<PAGE>
April 11, 1996
Securities and Exchange Commission
450 Fifth Street
Document Control Stop 1-4
Washington, D.C. 20549
RE: Post-Effective Amendment No. 3 to Registration Statement on Form S-1:
Massachusetts Mutual Life Insurance Company (the "Registrant")
Commission File No. 33-84802.
To whom it may concern:
Transmitted via EDGAR is the Post-Effective Amendment No. 3 to Registration
Statement on Form S-1: Commission File No. 33-84802 to be used in connection
with the subject offering on a continuous basis pursuant to Rule 415 under the
Securities Act of 1933. The amendments reflect updated financial statements and
Management Discussion and Analysis. While there have been no material changes to
the provisions regarding the terms of the insurance contract, the financial
statements and the MD&A reflect the merger of Connecticut Mutual Life Insurance
Company into the Registrant, effective February 29, 1996.
Sincerely,
Richard M. Howe
Second Vice President and
Associate General Counsel
1
<PAGE>
April 11, 1997
Securities and Exchange Commission
510 Fifth Street, N.W.
Washington, D.C. 20549
RE: Post-Effective Amendment No. 3 to Registration Statement on Form S-1
Massachusetts Mutual Life Insurance Company (the "Registrant")
Commission File No. 33-84802
----------------------------
Dear Sir or Madam:
Pursuant to Rule 461 of the Securities Act of 1933, the undersigned hereby
requests that the effectiveness of the above captioned registration statement be
accelerated to May 1, 1997.
Massachusetts Mutual Life Insurance Company
On behalf of and as Depositor of the Registrant
By: Thomas B. Wheeler*
----------------------------------
Thomas B. Wheeler
Chairman and Chief Executive Officer
Senior Vice President
MML Distributors, LLC
By: Kenneth M. Rickson
------------------------------------
Kenneth M. Rickson
President and Chief Operating Officer
/s/ Richard M. Howe On April 11, 1997, as Attorney-in-Fact pursuant to
- -------------------- powers of attorney filed herewith.
*Richard M. Howe
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION 33-84802
Washington, DC 20549
-------------------------------------
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 3
Under
The Securities Act of 1933
--------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
-------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1590850
----------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
63
-------------------------------
(Primary Standard Industrial Classification Code Number)
1295 State Street
Springfield, Massachusetts 01111
----------------------------------
(413)744-8441
(Address, including zip code, and
telephone number, including area
code, of registrant's principal executive offices)
Lawrence V. Burkett, Jr.
Executive Vice President General Counsel
Massachusetts Mutual Life Insurance Company
Springfield, MA 01111
(413) 744-8891
(Name, address and telephone number of agent for service of process)
-------------------------------------
Approximate date of commencement
of proposed sale to the public: May 1, 1997
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933
check the following box. [X]
---
3
<PAGE>
PROSPECTUS
May 1, 1997
Massachusetts Mutual Life Insurance Company
Fixed Account with Market Value Adjustment
Offered through OppenheimerFunds LifeTrust Variable Annuity
This prospectus (the "Prospectus") describes Massachusetts Mutual Life Insurance
Company's ("MassMutual" or the "Company") Fixed Account (the "Fixed Account")
with Market Value Adjustment. The Fixed Account is available for use with
OppenheimerFunds LifeTrust variable annuity contract (the "Contract") issued by
MassMutual. The Fixed Account constitutes an account to which a Contract Owner
may allocate purchase payments or Accumulated Value in accordance with the
Contract's transfer rules. Since the Fixed Account is available only through the
Contract, an investor should carefully review the discussion of the Contract
contained in that prospectus, the Contract prospectus. The focus of this
Prospectus is limited to the Fixed Account's operations and features.
MassMutual guarantees specified rates of interest for amounts allocated to the
Fixed Account for specified periods of time. The interest rate stipulated for a
particular period (the Guaranteed Rate) is an annual effective yield.
Additionally, although Guaranteed Rates will fluctuate, they will never go below
3%. MassMutual's assets, including amounts allocated to the Fixed Account are
available to meet the guarantees associated with the Fixed Account. These assets
are chargeable with liabilities arising out of other business of the Company.
Purchase payments and transfers of Accumulated Value may be made among the Fixed
Account and the Divisions of Massachusetts Mutual Variable Annuity Separate
Account 3 (the "Separate Account").
Amounts taken from the Fixed Account by partial or full redemption, received
from payment of a death benefit following the death of the Contract Owner who is
not the Annuitant, and transfers made prior to an Expiration Date are subject to
a Market Value Adjustment. In certain circumstances, a Contract Owner may
experience a negative investment return.
The annuity benefits available under the Contract may be either fixed or
variable amounts or a combination of both. The Accumulated Value prior to
maturity and the amount of any variable annuity payments thereafter will vary
with the investment performance of the Divisions selected and the amounts
allocated to the Fixed Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE PROSPECTUSES OF MASSMUTUAL'S
OPPENHEIMERFUNDS LIFETRUST VARIABLE ANNUITY, MML SERIES INVESTMENT FUND, AND
OPPENHEIMER VARIABLE ACCOUNT FUNDS.
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
(413) 744-8441
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Glossary.................................................................. 3
I. Product Description............................................... 4
The Fixed Account and the Market Value Adjustment Feature......... 4
Market Value Adjustment........................................... 4
Accumulation Period of a Contract................................. 5
Establishment of the Guaranteed Rate.............................. 5
The MVA's Applicability on Redemptions............................ 5
II. Investments by MassMutual......................................... 6
III. Distribution of Contracts......................................... 6
IV. Federal Taxation Discussion....................................... 6
V. Accounting Practices.............................................. 6
VI. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7
Summary........................................................... 7
General........................................................... 7
Total Company - Results of Operations............................. 8
Analysis of Results of Operations by Line of Business............. 11
Statement of Financial Position................................... 14
Liquidity and Capital Resources................................... 15
Inflation......................................................... 15
Investments....................................................... 16
VII. MassMutual Description of the Business............................ 23
Individual Line of Business....................................... 23
Pension Management................................................ 24
Life and Health Benefits Management............................... 25
Investment Management............................................. 25
Regulation........................................................ 25
VIII. Directors and Executive Vice Presidents of MassMutual............. 27
IX. Executive Compensation............................................ 29
X. Experts, Legal Proceedings and Additional Available Information... 33
Experts........................................................... 33
Legal Proceedings................................................. 33
Additional Available Information.................................. 33
XI. Selected Financial Data........................................... 33
Audited Financial Statements...................................... 42
</TABLE>
2
<PAGE>
Glossary
As used in this Prospectus, the following terms mean:
Accumulated Amount: For each amount credited to a Segment of the Fixed Account
the Accumulated Amount on any date is the amount credited to the Segment
accumulated to that date at the Guaranteed Rate for that amount.
Accumulated Value: The value of a Contract on or prior to the Maturity Date
equal to the Variable Value plus the Fixed Value.
Accumulation Period: The period prior to the Maturity Date, during the lifetime
of the Annuitant and Owner.
Accumulation Unit: A unit of measurement used in determining the value of
amounts credited to a Contract in a Division of the Separate Account on or prior
to the Maturity Date.
Annuitant: The person on whose life the Contract is issued.
Beneficiary: The person(s) or entity(ies) designated by the Contract Owner to
receive a death benefit under the Contract, if any, upon the death of the
Contract Owner or the Annuitant.
Cash Redemption Value: The value of a Contract which a Contract Owner will
receive if the Contract is redeemed, equal to Accumulated Value less
Administrative Charges, Sales Charges, premium taxes, and a Market Value
Adjustment, if any such charges are applicable.
Contract: The OppenheimerFunds LifeTrust Variable Annuity contract issued by
MassMutual.
Contract Owner(s): The owner (and in some instances the owners) of a Contract.
Contract Owners may include the Annuitant, an employer, a trust, or any entity
specified in an employee benefit plan.
Division(s): A sub-account of Massachusetts Mutual Variable Annuity Separate
Account 3, the assets of which consist of shares of a specified Fund of either
the MML Series Investment Fund or the Oppenheimer Variable Account Funds.
Expiration Date: The Date on which the Guarantee Period for an Accumulated
Amount ends.
Fixed Account: An account which pays interest at a Guaranteed Rate. If such
amounts are withdrawn prior to the end of the Guarantee Period, a Market Value
Adjustment will be made. Assets attributable to the Fixed Account are not
included in assets which are allocated to the Divisions of the Separate Account.
Fixed Value: On any date, the Fixed Value of the Contract is the sum of the
Accumulated Amounts credited to all Segments of the Fixed Account.
Funds: The separate series of shares of Oppenheimer Variable Account Funds and
MML Series Investment Fund, both of which are open-end, diversified management
investment companies, registered with the Securities and Exchange Commission, in
which the Divisions of the Separate Account invest.
Guarantee Period: The period for which interest accrues at the Guaranteed Rate
on an amount credited to a Segment. Guarantee Periods range in whole-year
periods from one to ten years.
Guaranteed Rate: The effective annual interest rate MassMutual uses to accrue
interest on an amount credited to a Segment as of a certain date. Guarantee
Rates are level for the entire Guarantee Period and are fixed at the time an
amount is credited to the Segment.
Market Value Adjustment ("MVA"): An adjustment made to the amount that the
Contract Owner will receive if money is taken from an Accumulated Amount prior
to the Expiration Date of its Guarantee Period.
Maturity Date: The date designated by the Contract Owner as of which Variable
Monthly Income payments (or, if elected, Fixed Income payments or a payment in
one sum) will begin. This date may be no later than the Annuitant's 90th
birthday (unless an earlier date is required by law.)
Purchase Payment: An amount paid to MassMutual by, or on behalf of, the
Annuitant.
Segment: All Guarantee Periods of a given length constitute a Segment. Segments
for all Guarantee Periods may not be available at one time.
Service Center: The office at which the administration of the Contract occurs.
Valuation Date: A valuation date is any date on which the net asset value of the
shares of the Funds is determined. Generally, this will be any date on which the
New York Stock Exchange (or its successor) is open for trading.
Valuation Period: The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
Valuation Time: The time of the close of the New York Stock Exchange (or its
successor) (currently 4:00 p.m. New York time) on a Valuation Date. All actions
to be performed on a Valuation Date will be performed as of the Valuation Time.
Variable Monthly Income: A benefit providing for monthly payments that vary
with, and reflect the investment performance of, one or more Divisions of the
Separate Account.
Variable Value: On any date, the Variable Value of a Contract is the sum of the
values of the Accumulation Units credited to each Division of the Separate
Account. The value in each Division is equal to the Accumulation Unit Value
multiplied by the number of units in that Division You own.
You or Your refers to the Contract Owner.
3
<PAGE>
I. Product Description
The investment option described in this Prospectus is a Fixed Account with
Market Value Adjustment ("MVA") available in conjunction with the Contract
offered by Massachusetts Mutual Life Insurance Company ("MassMutual"). As is
also discussed in the Contract prospectus, the Contract provides for the
accumulation of values prior to maturity and for the distribution of annuity
benefits thereafter. Additionally, a death benefit is also available under the
Contract. The earnings on deposits allocated to the Fixed Account will have an
impact on the Contract's Accumulated Value, its Maturity Value, its Cash
Redemption Value and the death benefit. The Contract is described in greater
detail in its prospectus. Investors should review the Contract prospectus in
conjunction with this prospectus before deciding whether to invest in the
Contract or allocate sums to the Fixed Account. The Fixed Account is not
available in all states.
A Market Value Adjustment will be made if sums are withdrawn from the Fixed
Account prior to their Expiration Date.
The Fixed Account and the Market Value Adjustment Feature
The Fixed Account is available during the Accumulation Period of the Contract.
(See, Accumulation Pay-in Period of the Contract prospectus.) The Fixed Account
offers different Guarantee Periods, which provide the option of earning interest
at various Guaranteed Rates on all or a portion of Your Accumulated Value.
Please note that amounts credited to a Guarantee Period at different times may
have different Guaranteed Rates, Current Rates, and Expiration Dates since
MassMutual changes the Current and Guaranteed Rates periodically.
You may allocate purchase payments or transfer all or a portion of Your
Accumulated Value to the Fixed Account. Amounts credited to the Fixed Account
will earn interest at the Guaranteed Rate applicable for the Guarantee Period
selected on the date the amounts are credited. The applicable Guaranteed Rate
does not change during the Guarantee Period. The Guaranteed Rate may never be
less than 3%. Allocations to a Guarantee Period (or Segment) must be for at
least $1,000. The Accumulated Value of the Fixed Account is not guaranteed
against the claims of the Company's creditors.
Guarantee Periods may be available in periods of one to ten years. To the extent
permitted by law, we reserve the right at any time to offer Guarantee Periods
that differ from those available when Your Contract was issued. We also reserve
the right, at any time, to stop accepting purchase payments, transfers, or
renewals for a particular Guarantee Period. Since the specific Guarantee Periods
available may change periodically, please contact the Service Center to
determine the Guarantee Periods currently being offered.
Market Value Adjustment
Any withdrawal of Your Accumulated Amount will be subject to a Market Value
Adjustment ("MVA") unless the effective date of the withdrawal is within 30 days
prior to the end of a Guarantee Period. If the allocated amount remains in the
Fixed Account until the applicable Expiration Date, its value will be equal to
the amount originally allocated multiplied, on a annually compounded basis, by
its Guaranteed Rate. For this purpose, redemptions, transfers, death benefits
based on a Contract Owner's death (where the Contract Owner and the Annuitant
are different), and maturity amounts are treated as withdrawals. An MVA will not
be applied upon the payment of a Death Benefit following the death of the
Annuitant. The MVA will be applied to the amount being withdrawn, after the
deduction of any applicable Administrative Charge and before the deduction of
any applicable Sales Charge. The MVA can be positive or negative. The amount
being withdrawn after application of the MVA can therefore be greater than or
less than the amount withdrawn before the application of the MVA.
The MVA will reflect the relationship between the Current Rate (as defined
below) for the Accumulated Amount being withdrawn and the Guaranteed Rate. It
also reflects the time remaining in the applicable Guarantee Period. Generally,
if the Guaranteed Rate is lower than the applicable Current Rate, then the
application of the MVA will result in a lower payment upon withdrawal.
Similarly, if the Guaranteed Rate is higher than the applicable Current Rate,
the application of the MVA will result in a higher payment upon withdrawal.
The Market Value Adjustment which is applied to the amount being withdrawn is
determined by using the following formula:
n
------
1 + i 365
MVA = Amount x [(--------) - 1]
1 + j
where,
Amount is the amount being withdrawn from a given accumulated amount less any
applicable administrative charges.
i, is the Guaranteed Rate being credited to the Accumulated Amount subject to
the MVA; and
j, the "Current Rate," is the Guaranteed Rate, available as of the effective
date of the application of the MVA, for current allocations to the Segment with
a Guarantee Period equal to the time remaining to the Expiration Date for the
amount being withdrawn rounded to the next higher number of complete years;
and
n, is the number of days remaining in the Guarantee Period of the amount subject
to the MVA.
In the determination of "j," if the Company currently does not offer the
applicable Segment, we will determine "j" above by interpolation or
extrapolation of the Guaranteed Rate for the Guarantee Periods then available.
EXAMPLES
The following examples illustrate how the MVA operates on amounts held in a
particular Segment:
Example 1
$1,000 is applied on May 10, 1994, into a Segment with a 5 year Guarantee
Period. The Guaranteed Rate for amounts applied to the Segment on May 10, 1994,
is 6%. If the $1,000 is left in that Segment until May 10, 1999, it will
accumulate at a 6% effective annual rate of interest for the full 5 years to
$1,338.23.
4
<PAGE>
If, however, the full amount is taken from the Segment as of May 10, 1998:
(1) The Guaranteed Rate applied on May 10, 1998 to amounts credited to a 1-year
Segment is 4%; and
(2) The accumulated amount prior to the application of
MVA as of May 10, 1998 equals:
$1,000 x 1.06/4/ = $1,262.48
(3) The number of days remaining = 365 (n = 365), and
(4) The MVA equals $24.28, and is calculated according to the following
formula:
365
---
1.06 365
$24.28 = $1,262.48 x [(-------) - 1]
1.04
The market value for the purposes of surrender on May 10, 1998, of the amount
credited to the 5-year segment on May 10, 1994, is therefore equal to $1,286.76
($1,262.48 + $24.28).
Example 2
$1,000 is applied to a 7-year Segment on May 10, 1992, with a Guaranteed Rate of
5% and will accumulate to $1,407.10 if left in the Segment until May 10, 1999.
If, however, the full amount is taken from the Segment as of May 10, 1995:
(1) The Guaranteed Rate applied on May 10, 1995 to amounts credited to
a 4-year Segment is 10%; and
(2) The accumulated amount prior to the application of
MVA as of May 10, 1995 equals:
$1,000 x 1.05/3/ = $1,157.63
(3) The period of time from May 10, 1995 to the end of the Guarantee
Period is 4 years or 1460 days
(n = 1460);
(4) The MVA equals $-196.56 and is calculated according to the
following formula:
1460
----
1.05 365
$ -196.56 = $1,157.63 x [(------) - 1]
1.10
The market value for purposes of surrender on May 10, 1995, of the amount
credited to the 7-year Segment on May 10, 1992, is therefore equal to $961.07
($1,157.63 - $196.56 = $961.07).
THE EXAMPLES SET FORTH ABOVE ARE HYPOTHETICAL AND ARE NOT INDICATIVE OF FUTURE
OR PAST PERFORMANCE.
Accumulation Period of a Contract
Variable annuities are designed to permit a Contract Owner to accumulate values
over a period of time. Generally, a Contract Owner will use such accumulated
values for long term needs such as retirement planning. Accordingly, in many
instances, amounts allocated to the Fixed Account will be subject to several
Guarantee Periods over the life of the Contract.
The end of a Guarantee Period for a specific amount credited to a Segment is
called its Expiration Date. At least 45 days, but not more than 75 days, before
the Expiration Date for an Accumulation Amount, we will inform You of the
Guaranteed Rates being offered and the Guarantee Periods available as of the
date of such notice. The Guaranteed Rates on the date of a renewal may be more
or less than the rates quoted in such notice.
The Guarantee Period normally "renews", and in the absence of instructions on
the Expiration Date, we begin crediting interest for a new Guarantee Period
lasting the same amount of time as the one just ended. The Accumulated Amount
then earns interest at the new Guaranteed Rate applicable at the time of
renewal. You may choose different Guarantee Periods from among those we are then
offering, or You may transfer all or a portion of the Accumulated Amount to the
Separate Account.
If Your Accumulated Amount's Segment is no longer available for new amounts
credited, or You choose a different Segment that is no longer available, we will
try to reach You so that You may make another choice.
If a choice is not made at this point, the Segment with the next shorter
Guarantee Period available will be used and if not available, the Segment with
the next longer Period will be used.
Establishment of the Guaranteed Rate
MassMutual will make the final determination concerning future Guarantee Rates
for future deposits, transfers or renewals. Although we cannot predict future
Guarantee Rates, such Guarantee Rates will never be less than three percent (3%)
per annum.
The MVA's Applicability on Redemptions
An MVA will apply if a partial or full redemption of the Contract is made prior
to an Expiration Date. Where a redemption occurs, the Accumulated Value of the
Contract will be reduced by the amount surrendered from the Fixed Account prior
to any MVA.
The Cash Redemption Value may also be subject to Contingent Deferred Sales
Charges ("Sales Charges") under the Contract pursuant to the schedule which
follows:
<TABLE>
<CAPTION>
Year Since Payment Sales Charge Assessed
<S> <C>
1st 7%
2nd 6%
3rd 5%
4th 4%
5th 3%
6th 2%
7th 1%
</TABLE>
We make this adjustment for Sales Charges since we make no deduction for Sales
Charges when a purchase payment is
5
<PAGE>
received. The amount of Sales Charges is computed based on the date the
particular payment is received into the Contract.
Purchase Payments redeemed after year 7 are not subject to Sales Charges.
Amounts in the Fixed Account, however, continue to be subject to a Market Value
Adjustment. For more information concerning the application of Sales Charges,
please consult the Contract prospectus.
Please note that certain charges are imposed against the Contract, including
mortality and expense risk and administrative charges. For a more detailed
explanation of applicable charges, please see the "Charges and Deductions"
sections of the Contract Prospectus.
II. Investments by MassMutual
Assets of MassMutual must be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments.
Proceeds from the Fixed Account will be deposited in a non-unitized segment of
MassMutual's general account organized as a Separate Account for accounting
purposes. Proceeds will be used to fund MassMutual's obligations under the
Contract and amounts not required to fund such obligations may accrue to
MassMutual as profit. Obligations under the Contract are also met through the
operation of the Divisions to which a Contract Owner has allocated Accumulated
Value. All assets of MassMutual would be available to meet the guarantees under
the Contracts.
In establishing Guaranteed Rates, MassMutual intends to take into account the
yields available on the instruments in which it intends to invest the proceeds
from the Contracts. MassMutual's investment strategy with respect to the
proceeds attributable to allocations made to the Fixed Account will generally be
to invest in investment-grade debt instruments having durations tending to match
the applicable Guarantee Periods.
