Document YjNakMML0ngNLkEBEQj7Z4Z38

ryirai. PLAINTIFF'S EXHIBIT I I MET-693 | I ,_. Mstropolitsn Life Insurance Company Metropolitan Life Insurance Company Cover: One of Metropolitan's most !mr orient resources is its people. ~: iz Lr c' !h;c repost cor.o.nes p..:-Uc o our p v.c rlaitr. one of tne :,x ii.y;.s ci America's Bicentennial c: i breiion, the spectacular firev.or t.s display in New York Harbor c - Jus 157c. The photographs of .., epic c~ the cover and throughout .fits report were taken by Karl Nemecek. The photograph of the Statue of Liberty was taken by Peter Cert. Both men are Metropolitan employees. Contents To Metropolitan Policyholders.................................... 1 Corporate Executive Office ........................................ 3 Personal Insurance .................................................... 4 Group Insurance ........................................................ 7 Head Offices, Computer Centers andM.P.L.............. 10 Investments .................................................................12 Balance Sheet............................................................. 14 Statement of Operations and Contingency Reserves. .16 Statement of Source and Application of Funds.............17 Charts...........................................................................18 Notes to Financial Statements..................................... 18 Auditors'Opinion......................................................... 19 Metropolitan Notes, 1976 ............................................. 20 Board of Directors....................................................... 24 Richard R. Shinn, President and Chief Executive Officer of Metropolitan, loined the Company in 1939. He was named President in 1969 and Chief Executive Officer in 1973. I believe there if rs b j;:rcs t>o! s cuilc like th* l.fc i*i?u'jrct business. Life insurance protects individuals ana families more surely and more satisfactorily than any other financial vehicle. We are proud of our leadership position in this important industry and pleased to bs a major source of Investment funds for the United Stales and Canada. George P. Jenkins, Chairmen of the Board, Joined Metropolitan in 1938. In addition to his duties as Chairman of the Finance Committee, he directs the Business Economics. Corporate Investments.'Equity Investments, Farm and Ranch Mortgages, Real Estate Financing and Treasurer's Departments. In a democratic tocieN keeping the economy sound an:? fr? ; . difficult and complex business. But the reward* in teims of \r* q.V of our live: and our chiidrer. & l;ve ere worth all of our rfiorts 7o t Metropolitan Policyholders Nineteen seventy-six was a year of significant events and progress for Metropolitan. Here are some of the achieve ments. Payments to policyholders and beneficiaries totaled more than $4.35 billion, a Company record, with more than two-thirds of these payments distributed to living policyholders as annuity benefits, cash values, endow ments, dividends and medical expense and disability income payments. Dividends to policyholders in 1976 amounted to over $888 million, a Company record and $96 million more than in 1975. New life insurance sales totaled $23.68 billion--$13.56 billion in individual safes and $10.12 billion in group sales. Life insurance- in-force reached a Company record of $243.01 billion, a gain of $16.72 billion over 1975. Personal insurance in-force totaled $103.6 billion, a Company high. Group life insurance in-force rose to $139.4 billion, an industry record. Total group pension income exceeded the billion dol lar mark for the second consecutive year. Life premium issue reached a Company high of $311 million, up $14 million. This included personal life pre mium of $244 million, and group life premium of $67 million. Income from premiums and annuity considerations and net investment income totaled $7.78 billion, an alltime record for Metropolitan. Company assets rose to $37.50 billion, a gain of $2.36 billion over 1975. Rate of return on investments before federal income taxes reached 6.65 percent, the highest in the Com pany's history. Also in 1976: .Metropolitans subsidiary, Metropolitan Properly and Liability Insurance Company, showed significant prog ress. At year's end, it was doing business in 15 states. M.P.L. will be operational in most states by 1981. By year's end, head offices were functioning In Johns town, Pa., Tulsa, Okla., Tampa, Fla., Dayton, Ohio, War wick. R.I., Aurora, 111., and two offices in New York City. fnese head offices join the San Francisco. Calif., and Ottawa. Canada, head offices, which have been opera tional for more than 50 years. One of the leaders in group dental insurance, Metro politan protected 3.4 million people with this coverage in 1976. , Group vision care coverage received intense study and planning in 1976, and in 1977 will have major imple mentation in a group program covering 600,000 em ployees and 1.2 million dependents. * Other news of interest in 1976: Metropolitan disbursed more than $1.7 million in char itable contributions and educational and other awards in 1976. Nearly 47 million pieces of the Company's health ed ucation materials were distributed to individuals, organi zations and schools. Over five million people viewed Metropolitan health and safety education films. Some 130 Metropolitan people successfully com pleted one or more of the Society of Actuaries' exami nations. Nearly 1,700 employees were enrolled in Chartered Life Underwriter study programs. In all, over 9,000 of Metropolitan's employees were enrolled in formal educational programs designed to enhance management or professional knowledge and standing. An equal opportunity employer, 14 percent of the Com pany's work force in 1976 was made up of minoritygroup members. Women continued to move into management posi tion's. From 1971 to 1976, the number of women in man agement nearly tripled. Metropolitan's advertising program included network exposure on the Winter Olympics, election night cover age and two entertainment specials. These developments will be discussed in the body of the report, Beyond the accomplishments and events noted above, Metropolitan's progress in 1976 was impacted by ex ternal matters of profound influence on our business and on society as a whole--matters which require our thoughtful attention. Foremost among the^e is inflation. In 1976 the nation's inflation rate had moderated somewhat to around the 5 to 6 percent level, down from the 10 percent area of re cent years, but still far too high. By no means should this moderation suggest that the inflation battle is being won. Persistent inflation, which hinders the economy's growth and employment opportunities, remains one of the most serious problems facing our country today. For the economy to grow, there must be the consumer, investor and business confidence that is created by a de gree of price stability and that results in increased pur chases, savings and investments. When this confidence has been established, as a result of our individual and collective efforts, we can expect to see positive improve ments in the unemployment statistics. Another concern for Metropolitan--and indeed lor all businesses and industries--is the continuing prolifera tion of government regulation in practically every phase of operation. So profuse is this growth in regulations that instead of "regulating," often these directives cause . costly , bottlenecks and