-Account (a) MIST American Funds Balanced Allocation Sub-Account (a) MIST American Funds Bond Sub-Account (a) MIST American Funds Growth Allocation Sub-Account (a) MIST American Funds International Sub-Account (a) MIST American Funds Moderate Allocation Sub-Account (a) MIST BlackRock High Yield Sub-Account (a) MIST Dreman Small Cap Value Sub-Account (a) MIST Met/Templeton Growth Sub-Account (a) MIST Met/Franklin Mutual Shares Sub-Account (a) MIST Met/Franklin Templeton Founding Strategy Sub-Account (a) Russell Multi-Style Equity Sub-Account Russell Aggressive Equity Sub-Account Russell Non-U.S. Sub-Account Russell Core Bond Sub-Account Russell Real Estate Securities Sub-Account AIM V.I. International Growth Sub-Account DWS Government & Agency Securities Sub-Account MSF Davis Venture Value Sub-Account* MSF Harris Oakmark Focused Value Sub-Account MSF Jennison Growth Sub-Account MSF MFS Total Return Sub-Account* MSF Capital Guardian U.S. Equity Sub-Account* MSF Julius Baer International Stock Sub-Account* MSF BlackRock Money Market Sub-Account* MSF MetLife Stock Index Sub-Account* MSF BlackRock Bond Income Sub-Account* MSF BlackRock Strategic Value Sub-Account MSF Franklin Templeton Small Cap Growth Sub-Account MSF Western Asset Management Strategic Bond Opportunities Sub-Account* MSF Western Asset Management U.S. Government Sub-Account MSF T. Rowe Price Small Cap Growth Sub-Account* MSF T. Rowe Price Large Cap Growth Sub-Account* MSF Oppenheimer Global Equity Sub-Account MSF MFS Value Sub-Account (a) MSF Met/Dimensional International Small Company Sub-Account (a) Putnam VT Growth and Income Sub-Account* Putnam VT Vista Sub-Account* Putnam VT Equity Income Sub-Account FTVIPT Templeton Growth Securities Sub-Account* FTVIPT Templeton Foreign Securities Sub-Account Fidelity VIP Growth Opportunties Sub-Account Fidelity VIP Equity-Income Sub-Account* PIMCO VIT High Yield Sub-Account PIMCO VIT Low Duration Sub-Account PIMCO VIT StocksPLUS Growth and Income Sub-Account PIMCO VIT Total Return Sub-Account American Funds Global Growth Sub-Account American Funds Global Small Capitalization Sub-Account (a) American Funds Growth Sub-Account (a) * This Sub-Account invests in two or more share classes within the underlying portfolio, series, or fund of the Trusts that may assess 12b-1 fees. (a) This Sub-Account began operations during the year ended December 31, 2008. The following Sub-Accounts ceased operations during the year ended December 31, 2008: FTVIPT Templeton Developing Markets Securities Sub-Account MIST Strategic Conservative Growth Sub-Account MIST Strategic Growth and Income Sub-Account MIST Strategic Growth Sub-Account 60 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONCLUDED) The operations of the Sub-Accounts were affected by the following changes that occurred during the year ended December 31, 2008: NAME CHANGES: OLD NAME Neuberger Berman Real Estate Portfolio FI International Stock Portfolio Cyclical Growth and Income ETF Portfolio Cyclical Growth ETF Portfolio NEW NAME Clarion Global Estate Portfolio Julius Baer International Stock Portfolio SSgA Growth and Income ETF Portfolio SSgA Growth ETF Portfolio SUBSTITUTION: OLD NAME Templeton Developing Markets Securities Fund NEW NAME MFS Emerging Markets Equity Portfolio MERGERS: OLD NAME Strategic Conservative Growth Portfolio Strategic Growth and Income Portfolio Strategic Growth Portfolio NEW NAME MetLife Growth Strategy Portfolio MetLife Balanced Strategy Portfolio MetLife Aggressive Strategy Portfolio This report is prepared for the general information of contract owners and is not an offer of units of the Separate Account or shares of the Separate Account's underlying investments. It should not be used in connection with any offer except in conjunction with the prospectus for the Separate Account products offered by the Company and the prospectus of the underlying portfolio, series, or fund which collectively contain all the pertinent information, including additional information on charges and expenses. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to variable annuity separate accounts registered as unit investment trusts. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the average cost of the investment sold. Income from dividends and realized gain distributions are recorded on the ex-distribution date. SECURITY VALUATION The Sub-Accounts' investment in shares of the portfolio, series or fund of the Trusts is valued at fair value based on the closing net asset value or price per share as determined by the Trusts as of the end of year. All changes in fair value are recorded as changes in unrealized gains (losses) on investments in the statements of operations of the applicable Sub-Accounts. FEDERAL INCOME TAXES The operations of the Separate Account form a part of the total operations of the Company and are not taxed separately. The Company is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the Contracts. Accordingly, no 61 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) charge is being made to the Separate Account for federal income taxes. The Company will periodically review the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the Contracts. ANNUITY PAYOUTS Net assets allocated to Contracts in the payout period are computed according to industry standard mortality tables. The assumed investment return is 3.0 percent. The mortality risk is fully borne by the Company and may result in additional amounts being transferred into the Separate Account by the Company to cover greater longevity of annuitants than expected. Conversely, if amounts allocated exceed amounts required, transfers may be made to the Company. PURCHASE PAYMENTS Purchase payments received from contract owners by the Company are credited as accumulation units as of the end of the valuation period in which received, as provided in the prospectus, and are reported as contract transactions on the statements of changes in net assets of the applicable Sub-Accounts. NET TRANSFERS Funds transferred by the contract owner into or out of Sub-Accounts within the Separate Account or into or out of the fixed account (an investment option in the Company's general account) are recorded on a net basis as net transfers in the statements of changes in net assets of the applicable Sub-Accounts. USE OF ESTIMATES The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS ("SFAS 157"). SFAS 157 defines fair value, establishes a consistent framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and requires enhanced disclosures about fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available. The Separate Account has categorized its assets and liabilities based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. SFAS 157 defines the input levels as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 3 Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Effective January 1, 2008, the Separate Account adopted SFAS 157 and applied provisions of the statement prospectively to assets and liabilities measured at fair value. The adoption of SFAS 157 had no impact on the fair value of items measured at fair value. Each Sub-Account invests in shares of open-end mutual funds which calculate a daily net asset value based on the value of the underlying securities in its portfolios. As a result, and as required by law, shares of open-end mutual funds are purchased and redeemed at their quoted daily net asset value as reported by the Trusts at the close of each business day. On that basis, the fair value measurements of all shares held by the Separate Account are reported as Level 1. 62 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES -- (CONCLUDED) Effective January 1, 2007, the Company adopted FASB Interpretation ("FIN") No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income tax recognized in a company's financial statements. FIN 48 requires companies to determine whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. The adoption of FIN 48 had no impact on the financial statements of each of the Sub-Accounts. FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS -- AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 51 ("SFAS 160"). SFAS 160 defines and establishes accounting and reporting standards for noncontrolling interests in a subsidiary. The pronouncement is effective for fiscal years beginning on or after December 15, 2008. The Separate Account believes the adoption of SFAS 160 will have no material impact on the financial statements of each of the Sub-Accounts. 3. EXPENSES AND RELATED PARTY TRANSACTIONS The following annual Separate Account charges are asset-based charges and assessed through a daily reduction in unit values, which are recorded as expenses in the accompanying statements of operations of the applicable Sub-Accounts: MORTALITY AND EXPENSE RISK -- The mortality risk assumed by the Company is the risk that those insured may die sooner than anticipated and therefore, the Company will pay an aggregate amount of death benefits greater than anticipated.The expense risk assumed is where expenses incurred in issuing and administering the Contracts will exceed the amounts realized from the administrative charges assessed against the Contracts. In addition, the charge compensates the Company for the risk that the investor may live longer than estimated and the Company would be obligated to pay more in income payments than anticipated. ADMINISTRATIVE -- The Company has responsibility for the administration of the Contracts and the Separate Account. Generally, the administrative charge is related to the maintenance, including distribution, of each contract and the Separate Account. OPTIONAL DEATH BENEFIT RIDER -- For an additional charge, the total death benefit payable may be increased based on the earnings in the Contracts. The table below represents the range of effective annual rates for each respective charge for the year ended December 31, 2008: Mortality and Expense Risk 0.50% - 1.60% --------------- Administrative 0.15% - 0.25% --------------- Optional Death Benefit Rider 0.15% - 0.35% ===============
The above referenced charges may not necessarily correspond to the costs associated with providing the services or benefits indicated by the designation of the charge or associated with a particular contract. A contract maintenance fee of $30 is assessed on an annual basis for Contracts with a value of less than $50,000. A transfer fee of $25 may be deducted after twelve transfers are made in a contract year or, if less, 2% of the amount transferred from the contract value. In addition, most Contracts impose a surrender charge which ranges from 0% to 8% if the contract is partially or fully surrendered within the specified surrender charge period. A transaction charge of the lesser of $10 or 2% of the surrender is imposed on surrenders as well as $10 for annuitizations. For those contract owners who choose optional living benefit riders or certain optional death benefit riders, these charges range from .35% to 1.50% of the account value and are charged at each contract anniversary date. These charges are assessed through the redemption of units and are recorded as contract charges in the accompanying statements of changes in net assets of the applicable Sub-Accounts. Certain investments in the various portfolios, series, or funds in the MIST and MSF Trusts hold shares which are managed by Met Investors Advisory, LLC and Metlife Advisers, LLC, respectively. Both act in the capacity of investment advisor and are indirect affiliates of the Company. 63 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 4. STATEMENTS OF INVESTMENTS FOR THE YEAR ENDED AS OF DECEMBER 31, 2008 DECEMBER 31, 2008 ------------------------- ---------------------------- COST OF PROCEEDS SHARES COST ($) PURCHASES ($) FROM SALES ($) ----------- ------------- ------------- -------------- MIST Lord Abbett Growth and Income Sub-Account 35,204,348 849,466,231 106,426,691 144,187,236 MIST Lord Abbett Bond Debenture Sub-Account 20,944,447 252,279,078 17,252,315 47,569,757 MIST Van Kampen Mid Cap Growth Sub-Account 5,393,396 48,493,165 7,375,317 7,175,888 MIST Lord Abbett Mid Cap Value Sub-Account 15,272,238 292,395,645 40,673,598 39,137,832 MIST Oppenheimer Capital Appreciation Sub-Account 16,398,859 128,733,347 35,904,946 19,097,687 MIST PIMCO Inflation Protected Bond Sub-Account 5,370,463 57,402,360 20,128,861 19,474,241 MIST Legg Mason Partners Aggressive Growth Sub-Account 10,302,481 73,195,760 1,396,122 10,978,658 MIST PIMCO Total Return Sub-Account 24,769,818 284,372,780 56,764,659 39,631,268 MIST RCM Technology Sub-Account 2,809,348 12,733,262 7,335,876 3,941,202 MIST T. Rowe Price Mid Cap Growth Sub-Account 9,165,948 71,543,680 18,015,823 19,619,950 MIST MFS Research International Sub-Account 14,024,614 168,733,005 30,207,987 35,537,131 MIST Met/AIM Small Cap Growth Sub-Account 4,591,128 57,109,290 10,184,434 12,952,235 MIST Lazard Mid Cap Sub-Account 4,575,346 59,322,952 7,429,098 9,124,217 MIST Harris Oakmark International Sub-Account 5,205,694 77,885,379 16,511,048 18,036,769 MIST Third Avenue Small Cap Value Sub-Account 4,408,206 63,761,365 8,582,451 15,782,726 MIST Clarion Global Real Estate Sub-Account 3,589,266 48,770,719 7,173,291 6,366,338 MIST Turner Mid Cap Growth Sub-Account 1,084,655 12,672,523 6,450,733 4,756,860 MIST Goldman Sachs Mid Cap Value Sub-Account 1,916,327 25,421,248 3,916,310 9,651,283 MIST MetLife Defensive Strategy Sub-Account 19,867,799 209,936,436 105,593,982 31,996,852 MIST MetLife Moderate Strategy Sub-Account 48,717,569 522,912,730 116,816,168 35,988,633 MIST MetLife Balanced Strategy Sub-Account 159,961,270 1,611,215,188 530,876,998 40,674,009 MIST MetLfie Growth Strategy Sub-Account 153,985,297 1,621,008,814 455,952,294 71,297,734 MIST MetLife Aggressive Strategy Sub-Account 22,603,277 193,459,678 103,784,841 22,654,697 MIST Van Kampen Comstock Sub-Account 7,850,815 83,288,272 11,658,932 6,569,411 MIST SSgA Growth ETF Sub-Account 2,474,079 26,791,611 2,702,844 7,743,070 MIST SSgA Growth and Income ETF Sub-Account 5,674,709 62,818,302 14,251,128 5,277,690 MIST Legg Mason Value Equity Sub-Account 3,141,496 31,014,656 4,583,241 1,773,440 MIST Met/AIM Capital Appreciation Sub-Account 1,136,434 13,043,846 499,030 3,354,171 MIST Pioneer Fund Sub-Account 141,568 1,812,147 1,244,409 103,705 MIST Pioneer Strategic Income Sub-Account 301,373 2,888,344 2,534,641 1,105,144 MIST MFS Emerging Markets Equity Sub-Account 4,173,476 50,006,174 50,894,150 5,762,459 MIST Loomis Sayles Global Markets Sub-Account 831,370 9,554,620 9,990,355 12,377,821 MIST Rainier Large Cap Equity Sub-Account 769,139 6,258,714 9,539,292 3,830,482 MIST American Funds Growth Sub-Account (a) 1,501,121 11,458,264 12,182,289 479,602 MIST American Funds Balanced Allocation Sub-Account (a) 12,148,079 101,978,331 102,932,282 861,648 MIST American Funds Bond Sub-Account (a) 593,906 5,576,080 6,304,179 680,662 MIST American Funds Growth Allocation Sub-Account (a) 14,737,856 122,000,358 122,769,501 610,962 MIST American Funds International Sub-Account (a) 971,463 7,293,493 10,080,602 2,453,992 MIST American Funds Moderate Allocation Sub-Account (a) 6,738,927 58,068,564 58,292,105 191,153 MIST BlackRock High Yield Sub-Account (a) 123,722 865,997 1,609,175 650,103 MIST Dreman Small Cap Value Sub-Account (a) 81,624 909,995 926,380 13,625 MIST Met/Templeton Growth Sub-Account (a) 354,914 2,777,213 2,866,795 81,301 MIST Met/Franklin Mutual Shares Sub-Account (a) 1,892,451 14,701,844 14,728,936 25,315 MIST Met/Franklin Templeton Founding Strategy Sub-Account (a) 7,188,533 59,599,081 59,701,337 79,967 Russell Multi-Style Equity Sub-Account 1,062,853 15,042,109 649,170 2,412,366 Russell Aggressive Equity Sub-Account 281,234 3,733,078 99,995 487,564 Russell Non-U.S. Sub-Account 629,606 7,306,585 312,033 1,145,203 Russell Core Bond Sub-Account 1,232,674 12,579,646 1,111,605 2,792,995 Russell Real Estate Securities Sub-Account 124,049 1,988,395 127,928 331,118
64 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 4. STATEMENTS OF INVESTMENTS -- (CONTINUED) FOR THE YEAR ENDED AS OF DECEMBER 31, 2008 DECEMBER 31, 2008 ----------------------- ---------------------------- COST OF PROCEEDS SHARES COST ($) PURCHASES ($) FROM SALES ($) ---------- ------------ ------------- -------------- AIM V.I. International Growth Sub-Account 311,776 7,565,197 725,599 3,597,167 DWS Government & Agency Securities Sub-Account 68,897 832,260 110,164 304,636 MSF Davis Venture Value Sub-Account 7,342,050 201,768,243 10,922,652 28,060,911 MSF Harris Oakmark Focused Value Sub-Account 295,738 65,064,540 9,685,986 12,348,756 MSF Jennison Growth Sub-Account 5,033,351 54,738,134 9,819,423 10,724,620 MSF MFS Total Return Sub-Account 593,538 83,466,454 11,810,379 7,999,895 MSF Capital Guardian U.S. Equity Sub-Account 12,002,895 135,037,531 18,686,398 20,578,903 MSF Julius Baer International Stock Sub-Account 606,761 7,268,993 1,673,424 1,160,499 MSF BlackRock Money Market Sub-Account 2,200,186 220,018,483 183,169,392 73,039,909 MSF MetLife Stock Index Sub-Account 1,042,329 34,512,829 9,030,964 9,543,500 MSF BlackRock Bond Income Sub-Account 326,681 34,446,460 9,949,448 3,646,941 MSF BlackRock Strategic Value Sub-Account 184,339 2,751,241 674,062 421,172 MSF Franklin Templeton Small Cap Growth Sub-Account 1,629,298 15,835,786 3,699,061 952,875 MSF Western Asset Management Strategic Bond Opportunities Sub-Account 411,429 5,060,710 1,103,469 1,598,216 MSF Western Asset Management U.S. Government Sub-Account 550,807 6,564,647 8,071,308 3,355,076 MSF T. Rowe Price Small Cap Growth Sub-Account 732,511 9,792,915 3,131,825 2,530,011 MSF T. Rowe Price Large Cap Growth Sub-Account 4,152,443 57,321,732 6,565,646 10,139,326 MSF Oppenheimer Global Equity Sub-Account 1,126,868 17,435,765 2,492,013 2,276,919 MSF MFS Value Sub-Account (a) 227,404 2,374,779 2,412,397 35,570 MSF Met/Dimensional International Small Company Sub-Account (b) 3,585 34,993 34,993 -- Putnam VT Growth and Income Sub-Account 682,803 15,841,415 3,079,236 2,988,432 Putnam VT Vista Sub-Account 202,313 3,038,275 146,892 584,516 Putnam VT Equity Income Sub-Account 2,692,856 36,895,750 3,222,306 6,213,806 FTVIPT Templeton Growth Securities Sub-Account 1,312,437 19,296,371 3,500,771 1,966,069 FTVIPT Templeton Foreign Securities Sub-Account 2,396,724 35,726,083 5,794,180 8,156,180 Fidelity VIP Growth Opportunties Sub-Account 10,818 197,342 45,801 13,479 Fidelity VIP Equity-Income Sub-Account 290,178 6,817,568 953,639 2,628,374 PIMCO VIT High Yield Sub-Account 949,416 7,613,342 1,200,113 1,872,134 PIMCO VIT Low Duration Sub-Account 971,060 9,902,789 3,946,386 2,925,940 PIMCO VIT StocksPLUS Growth and Income Sub-Account 159,198 1,457,986 372,417 258,361 PIMCO VIT Total Return Sub-Account 1,367,784 13,963,079 1,459,189 5,661,889 American Funds Global Growth Sub-Account 1,618,340 32,222,814 23,167,525 939,905 American Funds Global Small Capitalization Sub-Account (a) 285,097 4,070,236 4,070,642 261 American Funds Growth Sub-Account (a) 426,344 17,587,659 17,603,682 13,404
(a) For the period April 28, 2008 to December 31, 2008. (b) For the period November 10, 2008 to December 31, 2008. 65 This page is intentionally left blank. METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. SCHEDULES OF UNITS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST LORD ABBETT MIST LORD ABBETT MIST VAN KAMPEN GROWTH AND INCOME BOND DEBENTURE MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- --------------------------- -------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- ------------- ------------- ------------ ------------- Units beginning of year 18,549,732 22,197,014 15,243,991 16,590,983 4,713,956 5,207,161 Units issued and transferred from other funding options 693,651 758,098 890,890 2,414,744 569,466 566,343 Units redeemed and transferred to other funding options (3,459,124) (4,405,380) (3,253,347) (3,761,736) (975,493) (1,059,547) ------------- ------------- ------------- ------------- ------------ ------------- Units end of year 15,784,259 18,549,732 12,881,534 15,243,991 4,307,929 4,713,956 ============= ============= ============= ============= ============ =============
MIST LEGG MASON PARTNERS MIST PIMCO MIST RCM AGGRESSIVE GROWTH TOTAL RETURN TECHNOLOGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- ------------- ------------- ------------- ------------- Units beginning of year 10,825,029 13,441,619 21,297,880 26,133,024 2,132,403 2,231,169 Units issued and transferred from other funding options 531,044 821,885 6,736,163 2,663,362 783,889 913,172 Units redeemed and transferred to other funding options (1,822,020) (3,438,475) (6,487,362) (7,498,506) (1,000,979) (1,011,938) ------------- ------------- ------------- ------------- ------------- ------------- Units end of year 9,534,053 10,825,029 21,546,681 21,297,880 1,915,313 2,132,403 ============= ============= ============= ============= ============= =============
MIST LAZARD MIST HARRIS MIST THIRD AVENUE MID CAP OAKMARK INTERNATIONAL SMALL CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------ ------------ ------------- ------------- ------------- ------------- Units beginning of year 3,770,936 2,006,766 4,762,025 5,683,024 4,502,597 5,547,538 Units issued and transferred from other funding options 476,970 2,592,898 659,045 1,038,029 607,813 479,229 Units redeemed and transferred to other funding options (877,766) (828,728) (1,462,163) (1,959,028) (1,304,945) (1,524,170) ------------ ------------ ------------- ------------- ------------- ------------- Units end of year 3,370,140 3,770,936 3,958,907 4,762,025 3,805,465 4,502,597 ============ ============ ============= ============= ============= =============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. 67 MIST LORD ABBETT MIST OPPENHEIMER MIST PIMCO MID CAP VALUE CAPITAL APPRECIATION INFLATION PROTECTED BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- ------------- ------------- ------------- ------------- 10,670,585 10,813,416 13,026,225 15,156,483 4,886,261 5,893,926 768,861 2,728,519 1,240,753 1,865,281 2,140,031 539,286 (2,196,741) (2,871,350) (2,892,876) (3,995,539) (2,216,965) (1,546,952) ------------- ------------- ------------- ------------- ------------- ------------- 9,242,705 10,670,585 11,374,102 13,026,225 4,809,327 4,886,261 ============= ============= ============= ============= ============= =============
MIST T. ROWE PRICE MIST MFS MIST MET/AIM MID CAP GROWTH RESEARCH INTERNATIONAL SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- ------------- ------------- ------------- ------------- 9,539,996 12,903,767 10,899,017 13,357,797 4,651,987 5,984,113 1,861,683 2,124,155 1,285,188 1,089,410 657,760 447,020 (3,088,363) (5,487,926) (2,848,208) (3,548,191) (1,210,411) (1,779,146) ------------- ------------- ------------- ------------- ------------- ------------- 8,313,316 9,539,996 9,335,997 10,899,017 4,099,336 4,651,987 ============= ============= ============= ============= ============= =============
MIST CLARION GLOBAL MIST TURNER MIST GOLDMAN SACHS REAL ESTATE MID CAP GROWTH MID CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- ----------------------- ------------------------- 2008 2007 2008 2007 2008 2007 ------------ ------------- ----------- ----------- ------------ ------------ 2,938,688 3,924,423 986,986 989,402 2,167,077 2,536,265 423,871 554,362 514,926 241,837 192,676 603,616 (630,052) (1,540,097) (504,340) (244,254) (765,044) (972,804) ------------ ------------- ----------- ----------- ------------ ------------ 2,732,507 2,938,688 997,572 986,986 1,594,709 2,167,077 ============ ============= =========== =========== ============ ============
68 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. SCHEDULES OF UNITS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
MIST METLIFE MIST METLIFE MIST METLIFE DEFENSIVE STRATEGY MODERATE STRATEGY BALANCED STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- ---------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- -------------- ------------- ------------ -------------- Units beginning of year 12,464,828 8,262,424 39,851,796 27,420,828 99,569,767 74,894,089 Units issued and transferred from other funding options 14,081,932 8,777,923 16,359,927 17,398,719 58,841,270 37,005,670 Units redeemed and transferred to other funding options (7,538,229) (4,575,519) (10,250,284) (4,967,751) (19,594,042) (12,329,992) ------------- ------------- -------------- ------------- ------------ -------------- Units end of year 19,008,531 12,464,828 45,961,439 39,851,796 138,816,995 99,569,767 ============= ============= ============== ============= ============ ==============
MIST SSGA MIST SSGA MIST LEGG MASON GROWTH ETF GROWTH AND INCOME ETF VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------- ------------------------- -------------------------- 2008 2007 2008 2007 2008 2007 ------------ ------------ ------------ ------------ ------------ ------------- Units beginning of year 2,966,761 2,443,105 4,939,205 2,292,596 2,772,017 3,604,696 Units issued and transferred from other funding options 278,061 969,920 1,422,389 3,296,626 797,749 216,238 Units redeemed and transferred to other funding options (788,763) (446,264) (757,159) (650,017) (464,042) (1,048,917) ------------ ------------ ------------ ------------ ------------ ------------- Units end of year 2,456,059 2,966,761 5,604,435 4,939,205 3,105,724 2,772,017 ============ ============ ============ ============ ============ =============
MIST MFS EMERGING MIST LOOMIS MIST RAINIER MARKETS EQUITY SAYLES GLOBAL MARKETS LARGE CAP EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- -------------------------- ----------------------- 2008 2007 2008 2007 2008 2007 (A) ------------ ------------- ------------- ------------ ------------ ---------- Units beginning of year 482,984 1,163,479 1,085,823 35,233 115,191 -- Units issued and transferred from other funding options 4,011,685 826,922 914,183 1,103,169 1,174,676 115,322 Units redeemed and transferred to other funding options (823,309) (1,507,417) (1,223,642) (52,579) (514,393) (131) ------------ ------------- ------------- ------------ ------------ ---------- Units end of year 3,671,360 482,984 776,364 1,085,823 775,474 115,191 ============ ============= ============= ============ ============ ==========
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. 69 MIST METLIFE MIST METLIFE MIST VAN KAMPEN GROWTH STRATEGY AGGRESSIVE STRATEGY COMSTOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ----------- -------------- ------------- ------------- ------------- ------------- 105,495,650 77,651,335 9,584,925 11,904,491 7,096,082 6,796,669 50,518,175 40,086,102 11,981,073 2,445,664 1,700,038 2,139,027 (19,777,101) (12,241,787) (2,930,340) (4,765,230) (1,507,547) (1,839,614) -------------------------- ------------- ------------- ------------- ------------- 136,236,724 105,495,650 18,635,658 9,584,925 7,288,573 7,096,082 =========== ============== ============= ============= ============= =============
MIST MET/AIM MIST PIONEER MIST PIONEER CAPITAL APPRECIATION FUND STRATEGIC INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- ------------------- --------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- --------- --------- ---------- ---------- 6,414,526 1,713,687 32,107 18,039 72,551 18,435 216,118 8,040,816 74,607 20,488 129,743 68,000 (1,627,740) (3,339,977) (8,155) (6,420) (66,579) (13,884) ------------- ------------- --------- --------- ---------- ---------- 5,002,904 6,414,526 98,559 32,107 135,715 72,551 ============= ============= ========= ========= ========== ==========
MIST MIST MIST MIST AMERICAN MIST AMERICAN MIST AMERICAN AMERICAN FUNDS AMERICAN FUNDS AMERICAN FUNDS FUNDS BALANCED FUNDS GROWTH FUNDS MODERATE GROWTH ALLOCATION BOND ALLOCATION INTERNATIONAL ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- -------------- -------------- -------------- ---------------- -------------- 2008 (B) 2008 (B) 2008 (B) 2008 (B) 2008 (B) 2008 (B) -------------- -------------- -------------- -------------- ---------------- -------------- -- -- -- -- -- -- 1,666,244 12,638,685 705,356 15,027,569 1,279,011 6,909,066 (210,236) (805,668) (135,480) (779,085) (361,846) (340,983) -------------- -------------- -------------- -------------- ---------------- -------------- 1,456,008 11,833,017 569,876 14,248,484 917,165 6,568,083 ============== ============== ============== ============== ================ ==============
70 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. SCHEDULES OF UNITS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MIST MIST MET/FRANKLIN MIST DREMAN MIST MIST TEMPLETON BLACKROCK SMALL CAP MET/TEMPLETON MET/FRANKLIN FOUNDING HIGH YIELD VALUE GROWTH MUTUAL SHARES STRATEGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- -------------- ---------------- ---------------- --------------- 2008 (B) 2008 (B) 2008 (B) 2008 (B) 2008 (B) -------------- -------------- ---------------- ---------------- --------------- Units beginning of year -- -- -- -- -- Units issued and transferred from other funding options 123,836 82,385 386,732 1,954,373 7,455,542 Units redeemed and transferred to other funding options (64,935) (2,789) (31,446) (104,379) (340,851) -------------- -------------- ---------------- ---------------- --------------- Units end of year 58,901 79,596 355,286 1,849,994 7,114,691 ============== ============== ================ ================ ===============
RUSSELL RUSSELL AIM V.I. CORE BOND REAL ESTATE SECURITIES INTERNATIONAL GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------ ------------------------- ----------------------- 2008 2007 2008 2007 2008 2007 ----------- ------------ ---------- -------------- ----------- ----------- Units beginning of year 962,148 1,079,274 73,964 93,434 647,307 855,393 Units issued and transferred from other funding options 29,603 59,738 5,254 3,870 47,179 146,205 Units redeemed and transferred to other funding options (185,195) (176,864) (13,403) (23,340) (215,458) (354,291) ----------- ------------ ---------- -------------- ----------- ----------- Units end of year 806,556 962,148 65,815 73,964 479,028 647,307 =========== ============ ========== ============== =========== ===========
MSF JENNISON MSF MFS MSF CAPITAL GUARDIAN GROWTH TOTAL RETURN U.S. EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------- ------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------- ------------ ------------ ------------- ------------- Units beginning of year 5,787,011 7,501,567 3,404,791 3,537,012 12,051,365 13,997,926 Units issued and transferred from other funding options 779,609 606,542 324,689 434,036 417,491 1,445,517 Units redeemed and transferred to other funding options (1,466,990) (2,321,098) (618,037) (566,257) (2,186,554) (3,392,078) ------------- ------------- ------------ ------------ ------------- ------------- Units end of year 5,099,630 5,787,011 3,111,443 3,404,791 10,282,302 12,051,365 ============= ============= ============ ============ ============= =============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. 71 RUSSELL RUSSELL RUSSELL MULTI-STYLE EQUITY AGGRESSIVE EQUITY NON-U.S. SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------- --------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ------------ ------------ ---------- ---------- ---------- ----------- 1,311,535 1,829,723 267,701 349,188 494,438 656,427 54,185 24,410 13,296 8,669 32,548 8,676 (214,337) (542,598) (43,252) (90,156) (83,895) (170,665) ------------ ------------ ---------- ---------- ---------- ----------- 1,151,383 1,311,535 237,745 267,701 443,091 494,438 ============ ============ ========== ========== ========== ===========
DWS GOVERNMENT & AGENCY MSF DAVIS MSF HARRIS OAKMARK SECURITIES VENTURE VALUE FOCUSED VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- --------------------------- --------------------------- 2008 2007 2008 2007 2008 2007 ------------- ------------ ------------- ------------- ------------- ------------- 72,036 94,778 17,773,074 21,712,702 4,151,214 4,979,605 9,021 3,139 2,063,389 2,366,154 583,888 549,758 (24,322) (25,881) (3,739,119) (6,305,782) (1,185,532) (1,378,149) ------------- ------------ ------------- ------------- ------------- ------------- 56,735 72,036 16,097,344 17,773,074 3,549,570 4,151,214 ============= ============ ============= ============= ============= =============
MSF JULIUS BAER MSF BLACKROCK MSF METLIFE INTERNATIONAL STOCK MONEY MARKET STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------- --------------------------- -------------------------- 2008 2007 2008 2007 2008 2007 ---------- ----------- ------------ -------------- ------------ ------------- 432,898 632,428 10,356,826 8,885,438 2,846,982 3,050,585 60,712 62,065 24,934,207 22,874,297 822,255 1,365,097 (81,441) (261,595) (14,767,376) (21,402,909) (988,919) (1,568,700) ---------- ----------- ------------ -------------- ------------ ------------- 412,169 432,898 20,523,657 10,356,826 2,680,318 2,846,982 ========== =========== ============ ============== ============ =============
72 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. SCHEDULES OF UNITS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 MSF BLACKROCK MSF BLACKROCK MSF FRANKLIN TEMPLETON BOND INCOME STRATEGIC VALUE SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- --------------------- -------------------------- 2008 2007 2008 2007 2008 2007 ----------- ----------- ---------- ---------- ------------ ------------- Units beginning of year 580,953 772,347 118,620 141,367 1,193,998 1,914,092 Units issued and transferred from other funding options 247,296 202,309 35,318 19,449 464,888 345,178 Units redeemed and transferred to other funding options (155,063) (393,703) (27,567) (42,196) (272,680) (1,065,272) ----------- ----------- ---------- ---------- ------------ ------------- Units end of year 673,186 580,953 126,371 118,620 1,386,206 1,193,998 =========== =========== ========== ========== ============ =============
MSF MET/ DIMENSIONAL INTERNATIONAL MSF T. ROWE PRICE MSF OPPENHEIMER MSF MFS SMALL LARGE CAP GROWTH GLOBAL EQUITY VALUE COMPANY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------- ----------------------- -------------- ---------------- 2008 2007 2008 2007 2008 (B) 2008 (C) ------------ ------------- ----------- ----------- -------------- ---------------- Units beginning of year 4,816,195 8,132,948 928,692 857,647 -- -- Units issued and transferred from other funding options 485,689 308,170 171,226 239,186 186,530 3,592 Units redeemed and transferred to other funding options (996,970) (3,624,923) (201,554) (168,141) (8,329) -- ------------ ------------- ----------- ----------- -------------- ---------------- Units end of year 4,304,914 4,816,195 898,364 928,692 178,201 3,592 ============ ============= =========== =========== ============== ================
FTVIPT TEMPLETON FTVIPT TEMPLETON FIDELITY VIP GROWTH SECURITIES FOREIGN SECURITIES GROWTH OPPORTUNITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- -------------------------- ----------------------- 2008 2007 2008 2007 2008 2007 ----------- ----------- ------------ ------------- --------- ------------- Units beginning of year 963,068 560,530 2,895,980 4,229,198 16,783 23,148 Units issued and transferred from other funding options 187,112 542,132 157,522 244,352 5,177 497 Units redeemed and transferred to other funding options (190,961) (139,594) (628,394) (1,577,570) (1,299) (6,862) ----------- ----------- ------------ ------------- --------- ------------- Units end of year 959,219 963,068 2,425,108 2,895,980 20,661 16,783 =========== =========== ============ ============= ========= =============
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. 73 MSF WESTERN MSF WESTERN ASSET MANAGEMENT ASSET MANAGEMENT MSF T. ROWE PRICE STRATEGIC BOND OPPORTUNITIES U.S. GOVERNMENT SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ---------------------- ----------------------- 2008 2007 2008 2007 2008 2007 ---------- -------------------- ----------- ---------- ----------- ----------- 279,280 298,802 123,153 69,720 724,186 887,179 43,563 57,703 557,444 91,375 109,025 161,850 (82,740) (77,225) (261,549) (37,942) (185,510) (324,843) ---------- -------------------- ----------- ---------- ----------- ----------- 240,103 279,280 419,048 123,153 647,701 724,186 ========== ==================== =========== ========== =========== ===========
PUTNAM VT PUTNAM VT PUTNAM VT GROWTH AND INCOME VISTA EQUITY INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------- ---------------------- ------------------------- 2008 2007 2008 2007 2008 2007 ------------ ------------ ---------- ----------- ------------ ------------ 1,019,458 1,289,872 264,111 374,568 2,648,811 2,427,699 60,364 57,241 14,880 13,881 168,323 600,522 (230,360) (327,655) (49,428) (124,338) (538,525) (379,410) ------------ ------------ ---------- ----------- ------------ ------------ 849,462 1,019,458 229,563 264,111 2,278,609 2,648,811 ============ ============ ========== =========== ============ ============
FIDELITY VIP PIMCO VIT PIMCO VIT EQUITY-INCOME HIGH YIELD LOW DURATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- ------------------------ ----------------------- 2008 2007 2008 2007 2008 2007 ----------- ----------- ----------- ------------ ----------- ----------- 506,284 549,152 589,348 1,027,968 689,390 786,353 69,500 89,166 65,140 66,199 277,908 82,220 (189,089) (132,034) (156,849) (504,819) (231,987) (179,183) ----------- ----------- ----------- ------------ ----------- ----------- 386,695 506,284 497,639 589,348 735,311 689,390 =========== =========== =========== ============ =========== ===========
74 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. SCHEDULES OF UNITS -- (CONCLUDED) FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 PIMCO VIT STOCKSPLUS PIMCO VIT AMERICAN FUNDS GROWTH AND INCOME TOTAL RETURN GLOBAL GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------------- ------------------------- ----------------------- 2008 2007 2008 2007 2008 2007 ---------- ------------ ------------ ------------ ------------ ---------- Units beginning of year 135,574 138,195 1,271,571 1,708,329 344,425 12,186 Units issued and transferred from other funding options 40,568 22,082 54,620 121,089 982,523 362,190 Units redeemed and transferred to other funding options (26,595) (24,703) (391,089) (557,847) (138,231) (29,951) ---------- ------------ ------------ ------------ ------------ ---------- Units end of year 149,547 135,574 935,102 1,271,571 1,188,717 344,425 ========== ============ ============ ============ ============ ==========
(a) For the period November 12, 2007 to December 31, 2007. (b) For the period April 28, 2008 to December 31, 2008. (c) For the period November 10, 2008 to December 31, 2008. 75 AMERICAN FUNDS AMERICAN GLOBAL SMALL FUNDS CAPITALIZATION GROWTH SUB-ACCOUNT SUB-ACCOUNT ----------------- -------------- 2008 (B) 2008 (B) ----------------- -------------- -- -- 186,461 129,983 (3,212) (3,117) ----------------- -------------- 183,249 126,866 ================= ==============
76 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS The following table is a summary of unit values and units outstanding for the Contracts, net investment income ratios, and expense ratios, excluding expenses for the underlying portfolio, series, or fund for each of the five years in the period ended December 31, 2008: UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ---------- ------------- ------------- ------------- ---------------- ------------------- MIST Lord Abbett Growth 2008 15,784,259 10.86 - 41.08 576,805,190 1.71 0.75 - 2.35 (37.82) - (36.73) and Income Sub-Account 2007 18,549,732 17.17 - 64.94 1,075,806,092 0.98 0.75 - 2.35 1.30 - 3.13 2006 22,197,014 16.65 - 62.97 1,254,313,868 1.73 0.75 - 2.35 15.06 - 16.91 2005 26,137,911 12.48 - 52.55 1,266,968,938 0.94 0.75 - 2.35 1.00 - 2.62 2004 29,905,303 11.76 - 52.34 1,416,012,804 0.43 0.75 - 2.35 10.02 - 11.80 MIST Lord Abbett Bond Debenture 2008 12,881,534 11.27 - 16.77 202,717,634 4.34 0.75 - 2.35 (20.50) - (19.09) Sub-Account 2007 15,243,991 14.04 - 20.75 297,943,064 5.12 0.75 - 2.35 4.06 - 5.94 2006 16,590,983 13.37 - 19.63 307,972,386 6.82 0.75 - 2.35 6.62 - 8.33 2005 19,002,390 12.42 - 18.12 327,280,969 -- 0.75 - 2.35 (0.86) - 0.74 2004 18,478,641 12.78 - 17.98 317,240,246 2.98 0.75 - 2.35 5.65 - 7.36 MIST Van Kampen Mid Cap 2008 4,307,929 6.61 - 7.31 30,205,224 1.42 0.75 - 1.90 (47.76) - (47.13) Growth Sub-Account 2007 4,713,956 12.65 - 13.83 62,713,816 -- 0.75 - 1.90 21.15 - 22.78 (Commenced 11/7/2005) 2006 5,207,161 10.44 - 11.26 56,740,449 -- 0.75 - 1.90 6.34 - 7.56 MIST Lord Abbett Mid Cap Value 2008 9,242,705 15.59 - 17.87 157,249,522 0.62 0.75 - 1.95 (39.96) - (39.18) Sub-Account 2007 10,670,585 26.10 - 29.40 300,178,790 0.67 0.75 - 1.90 (1.30) - 0.04 2006 10,813,416 26.44 - 29.45 304,617,015 0.61 0.75 - 1.90 10.07 - 11.34 2005 12,134,519 24.02 - 26.45 308,454,585 0.50 0.75 - 1.90 6.02 - 7.24 2004 11,567,876 22.66 - 24.66 275,539,168 3.16 0.75 - 1.90 22.15 - 23.57 MIST Oppenheimer Capital 2008 11,374,102 5.16 - 6.80 63,888,388 3.58 0.75 - 2.35 (47.20) - (46.34) Appreciation Sub-Account 2007 13,026,225 9.77 - 12.72 137,207,385 0.02 0.75 - 2.35 11.62 - 13.43 (Commenced 5/3/2004) 2006 15,156,483 8.75 - 11.27 142,383,044 0.14 0.75 - 2.35 5.12 - 6.81 2005 16,165,489 8.31 - 10.60 144,482,219 0.02 0.75 - 2.35 2.29 - 3.93 2004 17,566,329 8.12 - 10.24 148,102,308 7.09 1.30 - 2.35 3.93 - 5.03 MIST PIMCO Inflation 2008 4,809,327 10.55 - 11.20 52,629,978 3.70 1.30 - 2.35 (9.22) - (8.26) Protected Bond 2007 4,886,261 11.60 - 12.19 58,385,153 2.21 1.30 - 2.35 8.21 - 9.36 Sub-Account 2006 5,893,926 10.72 - 11.14 64,649,920 3.73 1.30 - 2.35 (1.94 - 0.91) 2005 6,511,274 10.93 - 11.25 72,384,448 -- 1.30 - 2.35 (0.96) - 0.08 2004 8,692,539 11.04 - 11.24 96,965,591 4.57 1.30 - 2.35 6.47 - 7.60 MIST Legg Mason Partners 2008 9,534,053 4.43 - 6.56 46,377,009 -- 1.30 - 2.35 (40.47) - (39.80) Aggressive Growth 2007 10,825,029 7.44 - 10.90 87,874,559 0.04 1.30 - 2.35 (0.12) - 1.17 Sub-Account 2006 13,441,619 7.44 - 10.77 108,846,059 -- 1.30 - 2.35 (4.01) - (3.00) 2005 15,958,225 7.74 - 11.10 134,458,398 -- 1.30 - 2.35 10.95 - 12.11 2004 20,250,042 6.97 - 9.89 152,910,724 -- 1.30 - 2.35 5.92 - 7.04 MIST PIMCO Total Return 2008 21,546,681 12.39 - 14.06 284,741,547 3.75 0.75 - 2.35 (1.93) - (0.22) Sub-Account 2007 21,297,880 12.62 - 14.09 283,533,965 3.30 0.75 - 2.35 5.05 - 6.93 (Commenced 5/3/2004) 2006 26,133,024 12.00 - 13.17 327,612,133 2.60 0.75 - 2.35 2.10 - 3.74 2005 27,888,652 11.74 - 12.68 339,140,105 0.01 0.75 - 2.35 (0.12) - 1.49 2004 28,087,932 11.74 - 12.48 338,736,886 6.52 0.75 - 2.35 2.54 - 4.19 MIST RCM Technology 2008 1,915,313 3.29 - 3.53 6,572,888 13.87 1.30 - 2.35 (45.75) - (45.17) Sub-Account 2007 2,132,403 6.06 - 6.43 13,379,138 -- 1.30 - 2.35 28.45 - 29.82 2006 2,231,169 4.71 - 4.95 10,819,347 -- 1.30 - 2.35 2.91 - 3.99 2005 2,539,048 4.58 - 4.76 11,888,282 -- 1.30 - 2.35 8.44 - 9.59 2004 3,357,357 4.22 - 4.35 14,409,596 0.08 1.30 - 2.35 (6.54) - (5.55)
77 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ---------- ------------- ----------- ------------- ---------------- ------------------- MIST T. Rowe Price Mid Cap 2008 8,313,316 5.45 - 6.02 47,740,618 0.01 0.85 - 2.35 (41.15) - (40.26) Growth Sub-Account 2007 9,539,996 9.25 - 10.08 92,323,883 0.04 0.85 - 2.35 14.89 - 16.64 (Commenced 5/3/2004) 2006 12,903,767 8.04 - 8.75 107,929,919 -- 0.75 - 2.35 3.70 - 5.37 2005 15,203,506 7.75 - 8.30 121,624,335 -- 0.85 - 2.35 11.97 - 13.66 2004 15,078,256 6.91 - 7.30 106,863,377 -- 0.75 - 2.35 15.08 - 16.94 MIST MFS Research International 2008 9,335,997 9.56 - 14.87 103,318,253 2.02 0.75 - 2.35 (43.71) - (42.75) Sub-Account 2007 10,899,017 16.96 - 25.97 212,534,722 1.33 0.75 - 2.35 10.65 - 12.64 2006 13,357,797 15.31 - 23.06 233,658,652 1.75 0.75 - 2.35 23.63 - 25.62 2005 15,507,023 12.37 - 18.32 219,052,682 0.46 0.75 - 2.35 13.73 - 15.55 2004 12,888,678 10.87 - 15.82 159,862,343 0.25 0.75 - 2.35 16.78 - 18.66 MIST Met/AIM Small Cap Growth 2008 4,099,336 5.57 - 9.74 37,769,265 -- 1.30 - 2.35 (40.16) - (39.46) Sub-Account 2007 4,651,987 9.20 - 16.11 71,015,556 -- 1.30 - 2.35 8.48 - 9.85 2006 5,984,113 8.37 - 14.69 83,414,752 -- 1.30 - 2.35 11.54 - 12.71 2005 7,550,815 7.45 - 13.04 93,177,860 -- 1.30 - 2.35 5.76 - 6.87 2004 4,667,993 11.85 - 12.20 56,301,565 -- 1.30 - 2.35 3.95 - 5.05 MIST Lazard Mid Cap 2008 3,370,140 8.97 - 10.09 31,590,896 1.14 0.75 - 2.35 (39.74) - (38.67) Sub-Account 2007 3,770,936 14.87 - 16.45 57,995,812 0.21 0.75 - 2.35 (4.98) - (1.86) 2006 2,006,766 15.64 - 16.41 32,320,745 0.31 1.30 - 2.35 12.02 - 13.20 2005 2,227,684 13.95 - 14.50 31,807,254 0.06 1.30 - 2.35 5.56 - 6.67 2004 2,722,902 13.20 - 13.59 36,591,722 -- 1.30 - 2.35 11.74 - 12.92 MIST Harris Oakmark International 2008 3,958,907 10.69 - 11.43 44,091,751 1.64 1.30 - 2.35 (42.26) - (41.65) Sub-Account 2007 4,762,025 18.49 - 19.59 91,235,231 0.82 1.30 - 2.35 (3.43) - (2.40) 2006 5,683,024 19.13 - 20.07 112,021,036 2.59 1.30 - 2.35 25.86 - 27.19 2005 6,295,353 15.18 - 15.78 97,858,342 -- 1.30 - 2.35 11.59 - 12.77 2004 6,954,807 13.59 - 13.99 96,251,804 -- 1.30 - 2.35 17.72 - 18.96 MIST Third Avenue Small Cap Value 2008 3,805,465 11.38 - 13.43 45,189,540 0.76 1.30 - 2.35 (31.46) - (30.67) Sub-Account 2007 4,502,597 16.58 - 19.37 77,454,105 1.01 1.30 - 2.35 (5.29) - (4.15) 2006 5,547,538 17.49 - 20.21 99,987,762 0.45 1.30 - 2.35 10.51 - 11.67 2005 5,920,257 15.81 - 18.08 95,982,000 -- 1.30 - 2.35 12.8 - 13.99 2004 6,296,258 14.00 - 14.35 89,472,332 2.06 1.30 - 2.35 23.56 - 24.87 MIST Clarion Global Real Estate 2008 2,732,507 8.97 - 13.76 26,464,829 1.77 0.75 - 2.35 (43.03) - (42.11) Sub-Account 2007 2,938,688 15.74 - 23.87 49,736,129 0.92 1.30 - 2.35 (16.99) - (15.99) (Commenced 5/3/2004) 2006 3,924,423 18.97 - 28.41 79,745,324 1.10 1.00 - 2.35 34.40 - 36.22 2005 4,868,446 14.11 - 20.89 73,434,177 -- 1.30 - 2.35 10.66 - 11.83 2004 1,552,403 12.75 - 12.87 19,879,342 5.12 1.30 - 2.35 27.52 - 28.68 MIST Turner Mid Cap Growth 2008 997,572 7.62 - 8.01 7,841,101 -- 1.30 - 2.35 (49.50) - (48.97) Sub-Account 2007 986,986 15.09 - 15.69 15,254,136 -- 1.30 - 2.35 21.25 - 22.54 (Commenced 5/3/2004) 2006 989,402 12.45 - 12.96 12,526,407 -- 0.85 - 2.35 3.61 - 5.18 2005 1,029,884 12.01 - 12.32 12,503,351 -- 1.30 - 2.35 8.78 - 9.92 2004 1,457,917 11.04 - 11.16 16,169,474 -- 0.85 - 2.35 10.44 - 11.56 MIST Goldman Sachs Mid Cap Value 2008 1,594,709 9.29 - 9.76 15,272,285 0.79 1.30 - 2.35 (37.57) - (36.90) Sub-Account 2007 2,167,077 14.88 - 15.47 33,020,433 0.50 1.30 - 2.35 0.69 - 1.76 (Commenced 5/3/2004) 2006 2,536,265 14.78 - 15.38 38,139,523 -- 0.85 - 2.35 13.01 - 14.71 2005 2,181,767 13.08 - 13.41 28,841,121 0.72 1.30 - 2.35 9.93 - 11.09 2004 1,750,355 11.90 - 12.02 20,909,564 1.57 0.85 - 2.35 18.96 - 20.16
78 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ----------- ------------- ------------- ------------- ---------------- ------------------- MIST MetLife Defensive Strategy 2008 19,008,531 8.77 - 9.37 171,855,820 1.38 0.75 - 2.35 (22.50) - (21.24) Sub-Account 2007 12,464,828 11.31 - 11.90 144,052,470 1.78 0.75 - 2.35 3.45 - 5.12 2006 8,262,424 10.93 - 11.32 91,508,405 0.01 0.75 - 2.35 6.11 - 7.82 2005 6,322,085 10.30 - 10.43 65,586,282 1.03 1.30 - 2.35 2.06 - 3.13 2004 1,937,189 10.10 - 10.11 19,576,879 8.88 1.30 - 2.35 0.96 - 1.13 MIST MetLife Moderate Strategy 2008 45,961,439 8.48 - 9.06 402,406,668 1.75 0.75 - 2.35 (28.14) - (26.97) Sub-Account 2007 39,851,796 11.79 - 12.41 480,378,237 1.90 0.75 - 2.35 3.73 - 5.41 2006 27,420,828 11.37 - 11.77 315,943,046 0.01 0.75 - 2.35 7.68 - 9.41 2005 21,366,533 10.56 - 10.69 227,166,091 1.28 1.30 - 2.35 3.36 - 4.45 2004 10,636,014 10.22 - 10.23 108,759,780 6.77 1.30 - 2.35 2.16 - 2.33 MIST MetLife Balanced Strategy 2008 138,816,995 7.24 - 8.65 1,162,917,869 4.76 0.75 - 2.35 (33.52) - (1.69) Sub-Account 2007 99,569,767 12.17 - 12.80 1,240,119,183 1.62 0.75 - 2.35 2.43 - 4.09 2006 74,894,089 11.88 - 12.30 902,216,343 0.01 0.75 - 2.35 9.38 - 11.14 2005 59,266,853 10.86 - 10.99 648,361,282 1.20 1.30 - 2.35 4.64 - 5.74 2004 31,037,036 10.38 - 10.40 322,474,174 5.05 1.30 - 2.35 3.80 - 3.97 MIST MetLfie Growth Strategy 2008 136,236,724 6.79 - 8.31 1,094,834,987 3.47 0.75 - 2.35 (39.32) - (2.40) Sub-Account 2007 105,495,650 12.81 - 13.47 1,381,939,858 1.13 0.75 - 2.35 2.26 - 3.92 2006 77,651,335 12.53 - 12.97 986,336,802 0.01 0.75 - 2.35 10.96 - 12.75 2005 58,883,485 11.29 - 11.43 669,542,343 1.12 1.30 - 2.35 6.60 - 7.72 2004 31,746,255 10.59 - 10.61 336,536,558 3.18 1.30 - 2.35 5.90 - 6.08 MIST MetLife Aggressive Strategy 2008 18,635,658 6.51 - 7.93 142,626,120 3.22 0.75 - 2.35 (42.19) - (2.98) Sub-Account 2007 9,584,925 12.84 - 13.51 125,554,567 1.31 0.75 - 2.35 0.48 - 2.11 2006 11,904,491 12.78 - 13.23 154,159,455 0.01 0.75 - 2.35 11.02 - 12.80 2005 12,099,254 11.51 - 11.65 140,266,322 0.87 1.30 - 2.35 7.82 - 8.96 2004 7,251,678 10.68 - 10.69 77,491,222 1.17 1.30 - 2.35 6.75 - 6.93 MIST Van Kampen Comstock 2008 7,288,573 7.03 - 7.46 53,619,737 1.74 0.75 - 2.35 (37.41) - (36.39) Sub-Account 2007 7,096,082 11.24 - 11.73 82,325,135 1.33 0.75 - 2.35 (4.77) - (3.22) (Commenced 5/1/2005) 2006 6,796,669 11.80 - 12.12 81,752,237 -- 0.75 - 2.35 13.36 - 15.19 2005 3,599,394 10.41 - 10.52 37,740,754 2.41 0.75 - 2.20 4.22 - 5.22 MIST SSgA Growth ETF 2008 2,456,059 7.73 - 7.88 19,272,722 1.49 1.30 - 1.90 (34.23) - 0.02 Sub-Account 2007 2,966,761 11.76 - 11.92 35,243,332 -- 1.30 - 1.90 3.62 - 4.25 (Commenced 9/30/2005) 2006 2,443,105 11.34 - 11.43 27,884,955 1.53 1.30 - 1.90 11.71 - 12.38 2005 820,546 10.16 - 10.17 8,343,251 3.11 1.30 - 1.65 1.62 - 1.71 MIST SSgA Growth and Income ETF 2008 5,604,435 8.39 - 8.60 48,007,795 1.81 1.30 - 2.05 (26.47) - 1.20 Sub-Account 2007 4,939,205 11.47 - 11.63 57,258,882 -- 1.30 - 1.90 3.40 - 4.03 (Commenced 9/30/2005) 2006 2,292,596 11.09 - 11.17 25,580,451 2.21 1.30 - 1.90 9.63 - 10.29 2005 405,183 10.12 - 10.13 4,104,208 2.73 1.30 - 1.90 1.17 - 1.33 MIST Legg Mason Value Equity 2008 3,105,724 4.50 - 4.72 14,355,567 0.02 0.85 - 2.35 (55.68) - (55.00) Sub-Account 2007 2,772,017 10.15 - 10.49 28,657,072 -- 0.85 - 2.35 (8.10) - (6.71) (Commenced 11/7/2005) 2006 3,604,696 11.05 - 11.25 40,209,812 -- 0.75 - 2.35 4.11 - 5.79 2005 31,606 10.61 - 10.63 335,617 -- 1.55 - 1.90 (1.35) - (1.34) MIST Met/AIM Capital Appreciation 2008 5,002,904 0.92 - 9.92 7,732,317 2.00 0.85 - 1.80 (43.74) - (43.13) Sub-Account 2007 6,414,526 1.63 - 17.43 17,443,288 - 1.30 - 1.80 9.91 - 55.14 2006 1,713,687 6.90 - 23.85 20,579,265 0.05 1.30 - 1.90 4.07 - 5.51 2005 2,204,039 6.54 - 22.78 25,322,763 0.06 0.85 - 1.80 6.90 - 7.92 2004 2,771,084 6.06 - 21.25 29,706,684 -- 0.85 - 1.90 4.33 - 5.72
79 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ---------- ------------- ---------- ------------- ---------------- ------------------- MIST Pioneer Fund 2008 98,559 12.72 - 14.88 1,433,243 0.75 0.75 - 1.80 (34.04) - (33.34) Sub-Account 2007 32,107 19.29 - 22.32 693,986 0.77 0.75 - 1.80 3.12 - 4.22 (Commenced 5/1/2006) 2006 18,039 18.46 - 21.42 374,110 -- 0.75 - 1.90 13.75 - 15.06 MIST Pioneer Strategic Income 2008 135,715 16.54 - 19.16 2,518,534 6.21 0.75 - 1.90 (12.43) - (11.41) Sub-Account 2007 72,551 19.14 - 21.63 1,515,237 0.61 0.75 - 1.80 4.73 - 5.85 (Commenced 5/1/2006) 2006 18,435 18.05 - 20.43 363,745 12.02 0.75 - 1.90 4.31 - 5.51 MIST MFS Emerging Markets 2008 3,671,360 6.03 - 10.96 23,849,274 0.70 0.75 - 2.35 (56.57) - (53.96) Equity Sub-Account 2007 482,984 13.89 - 14.14 6,784,979 0.08 1.30 - 2.35 33.43 - 34.85 (Commenced 5/1/2006) 2006 1,163,479 10.41 - 10.49 12,147,300 2.49 1.30 - 2.35 4.12 - 4.86 MIST Loomis Sayles Global 2008 776,364 7.61 - 7.83 6,018,276 4.79 1.30 - 2.35 (40.68) - (40.05) Markets Sub-Account 2007 1,085,823 12.83 - 13.06 14,022,527 -- 1.30 - 2.35 24.87 - 26.19 (Commenced 5/1/2006) 2006 35,233 10.27 - 10.35 363,073 1.42 1.30 - 2.35 2.74 - 3.46 MIST Rainier Large Cap Equity 2008 775,474 5.67 - 5.74 4,429,314 -- 1.30 - 2.35 (43.16) - (42.56) Sub-Account 2007 115,191 9.97 - 9.98 1,149,630 0.07 1.40 - 2.05 (0.27) - (0.16) (Commenced 11/12/2007) MIST American Funds Growth Sub-Account (Commenced 4/28/2008) 2008 1,456,008 5.73 - 5.76 8,375,656 6.93 1.30 - 2.15 (42.70) - (42.36) MIST American Funds Balanced Allocation Sub-Account (Commenced 4/28/2008) 2008 11,833,017 6.97 - 7.02 82,849,380 6.79 1.30 - 2.20 (30.26) - (29.83) MIST American Funds Bond Sub-Account (Commenced 4/28/2008) 2008 569,876 8.91 - 8.96 5,095,172 9.62 1.30 - 2.05 (10.87) - (10.41) MIST American Funds Growth Allocation Sub-Account (Commenced 4/28/2008) 2008 14,248,484 6.32 - 6.36 90,489,940 7.03 1.30 - 2.20 (36.75) - (36.36) MIST American Funds International Sub-Account (Commenced 4/28/2008) 2008 917,165 6.02 - 6.06 5,546,421 11.57 1.30 - 2.15 (39.76) - (39.41) MIST American Funds Moderate Allocation Sub-Account (Commenced 4/28/2008) 2008 6,568,083 7.64 - 7.69 50,406,735 7.56 1.30 - 2.20 (23.56) - (23.09) MIST BlackRock High Yield Sub-Account (Commenced 4/28/2008) 2008 58,901 11.75 - 12.73 717,110 -- 1.30 - 1.95 (25.29) - (24.95) MIST Dreman Small Cap Value Sub-Account (Commenced 4/28/2008) 2008 79,596 9.75 - 10.08 798,756 -- 0.75 - 1.65 (25.66) - (25.19) MIST Met/Templeton Growth Sub-Account (Commenced 4/28/2008) 2008 355,286 6.56 - 6.60 2,341,967 1.00 0.75 - 1.65 (34.42) - (34.01)
80 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ---------- ------------- ----------- ------------- ---------------- ------------------- MIST Met/Franklin Mutual Shares Sub-Account (Commenced 4/28/2008) 2008 1,849,994 6.57 - 6.63 12,243,232 6.20 0.75 - 2.05 (34.29) - (33.70) MIST Met/Franklin Templeton Founding Strategy Sub-Account (Commenced 4/28/2008) 2008 7,114,691 6.99 - 7.07 50,103,254 3.70 0.75 - 2.20 (30.05) - (29.35) Russell Multi-Style Equity 2008 1,151,383 8.39 9,661,248 1.44 1.40 (41.40) Sub-Account 2007 1,311,535 14.32 18,778,587 1.02 1.40 8.82 2006 1,829,723 13.16 24,075,386 0.98 1.40 11.18 2005 2,495,854 11.83 29,537,014 1.12 1.40 5.78 2004 3,502,648 11.19 39,185,661 0.76 1.40 8.28 Russell Aggressive Equity 2008 237,745 8.68 2,064,201 0.83 1.40 (43.72) Sub-Account 2007 267,701 15.43 4,129,569 0.36 1.40 1.97 2006 349,188 15.13 5,282,370 0.17 1.40 13.2 2005 502,797 13.36 6,719,215 0.17 1.40 4.89 2004 691,249 12.74 8,807,286 3.49 1.40 13.13 Russell Non-U.S. Sub-Account 2008 443,091 10.70 4,740,821 -- 1.40 (43.22) 2007 494,438 18.84 9,316,786 2.39 1.40 8.58 2006 656,427 17.35 11,391,245 2.18 1.40 21.93 2005 901,452 14.23 12,830,073 1.58 1.40 12.11 2004 1,261,708 12.7 16,017,662 1.87 1.40 16.65 Russell Core Bond Sub-Account 2008 806,556 14.30 11,537,759 3.94 1.40 (4.91) 2007 962,148 15.04 14,474,327 5.14 1.40 5.74 2006 1,079,274 14.23 15,354,316 4.38 1.40 2.28 2005 1,392,616 13.91 19,370,351 3.51 1.40 (0.06) 2004 1,719,866 13.83 23,779,833 4.13 1.40 3.21 Russell Real Estate Securities 2008 65,815 17.83 1,173,473 1.91 1.40 (37.57) Sub-Account 2007 73,964 28.56 2,112,446 2.21 1.40 (17.03) 2006 93,434 34.42 3,216,373 1.87 1.40 33.96 2005 125,482 25.7 3,224,635 2.04 1.40 11.39 2004 167,353 23.07 3,860,845 8.13 1.40 33.01 AIM V.I. International Growth 2008 479,028 7.86 - 17.70 6,038,604 0.45 0.85 - 1.90 (41.65) - (40.87) Sub-Account 2007 647,307 13.29 - 30.15 13,839,627 0.39 0.85 - 1.90 12.25 - 13.71 2006 855,393 11.69 - 26.70 16,393,934 1.06 0.85 - 1.90 25.48 - 27.15 2005 894,527 9.19 - 21.15 13,361,653 0.76 0.85 - 1.90 15.49 - 16.93 2004 511,893 7.86 - 18.21 6,219,932 0.63 0.85 - 1.90 21.37 - 22.95 DWS Government & Agency 2008 56,735 14.65 - 15.11 853,951 4.64 1.40 - 1.80 3.06 - 3.47 Securities Sub-Account 2007 72,036 14.22 - 14.61 1,048,765 5.24 1.40 - 1.80 4.05 - 4.47 2006 94,778 13.67 - 13.98 1,321,448 4.15 1.40 - 1.80 2.31 - 2.72 2005 128,534 13.36 - 13.61 1,745,552 4.17 1.40 - 1.80 0.75 - 1.15 2004 166,555 13.26 - 13.46 2,237,156 3.82 1.40 - 1.80 1.90 - 2.31 MSF Davis Venture Value 2008 16,097,344 8.43 - 25.63 158,677,410 1.20 0.75 - 2.35 (40.87) - (39.91) Sub-Account 2007 17,773,074 14.23 - 42.65 286,644,026 0.67 0.75 - 2.35 1.99 - 3.65 2006 21,712,702 13.94 - 41.15 334,265,042 0.71 0.75 - 2.35 11.76 - 13.55 2005 23,065,635 12.46 - 36.24 307,539,950 0.52 0.75 - 2.35 7.59 - 9.32 2004 22,830,671 11.57 - 33.15 274,155,409 0.46 0.75 - 2.35 9.53 - 11.30
81 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) ---------- ------------- ----------- ------------- ---------------- ------------------- MSF Harris Oakmark Focused Value 2008 3,549,570 8.27 - 8.85 30,546,045 0.04 1.30 - 2.35 (47.39) - (46.83) Sub-Account 2007 4,151,214 15.69 - 16.65 67,473,501 0.34 1.30 - 2.35 (9.25) - (8.28) 2006 4,979,605 17.28 - 18.16 88,607,294 0.09 1.30 - 2.35 9.58 - 10.73 2005 5,521,791 15.75 - 16.40 89,084,192 -- 1.30 - 2.35 7.17 - 8.29 2004 6,638,629 14.68 - 15.14 99,304,225 1.21 1.30 - 2.35 7.10 - 8.23 MSF Jennison Growth 2008 5,099,630 3.41 - 9.62 39,057,689 2.21 0.75 - 2.35 (38.03) - (37.02) Sub-Account 2007 5,787,011 5.45 - 15.28 70,723,890 0.19 0.75 - 2.35 8.79 - 10.55 2006 7,501,567 4.96 - 13.84 84,084,948 -- 0.75 - 2.35 0.15 - 1.76 2005 7,810,159 4.90 - 13.61 86,296,723 -- 0.75 - 2.35 10.91 - 11.52 2004 7,626,777 10.24 - 10.50 79,365,969 0.01 0.75 - 2.35 6.40 - 7.53 MSF MFS Total Return 2008 3,111,443 9.85 - 40.51 63,254,070 3.38 0.75 - 1.90 (23.81) - (22.93) Sub-Account 2007 3,404,791 12.91 - 52.56 86,770,491 1.94 0.75 - 1.90 2.15 - 3.34 2006 3,537,012 12.63 - 50.86 83,918,502 3.25 0.75 - 1.90 9.83 - 11.10 2005 3,290,732 11.49 - 45.78 65,221,333 1.44 0.75 - 1.90 0.92 - 2.08 2004 2,647,889 11.37 - 44.85 40,836,250 3.02 0.75 - 1.90 8.90 - 10.16 MSF Capital Guardian U.S. Equity 2008 10,282,302 7.17 - 7.82 77,348,501 1.03 0.75 - 1.90 (41.53) - (40.74) Sub-Account 2007 12,051,365 12.26 - 13.19 153,904,080 0.37 0.75 - 1.90 (2.21) - (0.93) 2006 13,997,926 9.67 - 13.31 181,068,259 2.36 0.75 - 1.90 3.39 - 11.13 2005 21,252,919 8.69 - 12.19 219,601,065 0.09 0.75 - 1.90 3.52 - 5.59 2004 14,805,068 8.29 - 11.62 242,802,695 0.21 0.75 - 1.90 6.95 - 10.34 MSF Julius Baer International Stock 2008 412,169 7.07 - 12.02 4,667,298 2.81 0.85 - 1.90 (45.29) - (44.71) Sub-Account 2007 432,898 12.83 - 21.73 8,920,544 0.83 0.85 - 1.80 8.10 - 9.13 2006 632,428 11.79 - 19.91 12,031,860 1.25 0.75 - 1.90 14.05 - 15.36 2005 837,397 10.26 - 17.28 13,941,243 0.44 0.85 - 1.90 15.38 - 16.59 2004 930,015 8.82 - 14.82 13,351,662 1.33 0.75 - 1.90 15.75 - 17.09 MSF BlackRock Money Market 2008 20,523,657 10.19 - 11.42 220,017,626 2.49 0.75 - 2.35 0.21 - 1.98 Sub-Account 2007 10,356,826 10.16 - 11.22 109,887,921 4.74 0.75 - 2.35 2.37 - 4.18 2006 8,885,438 9.91 - 10.78 91,235,712 4.58 0.75 - 2.35 2.13 - 3.77 2005 5,790,856 9.70 - 10.39 57,767,677 3.20 0.75 - 2.35 0.42 - 1.49 2004 2,068,250 9.91 - 10.01 20,502,724 1.06 0.85 - 1.40 (0.42) - 0.13 MSF MetLife Stock Index 2008 2,680,318 6.40 - 8.56 22,342,634 1.68 1.30 - 2.25 (38.66) - (37.95) Sub-Account 2007 2,846,982 10.31 - 13.82 38,415,249 0.87 1.30 - 2.25 2.63 - 3.80 2006 3,050,585 9.93 - 13.34 39,811,549 1.74 1.30 - 2.35 12.52 - 13.70 2005 3,159,767 8.72 - 11.73 36,333,127 1.33 1.30 - 2.25 2.06 - 3.03 2004 3,058,217 11.06 - 11.39 34,452,591 0.77 1.30 - 2.25 7.71 - 8.85 MSF BlackRock Bond Income 2008 673,186 40.59 - 54.34 33,139,135 4.78 0.75 - 1.90 (5.48) - (4.39) Sub-Account 2007 580,953 42.95 - 56.83 29,400,150 2.87 0.75 - 1.90 4.02 - 5.23 (Commenced 5/3/2004) 2006 772,347 41.29 - 54.01 36,289,487 5.17 0.75 - 1.90 2.18 - 3.36 2005 700,921 40.41 - 52.26 31,894,139 3.33 0.75 - 1.90 0.24 - 1.39 2004 253,118 40.31 - 47.26 11,838,393 -- 0.30 - 1.90 2.21 - 2.82 MSF BlackRock Strategic Value 2008 126,371 11.76 - 12.38 1,538,722 0.22 1.30 - 1.90 (39.72) - (39.35) Sub-Account 2007 118,620 19.51 - 20.41 2,389,410 0.06 1.30 - 1.90 (5.51) - (4.94) (Commenced 5/3/2004) 2006 141,367 20.65 - 22.25 3,001,029 0.08 0.75 - 1.90 14.26 - 15.57 2005 222,081 18.07 - 19.25 4,106,357 -- 1.30 - 1.90 1.96 - 2.57 2004 276,925 17.72 - 18.66 5,002,257 -- 0.75 - 1.90 12.89 - 14.20