III. Distribution of Contracts
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), 1414 Main
Street, Springfield, MA 01144-1013, a wholly-owned subsidiary of MassMutual,
acts as the principal underwriter of the Contracts. Prior to May 1, 1996, MML
Investors Service, Inc. ("MMLISI"), also located at 1414 Main Street,
Springfield, MA 01144-1013, served as the principal underwriter of the
Contracts. MML Distributors is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. (the "NASD"). The maximum commission a broker-dealer
will receive for selling a Contract is 6.25%.
MML Distributors may enter into selling agreements with other broker-dealers
which are registered with the Securities and Exchange Commission and are members
of the NASD ("selling brokers"). The Contracts are sold through agents who are
licensed by state insurance officials or sell the Contracts. These agents are
also registered representatives of selling brokers. Contracts with the Fixed
Account are offered in a limited number of states where MassMutual has received
authority to write modified guarantee annuity business and the Fixed Account and
the Contracts have been approved.
Additionally, Contracts are offered through Oppenheimer's distribution network,
Oppenheimer Funds Distributor, Inc. ("OFDI"). OFDI, Massachusetts Mutual
Variable Annuity Separate Account 3, MassMutual and MML Distributors have
entered into an agreement pursuant to which OFDI has agreed to promote sales of
the product through wholesale distribution arrangements with broker-dealers.
Registered representatives of the particular broker-dealer, who are also
properly licensed to sell MassMutual products may make such sales.
From time to time, OFDI may enter into special arrangements with broker-dealers
which may provide for the payment of higher compensation to such broker-dealers
in connection with the sale of Contracts. Prospective purchasers of the
Contracts will be informed of such arrangements prior to the completion of the
sale of the Contracts.
IV. Federal Taxation Discussion
Please consult the Contract prospectus for a discussion of the tax status of the
Contract.
V. Accounting Practices
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with accounting practices of the National Association of
Insurance Commissioners (NAIC) and the accounting practices prescribed or
permitted by the Division of Insurance of the Commonwealth of Massachusetts and
prior to the effective date of the merger with Connecticut Mutual, the Insurance
Department of the State of Connecticut ("statutory accounting practices"), which
practices were considered to be in accordance with generally accepted accounting
principles ("GAAP") for mutual life insurance companies prior to 1996. In 1993,
the Financial Accounting Standards Board, which has no role in establishing
regulatory accounting practices, issued Interpretation 40 ("Fin. 40"),
Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises, which clarified that mutual life insurance
companies issuing financial statements described as prepared in conformity with
GAAP after 1995 are required to apply all applicable GAAP pronouncements in
preparing those financial statements. In January 1995, the FASB issued Statement
No. 120 ("SFAS 120"), Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration Participating
Contracts, which among other things, extended the applicability of certain FASB
statements to mutual life insurance companies and deferred the effective date of
Fin. 40 to financial statements issued or reissued after 1996. Accordingly, the
financial statements presented herein are no longer considered to be in
conformity with GAAP.
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs in connection with
6
<PAGE>
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity, interest and withdrawals; (c) bonds are generally carried at
amortized cost whereas GAAP would value bonds at fair value and (d) deferred
income taxes are not provided for book-tax timing differences whereas GAAP would
record deferred income taxes. Management has not yet completed GAAP financial
statements, but believes that policyholders' contingency reserves based upon
GAAP will be higher than policyholders' contingency reserves based upon
statutory accounting practices.
VI. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary
MassMutual is a Massachusetts domiciled mutual life insurance company
established in 1851. The Company provides a broad product portfolio of
individual life and disability income protection insurance, individual
annuities, pension products, investment products and investment advisory
services. The Company's principal lines of business are: (i) the Individual
Line, which provides life insurance and investment services to individuals; (ii)
Pension Management, which provides group pension investment products and
administrative services, primarily to sponsors of tax qualified retirement
plans; (iii) Life and Health Benefits Management, which previously provided
group life and health insurance products and related services to corporations
and other institutions; this line was transferred to a subsidiary in December
1994, and the subsidiary was subsequently sold in March of 1996; and (iv)
Investment Management, which provides advisory services for the general
investment account and separate investment accounts, as well as various
subsidiaries and affiliates, through its own staff and those of its
subsidiaries. The operating results of Investment Management and other corporate
operations are allocated to the other lines.
General
The information presented below should be read in conjunction with the audited
statutory financial statements and other information included elsewhere in this
Prospectus.
On March 1, 1996, the operations of the former Connecticut Mutual Life Insurance
Company ("Connecticut Mutual") were merged into the Company. This merger was
accounted for under the pooling of interests method of accounting. For the
purposes of this presentation, these financial statements reflect historical
amounts giving retroactive effect as if the merger had occurred on January 1,
1994 in conformity with the practices of the NAIC and the accounting practices
prescribed or permitted by the Division of Insurance of the Commonwealth of
Massachusetts and, prior to the merger, the Insurance Department of the State of
Connecticut. In 1996, merger-related expenses totaling $66 million were recorded
in the statutory statement of income. In 1995, merger-related expenses incurred
by Massachusetts Mutual (the Company prior to the merger) of $44 million, were
recorded in the statutory statement of income and the expenses incurred by
Connecticut Mutual of $45 million, net of tax, were recorded as a component of
changes in policyholders' contingency reserves, as permitted by each company's
regulatory authority. On the merger date, policyholder reserves attributable to
disability income contracts were strengthened by $75 million, investment
reserves for real estate were increased by $50 million and net prepaid pension
assets were increased by $10 million. The separate results of each company prior
to the merger for the year ended December 31, 1995, are as follows: (a) income
was $6,444 million for MassMutual and $2,182 million for Connecticut Mutual; (b)
net income was $161 million for MassMutual and $29 million for Connecticut
Mutual and (c) policyholders' contingency reserves increased by $144 million for
MassMutual and decreased by $112 million for Connecticut Mutual.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly MML Pension Insurance Company currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc. The Company received total consideration of $402
million ($340 million in cash and $62 million in notes receivable) and
recognized a before tax gain of $188 million. The Company, pursuant to a 1994
reinsurance agreement, cedes all of its group life, accident and health business
to UniCARE.
With regard to group life, accident and health ("GLA&H") business, MassMutual's
unconsolidated gain from operations for 1996 does not include any income
generated by this business. Gain from operations for 1995 was only affected by a
$41 million dividend it received from MML Pension. MML Pension's 1995 net gain
from operations was $44 million, of which the $41 million was recorded by
MassMutual as dividend income, a component of net investment income in its
statutory statement of income. The remaining $3 million was recognized by
MassMutual as an unrealized capital gain in the statutory statement of changes
in policyholders' contingency reserves.
To position the subsidiary for the possibility of a sale, MassMutual executed
two reinsurance agreements with MML Pension at the end of 1994. Through the
first of these contracts, MassMutual assumed all of the single premium immediate
annuity ("SPIA") business written by MML Pension through either an assumption
reinsurance provision or a coinsurance provision. The second contract ceded
MassMutual's GLA&H business to MML Pension. Additionally, a reinsurance
agreement previously in place, ceding all of the Individual Line's SPIA business
to MML Pension, was terminated. These agreements, collectively referred to as
"Reinsurance with MML Pension", became concurrently effective on December 31,
1994 and were accounted for as bulk reinsurance transactions. Accordingly, (i)
the GLA&H operating results were ceded to and reflected in MML Pension in 1996
and 1995 while in 1994 this business was recorded only by MassMutual; and (ii)
the SPIA operating results were assumed by and reflected in MassMutual in 1996
and 1995 while in 1994 this business was only recorded by MML Pension.
During 1996, the Company's financial strength continued to be recognized
favorably by the rating agencies. Moody's
7
<PAGE>
Investors Service, Inc. has reaffirmed the Company's Aa1 (Excellent) rating;
Standard & Poor's Corp. has reaffirmed the Company's AAA (Superior) claims-
paying rating; Duff & Phelps Credit Rating Co. has reaffirmed the AAA (Superior)
rating and A.M. Best Company, Inc. has continued to rate the Company as A++
(Superior). Management believes that the merged Company will be financially
stronger, more efficient and more competitive than either of the former
companies would have been. However, each rating agency independently assigns
ratings based on its own separate review and takes into account a variety of
factors (which are subject to change) in making its decision. Accordingly, there
can be no assurance of the ratings that will be afforded the Company in the
future.
The Company's objective has been to balance financial strength, policyholder
value and growth with continued emphasis on financial strength, which has
resulted in the Company's strong capital position and favorable financial
ratings. The Company has pursued this objective by emphasizing profitability
through refined product pricing, sophisticated asset/liability management,
rigorous expense control, prudent underwriting standards, the adoption of
efforts to improve persistency and retention levels and continued commitment to
the high credit quality of its general account investment portfolio. These
efforts have produced strong financial performance, with net gain from
operations after merger restructuring expenses of $225 million, $276 million and
$238 million for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company had more than $53 billion in total assets,
over 2,848,000 individual policyholders and more than $199 billion of direct
individual life insurance in force. In addition, the Company's total adjusted
capital as defined by the NAIC has grown to $3.8 billion at December 31, 1996,
compared to $3.6 billion and $3.5 billion at December 31, 1995 and 1994, as set
forth below.
<TABLE>
<CAPTION>
December 31,
-----------
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Policyholders' Contingency
Reserves (Surplus) $2,639 $2,601 $2,569
Asset Valuation Reserve 707 585 479
One-half of the Apportioned
Dividend Liability 438 411 414
------ ------- ------
Total Adjusted Capital (1) $3,784 $3,597 $3,462
====== ====== ======
</TABLE>
(1) The Company adopted the NAIC's definition of total adjusted capital of
surplus plus Asset Valuation Reserve ("AVR") and one-half of the apportioned
dividend liability.
The Company's total adjusted capital was increased by the issuance of surplus
notes of $100 million at 7 1/2% and $250 million at 7 5/8% in 1994 and 1993,
respectively. The proceeds of the notes, less a $32 million reserve in 1996 and
a $35 million reserve in 1995 and 1994 for contingencies associated with the
issuance of the notes, are recorded as a component of the Company's
policyholders' contingency reserves. The reserves for surplus note contingencies
are included in general investment reserves. See "Policyholders' Contingency
Reserves".
With regard to profitability, management believes that net gain from operations,
rather than net income, is the most relevant measure of operating results for
the Company. Net gain from operations represents the excess of income derived
from the Company's lines of business over the costs of operating those lines
(after deducting taxes and policyholder dividends). Net income is net gain from
operations adjusted by any realized capital gains or losses (net of taxes).
Management's investment philosophy and practice do not emphasize capital gains
as a recurring source of income or capital and the Company does not manage its
investment portfolio to realize gains for non-economic purposes. The Company has
increased its total adjusted capital from the beginning of 1992 through the end
of 1996 by $1,129 million.
TOTAL COMPANY - RESULTS
OF OPERATIONS
Year Ended December 31, 1996
Compared to Years Ended December 31, 1995 and 1994
The following table sets forth the components of the Company's results of
operations. Results prior to the merger of MassMutual and Connecticut Mutual
have been combined as a pooling of interests.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
(In Millions)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Premium income $6,329 $5,728 $6,177
Net investment and
other income 2,861 2,898 2,804
------ ------- -------
9,190 8,626 8,981
------ ------- -------
Benefits and expenses:
Policy benefits and
payments 6,048 5,152 5,450
Addition to policyholders'
reserves and funds 855 1,205 1,263
Commissions and operating expenses 763 835 959
State taxes, licenses and fees 96 89 106
Merger restructuring costs 66 44 -
-------- ------- -------
7,828 7,325 7,778
-------- ------- -------
Net gain before federal
income taxes and dividends 1,362 1,301 1,203
Federal income taxes 277 206 140
-------- ------- -------
Net gain from operations
before dividends 1,085 1,095 1,063
Dividends to policyholders 860 819 825
-------- ------- -------
Net gain from operations 225 276 238
Net realized capital gain
(loss) 40 (86) (164)
------- -------- --------
Net income $ 265 $ 190 $ 74
======= ======= =======
</TABLE>
Net gain from operations in 1996 was $225 million compared to $276 million in
1995, a decrease of 18.5% following a 16.0% increase from $238 million in 1994.
The $51 million decrease in 1996 from 1995 is due to a $22 million increase in
merger related restructuring expenses charged to operations, a $41 million
increase in dividends to policyholders, and the secession of income generated by
the GLA&H line of business which was sold during the year, offset by merger
related expense savings. The GLA&H line contributed no income
8
<PAGE>
from operations to the Company in 1996, but did contribute $41 million in 1995
in the form of a dividend (received from MML Pension) and $43 million in 1994,
which was prior to the reinsurance transaction with MML Pension. The $38 million
increase in 1995 from 1994 was due to improvements in the Individual Line's
mortality, morbidity, and persistency and an increase in investment income
offset by $44 million of merger related restructuring expenses charged to
operations.
Premium income in 1996 was $6,329 million compared to $5,728 million for 1995,
representing an increase of $601 million or 10.5%, following a $449 million or
7.3% decrease from $6,177 in 1994. Premium income from the Individual Line
increased 9.2% in 1996 and 1.2% in 1995. Premium income in the Pension
Management line increased 13.3% in 1996 and 15.1 % in 1995. GLA&H had no premium
income for 1996 or 1995, with 1994 contributing $733 million.
Net investment and other income in 1996 was $2,861 million compared to $2,898
million in 1995, representing a decrease of $37 million or 1.3%, following a $94
million or 3.4% increase from $2,804 million in 1994. The ratio of net
investment income to mean invested assets decreased in 1996 to 7.5% from 7.9% in
1995 which in turn had increased from 7.6% in 1994. The decrease in 1996 from
1995 was principally due to a decrease in the overall yield of the investment
portfolio as older higher yielding investments matured and were replaced with
investments with current lower yields that were partially offset by an increase
in invested assets and a $26 million dividend received from MassMutual Holding
Company. The increase from 1994 to 1995 resulted from an increase in invested
assets, a $41 million dividend received from MML Pension and a slight increase
in investment yields on the general account's investment portfolio. The
components of net investment income are set forth below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Gross investment income:
Bonds $1,968 $1,973 $1,864
Common stocks 4 6 4
Mortgage loans 341 353 424
Real estate 289 287 281
Policy loans 350 343 301
Cash and short-term investments 97 107 96
Other investments 63 77 24
------ ------ ------
Total gross investment income 3,112 3,146 2,994
Less investment expenses 297 269 267
Less interest expense 34 40 40
------ ------ ------
Net investment income $2,781 $2,837 $2,687
====== ====== ======
</TABLE>
Gross bond income decreased slightly in 1996 from 1995 as a result of a 40 basis
point decrease in bond yields, partially offset by a 6.9% increase in funds
invested in the bond portfolio. The increase in 1995 from 1994 was due to a 20
basis point improvement in yield and a 1.4% increase in bond investments. The
decreases in gross mortgage loan income reflected the overall decrease in
mortgage loans as these investments were repaid, prepaid or foreclosed and
transferred to real estate and as older, higher yielding mortgage loans were
replaced with mortgage loans with current lower yields. The increases in gross
real estate income were due to increased investments of purchased real estate.
Gross income from cash and short-term investments deceased in 1996 from 1995 as
the Company shifted short-term funds to the bond portfolio, partially offset by
an increase in short term yields, while the increase from 1994 to 1995 was due
to the increase in short term yields. The changes in gross investment income
from other investments was due to dividends received from subsidiaries of $26
million in 1996 and $41 million in 1995, with no subsidiary dividends received
in 1994. The increased investment expenses resulted from the increase in real
estate investments where gross investment income is recorded net of related
operating expenses.
Policy benefits and payments in 1996 were $6,048 million compared to $5,152
million in 1995, representing an increase of $896 million or 17.4%, following a
$298 million or 5.5% decrease from $5,450 million in 1994. The increase in 1996
from 1995 was due to an increase in the withdrawals from participating pension
business, an increase in individual surrenders and annuity payments. The
decrease in 1995 from 1994 was due principally to ceding all GLA&H benefits and
payments to MML Pension, which amounted to $587 million during 1994, partially
offset by an increase in the withdrawals of participating pension business.
Additionally, benefits and surrender payments for individual annuity and
supplementary contracts increased to $572 million in 1996 from $371 million in
1995 and $263 million in 1994.
Individual life insurance experienced average mortality experience during 1996
after better than expected mortality experience during 1995 and 1994. Surrender
benefits for individual life insurance increased in 1996 from 1995, however,
lapses measured as a percent of in-force business improved to 6.1% in 1996 from
6.5% in 1995 and 6.4% in 1994. Management believes its continued focus on
policyholder value and service has contributed to this improvement in individual
life persistency.
Addition to policyholders' reserves and funds decreased by $350 million, or
29.0%, to $855 million in 1996 from $1,205 million in 1995, following a $58
million, or 4.6% decrease from $1,263 million in 1994. The 1996 reduction was
due to a $1,077 million reduction in Pension Management reserves as a result of
increased participating pension business withdrawals and the scheduled
maturities of non-participating guaranteed investment contracts, offset by
increases in individual life and variable annuities in the Company's separate
account reserves. The decrease in 1995 from 1994 was primarily due to a decrease
in sales of corporate owned life partially offset by an increase in Pension
Management's defined contribution deposits.
Commissions and operating expenses in 1996 were $763 million, representing a
decrease of $72 million or 8.6% from $835 million in 1995, following a decrease
of $124 million or 12.9% from $959 million in 1994. The decrease in 1996 was due
principally to merger related expense savings of $86 million offset by an $18
million increase in commissions. The decrease in 1995 as compared to 1994
resulted from ceding $124 million in expenses and commissions related to the
GLA&H business to MML Pension, which was effective during 1995. Additionally in
1995, commissions and expenses on continuing business increased only 4.7% which
reflected management's effort to control expenses. Commissions do not correlate
to total premium income since commissions are driven by the growth and changing
product sales mix for commission paying business (e.g., individual life and
annuity
9
<PAGE>
products) and Pension Management sales, which do not generate significant
commissions, increased premiums by $240 million in 1996 and $237 million in
1995.
Federal income taxes on gain from operations before dividends in 1996 were $277
million, representing an increase of $71 million or 34.5% from $206 million in
1995, following an increase of $66 million or 47.1% from $140 million in 1994.
The increase in 1996 from 1995 of $71 million was due to increases in taxes on
operations for the Individual Line business and Pension Management business of
$95 million and $25 million, respectively, offset by a decrease in the mutual
company add-on tax of $46 million. The $66 million increase in tax in 1995 from
1994 was primarily due to higher 1995 mutual company equity add-on tax, which
increased $60 million. Increases in taxes in the former Connecticut Mutual
Individual Line business and the MassMutual Pension Management business were
offset by a decrease in tax for the MassMutual GLA&H business resulting from the
reinsurance of the business into MML Pension.
Dividends to policyholders in 1996 were $860 million, representing an increase
of $41 million or 5.0% from $819 million in 1995, following a slight decrease of
$6 million or 0.7% from $825 million in 1994. The increase in 1996 from 1995 was
due to growth in the participating in force business and the pass through of
investment, mortality and expense experience, including expense reductions which
resulted from the merger. The reduction in 1995 from 1994 was due to a generally
lower dividend schedule effective for payments on policy anniversaries in 1996,
partially offset by growth in the participating inforce business. The new
dividend schedule, annually approved by the Board of Directors in the fourth
quarter, is reflected in the Individual Line's gain from operations in the year
the dividend is declared.
Net realized capital gains in 1996 were $40 million, representing an improvement
of $126 million from the net realized capital losses of $86 million in 1995,
following an improvement of $78 million or 47.6%, from $164 million net realized
capital losses in 1994, after the transfer to Interest Maintenance Reserve
("IMR"). The IMR captures after-tax realized capital gains and losses due to
changes in interest rates for all types of fixed income investments. Net
realized capital gains (losses) were comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Realized capital gains (loss):
Bonds $109 $ 189 $ (95)
Common stocks 78 32 8
Mortgage loans (57) (88) (172)
Real estate (74) (49) (52)
Hedging instruments 3 52 (140)
Other investments 223 3 5
Federal and state taxes (160) (85) 127
------- ---- ---
Net realized capital gain (loss)
before transfer to IMR 122 54 (319)
Transfer to IMR (82) (140) 155
---- ---- ---
Net realized capital gain (loss) $40 $(86) $(164)
=== ===== ======
</TABLE>
The improvement in 1996 from the net loss in 1995 was due to the $188 million
pre-tax gain realized on the sale of the Mirus Life Insurance Company, a
decrease in losses from commercial mortgage loans offset by an increase in real
estate losses, primarily due to planned sales and write downs of former
Connecticut Mutual properties. The reduction in the net realized capital losses
in 1995 from 1994 was due to the decrease in losses from commercial mortgage
loans.
The high level of capital gains from bonds in 1996 and 1995 was caused by bond
sales and hedging activity generally during periods of declining interest rates.
In 1994, bond sales and hedging activity produced a significant portion of gross
realized losses in that year's increasing interest rate environment. In 1996,
net realized capital gains from the sales of bonds consisted of $189 million in
gross capital gains offset by gross capital losses of $80 million. In 1995, net
realized capital gains from the sales of bonds consisted of $256 million in
gross capital gains offset by gross capital losses of $67 million. All interest
related gains and losses were transferred to the IMR. Transfers to the IMR
consisted of $131 million and $230 million in net gains offset by $49 and $90
million in taxes for 1996 and 1995. In 1994, the amounts transferred to the IMR
included $215 million of net realized capital losses offset by $60 million in
tax benefits.