inefficiencies. We feel that the private sector should have pertinent, understandable and orderly regulations, butthat the cost of such .regula tions must be commensurate .with, the protection Ihev afford. We believe, therefore, that we have a duty to rec ommend to the various governmental agencies that, before adopting new regulations, they should carefully weigh the ultimate cost to the public against the benefits to be derived. Metropolitan incurred over $389 million in taxes in 1976. Of that amount, over $247 million went for federal in come taxes, while state and provincial premium taxes amounted to $72 million. As a mutual insurance com pany operated solely for the benefit of our policyholders, we are well aware of the magnitude of this tax burden on the people we serve. In reviewing our accomplishments in 1976, we are deeply grateful to our almost 53,000 Metropolitan men and women for their unstintingly hard work. We know that the story of the Company's achievements tor the year could not have been written without the contribu tions of many individuals. All our people, whether they be newcomers or vet erans, in administration or sales, have made our plans work through their interest, their skills and their perse verance. They have performed well, and we thank them. As the United States begins Its third century, we are convinced more than ever that our country's special quality is its people. We at Metropolitan see this at work every day in the thousands of communities in which we do business. We see more and more people becoming involved in the many federal, slate and local govern mental activities that affect our lives. We sense that Americans everywhere recognize that it is no longer enough to be merely spectators in our society, but rather that we must play an active part in the pursuit of the com mon good. With this kind of involvement we are confi dent that we will meet today's challenge and fulfill to morrow's promise. On behalf of all of us at Metropolitan in the United States and Canada, we thank you for your continued support and hope you will find this annual report of in terest. . Richard R. Shinn,- President and Chief Executive Officer George P. Jenkins. Chairman ol the Board Metropolitan's response to the chang- _ and Executive Vice-Presidents John ing needs of its policyholders brought J. Creedon, Darrell D. Eichhoff, Edwin major organizational realignments to B. Lancaster and William S. Thomas. the Company in August, 1976, Impor Mr. Creedon headed Metropolitan's tant changes were made in the struc Legal and Corporate Services area of ture of the Corporate Executive Office operation, which includes the Law, . to strengthen the Company's ability to Personnel, Secretary's Office, Cor implement present and future plans. porate Planning, Company Property The Corporate Executive Office is Management and Company Services composed of the President and Chief Departments. Executive Officer, the Chairman of the Mr. Eichhoff was responsible forthe Board and the Company's Executive Personal Insurance Department, Head Vice-Presidents. During 1976 it con Office Operations, and the Metropoli sisted of Messrs. Shinn and Jenkins tan Property and Liability Insurance Company. Mr. Lancaster headed Metropoli tan's Actuarial, Electronic Installa tions, Accounting and Auditing and Medical Departments. Mr. Thomas was responsible for Metropolitan's Group Insurance and Pensions and Government and In dustry Relations Departments. Mr. Thomas announced his retirement, effective February, 1977, after a long and distinguished career of outstand ing service to the Metropolitan and to the life insurance business. The photograph? ir, th,s report help tell the Metropolitan story, for they represent the "faces of Metropolifr.r''--th: people who mad-. t `.rr'r'e our achievements ir. V. 76. While only a few could be pictured, they typify the many in both the United States and Canada. For Metropolitan's personal insurance operation, the year 1976 was marked by important developments and fine advances in sales and service to poli cyholders. Evidence of constructive change was everywhere: Personal insurance sales In 1976 moved the insurance in-force figure to $103.6 billion, a record high. Lifer insurance premium issued, a most important criterion in measuring sales achievement, reached $244 million, also an all-time record. Annuity sales, still strongly influ enced by opportunities arising from provisions of the Employee Retire ment Income Security Act of 1974, continued on a high level in 1976, with considerations of $69 million. Homeowner's and automobile in surance was made available in seven more states during 1976. More sophisticated training proce dures were adopted, advancing the knowledge and the service methods of the personal insurance sales force. New and more convenient methods of premium payment and processing were provided to policyholders. With their proximity to policyholders and the Field Force, the head offices were able to enhance the quality of Metropolitan service. Personal Insurance Products To meet the individual needs of its policyholders, Metropolitan has a large selection of insurance products. Personal insurance policies offer protection for limited periods or for the whole of an individual's life, with or without a cash value accumulation feature. Individual and family health cover age is available to meet a wide range of medical expenses. Disability in come coverage is also available. Metropolitan also offers many an nuity plans, and, in some states, homeowner's and automobile insur ance. To help its sales representatives identify an individual's Srsnr-ance needs. Metropolitan providies -them with three computer-assistecf services --You and Your Family, You and Your Future and You and Your Business. You and Your Family is designed to determine the insurance requirements of a person who wants to provide funds for continuing income to de pendents, as well as funds for final ex penses, emergencies, education, mortgage retirement or disability in come. You and Your Future identifies re tirement income needs and selects the most appropriate insurance prod ucts lor accumulating funds to provide a guaranteed income for life. You and Your Business evaluates the risks facing business owners and determines what insurance coverage best answers those needs--coverage such as group life and health insur ance, key personnel and disability in come contracts, retirement programs and business interest disposition plans. Professionalism in the Sales Force A wide range of life, health and an nuity products, as well as property and liability coverages, sold and serv iced by a professional sales force is at the heart of Metropolitan's personal insurance marketing effort. Approxi mately 24,000 sales representatives and sales managers are involved full time in providing our products and services to the public. In 1976 all members of the sales force participated in the Company's new Selling Skills Program, which re inforces, through continuing study and instruction, the knowledge re quired to fit products to an individual's needs. This program is perhaps the largest endeavor of its kind in the in surance industry, and reflects Metro politan's total commitment to profes sionalism among its Field Force. During 1976 many members of Metropolitan's sales force broadened their professionalism further by be coming members of industry organi zations and by participating in ad vanced study programs: More than half are members of the National Association of Life Under writers, an organization which is dedi cated to the advancement of public understanding of the life insurance business and which provides oppor tunities for continuing professional education. All of the Company's District and Regional Sales Managers in the United States held membership in the General Agents and Managers Con ference, the industry- organization dedicated to highguality agency management and life insurance sell ing through its educational and re search programs and its code of ethi cal practices. Metropolitan enthusiastically en dorses the principles underlying the sales leadership program of the Mil lion Dollar Round Table, the industry's most prestigious sales organization, and 680 Metropolitan sales repre sentatives are included in this or ganization. Almost 2,900 Metropolitan people participated in Life Underwriter Train ing Council study. The council's cur riculum. dealing primarily with the marketing and servicing concepts of life insurance, disability income and equity coverages, is designed to pro duce genuinely informed life under writers in these increasingly complex areas. Some 2,000 members of the mar keting organization have earned the Chartered Life Underwriter designa tion, a universally recognized meas ure of high professional knowledge in the industry. An individual becomes a C.L.U. only after successful comple tion by examination of 10 highly tech nical courses involving years of study. The Company also has some 1,700 individuals studying various parts of the program to earn the designation. Personal Insurance Service Timely, quality service, and the effi cient administration of the Company's millions of contracts, is made possible through the efforts of Metropolitan's professional sales force working with the network of computer centers and regional head offices across the United -States and Canada. Our administrative and sales per sonnel are now closer than ever be fore to policyholders, providing per sonalized service more quickly. Being closer to our policyholders is impor tant to us, for it helps us provide them with the quality service they expect and deserve. When Metropolitan became a multi line organization by establishing M.P.L; and by adding properly and liability insurance coverage to its portfolio, the objective was to further broaden service to policyholders. The inclusion of these new insurance products allows sales representatives to provide an individual or family poli cyholder with the major coverages required in today's society,v._ With the temporary exception of automobile insurance in Massachu setts. Metropolitan property and liabil ity insurance is presently available in all the-New England States as well as in Arizona. California, Colorado, Dela ware, Ohio, Oregon, Utah, Washing ton and part of New York. By 1981, M.F.L. will be operational in most states. Looking Ahead Several years ago, Metropolitan elected to convert its operation from the home collection of insurance premiums to direct payment by mail and to concentrate on selling new, improved insurance products. Metropolitan's change in direction was largely set by policyholders' and the general public's desire to handle their business matters in the most modern and convenient ways pos sible. Metropolitan's personal insurance operation will continue to create prod ucts to meet the changing needs of its customers and will add to its serv ice capacities by developing highly qualified administrative and market ing people. Metropolitan's group insurance and pensions operation recorded both sales, and service improvements in 1976. The following are the year's highlights: Group life insurance sales were up 6.5 .percent, with the in-force figure rising_ 10.8 percent to $139 4 billion, continuing the Company's industry leadership in this important form of coverage. Noteworthy advances were made in dental insurance sales, with 3.4 million people covered under Metro politan group dental plans in 1976. Pension sales continued on a high level, totaling $402.9 million, and group pension income went over $t billion for the second consecutive year. Group Products Metropolitan was a pioneer in provid ing group insurance coverage having placed its first group life policy on its own 17,500 workers in 1914. Group coverage now is offered in three broad areas: group life insur ance; group health insurance; and group pensions. An extensive choice of benefits is available within eachirtajor category. Group life, for instancer'offers income benefits for survivor^and'benefits for dependents as well as the customary death benefits. The wide spectrum of benefits avail able under Metropolitan's group health protection includes coverage for loss of pay, hospitalization, sur gery, major medical expense, dental care, prescription drug charges and vision care. Under Metropolitan's group pen sion portfolio are the many forms of pension contracts needed to service policyholders as well as profit-sharing plans and savings and investment plans with varied benefits. Pension funds are invested in the Company's general account or in special ac counts such as common stock, mar ketable bond, special situations or real estate accounts. Metropolitan's group coverage in cludes employer-employee plans for firms with 50 or more employees; plans for firms with2to49employees; plans to provide independent dealers handling the marketing operation of a business with the same kind of pro tection enjoyed by the firm's em ployees; cre'ditor plans to help pay off loans in the event of the borrower's death or total disability; and mortgage redemption plans to pay off the mort gage in the event of the insured's death or to help meet monthly pay ments during total disability. Group Insurance Customers Metropolitan insures more than 5,000 businesses, with more than 11 mil lion covered employees. A significant number of Metropolitan's prominent group accounts have been customers for half a century or more, since the period when group insurance was in its infancy. Many of the businesses are household names. -Group Insurance Service One of the major factors contributing to Metropolitan's long-term associa tion with group policyholders is its continuing high level of service The efficient settlement of claims is a particularly important element of group service. As a result of the reor ganization and relocation of facilities and the adoption of modern compu terized systems, the Group Department in 1976 was able to process 20.8 million claims with greater dispatch than ever before. Group claims servicing has been realigned on a zonal basis, with group claims-paying and administrative fa cilities installed throughout the coun try, bringing service much closer to those we serve. This system now has more than 20 locations, and the much more localized service has been wel comed by group customersi"-_ The system is further strengthened by the use of the latest teclj/rological advances in computer processing of claims, allowing quicker service and helping to eliminate errors. Compu ters also have helped contain or re duce overall costs to customers by improving our capability to determine customary and reasonable medical charges in given geographical areas, and by helping us to evaluate medical expenses and to verify the appropri ateness of treatment under accepted standards of medical practice. Metropolitan's group representa tives. professional specialists in