82 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) --------- ------------- ----------- ------------- ---------------- ------------------- MSF Franklin Templeton 2008 1,386,206 6.22 - 6.80 9,057,920 -- 0.75 - 1.90 (42.42) - (41.75) Small Cap Growth 2007 1,193,998 10.81 - 11.67 13,363,331 -- 0.75 - 1.90 2.34 - 3.53 Sub-Account 2006 1,914,092 10.56 - 11.01 20,720,142 -- 1.30 - 1.90 7.66 - 8.31 (Commenced 5/3/2004) 2005 1,835,415 9.81 - 10.15 18,385,352 -- 1.30 - 1.90 2.43 - 3.05 2004 173,767 9.58 - 9.83 1,692,231 -- 1.30 - 1.90 9.05 - 9.71 MSF Western Asset Management 2008 240,103 16.47 - 18.27 4,232,913 4.13 1.30 - 1.90 (16.82) - (16.20) Strategic Bond Opportunities 2007 279,280 19.80 - 21.80 5,877,310 2.46 1.30 - 1.90 1.74 - 2.58 Sub-Account 2006 298,802 19.46 - 22.38 6,154,850 4.79 0.75 - 1.90 2.86 - 4.04 (Commenced 5/3/2004) 2005 329,226 18.92 - 21.51 6,568,086 3.05 1.30 - 1.90 0.64 - 1.24 2004 335,209 18.80 - 21.13 6,620,128 -- 0.75 - 1.90 4.29 - 5.50 MSF Western Asset Management 2008 419,048 14.63 - 16.51 6,537,200 2.78 1.30 - 2.15 (2.65) - (1.82) U.S. Government 2007 123,153 15.03 - 16.81 1,940,597 2.18 1.30 - 2.15 1.81 - 2.68 Sub-Account 2006 69,720 14.41 - 17.30 1,068,532 0.98 0.85 - 2.35 1.51 - 3.04 (Commenced 5/3/2004) 2005 4,435 14.20 - 16.79 68,021 -- 1.55 - 2.15 (0.60) - (0.20) MSF T. Rowe Price Small Cap Growth 2008 647,701 9.41 - 10.91 6,522,937 -- 0.85 - 1.90 (37.52) - (36.73) Sub-Account 2007 724,186 15.07 - 17.25 11,605,383 -- 0.85 - 1.90 7.46 - 8.93 (Commenced 5/3/2004) 2006 887,179 9.67 - 15.83 12,441,182 -- 0.75 - 1.90 1.68 - 2.86 2005 1,020,337 9.35 - 15.37 13,929,124 -- 0.85 - 1.90 8.64 - 10.07 2004 1,124,853 8.89 - 13.96 27,932,877 -- 0.75 - 1.90 8.89 - 10.15 MSF T. Rowe Price Large Cap Growth 2008 4,304,914 8.27 - 9.39 37,442,377 0.35 0.85 - 1.90 (43.10) - (42.38) Sub-Account 2007 4,816,195 14.53 - 16.29 73,226,346 0.24 0.85 - 1.90 7.13 - 8.45 2006 8,132,948 13.56 - 15.02 114,703,767 0.20 0.75 - 1.90 10.76 - 12.04 2005 4,655,618 12.24 - 13.38 59,163,838 0.42 0.85 - 1.90 4.33 - 5.69 2004 3,763,068 11.73 - 12.66 45,683,381 -- 0.75 - 1.90 7.64 - 8.89 MSF Oppenheimer Global Equity 2008 898,364 11.17 - 12.80 11,109,677 1.87 0.75 - 1.90 (41.68) - (41.00) Sub-Account 2007 928,692 19.16 - 21.70 19,496,970 0.87 0.75 - 1.90 4.25 - 5.46 (Commenced 5/3/2004) 2006 857,647 18.38 - 20.58 17,132,657 2.02 0.75 - 1.90 14.17 - 15.48 2005 305,962 16.10 - 17.82 5,298,650 -- 0.75 - 1.90 16.73 - 17.62 MSF MFS Value Sub-Account (Commenced 4/28/2008) 2008 178,201 10.69 - 11.93 2,098,323 -- 0.75 - 1.80 (30.51) - (30.01) MSF - Met/Dimensional International Small Company Sub-Account (Commenced 11/10/2008) 2008 3,592 10.13 - 10.14 36,397 -- 1.30 - 1.80 0.43 - 0.50 Putnam VT Growth and Income 2008 849,462 7.95 - 36.89 7,864,017 2.47 0.75 - 1.90 (39.86) - (39.16) Sub-Account 2007 1,019,458 13.20 - 60.63 15,743,571 1.55 0.75 - 1.90 (7.82) - (6.74) 2006 1,289,872 14.30 - 65.01 20,878,412 1.78 0.75 - 1.90 13.74 - 15.05 2005 1,598,305 12.56 - 56.51 22,007,752 1.76 0.75 - 1.90 3.25 - 4.44 2004 1,842,883 12.16 - 54.11 23,304,488 1.82 0.75 - 1.90 9.02 - 10.28 Putnam VT Vista 2008 229,563 7.11 - 8.97 1,714,427 -- 1.30 - 1.90 (46.57) - (46.17) Sub-Account 2007 264,111 13.29 - 16.69 3,664,269 -- 1.30 - 1.90 1.84 - 2.62 2006 374,568 13.04 - 16.29 5,064,251 -- 1.30 - 1.90 3.47 - 4.09 2005 475,451 12.59 - 15.65 6,165,382 -- 1.30 - 1.90 10.04 - 10.70 2004 566,204 11.43 - 14.13 6,616,254 -- 1.30 - 1.90 16.37 - 17.07
83 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. FINANCIAL HIGHLIGHTS -- (CONTINUED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) --------- ------------- ---------- ------------- ---------------- ------------------- Putnam VT Equity Income 2008 2,278,609 10.86 - 11.59 26,038,979 1.97 0.75 - 1.90 (32.44) - (31.66) Sub-Account 2007 2,648,811 16.07 - 16.96 44,391,661 1.30 0.75 - 1.90 1.24 - 2.41 2006 2,427,699 15.87 - 16.56 39,810,732 1.07 0.75 - 1.90 16.61 - 17.96 2005 1,760,798 13.61 - 14.04 24,525,877 0.80 0.75 - 1.90 3.53 - 4.72 2004 869,958 13.15 - 13.40 11,601,025 0.08 0.75 - 1.90 9.71 - 10.98 FTVIPT Templeton Growth Securities 2008 959,219 9.57 - 11.97 10,773,542 1.84 0.75 - 1.90 (43.41) - (42.63) Sub-Account 2007 963,068 16.68 - 20.94 18,987,897 1.32 0.75 - 1.90 0.41 - 1.68 2006 560,530 16.40 - 20.46 10,958,015 1.12 0.75 - 1.90 19.52 - 20.90 2005 263,350 13.54 - 17.08 4,406,685 1.18 0.85 - 1.80 6.93 - 8.14 2004 326,660 12.52 - 15.83 5,089,682 1.24 0.85 - 1.80 13.95 - 15.26 FTVIPT Templeton Foreign Securities 2008 2,425,108 9.21 - 23.04 25,904,560 2.43 0.85 - 1.90 (41.51) - (40.74) Sub-Account 2007 2,895,980 15.73 - 39.15 52,175,234 1.92 0.85 - 1.90 13.27 - 14.80 2006 4,229,198 13.80 - 37.24 67,803,255 1.29 0.75 - 1.90 19.17 - 20.54 2005 5,193,955 11.44 - 30.90 67,994,861 1.17 0.85 - 1.90 8.10 - 9.54 2004 4,880,998 10.44 - 28.26 55,594,415 1.06 0.75 - 1.90 16.29 - 17.64 Fidelity VIP Growth Opportunties 2008 20,661 5.23 108,037 0.47 1.40 (55.65) Sub-Account 2007 16,783 11.79 197,857 -- 1.40 21.46 2006 23,148 9.71 224,683 0.91 1.40 3.99 2005 37,228 9.33 347,477 0.99 1.40 7.38 2004 52,541 8.69 456,684 0.58 1.40 (5.70) Fidelity VIP Equity-Income 2008 386,695 8.61 - 37.13 3,778,216 2.08 1.30 - 1.90 (43.89) - (43.46) Sub-Account 2007 506,284 15.32 - 65.79 8,847,588 1.62 1.30 - 1.90 (0.64) - 0.11 2006 549,152 15.41 - 65.81 9,156,792 3.01 1.30 - 1.90 17.68 - 18.38 2005 639,119 13.08 - 55.59 8,889,375 1.50 1.30 - 1.90 3.59 - 4.21 2004 703,824 12.61 - 53.35 9,118,491 1.71 1.30 - 1.90 9.13 - 9.79 PIMCO VIT High Yield 2008 497,639 10.37 - 11.06 5,373,192 7.80 1.30 - 1.90 (24.95) - (24.50) Sub-Account 2007 589,348 13.82 - 14.64 8,446,130 6.83 1.30 - 1.90 1.55 - 2.16 2006 1,027,968 13.61 - 14.33 14,434,061 6.97 1.30 - 1.90 7.06 - 7.70 2005 910,444 12.71 - 13.31 11,879,844 6.41 1.30 - 1.90 2.17 - 2.78 2004 332,838 12.44 - 12.95 4,215,670 7.15 1.30 - 1.90 7.50 - 8.14 PIMCO VIT Low Duration 2008 735,311 12.30 - 13.05 9,399,511 4.09 1.30 - 1.90 (2.30) - (1.71) Sub-Account 2007 689,390 12.59 - 13.28 8,992,891 4.73 1.30 - 1.90 5.34 - 5.98 2006 786,353 11.95 - 12.53 9,702,832 4.18 1.30 - 1.90 2.03 - 2.64 2005 863,341 11.71 - 12.21 10,399,997 2.75 1.30 - 1.90 (0.88) - (0.29) 2004 966,209 11.82 - 12.24 11,692,980 1.58 1.30 - 1.90 (0.09) - (0.52) PIMCO VIT StocksPLUS Growth 2008 149,547 5.99 - 9.10 938,582 6.88 1.30 - 1.90 (43.71) - (43.37) and Income Sub-Account 2007 135,574 10.63 - 16.07 1,512,979 7.64 1.30 - 1.90 4.84 - 5.47 2006 138,195 10.13 - 15.24 1,454,878 4.90 1.30 - 1.90 12.74 - 13.42 2005 154,607 8.97 - 13.44 1,430,485 2.26 1.30 - 1.90 1.55 - 2.16 2004 176,526 8.83 - 13.15 1,585,771 1.76 1.30 - 1.90 8.72 - 9.38 PIMCO VIT Total Return 2008 935,102 14.72 - 15.18 14,101,656 4.48 1.40 - 1.80 2.92 - 3.33 Sub-Account 2007 1,271,571 14.30 - 14.69 18,565,738 4.74 1.40 - 1.80 6.81 - 7.24 2006 1,708,329 13.39 - 13.70 23,287,170 4.40 1.40 - 1.80 2.00 - 2.41 2005 2,134,374 13.13 - 13.38 28,433,489 3.37 1.40 - 1.80 0.63 - 1.03 2004 2,624,882 13.04 - 13.24 34,640,594 3.44 1.40 - 1.80 2.97 - 3.39
84 METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE OF METLIFE INVESTORS INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONCLUDED) 6. FINANCIAL HIGHLIGHTS -- (CONCLUDED) UNIT VALUE(1) INVESTMENT(2) EXPENSE RATIO(3) TOTAL RETURN(4) LOWEST TO NET INCOME LOWEST TO LOWEST TO UNITS HIGHEST ($) ASSETS ($) RATIO (%) HIGHEST (%) HIGHEST (%) --------- -------------- ---------- ------------- ---------------- ------------------- American Funds Global Growth 2008 1,188,717 16.81 - 19.22 22,461,352 3.08 0.75 - 1.90 (39.55) - (38.85) Sub-Account 2007 344,425 27.80 - 31.43 10,517,598 3.93 0.75 - 1.90 12.68 - 13.99 (Commenced 5/1/2006) 2006 12,186 24.68 - 27.58 325,343 -- 0.75 - 1.90 18.17 - 19.53 American Funds Global Small Capitalization Sub-Account (Commenced 4/28/2008) 2008 183,249 15.77 - 17.36 3,144,085 -- 0.75 - 1.65 (49.16) - (48.84) American Funds Growth Sub-Account (Commenced 4/28/2008) 2008 126,866 89.43 - 114.72 14,183,764 2.31 0.75 - 1.75 (42.37) - (41.97)
1 The Company sells a number of variable annuity products which have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios, and total returns. 2 These amounts represent the dividends, excluding distributions of capital gains, received by the Sub-Account from the underlying portfolio, series, or fund net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense risk charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the underlying portfolio, series, or fund in which the Sub-Account invests. 3 These amounts represent the annualized contract expenses of each of the applicable Sub-Accounts, consisting primarily of mortality and expense risk charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying portfolio, series, or fund have been excluded. 4 These amounts represent the total return for the period indicated, including changes in the value of the underlying portfolio, series, or fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. The total return is presented as a range of minimum to maximum returns, based on minimum and maximum returns within each product grouping of the applicable Sub-Account. 85 METLIFE INVESTORS INSURANCE COMPANY Financial Statements for the Years Ended December 31, 2008, 2007 and 2006 and Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder of MetLife Investors Insurance Company: We have audited the accompanying balance sheets of MetLife Investors Insurance Company (the "Company") as of December 31, 2008 and 2007, and the related statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 MetLife Investors Insurance Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Company changed its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and charged its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007. DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, Florida April 10, 2009 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) BALANCE SHEETS DECEMBER 31, 2008 AND 2007 (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
2008 2007 ------- ------- ASSETS Investments: Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $1,878 and $2,043, respectively)............................................ $ 1,576 $ 2,017 Equity securities available-for-sale, at estimated fair value (cost: $21 and $21, respectively).................. 9 18 Mortgage loans on real estate............................... 76 74 Policy loans................................................ 28 29 Real estate joint ventures.................................. -- 1 Other limited partnership interests......................... 2 2 Short-term investments...................................... 189 74 Other invested assets....................................... 109 28 ------- ------- Total investments........................................ 1,989 2,243 Cash and cash equivalents..................................... 517 81 Accrued investment income..................................... 16 20 Premiums and other receivables................................ 1,711 906 Deferred policy acquisition costs and value of business acquired.................................................... 567 598 Current income tax recoverable................................ 33 2 Other assets.................................................. 129 131 Separate account assets....................................... 6,633 9,432 ------- ------- Total assets............................................. $11,595 $13,413 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Future policy benefits...................................... $ 372 $ 292 Policyholder account balances............................... 2,790 2,167 Other policyholder funds.................................... 46 34 Deferred income tax liability............................... 147 116 Payables for collateral under securities loaned and other transactions............................................. 385 541 Other liabilities........................................... 365 43 Separate account liabilities................................ 6,633 9,432 ------- ------- Total liabilities........................................ 10,738 12,625 ------- ------- CONTINGENCIES, COMMITMENTS AND GUARANTEES (NOTE 8) STOCKHOLDER'S EQUITY: Common stock, par value $2 per share; 5,000,000 shares authorized; 2,899,446 shares issued and outstanding..................... 6 6 Additional paid-in capital.................................... 636 586 Retained earnings............................................. 371 210 Accumulated other comprehensive loss.......................... (156) (14) ------- ------- Total stockholder's equity............................... 857 788 ------- ------- Total liabilities and stockholder's equity............... $11,595 $13,413 ======= =======
See accompanying notes to the financial statements. 2 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
2008 2007 2006 ---- ---- ---- REVENUES Premiums..................................................... $ 9 $ 12 $ 65 Universal life and investment-type product policy fees....... 160 162 143 Net investment income........................................ 108 104 106 Other revenues............................................... 43 59 62 Net investment gains (losses)................................ 330 99 (60) ---- ---- ---- Total revenues............................................. 650 436 316 ---- ---- ---- EXPENSES Policyholder benefits and claims............................. 89 36 91 Interest credited to policyholder account balances........... 84 100 114 Other expenses............................................... 244 205 122 ---- ---- ---- Total expenses............................................. 417 341 327 ---- ---- ---- Income (loss) before provision (benefit) for income tax...... 233 95 (11) Provision (benefit) for income tax........................... 72 23 (17) ---- ---- ---- Net income................................................... $161 $ 72 $ 6 ==== ==== ====
See accompanying notes to the financial statements. 3 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS LOSS TOTAL ------- ---------- -------- ------------- ----- Balance at January 1, 2006............. $6 $586 $127 $ (4) $ 715 Comprehensive income: Net income........................... 6 6 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax.................. 1 1 ----- Other comprehensive income (loss).......................... 1 ----- Comprehensive income................. 7 ------- ---- ---- ----- ----- Balance at December 31, 2006........... 6 586 133 (3) 722 Cumulative effect of a change in accounting principle, net of income tax (Note 1)......................... 5 5 ------- ---- ---- ----- ----- Balance at January 1, 2007............. 6 586 138 (3) 727 Comprehensive income: Net income........................... 72 72 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax.................. (11) (11) ----- Other comprehensive income (loss).......................... (11) ----- Comprehensive income................. 61 ------- ---- ---- ----- ----- Balance at December 31, 2007........... 6 586 210 (14) 788 Capital contribution from MetLife, Inc. (Note 9)............................. 50 50 Comprehensive income: Net income........................... 161 161 Other comprehensive income (loss): Unrealized gains (losses) on derivative instruments, net of income tax...................... 3 3 Unrealized investment gains (losses), net of related offsets and income tax.................. (145) (145) ----- Other comprehensive income (loss).......................... (142) ----- Comprehensive income................. 19 ------- ---- ---- ----- ----- Balance at December 31, 2008........... $ 6 $636 $371 $(156) $ 857 ======= ==== ==== ===== =====
See accompanying notes to the financial statements. 4 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
2008 2007 2006 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................... $ 161 $ 72 $ 6 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of premiums and accretion of discounts associated with investments, net.................... (3) -- 4 (Gains) losses from sales of investments, net.......... (330) (99) 60 Undistributed equity earnings of real estate joint ventures............................................ (1) -- -- Interest credited to policyholder account balances..... 84 100 114 Universal life and investment-type product policy fees................................................ (160) (162) (143) Change in accrued investment income.................... 4 2 2 Change in premiums and other receivables............... (307) 206 (28) Change in deferred policy acquisition costs, net....... 95 38 (27) Change in insurance-related liabilities................ 78 (1) 52 Change in income tax payable........................... 77 102 (15) Change in other assets................................. 115 132 121 Change in other liabilities............................ 322 9 1 ------- ------- ------- Net cash provided by operating activities................ 135 399 147 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturity securities........................... 662 925 1,435 Mortgage loans on real estate....................... 6 16 32 Real estate joint ventures.......................... 2 1 1 Purchases of: Fixed maturity securities........................... (522) (910) (1,162) Equity securities................................... -- (21) -- Mortgage loans on real estate....................... (8) -- (58) Net change in short-term investments................... (115) 9 (4) Net change in other invested assets.................... (10) 1 1 Other, net............................................. 1 -- -- ------- ------- ------- Net cash provided by investing activities................ 16 21 245 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits............................................ 1,446 1,579 1,421 Withdrawals......................................... (1,055) (2,047) (1,733) Net change in payables for collateral under securities loaned and other transactions....................... (156) 12 20 Capital contribution from MetLife, Inc. ............... 50 -- -- ------- ------- ------- Net cash provided by (used in) financing activities...... 285 (456) (292) ------- ------- ------- Change in cash and cash equivalents...................... 436 (36) 100 Cash and cash equivalents, beginning of year............. 81 117 17 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR................... $ 517 $ 81 $ 117 ======= ======= ======= Supplemental disclosures of cash flow information: Net cash received during the year for: Income tax.......................................... $ 4 $ 84 $ 2 ======= ======= =======
See accompanying notes to the financial statements. 5 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS 1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS MetLife Investors Insurance Company ("MLIIC"), a Missouri domiciled life insurance company (the "Company") is a wholly-owned subsidiary of MetLife, Inc. ("MetLife"). On November 9, 2006, MetLife Investors Insurance Company of California, a California domiciled life insurance company was merged into MLIIC. The Company markets and administers traditional life, universal life, variable annuity and fixed annuity products. The Company is licensed to conduct business in 49 states and the District of Columbia. Most of the policies issued present no significant mortality or longevity risk to the Company, but rather represent investment deposits by the policyholders. BASIS OF PRESENTATION The accompanying financial statements include the accounts of MLIIC and its former subsidiary through the date of merger. Intercompany transactions have been eliminated for all periods presented on a consolidated basis. The Company uses the equity method of accounting for investments in equity securities in which it has more than a 20% interest and for real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the joint venture's or partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint venture's or partnership's operations. Certain amounts in the prior years' financial statements have been reclassified to conform with the 2008 presentation. Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the financial statements. The most critical estimates include those used in determining: (i) the estimated fair value of investments in the absence of quoted market values; (ii) investment impairments; (iii) the recognition of income on certain investments; (iv) the existence and estimated fair value of embedded derivatives requiring bifurcation; (v) the estimated fair value of and accounting for derivatives; (vi) the capitalization and amortization of deferred policy acquisition costs ("DAC") and the establishment and amortization of value of business acquired ("VOBA"); (vii) the liability for future policyholder benefits; (viii) accounting for income taxes and the valuation of deferred tax assets; (ix) accounting for reinsurance transactions; and (x) the liability for litigation and regulatory matters. 6 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) A description of such critical estimates is incorporated within the discussion of the related accounting policies which follow. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Actual results could differ from these estimates. Fair Value As described below, certain assets and liabilities are measured at estimated fair value on the Company's balance sheets. In addition, the footnotes to the financial statements include disclosures of estimated fair values. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In many cases, the exit price and the transaction (or entry) price will be the same at initial recognition. However, in certain cases, the transaction price may not represent fair value. Under SFAS 157, fair value of a liability is based on the amount that would be paid to transfer a liability to a third party with the same credit standing. SFAS 157 requires that fair value be a market-based measurement in which the fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant. When quoted prices are not used to determine fair value, SFAS 157 requires consideration of three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The approaches are not new, but SFAS 157 requires that entities determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. SFAS 157 prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available. The Company has categorized its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. SFAS 157 defines the input levels as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. Level 2 Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and are significant to the estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of estimated fair value requires significant management judgment or estimation. The measurement and disclosures under SFAS 157 in the accompanying financial statements and footnotes exclude certain items such as nonfinancial assets and nonfinancial liabilities initially measured at estimated fair value in a business combination, reporting units measured at estimated fair value in the first step of a goodwill 7 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) impairment test and indefinite-lived intangible assets measured at estimated fair value for impairment assessment. The effective date for these items was deferred to January 1, 2009. Prior to adoption of SFAS 157, estimated fair value was determined based solely upon the perspective of the reporting entity. Therefore, methodologies used to determine the estimated fair value of certain financial instruments prior to January 1, 2008, while being deemed appropriate under existing accounting guidance, may not have produced an exit value as defined in SFAS 157. Investments The Company's principal investments are in fixed maturity and equity securities, mortgage loans on real estate, policy loans, real estate joint ventures and other limited partnership interests, short-term investments and other invested assets. The accounting policies related to each are as follows: Fixed Maturity and Equity Securities. 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 these securities are recorded as a separate component of other comprehensive income (loss), net of policyholder related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Investment gains and losses on sales of securities are determined on a specific identification basis. Interest income on fixed maturity securities is recorded when earned using an effective yield method giving effect to amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared. These dividends and interest income are recorded in net investment income. Included within fixed maturity securities are loan-backed securities including mortgage-backed and asset-backed securities. Amortization of the premium or discount from the purchase of these securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class mortgage-backed and asset-backed securities are estimated by management using inputs obtained from third party specialists, including broker-dealers, and based on management's knowledge of the current market. For credit-sensitive mortgage-backed and asset-backed securities and certain prepayment- sensitive securities, the effective yield is recalculated on a prospective basis. For all other mortgage-backed and asset-backed securities, the effective yield is recalculated on a retrospective basis. The cost or amortized cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other-than-temporary in the period in which the determination is made. These impairments are included within net investment gains (losses) and the cost basis of the fixed maturity and equity securities is reduced accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in estimated fair value. The Company's review of its fixed maturity and equity securities for impairments includes an analysis of the total gross unrealized losses by three categories of securities: (i) securities where the estimated fair value had declined and remained below cost or amortized cost by less than 20%; (ii) securities where the estimated fair value had declined and remained below cost or amortized cost by 20% or more for less than six months; and (iii) securities where the estimated fair value had declined and remained below cost or amortized cost by 20% or more for six months or greater. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company's evaluation of 8 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) recoverability of all contractual cash flows, as well as the Company's ability and intent to hold the security, including holding the security until the earlier of a recovery in value, or until maturity. In contrast, for certain equity securities, greater weight and consideration are given by the Company to a decline in market value and the likelihood such market value decline will recover. See also Note 2. Additionally, management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below cost or amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; (vi) the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost or amortized cost (See also Note 2); (vii) unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and (viii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In periods subsequent to the recognition of an other-than-temporary impairment on a debt security, the Company accounts for the impaired security as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income over the remaining term of the debt security in a prospective manner based on the amount and timing of estimated future cash flows. Securities Lending. Securities loaned transactions, whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, are treated as financing arrangements and the associated liability is recorded at the amount of cash received. The Company generally obtains collateral in an amount equal to 102% of the estimated fair value of the securities loaned. The Company monitors the estimated fair value of the securities loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the Company's securities loaned transactions are with large brokerage firms and commercial banks. Income and expenses associated with securities loaned transactions are reported as investment income and investment expense, respectively, within net investment income. Mortgage Loans on Real Estate. Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income. Loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Based on the facts and circumstances of the individual loans being impaired, valuation allowances are established for the excess carrying value of the loan over either: (i) the present value of expected future cash flows discounted at the loan's original effective interest rate, (ii) the estimated fair value of the loan's underlying collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or (iii) the loan's estimated fair value. The Company also establishes allowances for loan losses when a loss contingency exists for pools of loans with similar characteristics, such as mortgage loans based on similar property types or loan to value risk factors. A loss contingency exists when the likelihood that a future event will occur is probable based on past events. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan's 9 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or when the collection of interest is not considered probable. Cash receipts on such impaired loans are recorded as a reduction of the recorded investment. Gains and losses from the sale of loans and changes in valuation allowances are reported in net investment gains (losses). Policy Loans. Policy loans are stated at unpaid principal balances. Interest income on such loans is recorded as earned using the contractually agreed upon interest rate. Generally, interest is capitalized on the policy's anniversary date. Real Estate Joint Ventures and Other Limited Partnership Interests. The Company uses the equity method of accounting for investments in real estate joint ventures consisting of leveraged buy-out funds and other private equity funds, in which it has more than a minor equity interest or more than a minor influence over the joint ventures or partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint ventures or the partnership's operations. The Company reports the distributions from real estate joint ventures and other limited partnership interests accounted for under the cost method and equity in earnings from real estate joint ventures accounted for under the equity method in net investment income. In addition to the investees performing regular evaluations for the impairment of underlying investments, the Company routinely evaluates its investments in real estate joint ventures and other limited partnerships for impairments. The Company considers its cost method investments for other-than-temporary impairment when the carrying value of real estate joint ventures and other limited partnership interests exceeds the net asset value ("NAV"). The Company takes into consideration the severity and duration of this excess when deciding if the cost method investment is other-than-temporarily impaired. For equity method investees, the Company considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an impairment has occurred. When an other-than- temporary impairment is deemed to have occurred, the Company records a realized capital loss within net investment gains (losses) to record the investment at its estimated fair value. Short-term Investments. Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates estimated fair value, or stated at estimated fair value, if available. Short-term investments also include investments in affiliated money market pools. Other Invested Assets. Other invested assets consist principally of freestanding derivatives with positive estimated fair values, which are more fully described in the derivatives accounting policy which follows. Estimates and Uncertainties. The Company's investments are exposed to four primary sources of risk: credit, interest rate, liquidity risk and market valuation. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of impairments, the recognition of income on certain investments, and the potential consolidation of variable interest entities ("VIEs"). The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the amounts presented within the financial statements. When available, the estimated fair value of the Company's fixed maturity and equity securities are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company's securities holdings and valuation of these securities does not involve management judgment. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies. The market standard valuation methodologies utilized include: discounted cash flow methodologies, matrix pricing or other similar techniques. The assumptions and inputs in 10 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) applying these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and management's assumptions regarding liquidity and estimated future cash flows. Accordingly, the estimated fair values are based on available market information and management's judgments about financial instruments. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. When observable inputs are not available, the market standard valuation methodologies for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. The Company's ability to sell securities, or the price ultimately realized for these securities, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities. The determination of the amount of allowances and impairments, as applicable, is described previously by investment type. The determination of such allowances and impairments is highly subjective and is based upon the Company's periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. The recognition of income on certain investments (e.g., loan-backed securities including mortgage-backed and asset-backed securities) is dependent upon market conditions, which could result in prepayments and changes in amounts to be earned. The accounting rules under Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 46(r), Consolidation of Variable Interest Entities -- An Interpretation of Accounting Research Bulletin No. 51 ("FIN 46(r)") for the determination of when an entity is a VIE and when to consolidate a VIE are complex. The determination of the VIEs primary beneficiary requires an evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity's expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity. FIN 46(r) defines the primary beneficiary as the entity that will absorb a majority of a VIEs expected losses, receive a majority of a VIEs expected residual returns if no single entity absorbs a majority of expected losses, or both. When determining the primary beneficiary for structured investment products such as asset-backed securitizations and collateralized debt obligations, the Company uses historical default probabilities based on the credit rating of each issuer and other inputs including maturity dates, industry classifications and geographic location. Using computational algorithms, the analysis simulates default scenarios resulting in a range of expected losses and the probability associated with each occurrence. For other investment structures such as trust preferred securities, joint ventures, limited partnerships and limited liability companies, the 11 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Company gains an understanding of the design of the VIE and generally uses a qualitative approach to determine if it is the primary beneficiary. This approach includes an analysis of all contractual rights and obligations held by all parties including profit and loss allocations, repayment or residual value guarantees, put and call options and other derivative instruments. If the primary beneficiary of a VIE can not be identified using this qualitative approach, the Company calculates the expected losses and expected residual returns of the VIE using a probability-weighted cash flow model. The use of different methodologies, assumptions and inputs in the determination of the primary beneficiary could have a material effect on the amounts presented within the financial statements. The Company did not consolidate any of its VIEs at December 31, 2008 and 2007. Derivative Financial Instruments Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter market. The Company uses a variety of derivatives, including swaps, forwards and option contracts, to manage the risk associated with variability in cash flows or changes in estimated fair values related to the Company's financial instruments. To a lesser extent, the Company uses credit derivatives, such as credit default swaps, to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance contracts that have embedded derivatives. Freestanding derivatives are carried on the Company's balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value as determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for over-the-counter derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models. The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such instruments. Most inputs for over-the-counter derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity as well as the use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company's derivatives and could materially affect net income. The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all over-the-counter derivatives after taking into account the effects of netting agreements and collateral arrangements. Credit risk is monitored and consideration of any potential credit adjustment is based on a net exposure by counterparty. This is due to the existence of netting agreements and collateral arrangements which effectively serve to mitigate credit risk. The Company values its derivative positions using the standard swap curve 12 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) which includes a credit risk adjustment. This credit risk adjustment is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The need for such additional credit risk adjustments is monitored by the Company. The Company's ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. The evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period. If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported in net investment gains (losses). The fluctuations in estimated fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income. To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either: (i) a hedge of the estimated fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"); or (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"). In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income. The accounting for derivatives is complex and interpretations of the primary accounting standards continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under these accounting standards. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Differences in judgment as to the availability and application of hedge accounting designations and the appropriate accounting treatment may result in a differing impact on the financial statements of the Company from that previously reported. Under a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the statement of income within interest income or interest expense to match the location of the hedged item. However, balances that are not scheduled to settle until maturity are included in the estimated fair value of derivatives. Under a cash flow hedge, changes in the estimated fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholder's equity, and the deferred gains or losses on the derivative are reclassified into the statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the statement of income within interest income or interest expense to match the location of the hedged item. However, balances that are not scheduled to settle until maturity are included in the estimated fair value of derivatives. 13 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; or (v) the derivative is de-designated as a hedging instrument. When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur by the end of the specified time period or the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). Any asset or liability associated with a recognized firm commitment is derecognized from the balance sheet, and recorded currently in net investment gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the cash flow hedge of a forecasted transaction are recognized immediately in net investment gains (losses). In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet, with changes in its estimated fair value recognized in the current period as net investment gains (losses). The Company is also a party to financial instruments that contain terms which are deemed to be embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at estimated fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are reported currently in net investment gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses). Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) if that contract contains an embedded derivative that requires bifurcation. There is a risk that embedded derivatives requiring bifurcation may not be identified and reported at estimated fair value in the financial statements and that their related changes in estimated fair value could materially affect reported net income. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. 14 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Deferred Policy Acquisition Costs and Value of Business Acquired The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that vary with and relate to the production of new business are deferred as DAC. Such costs consist principally of commissions and agency and policy issuance expenses. VOBA is an intangible asset that reflects the estimated fair value of in-force contracts in a life insurance company acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in-force at the acquisition date. VOBA is based on actuarially determined projections, by each block of business, of future policy and contract charges, premiums, mortality, separate account performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated in the financial statements for reporting purposes. DAC and VOBA on life insurance or investment-type contracts are amortized in proportion to gross profits, depending on the type of contract as described below. The Company amortizes DAC and VOBA related to fixed and variable universal life contracts and fixed and variable deferred annuity contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses, and persistency are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. Total DAC and VOBA amortization during a particular period may increase or decrease depending upon the relative size of the amortization change resulting from the adjustment to DAC and VOBA for the update of actual gross profits and the re-estimation of expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances. Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period which can result in significant fluctuations in amortization of DAC and VOBA. Returns that are higher than the Company's long- term expectation produce higher account balances, which increases the Company's future fee expectations and decreases future benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company's long-term expectation. The Company's practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long- term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. The Company monitors these changes and only changes the assumption when its long-term expectation changes. The Company also reviews periodically other long-term assumptions underlying the projections of estimated gross profits. These include investment returns, interest crediting rates, mortality, persistency, and expenses to 15 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) administer business. Management annually updates assumptions used in the calculation of estimated gross profits which may have significantly changed. If the update of assumptions causes expected future gross profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross profits to decrease. Prior to 2007, DAC related to any internally replaced contract was generally expensed at the date of replacement. As described more fully in "Adoption of New Accounting Pronouncements," effective January 1, 2007, the Company adopted Statement of Position ("SOP") 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1"). Under SOP 05-1, an internal replacement is defined as a modification in product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If the modification substantially changes the contract, the DAC is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed. Sales Inducements The Company has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus whereby the policyholder's initial account balance is increased by an amount equal to a specified percentage of the customer's deposit; and (ii) the policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The amortization of sales inducements is included in interest credited to policyholder account balances. Each year the Company reviews the deferred sales inducements to determine the recoverability of these balances. Goodwill Goodwill, which is included in other assets, is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter of each year based upon data as of the close of the second quarter. Impairment testing is performed using the fair value approach, which requires the use of estimates and judgment, at the "reporting unit" level. A reporting unit is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. Management has concluded that the Company has one reporting unit. For purposes of goodwill impairment testing, if the carrying value of a reporting unit's goodwill exceeds its estimated fair value, there is an indication of impairment and the implied fair value of the goodwill is determined in the same manner as the amount of goodwill would be determined in a business acquisition. The excess of the carrying value of goodwill over the implied fair value of goodwill is recognized as an impairment and recorded as a charge against net income. In performing its goodwill impairment tests, when management believes meaningful comparable market data are available, the estimated fair value of the reporting unit is determined using a market multiple approach. When relevant comparables are not available, the Company uses a discounted cash flow model. Management applies significant judgment when determining the estimated fair value of the reporting unit. The valuation methodologies utilized are subject to key assumptions that are sensitive to change. Estimates of fair value 16 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) are inherently uncertain and represent only management's reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the Company's reporting unit could result in goodwill impairments in future periods. Management concluded it was appropriate to perform an interim goodwill impairment test at December 31, 2008. Based upon the tests performed management concluded no impairment of goodwill had occurred at December 31, 2008. Additionally, the Company recognized no impairments of goodwill during the years ended December 31, 2007 and 2006. Goodwill was $33 million at both December 31, 2008 and 2007. Liability for Future Policy Benefits and Policyholder Account Balances The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance and traditional annuities. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, policy lapse, renewal, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type. Utilizing these assumptions, liabilities are established on a block of business basis. Future policy benefit liabilities for non-participating traditional life insurance policies are equal to the aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company's experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities are approximately 5%. Future policy benefit liabilities for individual and group traditional fixed annuities after annuitization are equal to the present value of expected future payments. Interest rate assumptions used in establishing such liabilities range from 3% to 8%. The Company establishes future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts as follows: - Guaranteed minimum death benefit ("GMDB") liabilities are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the GMDB liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility are consistent with the historical experience of the Standard & Poor's ("S&P") 500 Index. The benefit assumptions used in calculating the liabilities are based on the average benefits payable over a range of scenarios. - Guaranteed minimum income benefit ("GMIB") liabilities are determined by estimating the expected value of the income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used for estimating the GMIB liabilities are consistent with those used for estimating the GMDB liabilities. In addition, the calculation of guaranteed annuitization benefit liabilities incorporates an assumption for the percentage of the potential annuitizations that may be elected 17 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) by the contractholder. Certain GMIBs have settlement features that result in a portion of that guarantee being accounted for as an embedded derivative and are recorded in policyholder account balances as described below. The Company establishes policyholder account balances for guaranteed minimum benefit riders relating to certain variable annuity products as follows: - Guaranteed minimum withdrawal benefit riders ("GMWB") guarantee the contractholder a return of their purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that the contractholder's cumulative withdrawals in a contract year do not exceed a certain limit. The initial guaranteed withdrawal amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMWB is an embedded derivative, which is measured at estimated fair value separately from the host variable annuity product. The risk associated with GMWB riders written is ceded 100% to an affiliate through a reinsurance agreement. - Guaranteed minimum accumulation benefit riders ("GMAB") provide the contractholder, after a specified period of time determined at the time of issuance of the variable annuity contract, with a minimum accumulation of their purchase payments even if the account value is reduced to zero. The initial guaranteed accumulation amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMAB is an embedded derivative, which is measured at estimated fair value separately from the host variable annuity product. The risk associated with GMAB riders written is ceded 100% to an affiliate through a reinsurance agreement. For GMWB, GMAB and certain GMIB, the initial benefit base is increased by additional purchase payments made within a certain time period and decreases by benefits paid and/or withdrawal amounts. After a specified period of time, the benefit base may also increase as a result of an optional reset as defined in the contract. At the inception, the GMWB, GMAB and certain GMIB are accounted for as embedded derivatives with changes in estimated fair value reported in net investment gains (losses). The Company attributes to the embedded derivative a portion of the expected future rider fees to be collected from the policyholder equal to the present value of expected future guaranteed benefits. Any additional fees represent "excess" fees and are reported in universal life and investment-type product policy fees. The fair value for these riders is estimated using the present value of future benefits minus the present value of future fees using actuarial and capital market assumptions related to the projected cash flows over the expected lives of the contracts. The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the riders are projected under multiple capital market scenarios using observable risk free rates. Beginning in 2008, the valuation of these embedded derivatives now includes an adjustment for the Company's own credit and risk margins for non capital market inputs. The Company's own credit adjustment is determined taking into consideration publicly available information relating to the Company's claims paying ability. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment. These riders may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in the Company's own credit standing; and variations in actuarial assumptions regarding policyholder behavior, and risk margins related to non- capital market inputs may result in significant fluctuations in the estimated fair value of the riders that could materially affect net income. 18 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The Company cedes the risks associated with certain of the GMIB, GMAB and GMWB riders described in the preceding paragraphs to an affiliated reinsurance company. These reinsurance contracts contain embedded derivatives which are included in premiums and other receivables with changes in estimated fair value reported in net investment gains (losses). The value of the embedded derivatives on the ceded risks is determined using a methodology consistent with that described previously for the riders directly written by the Company. In addition to ceding risks associated with riders that are accounted for as embedded derivatives, the Company also cedes to an affiliated reinsurance company certain directly written GMIB riders that are accounted for as insurance (i.e., not as embedded derivatives) but where the reinsurance contract contains an embedded derivative. These embedded derivatives are included in premiums and other receivables with changes in estimated fair value reported in net investment gains (losses). The value of the embedded derivatives on these ceded risks is determined using a methodology consistent with that described previously for the riders directly written by the Company. The Company periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the results of operations in the period in which the changes occur. Policyholder account balances relate to investment-type contracts, universal life-type policies and certain guaranteed minimum benefit riders. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts. Policyholder account balances for these contracts are equal to: (i) policy account values, which consist of an accumulation of gross premium payments; and (ii) credited interest, ranging from 3% to 14% less expenses, mortality charges, and withdrawals. Other Policyholder Funds Other policyholder funds include policy and contract claims and unearned revenue liabilities. The liability for policy and contract claims generally relates to incurred but not reported death claims as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company's estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made. The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and amortized using the product's estimated gross profits, similar to DAC. Such amortization is recorded in universal life and investment-type product policy fees. Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due from policyholders. Policyholder 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. Deposits related to universal life-type and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for 19 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance. The portion of fees allocated to embedded derivatives described previously is recognized within net investment gains (losses) as part of the estimated fair value of the embedded derivative. Other Revenues Other revenues primarily include, in addition to items described elsewhere herein, fee income on financial reinsurance treaties. Such fees are recognized in the period in which services are performed. Income Taxes The Company joins with MetLife and its includable life insurance and non- life insurance subsidiaries in filing a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. The Company's accounting for income taxes represents management's best estimate of various events and transactions. Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax planning strategies. The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities (See also Note 7) or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur. As described more fully in "Adoption of New Accounting Pronouncements," the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109 ("FIN 48") effective January 1, 2007. Under FIN 48, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent 20 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made. The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax. Reinsurance The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products. For each of its reinsurance agreements, the Company determines if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid, and the liabilities ceded related to the underlying contracts is considered the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts paid on the reinsurance of in-force blocks, as well as amounts paid related to new business, are recorded as ceded premiums and ceded future policy benefit liabilities are established. The assumptions used to account for long-duration reinsurance agreements are consistent with those used for the underlying contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance sheet. Amounts currently recoverable under reinsurance agreements are included in premiums and other receivables and amounts currently payable are included in other liabilities. Such assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. Premiums, fees and policyholder benefits and claims are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other revenues. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within other assets. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. 21 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Litigation Contingencies The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company's financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in the Company's financial statements. It is possible that an adverse outcome in certain of the Company's litigation and regulatory investigations, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's net income or cash flows. 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. Assets within the Company's separate accounts primarily include actively traded mutual funds. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if: (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the Company's general account liabilities; (iii) investments are directed by the contractholder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contractholder. The Company reports separate account assets meeting such criteria at their fair value which is based on the estimated fair values of the underlying assets comprising the portfolios of an individual separate account. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line in the statements of income. The Company's revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Fair Value Effective January 1, 2008, the Company adopted SFAS 157, which defines fair value, establishes a consistent framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and requires enhanced disclosures about fair value measurements and applied the provisions of the statement prospectively to assets and liabilities measured at fair value. The adoption of SFAS 157 changed the valuation of certain freestanding derivatives by moving from a mid to bid pricing convention as it relates to certain volatility inputs as well as the addition of liquidity adjustments and adjustments for risks inherent in a particular input or valuation technique. The adoption of SFAS 157 also changed the valuation of the Company's embedded derivatives, most significantly the valuation of embedded derivatives associated with certain riders on variable annuity contracts. The change in valuation of embedded derivatives associated with riders on annuity contracts resulted from the incorporation of risk margins associated with non capital market inputs and the inclusion of the Company's own credit standing in their valuation. At January 1, 2008, the impact of adopting SFAS 157 on assets and liabilities measured at estimated fair value was $20 million ($13 million, net of income tax) and was recognized as a change in estimate in the accompanying statement of income where it was presented in the respective income statement caption to which the item measured at estimated fair value is presented. There were no significant changes in estimated fair value of items measured at fair value and reflected in accumulated other comprehensive income (loss). The addition of risk margins and the Company's own credit spread in the valuation of embedded derivatives associated with annuity contracts may result in significant volatility in the Company's net income in future periods. 22 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Note 11 presents the estimated fair value of all assets and liabilities required to be measured at estimated fair value as well as the expanded fair value disclosures required by SFAS 157. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 permits entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to recognize related unrealized gains and losses in earnings. The fair value option is applied on an instrument-by-instrument basis upon adoption of the standard, upon the acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election is an irrevocable election. Effective January 1, 2008, the Company did not elect the fair value option for any instruments. Effective January 1, 2008, the Company adopted FASB Staff Position ("FSP") No. FAS 157-2, Effective Date of FASB Statement No. 157 which delays the effective date of SFAS 157 for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date is delayed until January 1, 2009 and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. Effective September 30, 2008, the Company adopted FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active ("FSP 157-3"). FSP 157-3 provides guidance on how a company's internal cash flow and discount rate assumptions should be considered in the measurement of fair value when relevant market data does not exist, how observable market information in an inactive market affects fair value measurement and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. The adoption of FSP 157-3 did not have a material impact on the Company's financial statements. Investments Effective December 31, 2008, the Company adopted FSP No. FAS 140-4 and FIN 46(r)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities ("FSP 140-4 and FIN 46(r)-8"). FSP 140-4 and FIN 46(r)-8 requires additional qualitative and quantitative disclosures about a transferors' continuing involvement in transferred financial assets and involvement in a VIE. The exact nature of the additional required VIE disclosures vary and depend on whether or not the VIE is a qualifying special-purpose entity ("QSPE"). For VIEs that are QSPEs, the additional disclosures are only required for a non-transferor sponsor holding a variable interest or a non-transferor servicer holding a significant variable interest. For VIEs that are not QSPEs, the additional disclosures are only required if the Company is the primary beneficiary, and if not the primary beneficiary, only if the Company holds a significant variable interest or is the sponsor. The Company provided all of the material required disclosures in its financial statements. Effective December 31, 2008, the Company adopted FSP No. EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 ("FSP EITF 99-20- 1"). FSP EITF 99-20-1 amends the guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to more closely align the guidance to determine whether an other-than-temporary impairment has occurred for a beneficial interest in a securitized financial asset with the guidance in SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, for debt securities classified as available-for-sale or held-to-maturity. The adoption of FSP EITF 99-20-1 did not have an impact on the Company's financial statements. Derivative Financial Instruments Effective December 31, 2008, the Company adopted FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees -- An Amendment of FASB Statement No. 133 and FASB Interpretation 23 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) No. 45; and Clarification of the Effective Date of FASB Statement No. 161 ("FSP 133-1 and FIN 45-4"). FSP 133-1 and FIN 45-4 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") to require certain enhanced disclosures by sellers of credit derivatives by requiring additional information about the potential adverse effects of changes in their credit risk, financial performance, and cash flows. It also amends FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others -- An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"), to require an additional disclosure about the current status of the payment/performance risk of a guarantee. The Company provided all of the material required disclosures in its financial statements. Effective January 1, 2008, the Company adopted SFAS 133 Implementation Issue No. E-23, Clarification of the Application of the Shortcut Method ("Issue E-23"). Issue E-23 amended SFAS 133 by permitting interest rate swaps to have a non-zero fair value at inception when applying the shortcut method of assessing hedge effectiveness, as long as the difference between the transaction price (zero) and the fair value (exit price), as defined by SFAS 157, is solely attributable to a bid-ask spread. In addition, entities are not precluded from applying the shortcut method of assessing hedge effectiveness in a hedging relationship of interest rate risk involving an interest bearing asset or liability in situations where the hedged item is not recognized for accounting purposes until settlement date as long as the period between trade date and settlement date of the hedged item is consistent with generally established conventions in the marketplace. The adoption of Issue E-23 did not have an impact on the Company's financial statements. Effective January 1, 2006, the Company adopted prospectively SFAS No. 155, Accounting for Certain Hybrid Instruments ("SFAS 155"). SFAS 155 amends SFAS 133 and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 140"). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. In addition, among other changes, SFAS 155: (i) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (ii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (iv) amends SFAS 140 to eliminate the prohibition on a QSPE from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial interest. The adoption of SFAS 155 did not have a material impact on the Company's financial statements. Effective October 1, 2006, the Company adopted SFAS 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets ("Issue B40"). Issue B40 clarifies that a securitized interest in prepayable financial assets is not subject to the conditions in paragraph 13(b) of SFAS 133, if it meets both of the following criteria: (i) the right to accelerate the settlement if the securitized interest cannot be controlled by the investor; and (ii) the securitized interest itself does not contain an embedded derivative (including an interest rate-related derivative) for which bifurcation would be required other than an embedded derivative that results solely from the embedded call options in the underlying financial assets. The adoption of Issue B40 did not have a material impact on the Company's financial statements. 24 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Effective January 1, 2006, the Company adopted prospectively SFAS 133 Implementation Issue No. B38, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option ("Issue B38") and SFAS 133 Implementation Issue No. B39, Embedded Derivatives: Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor ("Issue B39"). Issue B38 clarifies that the potential settlement of a debtor's obligation to a creditor occurring upon exercise of a put or call option meets the net settlement criteria of SFAS 133. Issue B39 clarifies that an embedded call option, in which the underlying is an interest rate or interest rate index, that can accelerate the settlement of a debt host financial instrument should not be bifurcated and fair valued if the right to accelerate the settlement can be exercised only by the debtor (issuer/borrower) and the investor will recover substantially all of its initial net investment. The adoption of Issues B38 and B39 did not have a material impact on the Company's financial statements. Income Taxes Effective January 1, 2007, the Company adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax recognized in a company's financial statements. FIN 48 requires companies to determine whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the period that such determination is made. As a result of the implementation of FIN 48, the Company recognized a $5 million decrease in the liability for unrecognized tax benefits and a corresponding increase to the January 1, 2007 balance of retained earnings. Upon adoption of FIN 48, the Company did not have any unrecognized tax benefits. See also Note 7. Insurance Contracts Effective January 1, 2007, the Company adopted SOP 05-1 which provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long- Duration Contracts and for Realized Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement and is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. In addition, in February 2007, the American Institute of Certified Public Accountants issued related Technical Practice Aids ("TPAs") to provide further clarification of SOP 05-1. The TPAs became effective concurrently with the adoption of SOP 05-1. As a result of the adoption of SOP 05-1 and the related TPAs, if an internal replacement modification substantially changes a contract, then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred. If a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are immediately expensed. The adoption of SOP 05-1 and the related TPAs did not have an impact on the Company's financial statements. Other Pronouncements Effective January 1, 2008, the Company adopted FSP No. FIN 39-1, Amendment of FASB Interpretation No. 39 ("FSP 39-1"). FSP 39-1 amends FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts ("FIN 39"), to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that 25 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) have been offset in accordance with FIN 39. FSP 39-1 also amends FIN 39 for certain terminology modifications. Upon adoption of FSP 39-1, the Company did not change its accounting policy of not offsetting fair value amounts recognized for derivative instruments under master netting arrangements. The adoption of FSP 39-1 did not have an impact on the Company's financial statements. Effective January 1, 2008, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 07-6, Accounting for the Sale of Real Estate When the Agreement Includes a Buy-Sell Clause ("EITF 07-6") prospectively. EITF 07-6 addresses whether the existence of a buy-sell arrangement would preclude partial sales treatment when real estate is sold to a jointly owned entity. EITF 07-6 concludes that the existence of a buy-sell clause does not necessarily preclude partial sale treatment under current guidance. The adoption of EITF 07-6 did not have a material impact on the Company's financial statements. Effective January 1, 2007, the Company adopted SFAS No. 156, Accounting for Servicing of Financial Assets -- an amendment of FASB Statement No. 140 ("SFAS 156"). Among other requirements, SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations. The adoption of SFAS 156 did not have an impact on the Company's financial statements. Effective November 15, 2006, the Company adopted U.S. Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of assessing materiality. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when relevant quantitative and qualitative factors are considered, is material. SAB 108 permits companies to initially apply its provisions by either restating prior financial statements or recording a cumulative effect adjustment to the carrying values of assets and liabilities at January 1, 2006 with an offsetting adjustment to retained earnings for errors that were previously deemed immaterial but are material under the guidance in SAB 108. The adoption of SAB 108 did not have a material impact on the Company's financial statements. Effective January 1, 2006, the Company adopted SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"). SFAS 154 requires retrospective application to prior periods' financial statements for a voluntary change in accounting principle unless it is deemed impracticable. It also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non- financial assets be accounted for as a change in accounting estimate rather than a change in accounting principle. The adoption of SFAS 154 did not have a material impact on the Company's financial statements. FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Business Combinations In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations -- A Replacement of FASB Statement No. 141 ("SFAS 141(r)") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements -- An Amendment of ARB No. 51 ("SFAS 160"). In April 2009, the FASB also issued FSP 141(r)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies ("FSP 141(r)-1"). Under these pronouncements: - All business combinations (whether full, partial or "step" acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions. - Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date. 26 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) - The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date. - Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if the acquisition- date fair value can be reasonably determined. If the fair value is not estimable, an asset or liability is recorded if existence or incurrence at the acquisition date is probable and its amount is reasonably estimable. - Certain acquired contingent liabilities are recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies. - Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. - Noncontrolling interests (formerly known as "minority interests") are valued at fair value at the acquisition date and are presented as equity rather than liabilities. - When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized. - Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. - When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized. The pronouncements are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations after that date. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The Company will apply the guidance in SFAS 141(r) and FSP 141(r)-1 prospectively on its accounting for future acquisitions and does not expect the adoption of SFAS 160 to have a material impact on the Company's financial statements. In November 2008, the FASB ratified the consensus on EITF Issue No. 08-6, Equity Method Investment Accounting Considerations ("EITF 08-6"). EITF 08-6 addresses a number of issues associated with the impact that SFAS 141(r) and SFAS 160 might have on the accounting for equity method investments, including how an equity method investment should initially be measured, how it should be tested for impairment, and how changes in classification from equity method to cost method should be treated. EITF 08-6 is effective prospectively for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of EITF 08-6 to have a material impact on the Company's financial statements. In November 2008, the FASB ratified the consensus on EITF Issue No. 08-7, Accounting for Defensive Intangible Assets ("EITF 08-7"). EITF 08-7 requires that an acquired defensive intangible asset (i.e., an asset an entity does not intend to actively use, but rather, intends to prevent others from using) be accounted for as a separate unit of accounting at time of acquisition, not combined with the acquirer's existing intangible assets. In addition, the EITF concludes that a defensive intangible asset may not be considered immediately abandoned following its acquisition or have indefinite life. The Company will apply the guidance of EITF 08-7 prospectively to its intangible assets acquired after fiscal years beginning on or after December 15, 2008. In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). This change is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(r) and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The requirement for 27 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) determining useful lives and related disclosures will be applied prospectively to intangible assets acquired as of, and subsequent to, the effective date. Derivative Financial Instruments In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will provide all of the material required disclosures in the appropriate future annual periods. Other Pronouncements In September 2008, the FASB ratified the consensus on EITF Issue No. 08-5, Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement ("EITF 08-5"). EITF 08-5 concludes that an issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. In addition, EITF 08-5 requires disclosures about the existence of any third-party credit enhancement related to liabilities that are measured at fair value. EITF 08-5 is effective in the first reporting period beginning after December 15, 2008 and will be applied prospectively, with the effect of initial application included in the change in fair value of the liability in the period of adoption. The Company does not expect the adoption of EITF 08-5 to have a material impact on the Company's financial statements. In February 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP 140- 3"). FSP 140-3 provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. FSP 140-3 is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect the adoption of FSP 140-3 to have a material impact on its financial statements. 28 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 2. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized gain and loss, estimated fair value of the Company's fixed maturity and equity securities, and the percentage that each sector represents by the respective total holdings at:
DECEMBER 31, 2008 -------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED ----------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities............... $ 712 $ 4 $ 90 $ 626 39.7% Residential mortgage-backed securities.. 373 6 68 311 19.7 Commercial mortgage-backed securities... 311 -- 96 215 13.7 U.S. Treasury/agency securities......... 175 11 -- 186 11.8 Asset-backed securities................. 190 -- 43 147 9.3 Foreign corporate securities............ 110 -- 27 83 5.3 Foreign government securities........... 7 1 -- 8 0.5 --------- ---- ---- ---------- ----- Total fixed maturity securities (1),(2)............................ $1,878 $22 $324 $1,576 100.0% ========= ==== ==== ========== ===== Non-redeemable preferred stock (1)...... $ 21 $ -- $ 12 $ 9 100.0% --------- ---- ---- ---------- ----- Total equity securities............... $ 21 $-- $ 12 $ 9 100.0% ========= ==== ==== ========== =====
DECEMBER 31, 2007 -------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED ----------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities............... $ 825 $ 6 $16 $ 815 40.4% Residential mortgage-backed securities.. 459 2 6 455 22.6 Commercial mortgage-backed securities... 289 1 6 284 14.1 U.S. Treasury/agency securities......... 225 3 -- 228 11.3 Asset-backed securities................. 95 -- 9 86 4.2 Foreign corporate securities............ 136 1 4 133 6.6 Foreign government securities........... 14 2 -- 16 0.8 --------- ---- ---- ---------- ----- Total fixed maturities (1),(2)........ $2,043 $15 $41 $2,017 100.0% ========= ==== ==== ========== ===== Non-redeemable preferred stock (1)...... $ 21 $ -- $ 3 $ 18 100.0% --------- ---- ---- ---------- ----- Total equity securities............... $ 21 $-- $ 3 $ 18 100.0% ========= ==== ==== ========== =====
-------- (1) The Company classifies perpetual securities that have attributes of both debt and equity as fixed maturity securities if the security has a punitive interest rate step-up feature as it believes in most instances this feature will compel the issuer to redeem the security at the specified call date. Perpetual securities that do not have a punitive interest rate step-up feature are classified as non-redeemable preferred stock. Many of such securities have been issued by non-U.S. financial institutions that are accorded Tier 1 and Upper Tier 2 capital treatment by their respective regulatory bodies and are commonly referred to as "perpetual hybrid securities." There were no such perpetual hybrid securities classified as non-redeemable preferred stock held by the Company at 29 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2008 and 2007. In addition, the Company held $9 million and $18 million at estimated fair value at December 31, 2008 and 2007, respectively, of other perpetual hybrid securities, primarily U.S. financial institutions, also included in non-redeemable preferred stock. Perpetual hybrid securities held by the Company and included within fixed maturity securities (primarily within foreign corporate securities) at December 31, 2008 and 2007 had an estimated fair value of $11 million and $24 million, respectively. (2) At December 31, 2008 and 2007, the Company also held $8 million and $13 million at estimated fair value, respectively, of redeemable preferred stock which have stated maturity dates which are included within fixed maturity securities. These securities are primarily issued by U.S. financial institutions, have cumulative interest deferral features and are commonly referred to as "capital securities" within U.S. corporate securities. The Company held foreign currency derivatives with notional amounts of $8 million to hedge the exchange rate risk associated with foreign denominated fixed maturity securities at both December 31, 2008 and 2007. Below Investment Grade or Non Rated Fixed Maturity Securities. The Company held fixed maturity securities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $61 million and $88 million at December 31, 2008 and 2007, respectively. These securities had net unrealized losses of $17 million and less than $1 million at December 31, 2008 and 2007, respectively. Non-Income Producing Fixed Maturity Securities. Non-income producing fixed maturity securities at estimated fair value were less than $1 million at both December 31, 2008 and 2007. Net unrealized gains associated with non-income producing fixed maturity securities were less than $1 million at both December 31, 2008 and 2007. Fixed Maturity Securities Credit Enhanced by Financial Guarantee Insurers. At December 31, 2008, $3 million of the estimated fair value of the Company's fixed maturity securities were credit enhanced by financial guarantee insurers, all of which are included within asset-backed securities and 5% and 95% were guaranteed by financial guarantee insurers who were Aa and Baa rated, respectively. As described below, all of the asset-backed securities that are credit enhanced by financial guarantee insurers are asset-backed securities which are backed by sub-prime mortgage loans. Concentrations of Credit Risk (Fixed Maturity Securities). The following section contains a summary of the concentrations of credit risk related to fixed maturity securities holdings. The Company is not exposed to any concentrations of credit risk of any single issuer greater than 10% of the Company's stockholder's equity, other than securities of the U.S. government and certain U.S. government agencies. At December 31, 2008 and 2007, the Company's holdings in U.S. Treasury and agency fixed maturity securities at estimated fair value were $186 million and $228 million, respectively. As shown in the sector table above, at December 31, 2008 the Company's three largest exposures in its fixed maturity security portfolio were U.S. corporate fixed maturity securities (39.7%), residential mortgage- backed securities (19.7%), and commercial mortgage-backed securities (13.7%); and at December 31, 2007 were U.S. corporate fixed maturity securities (40.4%), residential mortgage-backed securities (22.6%), and commercial mortgage-backed securities (14.1%). Concentrations of Credit Risk (Fixed Maturity Securities) -- U.S. and Foreign Corporate Securities. At December 31, 2008 and 2007, the Company's holdings in U.S. corporate and foreign corporate fixed maturity securities at estimated fair value were $709 million and $948 million, respectively. The Company maintains a diversified portfolio of corporate securities across industries and issuers. The portfolio does not have exposure to any single issuer in excess of 1% of total cash and invested assets. The exposure to the largest single issuer of corporate fixed maturity securities held at December 31, 2008 and 2007 was $24 million and $20 million, respectively. At December 31, 2008 and 2007, the Company's combined holdings in the ten issuers to which it had the greatest exposure totaled $159 million and $188 million, respectively, the total of these ten issuers being less 30 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) than 7% and 9% of the Company's total cash and invested assets at such dates. The table below shows the major industry types that comprise the corporate fixed maturity holdings at:
DECEMBER 31, --------------------------------------- 2008 2007 ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (IN MILLIONS) Finance..................................... $ 151 21.3% $ 284 30.0% Industrial.................................. 146 20.6 192 20.2 Consumer.................................... 105 14.8 156 16.5 Utility..................................... 104 14.7 101 10.6 Foreign (1)................................. 83 11.7 133 14.0 Communications.............................. 70 9.9 71 7.5 Other....................................... 50 7.0 11 1.2 ---------- ----- ---------- ----- Total..................................... $709 100.0% $948 100.0% ========== ===== ========== =====
-------- (1) Includes U.S. dollar-denominated debt obligations of foreign obligors and other fixed maturity foreign investments. Concentrations of Credit Risk (Fixed Maturity Securities) -- Residential Mortgage-Backed Securities - The Company's residential mortgage-backed securities consist of the following holdings at:
DECEMBER 31, --------------------------------------- 2008 2007 ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (IN MILLIONS) Residential mortgage-backed securities: Collateralized mortgage obligations....... $ 228 73.3% $ 304 66.8% Pass-through securities................... 83 26.7 151 33.2 ---------- ----- ---------- ----- Total residential mortgage-backed securities................................ $311 100.0% $455 100.0% ========== ===== ========== =====
Collateralized mortgage obligations are a type of mortgage-backed security that creates separate pools or tranches of pass-through cash flows for different classes of bondholders with varying maturities. Pass-through mortgage-backed securities are a type of asset-backed security that is secured by a mortgage or collection of mortgages. The monthly mortgage payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments, and for a fee, remits or passes these payments through to the holders of the pass-through securities. At December 31, 2008, the exposures in the Company's residential mortgage- backed securities portfolio consist of agency, prime, and alternative residential mortgage loans ("Alt-A") securities of 59%, 29%, and 12% of the total holdings, respectively. At December 31, 2008 and 2007, $272 million and $455 million, respectively, or 87% and 100% respectively, of the residential mortgage-backed securities were rated Aaa/AAA by Moody's Investors Service ("Moody's"), S&P, or Fitch Ratings ("Fitch"). The majority of the residential mortgage-backed securities are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. Prime residential mortgage lending includes the origination of residential mortgage loans to the most credit-worthy customers with high quality credit profiles. Alt-A residential mortgage loans are a classification of mortgage loans where the risk profile of the 31 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) borrower falls between prime and sub-prime. At December 31, 2008 and 2007, the Company's Alt-A residential mortgage-backed securities exposure was $39 million and $79 million, respectively, with an unrealized loss of $29 million and $1 million respectively. At December 31, 2008 and 2007, $7 million and $79 million, respectively, or 18% and 100% respectively, of the Company's Alt-A residential mortgage-backed securities were rated Aa/AAA or better by Moody's, S&P or Fitch. In December 2008, certain Alt-A residential mortgage-backed securities experienced ratings downgrades from investment grade to below investment grade, contributing to the decrease year over year cited above in those securities rated Aa/AA or better. At December 31, 2008, the Company's Alt-A holdings are distributed as follows: 7% 2007 vintage year, 74% 2006 vintage year; and 19% 2005 and prior vintage years. In January 2009, Moody's revised its loss projections for Alt-A residential mortgage-backed securities, and the Company anticipates that Moody's will be downgrading virtually all 2006 and 2007 vintage year Alt-A securities to below investment grade, which will increase the percentage of the Company's Alt-A residential mortgage-backed securities portfolio that will be rated below investment grade. Vintage year refers to the year of origination and not to the year of purchase. Concentrations of Credit Risk (Fixed Maturity Securities) -- Commercial Mortgage-Backed Securities. At December 31, 2008 and 2007, the Company's holdings in commercial mortgage-backed securities was $215 million and $284 million, respectively, at estimated fair value. At December 31, 2008 and 2007, $185 million and $206 million, respectively, of the estimated fair value, or 86% and 72%, respectively, of the commercial mortgage-backed securities were rated Aaa/AAA by Moody's, S&P, or Fitch. At December 31, 2008, the rating distribution of the Company's commercial mortgage-backed securities holdings was as follows: 86% Aaa, 8% Aa, 5% A, and 1% Baa. At December 31, 2008, 91% of the holdings are in the 2005 and prior vintage years. At December 31, 2008, the Company had no exposure to CMBX securities or commercial real estate collateralized debt obligations securities. Concentrations of Credit Risk (Fixed Maturity Securities) -- Asset-Backed Securities. At December 31, 2008 and 2007, the Company's holdings in asset- backed securities was $147 million and $86 million, respectively, at estimated fair value. The Company's asset-backed securities are diversified both by sector and by issuer. At December 31, 2008 and 2007, $129 million and $41 million, respectively, or 88% and 48%, respectively, of total asset-backed securities were rated Aaa/AAA by Moody's, S&P or Fitch. At December 31, 2008, the largest exposures in the Company's asset-backed securities portfolio were credit card receivables, student loan receivables, and residential mortgage-backed securities backed by sub-prime mortgage loans of 60%, 10% and 5% of the total holdings, respectively. Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. At December 31, 2008 and 2007, the Company had exposure to fixed maturity securities backed by sub-prime mortgage loans with estimated fair values of $7 million and $19 million, respectively, and unrealized losses of $14 million and $7 million, respectively. At December 31, 2008, 48% of the asset-backed securities backed by sub-prime mortgage loans have been guaranteed by financial guarantee insurers, of which 5% and 95% were guaranteed by financial guarantee insurers who were Aa and Baa rated, respectively. Concentrations of Credit Risk (Equity Securities). The Company is not exposed to any significant concentrations of credit risk of any single issuer greater than 10% of the Company's stockholder's equity in its equity securities holdings. 32 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), are as follows:
DECEMBER 31, ----------------------------------------------- 2008 2007 ---------------------- ---------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE --------- ---------- --------- ---------- (IN MILLIONS) Due in one year or less................. $ 78 $ 75 $ 74 $ 74 Due after one year through five years... 426 395 508 506 Due after five years through ten years.. 286 245 311 306 Due after ten years..................... 214 188 307 306 --------- ---------- --------- ---------- Subtotal.............................. 1,004 903 1,200 1,192 Mortgage-backed and asset-backed securities............................ 874 673 843 825 --------- ---------- --------- ---------- Total fixed maturity securities....... $1,878 $1,576 $2,043 $2,017 ========= ========== ========= ==========
Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final contractual maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. NET UNREALIZED INVESTMENT GAINS (LOSSES) The components of net unrealized investment gains (losses), included in accumulated other comprehensive loss, are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2008 2007 2006 ------ ------ ------ (IN MILLIONS) Fixed maturity securities........................... $(302) $(26) $(9) Equity securities................................... (12) (3) -- Derivatives......................................... 3 -- -- ------ ------ ------ Subtotal.......................................... (311) (29) (9) ------ ------ ------ Amounts allocated from DAC and VOBA................. 71 8 4 Deferred income tax................................. 84 7 2 ------ ------ ------ Subtotal.......................................... 155 15 6 ------ ------ ------ Net unrealized investment gains (losses)............ $(156) $ (14) $ (3) ====== ====== ======
33 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The changes in net unrealized investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2008 2007 2006 ------ ------ ------ (IN MILLIONS) Balance, January 1,................................. $ (14) $ (3) $(4) Unrealized investment gains (losses) during the year.............................................. (282) (20) -- Unrealized investment gains (losses) relating to: DAC and VOBA...................................... 63 4 1 Deferred income tax............................... 77 5 -- ------ ------ ------ Balance, December 31,............................... $(156) $(14) $(3) ====== ====== ====== Change in net unrealized investment gains (losses).. $(142) $ (11) $ 1 ====== ====== ======
UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the estimated fair value and gross unrealized loss of the Company's fixed maturity (aggregated by sector) and equity securities in an unrealized loss position, aggregated by length of time that the securities have been in a continuous unrealized loss position at:
DECEMBER 31, 2008 ----------------------------------------------------------------------------- EQUAL TO OR GREATER LESS THAN 12 MONTHS THAN 12 MONTHS TOTAL ----------------------- ----------------------- ------------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ------------ ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities.......... $ 437 $ 60 $ 92 $ 30 $ 529 $ 90 Residential mortgage-backed securities....................... 50 11 85 57 135 68 Commercial mortgage-backed securities....................... 114 22 101 74 215 96 Asset-backed securities............ 96 19 31 24 127 43 Foreign corporate securities....... 49 9 33 18 82 27 Foreign government securities...... 1 -- -- -- 1 -- ---------- ---------- ---------- ---------- ------------ ---------- Total fixed maturity securities.. $747 $121 $342 $203 $1,089 $324 ========== ========== ========== ========== ============ ========== Equity securities.................. $ -- $ -- $ 8 $ 12 $ 8 $ 12 ========== ========== ========== ========== ============ ========== Total number of securities in an unrealized loss position......... 209 127 ========== ==========
34 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2007 ----------------------------------------------------------------------------- EQUAL TO OR GREATER LESS THAN 12 MONTHS THAN 12 MONTHS TOTAL ----------------------- ----------------------- ------------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ------------ ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities.......... $ 305 $ 11 $ 143 $ 5 $ 448 $ 16 Residential mortgage-backed securities....................... 215 5 68 1 283 6 Commercial mortgage-backed securities....................... 16 -- 174 6 190 6 Asset-backed securities............ 51 6 17 3 68 9 Foreign corporate securities....... 78 4 23 -- 101 4 ---------- ---------- ---------- ---------- ------------ ---------- Total fixed maturity securities.. $665 $26 $425 $15 $1,090 $41 ========== ========== ========== ========== ============ ========== Equity securities.................. $ 18 $ 3 $ -- $-- $ 18 $ 3 ========== ========== ========== ========== ============ ========== Total number of securities in an unrealized loss position......... 154 103 ========== ==========
AGING OF GROSS UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized loss and number of securities for fixed maturity and equity securities, where the estimated fair value had declined and remained below cost or amortized cost by less than 20%, or 20% or more at:
DECEMBER 31, 2008 ------------------------------------------------------- COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES ----------------- ----------------- ----------------- LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE --------- ------ --------- ------ --------- ------ (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) FIXED MATURITY SECURITIES: Less than six months...................... $ 322 $ 517 $ 21 $ 206 86 132 Six months or greater but less than nine months.................................. 195 6 18 4 41 2 Nine months or greater but less than twelve months........................... 160 38 24 24 25 7 Twelve months or greater.................. 170 5 23 4 40 2 --------- ------ --------- ------ Total................................... $847 $566 $86 $238 ========= ====== ========= ====== EQUITY SECURITIES: Less than six months...................... $ -- $ -- $-- $ -- -- -- Six months or greater but less than nine months.................................. -- -- -- -- -- -- Nine months or greater but less than twelve months........................... -- 20 -- 12 -- 1 Twelve months or greater.................. -- -- -- -- -- -- --------- ------ --------- ------ Total................................... $ -- $ 20 $-- $ 12 ========= ====== ========= ======
35 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2007 --------------------------------------------------------------- COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES -------------------- ------------------- ------------------ LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE ----------- ------ --------- ------- --------- ------ (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) FIXED MATURITY SECURITIES: Less than six months.................... $ 431 $ 11 $ 11 $ 4 88 5 Six months or greater but less than nine months................................ 152 -- 7 -- 44 -- Nine months or greater but less than twelve months......................... 98 -- 5 -- 18 -- Twelve months or greater................ 439 -- 14 -- 101 -- ----------- ------ --------- ------- Total................................. $1,120 $11 $37 $ 4 =========== ====== ========= ======= EQUITY SECURITIES: Less than six months.................... $ -- $-- $-- $ -- -- -- Six months or greater but less than nine months................................ -- -- -- -- -- -- Nine months or greater but less than twelve months......................... 21 -- 3 -- 2 -- Twelve months or greater................ -- -- -- -- -- -- ----------- ------ --------- ------- Total................................. $ 21 $-- $ 3 $-- =========== ====== ========= =======
As described more fully in Note 1, the Company performs a regular evaluation, on a security-by-security basis, of its investment holdings in accordance with its impairment policy in order to evaluate whether such securities are other-than-temporarily impaired. One of the criteria which the Company considers in its other-than-temporary impairment analysis is its intent and ability to hold securities for a period of time sufficient to allow for the recovery of their value to an amount equal to or greater than cost or amortized cost. The Company's intent and ability to hold securities considers broad portfolio management objectives such as asset/liability duration management, issuer and industry segment exposures, interest rate views and the overall total return focus. In following these portfolio management objectives, changes in facts and circumstances that were present in past reporting periods may trigger a decision to sell securities that were held in prior reporting periods. Decisions to sell are based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives including liquidity needs or duration targets on asset/liability managed portfolios. The Company attempts to anticipate these types of changes and if a sale decision has been made on an impaired security and that security is not expected to recover prior to the expected time of sale, the security will be deemed other-than- temporarily impaired in the period that the sale decision was made and an other- than-temporary impairment loss will be recognized. At December 31, 2008 and 2007, $86 million and $37 million, respectively, of unrealized losses related to fixed maturity securities with an unrealized loss position of less than 20% of cost or amortized cost, which represented 10% and 3%, respectively, of the cost or amortized cost of such securities. At December 31, 2008, there were no unrealized losses related to equity securities with an unrealized loss position of less than 20% of cost. At December 31, 2007, $3 million of unrealized losses related to equity securities with an unrealized loss position of less than 20% of cost, which represented 14% of the cost of such securities. At December 31, 2008, $238 million and $12 million of unrealized losses related to fixed maturity securities and equity securities, respectively, with an unrealized loss position of 20% or more of cost or amortized cost, which represented 42% and 60% of the cost or amortized cost of such fixed maturity securities and equity securities, respectively. Of such unrealized losses of $238 million, $206 million were related to fixed maturity securities that were in an unrealized loss position for a period of less than six months. Of such unrealized losses of $12 million, all were related to equity securities that were in an unrealized loss position for a period of nine months or more. At December 31, 2007, $4 million of unrealized losses related to fixed maturity securities, with an unrealized loss position of 20% or more of cost or amortized cost, which 36 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) represented 36% of the cost or amortized cost of such fixed maturity securities, respectively. Of such unrealized losses all were in an unrealized loss position for a period of less than six months. The Company held two fixed maturity securities and one equity security, each with a gross unrealized loss at December 31, 2008 of greater than $10 million. The two fixed maturity securities represented 15%, or $47 million in the aggregate, of the gross unrealized loss on fixed maturity securities. The one equity security represented all, or $12 million in the aggregate, of the gross unrealized loss on equity securities. The Company held no fixed maturity securities or equity securities with a gross unrealized loss of greater than $10 million at December 31, 2007. These securities with a gross unrealized loss greater than $10 million were included in the regular evaluation of whether such securities are other-than-temporarily impaired. Based upon the Company's current evaluation of these securities in accordance with its impairment policy, the cause of the decline being primarily attributable to a rise in market yields caused principally by an extensive widening of credit spreads which resulted from a lack of market liquidity and a short-term market dislocation versus a long-term deterioration in credit quality, and the Company's current intent and ability to hold the fixed maturity and equity securities with unrealized losses for a period of time sufficient for them to recover, the Company has concluded that these securities are not other-than-temporarily impaired. In the Company's impairment review process, the duration of, and severity of, an unrealized loss position, such as unrealized losses of 20% or more for equity securities, which was $12 million and $0 at December 31, 2008 and 2007, respectively, is given greater weight and consideration, than for fixed maturity securities. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company's evaluation of recoverability of all contractual cash flows, as well as the Company's ability and intent to hold the security, including holding the security until the earlier of a recovery in value, or until maturity. In contrast, for an equity security, greater weight and consideration is given by the Company to a decline in market value and the likelihood such market value decline will recover. Equity securities with an unrealized loss of 20% or more for nine months or more was $12 million as of December 31, 2008, all of which are financial services investment grade non-redeemable preferred securities that are rated A or higher. There were no equity securities with an unrealized loss of 20% or more for twelve months or greater. In connection with the equity securities impairment review process during 2008, the Company evaluated its holdings in non-redeemable preferred securities, particularly those of financial services industry companies. The Company considered several factors including whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of non-redeemable preferred securities with a severe or an extended unrealized loss. Also, the Company believes the unrealized loss position is not necessarily predictive of the ultimate performance of these securities, and with respect to fixed maturity securities, it has the ability and intent to hold until the earlier of the recovery in value, or until maturity, and with respect to equity securities, it has the ability and intent to hold until the recovery in value. Future other-than-temporary impairments will depend primarily on economic fundamentals, issuer performance, changes in collateral valuation, changes in interest rates, and changes in credit spreads. If economic fundamentals and other of the above factors continue to deteriorate, additional other-than- temporary impairments may be incurred in upcoming periods. 37 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2008 and 2007, the Company's gross unrealized losses related to its fixed maturity and equity securities of $336 million and $44 million, respectively, were concentrated, calculated as a percentage of gross unrealized loss, as follows:
DECEMBER 31, ----------- 2008 2007 ---- ---- SECTOR: Commercial mortgage-backed securities........................ 29% 14% U.S. corporate securities.................................... 27 36 Residential mortgage-backed securities....................... 20 14 Asset-backed securities...................................... 13 20 Foreign corporate securities................................. 8 9 Other........................................................ 3 7 --- --- Total...................................................... 100% 100% === === INDUSTRY: Mortgage-backed.............................................. 49% 28% Finance...................................................... 23 35 Asset-backed................................................. 13 20 Consumer..................................................... 7 -- Utility...................................................... 4 3 Industrial................................................... 1 13 Other........................................................ 3 1 --- --- Total...................................................... 100% 100% === ===
NET INVESTMENT GAINS (LOSSES) The components of net investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, ------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Fixed maturity securities.................................... $(25) $(6) $(17) Equity securities............................................ -- (1) -- Other limited partnership interests.......................... -- -- (1) Freestanding derivatives..................................... 81 15 (12) Embedded derivatives......................................... 274 91 (30) ---- ---- ---- Net investment gains (losses).............................. $330 $99 $(60) ==== ==== ====
See Note 6 for discussion of affiliated net investment gains (losses) included in embedded derivatives in the table above. 38 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Proceeds from sales or disposals of fixed maturity securities and the components of fixed maturity and equity securities net investment gains (losses) are as follows:
FIXED MATURITY SECURITIES EQUITY SECURITIES TOTAL ---------------------- ---------------------- ---------------------- 2008 2007 2006 2008 2007 2006 2008 2007 2006 ------ ------ ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS) Proceeds..................... $464 $657 $1,051 $ -- $ -- $ -- $464 $657 $1,051 ====== ====== ====== ====== ====== ====== ====== ====== ====== Gross investment gains....... 1 1 4 -- -- -- 1 1 4 ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross investment losses...... (18) (6) (21) -- -- -- (18) (6) (21) ------ ------ ------ ------ ------ ------ ------ ------ ------ Writedowns Credit-related.......... (8) (1) -- -- (1) -- (8) (2) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Net investment gains (losses)................ $(25) $ (6) $ (17) $-- $(1) $-- $(25) $ (7) $ (17) ====== ====== ====== ====== ====== ====== ====== ====== ======
The Company periodically disposes of fixed maturity and equity securities at a loss. Generally, such losses are insignificant in amount or in relation to the cost basis of the investment, are attributable to declines in fair value occurring in the period of the disposition or are as a result of management's decision to sell securities based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives. Losses from fixed maturity and equity securities deemed other-than- temporarily impaired, included within net investment gains (losses), were $8 million and $2 million for the years ended December 31, 2008 and 2007, respectively. There were no losses from fixed maturity and equity securities deemed other-than-temporarily impaired, included within net investment gains (losses) during 2006. The substantial increase in 2008 over 2007 was driven by writedowns totaling $3 million of financial services industry securities holdings and $5 million on asset-backed (substantially all are backed by or exposed to sub-prime mortgage loans) all of which were fixed maturity securities. NET INVESTMENT INCOME The components of net investment income are as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Fixed maturity securities............................ $110 $118 $119 Equity securities.................................... 1 1 -- Mortgage loans on real estate........................ 5 5 5 Policy loans......................................... 2 2 2 Other limited partnership interests.................. 1 1 1 Cash, cash equivalents and short-term investments.... 4 8 7 Other................................................ 1 -- -- ---- ---- ---- Total investment income............................ 124 135 134 Less: Investment expenses............................ 16 31 28 ---- ---- ---- Net investment income.............................. $108 $104 $106 ==== ==== ====
Net investment income from other limited partnership interests represents distributions from other limited partnership interests accounted for under the cost method. Overall for 2008, the net amount recognized by the 39 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Company was a gain of $1 million resulting principally from gains on cost method investments. Such earnings and losses recognized for other limited partnership interests are impacted by volatility in the equity and credit markets. Affiliated investment expenses, included in the table above, were $1 million for each of the years ended December 31, 2008, 2007 and 2006. See "-- Related Party Investment Transactions" for discussion of affiliated net investment income related to short-term investments included in the table above. SECURITIES LENDING The Company participates in securities lending programs whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, primarily major brokerage firms and commercial banks. The Company generally obtains collateral in an amount equal to 102% of the estimated fair value of the securities loaned. Securities with a cost or amortized cost of $319 million and $523 million and an estimated fair value of $322 million and $525 million were on loan under the program at December 31, 2008 and 2007, respectively. Securities loaned under such transactions may be sold or repledged by the transferee. The Company was liable for cash collateral under its control of $324 million and $541 million at December 31, 2008 and 2007, respectively. Of this $324 million of cash collateral at December 31, 2008, $189 million was on open terms, meaning that the related loaned security could be returned to the Company on the next business day requiring return of cash collateral, and $128 million and $7 million, respectively, were due within 30 days and 60 days. Of the $188 million of estimated fair value of the securities related to the cash collateral on open at December 31, 2008, $186 million were U.S. Treasury and agency securities which, if put to the Company, can be immediately sold to satisfy the cash requirements. The remainder of the securities on loan are primarily U.S. Treasury and agency securities, and very liquid residential mortgage-backed securities. The estimated fair value of the reinvestment portfolio acquired with the cash collateral was $272 million at December 31, 2008, and consisted principally of fixed maturity securities (including residential mortgage-backed, asset-backed, U.S. corporate and foreign corporate securities). Security collateral of $6 million on deposit from counterparties in connection with the securities lending transactions at December 31, 2008 may not be sold or repledged and is not reflected in the financial statements. There was no security collateral on deposit from counterparties in connection with the securities lending transactions at December 31, 2007. ASSETS ON DEPOSIT AND ASSETS PLEDGED AS COLLATERAL The Company had investment assets on deposit with regulatory agencies with an estimated fair value of $8 million and $7 million at December 31, 2008 and 2007, respectively, consisting primarily of fixed maturity securities. Certain of the Company's fixed maturity securities are pledged as collateral for various derivative transactions as described in Note 3. MORTGAGE LOANS ON REAL ESTATE Mortgage loans on real estate are categorized as follows:
DECEMBER 31, ----------------------------------- 2008 2007 ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- (IN MILLIONS) Agricultural mortgage loans................... $ 48 63.2% $ 40 54.1% Commercial mortgage loans..................... 28 36.8 34 45.9 ------ ------- ------ ------- Total mortgage loans on real estate........... $76 100.0% $74 100.0% ====== ======= ====== =======
40 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Mortgage loans on real estate are collateralized by properties located in the United States. At December 31, 2008, 20%, 16% and 12% of the value of the Company's mortgage loans on real estate were located in District of Columbia, Alabama and Arizona, respectively. Generally, the Company, as the lender, only loans up to 75% of the purchase price of the underlying real estate. OTHER LIMITED PARTNERSHIP INTERESTS The carrying value of other limited partnership interests (which primarily represent ownership interests in pooled investment funds that principally make private equity investments in companies in the United States and overseas) was $2 million at both December 31, 2008 and 2007. For each of the years ended December 31, 2008, 2007 and 2006, net investment income from other limited partnership interests was $1 million. OTHER INVESTED ASSETS At December 31, 2008 and 2007, the carrying value of freestanding derivatives with positive fair values, included in other invested assets, was $109 million and $28 million, respectively. See Note 3 regarding the freestanding derivatives with positive estimated fair values. RELATED PARTY INVESTMENT TRANSACTIONS At December 31, 2008 and 2007, the Company held $2 million and $70 million, respectively, of its total invested assets in the MetLife Intermediate Income Pool, which is an affiliated partnership. These amounts are included in short- term investments. Net investment income from these invested assets was $2 million, $4 million and $3 million for the years ended December 31, 2008, 2007 and 2006, respectively. In the normal course of business, the Company transfers invested assets, primarily consisting of fixed maturity securities, to and from affiliates. Assets transferred to and from affiliates, inclusive of amounts related to reinsurance agreements, are as follows:
YEARS ENDED DECEMBER 31, ------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Estimated fair value of assets transferred to affiliates............................................ $ -- $23 $127 Amortized cost of assets transferred to affiliates...... $-- $23 $129 Net investment gains (losses) recognized on transfers... $-- $ -- $ (2) Estimated fair value of assets transferred from affiliates............................................ $-- $-- $ 21
41 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 3. DERIVATIVE FINANCIAL INSTRUMENTS TYPES OF DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the notional amount and current market or estimated fair value of derivative financial instruments, excluding embedded derivatives, held at:
DECEMBER 31, 2008 DECEMBER 31, 2007 ------------------------------ ------------------------------ CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE ------------------- ------------------- NOTIONAL LIABILI- NOTIONAL LIABILI- AMOUNT ASSETS TIES AMOUNT ASSETS TIES -------- -------- -------- -------- -------- -------- (IN MILLIONS) Interest rate swaps............... $ -- $ -- $ -- $ 9 $ -- $ -- Interest rate floors.............. 2,040 105 -- 2,460 27 -- Foreign currency swaps............ 8 4 -- 8 1 -- Financial forwards................ -- -- -- 25 -- -- Credit default swaps.............. 41 -- -- 30 -- -- ------ ---- ---- ------ ---- ---- Total........................... $2,089 $109 $-- $2,532 $28 $-- ====== ==== ==== ====== ==== ====
The following table presents the notional amount of derivative financial instruments by maturity at December 31, 2008:
REMAINING LIFE ------------------------------------------------------- AFTER AFTER ONE YEAR FIVE YEARS ONE YEAR THROUGH THROUGH AFTER TEN OR LESS FIVE YEARS TEN YEARS YEARS TOTAL -------- ---------- ---------- --------- ------ (IN MILLIONS) Interest rate floors.................... $ -- $ -- $ 2,040 $ -- $2,040 Foreign currency swaps.................. -- -- -- 8 8 Credit default swaps.................... -- 34 7 -- 41 -------- ---------- ---------- --------- ------ Total................................. $-- $34 $2,047 $ 8 $2,089 ======== ========== ========== ========= ======
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate floors are used by the Company primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its denominated in foreign currencies. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. Equity variance swaps are used by the Company primarily as a macro hedge on certain invested assets. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes 42 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) in equity volatility over a defined period. Equity variance swaps are included in financial forwards in the preceding table. Certain credit default swaps are used by the Company to hedge against credit-related changes in the value of its investments and to diversify its credit risk exposure in certain portfolios. In a credit default swap transaction, the Company agrees with another party, at specified intervals, to pay a premium to insure credit risk. If a credit event, as defined by the contract, occurs, generally the contract will require the swap to be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit default swaps are also used to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. Treasury or Agency security. HEDGING The following table presents the notional amount and the estimated fair value of derivatives by type of hedge designation at:
DECEMBER 31, 2008 DECEMBER 31, 2007 ------------------------------ ------------------------------ FAIR VALUE FAIR VALUE ------------------- ------------------- NOTIONAL LIABILI- NOTIONAL LIABILI- AMOUNT ASSETS TIES AMOUNT ASSETS TIES -------- -------- -------- -------- -------- -------- (IN MILLIONS) Fair value.................. $ -- $ -- $ -- $ 8 $ 1 $ -- Cash flow................... 8 4 -- 4 -- -- Non-qualifying.............. 2,081 105 -- 2,520 27 -- ------ ---- ---- ------ --- ---- Total..................... $2,089 $109 $-- $2,532 $28 $-- ====== ==== ==== ====== === ====
The Company recognized insignificant net investment income (expense) from settlement payments related to qualifying hedges for the years ended December 31, 2008, 2007 and 2006. The Company recognized insignificant net investment gains (losses) from settlement payments related to non-qualifying hedges for each of the years ended December 31, 2008, 2007 and 2006. FAIR VALUE HEDGES The Company designates and accounts for interest rate swaps to convert fixed rate investments to floating rate investments as fair value hedges when they have met the requirements of SFAS 133. The Company recognized insignificant amounts in net investment gains (losses) representing the ineffective portion of all fair value hedges for the years ended December 31, 2008 and 2007. The Company did not have any fair value hedges during the year ended December 31, 2006. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge. CASH FLOW HEDGES The Company designates and accounts for foreign currency swaps used to hedge the foreign currency cash flow exposure of foreign currency denominated investments and liabilities as cash flow hedges, when they have met the requirements of SFAS 133. 43 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) For each of the years ended December 31, 2008, 2007 and 2006, the Company did not recognize any net investment gains (losses) which represented the ineffective portion of all cash flow hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date or in the additional time period permitted by SFAS 133. There were no hedged forecasted transactions, other than the receipt or payment of variable interest payments for the years ended December 31, 2008, 2007, and 2006. For the year ended December 31, 2008, the net amount deferred in other comprehensive income (loss) relating to cash flow hedges was $4 million, which represents the net gain on the effective portion of cash flow hedges. For the years ended December 31, 2007 and 2006, the net amounts deferred in other comprehensive income (loss) relating to cash flow hedges was insignificant. At December 31, 2008, insignificant amounts of the deferred net gains (losses) on derivatives accumulated in other comprehensive income (loss) are expected to be reclassified to earnings during the year ending December 31, 2009. NON-QUALIFYING DERIVATIVES AND DERIVATIVES FOR PURPOSES OTHER THAN HEDGING The Company enters into the following derivatives that do not qualify for hedge accounting under SFAS 133 or for purposes other than hedging: (i) interest rate swaps and purchased floors to economically hedge its exposure to interest rates; (ii) foreign currency swaps to economically hedge its exposure to adverse movements in exchange rates; (iii) credit default swaps to economically hedge exposure to adverse movements in credit; (iv) equity variance swaps as a macro hedge on certain invested assets; and (v) credit default swaps to synthetically create investments. The following table presents changes in estimated fair value related to derivatives that do not qualify for hedge accounting:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Net investment gains (losses), excluding embedded derivatives........................................ $81 $15 $(12)