The gains generated from common stock resulted from sales which captured the
increase in the market value of these securities. The losses from commercial
mortgage loans decreased by $31 million in 1996 as compared to 1995 and by $84
million in 1995 as compared to 1994 due to a reduction in foreclosure activity
as the commercial real estate market place continued to improve. In establishing
the contributions to the General Investment Reserves ("GIR"), delays in
processing foreclosures were properly recognized. See Investment Reserves.
As a result of the foregoing factors, net income in 1996 was $265 million
compared to $190 million for 1995, representing an increase of $75 million, or
39.5%, following a 156.8% increase from $74 in 1994.
10
<PAGE>
ANALYSIS OF RESULTS OF OPERATIONS BY LINE OF BUSINESS
Individual Life Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Millions, except average size
and number of policies)
<S> <C> <C> <C>
Income:
Premium income $ 4,286 $ 3,925 $ 3,878
Net investment and
other income 2,062 1,994 1,782
-------- -------- --------
6,348 5,919 5,660
-------- -------- --------
Benefits and expenses:
Policy benefits and
payments 2,303 2,028 1,828
Addition to policyholders'
reserves and funds 1,932 1,768 1,905
Commissions and
operating expenses 694 766 768
State taxes, licenses and
fees 91 91 81
Merger restructuring
costs 61 36 --
-------- -------- --------
5,081 4,689 4,582
-------- -------- --------
Net gain before federal
income taxes and
dividends 1,267 1,230 1,078
Federal income taxes 247 199 123
-------- -------- --------
Net gain from operations
before dividends 1,020 1,031 955
Dividends to
policyholders 854 813 820
-------- -------- --------
Net gain from
operations $ 166 $ 218 $ 135
======== ======== ========
Premium Income:
Whole Life $ 2,406 $ 2,467 $ 2,426
Term Life 160 161 114
Universal, Variable &
Corporate Owned Life 374 356 470
Annuities 1,012 675 605
Disability Income 284 245 238
Other 50 21 25
-------- -------- --------
Total $ 4,286 $ 3,925 $ 3,878
======== ======== ========
Life Insurance Sales Face Amount:
Whole Life $ 6,732 $ 8,378 $ 11,647
Term Life 5,828 8,059 6,912
Universal, Variable &
Corporate Owned Life 3,400 3,259 3,363
-------- -------- --------
Total $ 15,960 $ 19,696 $ 21,922
======== ======== ========
Life Insurance In-Force Face Amount:
Whole Life $127,188 $117,334 $125,027
Term Life 45,218 56,086 40,030
Universal, Variable &
Corporate Owned
Life 26,975 24,378 28,452
-------- -------- --------
Total $199,381 $197,798 $193,509
======== ======== ========
</TABLE>
Number of Policies In-Force:
<TABLE>
<S> <C> <C> <C>
Whole Life 1,825,977 1,820,193 2,128,914
Term Life 364,866 398,778 174,691
Universal, Variable &
Corporate Owned Life 88,874 85,107 142,854
Annuities 296,920 293,723 252,727
Disability Income 296,776 299,662 299,331
--------- --------- ---------
Total 2,873,413 2,897,463 2,998,517
========= ========= =========
Average Size of New Policies Sold:
Whole Life $ 172,956 $ 158,894 $ 174,140
Term Life $ 347,674 $ 317,514 $ 320,492
Universal, Variable &
Corporate Owned
Life $ 236,462 $ 208,296 $ 312,869
</TABLE>
Individual Line Year Ended December 31, 1996 Compared to Years Ended December
31, 1995 and 1994
Net gain from operations in 1996 was $166 million compared to $218 in 1995,
representing a decrease of $52 million or 23.9%, following a $83 million or
61.5% increase from $135 in 1994. The decrease in 1996 from 1995 is principally
due to an increase in merger restructuring costs, increased mortality, and
increase in policyholders dividends offset by reduced operating expenses and
improved morbidity. The increase in 1995 from 1994 is principally due to an
increase in net investment and other income, favorable mortality experience and
low unit expenses.
Premium income in 1996 was $4,286 million compared to $3,925 million in 1995,
representing an increase of $361 million or 9.2%, following a $47 million or
1.2% increase from $3,878 million in 1994. The increase in 1996 from 1995 was
the net result of a 49.9% increase in annuity premiums, a 15.9% increase in
disability income, a 12.9% increase in corporate owned life insurance premium
with life insurance premium flat with the prior year. The increase in 1995 from
1994 was the net result of an 11.6% increase in annuity premiums, partially
offset by a decrease in corporate owned life premiums. Annuity premiums have
been increasing due to the introduction of new variable annuity products in 1994
and 1995 and increasing sales of other existing variable annuities, resulting
from increased consumer demand. All single premium immediate annuity (SPIA)
premiums were ceded to MML Pension during 1994 under a contract that was
terminated in December 31, 1994. SPIA premiums after the termination date were
retained by the Company, amounting to $20 million in 1996 and $28 million in
1995. The increase in whole life premiums corresponds with the modest increase
in the amount of insurance in-force. Corporate owned life sales represent a
small number of relatively large cases; therefore it is not unusual for premiums
to vary from year to year.
Net investment and other income in 1996 were $2,062 million, representing an
increase of 3.4% from $1,994 million in 1995, following an increase of 11.9%,
from $1,782 million in 1994. The increase in 1996 from 1995 resulted from a 4.9%
growth in the Individual Line's invested assets offset by a decrease in
portfolio yield. The increase in 1995 from 1994 resulted primarily from a 9.1%
growth in the Individual Line's invested assets and an increase in portfolio
yield. Investment and other income contains amortization of net gains previously
transferred to the IMR. IMR amortization was $24 million in 1996, $12 million in
1995 and $38 million in 1994,
11
<PAGE>
reflecting the relatively short average life of MassMutual's hedging program.
Policy benefits and payments in 1996 were $2,303 million, representing an
increase of $275 million or 13.6% from $2,028 million in 1995, following an
increase of $200 million or 10.9%, from $1,828 million in 1994, resulting from
the continued growth of in-force business. Individual annuity and supplementary
contract benefits and surrender payments increased to $572 million in 1996 from
$371 million in 1995 and $263 million in 1994 accounting for much of the growth
in this item.
Individual life insurance had average mortality experience during 1996 after
better than expected mortality experience during 1995 and 1994. Actual
experience as a percentage of expected claims was 101% in 1996. Surrender
benefits for individual life insurance increased in 1996 from 1995, however,
lapses measured as a percent of in-force business improved to 6.1% in 1996 from
6.5% in 1995 and 6.4% in 1994. Management believes its continued focus on
policyholder value and service has contributed to this improvement in
persistency. Annuity surrenders increased as a result of increased activity in
the block of business.
Addition to policyholders' reserves and funds in 1996 was $1,932 million,
representing an increase of $164 million or 9.3% from $1,768 million in 1995,
following a decrease of $137 million or 7.2%, from $1,905 million in 1994. The
increase in 1996 from 1995 was due primarily to the increase in annuity deposits
in the Company's separate investment account. The decrease in 1995 from 1994 was
due primarily to a decrease in sales of corporate owned life partially offset by
the increase in annuity deposits and improved persistency of individual life
insurance products.
Operating expenses and commissions in 1996 were $694 million, representing a
decrease of $72 million or 9.4% from $766 million in 1995, following a decrease
of $2 million or 0.3%, from $768 million in 1994. The decrease in 1996 from 1995
included a decrease in operating expense of $66 million reflecting efficiencies
realized from the merger and management's continuing efforts to control expenses
as well as a decrease in commissions reflecting flat individual life revenue and
a restructuring of the commission program. The decrease in 1995 from 1994 was
due to nominal growth in expenses and a slight reduction in commissions in spite
of an increase in premium revenue. This results from an increase of individual
annuity premium revenue which has a lower commission rate than individual life
insurance. Therefore, the growth in commissions does not correspond to the
growth in premium revenue.
Federal income taxes in 1996 were $247 million, representing an increase of
24.1% from $199 million in 1995, following an increase of 61.8%, from $123
million in 1994. The increase in 1996 from 1995 of $48 million is due primarily
to higher taxes on operations of $95 million, offset by a $35 million reduction
in the mutual company add-on tax. The $76 million increase in 1995 from 1994 was
due primarily to higher taxes on operations of $10 million and a $52 million
increase in the mutual company add-on tax.
Dividends to policyholders in 1996 were $854 million, representing an increase
of $41 million or 5.0% from $813 million in 1995, following a decrease of $7
million or 0.9%, from $820 million in 1994. The increase in 1996 from 1995 was
due to growth in the participating in force business and the pass through of
investment, mortality and expense experience, including expense reductions which
resulted from the merger. The reduction in 1995 from 1994 was due to a generally
lower dividend schedule effective for payments on policy anniversaries in 1996,
partially offset by growth in the participating in-force business The new
dividend schedule, annually approved by the Board of Directors in the fourth
quarter, is reflected in the Individual Line's gain from operations in the year
the dividend is declared.
Pension Management Operations
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Income:
Premium income $ 2,043 $ 1,803 $ 1,566
Net investment and
other income 799 904 967
------- ------- -------
2,842 2,707 2,533
------- ------- -------
Benefits and expenses:
Policy benefits and
payments 3,745 3,124 3,035
Reduction to
policyholders' reserves
and funds (1,077) (563) (636)
Commissions and
operating expenses 69 69 78
State taxes, licenses and
fees 5 (2) 4
Merger restructuring
costs 5 8 0
------- ------- -------
2,747 2,636 2,481
------- ------- -------
Net gain before federal
income taxes and
dividends 95 71 52
Federal income taxes 30 7 (13)
------- ------- -------
Net gain from operations
before dividends 65 64 65
Dividends to
policyholders 6 6 5
------- ------- -------
Net gain from operations $ 59 $ 58 $ 60
======= ======= =======
Premium Income
Flexinvest $ 475 $ 352 $ 292
Superflex 756 696 507
Interest Guarantee 107 112 116
Participating Guaranteed 48 125 132
Separate Accounts 506 285 334
Defined Benefit 75 55 72
GIC and Single Premium
Annuity Contracts 8 22 34
Governmental separate
accounts 47 67 10
Other 21 89 69
------- ------- -------
Total $ 2,043 $ 1,803 $ 1,566
======= ======= =======
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
Written Sales
Flexinvest $184 $146 $120
Superflex 304 257 257
Interest Guarantee
Investment Contracts 22 38 24
Participating Guaranteed 39 142 94
Separate Accounts 216 140 182
Defined Benefit 1 7 9
Governmental separate
accounts 14 45 42
Other 3 10 0
---- ---- ----
Total $783 $785 $728
==== ==== ====
</TABLE>
Pension Management Year Ended December 31, 1996 Compared to Years Ended December
31, 1995 and 1994
Net gain from operations in 1996 was $59 million, representing an increase of $1
million or 1.7% from $58 million in 1995, following a decrease of $2 million or
3.3%, from $60 million in 1994. The increase in 1996 from 1995 was due to lower
general expenses and increased profitability in our Guaranteed Investment
Contract deposit business, offset by higher income taxes. The decline in 1995
from 1994 was primarily due to an increase in federal income taxes and $8
million of allocated merger related expenses.
Premium income in 1996 was $2,043 million, representing an increase of 13.3%
from $1,803 million in 1995, following an increase of 15.1%, from $1,566 million
in 1994. The increase in 1996 from 1995 is primarily due to a $184 million
increase in defined contribution premium income. The increase in 1995 from 1994
principally due to a $249 million increase in defined contribution premium
income.
Net investment and other income in 1996 were $799 million, representing a
decrease of $105 million or 11.6% from $904 million in 1995, following a
decrease of $63 million or 6.5%, from $967 million in 1994. The decreases in
1996 from 1995 and 1995 from 1994 were due to a decrease in the line's invested
assets, resulting from the scheduled maturities of non-participating guaranteed
investment contracts, and increasing lapses of participating business.
Policy benefits and payments in 1996 were $3,745 million, representing an
increase of $621 million or 19.9% from $3,124 million in 1995, following an
increase of $89 million or 2.9%, from $3,035 million in 1994, primarily due to
an increase in the withdrawals from participating business.
Reductions in policyholders' reserves and funds in 1996 were $1,077 million,
representing an increase of $514 million or 91.3% from $563 million in 1995,
following a decrease of $73 million or 11.5%, from $636 million in 1994 as a
result of increases in policy benefit payments discussed above.
Operating expenses and commissions in 1996 were unchanged from 1995, at $69
million, following a decrease of $9 million or 11.5%, from $78 million in 1994.
During 1996, reduced general expenses were offset by increased commissions.
Expense reduction in 1995 more than offset a slight increase in commissions.
The increase in federal income taxes in 1996 from 1995 of $23 million was due
primarily to an increase in tax on gain from operations. Over half of the $20
million increase in 1995 from 1994 was due to an increase in taxes on
operations, and over $5 million was attributable to an increase in the mutual
company add-on tax.
Life and Health Benefits Management Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1994
----
(In Millions)
<S> <C>
Income:
Premium income (1) $733
Net investment and
other income 55
----
788
----
Benefits and expenses:
Policy benefits and
payments 587
Addition to policyholders'
reserves and funds (6)
Commissions and
operating expenses 113
State taxes, licenses and fees 21
Merger restructuring costs 0
----
715
----
Net gain before federal
income taxes and dividends 73
Federal income taxes 30
----
Net gain (loss) from
operations before dividends 43
Dividends to policyholders 0
----
Net gain (loss) from
operations $ 43
====
</TABLE>
(1) Excludes premium equivalents
Life and Health Benefits Management Year Ended December 31, 1995 Compared to
Year Ended December 31, 1994
At the end of 1994, MassMutual executed reinsurance agreements with Mirus Life
Insurance Company ("Mirus") (formerly the MML Pension Insurance Company
currently doing business as "UniCARE") which ceded MassMutual's GLA&H business
to Mirus. These agreements were accounted for as bulk reinsurance transaction at
December 31, 1994, in which no gain or loss was recognized. As a result of this
agreement, the Company's GLA&H operating results were ceded to and reflected in
Mirus for both 1996 and 1995, while in 1994 this business was recorded only by
MassMutual. Following statutory accounting rules for bulk reinsurance, this
transfer did not impact 1994 operations.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus, to WellPoint
Health Networks, Inc.. The 1994 reinsurance agreements continue to remain in
effect with UniCARE.
Accordingly, the Company's unconsolidated gain from operations for 1996 does not
include any income generated by this business. Gain from operations for 1995 was
only affected by a $41 million dividend it received from MML Pension. MML
Pension's 1995 net gain from operations was $44 million, of which the $41
million was recorded by MassMutual as dividend income, a component of net
investment income. The remaining $3 million was recognized as an unrealized
capital gain in the statement of changes in policyholders' contingency reserves.
The $41 million dividend
13
<PAGE>
was recorded in the Company's Corporate segment, which invests all of
the Company's surplus. All income in the Corporate segment was allocated to the
Individual and Pension Management lines of business in proportion to the surplus
contributed by each product line.
As a result of the Reinsurance with MML Pension, there were no net premiums,
policy benefits and payments and addition to policyholder's reserves for 1996
and 1995.
The following discussion focuses on direct premium, prior to reinsurance with
MML Pension.
Direct premium income in 1996 was $668 million, representing a decrease of 11.5%
from $753 million in 1995, following an increase of 2.7%, from $733 million in
1994. The decrease in 1996 from 1995 is due to this business moving from
MassMutual's books and being renewed as UniCARE contracts.
STATEMENT OF FINANCIAL POSITION
The following table sets forth MassMutual's assets.
<TABLE>
<CAPTION>
Assets
December 31,
------------
1996 1995
---- ----
(In Millions)
<S> <C> <C>
Bonds $25,255 $23,625
Common stocks 337 416
Mortgage loans 3,897 3,908
Real estate 1,841 1,653
Other investments 1,426 1,490
Policy loans 4,752 4,518
Cash and short-term investments 1,075 2,343
Investment and insurance amounts
receivable 1,102 1,059
Separate investment account assets 13,564 11,310
Other assets 98 175
------- -------
Total assets $53,347 $50,497
======= =======
</TABLE>
Total assets in 1996 were $53,347 million, representing an increase of $2,850
million, or 5.6%, from $50,497 million in 1995. Much of this increase was due to
continued growth in the Company's separate investment accounts, in which assets
increased by $2,254 million, or 19.9%, to $13,564 million in 1996 from $11,310
million in 1995. Invested assets in the Company's general investment account
increased in 1996 by $630 million, or 1.7%, to $38,583 million from $37,953
million in 1995.
Bonds in 1996 were $25,255 million, representing an increase of $1,630 million,
or 6.9%, from $23,625 million in 1995. This increase reflects the Company
investment in publicly traded and privately placed bonds and short-term
securities, investments which provide strength and liquidity for its investment
portfolio. Bonds and short-term securities in NAIC categories 1 and 2 were 61.9%
of general investment account assets in 1996, as compared to 63.1% in 1995. The
percentage of general investment account assets representing bonds and short-
term investments in NAIC categories 3 through 6 increased in 1996 to 5.9% from
4.9% in 1995. Much of this increase was in category 3 bonds which the Company
believes offer's an attractive return in relation to risk. Common stocks in 1996
were $337 million, representing a decrease of $79 million, or 19.0%, from $416
million in 1995. This decrease is a result of a disposal to limit the Company's
exposure to equity investments. Cash and short-term investments in 1996 were
$1,075 million, representing a decrease of $1,268 million, or 54.1%, from $2,343
million in 1995 due principally to increased investments in bonds which
increased $1,630 million.
Mortgage loans in 1996 were $3,897 million, representing a decrease of $11
million, or 0.3%, from $3,908 million in 1995. This slight decrease was
principally due to repayments and prepayments slightly exceeding new loan
placements. The increase in real estate is primarily due to acquisitions.
Liabilities
Total liabilities in 1996 were $50,708 million, representing an increase of
$2,812 million, or 5.9%, from $47,896 million in 1995. As with assets, most of
this growth occurred in the separate investment accounts, which increased $2,253
million, or 19.9%, to $13,563 million in 1996.
Policyholders' reserves and funds in 1996 were $33,342 million, representing an
increase of $449 million, or 1.4%, from $32,893 million in 1995. The increase in
1996 from 1995 was attributable primarily to increases in individual life and
disability income reserves offset by decreases in the liability for
participating and non-participating pension contracts.
The policyholders' dividend liability was $885 million in 1996, representing an
increase of $52 million or 6.2%, from $833 million in 1995. This increase was
due to growth in the participating in force business and the pass through of
investment, mortality and expense experience, including expense reductions which
resulted from the merger.
The Company utilizes sophisticated asset/liability analysis techniques in order
to set the investment policy for each liability class and test the adequacy of
the projected cash flow provided by assets to meet all of its future
policyholder and other obligations. These studies are performed using stress
tests regarding future credit and other asset losses, market interest rate
fluctuations, claim losses and other considerations. The result is a complete
picture of the adequacy of the underlying assets, reserves and capital. See
"liquidity" for further discussions on this issue.
Policyholders' Contingency Reserves
Policyholders' contingency reserves were $2,639 million at December 31, 1996, an
increase of $38 million, or 1.5%, from December 31, 1995. This increase was
composed of (i) 1996 net income of $265 million, (ii) a decrease of $2 million
from unrealized capital losses, (iii) a decrease of $142 million due to the
change in AVR and GIR, (iv) a decrease of $72 million from strengthening
policyholders' reserves, and (v) a decrease of $11 million due to other changes.
Certain state regulations require a portion of policyholders' contingency
reserves to be designated for the benefit of group life insurance, group annuity
and separate account policyholders. Such designated surplus funds totaled $3
million, $38 million and $36 million in 1996, 1995 and 1994,
14
<PAGE>
respectively. Unassigned policyholders' contingency reserves of $2,636 million
in 1996 and $2,563 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Net cash provided by operating activities was $418 million, $827 million and
$909 million for the years ended 1996, 1995 and 1994, respectively. The decrease
in 1996 from 1995 was due primarily to an increase in fund withdrawals of
pension contracts and individual supplementary contracts offset by an increase
in premium revenue.
The Company has structured its investment portfolio to ensure a strong liquidity
position in order to permit timely payment of policy and contract benefits
without requiring an untimely sale of assets. The Company manages its liquidity
position by matching its exposure to cash demands with adequate sources of cash
and other liquid assets. Major industry rating services have consistently cited
the Company's liquidity position as a significant strength.
The Company's principal sources of liquidity are cash flow and holdings of cash,
near cash and other readily marketable assets. The primary cash flow sources are
investment income and principal repayments on invested assets, life insurance
premiums, annuity considerations and deposits. Historically, the Company has
consistently experienced net positive cash flow from operations.
The Company's liquid assets include substantial Treasury holdings, short-term
money market investments, stocks and marketable long-term fixed income
securities. Cash and short-term investments totaled $1,075 million at December
31, 1996. The market value of other highly liquid securities, including NAIC
Category 1 and 2 publicly traded bonds, and the common stock portfolio exceeded
$14 billion at December 31, 1996.