their field, also play a major role in the serv ice operation and are constantly on call to give technical advice, expedite claims and assist customers in what ever manner requested. Looking Ahead The Group Department's planning process includes periodic updating of its products and service operations to meet the current and future needs of customers. It was this planning which put Metropolitan in the forefront in the development of pension plans and in providing dental and vision care cov erage. The Company expects the high level of pension plan activity to con tinue. Requirements of the Employee Retirement Income Security Act of 1974 have necessitated the modifica tion of many pension plans and Met ropolitan has provided full assistance to its contractholders, including a comprehensive manual called "A Guide to ERISA," to help them follow the law and make required changes. The Company's excellent invest ment record, together with its ad vanced administrative and servicing procedures, makes it particularly ap pealing to pension plan trustees and administrators. The Company anticipates growth in sales of all group products currently in its portfolio and foresees particular ly rapid growth jn the sale of dental coverage. Metropolitan will also be providing more and more vision care protection in the future as a result of a recent contract settlement providing this benefit to autoworkers. Metropolitan has been selected as the carrier for one large vision care plan covering 600,000 employees and an estimated 1.2 million dependents effective July 1. 1977. Metropolitan's regionally oriented head office system became fully op erational in 1976, one year after the Company's network of computer cen ters was completed. By 1976 head office facilities were located in Tampa, Fla., Tulsa, Okla., Johnstown, Pa., DaytohjOhio, Aurora. III., Warwick, R.I., 'iiew York City (there are two headirffice operations in New York), San Francisco, Calif., and Ottawa, Canada. The head office concept had its origin in San Francisco and Ottawa over 50 years ago when offices were established in those two cities to sup plement the activities of the home of fice in New York City. Each head of fice is designed to provide faster serv ice to policyholders as well as to sales representatives in its geographic area. In 1976 Metropolitan had computer centers in Greenville, S.C., Ottawa, Canada, Scranton, Pa., and Wichita, Kans., as well as in New York City. Electronic evolution at Metropolitan has been rapid, particularly since 1970 when installation of the Com pany's present vast and dispersed computer network began. These com puter centers now form a complex of people, hardware, and programs that ensures quick and accurate service to policyholders and customers. 1. Donald A. Odell, Senior Vice-President 2. Jean-Pierre Maurer, President-- Canadian Operations Canadian Head Office 3. Joseph J. Guiffre, Vice-President Mideastern Head Office 4. Matthew W. Galbraith, Vice-President New England Head Office 5. Stephen T. Bow, Vice-President Midwestern Head Office 6. Paul J. Pittenger, Vice-President Eastern Head Office .7. James B. Ross, Senior Vice-President 8 Rudolph Michaud, Vice-President Southeastern Head Office 9. Charles N. Armstrong, Vice-President Atlantic Head Office 10. James R. Flynn, Vice-President Great Lakes Head Office 11. Francis P. Lynch, Vice-President Central Head Office 12. Marvin T. Benson, Senior Vice-President Western Head Office 13. Richard J. Conlan, Senior Vice-President and members of the compuler center management teams in: 14. Ottawa, Ont., Canada 15. Scranton, Pa. 16. Greenville, S.C. 17. Wichita, Kans. 18. J. Albert Burgoyne. Chairman of the Board and Chief Executive Officer Metropolitan Property and Liability Insurance Company r, r t t Atlantic Territory Canadian Territory Central Territory Eastern Territory Great Lakes Territory Mideastern Territory Midwestern Territory New England Territory Southeastern Territory Western Territory Ottawa, 0m,, Canada Canadian Head Office Computer Came' Warwick. R.l. New England Head Oliice Metropolitan Property end Liability insurance Company Naw York. N.Y. Home Office Atlantic Head Office Eastern Head Office Scranton, Pa. Computer Center Johnstown, Pa. Mtdeastern Head OKtce Dayton, Ohio Midwestern Head OU<ce Aurora. 111. Great tares Head O't-ct Greenville. S.C. CcmpjiiM CY"te- Tampa. Fia Scjir.eas'em ^ac Zn * ./ .-i-c-f'N |6.' & 'V- ..- <, ...' Rdfe.'' agrm^SaKtah# .*$5***-# Ka^ar""' < inveclrr.snts In 1976. Metropolitan's new long-term investments totaled S3.9 billion, an in crease of $1.15 billion over the prior year. Net income from investments (other than separate account hold ings) was $2.23 billion, a new high for the Company. The rate of return on new investments--only slightly less than the record 1975 result--was a satisfactory achievement in light of the generally lower long-term interest rates which prevailed during the year. The rate earned on all invested assets before federal income taxes ad vanced to 6.65 percent, an improve ment over 1975 of 24 basis points. The aggregate amtftiQ) of new long term investments in^uded $2.55 bil lion of bonds (debt-securities) and preferred slocks, anil $756 million of real estate and mortgages. The vol ume of new bond purchases exceeded any prior year's effort by a very sub stantial amount, whereas the real es tate and mortgage component was, as the Company has pointed out for some time, at a low level because of continuing conditions of real estate over-capacity in most areas of the country. Debt Securities Investments Generally, the need for business to ob tain long-term capital for plant expan sion and working funds influences the volume of the corporate lending pro gram. While the year witnessed an extension of the economic recovery that began in 1975, the improvement was relatively slow after the first quar ter, and capital demand for growth purposes seemed to be constrained by the economic climate and an atti tude of caution on the part of the busi ness community. Accordingly, Metropolitan looked to a wider range of outlets for quality long-term bond investments. Continu ing emphasis was placed on financing selected resource and energy proj ects in the United States and Canada and on refundings of outstanding bor rowings. A greater spectrum of longer and shorter term bond maturities was purchased for the portfolio and a larger than normal amount of new bond investments included securities to be acquired at some definite date in the future. Further, a number of cor porate names were added to the in vestment portfolio for the first time. Long-term interest rates exhibited a declining trend during 1976, par ticularly in the final weeks of the year. An active bond investment program during the earlier months of 1976 pro vided attractive portfolio opportuni ties not only for 1976, but also, through the technique of forward com mitment. for subsequent years. Most of Metropolitan's bond investments represent direct placements (pur chases) as compared with open-mar ket purchases. This method involves direct negotiation of the principal terms and provisions of debt securi ties and affords a relatively high de gree of flexibility in meeting the needs of the borrower and the investor Mortgage and Real Estate Investments Mortgage and real estate investments made in 1976 reflected for the most pari commitments entered into some years earlier. New loans underwritten during the year were relatively few The