EMBEDDED DERIVATIVES The Company has certain embedded derivatives that are required to be separated from their host contracts and accounted for as derivatives. These host contracts principally include: variable annuities with guaranteed minimum withdrawal, guaranteed minimum accumulation and certain guaranteed minimum income riders; affiliated ceded reinsurance contracts related to guaranteed minimum withdrawal, guaranteed minimum accumulation and certain guaranteed minimum income riders. The following table presents the estimated fair value of the Company's embedded derivatives at:
DECEMBER 31, ----------- 2008 2007 ---- ---- (IN MILLIONS) Net embedded derivatives within asset host contracts: Ceded guaranteed minimum benefit riders.................... $569 $73 Net embedded derivatives within liability host contracts: Direct guaranteed minimum benefit riders................... $226 $17
44 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The following table presents changes in the estimated fair value related to embedded derivatives:
YEARS ENDED DECEMBER 31, ------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Net investment gains (losses) (1)....................... $274 $91 $(30)
-------- (1) Effective January 1, 2008, upon adoption of SFAS 157, the valuation of the Company's guaranteed minimum benefit riders includes an adjustment for the Company's own credit. Included in net investment gains (losses) for the year ended December 31, 2008 are gains of $136 million in connection with this adjustment. CREDIT RISK The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company's derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received pursuant to credit support annexes. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange traded futures are effected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit related losses in the event of nonperformance by counterparties to such derivative instruments. See Note 11 for a description of the impact of credit risk on the valuation of derivative instruments. The Company enters into various collateral arrangements, which require both the pledging and accepting of collateral in connection with its derivative instruments. At December 31, 2008, the Company was obligated to return cash collateral under its control of $61 million. This unrestricted cash collateral is included in cash and cash equivalents or in short-term investments and the obligation to return it is included in payables for collateral under securities loaned and other transactions in the balance sheets. The Company had no cash collateral under its control at December 31, 2007. In addition, the Company may have exchange-traded futures, which require the pledging of collateral. At December 31, 2008, the Company did not provide any securities collateral for exchange traded futures. At December 31, 2007, the Company pledged securities collateral for exchange-traded futures of $3 million, which is included in fixed maturity securities. The counterparties are permitted by contract to sell or repledge this collateral. In connection with synthetically created investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event, as defined by the contract, occurs, generally the contract will require the Company to pay the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company's maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $26 million at December 31, 2008. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. At December 31, 2008, the Company would have paid an insignificant amount to terminate all of these contracts. 45 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at December 31, 2008:
DECEMBER 31, 2008 ----------------------------------------------------------- MAXIMUM AMOUNT FAIR VALUE OF OF FUTURE PAYMENTS WEIGHTED RATING AGENCY DESIGNATION OF REFERENCED CREDIT DEFAULT UNDER CREDIT AVERAGE YEARS CREDIT OBLIGATIONS (1) SWAPS DEFAULT SWAPS (2) TO MATURITY (3) ------------------------------------------ -------------- ------------------ --------------- (IN MILLIONS) Aaa/Aa/A Single name credit default swaps (corporate).......................... $ -- $ 2 5.0 Credit default swaps referencing indices.............................. -- 24 4.0 ---- --- Subtotal............................. -- 26 4.1 ---- --- Baa Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- ---- --- Subtotal............................. -- -- -- ---- --- Ba Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- ---- --- Subtotal............................. -- -- -- ---- --- B Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- ---- --- Subtotal............................. -- -- -- ---- --- Caa and lower Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- ---- --- Subtotal............................. -- -- -- ---- --- In or near default Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- ---- --- Subtotal............................. -- -- -- ---- --- $-- $26 4.1 ==== ===
-------- (1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody's, S&P, and Fitch. If no rating is available from a rating agency, then the MetLife rating is used. (2) Assumes the value of the referenced credit obligations is zero. (3) The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. 46 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED Information regarding DAC and VOBA is as follows:
DAC VOBA TOTAL ---- ---- ----- (IN MILLIONS) Balance at January 1, 2006............................. $441 $163 $604 Capitalizations...................................... 80 -- 80 ---- ---- ---- Subtotal........................................ 521 163 684 ---- ---- ---- Less: Amortization related to: Net investment gains (losses)..................... (13) (3) (16) Other expenses.................................... 85 (17) 68 ---- ---- ---- Total amortization.............................. 72 (20) 52 ---- ---- ---- Less: Unrealized investment gains (losses)........... -- (1) (1) ---- ---- ---- Balance at December 31, 2006........................... 449 184 633 Capitalizations...................................... 89 -- 89 ---- ---- ---- Subtotal........................................ 538 184 722 ---- ---- ---- Less: Amortization related to: Net investment gains (losses)..................... 34 6 40 Other expenses.................................... 63 25 88 ---- ---- ---- Total amortization.............................. 97 31 128 ---- ---- ---- Less: Unrealized investment gains (losses)........... (3) (1) (4) ---- ---- ---- Balance at December 31, 2007........................... 444 154 598 Capitalizations...................................... 89 -- 89 ---- ---- ---- Subtotal........................................ 533 154 687 ---- ---- ---- Less: Amortization related to: Net investment gains (losses)..................... 31 -- 31 Other expenses.................................... 117 35 152 ---- ---- ---- Total amortization.............................. 148 35 183 ---- ---- ---- Less: Unrealized investment gains (losses)........... (50) (13) (63) ---- ---- ---- Balance at December 31, 2008........................... $435 $132 $567 ==== ==== ====
The estimated future amortization expense allocated to other expenses for the next five years for VOBA is $17 million in 2009, $15 million in 2010, $14 million in 2011, $12 million in 2012, and $11 million in 2013. Amortization of VOBA and DAC is attributed to both investment gains and losses and other expenses for the amount of gross profits originating from transactions other than investment gains and losses. Unrealized investment gains and losses provide information regarding the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized. 47 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. INSURANCE INSURANCE LIABILITIES Insurance liabilities are as follows:
POLICYHOLDER OTHER FUTURE POLICY ACCOUNT POLICYHOLDER BENEFITS BALANCES FUNDS --------------- --------------- --------------- DECEMBER 31, --------------------------------------------------- 2008 2007 2008 2007 2008 2007 ------ ------ ------ ------ ------ ------ (IN MILLIONS) Traditional life................. $ 8 $ 8 $ -- $ -- $ -- $ -- Variable & universal life........ -- -- 130 134 1 3 Annuities........................ 364 284 2,660 2,033 45 31 ---- ---- -- --- -- --- ---- ---- Total............................ $372 $292 $2,790 $2,167 $46 $34 ==== ==== == === == === ==== ====
SALES INDUCEMENTS Information regarding deferred sales inducements, which are reported in other assets, is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Balance at January 1,.................................. $ 90 $80 $ 75 Capitalization......................................... 18 19 19 Amortization........................................... (20) (9) (14) ---- --- ---- Balance at December 31,................................ $ 88 $90 $ 80 ==== === ====
SEPARATE ACCOUNTS Separate account assets and liabilities consist of pass-through separate accounts totaling $6,633 million and $9,432 million at December 31, 2008 and 2007, respectively, for which the policyholder assumes all investment risk. 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 $141 million, $138 million and $115 million for the years ended December 31, 2008, 2007 and 2006, respectively. For each of the years ended December 31, 2008, 2007 and 2006, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts. GUARANTEES The Company issues annuity contracts which may include contractual guarantees to the contractholder for: (i) return of no less than total deposits made to the contract less any partial withdrawals ("return of net deposits"); and (ii) the highest contract value on a specified anniversary date minus any withdrawals following the contract anniversary, or total deposits made to the contract less any partial withdrawals plus a minimum return ("anniversary contract value" or "minimum return"). These guarantees include benefits that are payable in the event of death or at annuitization. 48 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Information regarding the types of guarantees relating to annuity contracts is as follows:
DECEMBER 31, --------------------------------------------------------------- 2008 2007 ------------------------------ ------------------------------ IN THE AT IN THE AT EVENT OF DEATH ANNUITIZATION EVENT OF DEATH ANNUITIZATION -------------- ------------- -------------- ------------- (IN MILLIONS) ANNUITY CONTRACTS (1) RETURN OF NET DEPOSITS Separate account value................ $ 2,382 N/A $ 2,635 N/A Net amount at risk (2)................ $ 675 (3) N/A $ 10 (3) N/A Average attained age of contractholders..................... 62 years N/A 60 years N/A ANNIVERSARY CONTRACT VALUE OR MINIMUM RETURN Separate account value................ $ 5,390 $ 4,239 $ 8,070 $ 5,516 Net amount at risk (2)................ $ 2,256 (3) $ 2,003 (4) $ 225 (3) $ 89 (4) Average attained age of contractholders..................... 62 years 62 years 63 years 62 years
-------- (1) The Company's annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. (2) The net amount at risk is based on the direct amount at risk (excluding reinsurance). (3) The net amount at risk for guarantees of amounts in the event of death is defined as the current GMDB in excess of the current account balance at the balance sheet date. (4) The net amount at risk for guarantees of amounts at annuitization is defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. Information regarding the liabilities for guarantees (excluding base policy liabilities) relating to annuity contracts is as follows:
ANNUITY CONTRACTS ------------- GUARANTEED ANNUITIZATION BENEFITS ------------- (IN MILLIONS) Balance at January 1, 2006................................... $ -- Incurred guaranteed benefits................................. -- Paid guaranteed benefits..................................... -- ------------- Balance at December 31, 2006................................. -- Incurred guaranteed benefits................................. 8 Paid guaranteed benefits..................................... -- ------------- Balance at December 31, 2007................................. 8 Incurred guaranteed benefits................................. 41 Paid guaranteed benefits..................................... -- ------------- Balance at December 31, 2008................................. $49 =============
49 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Excluded from the table above are guaranteed annuitization benefit liabilities on the Company's annuity contracts of $67 million, $21 million and $24 million at December 31, 2008, 2007 and 2006, respectively, which were reinsured 100% to an affiliate and had corresponding recoverables from affiliated reinsurers related to such guarantee liabilities. Account balances of contracts with insurance guarantees are invested in separate account asset classes as follows:
DECEMBER 31, --------------- 2008 2007 ------ ------ (IN MILLIONS) Mutual Fund Groupings Equity.................................................. $4,134 $4,670 Balanced................................................ 1,838 4,073 Bond.................................................... 346 445 Money Market............................................ 242 125 Specialty............................................... 30 58 ------ ------ Total................................................ $6,590 $9,371 ====== ======
6. REINSURANCE The Company's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and provide additional capacity for future growth. The Company has historically reinsured the mortality risk on new individual life insurance policies primarily on an excess of retention basis or a quota share basis. Starting in 2002, the Company reinsured up to 90% of the mortality risk for all new individual life insurance policies. During 2005, the Company changed its retention practices for individual life insurance. Amounts reinsured in prior years remain reinsured under the original reinsurance; however, under the new retention guidelines, the Company retains up to $100,000 per life and reinsures 100% of amounts in excess of the Company's retention limits. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specific characteristics. The Company reinsures 90% of its new production of fixed annuities to an affiliated reinsurer. The Company reinsures 100% of the living and death benefit riders associated with its variable annuities issued since 2001 to an affiliated reinsurer. Under these reinsurance agreements, the Company pays a reinsurance premium generally based on rider fees collected from policyholders and receives reimbursements for benefits paid or accrued in excess of account values, subject to certain limitations. The Company enters into similar agreements for new or in-force business depending on market conditions. In addition to reinsuring mortality risk as described previously, the Company reinsures other risks, as well as specific coverages. The Company routinely reinsures certain classes of risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company has exposure to catastrophes, which could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of retention and quota share reinsurance arrangements to provide greater diversification of risk and minimize exposure to larger risks. The Company reinsures its business through a diversified group of reinsurers. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, reinsurance balances recoverable could become uncollectible. Cessions under reinsurance arrangements do not discharge the Company's obligations as the primary insurer. 50 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The amounts in the statements of income are presented net of reinsurance ceded. Information regarding the effect of reinsurance is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) PREMIUMS: Direct premiums.................................... $ 9 $ 13 $ 65 Reinsurance ceded.................................. -- (1) -- ---- ---- ---- Net premiums.................................... $ 9 $ 12 $ 65 ==== ==== ==== UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES: Direct universal life and investment-type product policy fees..................................... $191 $201 $177 Reinsurance ceded.................................. (31) (39) (34) ---- ---- ---- Net universal life and investment-type product policy fees................................... $160 $162 $143 ==== ==== ==== POLICYHOLDER BENEFITS AND CLAIMS: Direct policyholder benefits and claims............ $150 $ 43 $ 99 Reinsurance ceded.................................. (61) (7) (8) ---- ---- ---- Net policyholder benefits and claims............ $ 89 $ 36 $ 91 ==== ==== ====
Information regarding ceded reinsurance recoverable balances, included in premiums and other receivables is as follows:
DECEMBER 31, ---------------- 2008 2007 ------ ------- (IN MILLIONS) UNAFFILIATED RECOVERABLES: Future policy benefit recoverables........................ $ 7 $ -- Claim recoverables........................................ 1 -- ------ ------- Total................................................... $ 8 $ -- ====== ======= AFFILIATED RECOVERABLES: Deposit recoverables...................................... $1,033 $738 Future policy benefit recoverables........................ 636 103 Claim recoverables........................................ 4 1 All other recoverables.................................... 32 58 ------ ------- Total................................................... $1,705 $900 ====== =======
Reinsurance recoverable balances are stated net of allowances for uncollectible balances, which are immaterial. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with reinsurers. The Company also monitors ratings and evaluates the financial strength of the Company's reinsurers by analyzing their financial statements. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts and irrevocable letters of credit. At December 31, 2008, the Company has $276 million of affiliated reinsurance recoverable balances secured through irrevocable letters of credit issued and $139 million of affiliated reinsurance recoverable balances secured by funds held in trust as collateral. 51 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The Company's five largest unaffiliated reinsurers account for $8 million, or 100%, of its total unaffiliated reinsurance recoverable balances at December 31, 2008. Reinsurance balances payable to unaffiliated reinsurers, included in other liabilities, were insignificant at both December 31, 2008 and 2007. Reinsurance balances payable to affiliated reinsurers, included in liabilities, were $91 million and $5 million at December 31, 2008 and 2007, respectively. RELATED PARTY REINSURANCE TRANSACTIONS The Company has reinsurance agreements with certain MetLife subsidiaries including Metropolitan Life Insurance Company ("MLIC") and Exeter Reassurance Company, Ltd. The Company also has reinsurance agreements with Reinsurance Group of America, Incorporated, ("RGA"), a former affiliate, which was split-off from MetLife in September 2008. The table below includes amounts related to transactions with RGA through the date of the split-off. The following table reflects related party reinsurance information:
YEARS ENDED DECEMBER 31, ------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Ceded fees, included in universal life and investment- type product policy fees............................... $30 $38 $33 Income from deposit contracts, included in other revenues............................................... $29 $45 $45 Ceded benefits, included in policyholder benefits and claims................................................. $61 $ 7 $ 8 Interest costs on ceded reinsurance, included in other expenses............................................... $(1) $(2) $(2)
The Company has ceded risks to an affiliate related to guaranteed minimum benefit riders written directly by the Company. These ceded reinsurance agreements contain embedded derivatives and changes in their fair value are also included within net investment gains (losses). The embedded derivatives ceded are included within premiums and other receivables and were assets of $569 million and $73 million at December 31, 2008 and 2007, respectively. For the years ended December 31, 2008, 2007 and 2006, net investment gains (losses) included $496 million, $110 million and ($36) million, respectively, in changes in fair value of such embedded derivatives. 7. INCOME TAX The provision (benefit) for income tax is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Current: Federal............................................. $(36) $(4) $(81) Deferred: Federal............................................. 108 27 64 ---- --- ---- Provision (benefit) for income tax.................... $ 72 $23 $(17) ==== === ====
52 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The reconciliation of the income tax provision (benefit) at the U.S. statutory rate to the provision (benefit) for income tax as reported is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Tax provision at U.S. statutory rate.................. $ 82 $ 33 $ (4) Tax effect of: Tax-exempt investment income........................ (10) (9) (9) Prior year tax...................................... -- (2) (3) Other, net.......................................... -- 1 (1) ---- ---- ---- Provision (benefit) for income tax.................... $ 72 $23 $(17) ==== ==== ====
Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
DECEMBER 31, ------------- 2008 2007 ----- ----- (IN MILLIONS) Deferred income tax assets: Policyholder liabilities and receivables................. $ -- $ 73 Net unrealized investment losses......................... 84 7 Other.................................................... 1 1 ----- ----- 85 81 ----- ----- Deferred income tax liabilities: Investments.............................................. 35 13 Policyholder liabilities and receivables................. 24 -- DAC...................................................... 173 184 ----- ----- 232 197 ----- ----- Net deferred income tax liability.......................... $(147) $(116) ===== =====
A valuation allowance is provided when it is more likely than not that some portion of the deferred income tax assets will not be realized. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred income tax assets. The Company has not recorded a valuation allowance against the deferred tax asset of $84 million recognized in connection with unrealized investment losses at December 31, 2008. The Company has the intent and ability to hold such securities until their recovery or maturity and the Company has available to it tax-planning strategies that include sources of future taxable income against which such losses could be offset. Effective January 1, 2006, the Company joined with MetLife and its includable affiliates in filing a federal income tax return. The Company participates in a tax sharing agreement with MetLife. Under the agreement, current federal income tax expense (benefit) is computed on a separate return basis and provides that members shall make payments or receive reimbursements to the extent that their income (loss) contributes to or reduces consolidated federal tax expense. The consolidating companies are reimbursed for net operating losses or other tax attributes they have generated when utilized in the consolidated return. 53 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to the tax sharing agreement, the amount due from affiliates is $33 million and $2 million as of December 31, 2008 and 2007, respectively. The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company is under continuous examination by the Internal Revenue Service ("IRS") and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction. With a few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2004. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's financial statements. As a result of the implementation of FIN 48, the Company recognized a $5 million decrease in the liability for unrecognized tax benefits and a corresponding increase to the January 1, 2007 balance of retained earnings. Upon adoption of FIN 48, the Company did not have any unrecognized tax benefits. On September 25, 2007, the IRS issued Revenue Ruling 2007-61, which announced its intention to issue regulations with respect to certain computational aspects of the Dividends Received Deduction ("DRD") on separate account assets held in connection with variable annuity contracts. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that would have changed accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the years ended December 31, 2008 and 2007, the Company recognized an income tax benefit of $10 million and $9 million, respectively, related to the separate account DRD. 8. CONTINGENCIES, COMMITMENTS AND GUARANTEES CONTINGENCIES LITIGATION The Company and certain of its affiliates have faced numerous claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds or other products. Additional litigation relating to the Company's marketing and sales of individual life insurance, annuities, mutual funds or other products may be commenced in the future. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's financial statements, have arisen in the course of the Company's business. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted above in connection with specific matters. In some of the matters, large and/or indeterminate amounts, including punitive and treble damages, may be sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known by the Company's management, in its opinion, the outcomes of pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts that may be sought in certain matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to 54 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) time, have a material adverse effect on the Company's net income or cash flows in particular quarterly or annual periods. INSOLVENCY ASSESSMENTS Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. Assessments levied against the Company were less than $1 million for each of the years ended December 31, 2008, 2007 and 2006. At both December 31, 2008 and 2007, the Company maintained a liability of $8 million, and a related asset for premium tax offsets of $800 thousand for undiscounted future assessments in respect of impaired, insolvent or failed insurers. At December 31, 2007, the Company also held a receivable of $7 million, recorded in other assets, for reimbursement of assessments incurred in a prior acquisition. There were no such receivables at December 31, 2008. COMMITMENTS COMMITMENTS TO FUND PARTNERSHIP INVESTMENTS The Company makes commitments to fund partnership investments in the normal course of business. The amount of this unfunded commitment was $1 million at December 31, 2008. The Company did not have unfunded commitments at December 31, 2007. The Company anticipates that this amount will be invested in partnerships over the next five years. GUARANTEES In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company's interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments. 55 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The Company had no liability for indemnities, guarantees and commitments at both December 31, 2008 and 2007. In connection with synthetically created investment transactions, the Company writes credit default swap obligations that generally require payment of principal outstanding due in exchange for the referenced credit obligation. If a credit event, as defined by the contract, occurs the Company's maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $26 million at December 31, 2008. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. As of December 31, 2008, the Company would have paid an insignificant amount to terminate all of these contracts. See Note 3 for further disclosures related to credit default swap obligations. 9. EQUITY CAPITAL CONTRIBUTIONS The Company received a cash contribution of $50 million from MetLife during the year ended December 31, 2008. There were no contributions received for the years ended December 31, 2007 and 2006. STATUTORY EQUITY AND INCOME The Company's state of domicile imposes minimum risk-based capital ("RBC") requirements that were developed by the National Association of Insurance Commissioners ("NAIC"). The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital, as defined by the NAIC, to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The Company exceeded the minimum RBC requirements for all periods presented herein. The NAIC has adopted the Codification of Statutory Accounting Principles ("Codification"). Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Missouri State Department of Insurance (the "Department") has adopted Codification with certain modifications for the preparation of statutory financial statements of insurance companies domiciled in Missouri. Modifications by state insurance departments may impact the effect of Codification on the statutory capital and surplus of the Company. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within a year. Statutory net income (loss) of the Company, as filed with the Department, was ($35) million, $40 million and $116 million for the years ended December 31, 2008, 2007 and 2006, respectively. Statutory capital and surplus, as filed with the Department, was $398 million and $329 million at December 31, 2008 and 2007, respectively. 56 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) DIVIDEND RESTRICTIONS Under Missouri State Insurance Law, the maximum amount of dividends the Company is permitted to pay, without prior insurance regulatory clearance, is the greater of: (i) 10% of its statutory surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). However, dividends may only be paid from positive balances in statutory unassigned funds. Since the Company's statutory unassigned funds surplus is less than zero, no dividends are permissible in 2009 without prior approval of the Missouri Commissioner of Insurance. OTHER COMPREHENSIVE INCOME (LOSS) The following table sets forth the reclassification adjustments required for the years ended December 31, 2008, 2007 and 2006 in other comprehensive income (loss) that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior years:
YEARS ENDED DECEMBER 31, --------------------- 2008 2007 2006 ----- ----- ----- (IN MILLIONS) Holding gains (losses) on investments arising during the year........................................... $(305) $ (27) $(22) Income tax effect of holding gains (losses).......... 107 9 8 Reclassification adjustments: Recognized holding (gains) losses included in current year income............................. 26 7 18 Amortization of premiums and accretion of discounts associated with investments .................... (3) -- 4 Income tax effect.................................. (8) (3) (8) Allocation of holding losses on investments relating to other policyholder amounts...................... 63 4 1 Income tax effect of allocation of holding losses to other policyholder amounts......................... (22) (1) -- -- -- -- -- - -- Other comprehensive income (loss).................... $(142) $(11) $ 1 == == == == = ==
10. OTHER EXPENSES Information on other expenses is as follows:
YEARS ENDED DECEMBER 31, --------------------- 2008 2007 2006 ----- ----- ----- (IN MILLIONS) Compensation......................................... $ 18 $ 16 $ 14 Commissions.......................................... 85 95 82 Amortization of DAC and VOBA......................... 183 128 52 Capitalization of DAC................................ (89) (89) (80) Insurance tax........................................ 2 3 3 Other................................................ 45 52 51 ---- ---- ---- Total other expenses................................. $244 $205 $122 ==== ==== ====
For the years ended December 31, 2008, 2007 and 2006, commissions and capitalization of DAC include the impact of affiliated reinsurance transactions. See Note 6. See also Note 12 for discussion of affiliated expenses included in the table above. 57 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) See Note 4 for a rollforward of DAC including impacts of amortization and capitalization. 11. FAIR VALUE FAIR VALUE OF FINANCIAL INSTRUMENTS As described in Note 1, the Company prospectively adopted the provisions of SFAS 157 effective January 1, 2008. As a result, the methodologies used to determine the estimated fair value for certain financial instruments at December 31, 2008 may have been modified from those utilized at December 31, 2007, which, while being deemed appropriate under existing accounting guidance, may not have produced an exit value as defined in SFAS 157. Accordingly, the estimated fair value of financial instruments, and the description of the methodologies used to derive those estimated fair values, are presented separately at December 31, 2007 and December 31, 2008. Considerable judgment is often required in interpreting market data to develop estimates of fair value and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments are as follows:
ESTIMATED NOTIONAL CARRYING FAIR DECEMBER 31, 2007 AMOUNT VALUE VALUE ----------------- --------- --------- --------- (IN MILLIONS) Assets: Fixed maturity securities......................... $ 2,017 $ 2,017 Equity securities................................. $ 18 $ 18 Mortgage loans on real estate..................... $ 74 $ 76 Policy loans...................................... $ 29 $ 29 Short-term investments............................ $ 74 $ 74 Cash and cash equivalents......................... $ 81 $ 81 Accrued investment income......................... $ 20 $ 20 Liabilities: Policyholder account balances..................... $2,033 $1,956 Payables for collateral under securities loaned transactions................................... $ 541 $ 541
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: Fixed Maturity Securities and Equity Securities -- The estimated fair values of publicly held fixed maturity securities and publicly held equity securities are based on quoted market prices or estimates from independent pricing services. However, in cases where quoted market prices are not available, such as for private fixed maturity securities, fair values are estimated using present value or valuation techniques. The determination of estimated fair values is based on: (i) market standard valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The fair value estimates are based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include; coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer, and quoted market prices of comparable securities. Mortgage Loans on Real Estate -- Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. Policy Loans -- The estimated fair values for policy loans approximate carrying values. 58 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents and Short-term Investments -- The estimated fair values for cash and cash equivalents and short-term investments approximate carrying values due to the short-term maturities of these instruments. Accrued Investment Income -- The estimated fair value for accrued investment income approximates carrying value. Policyholder Account Balances -- The fair value of policyholder account balances which have final contractual maturities 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. The estimated fair value of policyholder account balances without final contractual maturities are assumed to equal their current net surrender value. Payables for Collateral Under Securities Loaned Transactions -- The estimated fair value for payables for collateral under securities loaned transactions approximates carrying value. Derivative Financial Instruments -- The estimated fair value of derivative financial instruments, including financial forwards, interest rate, credit default and foreign currency swaps and interest rate floors are based upon quotations obtained from dealers or other reliable sources. See Note 3 for derivative fair value disclosures.
ESTIMATED NOTIONAL CARRYING FAIR DECEMBER 31, 2008 AMOUNT VALUE VALUE ------------------ --------- --------- --------- (IN MILLIONS) Assets: Fixed maturity securities.......................... $1,576 $1,576 Equity securities.................................. $ 9 $ 9 Mortgage loans on real estate...................... $ 76 $ 78 Policy loans....................................... $ 28 $ 35 Other limited partnership interests................ $ 2 $ 2 Short-term investments............................. $ 189 $ 189 Other invested assets (1).......................... $2,075 $ 109 $ 109 Cash and cash equivalents.......................... $ 517 $ 517 Accrued investment income.......................... $ 16 $ 16 Premiums and other receivables (2)................. $1,057 $ 898 Separate account assets............................ $6,633 $6,633 Net embedded derivatives within asset host contracts (3)................................... $ 569 $ 569 Liabilities: Policyholder account balances (2).................. $1,874 $1,627 Payables for collateral under securities loaned and other transactions.............................. $ 385 $ 385 Other liabilities: (2) Derivative liabilities.......................... $ 14 $ -- $ -- Other........................................... $ 1 $ 1 Net embedded derivatives within liability host contracts (3)................................... $ 226 $ 226
-------- (1) Other invested assets is comprised of freestanding derivatives with positive estimated fair values. (2) Carrying values presented herein differ from those presented on the balance sheet because certain items within the respective financial statement caption are not considered financial instruments. Financial statement captions omitted from the table above are not considered financial instruments. 59 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) (3) Net embedded derivatives within asset host contracts are presented within premiums and other receivables. Net embedded derivatives within liability host contracts are presented within policyholder account balances. The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: Fixed Maturity Securities and Equity Securities -- When available, the estimated fair value of the Company's fixed maturity and equity securities are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company's securities holdings and valuation of these securities does not involve management judgment. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies. The market standard valuation methodologies utilized include: discounted cash flow methodologies, matrix pricing or other similar techniques. The assumptions and inputs in applying these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and management's assumptions regarding liquidity and estimated future cash flows. Accordingly, the estimated fair values are based on available market information and management's judgments about financial instruments. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. When observable inputs are not available, the market standard valuation methodologies for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. The use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company's securities holdings. Mortgage Loans on Real Estate -- The Company originates mortgage loans on real estate principally for investment purposes. These loans are carried at amortized cost within the financial statements. The fair value for mortgage loans on real estate is primarily determined by estimating expected future cash flows and discounting those using current interest rates for similar loans with similar credit risk. Policy Loans -- For policy loans with fixed interest rates, estimated fair values are determined using a discounted cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed applying a weighted-average interest rate to the outstanding principal balance of the respective group of loans and an estimated average maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk as these loans are fully collateralized by the cash surrender value of the underlying insurance policy. The estimated fair value for policy loans with variable interest rates approximates carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a material change in estimated fair value due to changes in market interest rates. 60 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Other Limited Partnership Interests -- Other limited partnerships included in the preceding table consist of those investments accounted for using the cost method. The estimated fair values for other limited partnership interests accounted for under the cost method are generally based on the Company's share of the NAV as provided in the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such adjustments. Short-term Investments -- Certain short-term investments do not qualify as securities and are recognized at amortized cost in the balance sheet. For these instruments, the Company believes that there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, short-term investments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality and the Company has determined additional adjustment is not required. Short-term investments that meet the definition of a security are recognized at estimated fair value in the balance sheet in the same manner described above for similar instruments that are classified within captions of other major investment classes. Other Invested Assets -- Other invested assets in the balance sheet is comprised of freestanding derivatives with positive estimated fair values. The estimated fair value of derivatives -- with positive and negative estimated fair values -- is described in the respectively labeled section which follows. Cash and Cash Equivalents -- Due to the short-term maturities of cash and cash equivalents, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value generally approximates carrying value. In light of recent market conditions, cash and cash equivalent instruments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality, or sufficient solvency in the case of depository institutions, and the Company has determined additional adjustment is not required. Accrued Investment Income -- Due to the short-term until settlement of accrued investment income, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, the Company has monitored the credit quality of the issuers and has determined additional adjustment is not required. Premiums and Other Receivables -- Premiums and other receivables in the balance sheet is principally comprised of premiums due and unpaid for insurance contracts, amounts recoverable under reinsurance contracts, fees and general operating receivables, and embedded derivatives related to the ceded reinsurance of certain variable annuity riders. Amounts recoverable under ceded reinsurance contracts which the Company has determined do not transfer sufficient risk such that they are accounted for using the deposit method of accounting have been included in the preceding table with the estimated fair value determined as the present value of expected future cash flows under the related contracts discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty. Embedded derivatives recognized in connection with ceded reinsurance of certain variable annuity riders are included in this caption in the financial statements but excluded from this caption in the preceding table as they are separately presented. Separate Account Assets -- Separate account assets are carried at estimated fair value and reported as a summarized total on the balance sheet in accordance with SOP 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). The estimated fair value of separate account assets are based on the estimated fair value of the underlying assets owned by the separate account. Assets within the Company's separate accounts are comprised of actively traded mutual 61 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) funds. The fair value of mutual funds is based upon quoted prices or reported NAVs provided by the fund manager and are reviewed by management to determine whether such values require adjustment to represent exit value. Policyholder Account Balances -- Policyholder account balances in the table above include investment contracts. Embedded derivatives on investment contracts and certain variable annuity riders accounted for as embedded derivatives are included in this caption in the financial statements but excluded from this caption in the table above as they are separately presented therein. The remaining difference between the amounts reflected as policyholder account balances in the preceding table and those recognized in the balance sheet represents those amounts due under contracts that satisfy the definition of insurance contracts and are not considered financial instruments. The investment contracts primarily include fixed deferred annuities, modified guaranteed annuities and fixed term payout annuities. The fair values for these investment contracts are estimated by discounting best estimate future cash flows using current market risk-free interest rates and adding a spread for the Company's own credit determined using market standard swap valuation models and observable market inputs that take into consideration publicly available information relating to the Company's claims paying ability. Payables for Collateral Under Securities Loaned and Other Transactions -- The estimated fair value for payables for collateral under securities loaned and other transactions approximates carrying value. The related agreements to loan securities are short-term in nature such that the Company believes there is limited risk of a material change in market interest rates. Additionally, because borrowers are cross-collateralized by the borrowed securities, the Company believes no additional consideration for changes in its own credit are necessary. Other Liabilities -- Other liabilities in the balance sheet is principally comprised of freestanding derivatives with negative estimated fair values; tax and litigation contingency liabilities; interest due on cash collateral held in relation to securities lending; amounts due under assumed reinsurance contracts; and general operating accruals and payables. The estimated fair value of derivatives -- with positive and negative estimated fair values -- is described in the respectively labeled section which follows. The amounts included in the table above reflect those other liabilities that satisfy the definition of financial instruments subject to disclosure. These items consist primarily of interest due on cash collateral held in relation to securities lending. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which were not materially different from the recognized carrying values. Derivatives -- The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for over-the-counter derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models. The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of 62 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such instruments. The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all over-the-counter derivatives after taking into account the effects of netting agreements and collateral arrangements. Credit risk is monitored and consideration of any potential credit adjustment is based on net exposure by counterparty. This is due to the existence of netting agreements and collateral arrangements which effectively serve to mitigate risk. The Company values its derivative positions using the standard swap curve which includes a credit risk adjustment. This credit risk adjustment is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The need for such additional credit risk adjustments is monitored by the Company. The Company's ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. Most inputs for over-the-counter derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company's derivatives and could materially affect net income. Embedded Derivatives within Asset and Liability Host Contracts -- Embedded derivatives principally include certain direct variable annuity riders and certain affiliated ceded reinsurance contracts related to such variable annuity riders. Embedded derivatives are recorded in the financial statements at estimated fair value with changes in estimated fair value adjusted through net income. The Company issues certain variable annuity products with guaranteed minimum benefit riders. GMWB, GMAB and certain GMIB riders are embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net investment gains (losses). These embedded derivatives are classified within policyholder account balances. The fair value for these riders is estimated using the present value of future benefits minus the present value of future fees using actuarial and capital market assumptions related to the projected cash flows over the expected lives of the contracts. A risk neutral valuation methodology is used under which the cash flows from the riders are projected under multiple capital market scenarios using observable risk free rates. Effective January 1, 2008, upon adoption of SFAS 157, the valuation of these riders now includes an adjustment for the Company's own credit and risk margins for non-capital market inputs. The Company's own credit adjustment is determined taking into consideration publicly available information relating to the Company's claims paying ability. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment. These riders may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in the Company's own credit standing; and variations in actuarial assumptions regarding policyholder behavior and risk margins related to non-capital market inputs may result in significant fluctuations in the estimated fair value of the riders that could materially affect net income. The Company cedes the risks associated with certain of the GMIB, GMAB and GMWB riders described in the preceding paragraph. These reinsurance contracts contain embedded derivatives which are included in premiums and other receivables with changes in estimated fair value reported in net investment gains (losses). The value of the 63 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) embedded derivatives on the ceded risks is determined using a methodology consistent with that described previously for the riders directly written by the Company. In addition to ceding risks associated with riders that are accounted for as embedded derivatives, the Company also cedes to an affiliated reinsurance company certain directly written GMIB riders that are accounted for as insurance (i.e., not as embedded derivatives) but where the reinsurance contract contains an embedded derivative. These embedded derivatives are included in premiums and other receivables with changes in estimated fair value reported in net investment gains (losses). The value of the embedded derivatives on these ceded risks is determined using a methodology consistent with that described previously for the riders directly written by the Company. Because the direct rider is not accounted for at fair value, significant fluctuations in net income may occur as the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a corresponding and offsetting change in fair value of the direct rider. The accounting for embedded derivatives is complex and interpretations of the primary accounting standards continue to evolve in practice. If interpretations change, there is a risk that features previously not bifurcated may require bifurcation and reporting at estimated fair value in the financial statements and respective changes in estimated fair value could materially affect net income. 64 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) ASSETS AND LIABILITIES MEASURED AT FAIR VALUE RECURRING FAIR VALUE MEASUREMENTS The fair value of assets and liabilities measured at estimated fair value on a recurring basis, are determined as described in the preceding section. These estimated fair values and their corresponding fair value hierarchy are summarized as follows:
DECEMBER 31, 2008 -------------------------------------------------------- FAIR VALUE MEASUREMENTS AT REPORTING DATE USING -------------------------------------------- QUOTED PRICES IN ACTIVE MARKETS SIGNIFICANT FOR IDENTICAL OTHER SIGNIFICANT ASSETS AND OBSERVABLE UNOBSERVABLE TOTAL LIABILITIES INPUTS INPUTS ESTIMATED (LEVEL 1) (LEVEL 2) (LEVEL 3) FAIR VALUE ----------------- ----------- ------------ ---------- (IN MILLIONS) ASSETS Fixed maturity securities: U.S. corporate securities.................. $ -- $ 618 $ 8 $ 626 Residential mortgage-backed securities..... -- 306 5 311 Commercial mortgage-backed securities...... -- 215 -- 215 U.S. Treasury/agency securities............ 72 114 -- 186 Asset-backed securities.................... -- 122 25 147 Foreign corporate securities............... -- 64 19 83 Foreign government securities.............. -- 8 -- 8 ------ ------ ---- ------ Total fixed maturity securities......... 72 1,447 57 1,576 ------ ------ ---- ------ Equity securities: Non-redeemable preferred stock............. -- -- 9 9 ------ ------ ---- ------ Total equity securities................. -- -- 9 9 ------ ------ ---- ------ Short-term investments....................... 144 45 -- 189 Derivative assets (1)........................ -- 109 -- 109 Net embedded derivatives within asset host contracts (2).............................. -- -- 569 569 Separate account assets (3).................. 6,633 -- -- 6,633 ------ ------ ---- ------ Total assets............................ $6,849 $1,601 $635 $9,085 ====== ====== ==== ====== LIABILITIES Net embedded derivatives within liability host contracts (2)......................... $ -- $ -- $226 $ 226 ====== ====== ==== ======
-------- (1) Derivative assets are presented within other invested assets on the balance sheet. (2) Net embedded derivatives within asset host contracts are presented within premiums and other receivables. Net embedded derivatives within liability host contracts are presented within policyholder account balances. (3) Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets as prescribed by SOP 03-1. The Company has categorized its assets and liabilities into the three-level fair value hierarchy, as defined in Note 1, based upon the priority of the inputs to the respective valuation technique. The following summarizes the types of assets and liabilities included within the three-level fair value hierarchy presented in the preceding table. 65 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) Level 1 This category includes certain U.S. Treasury and agency fixed maturity securities and certain short-term money market securities. Separate account assets classified within this level principally include mutual funds. Level 2 This category includes fixed maturity securities priced principally by independent pricing services using observable inputs. These fixed maturity securities include most U.S. Treasury and agency securities as well as the majority of U.S. and foreign corporate securities, residential mortgage-backed securities, commercial mortgage-backed securities, foreign government securities and asset-backed securities. Short-term investments included within Level 2 are of a similar nature to these fixed maturity securities. As it relates to derivatives, this level includes derivatives for which all the inputs used, are observable; including interest rate floors, foreign currency swaps and credit default swaps. Level 3 This category includes fixed maturity securities priced principally through independent broker quotations or market standard valuation methodologies using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. This level consists of less liquid fixed maturity securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies including: U.S. and foreign corporate securities -- including below investment grade private placements; residential mortgage-backed securities; and asset backed securities -- including all of those supported by sub-prime mortgage loans. Equity securities classified as Level 3 securities consist of non-redeemable preferred stock where there has been very limited trading activity or where less price transparency exists around the inputs to the valuation. As it relates to derivatives this category includes: credit default swaps having unobservable credit correlations and priced through independent broker quotations. Embedded derivatives classified within this level include embedded derivatives associated with certain variable annuity riders as well as those on the cession of the risks associated with those riders to affiliates. A rollforward of all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs for year ended December 31, 2008 is as follows:
FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) --------------------------------------------------------------------------------------------------------- TOTAL REALIZED/UNREALIZED GAINS (LOSSES) INCLUDED IN: ----------------------------- PURCHASES, BALANCE, IMPACT OF BALANCE, OTHER SALES, TRANSFER IN BALANCE, DECEMBER 31, SFAS 157 BEGINNING COMPREHENSIVE ISSUANCES AND AND/OR OUT END OF 2007 ADOPTION (1) OF PERIOD EARNINGS (2, 3) INCOME (LOSS) SETTLEMENTS (4) OF LEVEL 3 (5) PERIOD ------------ ------------ --------- --------------- ------------- --------------- -------------- -------- (IN MILLIONS) Fixed maturity securities............. $115 $ -- $115 $ (8) $(29) $(27) $ 6 $ 57 Equity securities........ 18 -- 18 -- (9) -- -- 9 Net embedded derivatives (6).................... 56 30 86 244 -- 13 -- 343
-------- (1) Impact of SFAS 157 adoption represents the amount recognized in earnings as a change in estimate upon the adoption of SFAS 157 associated with Level 3 financial instruments held at January 1, 2008. The net impact of adoption on Level 3 assets and liabilities presented in the table above was a $30 million increase to net assets. Such amount was also impacted by a decrease to DAC of $10 million for a total impact of $20 million on Level 3 assets and liabilities and also reflects the total net impact of the adoption of SFAS 157, as described in Note 1. (2) Amortization of premium/discount is included within net investment income which is reported within the earnings caption of total gains/losses. Impairments are included within net investment gains (losses) which is reported within the earnings caption of total gains/losses. Lapses associated with embedded derivatives are included with the earnings caption of total gains/losses. 66 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) (3) Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. (4) The amount reported within purchases, sales, issuances and settlements is the purchase/issuance price (for purchases and issuances) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased/issued or sold/settled. Items purchased/issued and sold/settled in the same period are excluded from the rollforward. For embedded derivatives, attributed fees are included within this caption along with settlements, if any. (5) Total gains and losses (in earnings and other comprehensive income (loss)) are calculated assuming transfers in (out) of Level 3 occurred at the beginning of the period. Items transferred in and out in the same period are excluded from the rollforward. (6) Embedded derivative assets and liabilities are presented net for purposes of the rollforward. (7) Amounts presented do not reflect any associated hedging activities. Actual earnings associated with Level 3, inclusive of hedging activities, could differ materially. The table below summarizes both realized and unrealized gains and losses for the year ended December 31, 2008 due to changes in estimated fair value recorded in earnings for Level 3 assets and liabilities:
TOTAL GAINS AND LOSSES -------------------------------------------- CLASSIFICATION OF REALIZED/UNREALIZED GAINS (LOSSES) INCLUDED IN EARNINGS -------------------------------------------- NET NET INVESTMENT INVESTMENT INCOME GAINS (LOSSES) TOTAL ----------- -------------- ----------- (IN MILLIONS) Fixed maturity securities................ $ -- $ (8) $ (8) Net embedded derivatives................. -- 244 244
The table below summarizes the portion of unrealized gains and losses recorded in earnings for the year ended December 31, 2008 for Level 3 assets and liabilities that are still held at December 31, 2008.