The liquidity position of the Company is proactively managed on an ongoing basis
to meet cash needs while minimizing adverse impacts on investment returns. A
variety of scenarios are analyzed modeling potential demands on liquidity,
taking into account the provisions of the Company's policies and contracts
inforce, the Company's cash flow position and the volume of cash and readily
marketable securities in the Company's portfolio.
The Company also employs sophisticated quantitative asset/liability cash flow
management techniques to optimize and control the investment return and
liquidity for each portfolio, taking into account the distinguishing liability
characteristics of each portfolio.
A primary liquidity concern for the Company is the risk of early contractholder
and policyholder withdrawal. The three most affected products are individual
life insurance and individual deferred annuities offered by the Individual Line
and the participating products offered by the Pension Management line. Personal
life insurance policies are less susceptible to withdrawal than annuity
contracts because annuities are primarily used as investment vehicles, while
personal life policies are used to fulfill longer term financial planning needs.
A substantial part of the Company's individual life insurance exposure is
focused on a well-seasoned, mature block of business. The Company closely
evaluates and manages its liquidity risk by, for example, seeking to include
provisions limiting withdrawal rights from general account institutional pension
products (generally group annuities, including guaranteed investment contracts
and certain deposit liabilities) sold to plan sponsors.
The Company's exposure to early withdrawal under the Pension Management and
Individual Line annuity businesses as of the dates indicated can be described as
follows:
Withdrawal Characteristics of Annuity Actuarial Reserves
and Deposit Fund Liabilities
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
% of % of
Amount Total Amount Total
------ ----- ------ -----
($ In Millions)
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with adjustment:
With market value
adjustment $ 8,453 45.0% $ 5,298 28.6%
At market value 197 1.1 283 1.5
At book value less
surrender charge 2,443 13.0 3,972 21.5
------- ------ ------- ------
Subtotal 11,093 59.1 9,553 51.6
Subject to discretionary
withdrawal without
adjustment:
At book value
(minimal or no charge or
adjustment) 3,034 16.2 2,864 15.4
Not subject to discretionary
withdrawal 4,648 24.7 6,106 33.0
------- ------ ------- ------
Total annuity actuarial
reserves and deposit
fund liabilities (gross) 18,775 100.0% 18,523 100.0%
Less reinsurance - (13)
------- -------
Total annuity actuarial
reserves and deposit
fund liabilities $18,775 $18,510
======= =======
</TABLE>
Based on its ongoing monitoring and analysis of its liquidity sources and
demands, the Company believes that it is in a strong liquidity position.
Capital Resources
As of December 31, 1996, the Company's total adjusted capital as defined by the
NAIC was $3,784 million. The NAIC has developed a "Risk Based Capital" ("RBC")
model to compare the total adjusted capital with a standard designed to reflect
the Company's risk profile. Although the Company believes that there is no
single appropriate means of measuring risk-based capital needs, it feels that
the NAIC approach to RBC measurement is reasonable, and will manage its capital
position with significant attention to maintaining adequate total adjusted
capital relative to RBC. The Company's total adjusted capital was well in excess
of all RBC standards at December 31, 1996 and 1995. Management believes that the
Company enjoys a strong capital position in light of the risks to which it is
subject and that it is well positioned to meet policyholder and other
obligations.
INFLATION
The Company's operating expenses are affected by inflation. A large portion of
the Company's operating expenses consists of salaries which are subject to wage
increases, at least partially
15
<PAGE>
affected by the rate of inflation. The Company's continuing efforts to control
expenses may reduce the impact of inflation on operating expenses.
Inflation also has an indirect effect on the Company. To the extent that the
government's economic policy to control the level of inflation results in
changes in interest rates, the Company's new sales of insurance products and
investment income are affected. Changes in the level of interest rates also have
an effect on interest spreads, as investment earnings are reinvested.
INVESTMENTS
At December 31, 1996, the Company had $38,583 million of invested assets in its
general investment account. The portfolio of invested assets is managed to
support the liabilities of the lines of business in light of yield, liquidity
and diversification considerations. The general investment account portfolio
does not include the Company's separate investment account assets.
The following table sets forth the Company's invested assets in the general
investment account and gross investment yield thereon (after deducting real
estate operating expenses and taxes) as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
------------------------ ------------------------- -------------------------
Carrying % of Carrying % of Carrying % of
Value Total Yield Value Total Yield Value Total Yield
------------------------ ------------------------- -------------------------
($ In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bonds $25,255 65.5% 8.4% $23,625 62.2% 8.8% $23,298 62.8% 8.6%
Common stocks 337 0.9 1.1 416 1.1 1.8 246 0.7 1.8
Mortgage loans 3,897 10.1 9.2 3,908 10.3 9.3 4,066 11.0 9.4
Real estate - Investment 1,841 4.8 10.4 1,653 4.4 10.7 1,783 4.8 10.2
Other investments 1,426 3.6 4.4 1,490 3.9 5.9 1,218 3.2 2.1
Policy loans 4,752 12.3 7.8 4,518 11.9 8.1 4,260 11.5 7.5
Cash and short-term
investments 1,075 2.8 5.8 2,343 6.2 4.8 2,255 6.0 4.3
------- ----- ---- ------- ----- ---- ------- ----- ----
Total investments $38,583 100.0% 8.1% $37,953 100.0% 8.4% $37,126 100.0% 8.1%
======= ===== ==== ======= ===== ==== ======= ===== ====
</TABLE>
The yield on total investments before indirect expenses was 8.1%, 8.4% and 8.1%
for the years ended December 31, 1996, 1995 and 1994, respectively. If remaining
investment expenses including depreciation on real estate investments were
deducted, net yields would be 7.5%, 7.9% and 7.6%, respectively. The yield on
each investment category, before federal income taxes, is calculated as: (a)
gross investment income (which for real estate deducts operating expenses and
real estate taxes) divided by (b) the average carrying value, which does not
include investment reserves.
The Company carries its investments in accordance with methods and values
prescribed by the NAIC and adopted by state insurance authorities. Generally,
bonds are valued at amortized cost, preferred stocks in good standing are valued
at cost, and common stocks are carried at fair value. Mortgage loans are valued
at principal less impairments and unamortized discount. Real estate is valued at
cost less accumulated depreciation, impairments, and mortgage encumbrances.
Depreciation on investment real estate is calculated using the straight-line and
constant yield methods. Policy loans are carried at the outstanding loan balance
less amounts unsecured by the cash surrender value of the policy. Short-term
investments are stated at amortized cost which approximates fair value. Other
investments primarily consist of joint ventures, other forms of partnerships and
the common stocks of unconsolidated subsidiaries, which are valued using the
equity method.
Bonds
The following table provides certain information regarding the maturity
distribution of bonds (excluding short-term securities):
<TABLE>
<CAPTION>
Bond Maturities
December 31,
1996 1995
---- ----
Carrying % of Carrying % of
Value Total Value Total
----- ----- ----- -----
($ In Millions)
<S> <C> <C> <C> <C>
Due in one year or less $ 680 2.7% $2,579 10.9%
Due after one year
through five years 5,129 20.3 3,626 15.3
Due after five years
through ten years 6,880 27.2 5,356 22.7
Due after ten years 5,195 20.6 3,858 16.3
Mortgage-backed
securities(1) 7,371 29.2 8,206 34.8
------- ----- ------- -----
$25,255 100.0% $23,625 100.0%
======= ===== ======= =====
</TABLE>
(1) Including securities guaranteed by the U.S. Government.
The maturities of portfolio bonds are considered by the Company to be
sufficiently diversified and are carefully monitored and managed in light of the
Company's liquidity needs. See "Liquidity and Capital Resources."
Bonds consist of publicly traded and privately placed debt securities. At
December 31, 1996 and 1995, publicly traded bonds comprised 57.0% and 56.6% of
the bond portfolio respectively, and privately placed bonds comprised the
remainder. Substantially all of the publicly traded and privately placed bonds
held by the Company are evaluated by the NAIC's Securities Valuation Office
("SVO"), which assigns securities to one of six NAIC investment credit
categories,
16
<PAGE>
with Category 1 securities being the highest quality and Category 6 securities
being the lowest quality. Categories 1 and 2 are investment grade, Category 3 is
medium quality and Categories 4, 5 and 6 are non-investment grade. The remainder
of the securities which have not as yet received NAIC ratings are rated under an
internal system which the Company believes to be equivalent to that used by the
SVO. The table below sets forth, as of the dates indicated, the NAIC ratings for
the Company's bond portfolio (including short-term securities) and the
equivalent public rating agency designations. The bond portfolio consists
primarily of high grade securities. At December 31, 1996 and 1995, 91.3% and
92.5%, respectively, of the portfolio was invested in NAIC Categories 1 and 2
securities.
Bond Credit Quality
(includes short-term securities)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
($ In Millions)
NAIC
Bond Rating Agency Carrying % of Carrying % of
Rating Equivalent Designation Value Total Value Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Aaa/Aa/A $17,495 66.9% $16,750 64.7%
2 Baa 6,390 24.4 7,196 27.8
3 Ba 1,429 5.5 1,261 4.9
4 B 747 2.9 577 2.2
5 Caa and lower 63 0.2 51 0.2
6 In or near default 43 0.1 36 0.2
----------------------------------------------------------
Total $26,167 100.0% $25,871 100.0%
==========================================================
</TABLE>
The Company invests a significant portion of its investment funds in high
quality publicly traded bonds in order to maintain and manage liquidity and
reduce the risk of default in the portfolio. As of December 31, 1996, 96.1% of
the publicly traded bonds were rated as NAIC Categories 1 and 2, as illustrated
by the following chart.
Publicly Traded Bond Credit Quality
(includes short-term securities)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
($ In Millions)
NAIC
Bond Rating Agency Carrying % of Carrying % of
Rating Equivalent Designation Value Total Value Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Aaa/Aa/A $12,791 85.8% $11,843 80.9%
2 Baa 1,538 10.3 2,340 16.0
3 Ba 326 2.2 278 1.9
4 B 248 1.7 181 1.2
5 Caa and lower 3 0.0 4 0.0
6 In or near default 4 0.0 0 0.0
----------------------------------------------------------
Total $14,910 100.0% $14,646 100.0%
==========================================================
</TABLE>
The Company utilizes its investments in the privately placed bond portfolio to
enhance the value of the overall portfolio, increase diversification and obtain
higher yields than are possible with comparable quality public market
securities. To control risk, the Company relies upon broader access to
management information, strengthened negotiated protective covenants, call
protection features, and a higher level of collateralization. The strength of
the privately placed bond portfolio is demonstrated by the predominance of NAIC
Categories 1 and 2 securities, as illustrated by the following chart.
17
<PAGE>
Privately Placed Bond Credit Quality
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
($ In Millions)
NAIC
Bond Rating Agency Carrying % of Carrying % of
Rating Equivalent Designation Value Total Value Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Aaa/Aa/A $ 4,704 41.8% $ 4,907 43.7%
2 Baa 4,853 43.1 4,856 43.3
3 Ba 1,103 9.8 983 8.8
4 B 499 4.4 396 3.5
5 Caa and lower 59 0.5 47 0.4
6 In or near default 39 0.4 36 0.3
----------------------------------------------------------
Total $11,257 100.0% $11,225 100.0%
==========================================================
</TABLE>
Included in the privately placed bond portfolio are residential mortgage
securities which totaled $1.5 billion and $1.8 billion at December 31, 1996 and
1995, respectively, or 13.3% and 16.1%, respectively, of the portfolio. The
residential mortgage securities segment of the privately placed bond portfolio
has provided the Company with quality investments and excellent loss/risk
experience. As of December 31, 1996, this entire segment was rated as NAIC
Categories 1 and 2. The Company imposes rigorous investment standards with
respect to these securities, including governmental agency guarantees, seasoned
pools and discount pricing as protection against prepayment. The Company tracks
problem loans individually and monitors its services closely. As a result,
delinquency rates for these securities were 1.1% as of December 31, 1996, as
compared with the national average of 2.39%, according to the Mortgage Bankers
Survey of delinquencies.
As of December 31, 1996 and 1995, mortgage-backed securities in the bond
portfolio consisted of $3.0 billion and $2.7 billion, respectively, of GNMA,
FNMA and FHLMC mortgage-backed pass-through securities, and $2.6 billion and
$3.0 billion, respectively, of government agency-backed collateralized mortgage
obligations.
The following table sets forth by industry category the carrying value and
percent of total of the bond portfolio, including short-term securities, as of
December 31, 1996.
Bond Portfolio By Industry
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Public (1) Private Total
------------------------------------------------------------------------------------
Carrying % of Carrying % of Carrying % of
Industry Category Value Total Value Total Value Total
------------------------------------------------------------------------------------
($ In Millions)
<S> <C> <C> <C> <C> <C> <C>
Collateralized (2) $ 6,101 40.9% $ 1,609 14.3% $ 7,710 29.5%
U. S. Government 4,866 32.6 169 1.5 5,035 19.2
Finance 750 5.0 1,309 11.6 2,059 7.9
Utilities 918 6.2 685 6.1 1,603 6.1
Producer Goods 358 2.4 1,243 11.0 1,601 6.1
Consumer Goods 389 2.6 918 8.2 1,307 5.0
Natural Resources 383 2.6 813 7.2 1,196 4.6
Media 159 1.0 536 4.8 695 2.7
Other Services 109 0.7 448 4.0 557 2.1
Retail 61 0.4 458 4.1 519 2.0
Transportation 127 0.9 546 4.8 673 2.5
Aerospace 123 0.8 231 2.0 354 1.4
Health Care 17 0.1 236 2.1 253 1.0
Others 549 3.8 2,056 18.3 2,605 9.9
-----------------------------------------------------------------------------------
Total $14,910 100.0% $11,257 100.0% $26,167 100.0%
===================================================================================
</TABLE>
(1) Includes short-term securities.
(2) These bonds are collateralized by mortgages backed by FNMA, GNMA or FHLMC
and include collateralized mortgage obligations and pass-through securities.
These amounts also include asset backed securities such as credit card,
automobile and residential mortgage securities.
18
<PAGE>
The estimated fair value of bonds is based upon quoted market prices for
actively traded securities. The Company subscribes to commercial pricing
services that provide estimated fair values of bonds that are not actively
traded. Estimated fair values for privately placed bonds are generally
determined by applying interest spreads based on quality and asset type to the
appropriate duration on the Treasury yield curve.
The tables below set forth the carrying value, gross unrealized gains and
losses, net unrealized gains and losses and estimated fair value of the bond
portfolio (excluding short-term securities) at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Gross Gross Net Estimated
Carrying Unrealized Unrealized Unrealized Fair
Value Gains Losses Gain (Loss) Value
-------------------------------------------------------------------------------
($ In Millions)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government Corporations
and Agencies $ 8,043 $ 344 $ 56 $ 288 $ 8,331
Debt Securities issued by
Foreign Governments 95 10 0 10 105
Mortgage-backed securities 3,970 125 43 82 4,052
State and local governments 173 13 2 11 184
Industrial securities 11,675 528 133 395 12,070
Utilities 975 87 19 68 1,043
Affiliates 324 4 3 1 325
-----------------------------------------------------------------------------
$25,255 $ 1,111 $ 256 $ 855 $26,110
=============================================================================
<CAPTION>
December 31, 1995
-----------------
Gross Gross Net Estimated
Carrying Unrealized Unrealized Unrealized Fair
Value Gains Losses Gain (Loss) Value
-------------------------------------------------------------------------------
($ In Millions)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government Corporations
and Agencies $ 9,391 $ 837 $ 43 $ 794 $10,185
Debt Securities issued by
Foreign Governments 262 28 0 28 290
Mortgage-backed securities 3,265 177 10 167 3,432
State and local governments 106 15 0 15 121
Industrial securities 9,031 763 58 705 9,736
Utilities 1,418 152 3 149 1,567
Affiliates 152 4 1 3 155
-----------------------------------------------------------------------------
$23,625 $ 1,976 $ 115 $ 1,861 $25,486
=============================================================================
</TABLE>
Mortgage Loans
All mortgage loans are fixed rate commercial mortgages on completed, income
producing properties.
The following table provides certain information regarding the maturity
distribution of commercial mortgage loans:
Mortgage Loan Maturities
<TABLE>
<CAPTION>
December 31, 1996
--------------------
Carrying % of
Value Total
--------------------
($ In Millions)
<S> <C> <C>
Due in one year or less $ 452 11.6%
Due after one year
through five years 1,519 39.0
Due after five years
through ten years 1,171 30.0
Due after ten years 755 19.4
------------------
Total $3,897 100.0%
==================
</TABLE>
At December 31, 1996, 87.7% of the mortgage loan portfolio consisted of bullet
loans (loans that do not fully amortize over their term) compared to 89.7% at
December 31, 1995. Scheduled bullet maturities at December 31, 1996 of $452
million, $276 million, $369 million, and $455 million in 1997, 1998, 1999 and
2000 represent 11.5%, 7.1%, 9.5% and 11.7% respectively, of the mortgage loan
portfolio.
The Company had $674 million of bullet loans scheduled to mature during 1996 of
which $337 million, or 50.0%, were paid in full at maturity, $206 million, or
30.6%, were refinanced, $83 million, or 12.3%, were foreclosed or paid off at
discount, and the remaining $48 million, or 7.1%, are in the process of
negotiating foreclosure, forbearance or in bankruptcy.
During 1996 all renewed bullet loans were performing assets prior to renewal and
all loan renewals reflected market conditions. Past experience with regard to
bullet maturities, however, is not necessarily indicative of future results.
19
<PAGE>
The maturities of commercial mortgage loans are considered by the Company to be
sufficiently diversified and are carefully monitored and managed in light of the
Company's liquidity needs. See "Liquidity and Capital Resources."
The mortgage loan portfolio comprised 10.1% and 10.3% of the Company's
investments at December 31, 1996 and 1995, respectively. The mortgage loan
average investment yield was 9.2% and 9.3% for the years ending December 31,
1996 and 1995, respectively.
Total gross investment income on mortgage loans for the year ended December 31,
1996 was $341 million, a 3.4% decrease from $353 million for 1995. Net realized
capital losses for the years ended December 31, 1996 and 1995 were $57 million
and $88 million, respectively.
The following tables set forth by property type and geographic distribution of
the carrying value of mortgage loan balances as a percentage of the portfolio as
of the dates indicated:
Mortgage Loans by
Property Type
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
-------------------------
Carrying % of Carrying % of
Value Total Value Total
--------------------------------------
($ In Millions)
<S> <C> <C> <C> <C>
Office $1,184 30.4% $1,272 32.9%
Retail 880 22.6 1,073 27.7
Industrial & Other 539 13.8 532 13.7
Apartments 752 19.3 528 13.6
Hotels & Motels 537 13.8 431 11.1
Commercial Pools 5 0.1 36 1.0
----------------------------------
$3,897 100.0% $3,872 100.0%
==================================
</TABLE>
Mortgage Loans by
Geographic Distribution
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
-------------------------
Carrying % of Carrying % of
Value Total Value Total
--------------------------------------
($ In Millions)
<S> <C> <C> <C> <C>
West $ 847 21.6% $ 965 25.0%
Northeast 729 18.7 779 20.1
Mid-Atlantic 622 16.0 689 17.8
Southeast 630 16.2 548 14.1
Midwest 533 13.7 485 12.5
Southwest 536 13.8 406 10.5
----------------------------------
$3,897 100.0% $3,872 100.0%
==================================
</TABLE>
Real Estate
The real estate portfolio includes real estate properties originally acquired as
investments, occupied by the Company and real estate acquired through
foreclosure. The real estate portfolio consists of office, retail, apartment,
hotel and warehouse properties primarily owned directly by the Company. At
December 31, 1996, office properties constituted the largest component of the
portfolio, representing 43.8% of the aggregate carrying value.
The following table illustrates the diversity of the equity real estate
portfolio by region and by property category.
Equity Real Estate by
Property Type
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
-------------------------
Carrying % of Carrying % of
Value Total Value Total
--------------------------------------
($ In Millions)
<S> <C> <C> <C> <C>
Office $ 806 43.8% $ 604 36.5%
Hotels & Motels 444 24.1 352 21.3
Retail 269 14.6 277 16.8
Apartments 148 8.0 150 9.1
Industrial and Other 174 9.5 270 16.3
----------------------------------
Total $1,841 100.0% $1,653 100.0%
==================================
</TABLE>
Equity Real Estate by
Geographic Distribution
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
-------------------------
Carrying % of Carrying % of
Value Total Value Total
-------------------------------------
($ In Millions)
<S> <C> <C> <C> <C>
Southeast $ 415 22.5% $ 424 25.7%
Mid-Atlantic 304 16.5 270 16.3
Midwest 281 15.3 263 15.9
Northeast 212 11.5 389 23.5
West 440 23.9 187 11.3
Southwest 189 10.3 120 7.3
----------------------------------
Total $1,841 100.0% $1,653 100.0%
===================================
</TABLE>
The Company has been active in the investment real estate market since the
1960's. At the close of 1996, the Company's real estate portfolio consisted of
178 properties with a statement value in excess of $1.8 billion. The portfolio
is primarily unleveraged with only $27 million in third party non-recourse debt
outstanding.