low point in the Company's mon gage and real estate investment ac tivity may well have been reached m 1976-1977, and it now appears there will be a resumption in building, carticularly housing, that leads to an -in crease in mortgage loan demand co< the time being, however, the out ock for mortgage lending on comme-ca properties, which typically make ,,r the bulk of new investment active, a one of continued modest dimens c-s Metropolitan also makes farm a~c ranch mortgage loans, primarily m - central and western United Sia'es and new loans of this kind toi3 ec $163 million in 1976, a record amount for any one year. Other Investment Opportunities Additional long-term investments were made in Metropolitan Property and Liability Insurance Company, and an initial capital investment was made in the newly-formed Metropolitan In surance and Annuity Company. Common stocks held in general and separate accounts performed well in 1976, although the rate of apprecia tion was not as strong as in 1975, which was a recovery year from se verely depressed levels. New Canadian currency, invest ments amounted to $140 rrofion, in cluding $121 million in bonde-rffid $19 million in mortgages and reSI estate. investment Portfolio The taole below shows the principal elements of our investment portfolio as at the end of 1976 Amount % Total (Billions) Assets Debt Securities Real Estate and Mortgage Investments* $19.0 12.6 50.7 33.4 Common Stocks 0.9 2.5 Real estate and mortgage investments include $833 million of farm and ranch mortgages. Metropolitan's separate account business, consisting primarily of com mon stock investments, is not reflected in the above table. The experience of the past year confirmed our belief that it is neces sary to be active in various major in vestment markets. During a time when real estate and mortgage markets were, and remain, slack. Metropolitan was able to fulfill its investment objec tives largely through bond purchases. There have been times when the re verse situation has existed, and the majority of new investments were in mortgages. Metropolitan is not limited to any one investment market, or to a limited range of them, but is equipped to make and manage numerous different classes of investments. As a result, policyholders gain through realization of good returns on a diver sified portfolio. Managing the Portfolio While it is important to discuss the re sponsibilities of the individual invest ment divisions in making new invest ments for the benefit of policyholders, mention should also be made of the equally important effort expended in the administration of the investment portfolio. A quality approach to invest ments does not cease with the placing of a particular investment on the books. Examples of this effort can be seen in all the categories of invest ments. For the bond portfolio, this effort can involve an ongoing review of the financial results of the more than 900 corporations making up this portfolio, and keeping in contact with their man agements in order to better under stand their business and respond to their future needs. For real estate and mortgage in vestments, this effort means having the Company's regional offices work ing within a loan correspondent sys tem. These local offices are able to monitor the progress of loans and prpperties in a highly efficient manner. For the farm and ranch mortgage portfolio, the capacity to have knowl edgeable Metropolitan people in the field is the key element in effective management. For common stock investments, proper direction entails having a closely knit team of portfolio man agers and analysts engaged in a daily review of holdings within an overall framework of longer range investment objectives. Close attention to the administra tion of all existing portfolios is essen tial to maintaining the sound condi tion of Metropolitan investment assets. (Summarized from the Annual Statement filed with the Insurance Department of the State of New York) Assets Bonds: United States, Canadian, and other government Provincial, municipal, and public agencies........ Industrial and commercial.................................. Public utility ....................................................... Railroad ............................................................. December 31 1976 1975 (in Thousands) $ 1,527,183 541,929 13,030,110 3,400,505 533,535 19,033,262 $ 1>339.509 1-298,081 111739.703 3,333.933 492.586 17,203,812 Stocks: Preferred or guaranteed Common: Subsidiaries............ Other ...................... 556,124 422,300 928,399 1,906,823 549,081 184.799 789,303 1,523,183 Mortgage Loans on Real Estate: Residential, commercial, and industrial Farm and ranch ................................... 10,996,674 832,724 11,829,398 11,228.517 774.358 12,002,875 Real Estate: Housing projects and other real estate acquired for investment Properties for Company use..................................................... Other properties . ............................................................... 405.061 163,536 155,184 723,781 422,470 128,235 109.364 660,069 Policy Loans ........................................................................................... Cash and Bank Deposits..................................................................................... Premiums Due and Deferred............................................................................... Investment Income Due and Accrued............................................................... Other Assets ........................................................................................................ Separate Account Business ............................................................................... 1,589,161 69,799 681,889 515,410 158,722 993,271 1,568,399 90,296 693,752 456,815 154,359 784,272 Total Assets $37,501,516 $35,137,832 Assets included above amounting to $1,668,194,000 and $1,586,652,000 at December 31, 1976 and 1975, respectively, are deposited with various public officials and trustees under the requirements of law or regulatory authorities. See accompanying Notes to Financial Statements. Liabilities and Contingency Reserves Statutory Policy Reserves: Life insurance and annuity reserves.............................. Accident and health and aviation reinsurance reserves December 31 1976 1975 (in Thousands) v 329.414,865 222.414 29,637,279 $27,878,-449 353^502 28,231,951 Policy Proceeds and Dividends Left With Company......................................... Set Aside for Dividends to Policyholders........................................................... Policy Claims Currently Outstanding................................................................. Policy Premiums Deposited or Received in Advance....................................... Other Policy Liabilities ....................................................................................... Taxes Accrued .................................................................................................... Mandatory Securities Valuation Reserve........................................................... Mortgage Loan and Real Estate Valuation Reserve......................................... All Other Liabilities ............................................................................................. Separate Account Business ............................................................................... Total Liabilities ' 1,253,509 721,520 337,034 922,520 