CHANGES IN UNREALIZED GAINS (LOSSES) RELATING TO ASSETS AND LIABILITIES HELD AT DECEMBER 31, 2008 ------------------------------------------ NET NET INVESTMENT INVESTMENT INCOME GAINS (LOSSES) TOTAL ----------- -------------- ----------- (IN MILLIONS) Fixed maturity securities................. $ -- $ (8) $ (8) Net embedded derivatives.................. -- 244 244
12. RELATED PARTY TRANSACTIONS The Company has entered into a master service agreement with MLIC who provides administrative, accounting, legal and similar services to the Company. MLIC charged the Company $31 million, $37 million and $24 million, included in other expenses, for services performed under the master service agreement for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into a service agreement with MetLife Group, Inc. ("MetLife Group"), a wholly-owned subsidiary of MetLife, under which MetLife Group provides personnel services, as needed, to support the activities of the Company. MetLife Group charged the Company $21 million, $20 million and $30 million, included in other expenses, for services performed under the service agreement for the years ended December 31, 2008, 2007 and 2006, respectively. 67 METLIFE INVESTORS INSURANCE COMPANY (A Wholly-Owned Subsidiary of MetLife, Inc.) NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) The Company has entered into a distribution agreement with MetLife Investors Distribution Company ("MDC"), in which MDC agrees to sell, on the Company's behalf, insurance products through authorized retailers. The Company agrees to compensate MDC for the sale and servicing of such insurance products in accordance with the terms of the agreement. MDC charged the Company $61 million, $94 million and $80 million, included in other expenses, for the years ended December 31, 2008, 2007 and 2006, respectively. In addition, the Company has entered into a service agreement with MDC, in which the Company agrees to provide certain administrative services to MDC. MDC agrees to compensate the Company for the administrative services provided in accordance with the terms of the agreements. The Company received fee revenue of $14 million, $15 million and $16 million, included in other revenues, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into an investment service agreement with several affiliates ("Advisors"), in which the Advisors provide investment advisory and administrative services to registered investment companies which serve as investment vehicles for certain insurance contracts issued by the Company. Per the agreement, the net profit or loss of the Advisors is allocated to the Company resulting in revenue of $22 million, $21 million and $25 million included in universal life and investment-type product policy fees, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company had net payables to affiliates of $21 million and $11 million at December 31, 2008 and 2007, respectively, related to the items discussed above. These payables exclude affiliated reinsurance balances discussed in Note 6. See Notes 2, 5 and 6 for additional related party transactions. 68 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Financial Statements for the Years Ended December 31, 2008, 2007 and 2006 and Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder of General American Life Insurance Company: We have audited the accompanying consolidated balance sheets of General American Life Insurance Company and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 financial position of General American Life Insurance Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Company changed its method of accounting for certain assets and liabilities to a fair value measurement approach as required by accounting guidance adopted on January 1, 2008, and changed its method of accounting for deferred acquisition costs and for income taxes as required by accounting guidance adopted on January 1, 2007. /s/ DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, Florida April 09, 2009 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2008 AND 2007 (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
2008 2007 ------- ------- ASSETS Investments: Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $6,582 and $7,508, respectively)..... $ 6,140 $ 7,919 Equity securities available-for-sale, at estimated fair value (cost: $166 and $31, respectively).......................... 135 31 Mortgage loans on real estate.................................. 219 241 Policy loans................................................... 1,691 1,657 Real estate and real estate joint ventures held-for- investment.................................................. 55 55 Other limited partnership interests............................ 81 33 Short-term investments......................................... 514 237 Other invested assets.......................................... 126 80 ------- ------- Total investments........................................... 8,961 10,253 Cash and cash equivalents........................................ 152 103 Accrued investment income........................................ 99 107 Premiums and other receivables................................... 2,177 2,154 Deferred policy acquisition costs and value of business acquired....................................................... 279 137 Current income tax recoverable................................... 23 119 Deferred income tax assets....................................... 210 -- Other assets..................................................... 136 140 Assets of subsidiary held-for-sale............................... -- 22,037 Separate account assets.......................................... 1,484 2,080 ------- ------- Total assets................................................ $13,521 $37,130 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Future policy benefits......................................... $ 5,176 $ 5,197 Policyholder account balances.................................. 4,143 4,134 Other policyholder funds....................................... 249 229 Policyholder dividends payable................................. 107 102 Short-term debt -- affiliated.................................. -- 50 Long-term debt................................................. 101 101 Deferred income tax liability.................................. -- 32 Payables for collateral under securities loaned and other transactions................................................ 806 1,438 Other liabilities.............................................. 446 531 Liabilities of subsidiary held-for-sale........................ -- 19,958 Separate account liabilities................................... 1,484 2,080 ------- ------- Total liabilities........................................... 12,512 33,852 ------- ------- CONTINGENCIES, COMMITMENTS AND GUARANTEES (NOTE 10) STOCKHOLDER'S EQUITY: Common stock, par value $1.00 per share; 5,000,000 shares authorized; 3,000,000 shares issued and outstanding............ 3 3 Additional paid-in capital....................................... 1,243 1,849 Retained earnings................................................ 71 969 Accumulated other comprehensive income (loss).................... (308) 457 ------- ------- Total stockholder's equity.................................. 1,009 3,278 ------- ------- Total liabilities and stockholder's equity.................. $13,521 $37,130 ======= =======
See accompanying notes to the consolidated financial statements. 2 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
2008 2007 2006 ------ ---- ------ REVENUES Premiums................................................... $ 284 $308 $ 299 Universal life and investment-type product policy fees..... 160 188 226 Net investment income...................................... 474 511 521 Other revenues............................................. 6 37 10 Net investment gains (losses).............................. 137 (91) (21) ------ ---- ------ Total revenues........................................... 1,061 953 1,035 ------ ---- ------ EXPENSES Policyholder benefits and claims........................... 454 485 445 Interest credited to policyholder account balances......... 140 147 151 Policyholder dividends..................................... 168 163 170 Other expenses............................................. 84 77 143 ------ ---- ------ Total expenses........................................... 846 872 909 ------ ---- ------ Income from continuing operations before provision for income tax............................................... 215 81 126 Provision for income tax................................... 95 39 44 ------ ---- ------ Income from continuing operations.......................... 120 42 82 Income (loss) from discontinued operations, net of income tax...................................................... (295) 157 150 ------ ---- ------ Net income (loss).......................................... $ (175) $199 $ 232 ====== ==== ======
See accompanying notes to the consolidated financial statements. 3 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ------------------------------------- NET UNREALIZED FOREIGN DEFINED ADDITIONAL INVESTMENT CURRENCY BENEFIT COMMON PAID-IN RETAINED GAINS TRANSLATION PLANS STOCK CAPITAL EARNINGS (LOSSES) ADJUSTMENTS ADJUSTMENT TOTAL ------ ---------- -------- ---------- ----------- ---------- ------- Balance at January 1, 2006......... $3 $1,836 $ 556 $ 431 $ 41 $(4) $ 2,863 Sale of subsidiary (Note 2)........ (9) (9) Equity transactions of majority owned subsidiary................. 12 12 Dividends on common stock.......... (13) (13) Comprehensive income: Net income....................... 232 232 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax...... (62) (62) Foreign currency translation adjustments, net of income tax......................... 11 11 Additional minimum pension liability adjustment, net of income tax.................. 1 1 ------- Other comprehensive income (loss)...................... (50) ------- Comprehensive income............. 182 ------- Adoption of SFAS 158, net of income tax.................... (1) (1) -- ------ ----- ----- ----- --- ------- Balance at December 31, 2006....... 3 1,839 775 369 52 (4) 3,034 Cumulative effect of a change in accounting principle, net of income tax (Note 1).............. (5) (5) -- ------ ----- ----- ----- --- ------- Balance at January 1, 2007......... 3 1,839 770 369 52 (4) 3,029 Equity transactions of majority owned subsidiary................. 10 10 Comprehensive income: Net income....................... 199 199 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax...... (21) (21) Foreign currency translation adjustments, net of income tax......................... 60 60 Defined benefit plans adjustment, net of income tax......................... 1 1 ------- Other comprehensive income (loss)...................... 40 ------- Comprehensive income............. 239 -- ------ ----- ----- ----- --- ------- Balance at December 31, 2007....... 3 1,849 969 348 112 (3) 3,278 Equity transactions of majority owned subsidiary................. (11) (11) Dividend of interests in subsidiary (Note 2)......................... (595) (723) (1,318) Comprehensive loss: Net loss......................... (175) (175) Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax...... (647) (647) Foreign currency translation adjustments, net of income tax......................... (122) (122) Defined benefit plans adjustment, net of income tax......................... 4 4 ------- Other comprehensive income (loss)...................... (765) ------- Comprehensive loss............... (940) -- ------ ----- ----- ----- --- ------- Balance at December 31, 2008....... $3 $1,243 $ 71 $(299) $ (10) $ 1 $ 1,009 == ====== ===== ===== ===== === =======
See accompanying notes to the consolidated financial statements. 4 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
2008 2007 2006 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)........................................ $ (175) $ 199 $ 232 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expenses.............. 7 7 8 Amortization of premiums and accretion of discounts associated with investments, net.................. (32) (33) (13) (Gains) losses from sales of investments and businesses, net................................... 502 268 14 Interest credited to policyholder account balances.. 248 409 405 Universal life and investment-type product policy fees.............................................. (160) (188) (226) Change in premiums and other receivables............ (116) (226) (511) Change in deferred policy acquisition costs, net.... (262) (339) (306) Change in insurance-related liabilities............. 294 1,348 963 Change in income tax payable........................ 124 65 194 Change in other assets.............................. (96) 117 87 Change in other liabilities......................... 257 432 97 Other, net.......................................... (2) 3 (24) ------- ------- ------- Net cash provided by operating activities................ 589 2,062 920 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturity securities........................... 3,221 2,974 4,623 Equity securities................................... 41 34 68 Mortgage loans on real estate....................... 74 26 87 Real estate and real estate joint ventures.......... -- 1 -- Other limited partnership interests................. 4 1 5 Purchases of: Fixed maturity securities........................... (3,167) (4,116) (6,056) Equity securities................................... (59) (12) (40) Mortgage loans on real estate....................... (5) (129) (160) Real estate and real estate joint ventures.......... (2) (1) (3) Other limited partnership interests................. (66) (19) -- Net change in short-term investments................... (255) 123 (282) Proceeds from sales of businesses, net of cash disposed of $0, $0 and $5, respectively...................... -- -- 71 Dividend of subsidiary................................. (270) -- -- Net change in other invested assets.................... (416) (976) (705) Other, net............................................. (24) (43) (50) ------- ------- ------- Net cash used in investing activities.................... $ (924) $(2,137) $(2,442) ------- ------- -------
See accompanying notes to the consolidated financial statements. 5 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (IN MILLIONS)
2008 2007 2006 ------- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits............................................. $ 1,379 $1,147 $1,446 Withdrawals.......................................... (714) (986) (828) Net change in payables for collateral under securities loaned and other transactions........................ (632) (204) 259 Net change in short-term debt -- affiliated............. (50) 50 -- Long-term debt issued................................... -- 297 -- Long-term debt repaid................................... (3) (79) (100) Collateral financing arrangements issued................ -- -- 850 Dividends on common stock............................... -- -- (13) Debt issuance costs..................................... -- -- (13) Other, net.............................................. -- -- 10 ------- ------ ------ Net cash (used in) provided by financing activities....... (20) 225 1,611 ------- ------ ------ Change in cash and cash equivalents....................... (355) 150 89 Cash and cash equivalents, beginning of year.............. 507 357 268 ------- ------ ------ CASH AND CASH EQUIVALENTS, END OF YEAR.................... $ 152 $ 507 $ 357 ======= ====== ====== Cash and cash equivalents, subsidiaries held-for-sale, beginning of year....................................... $ 404 $ 164 $ 129 ======= ====== ====== CASH AND CASH EQUIVALENTS, SUBSIDIARIES HELD-FOR-SALE, END OF YEAR................................................. $ -- $ 404 $ 164 ======= ====== ====== Cash and cash equivalents, from continuing operations, beginning of year....................................... $ 103 $ 193 $ 139 ======= ====== ====== CASH AND CASH EQUIVALENTS, FROM CONTINUING OPERATIONS, END OF YEAR................................................. $ 152 $ 103 $ 193 ======= ====== ====== Supplemental disclosures of cash flow information: Net cash paid (received) during the year for: Interest............................................. $ 84 $ 129 $ 73 ======= ====== ====== Income tax........................................... $ (26) $ (85) $ -- ======= ====== ====== Non-cash transactions during the year: Business dispositions: Assets disposed.................................... $ -- $ -- $ 321 Less: liabilities disposed......................... -- -- 236 ------- ------ ------ Net assets disposed................................ -- -- 85 Less: cash disposed................................ -- -- 5 ------- ------ ------ Business disposition, net of cash disposed......... $ -- $ -- $ 80 ======= ====== ====== Dividend of subsidiary: Assets disposed.................................... $22,135 $ -- $ -- Less: liabilities disposed......................... 20,689 -- -- ------- ------ ------ Net assets disposed................................ 1,446 -- -- Add: cash disposed................................. 270 -- -- Less: dividend of interests in subsidiary.......... 1,318 -- -- ------- ------ ------ Loss on dividend of interests in subsidiary........ $ 398 $ -- $ -- ======= ====== ====== Return of capital to parent from sale of subsidiary.. $ -- $ -- $ (9) ======= ====== ======
See accompanying notes to the consolidated financial statements. 6 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS General American Life Insurance Company ("General American") and its subsidiaries (collectively the "Company"), is a wholly-owned subsidiary of GenAmerica Financial, LLC ("GenAmerica" or the "Holding Company"). General American is a Missouri corporation incorporated in 1933. GenAmerica is a wholly- owned subsidiary of Metropolitan Life Insurance Company ("MLIC"), which is a wholly-owned subsidiary of MetLife, Inc. ("MetLife"). The Company provides insurance and financial services to individual and institutional customers. The Company offers life insurance and annuities to individuals and group insurance. The Company distributes its products and services primarily through a nationwide network of general agencies and independent brokers. The Company is licensed to conduct business in 49 states, Puerto Rico, and the District of Columbia. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of General American and its subsidiaries. Intercompany accounts and transactions have been eliminated. See Note 2 for discussion concerning the dispositions of certain subsidiaries. The Company has invested in certain structured transactions that are variable interest entities ("VIEs") under Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 46(r), Consolidation of Variable Interest Entities -- An Interpretation of Accounting Research Bulletin No. 51 ("FIN 46(r)"). These structured transactions include trust preferred securities and other limited partnership interests. The Company is required to consolidate those VIEs for which it is deemed to be the primary beneficiary. The Company reconsiders whether it is the primary beneficiary for investments designated as VIEs on an annual basis. The Company uses the equity method of accounting for investments in equity securities in which it has more than a 20% interest and for real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the joint venture's or partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint venture's or the partnership's operations. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2008 presentation. See Note 14 for reclassifications related to discontinued operations. Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining: (i) the estimated fair value of investments in the absence of quoted market values; (ii) investment impairments; (iii) the recognition of income on certain investment entities; (iv) the application of the consolidation rules to certain investments; 7 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (v) the estimated fair value of and accounting for derivatives; (vi) the capitalization and amortization of deferred policy acquisition costs ("DAC") and the establishment and amortization of value of business acquired ("VOBA"); (vii) the liability for future policyholder benefits; (viii) accounting for income taxes and the valuation of deferred tax assets; (ix) accounting for reinsurance transactions; (x) accounting for employee benefit plans; and (xi) the liability for litigation and regulatory matters. A description of such critical estimates is incorporated within the discussion of the related accounting policies which follow. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Actual results could differ from these estimates. Fair Value As described below, certain assets and liabilities are measured at estimated fair value on the Company's consolidated balance sheets. In addition, the footnotes to the consolidated financial statements include disclosures of estimated fair values. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In many cases, the exit price and the transaction (or entry) price will be the same at initial recognition. However, in certain cases, the transaction price may not represent fair value. Under SFAS 157, fair value of a liability is based on the amount that would be paid to transfer a liability to a third party with the same credit standing. SFAS 157 requires that fair value be a market-based measurement in which the fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant. When quoted prices are not used to determine fair value, SFAS 157 requires consideration of three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. The approaches are not new, but SFAS 157 requires that entities determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. SFAS 157 prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available. The Company has categorized its assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. SFAS 157 defines the input levels as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. Level 2 Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. 8 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Level 3 Unobservable inputs that are supported by little or no market activity and are significant to the estimated fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of estimated fair value requires significant management judgment or estimation. The measurement and disclosures under SFAS 157 in the accompanying consolidated financial statements and footnotes exclude certain items such as nonfinancial assets and nonfinancial liabilities initially measured at estimated fair value in a business combination, reporting units measured at estimated fair value in the first step of a goodwill impairment test and indefinite-lived intangible assets measured at estimated fair value for impairment assessment. The effective date for these items was deferred to January 1, 2009. Prior to adoption of SFAS 157, estimated fair value was determined based solely upon the perspective of the reporting entity. Therefore, methodologies used to determine the estimated fair value of certain financial instruments prior to January 1, 2008, while being deemed appropriate under existing accounting guidance, may not have produced an exit value as defined in SFAS 157. Investments The Company's principal investments are in fixed maturity and equity securities, mortgage loans on real estate, policy loans, real estate, real estate joint ventures and other limited partnership interests, short-term investments and other invested assets. The accounting policies related to each are as follows: Fixed Maturity and Equity Securities. The Company's fixed maturity and equity securities are classified as available-for-sale. Available-for- sale securities are reported at estimated fair value with unrealized investment gains and losses on these securities recorded as a separate component of other comprehensive income (loss), net of policyholder related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Investment gains and losses on sales of securities are determined on a specific identification basis. Interest income on fixed maturity securities is recorded when earned using an effective yield method giving effect to amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared. These dividends and interest income are recorded in net investment income. Included within fixed maturity securities are loan-backed securities including mortgage-backed and asset-backed securities. Amortization of the premium or discount from the purchase of these securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class mortgage-backed and asset-backed securities are estimated by management using inputs obtained from third party specialists, including broker dealers, and based on management's knowledge of the current market. For credit-sensitive mortgage-backed and asset-backed securities and certain prepayment- sensitive securities, the effective yield is recalculated on a prospective basis. For all other mortgage-backed and asset-backed securities, the effective yield is recalculated on a retrospective basis. The cost or amortized cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other-than-temporary in the period in which the determination is made. These impairments are included within net investment gains (losses) and the cost basis of the fixed maturity and equity securities is reduced accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. 9 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in estimated fair value. The Company's review of its fixed maturity and equity securities for impairments includes an analysis of the total gross unrealized losses by three categories of securities: (i) securities where the estimated fair value had declined and remained below cost or amortized cost by less than 20%; (ii) securities where the estimated fair value had declined and remained below cost or amortized cost by 20% or more for less than six months; and (iii) securities where the estimated fair value had declined and remained below cost or amortized cost by 20% or more for six months or greater. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company's evaluation of recoverability of all contractual cash flows, as well as the Company's ability and intent to hold the security, including holding the security until the earlier of a recovery in value, or until maturity. In contrast, for certain equity securities, greater weight and consideration are given by the Company to a decline in market value and the likelihood such market value decline will recover. See also Note 3. Additionally, management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below cost or amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; (vi) the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost or amortized cost (See also Note 3); (vii) unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and (viii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In periods subsequent to the recognition of an other-than-temporary impairment on a debt security, the Company accounts for the impaired security as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income over the remaining term of the debt security in a prospective manner based on the amount and timing of estimated future cash flows. The Company purchases and receives beneficial interests in special purpose entities ("SPEs"), which enhance the Company's total return on its investment portfolio principally by providing equity-based returns on debt securities. These investments are generally made through structured notes and similar instruments (collectively, "Structured Investment Transactions"). The Company has not guaranteed the performance, liquidity or obligations of the SPEs and its exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company does not consolidate such SPEs as it has determined it is not the primary beneficiary. These Structured Investment Transactions are included in fixed maturity securities and their income is generally recognized using the retrospective interest method. Impairments of these investments are included in net investment gains (losses). Securities Lending. Securities loaned transactions, whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, are treated as financing arrangements and the associated liability is recorded at the amount of cash received. The Company generally obtains collateral in an amount equal to 102% of the estimated fair value of the securities loaned. The Company monitors the estimated fair value of the securities loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the Company's securities loaned transactions are with large 10 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) brokerage firms and commercial banks. Income and expenses associated with securities loaned transactions are reported as investment income and investment expense, respectively, within net investment income. Mortgage Loans on Real Estate. Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income. Loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Based on the facts and circumstances of the individual loans being impaired, valuation allowances are established for the excess carrying value of the loan over either: (i) the present value of expected future cash flows discounted at the loan's original effective interest rate, (ii) the estimated fair value of the loan's underlying collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or (iii) the loan's estimated fair value. The Company also establishes allowances for loan losses when a loss contingency exists for pools of loans with similar characteristics, such as mortgage loans based on similar property types or loan to value risk factors. A loss contingency exists when the likelihood that a future event will occur is probable based on past events. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan's contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or when the collection of interest is not considered probable. Cash receipts on such impaired loans are recorded as a reduction of the recorded investment. Gains and losses from the sale of loans and changes in valuation allowances are reported in net investment gains (losses). Policy Loans. Policy loans are stated at unpaid principal balances. Interest income on such loans is recorded as earned using the contractually agreed upon interest rate. Generally, interest is capitalized on the policy's anniversary date. Real Estate. Real estate held-for-investment, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 55 years). Rental income is recognized on a straight-line basis over the term of the respective leases. The Company classifies a property as held-for-sale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. The Company classifies the results of operations and the gain or loss on sale of a property that either has been disposed of or classified as held-for-sale as discontinued operations, if the ongoing operations of the property will be eliminated from the ongoing operations of the Company and if the Company will not have any significant continuing involvement in the operations of the property after the sale. The Company periodically reviews its properties held-for-investment for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, with the impairment loss included in net investment gains (losses). Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real Estate Joint Ventures and Other Limited Partnership Interests. The Company uses the equity method of accounting for investments in real estate joint ventures and other limited partnership interests consisting of leveraged buy-out funds, hedge funds and other private equity funds in which it has more than a minor equity interest or more than a minor influence over the joint ventures or partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint ventures or the partnership's operations. The 11 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company reports the distributions from real estate joint ventures and other limited partnership interests accounted for under the cost method and equity in earnings from real estate joint ventures and other limited partnership interests accounted for under the equity method in net investment income. In addition to the investees performing regular evaluations for the impairment of underlying investments, the Company routinely evaluates its investments in real estate joint ventures and other limited partnerships for impairments. The Company considers its cost method investments for other-than-temporary impairment when the carrying value of real estate joint ventures and other limited partnership interests exceeds the net asset value. The Company takes into consideration the severity and duration of this excess when deciding if the cost method investment is other-than-temporarily impaired. For equity method investees, the Company considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an impairment has occurred. When an other-than-temporary impairment is deemed to have occurred, the Company records a realized capital loss within net investment gains (losses) to record the investment at its estimated fair value. Short-term Investments. Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates estimated fair value, or stated at estimated fair value, if available. Short-term investments also include investments in an affiliated money market pool. Other Invested Assets. Other invested assets consist principally of freestanding derivatives with positive estimated fair values and tax credit partnerships. Freestanding derivatives with positive estimated fair values are more fully described in the derivatives accounting policy which follows. Tax credit partnerships are established for the purpose of investing in low-income housing and other social causes, where the primary return on investment is in the form of tax credits and are accounted for under the equity method. The Company reports the equity in earnings of tax credit partnerships in net investment income. Estimates and Uncertainties. The Company's investments are exposed to four primary sources of risk: credit, interest rate, liquidity risk and market valuation. The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished ability to sell certain investments in times of strained market conditions, the recognition of impairments, the recognition of income on certain investments, and the potential consolidation of VIEs. The use of different methodologies, assumptions and inputs relating to these financial statement risks may have a material effect on the amounts presented within the consolidated financial statements. When available, the estimated fair value of the Company's fixed maturity and equity securities are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company's securities holdings and valuation of these securities does not involve management judgment. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies. The market standard valuation methodologies utilized include: discounted cash flow methodologies, matrix pricing or other similar techniques. The assumptions and inputs in applying these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and management's assumptions regarding liquidity and estimated future cash flows. Accordingly, the estimated fair values are based on available market information and management's judgments about financial instruments. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived 12 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. When observable inputs are not available, the market standard valuation methodologies for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. The Company's ability to sell securities, or the price ultimately realized for these securities, depends upon the demand and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain securities. The determination of the amount of allowances and impairments, as applicable, is described previously by investment type. The determination of such allowances and impairments is highly subjective and is based upon the Company's periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. The recognition of income on certain investments (e.g., loan-backed securities including mortgage-backed and asset-backed securities, certain structured investment transactions, etc.) is dependent upon market conditions, which could result in prepayments and changes in amounts to be earned. The accounting rules under FIN 46(r) for the determination of when an entity is a VIE and when to consolidate a VIE are complex. The determination of the VIE's primary beneficiary requires an evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity's expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity. FIN 46(r) defines the primary beneficiary as the entity that will absorb a majority of a VIE's expected losses, receive a majority of a VIE's expected residual returns if no single entity absorbs a majority of expected losses, or both. When determining the primary beneficiary for structured investment products such as asset-backed securitizations and collateralized debt obligations, the Company uses historical default probabilities based on the credit rating of each issuer and other inputs including maturity dates, industry classifications and geographic location. Using computational algorithms, the analysis simulates default scenarios resulting in a range of expected losses and the probability associated with each occurrence. For other investment structures such as trust preferred securities, joint ventures, limited partnerships and limited liability companies, the Company gains an understanding of the design of the VIE and generally uses a qualitative approach to determine if it is the primary beneficiary. This approach includes an analysis of all contractual rights and obligations held by all parties including profit and loss allocations, repayment or residual value guarantees, put and call options and other derivative instruments. If the primary beneficiary of a VIE can not be identified using this qualitative approach, the Company calculates the expected losses and expected residual returns of the VIE using a probability-weighted cash flow model. The use of different methodologies, assumptions and inputs in the determination of the primary beneficiary could have a material effect on the amounts presented within the consolidated financial statements. 13 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Derivative Financial Instruments Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter market. The Company uses a variety of derivatives, including swaps, forwards and futures, to manage the risk associated with variability in cash flows or changes in estimated fair values related to the Company's financial instruments. The Company also uses derivative instruments to hedge its currency exposure associated with net investments in certain foreign operations. To a lesser extent, the Company uses credit derivatives, such as credit default swaps, to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance contracts that have embedded derivatives. The Company's embedded derivatives are substantially held by Reinsurance Group of America, Incorporated ("RGA"), a majority-owned subsidiary, and are included in assets of subsidiaries held-for-sale and liabilities of subsidiaries held-for-sale. See Note 2. Freestanding derivatives are carried on the Company's consolidated balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value as determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for over-the-counter derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models. The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such instruments. Most inputs for over-the-counter derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity as well as the use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company's derivatives and could materially affect net income. The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all over-the-counter derivatives after taking into account the effects of netting agreements and collateral arrangements. Credit risk is monitored and consideration of any potential credit adjustment is based on a net exposure by counterparty. This is due to the existence of netting agreements and collateral arrangements which effectively serve to mitigate credit risk. The Company values its derivative positions using the standard swap curve which includes a credit risk adjustment. This credit risk adjustment is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The need for such additional credit risk adjustments is monitored by the Company. The Company's ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. The evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period. 14 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported in net investment gains (losses). The fluctuations in estimated fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income. To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either: (i) a hedge of the estimated fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"); or (iii) a hedge of a net investment in a foreign operation. In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income. The accounting for derivatives is complex and interpretations of the primary accounting standards continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under these accounting standards. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Differences in judgment as to the availability and application of hedge accounting designations and the appropriate accounting treatment may result in a differing impact on the consolidated financial statements of the Company from that previously reported. Under a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. However, balances that are not scheduled to settle until maturity are included in the estimated fair value of derivatives. Under a cash flow hedge, changes in the estimated fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholder's equity, and the deferred gains or losses on the derivative are reclassified into the consolidated statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. However, balances that are not scheduled to settle until maturity are included in the estimated fair value of derivatives. In a hedge of a net investment in a foreign operation, changes in the estimated fair value of the hedging derivative that are measured as effective are reported within other comprehensive income (loss) consistent with the translation adjustment for the hedged net investment in the foreign operation. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses). The Company's net investment gains (losses) on foreign operations are substantially related to the operations of RGA, and are included in income (loss) from discontinued operations, net of income tax. See Note 2. 15 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; or (v) the derivative is de-designated as a hedging instrument. When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the consolidated balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the consolidated statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur by the end of the specified time period or the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). Any asset or liability associated with a recognized firm commitment is derecognized from the consolidated balance sheet, and recorded currently in net investment gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the cash flow hedge of a forecasted transaction are recognized immediately in net investment gains (losses). In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the consolidated balance sheet, with changes in its estimated fair value recognized in the current period as net investment gains (losses). The Company is also a party to financial instruments that contain terms which are deemed to be embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at estimated fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried on the consolidated balance sheet at estimated fair value with the host contract and changes in their estimated fair value are reported currently in net investment gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses). Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) if that contract contains an embedded derivative that requires bifurcation. There is a risk that embedded derivatives requiring bifurcation may not be identified and reported at estimated fair value in the consolidated financial statements and that their related changes in estimated fair value could materially affect reported net income. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. 16 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Property, Equipment, Leasehold Improvements and Computer Software Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years- digits method over the estimated useful lives of the assets, as appropriate. The estimated life for company occupied real estate property is generally 40 years. Estimated lives generally range from five to ten years for leasehold improvements and three to seven years for all other property and equipment. The cost basis of property, equipment and leasehold improvements was $74 million and $75 million at December 31, 2008 and 2007, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $60 million and $58 million at December 31, 2008 and 2007, respectively. Related depreciation and amortization expense was $2 million, $3 million and $3 million for the years ended December 31, 2008, 2007 and 2006, respectively. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as certain internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a four-year period using the straight-line method. The cost basis of computer software was $27 million and $25 million at December 31, 2008 and 2007, respectively. Accumulated amortization of capitalized software was $21 million and $19 million at December 31, 2008 and 2007, respectively. Related amortization expense was $2 million, $2 million and $3 million for the years ended December 31, 2008, 2007 and 2006, respectively. Deferred Policy Acquisition Costs and Value of Business Acquired The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that vary with and relate to the production of new business are deferred as DAC. Such costs consist principally of commissions, agency and policy issuance expenses. VOBA is an intangible asset that reflects the estimated fair value of in-force contracts in a life insurance company acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in- force at the acquisition date. VOBA is based on actuarially determined projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated in the financial statements for reporting purposes. DAC and VOBA on life insurance or investment-type contracts are amortized in proportion to gross premiums, gross margins or gross profits, depending on the type of contract as described below. The Company amortizes DAC and VOBA related to non-participating and non- dividend-paying traditional contracts (term insurance, non-participating whole life insurance and traditional group life insurance) over the entire premium paying period in proportion to the present value of actual historic and expected future gross premiums. The present value of expected premiums is based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency, and investment returns at policy issuance, or policy acquisition, as it relates to VOBA, that include provisions for adverse deviation and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes. The Company amortizes DAC and VOBA related to participating, dividend- paying traditional contracts over the estimated lives of the contracts in proportion to actual and expected future gross margins. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The future gross margins are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to 17 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) administer the business, creditworthiness of reinsurance counterparties, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses, persistency, and other factor changes and policyholder dividend scales are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross margins exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also updates the actual amount of business in-force, which impacts expected future gross margins. When expected future gross margins are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross margins are above the previously estimated expected future gross margins. Total DAC and VOBA amortization during a particular period may increase or decrease depending upon the relative size of the amortization change resulting from the adjustment to DAC and VOBA for the update of actual gross margins and the re-estimation of expected future gross margins. Each period, the Company also reviews the estimated gross margins for each block of business to determine the recoverability of DAC and VOBA balances. The Company amortizes DAC and VOBA related to fixed and variable universal life contracts and fixed and variable deferred annuity contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses, and persistency are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated expected future gross profits. Total DAC and VOBA amortization during a particular period may increase or decrease depending upon the relative size of the amortization change resulting from the adjustment to DAC and VOBA for the update of actual gross profits and the re-estimation of expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances. Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period which can result in significant fluctuations in amortization of DAC and VOBA. Returns that are higher than the Company's long- term expectation produce higher account balances, which increases the Company's future fee expectations and decreases future benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company's long-term expectation. The Company's practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long- term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. The Company monitors these changes and only changes the assumption when its long-term expectation changes. 18 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company also reviews periodically other long-term assumptions underlying the projections of estimated gross margins and profits. These include investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business. Management annually updates assumptions used in the calculation of estimated gross margins and profits which may have significantly changed. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease. Prior to 2007, DAC related to any internally replaced contract was generally expensed at the date of replacement. As described more fully in "Adoption of New Accounting Pronouncements," effective January 1, 2007, the Company adopted Statement of Position ("SOP") 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1"). Under SOP 05-1, an internal replacement is defined as a modification in product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If the modification substantially changes the contract, the DAC is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed. Goodwill Goodwill, which is included in other assets, is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter of each year based upon data as of the close of the second quarter. Impairment testing is performed using the fair value approach, which requires the use of estimates and judgment, at the "reporting unit" level. A reporting unit is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. Management has concluded that the Company has one reporting unit. For purposes of goodwill impairment testing, if the carrying value of a reporting unit's goodwill exceeds its estimated fair value, there is an indication of impairment and the implied fair value of the goodwill is determined in the same manner as the amount of goodwill would be determined in a business acquisition. The excess of the carrying value of goodwill over the implied fair value of goodwill is recognized as an impairment and recorded as a charge against net income. In performing its goodwill impairment tests, when management believes meaningful comparable market data are available, the estimated fair value of the reporting unit is determined using a market multiple approach. When relevant comparables are not available, the Company uses a discounted cash flow model. Management applies significant judgment when determining the estimated fair value of the reporting unit. The valuation methodologies utilized are subject to key assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management's reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the Company's reporting unit could result in goodwill impairments in future periods. Management concluded it was appropriate to perform an interim goodwill impairment test at December 31, 2008. Based upon the tests performed, management concluded no impairment of goodwill had occurred at December 31, 2008. Additionally, the Company recognized no impairments of goodwill during the years ended December 31, 2007 and 2006. Goodwill was $35 million at both December 31, 2008 and 2007. 19 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Liability for Future Policy Benefits and Policyholder Account Balances The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities and non- medical health insurance. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type. Utilizing these assumptions, liabilities are established on a block of business basis. Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of: (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non- forfeiture interest rate, ranging from 3% to 6%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends. Future policy benefit liabilities for non-participating traditional life insurance policies are equal to the aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company's experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 5% to 7%. Participating business represented approximately 72% of General American's life insurance in-force, and 75% of the number of life insurance policies in- force, at both December 31, 2008 and 2007. Participating policies represented approximately 95% and 94%, 95% and 94%, and 99% and 99% of gross and net life insurance premiums for the years ended December 31, 2008, 2007 and 2006, respectively. Future policy benefit liabilities for individual and group traditional fixed annuities after annuitization are equal to the present value of expected future payments. Interest rate assumptions used in establishing such liabilities range from 4% to 9%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities is 5%. 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 rate assumptions used in establishing such liabilities range from 3% to 6%. Liabilities for universal and variable life secondary guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the secondary guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical Standard & Poor's ("S&P") 500 Index experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The Company periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies and guarantees and in the establishment of the related liabilities result in variances in profit and could result 20 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in losses. The effects of changes in such estimated liabilities are included in the results of operations in the period in which the changes occur. Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non- variable group annuity contracts. Policyholder account balances for these contracts are equal to: (i) policy account values, which consist of an accumulation of gross premium payments; plus (ii) credited interest, ranging from 3% to 6%, less expenses, mortality charges, and withdrawals. Other Policyholder Funds Other policyholder funds include policy and contract claims, unearned revenue liabilities, premiums received in advance, policyholder dividends due and unpaid, and policyholder dividends left on deposit. The liability for policy and contract claims generally relates to incurred but not reported death and disability claims as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company's estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made. The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and amortized using the product's estimated gross profits, similar to DAC. Such amortization is recorded in universal life and investment-type product policy fees. The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premium received in advance and applies the cash received to premiums when due. Also included in other policyholder funds are policyholder dividends due and unpaid on participating policies and policyholder dividends left on deposit. Such liabilities are presented at amounts contractually due to policyholders. Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health and disability contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life-type and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance. 21 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other Revenues Other revenues include, in addition to items described elsewhere herein, broker-dealer commissions and fees and administrative service fees. Such fees and commissions are recognized in the period in which services are performed. Other revenues also include changes in account value relating to corporate-owned life insurance ("COLI"). Under certain COLI contracts, if the Company reports certain unlikely adverse results in its consolidated financial statements, withdrawals would not be immediately available and would be subject to market value adjustment, which could result in a reduction of the account value. Policyholder Dividends Policyholder dividends are approved annually by General American's board of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by General American. Income Taxes General American joins with MetLife and its includable life insurance and non-life insurance subsidiaries in filing a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The Company's accounting for income taxes represents management's best estimate of various events and transactions. Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax planning strategies. The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities (See also Note 9) or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur. As described more fully in "Adoption of New Accounting Pronouncements," the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109 ("FIN 48") effective January 1, 2007. Under FIN 48, the Company determines whether it is more-likely-than-not that a tax position will 22 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made. The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax. Reinsurance The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by third parties. For each of its reinsurance agreements, the Company determines if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums and ceded (assumed) future policy benefit liabilities are established. For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums and are reflected as a component of premiums and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of reinsurance accounting, amounts paid (received) in excess of (which do not exceed) the related insurance liabilities ceded (assumed) are recognized immediately as a loss. Any gains on such retroactive agreements are deferred and recorded in other liabilities. The gains are amortized primarily using the recovery method. The assumptions used to account for both long and short-duration reinsurance agreements are consistent with those used for the underlying contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance sheet. Amounts currently recoverable under reinsurance agreements are included in premiums and other receivables and amounts currently payable are included in other liabilities. Such assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance ceded. Amounts received from reinsurers for policy administration are reported in other revenues. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within other assets. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are 23 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. Employee Benefit Plans The Company's employees, who meet specified eligibility requirements, participate in pension, other postretirement and postemployment plans. These benefit plans are accounted for following the guidance outlined in SFAS No. 87, Employers' Accounting for Pensions ("SFAS 87"), SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, SFAS No. 112, Employers Accounting for Postemployment Benefits -- An Amendment of FASB Statements No. 5 and No. 43 and as of December 31, 2006, SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and SFAS No. 132(r) ("SFAS 158"). The obligations and expenses associated with these plans require an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases, healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal rates, and mortality. Management, in consultation with its external actuarial firm, determines these assumptions based upon a variety of factors such as historical performance of the plan and its assets, currently available market and industry data, and expected benefit payout streams. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant effect on the Company's consolidated financial statements and liquidity. As described more fully in "Adoption of New Accounting Pronouncements," effective December 31, 2006, the Company adopted SFAS 158. Effective with the adoption of SFAS 158 on December 31, 2006, the Company recognizes the funded status of the benefit obligations for each of its plans on the consolidated balance sheet. The actuarial gains or losses, prior service costs and credits, and the remaining net transition asset or obligation that had not yet been included in net periodic benefit costs as of December 31, 2006 are now charged, net of income tax, to accumulated other comprehensive income (loss). Additionally, these changes eliminated the additional minimum pension liability provisions of SFAS 87. Foreign Currency Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations generally are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income (loss). Gains and losses from foreign currency transactions are reported as net investment gains (losses) in the period in which they occur. The Company's net investment gains (losses) on foreign operations are substantially related to the operations of RGA, and are included in income (loss) from discontinued operations, net of income tax. See Note 2. Discontinued Operations The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale are reported in discontinued operations if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Company as a result of the disposal transaction and the 24 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. Litigation Contingencies The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company's financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in the Company's consolidated financial statements. It is possible that an adverse outcome in certain of the Company's litigation and regulatory investigations, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's consolidated net income or cash flows. 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. Assets within the Company's separate accounts primarily include mutual funds, fixed maturity and equity securities, mortgage loans, derivatives, hedge funds, short term investments and cash and cash equivalents. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if: (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the Company's general account liabilities; (iii) investments are directed by the contractholder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contractholder. The Company reports separate account assets meeting such criteria at their fair value which is based on the estimated fair values of the underlying assets comprising the portfolios of an individual separate account. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line in the consolidated statements of income. The Company's revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Fair Value Effective January 1, 2008, the Company adopted SFAS 157 which defines fair value, establishes a consistent framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and requires enhanced disclosures about fair value measurements and applied the provisions of the statement prospectively to assets and liabilities measured at fair value. At January 1, 2008, adopting SFAS 157 did not have a material impact on the Company's consolidated financial statements. There were no significant changes in estimated fair value of items measured at fair value and reflected in accumulated other comprehensive income (loss). Note 15 presents the estimated fair value of all assets and liabilities required to be measured at estimated fair value as well as the expanded fair value disclosures required by SFAS 157. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 permits entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to recognize related unrealized gains and losses in earnings. The fair value option is applied on an instrument-by-instrument basis upon adoption of the standard, upon the 25 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election is an irrevocable election. Effective January 1, 2008, the Company did not elect the fair value option for any instruments. Effective January 1, 2008, the Company adopted FASB Staff Position ("FSP") No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 ("FSP 157- 1"). FSP 157-1 amends SFAS 157 to provide a scope out exception for lease classification and measurement under SFAS No. 13, Accounting for Leases. The Company also adopted FSP No. FAS 157-2, Effective Date of FASB Statement No. 157 which delays the effective date of SFAS 157 for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date is delayed until January 1, 2009 and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. Effective September 30, 2008, the Company adopted FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active ("FSP 157-3"). FSP 157-3 provides guidance on how a company's internal cash flow and discount rate assumptions should be considered in the measurement of fair value when relevant market data does not exist, how observable market information in an inactive market affects fair value measurement and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. The adoption of FSP 157-3 did not have a material impact on the Company's consolidated financial statements. Investments Effective December 31, 2008, the Company adopted FSP No. FAS 140-4 and FIN 46(r)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities ("FSP 140-4 and FIN 46(r)-8"). FSP 140-4 and FIN 46(r)-8 requires additional qualitative and quantitative disclosures about a transferors' continuing involvement in transferred financial assets and involvement in a VIE. The exact nature of the additional required VIE disclosures vary and depend on whether or not the VIE is a qualifying special-purpose entity ("QSPE"). For VIEs that are QSPEs, the additional disclosures are only required for a non-transferor sponsor holding a variable interest or a non-transferor servicer holding a significant variable interest. For VIEs that are not QSPEs, the additional disclosures are only required if the Company is the primary beneficiary, and if not the primary beneficiary, only if the Company holds a significant variable interest or is the sponsor. The Company provided all of the material required disclosures in its consolidated financial statements. Effective December 31, 2008, the Company adopted FSP No. EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 ("FSP EITF 99-20- 1"). FSP EITF 99-20-1 amends the guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to more closely align the guidance to determine whether an other-than-temporary impairment has occurred for a beneficial interest in a securitized financial asset with the guidance in SFAS 115, Accounting for Certain Investments in Debt and Equity Securities for debt securities classified as available-for-sale or held-to-maturity. The adoption of FSP EITF 99-20-1 did not have an impact on the Company's consolidated financial statements. Derivative Financial Instruments Effective December 31, 2008, the Company adopted FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees -- An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 ("FSP 133-1 and FIN 45-4"). FSP 133-1 and FIN 45-4 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") to require certain enhanced disclosures by sellers of credit derivatives by requiring additional information about the potential adverse effects of changes in their credit risk, financial performance, and cash flows. It also amends 26 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others -- An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"), to require an additional disclosure about the current status of the payment/performance risk of a guarantee. The Company provided all of the material required disclosures in its consolidated financial statements. Effective January 1, 2008, the Company adopted SFAS 133 Implementation Issue No. E-23, Clarification of the Application of the Shortcut Method ("Issue E-23"). Issue E-23 amended SFAS 133 by permitting interest rate swaps to have a non-zero fair value at inception when applying the shortcut method of assessing hedge effectiveness, as long as the difference between the transaction price (zero) and the fair value (exit price), as defined by SFAS 157, is solely attributable to a bid-ask spread. In addition, entities are not precluded from applying the shortcut method of assessing hedge effectiveness in a hedging relationship of interest rate risk involving an interest bearing asset or liability in situations where the hedged item is not recognized for accounting purposes until settlement date as long as the period between trade date and settlement date of the hedged item is consistent with generally established conventions in the marketplace. The adoption of Issue E-23 did not have an impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted prospectively SFAS No. 155, Accounting for Certain Hybrid Instruments ("SFAS 155"). SFAS 155 amends SFAS 133 and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 140"). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. In addition, among other changes, SFAS 155: (i) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (ii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (iv) amends SFAS 140 to eliminate the prohibition on a QSPE from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial interest. The adoption of SFAS 155 did not have a material impact on the Company's consolidated financial statements. Effective October 1, 2006, the Company adopted SFAS 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets ("Issue B40"). Issue B40 clarifies that a securitized interest in prepayable financial assets is not subject to the conditions in paragraph 13(b) of SFAS 133, if it meets both of the following criteria: (i) the right to accelerate the settlement if the securitized interest cannot be controlled by the investor; and (ii) the securitized interest itself does not contain an embedded derivative (including an interest rate-related derivative) for which bifurcation would be required other than an embedded derivative that results solely from the embedded call options in the underlying financial assets. The adoption of Issue B40 had no impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted prospectively SFAS 133 Implementation Issue No. B38, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option ("Issue B38") and SFAS 133 Implementation Issue No. B39, Embedded Derivatives: Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor ("Issue B39"). Issue B38 clarifies that the potential settlement of a debtor's obligation to a creditor occurring upon exercise of a put or call option meets the net settlement criteria of SFAS 133. Issue B39 clarifies that an embedded call option, in which the underlying is an interest rate or interest rate index, that can accelerate the settlement of a 27 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) debt host financial instrument should not be bifurcated and fair valued if the right to accelerate the settlement can be exercised only by the debtor (issuer/borrower) and the investor will recover substantially all of its initial net investment. The adoption of Issues B38 and B39 had no impact on the Company's consolidated financial statements. Income Taxes Effective January 1, 2007, the Company adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax recognized in a company's financial statements. FIN 48 requires companies to determine whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the period that such determination is made. As a result of the implementation of FIN 48, the Company recognized an $11 million decrease in the liability for unrecognized tax benefits, no change in the interest liability for unrecognized tax benefits, offset by $11 million of minority interest included in liabilities of subsidiary held-for-sale, resulting in no corresponding change to the January 1, 2007 balance of retained earnings. See also Note 9. Insurance Contracts Effective January 1, 2007, the Company adopted SOP 05-1 which provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long- Duration Contracts and for Realized Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement and is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. In addition, in February 2007, the American Institute of Certified Public Accountants ("AICPA") issued related Technical Practice Aids ("TPAs") to provide further clarification of SOP 05-1. The TPAs became effective concurrently with the adoption of SOP 05-1. As a result of the adoption of SOP 05-1 and the related TPAs, if an internal replacement modification substantially changes a contract, then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred. If a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are immediately expensed. The adoption of SOP 05-1 and the related TPAs resulted in a reduction to DAC and VOBA on January 1, 2007 and an acceleration of the amortization period relating primarily to the Company's group life and health insurance contracts that contain certain rate reset provisions. Prior to the adoption of SOP 05-1, DAC on such contracts was amortized over the expected renewable life of the contract. Upon adoption of SOP 05-1, DAC on such contracts is to be amortized over the rate reset period. The impact as of January 1, 2007 was a cumulative effect adjustment of ($5) million, net of income tax of ($3) million, which was recorded as a reduction to retained earnings. Defined Benefit and Other Postretirement Plans Effective December 31, 2006, the Company adopted SFAS 158. The pronouncement revises financial reporting standards for defined benefit pension and other postretirement benefit plans by requiring the: (i) recognition in the statement of financial position of the funded status of defined benefit plans measured as the difference between the estimated fair value of plan assets and the benefit obligation, which is the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement benefit plans; 28 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ii) recognition as an adjustment to accumulated other comprehensive income (loss), net of income tax, those amounts of actuarial gains and losses, prior service costs and credits, and net asset or obligation at transition that have not yet been included in net periodic benefit costs as of the end of the year of adoption; (iii) recognition of subsequent changes in funded status as a component of other comprehensive income; (iv) measurement of benefit plan assets and obligations as of the date of the statement of financial position; and (v) disclosure of additional information about the effects on the employer's statement of financial position. The adoption of SFAS 158 resulted in a reduction of $1 million, net of income tax, to accumulated other comprehensive income, which is included as a component of total consolidated stockholder's equity. As the Company's measurement date for its pension and other postretirement benefit plans is already December 31 there was no impact of adoption due to changes in measurement date. See also "Summary of Significant Accounting Policies and Critical Accounting Estimates" and Note 11. Other Pronouncements Effective January 1, 2008, the Company adopted FSP No. FIN 39-1, Amendment of FASB Interpretation No. 39 ("FSP 39-1"). FSP 39-1 amends FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts ("FIN 39"), to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with FIN 39. FSP 39-1 also amends FIN 39 for certain terminology modifications. Upon adoption of FSP 39-1, the Company did not change its accounting policy of not offsetting fair value amounts recognized for derivative instruments under master netting arrangements. The adoption of FSP 39-1 did not have an impact on the Company's consolidated financial statements. Effective January 1, 2008, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 07-6, Accounting for the Sale of Real Estate When the Agreement Includes a Buy-Sell Clause ("EITF 07-6") prospectively. EITF 07-6 addresses whether the existence of a buy-sell arrangement would preclude partial sales treatment when real estate is sold to a jointly owned entity. EITF 07-6 concludes that the existence of a buy-sell clause does not necessarily preclude partial sale treatment under current guidance. The adoption of EITF 07-6 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2007, the Company adopted SFAS No. 156, Accounting for Servicing of Financial Assets -- an amendment of FASB Statement No. 140 ("SFAS 156"). Among other requirements, SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations. The adoption of SFAS 156 did not have an impact on the Company's consolidated financial statements. Effective November 15, 2006, the Company adopted U.S. Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of assessing materiality. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when relevant quantitative and qualitative factors are considered, is material. SAB 108 permits companies to initially apply its provisions by either restating prior financial statements or recording a cumulative effect adjustment to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained earnings for 29 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) errors that were previously deemed immaterial but are material under the guidance in SAB 108. The adoption of SAB 108 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted prospectively EITF Issue No. 05-7, Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues ("EITF 05-7"). EITF 05-7 provides guidance on whether a modification of conversion options embedded in debt results in an extinguishment of that debt. In certain situations, companies may change the terms of an embedded conversion option as part of a debt modification. The EITF concluded that the change in the fair value of an embedded conversion option upon modification should be included in the analysis of EITF Issue No. 96-19, Debtor's Accounting for a Modification or Exchange of Debt Instruments, to determine whether a modification or extinguishment has occurred and that a change in the fair value of a conversion option should be recognized upon the modification as a discount (or premium) associated with the debt, and an increase (or decrease) in additional paid-in capital. The adoption of EITF 05-7 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted EITF Issue No. 05-8, Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature ("EITF 05-8"). EITF 05-8 concludes that: (i) the issuance of convertible debt with a beneficial conversion feature results in a basis difference that should be accounted for as a temporary difference; and (ii) the establishment of the deferred tax liability for the basis difference should result in an adjustment to additional paid-in capital. EITF 05-8 was applied retrospectively for all instruments with a beneficial conversion feature accounted for in accordance with EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments. The adoption of EITF 05-8 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"). SFAS 154 requires retrospective application to prior periods' financial statements for a voluntary change in accounting principle unless it is deemed impracticable. It also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non- financial assets be accounted for as a change in accounting estimate rather than a change in accounting principle. The adoption of SFAS 154 did not have a material impact on the Company's consolidated financial statements. FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Business Combinations In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations -- A Replacement of FASB Statement No. 141 ("SFAS 141(r)") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements -- An Amendment of ARB No. 51 ("SFAS 160"). In April 2009, the FASB also issued FSP 141(r)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies ("FSP 141(r)-1"). Under these pronouncements: - All business combinations (whether full, partial or "step" acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions. - Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date. - The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date. - Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if the acquisition- date fair value can be reasonably determined. If the fair value 30 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) is not estimable, an asset or liability is recorded if existence or incurrence at the acquisition date is probable and its amount is reasonably estimable. - Certain acquired contingent liabilities are recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies. - Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. - Noncontrolling interests (formerly known as "minority interests") are valued at fair value at the acquisition date and are presented as equity rather than liabilities. - When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized. - Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. - When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized. The pronouncements are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations after that date. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The Company will apply the guidance in SFAS 141(r) and FSP 141(r)-1 prospectively on its accounting for future acquisitions and does not expect the adoption of SFAS 160 to have a material impact on the Company's consolidated financial statements. In November 2008, the FASB ratified the consensus on EITF Issue No. 08-6, Equity Method Investment Accounting Considerations ("EITF 08-6"). EITF 08-6 addresses a number of issues associated with the impact that SFAS 141(r) and SFAS 160 might have on the accounting for equity method investments, including how an equity method investment should initially be measured, how it should be tested for impairment, and how changes in classification from equity method to cost method should be treated. EITF 08-6 is effective prospectively for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of EITF 08-6 to have a material impact on the Company's consolidated financial statements. In November 2008, the FASB ratified the consensus on EITF Issue No. 08-7, Accounting for Defensive Intangible Assets ("EITF 08-7"). EITF 08-7 requires that an acquired defensive intangible asset (i.e., an asset an entity does not intend to actively use, but rather, intends to prevent others from using) be accounted for as a separate unit of accounting at time of acquisition, not combined with the acquirer's existing intangible assets. In addition, the EITF concludes that a defensive intangible asset may not be considered immediately abandoned following its acquisition or have indefinite life. The Company will apply the guidance of EITF 08-7 prospectively to its intangible assets acquired after fiscal years beginning on or after December 15, 2008. In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). This change is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(r) and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The requirement for determining useful lives and related disclosures will be applied prospectively to intangible assets acquired as of, and subsequent to, the effective date. 31 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Derivative Financial Instruments In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will provide all of the material required disclosures in the appropriate future annual periods. Other Pronouncements In December 2008, the FASB issued FSP No. FAS 132(r)-1, Employers' Disclosures about Postretirement Benefit Plan Assets ("FSP 132(r)-1"). FSP 132(r)-1 amends SFAS No. 132(r), Employers' Disclosures about Pensions and Other Postretirement Benefits to enhance the transparency surrounding the types of assets and associated risks in an employer's defined benefit pension or other postretirement plan. The FSP requires an employer to disclose information about the valuation of plan assets similar to that required under SFAS 157. FSP 132(r)-1 is effective for fiscal years ending after December 15, 2009. The Company will provide all of the material required disclosures in the appropriate future annual period. In September 2008, the FASB ratified the consensus on EITF Issue No. 08-5, Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement ("EITF 08-5"). EITF 08-5 concludes that an issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. In addition, EITF 08-5 requires disclosures about the existence of any third-party credit enhancement related to liabilities that are measured at fair value. EITF 08-5 is effective in the first reporting period beginning after December 15, 2008 and will be applied prospectively, with the effect of initial application included in the change in fair value of the liability in the period of adoption. The Company does not expect the adoption of EITF 08-5 to have a material impact on the Company's consolidated financial statements. In February 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP 140- 3"). FSP 140-3 provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. FSP 140-3 is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect the adoption of FSP 140-3 to have a material impact on its consolidated financial statements. 2. DISPOSITIONS DISPOSITION OF REINSURANCE GROUP OF AMERICA, INCORPORATED On September 12, 2008, MetLife completed a tax-free split-off of RGA. In connection with this transaction, General American dividended to MLIC and MLIC dividended to MetLife substantially all of its interests in RGA at a value of $1,318 million. The net book value of RGA at the time of the dividend was $1,716 million. The loss recognized in connection with the dividend was $398 million. General American retained 3,000,000 shares of RGA Class A common stock. These shares are marketable equity securities which do not constitute significant continuing involvement in the operations of RGA; accordingly, they have been classified within equity securities available for sale in the Company's consolidated financial statements at a cost basis of $157 million which is equivalent to the net book value of the shares. The carrying value will be adjusted to fair value at each subsequent reporting date. General American has agreed to dispose of the remaining shares of RGA within the next five years. In connection with General American's agreement to dispose of the remaining shares, General American also recognized, in its 32 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) provision for income tax on continuing operations, a deferred tax liability of $16 million which represents the difference between the book and taxable basis of the remaining investment in RGA. The impact of the disposition of the Company's investment in RGA is reflected in the Company's consolidated financial statements as discontinued operations. See Note 14 for reclassifications related to discontinued operations. DISPOSITION OF PARAGON LIFE INSURANCE COMPANY On May 1, 2006, the Company sold Paragon Life Insurance Company ("Paragon") to its ultimate parent, MetLife. The Company received consideration of $71 million, net of cash sold of $5 million. Immediately following the sale, MetLife merged Paragon with and into MLIC. The amount received below book value was recorded as a return of capital to MLIC of $9 million. Total revenues of Paragon included in the Company's consolidated revenues were $23 million for the year ended December 31, 2006. 3. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized gain and loss, estimated fair value of the Company's fixed maturity and equity securities, and the percentage that each sector represents by the respective total holdings at:
DECEMBER 31, 2008 ----------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED -------------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities................... $2,434 $ 36 $235 $2,235 36.4% Residential mortgage-backed securities...... 1,063 19 121 961 15.7 Foreign corporate securities................ 900 53 121 832 13.5 Foreign government securities............... 592 196 14 774 12.6 Commercial mortgage-backed securities....... 876 1 215 662 10.8 U.S. Treasury/agency securities............. 292 80 -- 372 6.1 Asset-backed securities..................... 409 -- 120 289 4.7 State and political subdivision securities.. 16 -- 1 15 0.2 Other fixed maturity securities............. -- -- -- -- 0.0 ------ ---- ---- ------ ----- Total fixed maturity securities(1),(2).... $6,582 $385 $827 $6,140 100.0% ====== ==== ==== ====== ===== Common stock................................ $ 157 $ -- $ 28 $ 129 95.6 Non-redeemable preferred stock(1)........... 9 -- 3 6 4.4 ------ ---- ---- ------ ----- Total equity securities................... $ 166 $ -- $ 31 $ 135 100.0% ====== ==== ==== ====== =====
33 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2007 ----------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED -------------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities................... $2,559 $ 99 $ 66 $2,592 32.7% Residential mortgage-backed securities...... 1,728 13 14 1,727 21.8 Foreign corporate securities................ 945 135 13 1,067 13.5 Foreign government securities............... 598 294 2 890 11.2 Commercial mortgage-backed securities....... 876 11 14 873 11.0 U.S. Treasury/agency securities............. 369 13 -- 382 4.8 Asset-backed securities..................... 326 1 17 310 3.9 State and political subdivision securities.. 4 -- -- 4 0.2 Other fixed maturity securities............. 103 -- 29 74 0.9 ------ ---- ---- ------ ----- Total fixed maturity securities(1),(2).... $7,508 $566 $155 $7,919 100.0% ====== ==== ==== ====== ===== Common stock................................ $ 17 $ -- $ -- $ 17 54.8 Non-redeemable preferred stock(1)........... 14 1 1 14 45.2 ------ ---- ---- ------ ----- Total equity securities................... $ 31 $ 1 $ 1 $ 31 100.0% ====== ==== ==== ====== =====
-------- (1) The Company classifies perpetual securities that have attributes of both debt and equity as fixed maturity securities if the security has a punitive interest rate step-up feature as it believes in most instances this feature will compel the issuer to redeem the security at the specified call date. Perpetual securities that do not have a punitive interest rate step-up feature are classified as non-redeemable preferred stock. Many of such securities have been issued by non-U.S. financial institutions that are accorded Tier 1 and Upper Tier 2 capital treatment by their respective regulatory bodies and are commonly referred to as "perpetual hybrid securities." Perpetual hybrid securities classified as non-redeemable preferred stock held by the Company at December 31, 2008 and 2007 had an estimated fair value of $3 million and $12 million, respectively. In addition, the Company held $3 million and $2 million at estimated fair value, respectively, at December 31, 2008 and 2007 of other perpetual hybrid securities, primarily U.S. financial institutions, also included in non-redeemable preferred stock. Perpetual hybrid securities held by the Company and included within fixed maturity securities (primarily within foreign corporate securities) at December 31, 2008 and 2007 had an estimated fair value of $33 million and $74 million, respectively. (2) At December 31, 2008 and 2007 the Company also held $65 million and $113 million at estimated fair value, respectively, of redeemable preferred stock which have stated maturity dates which are included within fixed maturity securities. These securities are primarily issued by U.S. financial institutions, have cumulative interest deferral features and are commonly referred to as "capital securities" within U.S. corporate securities. The Company held foreign currency derivatives with notional amounts of $623 million and $831 million to hedge the exchange rate risk associated with foreign denominated fixed maturity securities at December 31, 2008 and 2007, respectively. Below Investment Grade or Non Rated Fixed Maturity Securities. The Company held fixed maturity securities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $209 million and $229 million at December 31, 2008 and 2007, respectively. These securities had net unrealized gains (losses) of ($55) million and $10 million at December 31, 2008 and 2007, respectively. Non-Income Producing Fixed Maturity Securities. Non-income producing fixed maturity securities at estimated fair value were $2 million and less than $1 million at December 31, 2008 and 2007, respectively. 34 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net unrealized gains associated with non-income producing fixed maturity securities were less than $1 million at both December 31, 2008 and 2007. Fixed Maturity Securities Credit Enhanced by Financial Guarantee Insurers. At December 31, 2008, $59 million of the estimated fair value of the Company's fixed maturity securities were credit enhanced by financial guarantee insurers of which $35 million, $11 million, $9 million and $4 million, are included within U.S. corporate securities, asset-backed securities, state and political subdivision securities and residential mortgage-backed securities, respectively, and 3% and 92% were guaranteed by financial guarantee insurers who were Aa and Baa rated, respectively. Approximately 85% of the asset-backed securities that are credit enhanced by financial guarantee insurers are asset- backed securities which are backed by sub-prime mortgage loans. Concentrations of Credit Risk (Fixed Maturity Securities). The following section contains a summary of the concentrations of credit risk related to fixed maturity securities holdings. The Company is not exposed to any concentrations of credit risk of any single issuer greater than 10% of the Company's stockholder's equity, other than securities of the U.S. government and certain U.S. government agencies. At December 31, 2008 and 2007, the Company's holdings in U.S. Treasury and agency fixed maturity securities at estimated fair value were $372 million and $382 million, respectively. As shown in the sector table above, at December 31, 2008 the Company's three largest exposures in its fixed maturity security portfolio were U.S. corporate securities (36.4%), residential mortgage-backed securities (15.7%), and foreign corporate securities (13.5%); and at December 31, 2007 were U.S. corporate securities (32.7%), residential mortgage-backed securities (21.8%), and foreign corporate securities (13.5%). Concentrations of Credit Risk (Fixed Maturity Securities) -- U.S. and Foreign Corporate Securities. At December 31, 2008 and 2007, the Company's holdings in U.S. corporate and foreign corporate fixed maturity securities at estimated fair value were $3,067 million and $3,659 million, respectively. The Company maintains a diversified portfolio of corporate securities across industries and issuers. The portfolio does not have exposure to any single issuer in excess of 1% of total invested assets. The exposure to the largest single issuer of corporate fixed maturity securities held at December 31, 2008 and 2007 was $76 million and $84 million, respectively. At December 31, 2008 and 2007, the Company's combined holdings in the ten issuers to which it had the greatest exposure totaled $442 million and $467 million, respectively, the total of these ten issuers being less than 5% of the Company's total invested assets at such dates. The table below shows the major industry types that comprise the corporate fixed maturity holdings at:
DECEMBER 31, --------------------------------------- 2008 2007 ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (IN MILLIONS) Foreign(1).................................. $ 832 27.1% $1,067 29.2% Industrial.................................. 527 17.2 582 15.9 Utility..................................... 514 16.8 512 14.0 Finance..................................... 441 14.4 697 19.0 Consumer.................................... 421 13.7 522 14.3 Communications.............................. 140 4.6 198 5.4 Other....................................... 192 6.2 81 2.2 ------ ----- ------ ----- Total..................................... $3,067 100.0% $3,659 100.0% ====== ===== ====== =====
-------- (1) Includes U.S. dollar-denominated debt obligations of foreign obligors, and other fixed maturity foreign investments. 35 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentrations of Credit Risk (Fixed Maturity Securities) -- Residential Mortgage-Backed Securities. The Company's residential mortgage-backed securities consist of the following holdings at:
DECEMBER 31, --------------------------------------- 2008 2007 ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (IN MILLIONS) Residential mortgage-backed securities: Collateralized mortgage obligations....... $796 82.8% $1,094 63.3% Pass-through securities................... 165 17.2 633 36.7 ---- ----- ------ ----- Total residential mortgage-backed securities................................ $961 100.0% $1,727 100.0% ==== ===== ====== =====
Collateralized mortgage obligations are a type of mortgage-backed security that creates separate pools or tranches of pass-through cash flows for different classes of bondholders with varying maturities. Pass-through mortgage-backed securities are a type of asset-backed security that is secured by a mortgage or collection of mortgages. The monthly mortgage payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments, and for a fee, remits or passes these payments through to the holders of the pass-through securities. At December 31, 2008, the exposures in the Company's residential mortgage- backed securities portfolio consist of agency, prime, and alternative residential mortgage loans ("Alt-A") securities of 65%, 23%, and 12% of the total holdings, respectively. At December 31, 2008 and 2007, $843 million and $1,726 million, respectively, or 88% and 99% respectively, of the residential mortgage-backed securities were rated Aaa/AAA by Moody's Investors Service ("Moody's"), S&P, or Fitch Ratings ("Fitch"). The majority of the agency residential mortgage-backed securities are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. Prime residential mortgage lending includes the origination of residential mortgage loans to the most credit-worthy customers with high quality credit profiles. Alt-A residential mortgage loans are a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime. At December 31, 2008 and 2007, the Company's Alt-A residential mortgage-backed securities exposure at estimated fair value was $118 million and $197 million, respectively, with an unrealized loss of $58 million and $4 million respectively. At December 31, 2008 and 2007, $72 million and $197 million, respectively, or 61% and 100% respectively, of the Company's Alt-A residential mortgage-backed securities were rated Aa/AA or better by Moody's, S&P or Fitch. In December 2008, certain Alt-A residential mortgage-backed securities experienced ratings downgrades from investment grade to below investment grade, contributing to the decrease year over year cited above in those securities rated Aa/AA or better. At December 31, 2008 the Company's Alt-A holdings are distributed as follows: 25% 2007 vintage year, 40% 2006 vintage year and 35% 2005 and prior vintage years. In January 2009, Moody's revised its loss projections for Alt-A residential mortgage-backed securities, and the Company anticipates that Moody's will be downgrading virtually all 2006 and 2007 vintage year Alt-A securities to below investment grade, which will increase the percentage of the Company's Alt-A residential mortgage-backed securities portfolio that will be rated below investment grade. Vintage year refers to the year of origination and not to the year of purchase. Concentrations of Credit Risk (Fixed Maturity Securities) -- Commercial Mortgage-Backed Securities. At December 31, 2008 and 2007, the Company's holdings in commercial mortgage-backed securities was $662 million and $873 million, respectively, at estimated fair value. At December 31, 2008 and 2007, $575 million and $695 million, respectively, of the estimated fair value, or 87% and 80%, respectively, of the commercial mortgage-backed securities were rated Aaa/AAA by Moody's, S&P, or Fitch. At December 31, 2008, the rating distribution of the Company's commercial mortgage-backed securities holdings was as follows: 87% Aaa, 11% Aa and 2% A. At December 31, 2008, 95% of the holdings are in the 2005 and prior vintage years. At December 31, 2008, the 36 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company had no exposure to CMBX securities and its holdings of commercial real estate collateralized debt obligations securities was $10 million at estimated fair value. Concentrations of Credit Risk (Fixed Maturity Securities) -- Asset-Backed Securities. At December 31, 2008 and 2007, the Company's holdings in asset- backed securities was $289 million and $310 million, respectively, at estimated fair value. The Company's asset-backed securities are diversified both by sector and by issuer. At December 31, 2008 and 2007, $203 million and $158 million, respectively, or 70% and 51%, respectively, of total asset-backed securities were rated Aaa/AAA by Moody's, S&P or Fitch. At December 31, 2008, the largest exposures in the Company's asset-backed securities portfolio were credit card receivables, student loan receivables, residential mortgage-backed securities backed by sub-prime mortgage loans and automobile receivables of 56%, 10%, 6% and 6% of the total holdings, respectively. Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. At December 31, 2008 and 2007, the Company had exposure to fixed maturity securities backed by sub-prime mortgage loans with estimated fair values of $18 million and $39 million, respectively, and unrealized losses of $26 million and $7 million, respectively. At December 31, 2008, 50% of the asset-backed securities backed by sub-prime mortgage loans have been guaranteed by financial guarantee insurers, of which 23% and 77% were guaranteed by financial guarantee insurers who were Aa and Baa rated, respectively. Concentrations of Credit Risk (Equity Securities). The Company is not exposed to any concentrations of credit risk of any single issuer in its equity securities holdings, except for the RGA shares retained, which had an estimated fair value of $128 million or 13% of the Company's stockholder's equity. See Note 2. The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), are as follows:
DECEMBER 31, ----------------------------------------------- 2008 2007 ---------------------- ---------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE --------- ---------- --------- ---------- (IN MILLIONS) Due in one year or less................. $ 132 $ 131 $ 105 $ 113 Due after one year through five years... 823 808 1,198 1,261 Due after five years through ten years.. 1,050 1,010 905 955 Due after ten years..................... 2,229 2,279 2,370 2,680 ------ ------ ------ ------ Subtotal.............................. 4,234 4,228 4,578 5,009 Mortgage-backed and other asset-backed securities............................ 2,348 1,912 2,930 2,910 ------ ------ ------ ------ Total fixed maturity securities....... $6,582 $6,140 $7,508 $7,919 ====== ====== ====== ======
Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final contractual maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. 37 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NET UNREALIZED INVESTMENT GAINS (LOSSES) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), are as follows:
YEARS ENDED DECEMBER 31, ------------------------- 2008 2007 2006 ----- ----- ----- (IN MILLIONS) Fixed maturity securities........................... $(442) $ 894 $ 852 Equity securities................................... (31) (19) 5 Derivatives......................................... (3) (3) (2) Minority interest................................... -- (150) (159) Short-term investments.............................. (45) -- -- Other............................................... -- (28) (20) ----- ----- ----- Subtotal.......................................... (521) 694 676 ----- ----- ----- Amounts allocated from DAC and VOBA................. 60 (97) (27) Deferred income tax................................. 162 (249) (280) ----- ----- ----- Subtotal.......................................... 222 (346) (307) ----- ----- ----- Net unrealized investment gains (losses)............ $(299) $ 348 $ 369 ===== ===== =====
The changes in net unrealized investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, -------------------------- 2008 2007 2006 ------- ---- ----- (IN MILLIONS) Balance, at January 1,............................. $ 348 $369 $ 431 Unrealized investment gains (losses) during the year............................................. (1,302) 18 (111) Unrealized investment loss of subsidiary at the date of dividend of interests.................... 87 -- -- Unrealized investment gains (losses) relating to: DAC and VOBA..................................... 175 (70) 18 DAC and VOBA of subsidiary at date of dividend of interests..................................... (18) -- -- Deferred income tax.............................. 457 31 31 Deferred income tax of subsidiary at date of dividend of interests......................... (46) -- -- ------- ---- ----- Balance, at December 31,........................... $ (299) $348 $ 369 ======= ==== ===== Change in net unrealized investment gains (losses)......................................... $ (647) $(21) $ (62) ======= ==== =====
38 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the estimated fair value and gross unrealized loss of the Company's fixed maturity (aggregated by sector) and equity securities in an unrealized loss position, aggregated by length of time that the securities have been in a continuous unrealized loss position at:
DECEMBER 31, 2008 --------------------------------------------------------------------------- EQUAL TO OR GREATER THAN LESS THAN 12 MONTHS 12 MONTHS TOTAL ----------------------- ----------------------- ----------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ---------- ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities............. $ 797 $ 94 $ 612 $141 $1,409 $235 Residential mortgage-backed securities.......................... 276 65 107 56 383 121 Foreign corporate securities.......... 353 62 144 59 497 121 Foreign government securities......... 94 9 44 5 138 14 Commercial mortgage-backed securities.......................... 319 55 328 160 647 215 Asset-backed securities............... 157 30 124 90 281 120 State and political subdivision securities.......................... 14 1 1 -- 15 1 ------ ---- ------ ---- ------ ---- Total fixed maturity securities..... $2,010 $316 $1,360 $511 $3,370 $827 ====== ==== ====== ==== ====== ==== Equity securities..................... $ 131 $ 30 $ -- $ 1 $ 131 $ 31 ====== ==== ====== ==== ====== ==== Total number of securities in an unrealized loss position............ 462 347 ====== ======
DECEMBER 31, 2007 --------------------------------------------------------------------------- EQUAL TO OR GREATER THAN LESS THAN 12 MONTHS 12 MONTHS TOTAL ----------------------- ----------------------- ----------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ---------- ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities............. $ 607 $32 $ 548 $34 $1,155 $ 66 Residential mortgage-backed securities.......................... 390 8 356 6 746 14 Foreign corporate securities.......... 206 3 95 10 301 13 Foreign government securities......... 25 -- 22 2 47 2 Commercial mortgage-backed securities.......................... 44 1 483 13 527 14 Asset-backed securities............... 209 12 49 5 258 17 State and political subdivision securities.......................... 1 -- -- -- 1 -- Other fixed maturity securities....... 74 29 -- -- 74 29 ------ --- ------ --- ------ ---- Total fixed maturity securities..... $1,556 $85 $1,553 $70 $3,109 $155 ====== === ====== === ====== ==== Equity securities..................... $ 2 $-- $ 3 $ 1 $ 5 $ 1 ====== === ====== === ====== ==== Total number of securities in an unrealized loss position............ 290 227 ====== ======
39 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) AGING OF GROSS UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized loss and number of securities for fixed maturity and equity securities, where the estimated fair value had declined and remained below cost or amortized cost by less than 20%, or 20% or more at:
DECEMBER 31, 2008 ------------------------------------------------------------ COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES ------------------ ------------------ ------------------ LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE --------- ------ --------- ------ --------- ------ (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) FIXED MATURITY SECURITIES: Less than six months.................... $ 872 $1,285 $ 59 $457 216 234 Six months or greater but less than nine months................................ 485 59 48 31 93 15 Nine months or greater but less than twelve months......................... 400 98 48 56 58 22 Twelve months or greater................ 966 32 110 18 166 9 ------ ------ ---- ---- Total................................. $2,723 $1,474 $265 $562 ====== ====== ==== ==== EQUITY SECURITIES: Less than six months.................... $ 156 $ 2 $ 28 $ 2 1 1 Six months or greater but less than nine months................................ -- -- -- -- -- -- Nine months or greater but less than twelve months......................... 2 2 -- 1 1 1 Twelve months or greater................ -- -- -- -- -- -- ------ ------ ---- ---- Total................................. $ 158 $ 4 $ 28 $ 3 ====== ====== ==== ====
DECEMBER 31, 2007 -------------------------------------------------------------- COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES -------------------- ------------------ ------------------ LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE --------- ------ --------- ------ --------- ------ (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) FIXED MATURITY SECURITIES: Less than six months................... $1,067 $24 $ 54 $ 6 165 12 Six months or greater but less than nine months.......................... 290 1 14 -- 76 1 Nine months or greater but less than twelve months........................ 285 -- 19 -- 47 -- Twelve months or greater............... 1,587 10 59 3 214 4 ------ --- ---- --- Total................................ $3,229 $35 $146 $ 9 ====== === ==== === EQUITY SECURITIES: Less than six months................... $ -- $-- $ -- $-- -- -- Six months or greater but less than nine months.......................... -- -- -- -- -- -- Nine months or greater but less than twelve months........................ 2 -- -- -- 1 -- Twelve months or greater............... 4 -- 1 -- 1 -- ------ --- ---- --- Total................................ $ 6 $-- $ 1 $-- ====== === ==== ===
40 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As described more fully in Note 1, the Company performs a regular evaluation, on a security-by-security basis, of its investment holdings in accordance with its impairment policy in order to evaluate whether such securities are other-than-temporarily impaired. One of the criteria which the Company considers in its other-than-temporary impairment analysis is its intent and ability to hold securities for a period of time sufficient to allow for the recovery of their value to an amount equal to or greater than cost or amortized cost. The Company's intent and ability to hold securities considers broad portfolio management objectives such as asset/liability duration management, issuer and industry segment exposures, interest rate views and the overall total return focus. In following these portfolio management objectives, changes in facts and circumstances that were present in past reporting periods may trigger a decision to sell securities that were held in prior reporting periods. Decisions to sell are based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives including liquidity needs or duration targets on asset/liability managed portfolios. The Company attempts to anticipate these types of changes and if a sale decision has been made on an impaired security and that security is not expected to recover prior to the expected time of sale, the security will be deemed other-than- temporarily impaired in the period that the sale decision was made and an other- than-temporary impairment loss will be recognized. At December 31, 2008 and 2007, $265 million and $146 million, respectively, of unrealized losses related to fixed maturity securities with an unrealized loss position of less than 20% of cost or amortized cost, which represented 10% and 5%, respectively, of the cost or amortized cost of such securities. At December 31, 2008 and 2007, $28 million and $1 million, respectively, of unrealized losses related to equity securities with an unrealized loss position of less than 20% of cost, which represented 18% and 17%, respectively, of the cost of such securities. At December 31, 2008, $562 million and $3 million of unrealized losses related to fixed maturity securities and equity securities, respectively, with an unrealized loss position of 20% or more of cost or amortized cost, which represented 38% and 75% of the cost or amortized cost of such fixed maturity securities and equity securities, respectively. Of such unrealized losses of $562 million and $3 million, $457 million and $2 million related to fixed maturity securities and equity securities, respectively, that were in an unrealized loss position for a period of less than six months. At December 31, 2007, $9 million of unrealized losses were all related to fixed maturity securities with an unrealized loss position of 20% or more of amortized cost, which represented 26% of amortized cost of such fixed maturity securities. Of such unrealized losses of $9 million, $6 million related to fixed maturity securities that were in an unrealized loss position for a period of less than six months. At December 31, 2007, there were no equity securities with an unrealized loss of 20% or more. The Company held five fixed maturity securities and one equity security, each with a gross unrealized loss at December 31, 2008 of greater than $10 million. These five fixed maturity securities represented 8% or $65 million in the aggregate, of the gross unrealized loss on fixed maturity securities. The one equity security, represented by the RGA shares retained is 90%, or $28 million in the aggregate, of the gross unrealized loss on equity securities. The Company held no fixed maturity securities or equity securities, with a gross unrealized loss at December 31, 2007 of greater than $10 million. These securities were included in the regular evaluation of whether such securities are other-than-temporarily impaired. Based upon the Company's current evaluation of these securities in accordance with its impairment policy, the cause of the decline being primarily attributable to a rise in market yields caused principally by an extensive widening of credit spreads which resulted from a lack of market liquidity and a short-term market dislocation versus a long-term deterioration in credit quality, and the Company's current intent and ability to hold the fixed maturity and equity securities with unrealized losses for a period of time sufficient for them to recover, the Company has concluded that these securities are not other-than-temporarily impaired. In the Company's impairment review process, the duration of, and severity of, an unrealized loss position, such as unrealized losses of 20% or more for equity securities, which was $3 million at December 31, 2008 is given greater weight and consideration, than for fixed maturity securities. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company's evaluation of recoverability of all contractual cash flows, as well as the Company's ability and intent to hold the security, including holding the security until the earlier of a recovery in 41 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value, or until maturity. In contrast, for an equity security, greater weight and consideration is given by the Company to a decline in market value and the likelihood such market value decline will recover. Equity securities with an unrealized loss of 20% or more was $3 million at December 31, 2008, all of which are for investment grade financial services industry non-redeemable preferred securities, that were rated A or higher. There were no equity securities with an unrealized loss of 20% or more for twelve months or greater. In connection with the equity securities impairment review process during 2008, the Company evaluated its holdings in non-redeemable preferred securities, particularly those of financial services industry companies. The Company considered several factors including whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of non-redeemable preferred securities with a severe or an extended unrealized loss. With respect to common stock holdings, the Company considered the duration and severity of the securities in an unrealized loss position of 20% or more; and the duration of securities in an unrealized loss position of 20% or less with in an extended unrealized loss position (i.e., 12 months or more). The Company believes the unrealized loss position is not necessarily predictive of the ultimate performance of these securities, and with respect to fixed maturity securities, it has the ability and intent to hold until the earlier of the recovery in value, or until maturity, and with respect to equity securities, it has the ability and intent to hold until the recovery in value. Future other-than-temporary impairments will depend primarily on economic fundamentals, issuer performance, changes in collateral valuation, changes in interest rates, and changes in credit spreads. If economic fundamentals and other of the above factors continue to deteriorate, additional other-than- temporary impairments may be incurred in upcoming periods. 42 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2008 and 2007, the Company's gross unrealized losses related to its fixed maturity and equity securities of $858 million and $156 million, respectively, were concentrated, calculated as a percentage of gross unrealized loss, as follows:
DECEMBER 31, ------------ 2008 2007 ---- ---- SECTOR: U.S. corporate securities.................................. 27% 42% Commercial mortgage-backed securities...................... 25 9 Asset-backed securities.................................... 14 11 Foreign corporate securities............................... 14 8 Residential mortgage-backed securities..................... 14 9 Other...................................................... 6 21 --- --- Total................................................. 100% 100% === === INDUSTRY: Mortgage-backed............................................ 39% 18% Finance.................................................... 19 22 Asset-backed............................................... 14 11 Utility.................................................... 10 13 Consumer................................................... 6 1 Industrial................................................. 2 13 Government................................................. 2 2 Communication.............................................. 2 -- Other...................................................... 6 20 --- --- Total................................................. 100% 100% === ===
NET INVESTMENT GAINS (LOSSES) The components of net investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, ------------------- 2008 2007 2006 ---- ----- ---- (IN MILLIONS) Fixed maturity securities............................ $(87) $ (6) $(30) Equity securities.................................... (2) -- 6 Mortgage loans on real estate........................ -- (2) 1 Real estate and real estate joint ventures........... -- 1 -- Freestanding derivatives............................. 215 (103) 1 Other................................................ 11 19 1 ---- ----- ---- Net investment gains (losses)..................... $137 $ (91) $(21) ==== ===== ====
43 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Proceeds from sales or disposals of fixed maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) are as follows:
FIXED MATURITY SECURITIES EQUITY SECURITIES TOTAL ------------------------ ------------------ ------------------------ 2008 2007 2006 2008 2007 2006 2008 2007 2006 ------ ------ ------ ---- ---- ---- ------ ------ ------ (IN MILLIONS) Proceeds....................... $1,594 $1,029 $1,774 $-- $-- $ 9 $1,594 $1,029 $1,783 ====== ====== ====== === === === ====== ====== ====== Gross investment gains......... 16 9 12 -- -- 6 16 9 18 ------ ------ ------ --- --- --- ------ ------ ------ Gross investment losses........ (28) (14) (42) -- -- -- (28) (14) (42) ------ ------ ------ --- --- --- ------ ------ ------ Writedowns Credit-related............ (69) (1) -- (2) -- -- (71) (1) -- Other than credit- related(1).............. (6) -- -- -- -- -- (6) -- -- ------ ------ ------ --- --- --- ------ ------ ------ Total writedowns.......... (75) (1) -- (2) -- -- (77) (1) -- ------ ------ ------ --- --- --- ------ ------ ------ Net investment gains (losses).................. $ (87) $ (6) $ (30) $(2) $-- $ 6 $ (89) $ (6) $ (24) ====== ====== ====== === === === ====== ====== ======
-------- (1) Other-than credit related writedowns include items such as fixed maturity securities where an interest-rate related writedown was taken. The Company periodically disposes of fixed maturity and equity securities at a loss. Generally, such losses are insignificant in amount or in relation to the cost basis of the investment, are attributable to declines in fair value occurring in the period of the disposition or are as a result of management's decision to sell securities based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives. Losses from fixed maturity and equity securities deemed other-than- temporarily impaired, included within net investment losses, were $77 million and $1 million for the years ended December 31, 2008 and 2007, respectively. The substantial increase in 2008 over 2007 was driven by writedowns totaling $65 million of financial services industry securities holdings, comprised of $63 million of fixed maturity securities and $2 million of equity securities. There were no losses from fixed maturity and equity securities deemed other-than- temporarily impaired for the year ended December 31, 2006. Overall, of the $75 million of fixed maturity security writedowns in 2008, $63 million were on financial services industry services holdings; $5 million were on communication industry holdings; $2 million on asset-backed (substantially all are backed by or exposed to sub-prime mortgage loans); and $5 million in fixed maturity security holdings that the Company either lacked the intent to hold, or due to extensive credit spread widening, the Company was uncertain of its intent to hold these fixed maturity securities for a period of time sufficient to allow for recovery of the market value decline. The $2 million of writedowns on equity securities in 2008, were all related to the financial services industry holdings. 44 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NET INVESTMENT INCOME The components of net investment income are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Fixed maturity securities........................... $385 $459 $460 Equity securities................................... 1 1 -- Mortgage loans on real estate....................... 14 15 20 Policy loans........................................ 106 101 100 Real estate and real estate joint ventures.......... 11 11 12 Other limited partnership interests................. (4) (4) (1) Cash, cash equivalents and short-term investments... 10 19 12 Other............................................... -- 1 2 ---- ---- ---- Total investment income........................... 523 603 605 Less: Investment expenses........................... 49 92 84 ---- ---- ---- Net investment income............................. $474 $511 $521 ==== ==== ====
Net investment income from other limited partnership interests, including hedge funds, represents distributions from other limited partnership interests accounted for under the cost method and equity in earnings from other limited partnership interests accounted for under the equity method. Overall for 2008, the net amount recognized by the Company was a loss of $4 million resulting principally from losses on equity method investments. Such earnings and losses recognized for other limited partnership interests are impacted by volatility in the equity and credit markets. Affiliated administrative service charges, included in investment expenses, included in the table above, were $6 million, $5 million and $5 million, for the years ended December 31, 2008, 2007 and 2006, respectively. See "-- Related Party Investment Transactions" for discussion of affiliated net investment income related to short-term investments included in the table above. SECURITIES LENDING The Company participates in securities lending programs whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, primarily major brokerage firms and commercial banks. The Company generally obtains collateral in an amount equal to 102% of the estimated fair value of the securities loaned. Securities with a cost or amortized cost of $679 million and $1,372 million and an estimated fair value of $737 million and $1,392 million were on loan under the program at December 31, 2008 and 2007, respectively. Securities loaned under such transactions may be sold or repledged by the transferee. The Company was liable for cash collateral under its control of $742 million and $1,434 million at December 31, 2008 and 2007, respectively. Of this $742 million of cash collateral at December 31, 2008, $113 million was on open terms, meaning that the related loaned security could be returned to the Company on the next business day requiring return of cash collateral and $517 million and $112 million, respectively, were due within 30 days and 60 days. Of the $108 million of estimated fair value of the securities related to the cash collateral on open at December 31, 2008, $55 million were U.S. Treasury and agency securities which, if put to the Company, can be immediately sold to satisfy the cash requirements. The remainder of the securities on loan are primarily U.S. Treasury and agency securities, and very liquid residential mortgage-backed securities. The estimated fair value of the reinvestment portfolio acquired with the cash collateral was $585 million at December 31, 2008, and consisted principally of fixed maturity securities (including residential mortgage-backed, asset-backed, U.S. corporate and foreign corporate securities). 45 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Security collateral of $25 million on deposit from counterparties in connection with the securities lending transactions at December 31, 2008 may not be sold or repledged, unless the counterparty is in default, and is not reflected in the consolidated financial statements. There was no security collateral on deposit from counterparties in connection with the securities lending transactions at December 31, 2007. ASSETS ON DEPOSIT AND ASSETS PLEDGED AS COLLATERAL The Company had investment assets on deposit with regulatory agencies with an estimated fair value of $1,060 million and $1,356 million at December 31, 2008 and 2007, respectively, consisting primarily of fixed maturity securities. Certain of the Company's fixed maturity securities are pledged as collateral for various derivative transactions as described in Note 4. MORTGAGE LOANS ON REAL ESTATE Mortgage loans on real estate are categorized as follows:
DECEMBER 31, ----------------------------------- 2008 2007 ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- (IN MILLIONS) Commercial mortgage loans..................... $177 80.8% $201 82.7% Agricultural mortgage loans................... 42 19.2 42 17.3 ---- ----- ---- ----- Total....................................... 219 100.0% 243 100.0% ===== ===== Less: Valuation allowances.................... -- 2 ---- ---- Mortgage loans on real estate............... $219 $241 ==== ====
Mortgage loans on real estate are collateralized by properties primarily located in the United States. At December 31, 2008, 34%, 9% and 8% of the value of the Company's mortgage loans on real estate were located in California, Florida and Texas, respectively. Generally, the Company, as the lender, only loans up to 75% of the purchase price of the underlying real estate. Information regarding loan valuation allowances for mortgage loans on real estate is as follows:
YEARS ENDED DECEMBER 31, ---------------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Balance at January 1,............................... $ 2 $-- $ 1 Additions........................................... -- 2 -- Deductions.......................................... (2) -- (1) --- --- --- Balance at December 31,............................. $-- $ 2 $-- === === ===
There were no impaired mortgage loans at December 31, 2008. The Company had $4 million of impaired mortgage loans, net of $2 million of valuation allowances at December 31, 2007. The average investment in impaired mortgage loans was $2 million, $6 million and $1 million for the years ended December 31, 2008, 2007 and 2006, respectively. There was no interest income on impaired mortgage loans for the year ended December 31, 2008. Interest income on impaired mortgage loans was less than $1 million for the years ended December 31, 2007 and 2006. 46 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REAL ESTATE HOLDINGS Real estate holdings consisted of the following:
DECEMBER 31, ---------------- 2008 2007 ---- ---- (IN MILLIONS) Real estate............................................... $ 69 $ 68 Accumulated depreciation.................................. (17) (16) ---- ---- Net real estate........................................... 52 52 Real estate joint ventures................................ 3 3 ---- ---- Total real estate holdings.............................. $ 55 $ 55 ==== ====
All of the Company's real estate holdings are classified as held-for- investment. Related depreciation expense on real estate was $1 million, $2 million and $1 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company's real estate holdings are located in the United States. At December 31, 2008, 95% of the Company's real estate holdings were located in California. Real estate holdings were categorized as follows:
DECEMBER 31, ----------------------------------- 2008 2007 ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- (IN MILLIONS) Office........................................ $37 67% $37 67% Industrial.................................... 15 27 15 27 Real estate investment funds.................. 3 6 3 6 --- --- --- --- Total real estate holdings.................. $55 100% $55 100% === === === ===
OTHER LIMITED PARTNERSHIP INTERESTS The carrying value of other limited partnership interests (which primarily represent ownership interests in pooled investment funds that principally make private equity investments in companies in the United States and overseas) was $81 million and $33 million at December 31, 2008 and 2007, respectively. Included within other limited partnership interests at December 31, 2008 and 2007 are $34 million and $9 million, respectively, of hedge funds. For the years ended December 31, 2008, 2007 and 2006, net investment loss from other limited partnership interests was $4 million, $4 million and $1 million, respectively. 47 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INVESTED ASSETS The following table presents the carrying value of the Company's other invested assets at:
DECEMBER 31, --------------------------------------------- 2008 2007 --------------------- --------------------- CARRYING CARRYING VALUE % OF TOTAL VALUE % OF TOTAL -------- ---------- -------- ---------- (IN MILLIONS) Freestanding derivatives with positive fair values............................ $113 89.7% $77 96.3% Tax credit partnerships.................. 10 7.9 -- 0 Other.................................... 3 2.4 3 3.7 ---- ----- --- ----- Total.................................. $126 100.0% $80 100.0% ==== ===== === =====
See Note 4 regarding the freestanding derivatives with positive estimated fair values. Tax credit partnerships are established for the purpose of investing in low-income housing and other social causes, where the primary return on investment is in the form of tax credits, and are accounted for under the equity method. VARIABLE INTEREST ENTITIES The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which the Company holds significant variable interests but it is not the primary beneficiary and which have not been consolidated at December 31, 2008:
DECEMBER 31, 2008 ----------------------- MAXIMUM CARRYING EXPOSURE TO AMOUNT(1) LOSS(2) --------- ----------- (IN MILLIONS) Fixed maturity securities, available-for-sale(3) Foreign corporate securities........................ $14 $14 U.S. Treasury/agency securities..................... 16 16 Other limited partnership interests(4)................ 38 38 Other invested assets(5).............................. 3 3 --- --- Total............................................... $71 $71 === ===
-------- (1) See Note 1 for further discussion of the Company's significant accounting policies with regards to the carrying amounts of these investments. (2) The maximum exposure to loss relating to the fixed maturity securities available-for-sale is equal to the carrying amounts or carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests is equal to the carrying amounts plus any unfunded commitments. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. For certain of its investments in other invested assets, the Company's return is in the form of tax credits which are guaranteed by a creditworthy third party. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by third parties. (3) These assets are reflected at estimated fair value within fixed maturity securities available-for-sale. (4) Other limited partnership interests include partnerships established for the purpose of investing in public and private debt and equity securities. 48 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) Other invested assets include tax credit partnerships and other investments established for the purpose of investing in low-income housing and other social causes, where the primary return on investment is in the form of tax credits. As described in Note 10, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs during the years ended December 31, 2008, 2007 and 2006. RELATED PARTY INVESTMENT TRANSACTIONS At December 31, 2008 and 2007, the Company held $514 million and $224 million, respectively, of its total invested assets in the MetLife Intermediate Income Pool which is an affiliated partnership. These amounts are included in short-term investments. Net investment income from these invested assets was $9 million, $15 million and $4 million for the years ended December 31, 2008, 2007 and 2006, respectively. In the normal course of business, the Company transfers invested assets, primarily consisting of fixed maturity securities, to and from affiliates. The Company did not transfer any invested assets to or from affiliates during the years ended December 31, 2008 and 2006. Assets transferred to and from affiliates, inclusive of amounts related to reinsurance agreements, for 2007 are as follows:
YEAR ENDED DECEMBER 31, 2007 ------------- (IN MILLIONS) Estimated fair value of assets transferred to affiliates..... $19 Amortized cost of assets transferred to affiliates........... $19 Net investment gains (losses) recognized on transfers........ $-- Estimated fair value of assets transferred from affiliates... $10
4. DERIVATIVE FINANCIAL INSTRUMENTS TYPES OF DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the notional amount and current market or estimated fair value of derivative financial instruments, held at:
DECEMBER 31, 2008 DECEMBER 31, 2007 ------------------------------- ------------------------------- CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE NOTIONAL -------------------- NOTIONAL -------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------ ----------- -------- ------ ----------- (IN MILLIONS) Interest rate swaps................... $ 220 $ 81 $-- $ 313 $37 $ 1 Financial futures..................... 135 -- 2 213 1 2 Foreign currency swaps................ 31 5 1 29 -- 6 Foreign currency forwards............. 595 22 -- 807 38 -- Financial forwards.................... -- -- -- 45 -- -- Credit default swaps.................. 164 5 1 170 1 -- ------ ---- --- ------ --- --- Total............................... $1,145 $113 $ 4 $1,577 $77 $ 9 ====== ==== === ====== === ===
49 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the notional amount of derivative financial instruments by maturity at December 31, 2008:
REMAINING LIFE -------------------------------------------------------------------- AFTER ONE YEAR AFTER FIVE YEARS ONE YEAR OR THROUGH FIVE THROUGH TEN AFTER TEN LESS YEARS YEARS YEARS TOTAL ----------- -------------- ---------------- --------- ------ (IN MILLIONS) Interest rate swaps............... $ 33 $39 $ 10 $138 $ 220 Financial futures................. 135 -- -- -- 135 Foreign currency swaps............ -- 5 23 3 31 Foreign currency forwards......... 595 -- -- -- 595 Credit default swaps.............. -- -- 121 43 164 ---- --- ---- ---- ------ Total........................... $763 $44 $154 $184 $1,145 ==== === ==== ==== ======
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring and to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance. The value of interest rate futures is substantially impacted by changes in interest rates and they can be used to modify or hedge existing interest rate risk. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date. Equity variance swaps are used by the Company primarily as a macro hedge on certain invested assets. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. Equity variance swaps are included in financial forwards in the preceding table. Certain credit default swaps are used by the Company to hedge against credit-related changes in the value of its investments and to diversify its credit risk exposure in certain portfolios. In a credit default swap transaction, the Company agrees with another party, at specified intervals, to pay a premium to insure credit risk. If a credit event, as 50 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) defined by the contract, occurs, generally the contract will require the swap to be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit default swaps are also used to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. Treasury or Agency security. HEDGING The following table presents the notional amount and the estimated fair value of derivatives by type of hedge designation at:
DECEMBER 31, 2008 DECEMBER 31, 2007 ------------------------------- ------------------------------- FAIR VALUE FAIR VALUE NOTIONAL -------------------- NOTIONAL -------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------ ----------- -------- ------ ----------- (IN MILLIONS) Fair value...................... $ -- $ -- $-- $ 17 $-- $ 1 Cash flow....................... -- -- -- 4 -- -- Non-qualifying.................. 1,145 113 4 1,556 77 8 ------ ---- --- ------ --- --- Total......................... $1,145 $113 $ 4 $1,577 $77 $ 9 ====== ==== === ====== === ===
The Company recognized insignificant net investment income (expense) from settlement payments related to qualifying hedges for the years ended December 31, 2008, 2007 and 2006. The Company recognized net investment gains (losses) from settlement payments related to non-qualifying hedges of $8 million, $2 million, and $3 million for the years ended December 31, 2008, 2007 and 2006, respectively. FAIR VALUE HEDGES The Company utilizes interest rate swaps to convert fixed rate investments to floating rate investments. The Company designates and accounts for these interest rate swaps as fair value hedges when they have met the requirements of SFAS 133. The Company recognized insignificant amounts in net investment gains (losses) representing the ineffective portion of all fair value hedges for the years ended December 31, 2008, 2007 and 2006. Changes in the fair value of the derivatives and the hedged items were insignificant for the years ended December 31, 2008, 2007 and 2006. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge. CASH FLOW HEDGES The Company designates and accounts for the following as cash flow hedges, when they have met the requirements of SFAS 133: (i) interest rate swaps to convert floating rate investments to fixed rate investments; (ii) interest rate swaps to convert floating rate liabilities to fixed rate liabilities; and (iii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments. For each of the years ended December 31, 2008, 2007 and 2006, the Company did not recognize any net investment gains (losses) which represented the ineffective portion of all cash flow hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. 51 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) There were no instances in which the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date or in the additional time period permitted by SFAS 133. There were no hedged forecasted transactions, other than the receipt or payment of variable interest payments for the years ended December 31, 2008, 2007, and 2006. The following table presents the components of other comprehensive income (loss), before income tax, related to cash flow hedges:
YEARS ENDED DECEMBER 31, ------------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Other comprehensive income (loss) balance at January 1,.................................................. $(2) $(2) $(2) Gains (losses) deferred in other comprehensive income (loss) on the effective portion of the cash flow hedges.............................................. 1 -- 1 Amounts reclassified to net investment gains (losses)............................................ -- -- (1) --- --- --- Other comprehensive income (loss) balance at December 31,................................................. $(1) $(2) $(2) === === ===
At December 31, 2008, insignificant amounts of the deferred net gains (losses) on derivatives accumulated in other comprehensive income (loss) are expected to be reclassified to earnings during the year ending December 31, 2009. HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS The Company uses forward exchange contracts to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on the forward exchange contracts based upon the change in forward rates. There was no ineffectiveness recorded for the years ended December 31, 2008, 2007 and 2006. The Company's consolidated statements of stockholder's equity for the years ended December 31, 2008 and 2007 include gains (losses) of $5 million and ($5) million, respectively, related to foreign currency contracts used to hedge its net investments in foreign operations. The Company did not record any gains (losses) on foreign currency contracts for the year ended December 31, 2006. There was no foreign currency translation gain (loss) recorded in 2008. At December 31, 2007, the cumulative foreign currency translation gain (loss) recorded in accumulated other comprehensive income (loss) related to these hedges was ($5) million. When net investments in foreign operations are sold or substantially liquidated, the amounts in accumulated other comprehensive income (loss) are reclassified to the consolidated statements of income, while a pro rata portion will be reclassified upon partial sale of the net investments in foreign operations. NON-QUALIFYING DERIVATIVES AND DERIVATIVES FOR PURPOSES OTHER THAN HEDGING The Company enters into the following derivatives that do not qualify for hedge accounting under SFAS 133 or for purposes other than hedging: (i) interest rate swaps and interest rate futures to economically hedge its exposure to interest rate volatility; (ii) foreign currency forwards and swaps to economically hedge its exposure to adverse movements in exchange rates; (iii) credit default swaps to minimize its exposure to adverse movements in credit; (iv) equity variance swaps as a macro hedge on certain invested assets; (v) interest rate futures to economically hedge liabilities embedded in certain variable annuity products; and (vi) credit default swaps to synthetically create investments. 52 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents changes in estimated fair value related to derivatives that do not qualify for hedge accounting:
YEARS ENDED DECEMBER 31, ------------------------- 2008 2007 2006 ---- ----- ---- (IN MILLIONS) Net investment gains (losses)....................... $207 $(105) $(4)
CREDIT RISK The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company's derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received pursuant to credit support annexes. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange traded futures are effected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. See Note 15 for a description of the impact of credit risk on the valuation of derivative instruments. The Company enters into various collateral arrangements, which require the accepting of collateral in connection with its derivative instruments. At December 31, 2008 and 2007, the Company was obligated to return cash collateral under its control of $64 million and $4 million, respectively. This unrestricted cash collateral is included in cash and cash equivalents or in short-term investments and the obligation to return it is included in payables for collateral under securities loaned and other transactions in the consolidated balance sheets. The Company has exchange-traded futures, which require the pledging of collateral. At December 31, 2008, the Company did not provide any securities collateral for exchange traded futures. At December 31, 2007, the Company pledged securities collateral for exchange-traded futures of $2 million, which is included in fixed maturity securities. The counterparties are permitted by contract to sell or repledge this collateral. At December 31, 2008, the Company provided cash collateral for exchange-traded futures of $3 million, which is included in premiums and other receivables. At December 31, 2007, the Company did not provide cash collateral for exchange-traded futures. In connection with synthetically created investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event, as defined by the contract, occurs generally the contract will require the Company to pay the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company's maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $74 million at December 31, 2008. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. At December 31, 2008, the Company would have paid $1 million to terminate all of these contracts. 53 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at December 31, 2008:
DECEMBER 31, 2008 ---------------------------------------------------------- MAXIMUM AMOUNT FAIR VALUE OF OF FUTURE PAYMENTS RATING AGENCY DESIGNATION OF REFERENCED CREDIT DEFAULT UNDER CREDIT WEIGHTED AVERAGE CREDIT OBLIGATIONS(1) SWAPS DEFAULT SWAPS(2) YEARS TO MATURITY(3) --------------------------------------- -------------- ------------------ -------------------- (IN MILLIONS) Aaa/Aa/A Single name credit default swaps (corporate).......................... $-- $ 7 5.0 Credit default swaps referencing indices.............................. (1) 67 4.0 --- --- Subtotal........................... (1) 74 4.1 Baa Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- --- --- Subtotal........................... -- -- -- Ba Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- --- --- Subtotal........................... -- -- -- B Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- --- --- Subtotal........................... -- -- -- Caa and lower Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- --- --- Subtotal........................... -- -- -- In or near default Single name credit default swaps (corporate).......................... -- -- -- Credit default swaps referencing indices.............................. -- -- -- --- --- Subtotal........................... -- -- -- --- --- $(1) $74 4.1 === ===
-------- (1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody's, S&P, and Fitch. If no rating is available from a rating agency, then the MetLife rating is used. (2) Assumes the value of the referenced credit obligations is zero. (3) The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. 54 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED Information regarding DAC and VOBA is as follows:
DAC VOBA TOTAL ---- ----- ----- (IN MILLIONS) Balance at January 1, 2006............................ $231 $ 93 $ 324 Capitalizations..................................... 20 -- 20 ---- ----- ----- Subtotal....................................... 251 93 344 ---- ----- ----- Less: Amortization related to: Net investment gains (losses).................... -- (2) (2) Other expenses................................... 79 (28) 51 ---- ----- ----- Total amortization............................. 79 (30) 49 ---- ----- ----- Less: Unrealized investment gains (losses).......... (3) (15) (18) Less: Other......................................... 50 27 77 ---- ----- ----- Balance at December 31, 2006.......................... 125 111 236 Effect of SOP 05-1 adoption......................... (3) (5) (8) Capitalizations..................................... 7 -- 7 ---- ----- ----- Subtotal....................................... 129 106 235 ---- ----- ----- Less: Amortization related to: Net investment gains (losses).................... (2) (2) (4) Other expenses................................... 15 14 29 ---- ----- ----- Total amortization............................. 13 12 25 ---- ----- ----- Less: Unrealized investment gains (losses).......... (1) 71 70 Less: Other......................................... 3 -- 3 ---- ----- ----- Balance at December 31, 2007.......................... 114 23 137 Less: Amortization related to: Net investment gains (losses).................... 3 (4) (1) Other expenses................................... 10 9 19 ---- ----- ----- Total amortization............................. 13 5 18 ---- ----- ----- Less: Unrealized investment gains (losses).......... (3) (154) (157) Less: Other......................................... (2) (1) (3) ---- ----- ----- Balance at December 31, 2008.......................... $106 $ 173 $ 279 ==== ===== =====
The estimated future amortization expense allocated to other expenses for the next five years for VOBA is $10 million in 2009, $9 million in 2010, $9 million in 2011, $8 million in 2012, and $8 million in 2013. Amortization of VOBA and DAC is attributed to both investment gains and losses and to other expenses for the amount of gross margins or profits originating from transactions other than investment gains and losses. Unrealized investment gains and losses provide information regarding the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized. 55 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INSURANCE INSURANCE LIABILITIES Insurance liabilities are as follows:
OTHER FUTURE POLICY POLICYHOLDER ACCOUNT POLICYHOLDER BENEFITS BALANCES FUNDS ------------------ --------------------- ----------------- DECEMBER 31, -------------------------------------------------------------------- 2008 2007 2008 2007 2008 2007 ------ ------ ------ ------ ---- ---- (IN MILLIONS) Group life................. $ 15 $ 34 $ 1 $ -- $ 1 $ 1 Retirement & savings....... 33 35 19 42 -- -- Non-medical health & other.................... 317 329 -- -- 4 5 Traditional life........... 4,559 4,596 -- -- 121 118 Variable & universal life.. 80 64 3,125 3,079 67 58 Annuities.................. 88 87 863 886 -- -- Other...................... 84 52 135 127 56 47 ------ ------ ------ ------ ---- ---- Total................. $5,176 $5,197 $4,143 $4,134 $249 $229 ====== ====== ====== ====== ==== ====
Affiliated insurance liabilities included in the table above include reinsurance assumed and ceded. Affiliated future policy benefits, included in the table above, were less than $1 million at both December 31, 2008 and 2007. Affiliated policyholder account balances, included in the table above, were less than $1 million at both December 31, 2008 and 2007. Affiliated other policyholder funds, included in the table above, were ($196) million and ($227) million at December 31, 2008 and 2007, respectively. SEPARATE ACCOUNTS Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $1,406 million and $2,003 million at December 31, 2008 and 2007, respectively, for which the policyholder assumes all investment risk, and separate accounts with a minimum return or account value for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $78 million and $77 million at December 31, 2008 and 2007, respectively. The average interest rate credited on these contracts was 3.92% and 4.14% at December 31, 2008 and 2007, respectively. 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 $49 million, $57 million and $84 million for the years ended December 31, 2008, 2007 and 2006, respectively. For each of the years ended December 31, 2008, 2007 and 2006, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts. GUARANTEES The Company issues annuity contracts which may include contractual guarantees to the contractholder for: (i) return of no less than total deposits made to the contract less any partial withdrawals ("return of net deposits"); and (ii) the highest contract value on a specified anniversary date minus any withdrawals following the contract anniversary, or total deposits made to the contract less any partial withdrawals plus a minimum return ("anniversary contract value" or "minimum return"). The Company also issues annuity contracts that apply a lower rate of funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects 56 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to annuitize ("two tier annuities"). These guarantees include benefits that are payable in the event of death or at annuitization. The Company also issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee benefit. Information regarding the types of guarantees relating to annuity contracts and universal and variable life contracts is as follows:
DECEMBER 31, -------------------------------- 2008 2007 ------------- ------------- AT AT ANNUITIZATION ANNUITIZATION ------------- ------------- (IN MILLIONS) ANNUITY CONTRACTS (1) TWO TIER ANNUITIES General account value.................................... $ 283 $ 286 Net amount at risk (2)................................... $ 50 (4) $ 51 (4) Average attained age of contractholders.................. 60 years 60 years DECEMBER 31, -------------------------------- 2008 2007 ------------- ------------- SECONDARY SECONDARY GUARANTEES GUARANTEES ------------- ------------- (IN MILLIONS) UNIVERSAL AND VARIABLE LIFE CONTRACTS (1) Account value (general and separate account)............. $ 1,183 $ 1,107 Net amount at risk (2)................................... $ 17,496 (3) $ 18,250 (3) Average attained age of policyholders.................... 58 years 57 years
-------- (1) The Company's annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. (2) The net amount at risk is based on the direct amount at risk (excluding reinsurance). (3) The net amount at risk for guarantees of amounts in the event of death is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. (4) The net amount at risk for two tier annuities is based on the excess of the upper tier, adjusted for a profit margin, less the lower tier. 57 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding the liabilities for guarantees (excluding base policy liabilities) relating to annuity and universal and variable life contracts is as follows:
UNIVERSAL AND ANNUITY VARIABLE LIFE CONTRACTS CONTRACTS ------------- ------------- GUARANTEED ANNUITIZATION SECONDARY BENEFITS GUARANTEES TOTAL ------------- ------------- ----- (IN MILLIONS) Balance at January 1, 2006..................... $ 7 $ 6 $13 Incurred guaranteed benefits................... -- -- -- Paid guaranteed benefits....................... -- -- -- --- --- --- Balance at December 31, 2006................... 7 6 13 Incurred guaranteed benefits................... -- -- -- Paid guaranteed benefits....................... -- -- -- --- --- --- Balance at December 31, 2007................... 7 6 13 Incurred guaranteed benefits................... -- -- -- Paid guaranteed benefits....................... -- -- -- --- --- --- Balance at December 31, 2008................... $ 7 $ 6 $13 === === ===
Account balances of contracts with insurance guarantees are invested in separate account asset classes as follows:
DECEMBER 31, ------------- 2008 2007 ---- ---- (IN MILLIONS) Mutual Fund Groupings Equity..................................................... $12 $18 Bond....................................................... 1 1 Balanced................................................... -- 2 Money Market............................................... 2 2 Specialty.................................................. 1 -- --- --- Total................................................... $16 $23 === ===
7. REINSURANCE General American's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. General American has historically reinsured the mortality risk on new individual life insurance policies primarily on an excess of retention basis or a quota share basis. Until 2005, General American reinsured up to 90% of the mortality risk for all new individual life insurance. This practice was initiated for different products starting at various points in time between the mid-1990's and 2000. During 2005, General American changed its retention practices for certain individual life insurance. Amounts reinsured in prior years remain reinsured under the original reinsurance; however, under the new retention guidelines, General American reinsures up to 90% of the mortality risk in excess of $1 million for most new individual life insurance policies that it writes and for certain individual life policies the retention limits remained unchanged. On a case by case basis, General American may retain up to $2.5 million per life and reinsure 100% of amounts in excess of General American retention limits. The Company evaluates its reinsurance programs 58 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) routinely and may increase or decrease its retention at any time. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specific characteristics. In addition to reinsuring mortality risk as described previously, the Company reinsures other risks, as well as specific coverages. The Company routinely reinsures certain classes of risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company has exposure to catastrophes, which could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of retention and quota share reinsurance arrangements to provide greater diversification of risk and minimize exposure to larger risks. The Company reinsures its business through a diversified group of reinsurers. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, reinsurance balances recoverable could become uncollectible. Cessions under reinsurance arrangements do not discharge the Company's obligations as the primary insurer. The amounts in the consolidated statements of income are presented net of reinsurance ceded. Information regarding the effect of reinsurance is as follows:
YEARS ENDED DECEMBER 31, ------------------------- 2008 2007 2006 ----- ----- ----- (IN MILLIONS) PREMIUMS: Direct premiums................................... $ 384 $ 410 $ 412 Reinsurance assumed............................... 211 181 170 Reinsurance ceded................................. (311) (283) (283) ----- ----- ----- Net premiums................................... $ 284 $ 308 $ 299 ===== ===== ===== UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES: Direct universal life and investment-type product policy fees.................................... $ 357 $ 302 $ 363 Reinsurance ceded................................. (197) (114) (137) ----- ----- ----- Net universal life and investment-type product policy fees.................................. $ 160 $ 188 $ 226 ===== ===== ===== POLICYHOLDER BENEFITS AND CLAIMS: Direct policyholder benefits and claims........... $ 574 $ 652 $ 694 Reinsurance assumed............................... 186 175 175 Reinsurance ceded................................. (306) (342) (424) ----- ----- ----- Net policyholder benefits and claims........... $ 454 $ 485 $ 445 ===== ===== =====
59 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding ceded reinsurance recoverable balances, included in premiums and other receivables is as follows:
DECEMBER 31, --------------- 2008 2007 ------ ------ (IN MILLIONS) UNAFFILIATED RECOVERABLES: Future policy benefit recoverables........................ $ 650 $ 468 Claim recoverables........................................ 80 92 Deposit recoverables...................................... 16 29 All other recoverables.................................... 4 5 ------ ------ Total................................................... $ 750 $ 594 ====== ====== AFFILIATED RECOVERABLES: Future policy benefit recoverables........................ $1,238 $1,257 Deposit recoverables...................................... 136 127 All other recoverables.................................... 9 6 ------ ------ Total................................................... $1,383 $1,390 ====== ======
Reinsurance recoverable balances are stated net of allowances for uncollectible balances, which are immaterial. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with reinsurers. The Company also monitors ratings and evaluates the financial strength of the Company's reinsurers by analyzing their financial statements. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company has secured certain reinsurance recoverable balances with various forms of collateral, including funds withheld accounts and irrevocable letters of credit. At December 31, 2008, the Company has $212 million of unaffiliated reinsurance recoverable balances secured by funds withheld accounts and $16 million of unaffiliated reinsurance recoverable balances secured through irrevocable letters of credit issued by various financial institutions. All of the affiliated reinsurance recoverable balances except $1,198 million of reserves and $8 million of other receivables are secured by funds withheld accounts or irrevocable letters of credit issued by various financial institutions. The Company's five largest unaffiliated reinsurers account for $528 million, or 70%, of its total unaffiliated reinsurance recoverable balance of $750 million at December 31, 2008. Of these reinsurance recoverable balances, $212 million were secured by funds withheld accounts. Reinsurance balances payable to unaffiliated reinsurers, included in other liabilities, were $271 million and $331 million at December 31, 2008 and 2007, respectively. Reinsurance balances receivable from affiliated reinsurers, included in other policyholder funds were $196 million and $227 million, at December 31, 2008 and 2007, respectively. RELATED PARTY REINSURANCE TRANSACTIONS The Company has reinsurance agreements with certain MetLife subsidiaries including MLIC, Exeter Reassurance Company, Ltd., MetLife Insurance Company of Connecticut, MetLife Investors USA Insurance Company, Metropolitan Tower Life Insurance Company, New England Life Insurance Company, and Missouri Reinsurance (Barbados), Inc., all of which are related parties. The table below includes amounts related to transactions between these related parties and RGA through September 12, 2008, the date of the Company's dividend of its interests in RGA. 60 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reflects related party reinsurance information:
YEARS ENDED DECEMBER 31, ------------------ 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Assumed premiums............................................. $ 43 $129 $129 Assumed benefits, included in policyholder benefits and claims..................................................... $120 $194 $155 Assumed benefits, included in policyholder dividends......... $ -- $ 9 $ 7 Assumed acquisition costs, included in other expenses........ $ -- $ -- $ 1 Ceded premiums............................................... $ 15 $ 80 $ 85 Ceded fees, included in universal life and investment-type product policy fees........................................ $118 $ 65 $ 90 Income from deposit contracts, included in other revenues.... $ 3 $ 2 $ 2 Ceded benefits, included in policyholder benefits and claims..................................................... $ 18 $ 25 $ 10 Ceded benefits, included in interest credited to policyholder account balances........................................... $ 61 $ 58 $ 54 Ceded benefits, included in policyholder dividends........... $ -- $ 9 $ 7 Interest costs on ceded reinsurance, included in other expenses................................................... $ 49 $ 5 $ 45
8. LONG-TERM DEBT AND SHORT-TERM DEBT- AFFILIATED Long-term and short-term debt outstanding is as follows:
INTEREST RATES ------------------- DECEMBER 31, WEIGHTED ------------- RANGE AVERAGE MATURITY 2008 2007 -------- -------- --------- ---- ---- (IN MILLIONS) Surplus notes............................. 7.63% 7.63% 2024 $100 $100 Other notes............................... 8% - 12% 8.40% 2009-2016 1 1 ---- ---- Total long-term debt...................... 101 101 Total short-term debt -- affiliated....... -- 50 ---- ---- Total................................... $101 $151 ==== ====
The aggregate maturities of long-term debt at December 31, 2008 for the next five years are less than $1 million in each of the years 2009 through 2013 and $100 million thereafter. Unsecured senior debt ranks highest in priority and consists of other notes with varying interest rates. Payments of interest and principal on the Company's surplus notes, which are subordinate to all other obligations, may be made only with the prior approval of the insurance department of the state of domicile. SHORT-TERM DEBT -- AFFILIATED There was no short-term debt outstanding at December 31, 2008. On December 31, 2007, MetLife Credit Corporation, an affiliate, issued a $50 million short- term loan to the Company with a fixed rate of 4.82%, which was repaid at maturity on January 2, 2008. The Company used the net proceeds of the loan for general corporate purposes. 61 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTEREST EXPENSE Interest expense related to the Company's indebtedness included in other expenses was $9 million for each of the years ended December 31, 2008, 2007 and 2006. 9. INCOME TAX The provision for income tax from continuing operations is as follows:
YEARS ENDED DECEMBER 31, ----------------------- 2008 2007 2006 ---- ---- ----- (IN MILLIONS) Current: Federal............................................ $(10) $(41) $(156) Foreign............................................ 75 50 29 ---- ---- ----- Subtotal........................................... 65 9 (127) ---- ---- ----- Deferred: Federal............................................ 30 30 171 ---- ---- ----- Provision for income tax............................. $ 95 $ 39 $ 44 ==== ==== =====
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported for continuing operations is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Tax provision at U.S. statutory rate................... $ 75 $ 28 $ 44 Tax effect of: Tax-exempt investment income......................... 9 2 (2) State and local income taxes......................... -- -- 1 Prior year tax....................................... (7) 8 (2) RGA dividend of interest(1).......................... 16 -- -- Other, net........................................... 2 1 3 ---- ---- ---- Provision for income tax............................... $95 $39 $44 ==== ==== ====
-------- (1) See Notes 2 and 14 for discussion concerning the dividend of interest in RGA. 62 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
DECEMBER 31, ------------- 2008 2007 ---- ---- (IN MILLIONS) Deferred income tax assets: Policyholder liabilities and receivables................. $ 33 $ 64 Employee benefits........................................ 19 22 Tax credit carryforwards................................. 55 -- Net unrealized investment losses......................... 162 -- Other.................................................... 8 162 ---- ---- 277 248 Less: Valuation allowance................................ -- -- ---- ---- 277 248 ---- ---- Deferred income tax liabilities: Investments.............................................. 37 68 DAC...................................................... 10 (46) Net unrealized investment gains.......................... -- 249 Other.................................................... 20 9 ---- ---- 67 280 ---- ---- Net deferred income tax asset/(liability).................. $210 $(32) ==== ====
A valuation allowance is provided when it is more likely than not that some portion of the deferred income tax assets will not be realized. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred income tax assets. The Company has not recorded a valuation allowance against the deferred tax asset of $162 million recognized in connection with unrealized investment losses at December 31, 2008. The Company has the intent and ability to hold such securities until their recovery or maturity and the Company has available to it tax-planning strategies that include sources of future taxable income against which such losses could be offset. At December 31, 2008, the Company had tax credit carryforwards of $55 million, which begin to expire in 2018. The tax credit carryfowards are expected to be utilized during the period allowed. Effective January 1, 2006, General American joined with MetLife and its includable affiliates in filing a federal income tax return. General American participates in a tax sharing agreement with MetLife. Under the agreement, current federal income tax expense (benefit) is computed on a separate return basis and provides that members shall make payments or receive reimbursements to the extent that their income (loss) contributes to or reduces consolidated federal tax expense. The consolidating companies are reimbursed for net operating losses or other tax attributes they have generated when utilized in the consolidated return. Pursuant to the tax sharing agreement, the amount due from affiliates is $16 million and $120 million as of December 31, 2008 and 2007, respectively. The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign jurisdictions. The Company is under continuous examination by the Internal Revenue Service ("IRS") and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction. With a few exceptions, the Company is no 63 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2001. Due to a lapse of the statute of limitations, the 2003 and 2004 tax years are no longer subject to audit. In the first quarter of 2005, the IRS commenced an examination of the Company's U.S. income tax returns for 2000 through 2002 that is anticipated to be completed in 2009. As a result of the implementation of FIN 48 on January 1, 2007, the Company recognized an $11 million decrease in the liability for unrecognized tax benefits, no increase/decrease in the interest liability for unrecognized tax benefits, as well as a $17 million increase in the liability for unrecognized tax benefits and a $5 million increase in the interest liability for unrecognized tax benefits which are included in liabilities of subsidiaries held-for-sale. The corresponding reduction to the January 1, 2007 balance of retained earnings was $0, net of $11 million of minority interest included in liabilities of subsidiaries held-for-sale. The Company's total amount of unrecognized tax benefits upon adoption of FIN 48 was $21 million. The Company reclassified, at adoption, $32 million of current income tax payables to the liability for unrecognized tax benefits included within other liabilities. The Company did not reclassify, at adoption, any deferred income tax liabilities, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility, to the liability for unrecognized tax benefits. The total amount of unrecognized tax benefits as of January 1, 2007 that would affect the effective tax rate, if recognized, was $21 million. The Company also had $3 million of accrued interest, included within other liabilities, as of January 1, 2007. The Company classifies interest accrued related to unrecognized tax benefits in interest expense, while penalties are included within income tax expense. At December 31, 2008, the Company's total amount of unrecognized tax benefits was $18 million and the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, is $18 million. The total amount of unrecognized tax benefits decreased by $6 million from December 31, 2007 due to lapses in the statutes of limitations. At December 31, 2007, the Company's total amount of unrecognized tax benefits was $24 million, an increase of $3 million from the date of adoption, and the total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, was $24 million, an increase of $3 million from the date of adoption. The Company does not anticipate any material change in the total amount of unrecognized tax benefits over the ensuing 12 month period. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2008 and December 31, 2007, is as follows:
DECEMBER 31, ------------- 2008 2007 ---- ---- (IN MILLIONS) Balance as of the beginning of the period.................... $24 $21 Additions for tax positions of current year.................. -- 7 Lapses of statutes of limitations............................ (6) (4) --- --- Balance as of the end of the period.......................... $18 $24 === ===
During the year ended December 31, 2008, the Company recognized $1 million in interest expense associated with the liability for unrecognized tax benefits. At December 31, 2008, the Company had $5 million of accrued interest associated with the liability for unrecognized tax benefits, an increase of $1 million from December 31, 2007. During the year ended December 31, 2007, the Company recognized $1 million in interest expense associated with the liability for unrecognized tax benefits. At December 31, 2007, the Company had $4 million of accrued interest associated with the liability for unrecognized tax benefits, an increase of $1 million from the date of adoption. 64 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On September 25, 2007, the IRS issued Revenue Ruling 2007-61, which announced its intention to issue regulations with respect to certain computational aspects of the Dividends Received Deduction ("DRD") on separate account assets held in connection with variable annuity contracts. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that would have changed accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the years ended December 31, 2008 and 2007, the Company recognized an income tax benefit of $1 million and $1 million, respectively, related to the separate account DRD. 10. CONTINGENCIES, COMMITMENTS AND GUARANTEES CONTINGENCIES LITIGATION The Company has faced numerous claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds or other products. The Company continues to vigorously defend against the claims in all pending matters. Some sales practices claims may be resolved through settlement. Other sales practices claims may be won by dispositive motion or may go to trial. The current cases may seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance, annuities, mutual funds or other products may be commenced in the future. Regulators have requested information relating to market timing and late trading of mutual funds and variable insurance products and, generally, the marketing of products. The Company has been cooperating fully with these inquiries. The Company is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the Company's financial position. North American National Marketing, LLC, et al. v. General American Life Insurance Co., et al. (Dist. Ct, Colo., Arapahoe Cty., filed March 21, 2007) North American National Marketing ("North American") and its affiliate sued the Company and MetLife, Inc. alleging breach of a contract between the Company and North American for the design, development and distribution of certain universal life insurance products for the Company during the period from 2001 to 2004. Plaintiffs seek damages comprised of fees and commissions relating to sales of the life insurance products designed by North American. The Company and MetLife, Inc. dispute these alleged damages and are vigorously defending the lawsuit, which is currently scheduled for a jury trial in April 2009. Various litigation, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor or taxpayer. Further, federal, state or industry regulatory or governmental authorities may conduct investigations, serve subpoenas, or make other inquiries, concerning a wide variety of issues, including the Company's compliance with applicable insurance and other laws and regulations. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses. In some of the matters large and/or indeterminate amounts, including punitive and treble damages, may be sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known by the Company's management, in its opinion, the outcomes of pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts that may be sought in certain matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in 65 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows. In 2007, the Company received $39 million, included in other revenues, based on the resolution of an indemnification claim associated with the 2000 acquisition of the Company by MLIC. INSOLVENCY ASSESSMENTS Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. Assessments levied against the Company were less than $1 million for each of the years ended December 31, 2008, 2007 and 2006. At both December 31, 2008 and 2007, the Company maintained a liability of $4 million, a related asset for premium tax offsets of $3 million for undiscounted future assessments in respect of impaired, insolvent or failed insurers, and an asset related to paid assessments representing currently available premium tax offsets of less than $1 million. COMMITMENTS Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants are contingent upon the level of the tenants' sales revenues. Future minimum rental income relating to these lease agreements are as follows:
RENTAL INCOME ------------- (IN MILLIONS) 2009.......................................................... $8 2010.......................................................... $4 2011.......................................................... $3 2012.......................................................... $3 2013.......................................................... $1 Thereafter.................................................... $1
COMMITMENTS TO FUND PARTNERSHIP INVESTMENTS The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $182 million and $57 million at December 31, 2008 and 2007, respectively. The Company anticipates that these amounts will be invested in partnerships over the next five years. COMMITMENTS TO FUND PRIVATE CORPORATE BOND INVESTMENTS The Company commits to lend funds under private corporate bond investments. The amount of these unfunded commitments was $6 million at December 31, 2008. At December 31, 2007, there were no unfunded commitments to fund private corporate bond investments. GUARANTEES In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities 66 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $2 million to $45 million, with a cumulative maximum of $61 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees or commitments. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company's interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future. During the year ended December 31, 2008, the Company did not record any liabilities for indemnities, guarantees and commitments. The Company had no liability for indemnities, guarantees and commitments at both December 31, 2008 and 2007. In connection with synthetically created investment transactions, the Company writes credit default swap obligations that generally require payment of principal outstanding due in exchange for the referenced credit obligation. If a credit event, as defined by the contract, occurs the Company's maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $74 million at December 31, 2008. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. As of December 31, 2008, the Company would have paid $1 million to terminate all of these contracts. See Note 4 for further disclosures related to credit default swap obligations. 11. EMPLOYEE BENEFIT PLANS PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS General American's employees, sales representatives and retirees participate in qualified and non-qualified defined benefit pension plans and other postretirement employee benefit plans sponsored by MLIC. Pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits based upon years of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional accounts which credit participants with benefits equal to a percentage of eligible pay, as well as earnings credits, determined annually, based upon the average annual rate of interest on 30-year U.S. Treasury securities, for each account balance. At December 31, 2008, the majority of active participants are accruing benefits under the cash balance formula; however, approximately 95% of the obligations result from benefits calculated with the traditional formula. The non-qualified plan provides supplemental pension benefits to certain executive level employees and retirees. General American also provides certain postemployment benefits and certain postretirement medical and life insurance benefits for retired employees through a plan sponsored by MLIC. Employees of General American who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service criteria while working for General American, may become eligible for these other postretirement benefits, at various levels, in accordance with the applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total 67 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cost of postretirement medical benefits. Employees hired after 2003 are not eligible for any employer subsidy for postretirement medical benefits. General American is allocated both pension and other postretirement expenses from MLIC associated with benefits provided to its employees and does not bear direct obligation for benefits under these benefit plans. Therefore, the assets and obligations of these benefit plans are not included in the accompanying consolidated balance sheets or the additional disclosure below. General American's share of pension expense was $7 million, $7 million and $8 million for the years ended December 31, 2008, 2007 and 2006, respectively. In addition, General American's share of other postretirement expense was less than $1 million, less than $1 million and $3 million for the years ended December 31, 2008, 2007 and 2006, respectively. The combined allocated benefit expense is included in the accompanying consolidated statements of income. General American continues to sponsor non-qualified defined benefit pension plans. Accordingly, the obligations and related net periodic expense associated with these plans are included in the accompanying financial statements and the additional disclosures below. These non-qualified plans have ceased accepting new participants. Participants with accrued benefits continue to earn vesting service credits while employed, but are not accruing additional benefits in these plans. As described more fully in Note 1, effective December 31, 2006, the Company adopted SFAS 158. The adoption of SFAS 158 required the recognition of the funded status of defined benefit pension and other postretirement plans and eliminated the additional minimum pension liability provision of SFAS 87. The Company's additional minimum pension liability was $7 million at December 31, 2005, $4 million net of income tax, and was recorded as a reduction of accumulated other comprehensive income. At December 31, 2006, immediately prior to adopting SFAS 158, the Company's additional minimum pension liability was $6 million, $4 million, net of income tax of $2 million, and remained as a reduction of accumulated other comprehensive income. Upon adoption of SFAS 158, the Company eliminated the additional minimum pension liability and recognized as an adjustment to accumulated other comprehensive income, net of income tax, those amounts of actuarial gains and losses, and prior service costs and credits that had not yet been included in net periodic benefit cost at the date of adoption. The following table summarizes the adjustments to the December 31, 2006 consolidated balance sheet as a result of recognizing the funded status of the defined benefit plans:
DECEMBER 31, 2006 ---------------------------------------------------- ADDITIONAL MINIMUM PRE PENSION ADOPTION OF POST SFAS 158 LIABILITY SFAS 158 SFAS 158 BALANCE SHEET CAPTION ADJUSTMENTS ADJUSTMENT ADJUSTMENT ADJUSTMENTS --------------------------------------------- ----------- ---------- ----------- ----------- (IN MILLIONS) Other assets: Prepaid pension benefit cost... $(38) $-- $ 9 $(29) Other liabilities: Accrued postretirement benefit cost............................... $ -- -- -- $ -- --- ---- Subtotal................................... -- 9 Net liability of subsidiary held-for-sale.... 1 (17) --- ---- Accumulated other comprehensive income (loss), before income tax: Defined benefit plans...................... $ (7) 1 (8) $(14) Minority interest............................ -- 8 Deferred income tax.......................... -- (1) --- ---- Accumulated other comprehensive income (loss), net of income tax: Defined benefit plans...................... $ (4) $ 1 $ (1) $ (4) === ====
68 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A December 31 measurement date is used for all of the Company's defined benefit pension and other postretirement benefit plans. OBLIGATIONS, FUNDED STATUS AND NET PERIODIC BENEFIT COSTS The aggregate projected benefit obligation and aggregate fair value of plan assets for the pension plans were as follows:
DECEMBER 31, ------------------------- OTHER POSTRETIRE- PENSION MENT BENEFITS BENEFITS ----------- ----------- 2008 2007 2008 2007 ---- ---- ---- ---- (IN MILLIONS) Change in projected benefit obligation: Projected benefit obligation at beginning of year............................................ $ 26 $ 29 $ -- $ -- Service cost.................................... -- -- -- -- Interest cost................................... 2 2 -- -- Net actuarial (gains) losses.................... -- (2) -- -- Change in benefits.............................. -- -- -- -- Benefits paid................................... (3) (3) -- -- ---- ---- ---- ---- Benefit obligation at end of year................. 25 26 -- -- ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at beginning of year.... -- -- -- -- Actual return on plan assets.................... -- -- -- -- Employer contribution........................... 3 3 -- -- Benefits paid................................... (3) (3) -- -- ---- ---- ---- ---- Fair value of plan assets at end of year.......... -- -- -- -- ---- ---- ---- ---- Funded status at end of year...................... $(25) $(26) $-- $-- ==== ==== ==== ==== Amounts recognized in consolidated balance sheet consist of: Other liabilities............................... $(25) $(26) $-- $-- ==== ==== ==== ==== Accumulated other comprehensive (income) loss: Net actuarial losses............................ $ 12 $ 19 $-- $ 2 Prior service credit............................ (13) (11) -- -- ---- ---- ---- ---- (1) 8 -- 2 Deferred income tax and minority interest....... -- (6) -- (1) ---- ---- ---- ---- $ (1) $ 2 $-- $ 1 ==== ==== ==== ====
The accumulated benefit obligation for all defined benefit pension plans was $25 million and $26 million at December 31, 2008 and 2007, respectively. 69 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:
DECEMBER 31, ------------- 2008 2007 ---- ---- (IN MILLIONS) Projected benefit obligation................................. $25 $26 Accumulated benefit obligation............................... $25 $26 Fair value of plan assets.................................... $-- $--
The projected benefit obligation exceeded assets for all pension plans at both December 31, 2008 and 2007. The components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------------- OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------------- ----------------------- 2008 2007 2006 2008 2007 2006 ---- ---- ---- ---- ---- ---- (IN MILLIONS) NET PERIODIC BENEFIT COST Service cost............................... $-- $-- $-- $-- $-- $-- Interest cost.............................. 2 2 2 -- -- -- Expected return on plan assets............. -- -- -- -- -- -- Amortization of net actuarial (gains) losses.................................. 1 -- (2) -- -- -- Amortization of prior service cost (credit)................................ (3) (2) -- -- -- -- --- --- --- --- --- --- Net periodic benefit cost............... -- -- $-- -- -- $-- === === Net periodic cost of asset held-for- sale.................................. -- 4 -- 1 --- --- --- --- -- 4 -- 1 --- --- --- --- OTHER CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) Net actuarial (gains) losses............... (7) (3) (2) (3) Prior service cost (credit)................ 2 1 -- -- Amortization of net actuarial gains (losses)................................ (1) (1) -- -- Amortization of prior service (cost) credit.................................. 3 2 -- -- --- --- --- --- Total recognized in other comprehensive income (loss)......................... (3) (1) (2) (3) --- --- --- --- Total recognized in net periodic benefit cost and other comprehensive income (loss)................................ $(3) $ 3 $(2) $(2) === === === ===
Included within other comprehensive income (loss) are other changes in plan assets and benefit obligations associated with pension benefits of ($3) million and other postretirement benefits of ($2) million for an aggregate reduction in other comprehensive income (loss) of ($5) million before income tax and ($4) million, net of income tax and minority interest. The estimated net actuarial losses and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next year are less than $1 million and ($2) million, respectively. 70 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ASSUMPTIONS Assumptions used in determining benefit obligations were as follows:
DECEMBER 31, ------------------------------- OTHER PENSION POSTRETIRE- BENEFITS MENT BENEFITS ------------- ------------- 2008 2007 2008 2007 ---- ---- ---- ---- Weighted average discount rate................... 6.60% 6.65% -- -- Rate of compensation increase.................... N/A N/A N/A N/A
Assumptions used in determining net periodic benefit cost were as follows:
DECEMBER 31, --------------------------------------- OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------ ------------------ 2008 2007 2006 2008 2007 2006 ---- ---- ---- ---- ---- ---- Weighted average discount rate.................. 6.65% 6.00% 5.80% -- -- -- Expected rate of return on plan assets.......... N/A N/A N/A N/A N/A N/A Rate of compensation increase................... N/A N/A N/A N/A N/A N/A
The discount rate is determined annually based on the yield, measured on a yield to worst basis, of a hypothetical portfolio constructed of high quality debt instruments available on the valuation date, which would provide the necessary future cash flows to pay the aggregate projected benefit obligation when due. CASH FLOWS In 2009, the Company expects to make contributions of $2 million to its pension plans. Benefit payments are funded from the Company's general assets as they become due under the provision of the plans. Gross benefit payments for the next ten years are expected to be as follows:
PENSION BENEFITS ---------------- (IN MILLIONS) 2009........................................................ $ 2 2010........................................................ $ 3 2011........................................................ $ 3 2012........................................................ $ 3 2013........................................................ $ 3 2014 - 2018................................................. $12
SAVINGS AND INVESTMENT PLANS The Company's employees participate in savings and investment plans for which a portion of employee contributions are matched. The Company's expense was less than $1 million for each of the years ended December 31, 2008, 2007 and 2006. 12. EQUITY STATUTORY EQUITY AND INCOME Each insurance company's state of domicile imposes minimum risk-based capital ("RBC") requirements that were developed by the National Association of Insurance Commissioners ("NAIC"). The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of 71 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital, as defined by the NAIC, to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. General American exceeded the minimum RBC requirements for all periods presented herein. The NAIC has adopted the Codification of Statutory Accounting Principles ("Codification"). Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by state insurance departments may impact the effect of Codification on the statutory capital and surplus of General American. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by General American are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within a year. Further, statutory accounting principles do not give recognition to purchase accounting adjustments. General American, domiciled in Missouri, applied to its state insurance regulator and was permitted to admit the lesser of the amount of the deferred tax asset expected to be realized within three years of the balance sheet date or 15% of statutory capital and surplus for the most recently filed statement with the domiciliary state commissioner. The NAIC statutory accounting principles currently admit the lesser of the amount of the deferred tax asset expected to be realized within one year of the balance sheet date or 10% of the statutory capital and surplus for the most recently filed statement with the domiciliary state commissioner. As a result of the relief, the Company's minimum statutory capital requirement was reduced by $58 million as of December 31, 2008. Statutory net income (loss) of General American, a Missouri domiciled insurer, was $1,177 million, $106 million and $316 million for the years ended December 31, 2008, 2007 and 2006, respectively. Statutory capital and surplus, as filed with the Missouri State Department of Insurance, was $1,079 million and $2,280 million at December 31, 2008 and 2007, respectively. DIVIDEND RESTRICTIONS Under Missouri State Insurance Law, General American is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to its parent as long as the aggregate amount of all such dividends in any calendar year does not exceed the greater of: (i) 10% of its statutory surplus to policyholders as of the end of the immediately preceding calendar year or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized investment gains). General American will be permitted to pay a stockholder dividend to GenAmerica in excess of the greater of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Missouri Commissioner of Insurance (the "Commissioner"). As described in Note 2, the Company paid an in-kind extraordinary dividend of $1,318 million to GenAmerica for the year ended December 31, 2008. For the year ended December 31, 2007, the Company did not pay any dividends to GenAmerica. The Company paid $13 million for the year ended December 31, 2006 in dividends for which prior insurance regulatory clearance was not required. Based on amounts at December 31, 2008, General American could pay to GenAmerica a stockholder dividend of $107 million without prior approval of the Commissioner in 2009. 72 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER COMPREHENSIVE INCOME (LOSS) The following table sets forth the reclassification adjustments required for the years ended December 31, 2008, 2007 and 2006 in other comprehensive income (loss) that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ------- ---- ----- (IN MILLIONS) Holding gains (losses) on investments arising during the year........................................... $(1,370) $ 22 $(115) Income tax effect of holding gains (losses).......... 544 (13) 38 Reclassification adjustments: Recognized holding (gains) losses included in current year income............................. 105 29 16 Amortization of premiums and accretion of discounts associated with investments..................... (37) (33) (12) Income tax effect.................................. (26) 2 (1) Allocation of holding (gains) losses on investments relating to other policyholder amounts............. 175 (70) 18 Income tax effect of allocation of holding (gains) losses to other policyholder amounts............... (61) 42 (6) Unrealized investment loss of dividend of interest in subsidiary......................................... 69 -- -- Deferred income tax on unrealized investment loss on dividend of interests in subsidiary................ (46) -- -- ------- ---- ----- Net unrealized investment gains (losses), net of income tax......................................... (647) (21) (62) ------- ---- ----- Foreign currency translation adjustment.............. (122) 60 11 Minimum pension liability adjustment, net of income tax................................................ -- -- 1 Defined benefit plan adjustment, net of income tax... 4 1 -- ------- ---- ----- Other comprehensive income (loss).................... $ (765) $ 40 $ (50) ======= ==== =====
13. OTHER EXPENSES Information on other expenses is as follows:
YEARS ENDED DECEMBER 31, ---------------------- 2008 2007 2006 ---- ---- ---- (IN MILLIONS) Compensation.......................................... $ 22 $ 10 $ 21 Commissions........................................... 13 15 36 Reinsurance allowances................................ (17) (22) (43) Interest and debt issue costs......................... 10 10 9 Amortization of DAC and VOBA.......................... 18 25 49 Capitalization of DAC................................. -- (7) (20) Insurance tax......................................... 11 13 17 Other................................................. 27 33 74 ---- ---- ---- Total other expenses.................................. $ 84 $ 77 $143 ==== ==== ====
73 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For the years ended December 31, 2008, 2007 and 2006 commissions, reinsurance allowances and capitalization of DAC include the impact of affiliated reinsurance transactions. See Note 7. See also Note 16 for discussion of affiliated expenses included in the table above. Amortization and Capitalization of DAC and VOBA See Note 5 for the rollforward of DAC and VOBA including impacts of amortization and capitalization. 14. DISCONTINUED OPERATIONS OPERATIONS As more fully described in Note 2, on September 12, 2008 MetLife completed a tax-free split-off of its majority-owned subsidiary, RGA. In connection with this transaction, General American dividended to MLIC and MLIC dividended to MetLife, substantially all of its interests in RGA. RGA's assets and liabilities were reclassified to assets and liabilities of subsidiaries held for sale and its operating results were reclassified to discontinued operations for all periods presented. The following tables present the amounts related to the operations and financial position of RGA that have been reflected as discontinued operations in the consolidated statements of income:
YEARS ENDED DECEMBER 31, ------------------------ 2008 2007 2006 ------ ------ ------ (IN MILLIONS) Premiums.................................................. $3,535 $4,910 $4,348 Net investment income..................................... 597 908 781 Other revenues............................................ 69 77 66 Net investment gains (losses)............................. (249) (177) 7 ------ ------ ------ Total revenues.......................................... 3,952 5,718 5,202 ------ ------ ------ Policyholder benefits and claims.......................... 2,989 3,989 3,490 Interest credited to policyholder account balances........ 108 262 254 Other expenses............................................ 699 1,226 1,227 ------ ------ ------ Total expenses.......................................... 3,796 5,477 4,971 ------ ------ ------ Income before provision for income tax.................... 156 241 231 Provision for income tax.................................. 53 84 81 ------ ------ ------ Income from operations of discontinued operations, net of income tax.............................................. 103 157 150 Loss in connection with the dividend of interests in subsidiary, net of income tax........................... (398) -- -- ------ ------ ------ Income (loss) from operations of discontinued operations, net of income tax....................................... $ (295) $ 157 $ 150 ====== ====== ======
74 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2007 ----------------- (IN MILLIONS) Fixed maturity securities................................. $ 9,398 Equity securities......................................... 137 Mortgage loans on real estate, net........................ 832 Policy loans.............................................. 1,059 Short-term investments.................................... 75 Other invested assets..................................... 4,897 ------- Total investments....................................... 16,398 Cash and cash equivalents................................. 404 Accrued investment income................................. 78 Premiums and other receivables............................ 1,440 Deferred policy acquisition costs and VOBA................ 3,513 Goodwill.................................................. 96 Other assets.............................................. 91 Separate account assets................................... 17 ------- Total assets held-for-sale........................... $22,037 ======= Future policy benefits.................................... $ 6,159 Policyholder account balances............................. 6,657 Other policyholder funds.................................. 2,297 Long-term debt............................................ 528 Collateral financing arrangements......................... 850 Junior subordinated debt securities....................... 399 Shares subject to mandatory redemption.................... 159 Current income tax payable................................ 33 Deferred income tax liability............................. 941 Other liabilities......................................... 1,918 Separate account liabilities.............................. 17 ------- Total liabilities held-for-sale...................... $19,958 =======
The operations of RGA include direct policies and reinsurance agreements with MetLife and some of its affiliates. These agreements are generally terminable by either party upon 90 days written notice with respect to future new business. Agreements related to existing business generally are not terminable, unless the underlying policies terminate or are recaptured. These direct policies and reinsurance agreements do not constitute significant continuing involvement by the Company with RGA. Included in continuing operations in the Company's consolidated statements of operations are amounts related to these affiliated transactions, including ceded amounts that reduced premiums and fees by $23 million, $38 million, and $32 million and ceded amounts that reduced policyholder benefits and claims by $13 million, $33 million, and $44 million for the years ended December 31, 2008, 2007 and 2006, respectively, that have not been eliminated as these transactions are expected to continue after the RGA divestiture. Related amounts included in the Company's consolidated balance sheets that have not been eliminated include assets totaling $456 million, and liabilities totaling $361 million at December 31, 2007. 75 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. FAIR VALUE FAIR VALUE OF FINANCIAL INSTRUMENTS As described in Note 1, the Company prospectively adopted the provisions of SFAS 157 effective January 1, 2008. As a result, the methodologies used to determine the estimated fair value for certain financial instruments at December 31, 2008 may have been modified from those utilized at December 31, 2007, which, while being deemed appropriate under existing accounting guidance, may not have produced an exit value as defined in SFAS 157. Accordingly, the estimated fair value of financial instruments, and the description of the methodologies used to derive those estimated fair values, are presented separately at December 31, 2007 and December 31, 2008. Considerable judgment is often required in interpreting market data to develop estimates of fair value and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments are as follows:
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 2007 AMOUNT VALUE FAIR VALUE ----------------- -------- -------- ---------- (IN MILLIONS) ASSETS: Fixed maturity securities........................ $ 7,919 $ 7,919 Equity securities................................ $ 31 $ 31 Mortgage loans on real estate.................... $ 241 $ 247 Policy loans..................................... $ 1,657 $ 1,657 Short-term investments........................... $ 237 $ 237 Cash and cash equivalents........................ $ 103 $ 103 Accrued investment income........................ $ 107 $ 107 Assets of subsidiaries held-for-sale............. $11,983 $11,992 LIABILITIES: Policyholder account balances.................... $ 1,055 $ 1,030 Short-term debt -- affiliated.................... $ 50 $ 50 Long-term debt................................... $ 101 $ 121 Payables for collateral under securities loaned and other transactions......................... $ 1,438 $ 1,438 Liabilities of subsidiaries held-for-sale........ $ 6,915 $ 6,044
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: Fixed Maturity Securities and Equity Securities -- The estimated fair values of publicly held fixed maturity securities and publicly held equity securities are based on quoted market prices or estimates from independent pricing services. However, in cases where quoted market prices are not available, such as for private fixed maturity securities, fair values are estimated using present value or valuation techniques. The determination of estimated fair values is based on: (i) market standard valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The value estimates are based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include; coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer, and quoted market prices of comparable securities. Mortgage Loans on Real Estate -- Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. 76 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Policy Loans -- The estimated fair values for policy loans approximate carrying values. Cash and Cash Equivalents and Short-term Investments -- The estimated fair values for cash and cash equivalents and short-term investments approximate carrying values due to the short-term maturities of these instruments. Accrued Investment Income -- The estimated fair value for accrued investment income approximates carrying value. Policyholder Account Balances -- The fair value of policyholder account balances which have final contractual maturities 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. The estimated fair value of policyholder account balances without final contractual maturities are assumed to equal their current net surrender value. Affiliated Short-term Debt and Long-term Debt -- The estimated fair value of short-term debt-affiliated approximates fair value due to the short-term duration of the instrument. Long-term debt is determined by discounting expected future cash flows using risk rates currently available for debt with similar terms and remaining maturities. Payables for Collateral Under Securities Loaned and Other Transactions -- The estimated fair value for payables for collateral under securities loaned and other transactions approximates carrying value. Assets and Liabilities of Subsidiaries Held-For-Sale -- The carrying values of assets and liabilities of subsidiaries held-for-sale reflect those assets and liabilities which were previously determined to be financial instruments and which were reflected in other financial statement captions in the table above in previous periods but have been reclassified to this caption to reflect the discontinued nature of the operations. The estimated fair value of the assets and liabilities of subsidiaries held-for-sale have been determined on a basis consistent with similar instruments as described herein. Derivative Financial Instruments -- The estimated fair value of derivative financial instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps and foreign currency forwards are based upon quotations obtained from dealers or other reliable sources. See Note 4 for derivative fair value disclosures. 77 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 2008 AMOUNT VALUE FAIR VALUE ----------------- -------- -------- ---------- (IN MILLIONS) ASSETS: Fixed maturity securities.............................. $6,140 $6,140 Equity securities...................................... $ 135 $ 135 Mortgage loans on real estate.......................... $ 219 $ 213 Policy loans........................................... $1,691 $2,088 Other limited partnership interests(1)................. $ 2 $ 2 Short-term investments................................. $ 514 $ 514 Other invested assets:(1) Derivative assets.................................... $910 $ 113 $ 113 Other................................................ $ 3 $ 3 Cash and cash equivalents.............................. $ 152 $ 152 Accrued investment income.............................. $ 99 $ 99 Premiums and other receivables(1)...................... $ 153 $ 121 Separate account assets................................ $1,484 $1,484 LIABILITIES: Policyholder account balances(1)....................... $1,016 $ 843 Long-term debt......................................... $ 101 $ 74 Payables for collateral under securities loaned and other transactions................................... $ 806 $ 806 Other liabilities:(1) Derivative liabilities............................... $235 $ 4 $ 4 Other................................................ $ 9 $ 9 Separate account liabilities(1)........................ $ 189 $ 189 COMMITMENTS:(2) Commitments to fund private corporate bond investments.......................................... $ 6 $ -- $ --
-------- (1) Carrying values presented herein differ from those presented on the consolidated balance sheet because certain items within the respective financial statement caption are not considered financial instruments. Financial statement captions omitted from the table above are not considered financial instruments. (2) Commitments are off-balance sheet obligations. The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: Fixed Maturity Securities and Equity Securities -- When available, the estimated fair value of the Company's fixed maturity and equity securities are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company's securities holdings and valuation of these securities does not involve management judgment. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies. The market standard valuation methodologies utilized include: discounted cash flow methodologies, matrix pricing or other similar techniques. The assumptions and inputs in applying these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and management's assumptions regarding liquidity and estimated future 78 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cash flows. Accordingly, the estimated fair values are based on available market information and management's judgments about financial instruments. The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. When observable inputs are not available, the market standard valuation methodologies for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. The use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company's securities holdings. Mortgage Loans on Real Estate -- The Company originates mortgage loans on real estate principally for investment purposes. These loans are carried at amortized cost within the consolidated financial statements. The fair value for mortgage loans on real estate is primarily determined by estimating expected future cash flows and discounting those using current interest rates for similar loans with similar credit risk. Policy Loans -- For policy loans with fixed interest rates, estimated fair values are determined using a discounted cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed applying a weighted-average interest rate to the outstanding principal balance of the respective group of loans and an estimated average maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk as these loans are fully collateralized by the cash surrender value of the underlying insurance policy. The estimated fair value for policy loans with variable interest rates approximates carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a material change in estimated fair value due to changes in market interest rates. Other Limited Partnership Interests -- Other limited partnerships included in the preceding table consist of those investments accounted for using the cost method. The remaining carrying value recognized in the consolidated balance sheet represents investments in other limited partnerships accounted for using the equity method, which do not satisfy the definition of financial instruments for which fair value is required to be disclosed. The estimated fair values for other limited partnership interests accounted for under the cost method are generally based on the Company's share of the net asset value ("NAV") as provided in the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such adjustments. Short-term Investments -- Certain short-term investments do not qualify as securities and are recognized at amortized cost in the consolidated balance sheet. For these instruments, the Company believes that there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, short-term investments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality and the Company has determined additional adjustment is not required. Short-term investments that meet the definition of a security are recognized at estimated fair value in the 79 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) consolidated balance sheet in the same manner described above for similar instruments that are classified within captions of other major investment classes. Other Invested Assets -- Other invested assets in the consolidated balance sheet is principally comprised of freestanding derivatives with positive estimated fair values, cash held in trust and investments in tax credit partnerships. Investments in tax credit partnerships, which are accounted for under the equity method, are not financial instruments subject to fair value disclosure. Accordingly, they have been excluded from the preceding table. Cash held in trust is treated as cash and cash equivalents where estimated fair value generally approximates carrying value. The estimated fair value of derivatives -- with positive and negative estimated fair values -- is described in the respectively labeled section which follows. Cash and Cash Equivalents -- Due to the short-term maturities of cash and cash equivalents, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value generally approximates carrying value. In light of recent market conditions, cash and cash equivalent instruments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality, or sufficient solvency in the case of depository institutions, and the Company has determined additional adjustment is not required. Accrued Investment Income -- Due to the short-term until settlement of accrued investment income, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, the Company has monitored the credit quality of the issuers and has determined additional adjustment is not required. Premiums and Other Receivables -- Premiums and other receivables in the consolidated balance sheet is principally comprised of premiums due and unpaid for insurance contracts, amounts recoverable under reinsurance contracts, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivative positions, amounts receivable for securities sold but not yet settled and fees and general operating receivables. Premiums receivable and those amounts recoverable under reinsurance treaties determined to transfer sufficient risk are not financial instruments subject to disclosure and thus have been excluded from the amounts presented in the preceding table. Amounts recoverable under ceded reinsurance contracts which the Company has determined do not transfer sufficient risk such that they are accounted for using the deposit method of accounting have been included in the preceding table with the estimated fair value determined as the present value of expected future cash flows under the related contracts discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty. The amounts on deposit for derivative settlements essentially represent the equivalent of demand deposit balances and amounts due for securities sold are generally received over very short periods such that the estimated fair value approximate their carrying values. In light of recent market conditions, the Company has monitored the solvency position of the financial institutions and has determined additional adjustments are not required. Separate Account Assets -- Separate account assets are carried at estimated fair value and reported as a summarized total on the consolidated balance sheet in accordance with SOP O3-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). The estimated fair value of separate account assets are based on the estimated fair value of the underlying assets owned by the separate account. Assets within the Company's separate accounts include: mutual funds, fixed maturity securities, equity securities, mortgage loans, derivatives, hedge funds short-term investments and cash and cash equivalents. The estimated fair value of mutual funds is based upon quoted prices or reported NAVs provided by the fund manager and are reviewed by management to determine whether such values require adjustment to represent exit value. The estimated fair values of fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents held by separate accounts are determined on 80 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) a basis consistent with the methodologies described herein for similar financial instruments held within the general account. The estimated fair value of hedge funds is based upon NAVs provided by the fund manager and are reviewed by management to determine whether such values require adjustment to represent exit value. The estimated fair value of mortgage loans is determined by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. Policyholder Account Balances -- Policyholder account balances in the table above include investment contracts. The difference between the amounts reflected as policyholder account balances in the preceding table and those recognized in the consolidated balance sheet represents those amounts due under contracts that satisfy the definition of insurance contracts and are not considered financial instruments. The investment contracts primarily include certain funding arrangements, fixed deferred annuities and total control accounts. The fair values for these investment contracts are estimated by discounting best estimate future cash flows using current market risk-free interest rates and adding a spread for the Company's own credit determined using market standard swap valuation models as well as its claims paying ability. Long-term Debt -- The estimated fair values of long-term debt securities are generally determined by discounting expected future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company including inputs, when available, from other companies with similar types of borrowing arrangements. Risk-adjusted discount rates applied to the expected future cash flows can vary significantly based upon the specific terms of each individual arrangement, including, but not limited to: subordinated rights; contractual interest rates in relation to current market rates; the structuring of the arrangement; and the nature and observability of the applicable valuation inputs. Use of different risk-adjusted discount rates could result in different estimated fair values. Payables for Collateral Under Securities Loaned and Other Transactions -- The estimated fair value for payables for collateral under securities loaned and other transactions approximates carrying value. The related agreements to loan securities are short-term in nature such that the Company believes there is limited risk of a material change in market interest rates. Additionally, because borrowers are cross-collateralized by the borrowed securities, the Company believes no additional consideration for changes in its own credit are necessary. Other Liabilities -- Other liabilities in the consolidated balance sheet is principally comprised of freestanding derivatives with negative estimated fair values; tax and litigation contingency liabilities; obligations for employee- related benefits; amounts due on cash collateral held in relation to securities lending; interest payable; amounts due for securities purchased but not yet settled; amounts due under assumed reinsurance contracts; and general operating accruals and payables. The estimated fair value of derivatives -- with positive and negative estimated fair values -- is described in the respectively labeled section which follows. The amounts included in the table above reflect those other liabilities that satisfy the definition of financial instruments subject to disclosure. These items consist primarily of interest payable; amounts due on cash collateral held in relation to securities lending; and amounts due for securities purchased but not yet settled. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which were not materially different from the recognized carrying values. Separate Account Liabilities -- Separate account liabilities included in the table above represent those balances due to policyholders under contracts that are classified as investment contracts. The difference between the separate account liabilities reflected above and the amounts presented in the consolidated balance sheet represents those contracts classified as insurance contracts which do not satisfy the criteria of financial instruments for which estimated fair value is to be disclosed. 81 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Separate account liabilities classified as investment contracts primarily represent variable annuities with no significant mortality risk to the Company such that the death benefit is equal to the account balance and certain contracts that provide for benefit funding under institutional retirement & savings products. Separate account liabilities, whether related to investment or insurance contracts, are recognized in the consolidated balance sheet at an equivalent summary total of the separate account assets as prescribed by SOP 03-1. Separate account assets, which equal net deposits, net investment income and realized and unrealized capital gains and losses, are fully offset by corresponding amounts credited to the contractholders' liability which is reflected in separate account liabilities. Since separate account liabilities are fully funded by cash flows from the separate account assets which are recognized at estimated fair value as described above, the Company believes the value of those assets approximates the estimated fair value of the related separate account liabilities. Derivatives -- The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for over-the-counter derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models. The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such instruments. The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all over-the-counter derivatives after taking into account the effects of netting agreements and collateral arrangements. Credit risk is monitored and consideration of any potential credit adjustment is based on net exposure by counterparty. This is due to the existence of netting agreements and collateral arrangements which effectively serve to mitigate risk. The Company values its derivative positions using the standard swap curve which includes a credit risk adjustment. This credit risk adjustment is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The need for such additional credit risk adjustments is monitored by the Company. The Company's ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. Most inputs for over-the-counter derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company's derivatives and could materially affect net income. 82 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Commitments to Fund Private Corporate Bond Investments -- The estimated fair values for commitments to fund private corporate bond investments reflected in the above table represent the difference between the discounted expected future cash flows using interest rates that incorporate current credit risk for similar instruments on the reporting date and the principal amounts of the original commitments. ASSETS AND LIABILITIES MEASURED AT FAIR VALUE RECURRING FAIR VALUE MEASUREMENTS The assets and liabilities measured at estimated fair value on a recurring basis are determined as described in the preceding section. These estimated fair values and their corresponding fair value hierarchy are summarized as follows:
DECEMBER 31, 2008 ------------------------------------------------------------------ FAIR VALUE MEASUREMENTS AT REPORTING DATE USING ----------------------------------------------------- QUOTED PRICES IN ACTIVE MARKETS FOR SIGNIFICANT IDENTICAL ASSETS SIGNIFICANT OTHER UNOBSERVABLE TOTAL AND LIABILITIES OBSERVABLE INPUTS INPUTS ESTIMATED (LEVEL 1) (LEVEL 2) (LEVEL 3) FAIR VALUE ------------------ ----------------- ------------ ---------- (IN MILLIONS) ASSETS Fixed maturity securities: U.S. corporate securities......... $ -- $2,070 $165 $2,235 Residential mortgage-backed securities..................... -- 959 2 961 Foreign corporate securities...... -- 782 50 832 Foreign government securities..... -- 679 95 774 Commercial mortgage-backed securities..................... -- 648 14 662 U.S. Treasury/agency securities... 289 83 -- 372 Asset-backed securities........... -- 225 64 289 State and political subdivision securities..................... -- 15 -- 15 ---- ------ ---- ------ Total fixed maturity securities................... 289 5,461 390 6,140 ---- ------ ---- ------ Equity securities: Common stock...................... -- 128 1 129 Non-redeemable preferred stock.... -- 1 5 6 ---- ------ ---- ------ Total equity securities........ -- 129 6 135 ---- ------ ---- ------ Short-term investments.............. -- 514 -- 514 Derivative assets(1)................ -- 113 -- 113 Separate account assets(2).......... 660 729 95 1,484 ---- ------ ---- ------ Total assets................... $949 $6,946 $491 $8,386 ==== ====== ==== ====== LIABILITIES Derivative liabilities(1)........... $ 2 $ 1 $ 1 $ 4 ==== ====== ==== ======
-------- (1) Derivative assets are presented within other invested assets and derivatives liabilities are presented within other liabilities. The amounts are presented gross in the table above to reflect the presentation in the consolidated balance sheet, but are presented net for purposes of the rollforward in the following tables. 83 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets as prescribed by SOP 03-1. The Company has categorized its assets and liabilities into the three-level fair value hierarchy, as defined in Note 1, based upon the priority of the inputs to the respective valuation technique. The following summarizes the types of assets and liabilities included within the three-level fair value hierarchy presented in the preceding table. Level 1 This category includes certain U.S. Treasury and agency fixed maturity securities. As it relates to derivatives, this level includes financial futures including interest rate futures. Separate account assets classified within this level principally include mutual funds. Also included are assets held within separate accounts which are similar in nature to those classified in this level for the general account. Level 2 This category includes fixed maturity and equity securities priced principally by independent pricing services using observable inputs. These fixed maturity securities include U.S. Treasury and agency securities as well as the majority of U.S. and foreign corporate securities, residential mortgage-backed securities, commercial mortgage-backed securities, state and political subdivision securities, foreign government securities and asset- backed securities. Equity securities classified as Level 2 securities consist principally of common stock and certain equity securities where market quotes are available but are not considered actively traded. Short-term investments included within Level 2 are of a similar nature to these fixed maturity and equity securities. As it relates to derivatives, this level includes derivatives for which all the inputs used are observable; including foreign currency forwards, foreign currency swaps, interest rate swaps and credit default swaps. Separate account assets classified within this level are generally similar to those classified within this level for the general account. Hedge funds owned by separate accounts are also included within this level. Level 3 This category includes fixed maturity securities priced principally through independent broker quotations or market standard valuation methodologies using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. This level consists of less liquid fixed maturity securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies including: U.S. and foreign corporate securities -- including below investment grade private placements; residential mortgage-backed securities; commercial mortgage backed securities; foreign government securities and asset-backed securities -- including all of those supported by sub-prime mortgage loans. Equity securities classified as Level 3 securities consist of common stock of privately held companies and non-redeemable preferred stock where there has been very limited trading activity or where less price transparency exists around the inputs to the valuation. As it relates to derivatives this category includes credit default swaps having unobservable credit correlations. Separate account assets classified within this level are generally similar to those classified within this level for the general account; however, they also include mortgage loans. 84 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A rollforward of all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs for year ended December 31, 2008 is as follows:
FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) ----------------------------------------------------------------------------------------------------- TOTAL REALIZED/UNREALIZED GAINS (LOSSES) INCLUDED IN: ---------------------------- PURCHASES, BALANCE, IMPACT OF BALANCE, OTHER SALES, TRANSFER IN BALANCE, DECEMBER 31, SFAS 157 BEGINNING COMPREHENSIVE ISSUANCES AND AND/OR OUT END OF 2007 ADOPTION(1) OF PERIOD EARNINGS(2, 3) INCOME (LOSS) SETTLEMENTS(4) OF LEVEL 3(5) PERIOD ------------ ----------- --------- -------------- ------------- -------------- ------------- -------- (IN MILLIONS) Fixed maturity securities............ $612 $-- $612 $(56) $(97) $(62) $(7) $390 Equity securities....... 12 -- 12 (1) (1) (4) -- 6 Net derivatives(6)...... -- -- -- -- -- (1) -- (1) Separate account assets(7)............. 124 -- 124 (25) -- (1) (3) 95
-------- (1) Impact of SFAS 157 adoption represents the amount recognized in earnings as a change in estimate upon the adoption of SFAS 157 associated with Level 3 financial instruments held at January 1, 2008. As described in Note 1, there was no material impact of adoption on Level 3 assets and liabilities. (2) Amortization of premium/discount is included within net investment income which is reported within the earnings caption of total gains/losses. Impairments are included within net investment gains (losses) which is reported within the earnings caption of total gains/losses. (3) Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. (4) The amount reported within purchases, sales, issuances and settlements is the purchase/issuance price (for purchases and issuances) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased/issued or sold/settled. Items purchased/issued and sold/settled in the same period are excluded from the rollforward. (5) Total gains and losses (in earnings and other comprehensive income (loss)) are calculated assuming transfers in (out) of Level 3 occurred at the beginning of the period. Items transferred in and out in the same period are excluded from the rollforward. (6) Freestanding derivative assets and liabilities are presented net for purposes of the rollforward. (7) Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. (8) Amounts presented do not reflect any associated hedging activities. Actual earnings associated with Level 3, inclusive of hedging activities, could differ materially. The table below summarizes both realized and unrealized gains and losses for the year ended December 31, 2008 due to changes in estimated fair value recorded in earnings for Level 3 assets and liabilities:
TOTAL GAINS AND LOSSES --------------------------------------- CLASSIFICATION OF REALIZED/UNREALIZED GAINS (LOSSES) INCLUDED IN EARNINGS --------------------------------------- NET NET INVESTMENT INVESTMENT INCOME GAINS (LOSSES) TOTAL ---------- -------------- ----- (IN MILLIONS) Fixed maturity securities.................... $ 8 $(64) $(56) Equity securities............................ -- (1) (1)
85 GENERAL AMERICAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The table below summarizes the portion of unrealized gains and losses recorded in earnings for the year ended December 31, 2008 for Level 3 assets and liabilities that are still held at December 31, 2008.