Real estate produced gross investment income of $289 million for the years ended
December 31, 1996, and $287 million for the year ended December 31, 1995. Net
capital losses from sales transactions and impairments were $74 million and $49
million, respectively, for such periods.
Foreclosed real estate is accounted for when acquired at the lower of the
property's market value or the loan balance, with write-downs at the point of
foreclosure being based on appraisals. All real estate investments are re-valued
annually as described below, and write-downs are taken if the revaluation
indicates a permanent impairment of value. Foreclosed properties are managed to
optimize value and then either sold or transferred to the investment real estate
portfolio. Foreclosed real estate had a carrying value, net of write-downs, of
$132 million and $280 million at December 31, 1996 and 1995 respectively.
Individual property valuations are reviewed by management on a regular basis.
Real estate valuations are first established at the Company's regional offices
by the asset managers using the ARGUS (TM) software valuation program to project
income on a lease-by-lease basis. Budgeted expenses, leasing assumptions and
capital expenditures are also reflected. The valuations are then reviewed by the
appraisal section of the Company's Real Estate Investment Division for technical
accuracy, methodology and the appropriateness of the assumed rates of return.
The valuations are prepared on an interim basis between the months of February
and September, with a final valuation prepared for the end of the year.
Additionally, in 1996 a sample of properties constituting 25% of the portfolio
20
<PAGE>
market value were appraised by external independent appraisers.
Properties acquired by foreclosure or deed in lieu of foreclosure are
transferred to investment real estate when the following qualifications have
been met: (i) the property has been owned or monitored by the Company for
sufficient time to allow proper evaluation (including the pendency of
foreclosure procedures, receivership or redemption); (ii) the property has
generated an annual net operating income equal to at least 7% of the current
book value for the most recent six month period (12 months for hotels); and
(iii) there are no unusual circumstances which would have substantial negative
impact on the value of the property or the stability of the income stream (e.g.,
environmental problems, major tenant vacancies over a short-term or structural
building deficiencies, etc.)
At December 31, 1996, the Company's real estate AVR totaled $140 million. In
addition, the Company maintained a separate general investment reserve of $40
million in respect of properties held for sale during the upcoming year. See
"Investment Reserves."
Portfolio Surveillance and Under Performing Investments
Bonds
The Company reviews all bonds on a regular basis utilizing the following
criteria: (i) material declines in revenues or margins, (ii) significant
uncertainty regarding the issuer's industry, (iii) debt service coverage or cash
flow ratios that fall below industry-specific thresholds, (iv) violation of
financial covenants, (v) trading of public securities at a substantial discount
due to specific credit concerns and (vi) other subjective factors that relate to
the issuer. The bond portfolio is actively reviewed to estimate the likelihood
and amount of financial defaults or write-downs in the portfolio and to make
timely decisions as to the potential sale or re-negotiation of terms of specific
investments.
As defined by the NAIC, under performing bonds are those whose deferral of
interest and/or principal payments are deemed to be caused by the inability of
the obligor to make such payments as called for in the bond contract.
The Company does not accrue interest income on bonds delinquent more than 90
days or when management believes the collection of interest is uncertain.
Interest not accrued on bonds totaled $16 million for the years ended December
31, 1996 and 1995, respectively.
The carrying values of NAIC Category 5 and 6 bonds, as of the indicated dates,
were as follows:
NAIC Category 5 and 6 Bonds
Carrying Value
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In Millions)
<S> <C> <C>
Performing:
Public $ 4 $ 4
Private 59 46
---- ----
Total 63 50
---- ----
Under performing:
Public 3 0
Private 40 37
---- ----
Total 43 37
---- ----
Total $106 $ 87
==== ====
</TABLE>
As a result of the Company's conservative monitoring process, an internal watch
list is generated which includes certain securities which would not be
classified as under-performing under the SVO credit rating system. At December
31, 1996, bonds having a carrying value of $529 million (2.2% of the total bond
portfolio) had been placed on the internal watch list, which is comprised of $1
million NAIC Category 1, $162 million NAIC Category 2, $100 million NAIC
Category 3, $221 million NAIC Category 4 and $45 million NAIC Category 5.
Mortgage Loans
The Company actively monitors and manages its mortgage loan portfolio and also
directly services the portfolio. Company personnel perform or review all aspects
of loan origination and portfolio management, including lease analysis, property
transfer analysis, economic and financial reviews, tenant analysis and oversight
of default and bankruptcy proceedings. All properties are re-valued each year
and re-inspected either each year or every other year based on internal quality
ratings. The Company uses the following criteria to determine whether a current
or potential problem exists: (i) borrower bankruptcies, (ii) major tenant
bankruptcies, (iii) requests for restructuring, (iv) delinquent tax payments,
(v) late payments, (vi) loan-to-value or debt service coverage deficiencies and
(vii) overall vacancy levels.
Restructured mortgage loans are loans for which current payment terms have been
modified to less than current market rates and which are currently performing in
accordance with such modified terms. Loans on which maturities have been
extended but on which current payments are being made at or above market
interest rates are not classified as restructured loans.
The carrying values of current and potential problem mortgage loans as of the
dates indicated were as follows:
Current and Potential Problem Mortgage Loans
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In Millions)
<S> <C> <C>
Restructured $364 $412
In Process of Foreclosure 120 51
In Default 8 30
Actively Managed 99 134
---- ----
Total $591 $627
==== ====
</TABLE>
The AVR contains a mortgage loan component which totaled $65 million at the end
of 1996. In addition, at December 31, 1996, the Company maintained a general
investment reserve of $76 million for properties in the process of foreclosure
and for other specific anticipated losses. See "Investment Reserves."
The Company does not accrue interest income on mortgage loans which are
delinquent more than 90 days or when management believes the collection of
interest is uncertain.
21
<PAGE>
Interest not accrued on mortgage loans totaled $12 million and $11 million for
the years ended December 31, 1996 and 1995, respectively.
The following tables set forth current and potential problem mortgage loans by
property category and geographic region as of December 31, 1996:
Mortgage Loan Distribution By Property Type
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Problem % of
Total Loan Loan Total Loan
Amount Amount Amount
-----------------------------------
($ In Millions)
<S> <C> <C> <C>
Office $1,184 $265 22.4%
Retail 880 127 14.4
Industrial & Other 539 77 14.3
Apartments 752 66 8.8
Hotels & Motels 537 52 9.6
Commercial Pools 5 4 80.0
-----------------------------------
Total $3,897 $591 15.2%
====================================
<CAPTION>
Mortgage Loan Distribution By Region
December 31, 1996
-----------------
Problem % of
Total Loan Loan Total Loan
Amount Amount Amount
-----------------------------------
($ In Millions)
<S> <C> <C> <C>
West $ 847 $177 20.9%
Northeast 729 175 24.0
Mid-Atlantic 622 102 16.4
Southeast 630 25 4.0
Midwest 533 91 17.1
Southwest 536 21 4.0
-----------------------------------
Total $3,897 $591 15.2%
====================================
</TABLE>
Write-downs and Allowances
When the Company determines that it is probable that the net realizable value of
an asset is less than its carrying value, appropriate write-downs or allowances
are established and recorded in accordance with statutory accounting practice.
In the case of bonds, the net realizable value is determined in accordance with
principles established by the SVO using criteria such as the net worth and
capital structure of the borrower, the value of the collateral, the presence of
additional credit support and the Company's evaluation of the borrower's ability
to compete in a relevant market.
In the case of real estate and commercial mortgage loans, borrower and property-
specific assessments are also made.
Investment Reserves
In compliance with regulatory requirements, the Company maintains the AVR. The
AVR stabilizes policyholders' contingency reserves against non-interest rate
related fluctuations in the value of stocks, bonds, mortgage loans and real
estate investments. General investment reserves ("GIR"), which are not mandated
by regulation, are maintained by MassMutual in anticipation of future losses on
specific mortgage loans and real estate holdings, particularly mortgage loans in
the process of foreclosure.
The Company's total investment reserves at December 31, 1996 were $897 million,
an 18.8% increase from December 31, 1995, consisting of AVR of $689 million and
general investment reserves of $208 million, comprised of $176 million for
mortgage loans and real estate and $32 million for a special reserve related to
the surplus notes issued during 1993 and 1994.
The following table presents the change in total investment reserves for the
years 1996 and 1995:
TOTAL INVESTMENT RESERVES
<TABLE>
<CAPTION>
Bonds, Preferred Special
Stocks and Investment
Short-term Mortgage Other Reserve for
Investments Loans Real Estate Investments Surplus Notes Total
----------- ----- ----------- ----------- ------------- -----
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994(1)(6) $208 $204 $ 125 $107 $ 35 $679
---- ---- ------- ---- -------- ----
Reserve contributions (2) 44 11 27 5 0 87
Transfers among categories (2) 2 27 (27) 0 0
Net realized capital gains (losses) (3) (1) (70) (42) 18 0 (95)
Unrealized capital gains (losses) (4) (39) (6) (2) 131 0 84
---- ---- ------- ---- -------- ----
Net change to Policyholders'
Contingency Reserves (5) 2 (63) 10 127 0 76
---- ---- ------- ---- -------- ----
Balance at December 31, 1995(6) $210 $141 $ 135 $234 $ 35 $755
==== ==== ====== ==== ======= ====
Reserve contributions (2) 40 37 41 0 (3) 115
Transfers among categories 0 0 154 (154) 0 0
Net realized capital gains (losses) (3) (7) (37) (79) 200 0 77
Unrealized capital gains (losses) (4) (9) 0 (11) (30) 0 (50)
---- ---- ------- ---- -------- ----
Net change to Policyholders'
Contingency Reserves (5) 24 0 105 16 (3) 142
---- ---- ------- ---- -------- ----
Balance at December 31, 1996(6) $234 $141 $ 240 $250 $ 32 $897
==== ==== ======= ==== ======== ====
</TABLE>
(1) General Investment Reserves for mortgage loans and real estate of $46
million and $32 million, respectively, have been reclassified to conform with
current year presentation.
(2) Amounts represent contributions calculated on a statutory formula plus
amounts deemed necessary by the Company. Represents the net impact on
Policyholders' Contingency Reserves for investment gains and losses not related
to changes in interest rates.
22
<PAGE>
(3) These amounts offset realized capital gains (loss), net of tax, that have
been recorded as a component of net income. Amounts include realized capital
gains and losses, net of tax, on sales not related to interest fluctuations,
repayments of mortgage loans at a discount, mortgage loan foreclosures and real
estate permanent write-downs.
(4) These amounts offset unrealized capital gains (loss), recorded as a change
in Policyholders' Contingency Reserves (Surplus). Amounts include unrealized
losses due to market value reductions of securities with a NAIC quality rating
of 6 and net changes in the undistributed earnings of subsidiaries.
(5) Amounts represent the reserve contribution (note 2) less amounts already
recorded (notes 3 and 4). This net change in reserves is recorded as a charge to
Policyholders' Contingency Reserves.
(6) The balance is comprised of the Asset Valuation Reserves and General
Investment Reserves which are recorded separately as liabilities on the
statement of financial position as follows:
<TABLE>
<CAPTION>
Assets General
Valuation Investment
Reserves Reserves Total (6)
-------- ---------- -------
(In Millions)
<S> <C> <C> <C>
Balance at December 31, 1994 (restated) $470 $209 $679
Balance at December 31, 1995 $567 $188 $755
Balance at December 31, 1996 $689 $208 $897
</TABLE>
The Asset Valuation Reserve is a component of Total Adjusted Capital, while the
Investment Reserve is excluded from Total Adjusted Capital, according to the
NAIC definition.
VII. MassMutual - Description of the Business
Massachusetts Mutual Life Insurance Company is a mutual life insurance company
organized as a Massachusetts corporation which was originally chartered in 1851.
As a mutual life insurance company, the Company has no shareholders. The
Company's primary business is ordinary life insurance. The Company also
provides, directly or though its subsidiaries, a wide range of annuity and
disability products, and pension and pension-related products and services, as
well as investment services to individuals, and corporations and other
institutions, in all 50 states of the United States and the District of
Columbia. The Company is also licensed to transact business in Puerto Rico, and
six provinces of Canada, but has no export sales. Effective February 29, 1996,
Connecticut Mutual Life Insurance Company merged into the Company.
The Company's principal lines of business are (i) the Individual Line, which
provides life insurance including variable and universal life insurance,
annuities and disability income insurance to individuals and small businesses;
(ii) Pension Management, which provides group pension investment products and
administrative services, primarily to sponsors of tax qualified retirement
plans; (iii) Life and Health Benefits Management, which previously provided
group life and health insurance products and related services to corporations
and other institutions; this line was transferred to a subsidiary in December
1994, and the subsidiary was subsequently sold in March of 1996; and (iv)
MassMutual Investment Management Group, which provides advisory services for the
Company's general investment account and separate investment accounts, as well
as for various closed-end and open-end investment companies and external
institutional clients, through its own staff and those of Oppenheimer Funds Inc.
("Oppenheimer") and David L. Babson and Co., Inc. ("Babson"), in which the
Company indirectly owns controlling interests. A description of the business
done by each line of business appears below. The table appearing at the end of
Section VII sets forth financial data for each of the three insurance lines of
business for the periods indicated.
The direction and operations of the Company's three lines of business are guided
by a statement of corporate vision. The Company's operations are managed so as
to maintain a financially strong and efficient enterprise for the benefit of
policyholders. The Company's long-term objectives are to maintain corporate
financial strength, enhance policyholder value, and generate and sustain growth.
INDIVIDUAL LINE OF BUSINESS
The Company's Individual Line of Business ("Individual Line") operations provide
a wide range of individual insurance and investment products and financial
management services through its network of general agents, agents and affiliated
distributors. The Contracts are administered by the Individual Line. The
principal individual insurance products offered by the Company's Individual Line
operations include whole life, variable universal life and term insurance,
individual annuities and individual disability income insurance contracts. The
majority of these products allow riders that provide such benefits as waiver of
premium, accidental death benefits, paid-up additions to insurance coverage and
accelerated death benefits.
Registered variable contracts, mutual funds, including the Oppenheimer Funds
unit investment trusts and other investment products are distributed through MML
Investors Services, Inc. ("MML Investors Services"), a registered broker/dealer
that is indirectly wholly-owned by the Company. MML Distributors, LLC, also an
indirectly wholly-owned, registered broker/dealer subsidiary of the Company acts
as the principal underwriter for many of the Company's registered annuity and
insurance products.
Product Pricing and Management
The pricing of individual products is designed to produce surplus sufficient to
generate a level of capital consistent with
23
<PAGE>
the Company's financial strength objectives. Long-term value to policyholders is
achieved by competitively managing performance in the key financial fundamentals
for each individual product, including investment returns, expenses,
persistency, mortality and morbidity (the incidence and duration of sickness or
injury). The pricing of most products over time reflects actual experience
subject to minimum guarantees. For whole life products, the actual experience is
reflected in dividends that are, in effect, returns resulting from more
favorable interest, mortality, expense and persistency experiences than those
reflected in the premium. For other products, the actual experience is reflected
in interest, mortality and/or expense rates.
Principal Markets, Marketing and Distribution
Sales of the Company's Individual Line products are primarily targeted to three
markets: upper income individuals ages 35 and over; moderate income individuals
under age 35; professionals, business owners, principal and partners.
The Company sells its Individual Line products nationwide primarily through 94
general agents who contract with more than 5100 full-time career agents. In
1996, 81% of Individual Line's premiums were generated by policies sold by the
Company's career agents. The balance was sold by other producers, including
independent brokers, who contract with the general agents, and consultants. In
1994, the Company began to issue the Oppenheimer LifeTrust Variable Annuity for
marketing and distribution by the Oppenheimer distribution system of registered
representatives in addition to the Company's career agents.
Underwriting
All underwriting is centralized at the Company's home office. The risk
assessment process is carefully balanced to ensure an evaluation of relative
risks consistent with the issuance of new business and competitive product
performance. The Company utilizes a computerized system in the process of
reviewing and approving applications for life insurance. This system affords the
Company substantial savings in underwriting time and cost, and lends consistency
to the underwriting process.
Competition
The life insurance industry is highly competitive. There are more than 1,700
life insurance companies in the United States, many of which offer individual
insurance products similar to those marketed by the Individual Line. In addition
to competition within the industry, insurers are increasingly facing competition
from non-traditional sources in the financial services business, including
mutual funds, banks, securities brokerage houses and other financial services
entities, many of which provide alternative investment and savings vehicles for
consumers. Legislative initiatives proposed at the federal level would, if
enacted, reorder the financial services industry, thereby changing the
environment in which the Company competes.
Competition for large life insurance sales usually includes fewer than 50
financially strong companies such as the Company. Clients' advisors,
consultants, attorneys and accountants are often involved in the selling process
for these large cases. There is substantial competition for smaller cases due to
the large number of companies and agents in these markets nationwide.
The Company's management believes its financial strength, agent skill and
historical product performance provide competitive advantages for the individual
products it offers in these markets. The Company has received the highest
ratings from A.M. Best Company, Inc. (A++), Standard & Poor's Corporation (AAA),
and Duff & Phelps Credit Rating Company (AAA), as well as a rating of Aa1 by
Moody's Investors Service, Inc. (the highest in its "excellent" category). In
late 1995 and early 1996, all four of these agencies conducted thorough reviews
of MassMutual's ratings in light of the Connecticut Mutual merger. In all four
cases, the 1995 ratings for the Company were reaffirmed.
The Company is one of only two companies that has ranked in the top 10 companies
in each of the last 18 years in A.M. Best's Annual Statistical Study-20 Year
Dividend Comparisons. The study is based upon actual dividends paid over the
last 20 years and measures whole life policyholder value using net surrender
cost adjusted for interest.
Currently, more insurance companies, banks and mutual fund companies are
entering the annuity business. The Company competes in this market by using
multiple distribution channels, enhancing its customer service orientation, and
offering desired product features.
PENSION MANAGEMENT
Through its Pension Management operations, the Company markets a complete line
of group pension investment products and administrative services, primarily to
sponsors of tax qualified retirement plans. The Company offers a variety of
guaranteed and non-guaranteed investment accumulation products and ancillary
services to both defined benefit and defined contribution plans.
Principal Markets, Marketing and Distribution
The Company's goal in the pension marketplace is to maintain its existing block
of defined benefit business, acquire existing business, and to take advantage of
new business opportunities in the defined contribution market. The Company
focuses on small and medium-size businesses, and currently administers over
2,500 full-service defined contribution plans serving in excess of 275,000
employees.
The Company's pension products are sold through 32 pension field
employees ("representatives") in 18 offices located in major cities in the
United States. The representatives distribute products through the Company's
agents, brokers (primarily agents of other companies) and consultants.
Competition
The Company's Pension Management operations, with over $16 billion in assets, is
among the top 50 pension asset managers in terms of assets under management. In
recent years, the Company has faced increased competition in the pension product
and services market as a result of the dissolution of traditional industry
boundaries and the entrance of mutual funds and other non-traditional pension
management entities which have significant name recognition and retail servicing
capabilities. The increased diversity in providers of pension products and
services, and the increasing number
24
<PAGE>
of companies entering the market are anticipated to increase price and
investment performance pressures. The Company's diverse product line, which
includes mutual funds, flexibility in servicing levels, and use of technology in
maintaining business are expected to enhance the Company's position as an
experienced pension management entity. The pension marketplace itself may be
poised for expansion due to increased attention focused on retirement planning
and savings.
LIFE AND HEALTH BENEFITS MANAGEMENT
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly the MML Pension Insurance Company currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc.
INVESTMENT MANAGEMENT
The Company's Investment Management Group operations provide investment
management services for the Company's general investment account and separate
investment accounts, two closed-end investment companies, four open-end
investment companies, a collateralized bond obligation company, pension funds,
endowments, and various subsidiaries. These advisory services are currently
performed by the Company, Babson, and Oppenheimer. Cornerstone Real Estate
Advisers, Inc., a real estate advisory subsidiary, manages the real estate
properties owned by the Company.
The Company's investment management services focus on supporting the liabilities
of the lines of business in light of yield, liquidity and diversification
considerations. The GIA, which backs most of the Company's participating and
non-participating insurance and pension products, is divided into a number of
separate portfolios, each of which is structured to meet the obligations of its
particular liabilities. The goal of asset/liability management for the GIA is to
optimize and control, particularly in volatile financial markets, the investment
return and liquidity of a portfolio given the unique set of liabilities it
supports. The Company utilizes a wide array of investment instruments to carry
out its portfolio management activities. The investment strategies for the
separate investment accounts are generally aimed at maximizing the total rate of
return against an agreed upon market benchmark.
REGULATION
The Company is licensed to transact its insurance business in, and is subject to
regulation and supervision by all 50 states of the United States, the District
of Columbia, Puerto Rico and six provinces of Canada. The Company's insurance
subsidiaries are licensed, regulated and supervised in all jurisdictions where
they conduct an insurance business. The extent of such regulation varies, but
most jurisdictions have laws and regulations requiring the licensing of insurers
and their agents and setting standards of solvency and business conduct to be
maintained by licensed insurance companies, and may regulate withdrawal from
certain markets. In addition, statutes and regulations usually require the
approval of policy forms and, for certain lines of insurance, the approval of
rates. Such statutes and regulations also prescribe the permitted types and
concentration of investments. The Company is also subject to regulation of its
accounting methodologies and practices and the Company and each of its insurance
subsidiaries are required to file detailed annual financial statements with
supervisory agencies in each of the jurisdictions in which they do business.