1,747,407 83,843 282,222 61,914 191,464 992,794 36,231,506 1,196,124 669,657 434,997 659,039 1,476,180 87,752 168,055 69,612 157,179 783,840 33,934,386 Special Contingency Reserves ......................................................................... General Contingency Reserve........................................................................... Total Contingency Reserves Total Liabilities and Contingency Reserves 416,750 853,260 1,270,010 $37,501,516 400,750 802,696 1,203,446 $35,137,832 See accompanying Notes to Financial Statements. SiEiamsnt of Opar: ts 2nd Contingency Fleserves Year Ended December 31 1976 1975 (in Thousands) Income: Premiums and annuity considerations ............................................................. Net investment income ...................................................................................... Net unrealized and realized capital gains on investments in separate accounts ...................................................................................... Total Income Application of Income: Benefit payments (other than dividends) to policyholders and beneficiaries.. Additions to reserve liabilities for future payments......................................... Insurance expenses............................................................................................ Taxes (other than investment taxes): Federal income taxes...................................................................................... Other taxes...................................................................................................... Total application before dividends to policyholders and additions to contingency reserves................................................. Dividends to policyholders as approved annually by the Board of Directors.. Additions to (deductions from) contingency reserves..................................... Total Application of Income $ 5,450,389 2,256,794 77,801 $ 7,784,984 $ 3,466,388 1,929,855 997,117 247,582 113,671 6,754,613 888,076 142,295 1,030,371 $ 7,784,984 $'5,037,616 31,043,470 96,580 $ 7,177,666 $ 3,460,182 1,673,611 924,871 239,263 109,189 6,407,116 791,601 (21,051) 770,550 $ 7,177,666 Changes in Contingency Reserves: Contingency reserves at beginning of year....................................................... Additions (deductions) from application of income......................................... Net unrealized and realized capital gains on general account investments of $152,256,000 in 1976 and $131,673,000 in 1975 less increase in invest ment reserves of $106,469,000 in 1976 and $42,110,000 in 1975 ................. Change in reserve for minimum annuity valuation standards of certain states Other adjustments--net ....................................................................................... Contingency reserves at end of year................................................................. $ 1,203,446 142,295 45,787 (158,387) 36,869 $ 1,270,010 $ 1,187,389 (21',051) 89,563 (38,723) (13,732) $ 1,203,446 This statement includes Separate Account transactions. See accompanying Notes to Financial Statements. Statement of Source and A~n:;cst:on of Funds Source of Funds: Additions to reserve liabilities for future payments, deducted from income but not expended......................................................................................... Excess of income over application of income before dividends to policyholders and additions to contingency reserves............................. From dispositions and adjustments in value of general account invested assets'. Bonds and stocks..................................................................................... Mortgage loans and real estate............................................................. Other--net (principally changes in various asset and liability accounts not requiring or providing funds and net realized capital gains on general account investments)..................................................................... Total Application of Funds: Dividends to policyholders as approved annually by the Board of Directors By acquisition of general account invested assets: Bonds and stocks ....................................................................................... Mortgage loans and real estate................................................................. Net increase in general account cash and other assets............................. Net increase in separate-account assets....................................................... r-" Total Year Ended December 31 1976 1975 (in Thousands) if S 1,929,855 1,030,371 $ 1,673',611 770,550 11,658,093 989,030 7,044,079 967,041 291,534 $15,898,883 ' 757,513 $114212,794 $ 888,076 13,871,183 879,265 51,360 208,999 315,898,883 $ 791,601 8,919,857 1,147,770 162,943 190,623 $11,212,794 See accompanying Notes to Financial Statements. Payments to Policyholders and Beneficiaries (0a> m Billions o< Doliara) ' *- -* j $3$ l J Payments to Living Polieyhoibara a.m Daath Claim* 2.356 2,192 1.927 1.625 Life Insurance Issued (Oata m Billion* of Oollara) Group Poraonal Exclude* 1922 m 197D and St 650 in 1974 of Sorvicemon'a Group Ufa Insurance t' " r- INI 1IM 1170 1171 1*74 1*74 10.814 10484 15.134* ISSN 23.443* 23 684 For the Years Ended December 31,1976 and 1975 Accounting Policies The Company's financial statements are prepared on the basis of account ing practices prescribed or permitted by insurance regulatory authorities. Since the primary interest of such authorities is the ability of the Com pany to fulfill its obligations to policy holders. the financiaLstatements are oriented to the insuring public. Sig nificant aspects ofllhe accounting practices followed in the financial statements are as follows: Invested Assets and Related Val uation Reserves--Bonds subject to amortization are stated at their amor tized value, income bonds in good standing at cost, preferred or guar anteed stocks at cost (in certain in stances as adjusted), common stocks, other than those of subsidiaries, and all other bonds at market value, mort gages at amortized indebtedness, all in accordance with the valuation pro cedures of the National Association of Insurance Commissioners. Com mon stocks of subsidiaries are valued at equity of net assets. Investment real estate is stated at market value; other real estate is stated at the lower of depreciated cost or market value. Other assets are valued in conformity with the New York Insurance Law. A mandatory securities valuation re serve (required by the National Asso ciation of Insurance Commissioners) and a mortgage loan and real estate valuation reserve (established by the Company) have been included among the liabilities. Policy Reserves--Policy reserves are computed generally on the net level premium method and are based on mortality, morbidity and interest bases permitted under the insurance laws. Such reserves are sufficient to provide for contractual surrender val ues which is essential for participat ing business conducted on a mutual basis. Contingency Reserves--Since Metropolitan is a mutual company, its contingency reserves, whether re ported as special or general contin gency reserves, represent reserves held for the benefit of policyholders The special reserves relate to Group Life insurance, aviation reinsurance, and separate account business. Revenues and Expenses--Pre- mium revenues are reported over the premium-paying period. Investment income is reported as earned. Ex penses, including acquisition costs, are charged to operationsas incurred; there are no incurred expenses which are deferred for charges to future re porting periods. Pensions The Company has pension Dlans cov ering all of its eligible employees and agents and follows a policy of fund ing pension costs as they accrue. The total cost of the Company's plans for the years ended December 31 L!fe Insurance In-Force Ik ir. 8-'.