CHANGES IN UNREALIZED GAINS (LOSSES) RELATING TO ASSETS AND LIABILITIES HELD AT DECEMBER 31, 2008 ----------------------------------------- NET NET INVESTMENT INVESTMENT INCOME GAINS (LOSSES) TOTAL ---------- -------------- ----- (IN MILLIONS) Fixed maturity securities........................ $ 9 $(63) $(54) Equity securities................................ -- (2) (2) Net derivatives.................................. -- (1) (1)
16. RELATED PARTY TRANSACTIONS The Company has entered into a master service agreement with MLIC which provides administrative, accounting, legal and similar services to the Company. MLIC charged the Company $36 million, $44 million and $50 million, included in other expenses, for services performed under the master service agreement for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into a service agreement with MetLife Group, Inc. ("MetLife Group"), a wholly-owned subsidiary of MetLife, under which MetLife Group provides personnel services, as needed, to support the activities of the Company. MetLife Group charged the Company $28 million, $5 million and $8 million, included in other expenses, for services performed under the service agreement for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into marketing and selling agreements with several affiliates ("Distributors"), in which the Distributors agree to sell, on the Company's behalf, insurance products through authorized retailers. The Company agrees to compensate the Distributors for the sale and servicing of such insurance products in accordance with the terms of the agreements. The Distributors charged the Company $6 million, $14 million and $21 million, included in other expenses, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company received fees for this service of $28 million, $26 million and $11 million, included in other expenses, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into a distribution agreement with MetLife Investors Distribution Company ("MDC"), in which MDC agrees to sell, on the Company's behalf, insurance products through authorized retailers. The Company agrees to compensate MDC for the sale and servicing of such insurance products in accordance with the terms of the agreement. MDC charged the Company $2 million, $4 million and $5 million, included in other expenses, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has entered into an investment service agreement with several affiliates ("Advisors"), in which the Advisors provide investment advisory and administrative services to registered investment companies which serve as investment vehicles for certain insurance contracts issued by the Company. Per the agreement, the net profit or loss of the Advisors is allocated to the Company resulting in revenue of $1 million, $2 million and $2 million included in universal life and investment-type product policy fees, for the years ended December 31, 2008, 2007 and 2006, respectively. The Company had net receivables from affiliates of $9 million and $32 million at December 31, 2008 and 2007, respectively, related to the items discussed above. These net receivables exclude affiliated reinsurance balances discussed in Note 7. See Notes 3, 6 and 8 for additional related party transactions. 86 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS a. Financial Statements The following financial statements of the Separate Account are included in Part B hereof: 1. Report of Independent Registered Public Accounting Firm. 2. Statement of Assets and Liabilities as of December 31, 2008. 3. Statement of Operations for the year ended December 31, 2008. 4. Statements of Changes in Net Assets for the years ended December 31, 2008 and 2007. 5. Notes to Financial Statements - December 31, 2008. The following financial statements of the Company are included in Part B hereof: 1. Report of Independent Registered Public Accounting Firm. 2. Balance Sheets as of December 31, 2008 and 2007. 3. Statements of Income for the years ended December 31, 2008, 2007 and 2006. 4. Statements of Shareholder's Equity for the years ended December 31, 2008, 2007 and 2006. 5. Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006. 6. Notes to Financial Statements. The following consolidated financial statements of General American Life Insurance Company as Guarantor are included in Part B hereof: 1. Report of Independent Registered Public Accounting Firm. 2. Consolidated Balance Sheets as of December 31, 2008 and 2007. 3. Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006. 4. Consolidated Statements of Shareholder's Equity for the years ended December 31, 2008, 2007 and 2006. 5. Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006. 6. Notes to Consolidated Financial Statements. b. Exhibits 1. Resolution of the Board of Directors of the Company authorizing the establishment of the Variable Account (5) 2. Not applicable 3. (i) Form of Principal Underwriter's Agreement (6) (ii) Form of Retail Sales Agreement (MLIDC 7-1-05 (LTC)) (11) (iii) Agreement and Plan of Merger (12-01-04)(MLIDC into GAD) (14) 4. (i) Individual Flexible Purchase Payment Deferred Variable Annuity Contract (5) (ii) Death Benefit Endorsements (5) (iii) Charitable Remainder Trust Endorsement (5) (vi) Endorsement (Name Change) (6) 5. Application for Variable Annuity (5) 6. (i) Copy of Articles of Incorporation of the Company (1) (ii) Copy of the By-Laws of the Company (1) 7. (i) Reinsurance Agreement between MetLife Investors Insurance Company and Metropolitan Life Insurance Company (8) (ii) Automatic Reinsurance Agreement between MetLife Investors Insurance Company and Exeter Reassurance Company, Ltd. (8) (iii) Contingent Reinsurance Agreement between MetLife Investors Insurance Company and General American Life Insurance Company (10) 8. (i) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Cova Financial Services Life Insurance Company (4) (ii) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Cova Financial Services Life Insurance Company (4) (iii) (a) Participation Agreement among Variable Insurance Products Fund III, Fidelity Distributors Corporation and Cova Financial Services Life Insurance Company (4) (b) First Amendment among Cova Financial Services Life Insurance company, Variable Insurance Products and Fidelity Distributors Corporation effective May 7, 2001 to the Participation Agreement dated November 17, 1997 (16) (c) Amendment and Assignment of Variable Insurance Products Fund I's and Variable Insurance Products Fund II's Participation Agreement, each dated November 17, 1997, as amended, consented by MetLife Investors Insurance Company as of June 19, 2007 (16) (iv) (a) Form of Fund Participation Agreement among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., Cova Financial Services Life Insurance Company, on behalf of itself and its Separate Accounts, and Cova Life Sales Company (3) (b) Amendment No. 1 dated April 23, 1999 to Participation Agreement dated December 31, 1997; Amendment No. 2 dated September 1, 2000 to the Participation Agreement dated December 31, 1997; and Amendment No. 3 dated February 12, 2001 to the Participation Agreement dated December 31, 1997 (16) (v) Form of Fund Participation Agreement among MFS (r) Variable Insurance Trust, Cova Financial Services Life Insurance Company and Massachusetts Financial Services Company (2) (vi) Form of Fund Participation Agreement among Cova Financial Services Life Insurance Company, Cova Life Sales Company, Alliance Capital Management LP and Alliance Fund Distributors, Inc. (2) (vii) Form of Fund Participation Agreement among Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Cova Financial Services Life Insurance Company (3) (viii) (a) Form of Fund Participation Agreement among Putnam Variable Trust, Putnam Mutual Funds Corp. and Cova Financial Services Life Insurance Company (3) (b) Amended and Restated Participation Agreement among Putnam Variable Trust, Putnam Mutual Funds Corp. and Cova Financial Services Life Insurance Company (September 1, 1998); Amendment dated November 12, 1999 to the Participation Agreement dated September 1, 1998; Amendment dated May 1, 2001 to the Participation Agreement dated September 1, 1998; and Amendment No. 3 dated April 24, 2006 to the Participation Agreement dated September 1, 1998 (16)
(ix) Form of Fund Participation Agreement among Investors Fund Series, Zurich Kemper Investments, Inc., Zurich Kemper Distributors, Inc. and Cova Financial Services Life Insurance Company (3) (x) Form of Participation Agreement among Goldman Sachs Variable Insurance Trust, Goldman, Sachs & Co. and Cova Financial Services Life Insurance Company (3) (xi) Form of Participation Agreement among Liberty Variable Investment Trust, Liberty Financial Investments, Inc. and Cova Financial Services Life Insurance Company (3) (xii) (a) Form of Participation Agreement among Templeton Variable Products Series Fund, Franklin Templeton Distributors, Inc. and Cova Financial Services Life Insurance Company (5) (b) Participation Agreement among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Cova Financial Services Life Insurance Company (September 1, 2000) (16) (c) Amendment among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and COVA Financial Services Life Insurance Company effective September 1, 2000 to the Participation Agreement dated September 1, 2000; Amendment among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and COVA Financial Services Life Insurance Company effective September 1, 2000 to the Participation Agreement dated September 1, 2000; Amendment among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and COVA Financial Services Life Insurance Company effective March 1, 2001 to the Participation Agreement dated September 1, 2000; Amendment among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., COVA Financial Services Life Insurance Company and MetLife Investors Insurance Company effective May 1, 2001 to the Participation Agreement dated September 1, 2000; and Amendment among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., COVA Financial Services Life Insurance Company and MetLife Investors Insurance Company effective June 5, 2007 to the Participation Agreement dated September 1, 2000. (16) (xiii) Form of Participation Agreement between MetLife Investors Insurance Company and Met Investors Series Trust (7) (xiv) Form of Participation Agreement between MetLife Investors Insurance Company and Metropolitan Series Fund, Inc. (7) (xv) Form of Participation Agreement between MetLife Investors Insurance Company and First American Insurance Portfolios, Inc. (7) (xvi) Net Worth Agreement between MetLife, Inc. and MetLife Investors Insurance Company (effective December 31, 2002) (10) (xvii) Guarantee Agreement (General American Life Insurance Company) (12) (xviii) Participation Agreement among Metropolitan Series Fund, Inc., MetLife Advisers, LLC, MetLife Securities,Inc.and MetLife Investors Insurance Company effective 4-30-07 (14) (xiv) Participation Agreement among Metropolitan Series Fund, Inc., MetLife Advisers, LLC, MetLife Investors Distribution Company and MetLife Investors Insurance Company effective 8-31-07 (15) 9. (i) Opinion and Consent of Counsel (14) (ii) Opinion (General American Life Insurance Company) (13) 10. (i) Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) for the Depositor, Registrant and the Guarantor (filed herewith) (ii) Consent of Independent Registered Public Accounting Firm (MetLife, Inc. Financials) (filed herewith) 11. Not Applicable 12. Agreement Governing Contribution (5) 13. (i) Powers of Attorney for MetLife Investors Insurance Company (14) (ii) Powers of Attorney for General American Life Insurance Company as Guarantor (14) (iii) Power of Attorney for Bennett D. Kleinberg (filed herewith)
(1) Incorporated herein by reference to Registrant's Amendment No.9 to Form N-4 (File Nos. 033-39100 and 811-05200) electronically filed on April 23, 1997. (2) Incorporated herein by reference to Registrant's Pre-Effective Amendment No. 1 to Form N-4 (File Nos. 333-34741 and 811-05200) electronically filed on November 20, 1997. (3) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 1 to Form N-4 (File Nos. 333-34741 and 811-05200) electronically filed on January 26, 1998. (4) Incorporated herein by reference to Registrant's Amendment No. 26 (File Nos. 33-39100 and 811-05200) electronically filed on April 29, 1998. (5) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 15 (File Nos. 33-39100 and 811-05200) electronically filed on April 29, 1999. (6) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 20 to Form N-4 (File Nos. 33-39100 and 811-05200) electronically filed on April 26, 2001. (7) Incorporated herein by reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 (MetLife Investors Variable Life Account One, File No. 333-69522) electronically filed on December 20, 2001. (8) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 6 to Form N-4 (File Nos. 333-50540 and 811-05200) electronically filed on April 30, 2003. (9) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 7 on Form N-4 (File Nos. 333-54358 and 811-05200) electronically filed on July 13, 2005. (10) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 16 on Form N-4 (File Nos. 333-50540 and 811-05200) electronically filed on April 21, 2006. (11) Incorporated herein by reference to MetLife Investors USA Separate Account A's Post-Effective Amendment No. 19 on Form N-4 (File Nos. 333-54464 and 811- 03365) electronically filed on April 24, 2006. (12) Incorporated herein by reference to First MetLife Investors Variable Annuity Account One's Post-Effective Amendment No. 11 on Form N-4 (File Nos. 333-96795 and 811- 08306) electronically filed on July 27, 2006. (13) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 17 on Form N-4 (File Nos. 333-50540 and 811-05200) electronically filed on July 28, 2006. (14) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 31 on Form N-4 (File Nos. 033-39100 and 811-05200) electronically filed on April 19, 2007. (15) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 17 on Form N-4 (File Nos. 333-51950 and 811-05200) electronically filed on October 31, 2007. (16) Incorporated herein by reference to Registrant's Post-Effective Amendment No. 25 on Form N-4 (File Nos. 333-50540 and 811-05200) electronically filed on April 22, 2008. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR The following are the Officers and Directors who are engaged directly or indirectly in activities relating to the Registrant or the variable annuity contracts offered by the Registrant and the executive officers of the Company:
Name and Principal Business Address Positions and Offices with Depositor ----------------------------------- -------------------------------------- Michael K. Farrell Chairman of the Board, President, 10 Park Avenue Chief Executive Officer and Director Morristown, NJ 07962 Susan A. Buffum Director 10 Park Avenue Morristown, NJ 07962 James J. Reilly Vice President-Finance 501 Boylston Street (principal financial officer and Boston, MA 02116 principal accounting officer) Jay S. Kaduson Vice President and Director 10 Park Avenue Morristown, NY 07962 Elizabeth M. Forget Executive Vice President and Director 1095 Avenue of the Americas New York, NY 10036
George Foulke Director 334 Madison Avenue Covenant Station, NJ 07961 Paul A. Sylvester Director 10 Park Avenue Morristown, NJ 07962 Kevin J. Paulson Senior Vice President 4700 Westown Parkway Suite 200 West Des Moines, IA 50266 Richard C. Pearson Vice President, Associate General 5 Park Plaza Counsel, Secretary and Director Suite 1900 Irvine, CA 92614 Jeffrey A. Tupper Assistant Vice President and Director 5 Park Plaza Suite 1900 Irvine, CA 92614 Debora L. Buffington Vice President, Director of Compliance 5 Park Plaza Suite 1900 Irvine, CA 92614 Betty E. Davis Vice President 1125 17th Street Suite 800 Denver, CO 80202 Thomas G. Hogan, Jr. Vice President 400 Atrium Drive Somerset, NJ 08837 Stewart M. Ashkenazy Vice President, Appointed Actuary 1095 Avenue of the Americas New York, NY 10036 Jonathan L. Rosenthal Vice President, Chief Hedging Officer 10 Park Avenue Morristown, NJ 07962 Christopher A. Kremer Vice President 501 Boylston Street Boston, MA 02116 Marian J. Zeldin Vice President 300 Davidson Avenue Somerset, NJ 08873 Karen A. Johnson Vice President 501 Boylston Street Boston, MA 02116 Deron J. Richens Vice President 5 Park Plaza Suite 1900 Irvine, CA 92614 Jeffrey N. Altman Vice President 1095 Avenue of the Americas New York, NY 10036 Roberto Baron Vice President 1095 Avenue of the Americas New York, NY 10036
Paul L. LeClair Vice President 501 Boylston Street Boston, MA 02116 Gregory E. Illson Vice President 501 Boylston Street Boston, MA 02116 Bennett D. Kleinberg Vice President and Director 1300 Hall Boulevard Bloomfield, CT 06002-2910 Lisa S. Kuklinski Vice President 260 Madison Avenue New York, NY 10016 Jeffrey P. Halperin Vice President 1095 Avenue of the Americas New York, NY 10036 Eric T. Steigerwalt Treasurer 1095 Avenue of the Americas New York, NY 10036 Mark S. Reilly Vice President 1300 Hall Boulevard Bloomfield, CT 06002-2910 George Luecke Vice President - Annuity Finance 1095 Avenue of the Americas New York, NY 10036 Gene L. Lunman Vice President 1300 Hall Boulevard Bloomfield, CT 06002-2910 Robert L. Staffier Vice President 501 Boylston Street Boston, MA 02116
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR THE REGISTRANT The Registrant is a separate account of MetLife Investors Insurance Company under Missouri insurance law. MetLife Investors Insurance Company is a wholly-owned direct subsidiary of MetLife, Inc., a publicly traded company. The following outline indicates those entities that are controlled by MetLife, Inc. or are under the common control of MetLife, Inc. No person is controlled by the Registrant. ORGANIZATIONAL STRUCTURE OF METLIFE, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 2008 The following is a list of subsidiaries of MetLife, Inc. updated as of December 31, 2008. Those entities which are listed at the left margin (labeled with capital letters) are direct subsidiaries of MetLife, Inc. Unless otherwise indicated, each entity which is indented under another entity is a subsidiary of that other entity and, therefore, an indirect subsidiary of MetLife, Inc. Certain inactive subsidiaries have been omitted from the MetLife, Inc. organizational listing. The voting securities (excluding directors' qualifying shares, (if any)) of the subsidiaries listed are 100% owned by their respective parent corporations, unless otherwise indicated. The jurisdiction of domicile of each subsidiary listed is set forth in the parenthetical following such subsidiary. A. MetLife Group, Inc. (NY) B. MetLife Bank National Association (USA) C. Exeter Reassurance Company, Ltd. (Bermuda) D. MetLife Taiwan Insurance Company Limited (Taiwan) E. Metropolitan Tower Life Insurance Company (DE) 1. TH Tower NGP, LLC (DE) 2. Partners Tower, L.P. (DE) - a 99% limited partnership interest of Partners Tower, L.P. is held by Metropolitan Tower Life Insurance Company and 1% general partnership interest is held by TH Tower NGP, LLC (DE) 3. TH Tower Leasing, LLC (DE) 4. MetLife Reinsurance Company of Vermont (VT) 5. EntreCap Real Estate II LLC (DE) a) PREFCO Dix-Huit LLC (CT) b) PREFCO X Holdings LLC (CT) c) PREFCO Ten Limited Partnership (CT) - a 99.9% limited partnership interest of PREFCO Ten Limited Partnership is held by EntreCap Real Estate II LLC and 0.1% general partnership is held by PREFCO X Holdings LLC. d) PREFCO Vingt LLC (CT) e) PREFCO Twenty Limited Partnership (CT) - a 99% limited partnership interest of PREFCO Twenty Limited Partnership is held by EntreCap Real Estate II LLC and 1% general partnership is held by PREFCO Vingt LLC. 6. Plaza Drive Properties, LLC (DE) 7. MTL Leasing, LLC (DE) a) PREFCO IX Realty LLC (CT) b) PREFCO XIV Holdings LLC (CT) c) PREFCO Fourteen Limited Partnership (CT) - a 99.9% limited partnership interest of PREFCO Fourteen Limited Partnership is held by MTL Leasing, LLC and 0.1% general partnership is held by PREFCO XIV Holdings LLC. F. MetLife Pensiones Mexico S.A. (Mexico)- 97.4738% is owned by MetLife, Inc. and 2.5262% is owned by MetLife International Holdings, Inc. G. MetLife Chile Inversiones Limitada (Chile)- 99.9999999% is owned by MetLife, Inc. and 0.0000001% is owned by Natiloportem Holdings, Inc. 1. MetLife Chile Seguros de Vida S.A. (Chile)- 99.99% is owned by MetLife Chile Inversiones Limitada and 0.01% is owned by MetLife International Holdings, Inc. a) MetLife Chile Administradora de Mutuos Hipotecarios S.A. (Chile)- 99.99% is owned by MetLife Chile Seguros de Vida S.A. and 0.01% is owned by MetLife Chile Inversiones Limitada. H. MetLife Mexico S.A. (Mexico)- 98.70541% is owned by MetLife, Inc., 1.29459% is owned by MetLife International Holdings, Inc. 1. MetLife Afore, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Mexico S.A. and 0.01% is owned by MetLife Pensiones Mexico S.A. a) Met1 SIEFORE, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Afore, S.A. de C.V. and 0.01% is owned by MetLife Mexico S.A. b) Met2 SIEFORE, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Afore, S.A. de C.V. and 0.01% is owned by MetLife Mexico S.A. c) MetA SIEFORE Adicional, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Afore, S.A. de C.V. and .01% is owned by MetLife Mexico S.A. d) Met3 SIEFORE Basica, S.A. de C.V. (Mexico) - 99.99% is owned by MetLife Afore, S.A. de C.V. and .01% is owned by MetLife Mexico S.A. e) Met4 SIEFORE, S.A. de C.V. (Mexico) - 99.99% is owned by MetLife Afore, S.A. de C.V. and .01% is owned by MetLife Mexico S.A. f) Met5 SIEFORE, S.A. de C.V. (Mexico) - 99.99% is owned by MetLife Afore, S.A. de C.V. and .01% is owned by MetLife Mexico S.A. 2. ML Capacitacion Comercial S.A. de C.V. (Mexico) - 99% is owned by MetLife Mexico S.A. and 1% is owned by MetLife Mexico Cares, S.A. de C.V. I. MetLife Mexico Servicios, S.A. de C.V. (Mexico)- 98% is owned by MetLife, Inc. and 2% is owned by MetLife International Holdings, Inc. J. Metropolitan Life Seguros de Vida S.A. (Uruguay) K. MetLife Securities, Inc. (DE) L. Enterprise General Insurance Agency, Inc. (DE) 1. MetLife General Insurance Agency of Texas, Inc. (DE) 2. MetLife General Insurance Agency of Massachusetts, Inc. (MA) 1 M. Metropolitan Property and Casualty Insurance Company (RI) 1. Metropolitan General Insurance Company (RI) 2. Metropolitan Casualty Insurance Company (RI) 3. Metropolitan Direct Property and Casualty Insurance Company (RI) 4. Met P&C Managing General Agency, Inc. (TX) 5. MetLife Auto & Home Insurance Agency, Inc. (RI) 6. Metropolitan Group Property and Casualty Insurance Company (RI) a) Metropolitan Reinsurance Company (U.K.) Limited (United Kingdom) 7. Metropolitan Lloyds, Inc. (TX) a) Metropolitan Lloyds Insurance Company of Texas (TX)- Metropolitan Lloyds Insurance Company of Texas, an affiliated association, provides automobile, homeowner and related insurance for the Texas market. It is an association of individuals designated as underwriters. Metropolitan Lloyds, Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company, serves as the attorney-in-fact and manages the association. 8. Economy Fire & Casualty Company (IL) a) Economy Preferred Insurance Company (IL) b) Economy Premier Assurance Company (IL) N. Cova Corporation (MO) 1. Texas Life Insurance Company (TX) O. MetLife Investors Insurance Company (MO) P. First MetLife Investors Insurance Company (NY) Q. Walnut Street Securities, Inc. (MO) R. Newbury Insurance Company, Limited (BERMUDA) S. MetLife Investors Group, Inc. (DE) 1. MetLife Investors Distribution Company (MO) 2. Met Investors Advisory, LLC (DE) 3. MetLife Investors Financial Agency, Inc. (TX) 2 T. MetLife International Holdings, Inc. (DE) 1. MetLife Mexico Cares, S.A. de C.V. (Mexico) a) Fundacion MetLife Mexico, A.C. (Mexico) 2. Natiloportem Holdings, Inc. (DE) a) Servicios Administrativos Gen, S.A. de C.V. (Mexico) i) MLA Comercial, S.A. de C.V. (Mexico) 99% is owned by Servicios Administrativos Gen, S.A. de C.V. and 1% is owned by MetLife Mexico Cares, S.A. de C.V. ii) MLA Servicios, S.A. de C.V. (Mexico) 99% is owned by Servicios Administrativos Gen, S.A. de C.V. and 1% is owned by MetLife Mexico Cares, S.A. de C.V. 3. MetLife India Insurance Company Limited (India)- 26% is owned by MetLife International Holdings, Inc. and 74% is owned by third parties. 4. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)- 99.99924% is owned by MetLife International Holdings, Inc. and 0.00076% is owned by Natiloporterm Holdings, Inc. 5. MetLife Seguros de Vida S.A. (Argentina)- 95.2499% is owned by MetLife International Holdings, Inc. and 4.7473% is owned by Natiloportem Holdings, Inc. 6. MetLife Insurance Company of Korea Limited (South Korea)- 14.64% of MetLife Insurance Company of Korea Limited is owned by MetLife, Mexico, S.A. and 85.36% is owned by Metlife International Holdings, Inc. 7. Metropolitan Life Seguros e Previdencia Privada S.A. (Brazil)- 66.6617540% is owned by MetLife International Holdings, Inc. and 33.3382457% is owned by MetLife Worldwide Holdings, Inc. and 0.0000003% is owned by Natiloportem Holdings, Inc. 8. MetLife Global, Inc. (DE) 9. MetLife Administradora de Fundos Multipatrocinados Ltda (Brazil) - 95.4635% is owned by MetLife International Holdings, Inc. and 4.5364% is owned by Natiloportem Holdings, Inc. 10. MetLife Insurance Limited (United Kingdom) 11. MetLife General Insurance Limited (Australia) 12. MetLife Limited (United Kingdom) 13. MetLife Insurance S.A./NV (Belgium) 14. MetLife Services Limited (United Kingdom) 15. MetLife Insurance Limited (Australia) a) MetLife Investments Pty Limited (Australia) i) MetLife Insurance and Investment Trust (Australia) - MetLife Insurance and Investment Trust is a trust vehicle, the trustee of which is MetLife Investment Pty Limited. MetLife Investments Pty Limited is a wholly owned subsidiary of MetLife Insurance Limited. b) MetLife Services (Singapore) PTE Limited (Australia) 16. MetLife Seguros de Retiro S.A. (Argentina) - 96.8819% is owned by MetLife International Holdings, Inc. and 3.1180% is owned by Natiloportem Holdings, Inc. 17. Best Market S.A. (Argentina) - 5% of the shares are held by Natiloportem Holdings, Inc. and 94.9999% is owned by MetLife International Holdings Inc. 18. Compania Previsional MetLife S.A. (Brazil) - 95.4635% is owned by MetLife International Holdings, Inc. and 4.5364% is owned by Natiloportem Holdings, Inc. (a) Met AFJP S.A. (Argentina) - 75.4088% of the shares of Met AFJP S.A. are held by Compania Previsional MetLife SA, 19.5912% is owned by MetLife Seguros de Vida SA, 3.9689% is held by Natiloportem Holdings, Inc. and 1.0310% is held by MetLife Seguros de Retiro SA. 19. MetLife Worldwide Holdings, Inc. (DE) a) MetLife Towarzystwo Ubezpieczen na Zycie Spolka Akcyjna. (Poland) b) MetLife Direct Co., Ltd. (Japan) c) MetLife Limited (Hong Kong) U. Metropolitan Life Insurance Company (NY) 1. 334 Madison Euro Investments, Inc. (DE) a) Park Twenty Three Investments Company (United Kingdom)- 1% voting control of Park Twenty Three Investments Company is held by St. James Fleet Investments Two Limited. 1% of the shares of Park Twenty Three Investments Company is held by Metropolitan Life Insurance Company. 99% is owned by 334 Madison Euro Investment, Inc. i) Convent Station Euro Investments Four Company (United Kingdom)- 1% voting control of Convent Station Euro Investments Four Company is held by 334 Madison Euro Investments, Inc. as nominee for Park Twenty Three Investments Company. 99% is owned by Park Twenty Three Investments Company. 2. St. James Fleet Investments Two Limited (Cayman Islands)- 34% of the shares of St. James Fleet Investments Two Limited is held by Metropolitan Life Insurance Company. 3. One Madison Investments (Cayco) Limited (Cayman Islands)- 10.1% voting control of One Madison Investments (Cayco) Limited is held by Convent Station Euro Investments Four Company. 89.9% of the shares of One Madison Investments (Cayco) Limited is held by Metropolitan Life Insurance Company. 4. CRB Co, Inc. (MA)- AEW Real Estate Advisors, Inc. holds 49,000 preferred non-voting shares and AEW Advisors, Inc. holds 1,000 preferred non-voting shares of CRB, Co., Inc. 5. GA Holding Corp. (MA) 3 6. Thorngate, LLC (DE) 7. Alternative Fuel I, LLC (DE) 8. Transmountain Land & Livestock Company (MT) 9. MetPark Funding, Inc. (DE) 10. HPZ Assets LLC (DE) 11. Missouri Reinsurance (Barbados), Inc. (Barbados) 12. Metropolitan Tower Realty Company, Inc. (DE) a) Midtown Heights, LLC (DE) 13. MetLife Real Estate Cayman Company (Cayman Islands) 14. Metropolitan Marine Way Investments Limited (Canada) 15. MetLife Private Equity Holdings, LLC (DE) 16. 23rd Street Investments, Inc. (DE) a) Mezzanine Investment Limited Partnership-BDR (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. b) Mezzanine Investment Limited Partnership-LG (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. c) MetLife Capital Credit L.P. (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. d) MetLife Capital Limited Partnership (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. 17. Hyatt Legal Plans, Inc. (DE) a) Hyatt Legal Plans of Florida, Inc. (FL) 18. MetLife Holdings, Inc. (DE) a) MetLife Credit Corp. (DE) b) MetLife Funding, Inc. (DE) 4 19. Bond Trust Account A (MA) 20. MetLife Investments Asia Limited (Hong Kong). 21. MetLife Investments Limited (United Kingdom)- 23rd Street Investments, Inc. holds one share of MetLife Investments Limited. 22. MetLife Latin America Asesorias e Inversiones Limitada (Chile)- 23rd Street Investments, Inc. holds 0.01% of MetLife Latin America Asesorias e Inversiones Limitada. 23. New England Life Insurance Company (MA) a) MetLife Advisers, LLC (MA) b) New England Securities Corporation (MA) 24. GenAmerica Financial, LLC (MO) a) GenAmerica Capital I (DE) b) General American Life Insurance Company (MO) i) GenAmerica Management Corporation (MO) 5 25. Corporate Real Estate Holdings, LLC (DE) 26. Ten Park SPC (CAYMAN ISLANDS ) - 1% voting control of Ten Park SPC is held by 23rd Street Investments, Inc. 27. MetLife Tower Resources Group, Inc. (DE) 28. Headland - Pacific Palisades, LLC (CA) 29. Headland Properties Associates (CA) - 1% is owned by Headland - Pacific Palisades, LLC and 99% is owned by Metropolitan Life Insurance Company. 30. Krisman, Inc. (MO) 31. Special Multi-Asset Receivables Trust (DE) 32. White Oak Royalty Company (OK) 33. 500 Grant Street GP LLC (DE) 34. 500 Grant Street Associates Limited Partnership (CT) - 99% of 500 Grant Street Associates Limited Partnership is held by Metropolitan Life Insurance Company and 1% by 500 Grant Street GP LLC 35. MetLife Canada/MetVie Canada (Canada) 36. MetLife Retirement Services LLC (NJ) a) MetLife Investment Funds Services LLC (NJ) (i) MetLife Investment Funds Management LLC (NJ) (ii) MetLife Associates LLC (DE) 37. Euro CL Investments LLC (DE) 38. MEX DF Properties, LLC (DE) 39. MSV Irvine Property, LLC (DE) - 4% of MSV Irvine Property, LLC is owned by Metropolitan Tower Realty Company, Inc. and 96% is owned by Metropolitan Life Insurance Company 40. MetLife Properties Ventures, LLC (DE) a) Citypoint Holdings II Limited (UK) 41. Housing Fund Manager, LLC (DE) a) MTC Fund I, LLC (DE) 0.01% of MTC Fund I, LLC is held by Housing Fund Manager, LLC. - Housing Fund Manager, LLC is the managing member LLC and the remaining interests are held by a third party member. b) MTC Fund II, LLC (DE) - 0.01% of MTC Fund II, LLC is held by Housing Fund Manager, LLC. - Housing Fund Manager, LLC is the managing member LLC and the remaining interests are held by a third party member. c) MTC Fund III, LLC (DE) - 0.01% of MTC Fund III, LLC is held by Housing Fund Manager, LLC. - Housing Fund Manager, LLC is the managing member LLC and the remaining interests are held by a third party member. 42. MLIC Asset Holdings, LLC (DE) 43. 85 Brood Street LLC (CT) 44. The Building at 575 LLC (DE) V. MetLife Capital Trust III (DE) W. MetLife Capital Trust IV (DE) X. MetLife Insurance Company of Connecticut (CT) 1. MetLife Property Ventures Canada ULC (Canada) 2. Pilgrim Alternative Investments Opportunity Fund I, LLC (DE) - 67% is owned by MetLife Insurance Company of Connecticut, and 33% is owned by third party. 3. Pilgrim Alternative Investments Opportunity Fund III Associates, LLC (CT) - 67% is owned by MetLife Insurance Company of Connecticut, and 33% is owned by third party. 4. Pilgrim Investments Highland Park, LLC (DE) 5. Metropolitan Connecticut Properties Ventures, LLC (DE) 6. MetLife Canadian Property Ventures LLC (NY) 7. Euro TI Investments LLC (DE) 8. Greenwich Street Investments, LLC (DE) a) Greenwich Street Capital Offshore Fund, Ltd. (Virgin Islands) b) Greenwich Street Investments, L.P. (DE) 9. One Financial Place Corporation (DE) - 100% is owned in the aggregate by MetLife Insurance Company of Connecticut. 10. Plaza LLC (CT) a) Tower Square Securities, Inc. (CT) 11. TIC European Real Estate LP, LLC (DE) 12. MetLife European Holdings, Inc. (UK) a) MetLife Europe Limited (IRELAND) i) MetLife Pensions Trustees Limited (UK) b) MetLife Assurance Limited (UK) 13. Travelers International Investments Ltd. (Cayman Islands) 14. Euro TL Investments LLC (DE) 15. Corrigan TLP LLC (DE) 16. TLA Holdings LLC (DE) a) The Prospect Company (DE) i) Panther Valley, Inc. (NJ) 17. TRAL & Co. (CT) - TRAL & Co. is a general partnership. Its partners are MetLife Insurance Company of Connecticut and Metropolitan Life Insurance Company. 18. Tribeca Distressed Securities, L.L.C. (DE) 19. MetLife Investors USA Insurance Comapny (DE) Y. MetLife Reinsurance Company of South Carolina (SC) Z. MetLife Investment Advisors Company, LLC (DE) AA. MetLife Standby I, LLC (DE) 1. MetLife Exchange Trust I (DE) BB. MetLife Services and Solutions, LLC (DE) 1. MetLife Solutions Pte. Ltd. (Singapore) i) MetLife Services East Private Limited (India) ii) MetLife Global Operations Support Center Private Limited - 99.99999% is owned by MetLife Solutions Pte. Ltd. and 0.00001% is owned by Natiloportem Holdings, Inc. CC. SafeGuard Health Enterprises, Inc. (DE) 1. SafeGuard Dental Services, Inc. (DE) 2. SafeGuard Health Plans, Inc. (CA) 3. SafeHealth Life Insurance Company (CA) 4. SafeGuard Health Plans, Inc. (FL) 5. SafeGuard Health Plans, Inc. (NV) 6. SafeGuard Health Plans, Inc. (TX) DD. MetLife Capital Trust X (DE) EE. Cova Life Management Company (DE) FF. MetLife Reinsurance Company of Charleston (SC) GG. Federal Flood Certification Corp (TX) HH. MetLife Planos Odontologicos Ltda. (Brazil) II. Metropolitan Realty Management, Inc. (DE) The voting securities (excluding directors' qualifying shares, if any) of each subsidiary shown on the organizational chart are 100% owned by their respective parent corporation, unless otherwise indicated. In addition to the entities shown on the organizational chart, MetLife, Inc. (or where indicated, a subsidiary) also owns interests in the following entities: 1) Metropolitan Life Insurance Company owns varying interests in certain mutual funds distributed by its affiliates. These ownership interests are generally expected to decrease as shares of the funds are purchased by unaffiliated investors. 2) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited partnerships, are investment vehicles through which investments in certain entities are held. A wholly owned subsidiary of Metropolitan Life Insurance Company serves as the general partner of the limited partnerships and Metropolitan Life Insurance Company directly owns a 99% limited partnership interest in each MILP. The MILPs have various ownership and/or debt interests in certain companies. 3) The Metropolitan Money Market Pool and MetLife Intermediate Income Pool are pass-through investment pools, of which Metropolitan Life Insurance Company and/or its subsidiaries and/or affiliates are general partners. NOTE: THE METLIFE, INC. ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE JOINT ---- VENTURES AND PARTNERSHIPS OF WHICH METLIFE, INC. AND/OR ITS SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE SUBSIDIARIES HAVE ALSO BEEN OMITTED. 6 ITEM 27. NUMBER OF CONTRACT OWNERS As of January 31, 2009, there were 2,653 Qualified Contract Owners and 11,144 Non-Qualified Contract Owners. ITEM 28. INDEMNIFICATION The Depositor's parent, MetLife, Inc. has secured a Financial Institution Bond in the amount of $50,000,000, subject to a $5,000,000 deductible. MetLife, Inc. also maintains a Directors' and Officers' Liability and Corporate Reimbursement Insurance Policy with limits of $400 million under which the Depositor and MetLife Investors Distribution Company, the Registrant's underwriter (the "Underwriter"), as well as certain other subsidiaries of MetLife are covered. A provision in MetLife, Inc.'s by-laws provides for the indemnification (under certain circumstances) of individuals serving as directors or officers of certain organizations, including the Depositor and the Underwriter. The Bylaws of the Company (Article IV, Section 1) provide that: Each person who is or was a director, officer or employee of the corporation or is or was serving at the request of the corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person) shall be indemnified by the corporation as of right to the full extent permitted or authorized by the laws of the State of Missouri, as now in effect and as hereafter amended, against any liability, judgment, fine, amount paid in settlement, cost and expenses (including attorney's fees) asserted or threatened against and incurred by such person in his capacity as or arising out of his status as a director, officer or employee of the corporation or if serving at the request of the corporation, as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under any other bylaw or under any agreement, vote of shareholders or disinterested directors or otherwise, and shall not limit in any way any right which the corporation may have to make different or further indemnification with respect to the same or different persons or classes of persons. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted directors and officers or controlling persons of the Company pursuant to the foregoing, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 29. PRINCIPAL UNDERWRITERS (a) MetLife Investors Distribution Company is the principal underwriter for the following investment companies (other than Registrant): MetLife of CT Separate Account QPN for Variable Annuities MetLife of CT Fund UL for Variable Life Insurance, MetLife of CT Fund UL III for Variable Life Insurance MetLife of CT Separate Account Eleven for Variable Annuities Metropolitan Life Variable Annuity Separate Account II Metropolitan Life Variable Annuity Separate Account I Met Investors Series Trust MetLife Investors Variable Annuity Account One MetLife Investors Variable Annuity Account Five MetLife Investors Variable Life Account One MetLife Investors Variable Life Account Five MetLife Investors USA Separate Account A MetLife Investors USA Variable Life Account A First MetLife Investors Variable Annuity Account One General American Separate Account Eleven General American Separate Account Twenty-Eight General American Separate Account Twenty-Nine General American Separate Account Two Security Equity Separate Account Twenty-Six Security Equity Separate Account Twenty-Seven Metropolitan Life Separate Account E Metropolitan Life Separate Account UL Metropolitan Tower Life Separate Account One Metropolitan Tower Life Separate Account Two Paragon Separate Account A Paragon Separate Account B Paragon Separate Account C Paragon Separate Account D Metropolitan Series Fund, Inc. (b) MetLife Investors Distribution Company is the principal underwriter for the Contracts. The following persons are the Officers and Directors of MetLife Investors Distribution Company. The principal business address for MetLife Investors Distribution Company is 5 Park Plaza, Suite 1900, Irvine, CA 92614.
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER ----------------------------------- --------------------------------------- Michael K. Farrell Director 10 Park Avenue Morristown, NJ 07962 Craig W. Markham Director and Vice President 13045 Tesson Ferry Road St. Louis, MO 63128 William J. Toppeta Director 1095 Avenue of the Americas New York, NY 10036 Paul A. Sylvester President, National Sales 10 Park Avenue Manager-Annuities & LTC Morristown, NJ 07962 Elizabeth M. Forget Executive Vice President, Investment 1095 Avenue of the Americas Fund Management & Marketing New York, NY 10036 Paul A. LaPiana Executive Vice President, National 5 Park Plaza Sales Manager-Life Suite 1900 Irvine, CA 92614 Richard C. Pearson Executive Vice President, General 5 Park Plaza Counsel and Secretary Suite 1900 Irvine, CA 92614 Peter Gruppuso Vice President, Chief Financial Officer 485-E US Highway 1 South Iselin, NJ 08830 John C. Kennedy Senior Vice President, National Sales 1095 Avenue of the Americas Manager, Bank and Broker/Dealer New York, NY 10036 Douglas P. Rodgers Senior Vice President, Channel Head-LTC 10 Park Avenue Morristown, NJ 07962 Curtis Wohlers Senior Vice President, National Sales 1095 Avenue of the Americas Manager, Independent Planners and New York, NY 10036 Insurance Advisors Jeffrey A. Barker Senior Vice President, Channel 1095 Avenue of the Americas Head-Independent Accounts New York, NY 10036
Andrew Aiello Senior Vice President, Channel 5 Park Plaza Head-National Accounts Suite 1900 Irvine, CA 92614 Jay S. Kaduson Senior Vice President 10 Park Avenue Morristown, NJ 07962 Eric T. Steigerwalt Treasurer 1095 Avenue of the Americas New York, NY 10036 Debora L. Buffington Vice President, Director of Compliance 5 Park Plaza Suite 1900 Irvine, CA 92614 David DeCarlo Vice President 5 Park Plaza Suite 1900 Irvine, CA 92614 Paul M. Kos Vice President 5 Park Plaza Suite 1900 Irvine, CA 92614 Deron J. Richens Vice President 5 Park Plaza Suite 1900 Irvine, CA 92614 Cathy Sturdivant Vice President 5 Park Plaza Suite 1900 Irvine, CA 92614 Paulina Vakouros Vice President 260 Madison Avenue New York, NY 10016
(c) Compensation From the Registrant. The following commissions and other compensation were received by the Distributor, directly or indirectly, from the Registrant during the Registrant's last fiscal year: (1) (2) (3) (4) (5) Compensation on Events Occasioning the Net Underwriting Deduction of a Name of Principal Discounts and Deferred Sales Brokerage Other Underwriter Commissions Load Commissions Compensation MetLife Investors Distribution Company $85,020,359 $ 0 $ 0 $ 0
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The following companies will maintain possession of the documents required by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder: (a) Registrant (b) MetLife Annuity Operations, 27000 Westown Parkway, Bldg. 4, Suite 200, West Des Moines, IA 50266 (c) State Street Bank & Trust Company, 225 Franklin Street, Boston, MA 02110 (d) MetLife Investors Distribution Company, 5 Park Plaza, Suite 1900, Irvine, CA 92614 (e) MetLife Investors Insurance Company, 5 Park Plaza, Suite 1900, Irvine, CA 92614 (f) Metropolitan Life Insurance Company, 4010 Boy Scout Blvd, Tampa, FL 33607 (g) Metropolitan Life Insurance Company, 501 Boylston Street, Boston, MA 02116 (h) Metropolitan Life Insurance Company, 200 Park Avenue, New York, NY 10166 (i) General American Life Insurance Company, 13045 Tesson Ferry Road, St. Louis, MO 63128 (with respect to the Guarantee Agreement only) ITEM 31. MANAGEMENT SERVICES Not Applicable. ITEM 32. UNDERTAKINGS a. Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen (16) months old for so long as payment under the variable annuity contracts may be accepted. b. Registrant hereby undertakes to include either (1) as part of any application to purchase a contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information. c. Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this Form promptly upon written or oral request. d. MetLife Investors Insurance Company ("Company") hereby represents that the fees and charges deducted under the Contracts described in the Prospectus, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred and the risks assumed by the Company. e. During any time there are insurance obligations outstanding and covered by the guarantee issued by General American Life Insurance Company ("Guarantee Period"), filed as an exhibit to this Registration Statement (the "Guarantee"), the Depositor hereby undertakes to provide notice to contract owners covered by the Guarantee promptly after the happening of significant events related to the Guarantee. These significant events include: (i) termination of the Guarantee that has a material adverse effect on the contract owner's rights under the Guarantee; (ii) a default under the Guarantee that has a material adverse effect on the contract owner's rights under the Guarantee; or (iii) the insolvency of General American Life Insurance Company ("Guarantor"). Depositor hereby undertakes during the Guarantee Period to cause Registrant to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the current annual audited financial statements of the Guarantor in the Registration Statement are updated to be as of a date not more than 16 months prior to the effective date of this Registration Statement, and to cause Registrant to include as an exhibit to this Registration Statement the consent of the independent registered public accounting firm of the Guarantor regarding such financial statements. During the Guarantee Period, the Depositor hereby undertakes to include in the prospectus to contract owners, an offer to supply the Statement of Additional Information which shall contain the annual audited financial statements of the Guarantor, free of charge upon a contract owner's request. REPRESENTATIONS The Company hereby represents that it is relying upon a No Action Letter issued to the American Council of Life Insurance dated November 28, 1988 (Commission ref. IP-6-88) and that the following provisions have been complied with: 1. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; 2. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the contract; 3. Instruct sales representatives who solicit participants to purchase the contract specifically to bring the redemption restrictions imposed by Section 403(b)(11) to the attention of the potential participants; 4. Obtain from each plan participant who purchases a Section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (1) the restrictions on redemption imposed by Section 403(b)(11), and (2) other investment alternatives available under the employer's Section 403(b) arrangement to which the participant may elect to transfer his contract value. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf in the City of Irvine and State of California, on this 14th day of April, 2009. METLIFE INVESTORS VARIABLE ANNUITY ACCOUNT ONE (Registrant) By: METLIFE INVESTORS INSURANCE COMPANY By: /s/ RICHARD C. PEARSON ------------------------------- Richard C. Pearson Vice President, Associate General Counsel and Secretary METLIFE INVESTORS INSURANCE COMPANY (Depositor) By: /s/ RICHARD C. PEARSON ------------------------------- Richard C. Pearson Vice President, Associate General Counsel and Secretary As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons, in the capacities indicated on April 14, 2009. /s/ Michael K. Farrell* Chairman of the Board, President, Chief ----------------------------- Executive Officer and Director Michael K. Farrell /s/ Elizabeth M. Forget * Executive Vice President and Director ----------------------------- Elizabeth M. Forget /s/ Richard C. Pearson * Vice President, Associate General Counsel, ----------------------------- Secretary and Director Richard C. Pearson /s/ James J. Reilly * Vice President-Finance (principal financial ----------------------------- officer and principal accounting officer) James J. Reilly /s/ Jay S. Kaduson * Vice President and Director ----------------------------- Jay S. Kaduson /s/ Bennett D. Kleinberg * Vice President and Director ----------------------------- Bennett D. Kleinberg /s/ Jeffrey A. Tupper * Assistant Vice President and Director ----------------------------- Jeffrey A. Tupper /s/ Susan A. Buffum * Director ----------------------------- Susan A. Buffum /s/ George Foulke * Director ----------------------------- George Foulke /s/ Paul A. Sylvester* Director ----------------------------- Paul A. Sylvester By: /s/ JOHN E. CONNOLLY, JR. ----------------------------------- John E. Connolly, Jr., Attorney-in-fact April 14, 2009 -------- * MetLife Investors Insurance Company. Executed by John E. Connolly, Jr., Esquire on behalf of those indicated pursuant to powers of attorney incorporated herein by reference to Registrant's Post-Effective Amendment No. 31 on Form N-4 (File Nos. 033-39100/811-05200) filed as Exhibit 13(i) on April 19, 2007, and in reference to Bennett D. Kleinberg, filed herewith. SIGNATURES As required by the Securities Act of 1933, General American Life Insurance Company has caused this Registration Statement to be signed on its behalf, in the City of St. Louis and State of Missouri, on this 14th day of April, 2009. GENERAL AMERICAN LIFE INSURANCE COMPANY (Guarantor) By: /s/ WILLIAM C. LANE ----------------------------------- William C. Lane Vice President and Associate General Counsel As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 14th, 2009. /s/ Lisa M. Weber* Chairman of the Board, Chief Executive Officer, ----------------------------- President and Director Lisa M. Weber /s/ Joseph J. Prochaska, Jr.* Executive Vice President and Chief Accounting ----------------------------- Officer Joseph J. Prochaska, Jr. ----------------------------- Senior Vice President, Treasurer and Director Eric T. Steigerwalt /s/ James J. Reilly * Vice President (principal financial officer) ----------------------------- James J. Reilly /s/ Michael K. Farrell * Director ----------------------------- Michael K. Farrell /s/ James L. Lipscomb* Director ----------------------------- James L. Lipscomb /s/ William J. Mullaney * Director ----------------------------- William J. Mullaney /s/ Stanley J. Talbi* Director ----------------------------- Stanley J. Talbi /s/ Michael J. Vietri * Director ----------------------------- Michael J. Vietri /s/ William J. Wheeler * Director ----------------------------- William J. Wheeler By: /s/ JOHN E. CONNOLLY, JR. ----------------------------------- John E. Connolly, Jr., Attorney-in-fact April 14, 2009 -------- * General American Life Insurance Company. Executed by John E. Connolly, Jr., Esquire on behalf of those indicated pursuant to powers of attorney incorporated herein by reference to Registrant's Post-Effective Amendment No. 31 on Form N-4 (File Nos. 033-39100/811-05200) filed as Exhibit 13(ii) on April 19, 2007. INDEX TO EXHIBITS EX-99.10(i) Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) for the Depositor, Registrant and the Guarantor EX-99.10(ii) Consent of Independent Registered Public Accounting Firm (MetLife, Inc. Financials) EX-99.13(iii) Power of Attorney for Bennett D. Kleinberg