Each of their operations and accounts is also subject to examination by such
agencies at regular intervals.
Massachusetts insurance law requires the Company, as a domestic mutual life
insurance company, to maintain at least $1.6 million in statutory surplus but
limits the amount of surplus that the Company may accumulate. Additionally,
insurance regulators of other states have the discretionary authority, in
connection with the continual licensing of the Company and each of its insurance
subsidiaries, to limit or prohibit new issuances of business to policyholders
when, in their judgment, they determine that such insurer is not maintaining
minimum statutory surplus or capital or if the further transaction of business
will be hazardous to its policyholders.
The Company is subject to guaranty fund assessments in all states in which it
does business. The guaranty associations are organized to pay contractual
obligations under insurance policies issued by impaired or insolvent insurers.
The Company believes such assessments, if any, in excess of amounts accrued will
not materially affect its financial position, results of operations or
liquidity. The Company is also subject to risk-based capital ("RBC")
requirements promulgated by the NAIC, and is expected to be adopted by
Massachusetts in 1997. The RBC Model Act will give state insurance commissioners
explicit regulatory authority to require various actions by, or take various
actions against, insurance companies whose total adjusted capital does not meet
the RBC standards.
In addition to regulation of its insurance business, the Company is subject to
various types of federal and state laws and regulations affecting the conduct,
taxation and other aspects of its business. The Company and certain of its
subsidiaries, and certain policies and contracts offered by them are subject to
various levels of regulation under the federal securities laws administered by
the Securities and Exchange Commission. Also, as owners and operators of real
property, the Company is subject to extensive federal, state and local
environmental laws and regulations. Finally, when the Company and its insurance
subsidiaries issue insurance contracts to employee benefit plans governed by the
Employee Retirement Income Security Act of 1974 ("ERISA"), they are subject to
regulation by the United States Department of Labor.
In 1993, the United States Supreme Court issued its opinion in John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank, holding that certain
contractholder funds held by John Hancock Mutual Life Insurance Company in its
general investment account under a participating group annuity contract were
"plan assets" and therefore subject to ERISA's fiduciary provisions. The Company
is unable at this time to determine with any certainty the effect of the opinion
on its general account contracts and operations. The Department has granted a
class exemption from ERISA's prohibited transaction provisions which applies to
external investments made with general account assets. The Small Business Job
Protection Act of 1996 provided insurance companies some
25
<PAGE>
relief from the effects of the opinion. That law requires the Department of
Labor to issue regulations not later than December 31, 1997 establishing
guidelines and procedures under which insurance company general account assets
will not be considered plan assets on account of contracts issued on or prior to
December 31, 1998. Under the law, if an insurance company complies with those
regulations, no claim may be maintained that the insurance company's general
account contained plan assets subject to fiduciary requirements of ERISA on the
basis of contracts issued on or prior to December 31, 1998. This provision,
however, is not applicable to cases filed before November 7, 1995. The Company's
management believes it is in compliance in all material respects with all
applicable regulations.
PROPERTIES
The Company owns facilities located in Springfield, Massachusetts and Hartford,
Connecticut comprising its home office complex and occupies all of the space in
such buildings. The Company believes that such owned properties are suitable and
adequate for its business operations. This table sets forth financial data for
each of three insurance lines of business for the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(in millions) YEARS ENDED DECEMBER 31,
================================================================================================================================
Other Data: 1996 1995 1994 1993 1992
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Premium Income:
Individual Line $4,286 $ 3,925 $ 3,878 $ 3,882 $ 3,546
Pension Management 2,043 1,803 1,566 1,778 2,054
Life & Health Benefits
Management 0 0 733 748 754
------- ------- ------- ------- -------
Total premium income $ 6,329 $ 5,728 $ 6,177 $ 6,408 $ 6,354
======== ======== ======== ======== ========
================================================================================================================================
Net Investment and Other
Income:
Individual Line $ 2,062 $ 1,994 $ 1,782 $ 1,725 $ 1,629
Pension Management 799 904 967 1,112 1,225
Life & Health Benefits
Management 0 0 55 49 44
------- ------- ------- ------- -------
Total net investment and
other income $ 2,861 $ 2,898 $ 2,804 $ 2,886 $ 2,898
======== ======== ======= ======= =======
================================================================================================================================
Net Gain From Operations:
Individual Line $ 166 $ 218 $ 135 $ 143 $ 134
Pension Management 59 58 60 64 47
Life & Health Benefits
Management 0 0 43 45 49
------- ------- ------- ------- ---------
Total net gain from operations $ 225 $ 276 $ 238 $ 252 $ 230
======== ======== ======== ======== =========
================================================================================================================================
Total Assets (at period end):
Individual Line $36,361 $33,902 $30,278 $28,216 $24,936
Pension Management 16,986 16,595 16,060 16,710 16,619
Life & Health Benefits
Management 0 0 542 908 773
------- ------- ------- ------- -------
Total assets $53,347 $50,497 $46,880 $45,834 $42,328
======= ======= ======= ======= =======
================================================================================================================================
</TABLE>
26
<PAGE>
VIII. Directors And Executive Vice Presidents Of MassMutual
Directors:
Roger G. Ackerman, Director
Chairman and Chief Executive Officer, Corning, Inc., since 1996, President
and Chief Operating Officer 1990-1996, One Riverfront Plaza - HQE 2, Corning
NY 14831. Age 58.
James R. Birle, Director
President and Founder, Resolute Partners, LLC, since 1994, 2 Greenwich
Plaza - Suite 100, Greenwich CT 06830,; General Partner, Blackstone Group,
1988-1994. Age 60.
Frank C. Carlucci, III, Director
Chairman, The Carlyle Group, Inc., since 1989, 1001 Pennsylvania Avenue,
N.W. - Suite 220S, Washington DC 20004. Age 66.
Gene Q. Chao, Director
Chairman, President and CEO, Computer Projections, Inc., since 1991, 733 SW
Vista Avenue, Portland OR 97205-1203. Age 54.
Patricia Diaz Dennis, Director
Senior Vice President and Assistant General Counsel, SBC Communications Inc.
since 1995, 175 East Houston, Room 4-A-70, San Antonio TX 87205; Special
Counsel, Sullivan & Cromwell, 1993-1995; Assistant Secretary of State for
Human Rights and Humanitarian Affairs, U.S. Department of State, 1992-1993.
Age 50.
Anthony Downs, Director
Senior Fellow, The Brookings Institution, since 1977, 1775 Massachusetts
Ave., N.W., Washington DC 20036-2188. Age 66.
James L. Dunlap, Director
President and Chief Operating Officer, United Meridian Corporation, since
1996, 1201 Louisiana - Suite 1400, Houston TX 77002-5603; Senior Vice
President, Texaco, Inc. 1987-1996. Age 59.
William B. Ellis, Director
Senior Fellow, Yale University School of Forestry and Environmental Studies,
since 1995, 31 Pound Foolish Lane, Glastonbury, CT 06033; Chairman and Chief
Executive Officer, Northeast Utilities, 1983-1995. Age 56.
Robert M. Furek, Director
President and Chief Executive Officer, Heublein, Inc., 1987-1996, 100 Pearl
Street - 14th Floor, Hartford CT 06103-4506. Age 54.
Charles K. Gifford, Director
Chief Executive Officer, First National Bank of Boston and The Bank of
Boston Corporation, since 1996, Chairman, President and CEO 1995-1996,
President and CEO 1989-1995, 100 Federal Street, Boston MA 02110. Age 54.
William N. Griggs, Director
Managing Director, Griggs & Santow, Inc., since 1983, 75 Wall Street - 20th
Floor, New York NY 10005. Age 65.
George B. Harvey, Director
Chairman, President and CEO, Pitney Bowes, 1983-1996, 663 Ponus Ridge, New
Canaan CT 06840. Age 65.
Barbara B. Hauptfuhrer, Director
Director of various corporations, since 1972, 1700 Old Welsh Road,
Huntington Valley PA 19006. Age 68.
Sheldon B. Lubar, Director
Chairman, Lubar & Co. Incorporated, since 1977, 777 East Wisconsin Avenue -
Suite 3380, Milwaukee WI 53202. Age 67.
William B. Marx, Jr., Director
Senior Executive Vice President, Lucent Technologies 1996-1996, 600 Mountain
Avenue - Room 6A-502, Murray Hill NJ 07974; Executive Vice President and CEO
Multimedia Products Group, AT&T, 1994-1996; Executive Vice President and
CEO, Network Systems Group, 1993-1994; Group Executive and President, AT&T
Network Systems, 1989-1993. Age 57.
John F. Maypole, Director
Managing Partner, Peach State Real Estate Holding Company, since 1984, PO
Box 1223, Toccoa GA 30577. Age 57.
Donald F. McCullough, Director
Retired Chairman and Chief Executive Officer, Collins & Aikman Corp., since
1988, 210 Madison Avenue, New York NY 10016. Age 71.
John J. Pajak, Director,
President and Chief Operating Officer President and Chief Operating Officer,
MassMutual, since 1996, Vice Chairman and Chief Administrative Officer,
1996-1996, Executive Vice President, 1987-1996, 1295 State Street,
Springfield MA 01111. Age 61.
Thomas B. Wheeler, Director,
Chairman and Chief Executive Officer Chairman and Chief Executive Officer,
MassMutual, since 1996, President and Chief Executive Officer, 1988-1996,
1295 State Street, Springfield MA 01111. Age 60.
Alfred M. Zeien, Director
Chairman and Chief Executive Officer, The Gillette Company, since 1991,
Prudential Tower, Boston MA 02199. Age 66.
27
<PAGE>
Executive Vice Presidents
Lawrence V. Burkett, Jr.
Executive Vice President and General Counsel, MassMutual, since 1993, Senior
Vice President and Deputy General Counsel 1992-1993, 1295 State Street,
Springfield MA 01111. Age 51.
John B. Davies
Executive Vice President, MassMutual, since 1994; Associate Executive Vice
President 1994-1994; General Agent, 1982-1993, 1295 State Street,
Springfield MA 01111. Age 47.
Daniel J. Fitzgerald
Executive Vice President, Corporate Financial Operations, MassMutual, since
1994, Senior Vice President, 1991-1994, 1295 State Street, Springfield MA
01111. Age 48.
John V. Murphy
Executive Vice President, MassMutual, since 1997, Executive Vice President
and Chief Operating Officer, David L. Babson & Co., Inc., 1995-1997; Chief
Operating Officer, Concert Capital Management, Inc., 1993-1995, 1295 State
Street, Springfield MA 01111; Senior Vice President and Chief Financial
Officer, Liberty Financial Companies, 1977-1993. Age 45.
Gary E. Wendlandt
Executive Vice President and Chief Investment Officer, MassMutual, since
1993, Executive Vice President, 1992-1993, Senior Vice President, 1983-1992,
1295 State Street, Springfield MA 01111. Age 46.
28
<PAGE>
IX. Executive Compensation
The compensation that the Chief Executive Officer and the most highly
compensated executive officers (receiving compensation in excess of $100,000)
other than the Chief Executive Officer, is summarized in the tables below. The
footnotes that follow explain the nature of the compensation in greater detail.
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY COMPENSATION TABLE
====================================================================================================================================
Annual Compensation Long-term Compensation /(2)/
====================================================================================================================================
Other Restricted All
Annual Stock Options LTIP Other
Name and Principal Position Salary/(1)/ Bonus Compensation Awards SARs (#) Payouts ($) Compensation/(3)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 1996
- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Wheeler, Thomas B. - President & CEO $865,000 $1,443,900 $9,508 N/A N/A $689,300 $311,265
- ------------------------------------------------------------------------------------------------------------------------------------
Pajak, John J. - President & COO (6) $517,717 $926,800 $9,498 N/A N/A $428,200 $167,503
- ------------------------------------------------------------------------------------------------------------------------------------
Wendlandt, Gary E. - Exec. Vice Pres. & CIO $410,900 $626,200 $1,476 N/A N/A $283,200 $54,408
- ------------------------------------------------------------------------------------------------------------------------------------
Fitzgerald, Daniel J. - Exec. Vice $314,100 $413,500 $1,391 N/A N/A $154,500 $42,382
President
- ------------------------------------------------------------------------------------------------------------------------------------
Naughton, John M. - Exec. Vice President $301,050 $338,300 $2,191 N/A N/A $121,100 $384,054
- ------------------------------------------------------------------------------------------------------------------------------------
Sams, David E. - President & COO $670,353 $573,475 $7,692 N/A N/A N/A $1,481,480
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995
- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Wheeler, Thomas B. - Chairman & CEO $800,000 $640,000 $6,118 N/A N/A $1,246,300 $194,084
- ------------------------------------------------------------------------------------------------------------------------------------
Pajak, John J. - President & COO $339,300 $196,600 $3,284 N/A N/A $421,400 $114,949
- ------------------------------------------------------------------------------------------------------------------------------------
Wendlandt, Gary E. - Exec. Vice Pres. & CIO $378,083 $261,400 $954 N/A N/A $486,500 $40,926
- ------------------------------------------------------------------------------------------------------------------------------------
Fitzgerald, Daniel J. - Exec. Vice $277,500 $162,000 $728 N/A N/A $337,600 $29,367
President
- ------------------------------------------------------------------------------------------------------------------------------------
Naughton, John M. - Exec. Vice President $291,925 $135,200 $1,442 N/A N/A $379,700 $100,153
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1994
- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Wheeler, Thomas B. - Chairman & CEO $765,000 $468,200 $4,063 N/A N/A N/A $182,098
- ------------------------------------------------------------------------------------------------------------------------------------
Pajak, John J. - President & COO $311,325 $149,000 $1,972 N/A N/A N/A $98,734
- ------------------------------------------------------------------------------------------------------------------------------------
Wendlandt, Gary E. - Exec. Vice Pres. & CIO $343,992 $237,500 $407 N/A N/A N/A $37,932
- ------------------------------------------------------------------------------------------------------------------------------------
Fitzgerald, Daniel J. - Exec. Vice $226,908 $127,800 $399 N/A N/A N/A $28,509
President
- ------------------------------------------------------------------------------------------------------------------------------------
Naughton, John M. - Exec. Vice President $278,075 $131,500 $909 N/A N/A N/A $79,961
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes:
- ----------
/(1)/Salary dollars reflect base compensation paid during the fiscal year and
include all base salary deferrals made to qualified Thrift Plus Plan and
Nonqualified Thrift Plan.
/(2)/Bonus dollars reflect reference year payouts.
/(3)/Includes miscellaneous pay. Some miscellaneous pay represents grossed-up
reimbursements for taxes executives paid on nonqualified deferred
compensation.
/(4)/Long-term Incentive Plan ("LTI Plan") payouts - 1995 numbers reflect close-
out of previous LTI Plan at end of 1995; 1996 numbers reflect estimated
payment of 1996 performance year payouts for April, 1997.
/(5)/All Other Compensation - Includes such compensatory items as Company
contributions made to qualified and nonqualified defined contribution
plans, Regular Split Dollar (and Executive Split Dollar if applicable) Life
Insurance excess cash values due executive officer after reimbursement of
Company-paid premiums (all values are based on 1997 dividend schedule),
taxable value of fringe benefits, and Executive Deferred Retirement Plan
Company contributions. LTI accruals were included in past filings. However,
only actual LTI payments made are reflected above (1994 and 1995 historical
information has been updated).
/(6)/David E. Sams resigned his position as President and COO on 11/14/96. John
Pajak assumed the responsibilities of President and COO upon the
resignation of David Sams.
================================================================================
29
<PAGE>
Long-Term Incentive Plan
The Long-term Incentive Plan was designed to reinforce strategic thinking and
long-term decision making by encouraging and rewarding corporate stewardship,
sustained financial success and strategic progress. Performance results in the
areas of Financial Strength, Growth, and Policyholder Value are benchmarked
against a peer group of similar mutual life insurance companies to determine the
level of achievement and ultimately the level of payout. Target performance
results provide a payout equal to 100% of a participant's target award level
while threshold and maximum performance results yield payouts of 50% and 200%,
respectively.
The measurement period is three years and each calendar year begins a new cycle.
Payouts are based on relative performance (as compared to similar mutual life
insurance companies) measured at the end of the three-year cycle. Individual
targets are assigned to each participant through a competitive review, and range
from 65% to 130% for named executives. Payouts are based on a year-end salary
average for each of the three years within the cycle multiplied by the
individual target multiplied by the relative performance result.
All Executive Officers are eligible to participate in the Plan with the
exception of those covered by other long-term incentive or bonus plans.
Individuals joining the Company begin participating in the three-year
performance cycle commencing the year in which they are hired. Based on
Corporate performance results over the three-year period, the participant will
receive a pro-rated award reflective of the total months of eligibility within
the cycle.
In the case of death, disability, or retirement, full awards will be made for
the completion of any full cycle (three-year period) and pro-rated awards will
be paid for any partial cycle in which the individual participated. All payments
will be made during the year following the completion of the three-year cycle in
accordance with Plan provisions. Individuals who terminate from the Company,
either on a voluntary or involuntary basis, forfeit all rights to any accrued or
future Long-term Incentive Plan payments.
<TABLE>
<CAPTION>
====================================================================================================================================
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR /(1)/
====================================================================================================================================
Estimated Future Payouts Under
Non-stock Price-Based Plans /(3)/
====================================================================================================================================
Number of Shares, Performance or
Units, or Other Other Period Until
Name Rights (#) Maturation of Payout Threshold Target ($) Maximum
/(2)/ ($) ($)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Wheeler, Thomas B - President & CEO N/A 1996 - 1998 Perf. Year $585,200 $1,170,400 $2,340,800
Pajak, John J. - President & COO N/A " " $353,900 $ 707,800 $1,415,600
Wendlandt, Gary E. - Exec. Vice Pres. & CIO N/A " " $240,500 $ 480,900 $ 961,800
Fitzgerald Daniel J. - Exec. Vice President N/A " " $137,200 $ 274,400 $ 548,800
Naughton, John M. - Exec. Vice President /(4)/ N/A " " $ 38,400 $ 76,800 $ 153,600
Sams, David E. - President & COO /(5)/ N/A " " N/A N/A N/A
</TABLE>
Footnotes:
- ---------
/(1)/Long-term Incentive Plan was incorporated in 1993 with first payment to be
made in 1996. Due to the merger with Connecticut Mutual, the LTI Plan was
closed out and all accruals through 12/31/95 were paid in January, 1996.
Subsequent to the merger, the Board of Directors approved a new LTI Plan
for all Executive Officers of the new Company (see attached description).
/(2)/Each "cycle" includes a three-year performance period (first cycle of the
new Plan = 1996 through 1998).
/(3)/Target performance results will provide a payout equal to 100% of the
individual Target Award. Threshold and maximum performance results will
yield payouts of 50% and 150% of the individual target, respectively.
Payouts illustrated reflect payout at the completion of the first full
cycle. To transition the new LTI Plan, partial payments were approved: 1/3
payout for 1996, 2/3 payout for 1997.
/(4)/John Naughton retired from the Company on 3/1/97. Future LTI payments will
be prorated based on the number of months in the cycle that he was an
active employee (14/36).
/(5)/David E. Sams resigned from the Company on 11/14/96. No further LTI payment
will be made.
================================================================================
Human Resources Committee Report
The Human Resources Committee of the Board of Directors is responsible for
establishing and administering the compensation policies and programs for the
executive officers of MassMutual. The Human Resources Committee reviews the
compensation of executive officers on an ongoing basis and ensures that plans
are designed both to support MassMutual's business strategies and reflect
marketplace practices in a dynamic and highly competitive industry.
The foundation of MassMutual's executive compensation program is the Company's
pay for performance philosophy. MassMutual places greater emphasis on variable
pay versus fixed compensation to recognize performance. MassMutual also
emphasizes long-term variable pay versus short-term, or
30
<PAGE>
annual, variable pay for executive officers. In implementing the Company's
philosophy, the Human Resources Committee evaluates performance and strategic
progress relative to the prior year and over a period of years. As part of this
evaluation, the Human Resources Committee considers competitive performance and
pay levels based on a comparative group of similar life insurance companies.
This comparative group represents the marketplace in which the Company competes
for business and executive talent.
The Human Resources Committee's objective is to position executive total
compensation within a range of the comparative group median for performance
which meets expectations. Total compensation may fall below or above the
comparative group median based on performance. As part of its evaluation
process, the Human Resources Committee considers and compares Company
performance to the comparative group performance using various quantitative
factors. These factors include the level, quality and growth of earnings and
revenues, increase in policyholder value, and overall financial strength. The
compensation program endorsed by the Human Resources Committee consists of the
following elements: salaries, annual incentive awards, Special Merger
Integration Plan awards, and long-term incentive awards.
Salaries: Salaries for executive officers are based on the competitive
marketplace for comparable jobs. Individual salaries are determined by the
executive's level and scope of responsibility within the Company. The Committee
reviews salaries annually. The Committee utilizes the comparative group
discussed above which represents the Company's major competitors for business
and executive talent. Executive officer salaries are set at a median level
overall relative to similarly positioned executives within the comparative
group. In 1996, executive officer salaries increased by 4% on average.