-' of Oollr) Group P*front! Total Income (Ottt in Billion* of Ooltifi) ^ t-V Ntt lnv*tt<n*nl Ineomt Prtmvunt Incom* : 1.688> INI IN* 1878 1871 1874 1871 129.993 147.542 1(7.284 18S.58S 215.801 243.007 1886 1888 4.314 4 785 1878 8.208 1872 8.018 1874 8.372 1976 7.785 18M 1888 1970 1972 1874 1678 23.512 28.640 27.868 30.778 32.728 37.502 1976 and 1975 were approximately $48,300,000 and $56,400,000, re spectively. Mortgage Loans Some of the Company's investments in real estate are directly owned and operated, some are owned jointly with venture partners and operated by the partners, some are owned-jSjfitty by Metropolitan's real estate subsidiaries with venture partners and operated by the partners, and some are owned di rectly by Metropolitan's real estate subsidiaries. Many joint ventures have mortgage loans from the Company. As of December 31, 1976, the amortized value of such mortgages was approx imately $872,400,000; for 1975, the amount was $896,200,000. Metropolitan Life Insurance Company: We have examined the balance sheet of Metropolitan Life Insurance Company as of December 31,1976 and 1975 and the related statements of operations and contingency reserves and of source and application of funds for the years then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements present fairly the financial position of Metropolitan Life Insurance Company at December 31 1976 and 1975 and the results of its operations and the source and application of its funds tor the years then ended, in contormity with accounting practices prescribed or permitted by insurance regulatory authorities and generally accepted accounting principles applied on a consistent basis. New York, New York 10004 February 14,1977 - Haskins & Sells r*2ircpo!iian notes, 1976 The following are brief reports on other activities at Metropolitan during 1976. Corporate Contributions In 1976 Metropolitan disbursed over SI.7 million in contributions and awards throughout the^United States and Canada. These funds were in the form of educational grants to individ uals and universities and colleges, contributions to a variety of civic, business and cultural organizations, and donations to United Fund organi zations in hundreds of communities where Metropolitan is located. Medical Department Noting that health care costs the American public alone some $100 bil- ' lion each year, Metropolitan's Medical Department pursued its studies on va rious aspects of preventive care in 1976. Reports on such subjects as high blood pressure, alcoholism, heart disease, cancer and accidents were passed along to the general public, which was also advised of preventive measures that can be taken. The Medical Department also pro duced some timely medical papers for professional and public use. In 1976, for example, a paper entitled "Occupationally Related Emotional Problems at Age 40 and Beyond" was presented before the New York State Medical Society. This presentation was widely reported by the news me dia. Another report defended the importance of periodic physical ex aminations and also received exten sive press coverage. Since 1909, when Metropolitan pro claimed that "insurance, not merely as a business proposition, but as a social program, will be the future policy of the Company," we have, as part of that policy, fostered what is perhaps the largest corporate-spon sored health education program in the United States. in 1976, Metropolitan distributed al most 47 million pieces of health edu cation material to individuals, organ izations and schools. In addition, more than five million people viewed Metro politan health and safety education films. The Company also produced 366 public service radio spot announce ments containing suggestions on such subjects as stress, the use of pre scription drugs, nutrition and weight control, and alcoholism. Community Emergency Information By the end of 1976, thousands of communities in the United. States had access to Metropolitan's Medical Emergency Care Information Prtigram implemented through approximately 250 of the Company's field offices. Central to the program is a special packet tailored to each community with listings of local emergency and health resources, including location and telephone numbers as well as other relevant information. The pro gram is now in its 12th year. Advertising Nineteen seventy-six marked the start of the Company's fourth year of use of the corporate theme, "Metropoli tan... Where the future is now." Tele vision and radio commercials as well as print advertising projected the message that the future is upon us much too quickly and that Metropoli tan people are ready to help individ uals and families prepare for their present and future financial security. A second message emphasizes that life insurance products can and do benefit policyholders themselves-- not just beneficiaries--as evidenced by the fact that over two-thirds of all benefit payments made each year by Metropolitan go to living policyholders ($3.11 billion in 1976). The Winter Olympics, election night coverage and two entertainment spe cials featuring Olympic skating star Dorothy Hamill and singer Neil Sedaka, respectively, were among the nationally televised programs cospon sored by Metropolitan. Two public service print advertise ments were developed in 1976. The topics: early warning signs of heart attacks, and the importance of child hood'immunization. The heart attack advertisement had the distinction of generating the largest response of any such ad in the history of Reader's Digest. Equal Employment Another of Metropolitan's chief con cerns is its continuing program of pro viding full job and promotion oppor tunities to qualified members of mi nority groups and to women. In 1976 14 percent of the Company's total work force was made up of minoritygroup members. And 20 percent of the total number of college graduates hired at the Company's home office last year were minority-group mem bers. The number of women in man agement positions almost tripled in the five-year period between 1971 and 1976. Corporate Citizenship Metropolitan's Urban and Environ mental Affairs Department, one of the first such corporate divisions estab lished in the United States, completed its eighth year of operation in 1976. Serving as the coordinating and re porting unit for social and environ mental activities, the department has various concerns, among them the Company's involvement with minority groups. In this regard, Urban and En vironmental Affairs encourages Com pany purchases of goods and services from minority-group firms. In 1976, those purchases amounted to over $500,000. The department also helped to lo cate qualified minority-group vendors and encouraged deposits in minorityowned banks around the country (Metropolitan has money deposited in 35 such institutions currently). Community Service One very important aspect of corpo rate social responsibility is to be found in the activities of the many Metropoli tan people who volunteer their time and talents in the communities in which they live. Often working quietly and without seeking recognition, they become an important part of the total effort to help make this a little betier world in which to live. To honor these many employees and to encourage others to become involved, Metropolitan established the Community Service Awards Program, now going into its fourth year. Under the program four employees are se lected for recognition of their com munity activities. In 1976 Victor DiMaio, sales recresentative in the Palma Ceia Dist'1:' Office, Tampa, Fla., was the recceof the top award. Active in his ~c~e town for 25 years, Mr. DiMaic *-s cited for his substantial contnc.t ;-s to a number of civic, religious and charitable organizations. Employee Professionalism One reason why Metropolitan people can give such fine service to policy holders and the public is because of their professional training.- Of Metropolitan's almCStJ 53,000 people, more than 9,000-~Jwere en gaged in Company-designed or in dustry-sponsored professional train ing programs in 1976. This figure includes the 4,600 sales personnel involved in Life Underwriter Training Council and Chartered Life Under writer study, the 130 employees who passed one or more of the examina tions leading to designation as fel lows in the Society of Actuaries, and the 3,400 taking courses in the Life Office Management Association's ed ucation program. "So much is changing, so many forces are at work in your country, in the world, in your own life that you're not what you were yesterday, nor what you'll be tomorrow." These words of Metropolitan's President Richard R. Shinn are from the film "Horizons." Produced in 1976, the film was-designed to help career-minded employees broaden their perspectives of the Company and thus their understanding of their respective administrative or market ing tasks. "A lot of planning has gone on at Metropolitan," Mr. Shinn stated in the film. "We are going to be an aggres sive company. We have an important role in the financial world and in the country in general. ... "We are determined," he said, "to become more professional managers. We are working to have more people involved in the decision-making proc ess earlier in their careers. It is a mat ter of personalizing the Company so tha! each person understands he or she is important. People must under stand their role and feel they are par ticipating in the Company's success or failure." as of December 31,1976 Gilbert W. Fitzhugh, Rancho Santa Fe, Calif. G. Keith Funston, Greenwich. Conn. John D. Harper, Pittsburgh. Pa., Chairman of the Executive Committee, Aluminum Company of America Herbert S. Hazeltine, Los Angeles. Calif., Senior Partner. Adams. Duque & Hazeltine James R. Houghton, Corning. N.Y.. Vice-Chairman of the Board. Coming Glass Works George P. Jenkins, New York, N.Y., Chairman of the Board, Metropolitan Life Insurance Company Lewellyn A. Jennings, Washington, D.C. George E. Johnson, Chicago, III., President, Johnson Products Co., Inc. Donald P. Kircher, New York, N.Y. Melvin R. Laird, Washington, D.C., Senior Counsellor for National and International Affairs, Reader's Digest Charles F. Luce, New York, N.Y., Chairman of the Board, Consolidated Edison Company of New York, Inc. Birny Mason, Jr., New York, N.Y. W. Earle McLaughlin, Montreal, Que., Canada, Chairman and President, The Royal Bank of Canada Albert L. Nickerson, New York, N.Y. Martha E. Peterson, Beloit, Wis., President, Beloit College John B. M. Place, New York. N.Y., Chairman of the Board, President and Chief Executive Officer, The Anaconda Corripany L. Edmund Rast, Atlanta, Ga.. President, Southern Bell Telephone and Telegraph Company John P. Robarts, Toronto. Ont., Canada, Stikeman, Elliott, Robarts & Bowman -- Richard R. Shinn, New York, N.Y.. President and Chief Executive Officer, Metropolitan Life Insurance Company Gerald A. Sivage, Chicago, III. Donald B. Smiley, New York, N.Y., Chairman of the Board, R.H. Macy & Co., Inc. William S. Sneath, New York, N.Y,, President, Union Carbide Corporation Emmett G. Solomon, San Francisco, Calif., Chairman of the Executive Committee, Crocker National Bank W. Allen Wallis, Rochester, N.Y., Chancellor, The University of Rochester Robert C. Weaver, New York, N.Y., Distinguished Professor of Urban Affairs, Hunter College Walter R. Williams, Jr., Short Hills, N.J. In addition to meeting regularly as a group to review Company business, the members of the Board of Directors also contribute to Metropolitan by devoting their time and considerable talents to the Board's five standing committees. The Auditing Committee, estab lished in 1868, supervises account ing and auditing controls over cash, securities, receipts, disbursements and other financial transactions. Walter R. Williams, Jr., is the current chairman. The Compensation and Administra tion Committee, headed by John B. M. Place, is responsible for oversee ing compensation and personnel ad ministration and the activities of the Company in the interest of the health, welfare and safety of its employees. The Executive Committee, chaired by Richard R. Shinn, handles matters not specifically assigned to any other committee and considers and makes recommendations on any Companyrelated matters. The Finance Committee, presided over by George P. Jenkins, supervises the financial affairs and accounts of the Company and manages corporate assets including the purchase and sale of securities, real estate, real estate bonds, notes and mortgages and other investments, both original and extensions or modifications of in vestments. The Marketing Committee, headed bv Gerald A. Sivaqe. oversees the marketing operations of the Company. Election of Directors Metropolitan policyholders and contractholders are entitled to participate in the election of Directors held on the second Tuesday in April each year at the home office in New York City. Policyholders and contractholders with a policy or contract in force for at least one year are eligible to vote either in person or by mail. Each pol icyholder and contractholder is en titled to one vote only, regardless o( the number or amount of policies or contracts held. For a ballot or further informalion. please contact your local Metropoli tan otfice or write to the Secretary of the Company at One Madison Avenue N.Y. 10010. Metropolitan Life's Principal Offices Home Office One Madison Avenue New York. N.Y. 10010 Atlantic Head Office 340 Park Avenue South P.O. Box 499 Madison Square Station New York. N.Y. 10010* Canadian Head Office 99 Bank Street Ottawa, Ont. KIP5A3, Canada Central Head Office 12902 East 51 st Street P.O. Box 500 Tulsa, Okla. 74102 Eastern Head Office 25 Madison Avenue P.O. Box 833 Madison Square Station New York. N.Y. 10010* : Great Lakes Head Office 177 South Commons Drive Aurora, III. 60505 Mideastern Head Office 90 Lulay Street Johnstown, Pa. 15915* Midwestern Head Office 9797 Springboro Pike Dayton, Ohio 45448 New England Head Office 700 Quaker Lane P.O. Box 300 Warwick, R.l. 02887 Southeastern Head Office One Metropolitan Plaza Tampa, Fia. 33607 Western Head Office One Metropolitan Plaza 425-Market Street San Francisco, Calif. 94105 Metropolitan Property and Liability Insurance Companyt 700 Quaker Lane Warwick, R.l. 02886 Temporary quarters TA subsidiary of Melropolitan Lite For additional copies of this report, please write to Corporate Communications Metropolitan Life Insurance Company One Madison Avenue New York. N.Y. 10010