Annual Incentive Awards:
Annual incentive awards payable under the Company's Incentive Plan are designed
to reward executive officers for achieving specific financial and strategic
goals that create policyholder value. These goals are established at the
beginning of the year, and bonuses are linked directly to their achievement. For
1996, the Committee established goals which focused on: (1) expense reduction,
in connection with the integration and merger of MassMutual and Connecticut
Mutual; and (2) revenue targets, measured by first-year commissions earned by
the Individual sales force and overall investment management results (which was
assessed using two criteria): (i) investment performance relative to a select
investment comparative group; and, (ii) investment performance reflecting the
P&L results relative to goals of the investment operation established at the
beginning of the year. 60% of the annual award depended upon achievement of the
established expense reduction goals, and 40% of the award depended upon
achievement of the revenue goals. The Committee also establishes, based on
competitive data, individual target award levels ("Target Award(s)") which would
provide median annual cash compensation (salary and annual incentive award)
opportunities relative to the comparative group if the established goals are
achieved. If 100% of the expense reduction and revenue goals were met, up to
100% of an executive officer's Target Award would be payable. If 85% of the
goals were met, up to 50% of the Target Award would be payable. There would be
no payout for results falling below this level. Maximum performance, which would
result in a payout of 200% of the Target Award, reflects performance at or above
120% of the established goals. In 1996, actual performance exceeded the
established goals resulting in annual incentive awards paid at 178.2% of target.
1996 Special Merger Integration Plan Awards: Additional incentive awards were
paid in 1996 to the CEO, the President, the Vice Chairman and to the Executive
Vice Presidents under the Special Merger Integration Plan. This Plan was
designed to reward participating executive officers for achieving expense
reduction goals in connection with the integration and merger of MassMutual and
Connecticut Mutual. An initial award equal to 20% of each participant's salary
was paid in the second quarter of 1996. An additional payment was made in the
first quarter of 1997. For the second payment, if 100% of the goals was
achieved, a target award equal to 40% of the participant's salary was payable.
If 50% of the goal was achieved, an award equal to 20% of the participant's
salary was payable. No award was payable if less than 50% of the goal was
achieved. Additionally, no more than the 40% of salary award was made for
achievement above goal. The expense reduction goals were exceeded and awards of
40% of salary were paid.
Long-term Incentive Awards: The Company's Long-term Incentive Plan reinforces
the fundamental compensation objective of aligning pay with performance. Awards
payable under the Plan are designed to reward executive officers for achieving
specific long-term financial goals over a three-year performance period. These
goals are intended to reward advancements in the financial strength of the
Company, enhancement of policyholder value and growth in revenues. More
specifically, target goals for the 1996-1998 performance period include:
maintaining a rating from Standard & Poor, Duff & Phelps, Moody's and AM Best
that is equivalent to the mean rating received by eight companies of the
comparative group (the "Benchmark Group"); risk-based capital equivalent to the
Benchmark Group mean; interest adjusted net cost equal to the Benchmark Group
mean; growth in weighted revenue premium equal to the mean growth for the
Benchmark Group. The following weights are applied to each measure to determine
the performance result: ratings: 15%; risk-based capital: 25%; interest adjusted
net cost: 35%; weighted revenue premium growth: 25%. The Committee also
establishes, based on competitive data, individual target award levels ("Target
Award(s)") which would provide median total compensation (the sum of salary,
annual bonus award and long-term incentive award) opportunities relative to the
comparative group if the established goals are achieved. If 100% of the goals
are met, up to 100% of an executive officer's Target Award is payable. If actual
results for the performance period equal 75% of the difference between the
results of the top quartile of the Benchmark Group and the mean results of the
Benchmark Group, up to 50% of the Target Award is payable. There is no payout
for results falling below this level. Maximum performance, which results in
payout of 200% of the Target Award, reflects results achieved in the top
quartile of the Benchmark Group. In 1996, Company performance was in the top
quartile in two out of four measures and in the third quartile for the remaining
two measures, resulting in a payout of 183.9% of the Target Award.
31
<PAGE>
Compensation of the Chief Executive Officer
The quantitative criteria referenced above are applied in assessing the
performance and determining the compensation of the Chief Executive Officer of
the Company who participates in the Company's executive compensation program on
the same basis as all other executive officers.
The Committee, in setting the CEO's compensation, has taken into account the
Company's strategic progress, integration of MassMutual and Connecticut Mutual,
operating performance and profitability. In 1996, the Committee increased the
CEO's salary 8.1% to $865,000 to recognize his new role as Chairman of the
Board. His annual incentive award of $1,443,900 consisted of a payment under the
Short-term Incentive Plan of $924,900, representing a payout of 1996 performance
results which were 178.2% of the established goals. The balance of the annual
incentive award represents payouts totaling $519,000 under the 1996 Special
Merger Integration Plan for results exceeding the established goals. The CEO's
1996 Long-term Incentive Award of $689,300 reflects a performance result of
183.9% against the established goals. The following table shows the estimated
annual pension benefits payable to a covered participant at normal retirement
age under the final pay formula contained in the MassMutual Defined Benefit
Retirement Plan. The Retirement Plan is a qualified defined benefit plan.
<TABLE>
<CAPTION>
====================================================================================================================================
Pension Plan Table - Annual Age 60 Benefit /1/
====================================================================================================================================
Years of Service (3)
====================================================================================================================================
Average Annual
Remuneration (2) 15 20 25 30 35
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
$125,000 $ 33,180 $ 44,240 $ 55,300 $ 59,988 $ 64,675
$150,000 $ 40,680 $ 54,240 $ 67,800 $ 73,425 $ 79,050
$175,000 $ 48,180 $ 64,240 $ 80,300 $ 86,863 $ 93,425
$200,000 $ 55,680 $ 74,240 $ 92,800 $100,300 $107,800
$225,000 $ 63,180 $ 84,240 $105,300 $113,738 $122,175
$250,000 $ 70,680 $ 94,240 $117,800 $127,175 $136,550
$350,000 $100,680 $134,250 $167,800 $180,925 $194,050
$450,000 $130,680 $174,250 $217,800 $234,675 $251,550
$550,000 $160,680 $214,240 $267,800 $288,245 $309,050
$650,000 $190,680 $254,240 $317,800 $342,175 $366,550
$750,000 $220,680 $294,240 $367,800 $395,925 $424,050
$850,000 $250,680 $334,240 $417,800 $449,675 $481,550
$950,000 $280,680 $374,240 $467,800 $503,425 $539,050
</TABLE>
/1/ Table reflects total pension benefit payable from both the qualified and
nonqualified pension plans. Table assumes active associate retires from
active employment. MassMutual's Pension Plan credits participants with 100%
of their accrued retirement benefit at age 60.
/2/ Average compensation is based on average monthly salary during the highest
60 consecutive months of the participant's 120 months prior to retirement
(or termination).
/3/ Actual pension formula includes the following three factors:
- Benefit Percentages
- 1.667% for each year of Benefit Service earned prior to a participant's
Pension Date in 1974, 2.00% for every year earned after 1974, up to a
maximum of 25 years, and 0.75% for each year earned in excess of 25 years
after 1974.
- Average Monthly Compensation - (see above).
- Social Security Reduction (Offset) - A Social Security offset is applied
to the Pension benefit by multiplying 2.00% for each year of Vesting
Service earned after 1974 up to a maximum of 25 years, times the amount of
estimated Primary Social Security income related to those years in which a
participant earned Benefit Services.
Credited Years of Service as of 12/31/96 for each Executive (please note the
David Sams resigned from the Company on 11/14/96 and had no vested benefit):
Wheeler, Thomas B. 34 Fitzgerald, Daniel 27
Pajak, John J. 38 Naughton, John M. 31
Wendlandt, Gary E. 24
Table assumes all years of service are beyond 1974 and Primary Social Security
income is equal to $1,200 per month.
================================================================================
Compensation of Directors
Directors of MassMutual, other than those who are also officers of the Company,
are paid an annual retainer of $28,000 for serving on the Board. Directors also
receive a per-meeting fee of $1,500 for each meeting of the Board attended.
Generally, six meetings of the Board of Directors are held each year.
Directors also serve on various committees, which include the Auditing, Board
Affairs, Dividend Policy, Human Resources,
32
<PAGE>
and Investment Committees. Committee chairmen, other than those who are also
officers of the Company, receive a a retainer of $4,000. Additionally, chairmen
and members of committees, other than those who are also officers of the Company
receive a per-meeting fee of $1,500; members of the Investment Committee,
however, receive a per-meeting fee of $3,000 when such meeting is held off-site
and not in conjunction with a meeting of the Board of Directors.
X. Experts, Legal Proceedings and Additional Available Information
Experts
The audited statutory financial statements of Massachusetts Mutual Life
Insurance Company as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 included in this prospectus have
been so included in reliance on the reports, which include explanatory
paragraphs relating to the use of statutory accounting practices, which
practices are no longer considered to be in accordance with generally accepted
accounting principles and the change in their opinion for the prior years
presented, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The audited financial statements of Connecticut Mutual Life Insurance Company,
as of December 31, 1995 and for each of the two years in the period ended
December 31, 1995, were audited by Arthur Andersen, LLP. This prospectus
includes their report of independent accountants, given on the authority of that
firm as experts in accounting and auditing.
Legal Proceedings
The Company is a defendant in actions arising out of its insurance and
investment operations and is from time to time involved as a party in various
governmental and administrative proceedings. The Company does not believe that
any liability which may result from these actions is likely to have a material
adverse effect on the financial position of the Company.
The life insurance industry in recent years has faced increasing exposure to
litigation in which multimillion dollar jury awards of punitive and compensatory
damages have occurred. While the Company cannot predict the outcome of pending
or future litigation with certainty, it does not believe that pending litigation
will have a material impact on the Company's financial position, results of
operations or liquidity.
Additional Available Information
The Company files registration statements, reports and informational statements
with the SEC under the Securities Act of 1933. These filings contain information
not contained in this Prospectus. Such registration statements, reports,
information statements and other information can be reviewed and copied at the
public reference facilities maintained by the Securities and Exchange
Commission, at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the Commission's New York and Chicago regional offices located at the Following
addresses: Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York, 10046; and Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The SEC also maintains a Web site that
contains these filings. The SEC's internet address is http://www.sec.gov.
XI. Selected Financial Data
The financial statements and other financial information included in this
prospectus have been prepared in conformity with accounting practices of the
NAIC and the accounting practices prescribed or permitted by the Division of
Insurance of the Commonwealth of Massachusetts and prior to the effective date
of the merger with Connecticut Mutual, the Insurance Department of the State of
Connecticut ("statutory accounting practices"), which practices were considered
to be in accordance with generally accepted accounting principles ("GAAP") for
mutual life insurance companies. In 1993, the Financial Accounting Standards
Board ("FASB"), which has no role in establishing regulatory accounting
practices, issued Interpretation 40 ("Fin. 40"), Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises,
which clarified that mutual life insurance companies issuing financial
statements described as prepared in conformity with GAAP after 1995 are required
to apply all applicable GAAP pronouncements in preparing those financial
statements. In January 1995, the FASB issued Statement No. 120 ("SFAS 120"),
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts, which among other
things, extended the applicability of certain FASB statements to mutual life
insurance companies and deferred the effective date of Fin. 40 to financial
statements issued or reissued after 1996.
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs in connection with
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity, interest and withdrawals; (c) bonds are generally carried at
amortized cost whereas GAAP would value bonds at fair value and (d) deferred
income taxes are not provided for book-tax timing differences whereas GAAP would
record deferred income taxes. Management has not yet completed GAAP financial
statements, but believes that policyholders' contingency reserves based upon
GAAP will be higher than policyholders' contingency reserves based upon
statutory accounting practices.
The following summary financial information as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 has been
derived from financial statements of the Company, which have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants. The summary
financial information for the other periods presented is derived from the
separate audited financial statements of Massachusetts Mutual Life Insurance
Company and Connecticut Mutual Life Insurance Company, prior to the
33
<PAGE>
merger. On March 1, 1996, the operations of the former Connecticut Mutual Life
Insurance Company ("Connecticut Mutual") were merged into the Company. This
merger was accounted for under the pooling of interests method of accounting.
For the purposes of this presentation, these financial statements reflect
historical amounts giving retroactive effect as if the merger had occurred on
January 1, 1994 in conformity with the practices of the NAIC and the accounting
practices prescribed or permitted by the Division of Insurance of the
Commonwealth of Massachusetts and, prior to the merger, the Insurance Department
of the State of Connecticut. In 1996, merger-related expenses totaling $66
million were recorded in the statutory statement of income. In 1995, merger-
related expenses incurred by MassMutual (the Company prior to the merger) of $44
million, were recorded in the statutory statement of income and the expenses
incurred by Connecticut Mutual of $45 million, net of tax, were recorded as a
component of changes in policyholders' contingency reserves, as permitted by
each company's regulatory authority. On the merger date, policyholder reserves
attributable to disability income contracts were strengthened by $75 million,
investment reserves for real estate were increased by $50 million and net
prepaid pension assets were increased by $10 million. The separate results of
each company prior to the merger for the year ended December 31, 1995, are as
follows: (a) income was $6,444 million for MassMutual and $2,182 million for
Connecticut Mutual; (b) net income was $161 million for MassMutual and $30
million for Connecticut Mutual and (c) policyholders' contingency reserves
increased by $144 million for Massachusetts Mutual and decreased by $112 million
for Connecticut Mutual.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly the MML Pension Insurance Company currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc. The Company received total consideration of $402
million ($340 million in cash and $62 million in notes receivable) and
recognized a before tax gain of $187 million. The Company, pursuant to a 1994
reinsurance agreement, cedes its group life, accident and health business to
UniCARE.
The summary financial information is not necessarily indicative of the
results that would have been recorded had the merger actually occurred on
January 1, 1992, nor is it indicative of future results. After the merger,
future sales of new products are predominantly those developed by MassMutual.
The Company achieved operating cost savings through consolidation of certain
operations and the elimination of redundant costs. As in virtually any merger,
increased operational efficiency is a primary goal. To fully realize the
merger's benefits, MassMutual set very ambitious expense-reduction objectives,
starting with anticipated 1996 savings of $82 million. The Company not only met
but far exceeded this goal in the consolidation process. In 1996, expense
savings were $108 million; additional savings identified for 1997 bring the
total annual savings to approximately $148 million.
The information presented below should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the audited statutory financial statements which are not in
conformity with GAAP, and other information included elsewhere in this
prospectus.
34
<PAGE>
Massachusetts Mutual Life Insurance Company
Selected Statutory Financial Data
(In Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Income:
Premium income $ 6,329 $ 5,728 $ 6,177 $ 6,408 $ 6,354
Net investment and other income 2,861 2,898 2,804 2,886 2,898
------- ------- -------- ------- -------
9,190 8,626 8,981 9,294 9,252
------- ------- -------- ------- -------
Benefits and expenses:
Policy benefits and payments 6,048 5,152 5,450 5,653 6,093
Addition to policyholders' reserves and funds 855 1,205 1,263 1,291 967
Commissions, operating expenses and
state taxes 859 924 1,065 1,068 1,035
Merger restructuring costs (1) 66 44 0 0 0
------- ------- -------- ------- -------
7,828 7,325 7,778 8,012 8,095
------- ------- -------- ------- -------
Net gain before federal income taxes and dividends 1,362 1,301 1,203 1,282 1,157
Federal income taxes 277 206 140 212 144
------- ------- -------- ------- -------
Net gain from operations before dividends 1,085 1,095 1,063 1,070 1,013
Dividends to policyholders (2) 860 819 825 818 783
------- ------- -------- ------- -------
Net gain from operations 225 276 238 252 230
Net realized capital gain (loss) 40 (86) (164) (96) (82)
------- ------- -------- ------- -------
Net income $ 265 $ 190 $ 74 $ 156 $ 148
======= ======= ======== ======= =======
Balance Sheet Data (at period end):
Assets:
General account $39,783 $39,187 $ 38,349 $38,023 $36,118
Separate account 13,564 11,310 8,531 7,811 6,210
------- ------- ------- ------- -------
Total assets $53,347 $50,497 $46,880 $45,834 $42,328
======= ======= ======= ======= =======
Liabilities:
Policyholders' reserves and funds (3) $33,342 $32,893 $32,295 $31,553 $31,161
Policyholders' dividends(4) 885 833 838 825 804
Long-term debt - 107 153 278 257
Investment reserves 898 756 601 563 430
Separate account reserves and liabilities 13,563 11,310 8,530 7,810 6,208
Other liabilities 2,020 1,997 1,894 2,335 1,337
------- ------- ------- ------- -------
Total liabilities 50,708 47,896 44,311 43,364 40,197
------- ------- ------- ------- -------
Policyholders' contingency reserves (surplus) (1):
Designated surplus 3 38 36 35 33
Unassigned funds (surplus) 2,636 2,563 2,533 2,435 2,098
------- ------- ------- ------- -------
Total surplus 2,639 2,601 2,569 2,470 2,131
------- ------- ------- ------- -------
Total liabilities and policyholders'
contingency reserves $53,347 $50,497 $46,880 $45,834 $42,328
======= ======= ======= ======= =======
Total Adjusted Capital Data (at period end) (5) (6):
Total surplus $ 2,639 $ 2,601 $ 2,569 $ 2,470 $ 2,131
One-half the apportioned dividend liability(4) 438 411 414 407 396
Asset Valuation Reserve 707 585 479 440 369
------- ------- ------- ------- -------
Total adjusted capital $ 3,784 $ 3,597 $ 3,462 $ 3,317 $ 2,896
======= ======= ======= ======= =======
</TABLE>
(1) In 1995, charges for employee separation and transaction expenses directly
attributable to the merger were $44 million for Massachusetts Mutual (the
Company prior to the merger) and $45 million, net of tax, for Connecticut
Mutual. The expenses incurred by Massachusetts Mutual were recorded in the
statutory statement of income and the expenses incurred by Connecticut Mutual
were recorded as a component of changes in policyholders' contingency reserves,
as permitted by each company's regulatory authority. During 1996, an additional
$66 million of merger-related expenses was incurred and recorded in the
statutory statement of income.
(2) Dividends to policyholders are discretionary and subject to the approval
of the Company's Board of Directors.
(3) During 1996, 1995 and 1994, the Company changed its valuation basis for
certain disability income contracts. The effects of these changes, $75 million
in 1996, $108 million in 1995 and $51 million in 1994, were recorded as
decreases to policyholders'contingency reserves.
(4) Statutory accounting requires that policyholders' dividends include
dividends currently payable and the full amount of dividends apportioned for
payment over the 12 months following the date of the applicable financial
statement. One-half of such apportioned dividends is unearned at any point in
time and is included in the calculation of total adjusted capital.
(5) Defined by the NAIC as surplus plus AVR and one-half the apportioned
dividend liability. AVR includes the AVR of wholly-owned life insurance
subsidiaries.
(6) In 1996, as a result of the merger, policyholder reserves attributable to
the disability income line of business was strengthened by $75 million, real
estate valuation reserves increased by $50 million and the prepaid pension asset
was increased by $10 million.
35
<PAGE>
Massachusetts Mutual Life Insurance Company
Selected Statutory Financial Data (continued)
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---------- -------- -------- --------- ------
(In Millions)
<S> <C> <C> <C> <C> <C>
Other Data:
Premium Income:
Individual Line $ 4,286 $ 3,925 $ 3,878 $ 3,882 $ 3,546
Pension Management 2,043 1,803 1,566 1,778 2,054
Life & Health Benefits Management 0 0 733 748 754
------- ------- ------- ------- -------
Total premium income $ 6,329 $ 5,728 $ 6,177 $ 6,408 $ 6,354
======= ======= ======= ======= =======
Net Investment and Other Income:
Individual Line $ 2,062 $ 1,994 $ 1,782 $ 1,725 $ 1,629
Pension Management 799 904 967 1,112 1,225
Life and Health Benefits Management 0 0 55 49 44
------- ------- ------- ------- -------
Total net investment and other income $ 2,861 $ 2,898 $ 2,804 $ 2,886 $ 2,898
======= ======= ======= ======= =======
Net Gain From Operations:
Individual Line $ 166 $ 218 $ 135 $ 143 $ 134
Pension Management 59 58 60 64 47
Life and Health Benefits Management 0 0 43 45 49
------- ------- ------- ------- -------
Total net gain from operations $ 225 $ 276 $ 238 $ 252 $ 230
======= ======= ======= ======= =======
Total Assets (at period end):
Individual Line $36,361 $33,902 $30,278 $28,216 $24,936
Pension Management 16,986 16,595 16,060 16,710 16,619
Life and Health Benefits Management 0 0 542 908 773
------- ------- ------- ------- -------
Total assets $53,347 $50,497 $46,880 $45,834 $42,328
======= ======= ======= ======= =======
</TABLE>
36
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I: SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Amount
at which
Cost or shown on
Other Fair Balance
Basis Value Sheet
----- ----- --------
<S> <C> <C> <C>
Bonds:
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 8,043 $ 8,330 $ 8,043
Debt Securities issued by Foreign Governments 95 105 95
Mortgage-backed securities 3,970 4,052 3,970
State and local governments 173 184 173
Industrial Securities 11,675 12,070 11,675
Utilities 975 1,044 975
Affiliates 324 325 324
------- ------- -------
Total Bonds 25,255 26,110 25,255
------- ------- -------
Common Stock:
Public utilities 43 43 43
Banks, Trusts and Insurance Companies 7 11 11
Industrial, Miscellaneous and Other 199 283 283
------- ------- -------
Subtotal 249 337 337
Other, Including Subsidiaries 693 884 884
------- ------- -------
Total Common Stock 942 $ 1,221 1,221
------- ------- -------
Mortgage Loans on Real Estate 3,897 3,897
Real Estate:
Properties in Satisfaction of Debt 132 132
Investment Real Estate 1,636 1,636
------- -------
Subtotal - Real Estate Investment 1,768 1,768
Real Estate - Other 73 73
------- -------
Total Real Estate 1,841 1,841
------- -------
Policy Loans 4,752 4,752
Cash and Short-term investments 1,075 1,075
Other Investments 546 542
------- -------
Total Investments 38,308 38,583
------- -------
Related Parties:
Bonds 324 $ 324 324
Common Stock 693 884 884
------- ------- -------
Total Related Parties 1,017 $ 1,208 1,208
------- ======= -------
Investments Other than Investments in Related Parties $37,291 $37,375
======= =======
</TABLE>
37
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE III: SUPPLEMENTARY INSURANCE INFORMATION (1) (2)
December 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Policyholders' Net Policy Benefits
Policyholders' Dividends Investment and Payments Other
Reserves and Claims and Premium and Other and Increase Insurance
Segment Funds Other Benefits Income Income (2) in Reserves Commissions Expenses
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Individual line $ 24,901 $ 1,252 $ 4,286 $ 2,062 $ 4,235 $ 323 $ 523
Pension Management 8,441 7 2,043 799 2,668 12 67
--------- --------- --------- --------- --------- --------- ---------
$ 33,342 $ 1,259 $ 6,329 $ 2,861 $ 6,903 $ 335 $ 590
========= ========= ========= ========= ========= ========= =========
Year ended December 31, 1995
Individual line $ 23,280 $ 1,221 $ 3,925 $ 1,994 $ 3,796 $ 331 $ 562
Pension Management 9,613 7 1,803 904 2,561 9 66
--------- --------- --------- --------- --------- --------- ---------
$ 32,893 $ 1,228 $ 5,728 $ 2,898 $ 6,357 $ 340 $ 628
========= ========= ========= ========= ========= ========= =========
Year ended December 31, 1994
Individual line $ 21,764 $ 1,246 $ 3,878 $ 1,782 $ 3,733 $ 334 $ 515
Pension Management 10,531 7 1,566 967 2,399 8 74
Life & Health Benefits Management 0 0 733 55 581 26 108
--------- --------- --------- --------- --------- --------- ---------
$ 32,295 $ 1,253 $ 6,177 $ 2,804 $ 6,713 $ 368 $ 697
========= ========= ========= ========= ========= ========= =========
</TABLE>
(1) Deferred policy acquisition cost column has been omitted from this schedule
because it does not apply to mutual life insurance companies.
(2) Includes other income of $80 million, $61 million and $116 million for 1996,
1995 and 1994, respectively.
38
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY (1)
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
<TABLE>
<CAPTION>
Additions Realized Unrealized
Balance at Reserve Transfers Capital Capital
beginning of Contributions among Gains Gains
Description period (2) categories (Losses)(3) (Losses)(4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of and for the year ended
December 31, 1994 (1)
Bonds, Preferred Stocks and Short-
term Investments $ 169 $ 39 ($ 14) ($ 12) $ 26
Mortgage Loans 213 90 14 ( 110) (3)
Real Estate 138 22 3 ( 41) 3
Other Investments 96 9 ( 3) 7 (2)
Special investment reserve for
surplus notes 25 10 0 0 0
------ ------ ------ ------ ------
Total $ 641 $ 170 $ 0 ($156) $ 24
====== ====== ====== ====== ======
Detail (7):
Asset Valuation Reserve $ 432
General Investment Reserves 209
------
Total $ 641
======
Total
As of and for the year ended
December 31, 1995
-----------------
Bonds, Preferred Stocks and Short-
term Investments $ 208 $ 44 $ ( 2) $ (1) $ (39)
Mortgage Loans 204 11 2 (70) (6)
Real Estate 125 27 27 (42) (2)
Other Investments 107 5 ( 27) 18 131
Special investment reserve for
surplus notes 35 0 0 0 0
------ ------ ------ ------ ------
Total $ 679 $ 87 $ 0 $ (95) $ 84
====== ====== ====== ====== ======
Detail (7):
Asset Valuation Reserve $ 470
General Investment Reserves 209
------
Total $ 679
======
As of and for the year ended
December 31, 1996
-----------------
Bonds, Preferred Stocks and Short-
term Investments $ 210 $ 40 0 $ (7) $ (9)
Mortgage Loans 141 37 0 (37) 0
Real Estate 135 41 $ 154 (79) (11)
Other Investments 234 0 (154) 200 (30)
Special investment reserve for
surplus notes 35 (3) 0 0 0
------ ------ ------ ------ ------
Total $ 755 $ 115 $ 0 $ 77 $ (50)
====== ====== ====== ====== ======
Detail (7):
Asset Valuation Reserve $ 567
General Investment Reserves 188
------
Total $ 755
======
</TABLE>
<TABLE>
<CAPTION>
Net change to Balance
Policyholders' at end
Contingency of
Description Reserves (5) period (6)
- ---------------------------------------------------------------------------------
<S> <C> <C>
As of and for the year ended
December 31, 1994 (1)
Bonds, Preferred Stocks and Short-
term Investments $ 39 $ 208
Mortgage Loans (9) 204
Real Estate ( 13) 125
Other Investments 11 107
Special investment reserve for
surplus notes 10 35
------ ------
Total $ 38 $ 679
====== ======
Detail (7):
Asset Valuation Reserve $ 470
General Investment Reserves 209
------
Total $ 679
======
Total
As of and for the year ended
December 31, 1995
-----------------
Bonds, Preferred Stocks and Short-
term Investments $ 2 $ 210
Mortgage Loans (63) 141
Real Estate 10 135
Other Investments 127 234
Special investment reserve for
surplus notes 0 35
------ ------
Total $ 76 $ 755
====== ======
Detail (7):
Asset Valuation Reserve $ 567
General Investment Reserves 188
------
Total $ 755
======
As of and for the year ended
December 31, 1996
-----------------
Bonds, Preferred Stocks and Short-
term Investments $ 24 $ 234
Mortgage Loans 0 141
Real Estate 105 240
Other Investments 16 250
Special investment reserve for
surplus notes (3) 32
------ ------
Total $ 142 $ 897
====== ======
Detail (7):
Asset Valuation Reserve $ 689
General Investment Reserves 208
------
Total $ 897
======
</TABLE>
(1) $78 million of reserves previously netted against Mortgage Loans and Real
Estate has been reclassified to General Investment Reserves for current year
presentation.
(2) Amounts represent contributions calculated using a statutory formula plus
amounts deemed necessary by the Company. Represents the net impact on
Policyholders' Contingency Reserves for investment gains and losses not related
to changes in interest rates.
(3) These amounts offset realized capital gains and losses, net of tax, that
have been recorded as a component of net income. Amounts include realized
capital gains and losses, net of tax, on sales not related to interest
fluctuations, repayments of mortgage loans at a discount, mortgage loan
foreclosures, and real estate permanent write-downs.
(4) These amounts offset unrealized capital gains, recorded as a change in
Policyholders' Contingency Reserves. Amounts include unrealized losses due to
market value reductions of securities with a NAIC quality rating of 6 and net
changes in the undistributed earnings of subsidiaries.
(5) Amounts represent the reserve contribution (note 2) less amounts already
recorded (notes 3 and 4). This net change in reserves is recorded as a charge to
Policyholders' Contingency Reserves.
(6) The balance is comprised of the Asset Valuation Reserve and General
Investment Reserves which are recorded separately as liabilities on the
Statement of Financial Position.
(7) The Asset Valuation Reserve is a component of Total Adjusted Capital, while
General Investment Reserves are excluded from Total Adjusted Capital, according
to the NAIC definition.
39
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE IV: REINSURANCE
(In Millions)
<TABLE>
<CAPTION>
Percentage of
Ceded Assumed Amount
Gross to Other from Other Net Assumed
Year ended December 31, 1996 Amount Companies Companies Amount to Net
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $202,572 $45,012 $ 719 $158,279 0.5%
======== ======= ======== ======== ===
Premiums and other considerations
Individual life & annuities $ 4,663 $ 711 $ 47 $ 3,999 1.2%
Group life & annuities 2,405 75 0 2,330 0.0
-------- ------- -------- -------- ---
Total Premium and other considerations $ 7,068 $ 786 $ 47 $ 6,329 0.7%
======== ======= ======== ======== ===
Year ended December 31, 1995
Life Insurance in Force $200,804 $44,331 $ 855 $157,328 0.5%
======== ======= ========= ======== ===
Premiums and other considerations
Individual life & annuities $ 4,472 $ 818 $ 68 $ 3,722 1.8%
Group life & annuities 2,081 85 10 2,006 0.5
-------- ------- --------- -------- ---
Total Premium and other considerations $ 6,553 $ 903 $ 78 $ 5,728 1.4%
======== ======= ========= ======== ===
Year ended December 31, 1994
Life Insurance in Force $223,805 $68,908 $ 1,115 $156,012 0.7%
======== ======= ========= ======== ===
Premiums and other considerations
Individual life & annuities $ 3,387 $ 103 $ 71 $ 3,355 2.1%
Group life & annuities 1,926 10 7 1,923 0.4
Accident & health 938 39 0 899 0.0
-------- ------- --------- -------- ---
Total Premium and other considerations $ 6,251 $ 152 $ 78 $ 6,177 1.3%
======== ======= ========= ======== ===
</TABLE>
40
<PAGE>
Report Of Independent Accountants
To the Board of Directors of
Massachusetts Mutual Life Insurance Company
We have audited the accompanying statutory financial statements and statutory
financial statement schedules of Massachusetts Mutual Life Insurance Company,
listed in Item XI of this Form S-1. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We did not audit the
financial statements of Connecticut Mutual Life Insurance Company for the year
ended December 31, 1995, or for each of the two years in the period ended
December 31, 1995, which, after restatements for the 1996 pooling of interest,
reflect 25% of assets as of December 31, 1995, 26% and 26% of revenue, and 22%
and 6% of net gain from operations for the years ended December 31, 1995 and
1994, respectively. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amount
included for Connecticut Mutual Life Insurance Company, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company prepared these
financial statements using statutory accounting practices of the National
Association of Insurance Commissioners and the accounting practices prescribed
or permitted by the Division of Insurance of the Commonwealth of Massachusetts
and, prior to 1996, the Department of Insurance of the State of Connecticut,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
determinable at this time, are presumed to be material.
In our report dated February 5, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of the
Massachusetts Mutual Life Insurance Company as of December 31, 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles ("GAAP"). As described in Note 1 to the financial statements,
financial statements of mutual life insurance enterprises issued or reissued
after 1996, and prepared in accordance with statutory accounting principles, are
no longer considered to be presentations in conformity with GAAP. Accordingly,
our present opinion on the 1995 and 1994 statutory financial statements as
presented herein is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996.
In our opinion, based upon our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Massachusetts Mutual Life Insurance Company at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, on the
statutory basis of accounting described in Note 1. In addition, in our opinion,
the statutory financial statement schedules referred to above, when considered
in relation to the basic statutory financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Springfield, Massachusetts Coopers & Lybrand L.L.P.
February 7, 1997
41
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
1996 1995
------ ------
(In Millions)
<S> <C> <C>
Assets:
Bonds................................................................. $25,255.0 $23,625.1
Common stocks......................................................... 336.6 416.1
Mortgage loans........................................................ 3,897.1 3,908.2
Real estate........................................................... 1,840.9 1,652.6
Other investments..................................................... 1,425.6 1,489.9
Policy loans.......................................................... 4,752.3 4,518.4
Cash and short-term investments....................................... 1,075.4 2,342.8
Investment and insurance amounts receivable........................... 1,102.4 1,059.3
Separate account assets............................................... 13,563.5 11,309.5
Other assets.......................................................... 97.9 174.6
--------- ---------
$53,346.7 $50,496.5
========= =========
Liabilities:
Policyholders' reserves and funds..................................... $33,341.5 $32,893.1
Policyholders' dividends.............................................. 885.3 832.6
Policy claims and other benefits...................................... 373.8 395.5
Federal income taxes.................................................. 440.7 338.5
Asset valuation reserve............................................... 689.2 566.8
Investment reserves................................................... 208.4 188.4
Separate account reserves and liabilities............................. 13,563.1 11,309.6
Amounts due on investments purchased and
other liabilities................................................... 1,206.1 1,371.1
--------- ---------
50,708.1 47,895.6
Policyholders' contingency reserves................................... 2,638.6 2,600.9
--------- ---------
$53,346.7 $50,496.5
========= =========
</TABLE>
See notes to statutory financial statements.
42
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Income:
Premium income.......................................................... $ 6,328.6 $ 5,727.7 $ 6,177.2
Net investment and other income......................................... 2,861.1 2,898.4 2,803.1
--------- --------- ---------
9,189.7 8,626.1 8,980.3
--------- --------- ---------
Benefits and expenses:
Policy benefits and payments............................................ 6,048.2 5,152.2 5,449.6
Addition to policyholders' reserves and funds........................... 854.7 1,205.4 1,263.2
Commissions and operating expenses...................................... 763.5 833.7 959.3
State taxes, licenses and fees.......................................... 96.4 89.4 105.6
Merger restructuring costs.............................................. 66.1 44.0 --
--------- --------- ---------
7,828.9 7,324.7 7,777.7
--------- --------- ---------
Net gain before federal income taxes and dividends...................... 1,360.8 1,301.4 1,202.6
Federal income taxes.................................................... 276.7 206.2 139.7
--------- --------- ---------
Net gain from operations before dividends............................... 1,084.1 1,095.2 1,062.9
Dividends to policyholders.............................................. 859.9 819.0 824.7
--------- --------- ---------
Net gain from operations................................................ 224.2 276.2 238.2
Net realized capital gain (loss)........................................ 40.3 (85.8) (164.3)
--------- --------- ---------
Net income.............................................................. $ 264.5 $ 190.4 $ 73.9
========= ========= =========
</TABLE>
See notes to statutory financial statements.
43
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENT OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Policyholders' contingency reserves, beginning of year................. $ 2,600.9 $ 2,569.1 $ 2,470.2
--------- --------- ---------
Increases (decreases) due to:
Net income........................................................... 264.5 190.4 73.9
Net unrealized capital gain (loss)................................... (1.7) 88.7 29.5
Merger restructuring costs, net of tax............................... -- (45.4) --
Surplus notes........................................................ -- -- 100.0
Change in asset valuation and investment reserves.................... (142.4) (75.6) (38.2)
Change in valuation bases of policyholders' reserves................. (72.2) (108.2) (51.1)
Change in accounting for mortgage backed securities.................. -- -- 44.5
Change in non-admitted assets and other.............................. (10.5) (18.1) (59.7)
--------- --------- ---------
37.7 31.8 98.9
--------- --------- ---------
Policyholders' contingency reserves, end of year....................... $ 2,638.6 $ 2,600.9 $ 2,569.1
========= ========= =========
</TABLE>
See notes to statutory financial statements.
44
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Operating activities:
Net income............................................................ $ 264.5 $ 190.4 $ 73.9
Addition to policyholders' reserves and funds,
net of transfers to separate accounts............................... 426.7 575.8 546.9
Net realized capital (gain) loss...................................... (40.3) 85.8 164.3
Other changes......................................................... (232.8) (25.2) 124.2
--------- --------- ---------
Net cash provided by operating activities............................. 418.1 826.8 909.3
--------- --------- ---------
Investing activities:
Purchases of investments and loans.................................... (10,171.5) (10,364.2) (8,351.6)
Sales or maturities of investments and receipts
from repayment of loans............................................ 8,539.3 9,671.1 7,468.7
--------- --------- ---------
Net cash used in investing activities................................. (1,632.2) (693.1) (882.9)
--------- --------- ---------
Financing activities:
Issuance of surplus notes............................................. -- -- 100.0
Repayments of long-term debt.......................................... (53.3) (46.4) (125.0)
--------- --------- ---------
Net cash used by financing activities................................. (53.3) (46.4) (25.0)
--------- --------- ---------
Increase (decrease) in cash and short-term investments................ (1,267.4) 87.3 1.4
Cash and short-term investments, beginning of year.................... 2,342.8 2,255.5 2,254.1
--------- --------- ---------
Cash and short-term investments, end of year.......................... $ 1,075.4 $ 2,342.8 $ 2,255.5
========= ========= =========
</TABLE>
See notes to statutory financial statements.
45
<PAGE>
Notes To Statutory Financial Statements
Massachusetts Mutual Life Insurance Company ("the Company") is a mutual life
insurance company and as such has no shareholders. The Company's primary
business is individual life insurance, annuity and disability income products
distributed primarily through career agents. The Company also provides a wide
range of pension products and services, as well as investment services to
individuals, corporations and institutions in all 50 states and the District of
Columbia.
On March 1, 1996, the operations of the former Connecticut Mutual Life Insurance
Company (" Connecticut Mutual") were merged into the Company. This merger was
accounted for under the pooling of interests method of accounting. For the
purposes of this presentation, these financial statements reflect historical
amounts giving retroactive effect as if the merger had occurred on January 1,
1994 in conformity with the practices of the National Association of Insurance
Commissioners and the accounting practices prescribed or permitted by the
Division of Insurance of the Commonwealth of Massachusetts and, prior to the
merger, the Department of Insurance of the State of Connecticut. In 1996,
merger-related expenses totaling $66.1 million were recorded in the Statutory
Statement of Income. In 1995, merger-related expenses incurred by Massachusetts
Mutual (the Company prior to the merger) of $44.0 million, were recorded in the
statutory statement of income and the expenses incurred by Connecticut Mutual of
$45.4 million, net of tax, were recorded as a component of changes in
policyholders' contingency reserves, as permitted by each company's regulatory
authority. On the merger date, policyholder reserves attributable to disability
income contracts were strengthened by $75.0 million, investment reserves for
real estate were increased by $49.8 million and net prepaid pension assets were
increased by $10.4 million. The separate results of each company prior to the
merger for the year ended December 31, 1995, are as follows: (a) income was
$6,443.8 million for Massachusetts Mutual and $2,182.3 million for Connecticut
Mutual; (b) net income was $160.7 million for Massachusetts Mutual and $29.6
million for Connecticut Mutual and (c) policyholders' contingency reserves
increased by $143.7 million for Massachusetts Mutual and decreased by $112.0
million for Connecticut Mutual.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly the MML Pension Insurance Company; currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc. The Company received total consideration of
$402.2 million ($340.0 million in cash and $62.2 million in notes receivable)
and recognized a before tax gain of $187.9 million. The Company, pursuant to a
1994 reinsurance agreement, cedes its group life, accident and health business
to UniCARE. The Company's investment in MassMutual Holding Company Two, Inc.
amounted to $187.8 million at December 31, 1995; its gain from operations
reflected a $41 million dividend in 1995. Additionally, this investment produced
an unrealized gain of $13.9 million in 1995 and an unrealized loss of $12.6
million in 1994.
1. SUMMARY OF ACCOUNTING PRACTICES
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted by
the Division of Insurance of the Commonwealth of Massachusetts and, prior to the
merger, The Department of Insurance of the State of Connecticut ("statutory
accounting practices"), which practices were also considered to be in conformity
with generally accepted accounting principles ("GAAP"). In 1993, the Financial
Accounting Standards Board ("FASB") issued interpretation No. 40 ("Fin. 40"),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", which clarified that mutual life insurance
companies issuing financial statements described as prepared in conformity with
GAAP after 1995 are required to apply all applicable GAAP pronouncements in
preparing those financial statements. In January 1995, the FASB issued Statement
No. 120 ("SFAS 120"), Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration Participating
Contracts," which among other things, extended the applicability of certain FASB
statements to mutual life insurance companies and deferred the effective date of
Fin. 40 to financial statements issued or reissued after 1996. As required by
generally accepted auditing standards, the opinion expressed by our independent
accountants on the 1995 and 1994 financial statements is different from that
expressed in their previous report.
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs in connection with
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity, interest and withdrawals; (c) bonds are generally carried at
amortized cost whereas GAAP would value bonds at fair value and (d) deferred
income taxes are not provided for book-tax timing differences whereas GAAP would
record deferred income taxes. Management has not yet completed GAAP financial
statements, but believes that policyholders' contingency reserves based upon
GAAP will be higher than policyholders' contingency reserves based upon
statutory accounting practices.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosures of contingent assets and liabilities at the date of the
financial statements. Management must also make estimates and assumptions that
affect the amounts of revenues and expenses during the reporting period. Future
events, including changes in the levels of mortality, morbidity, interest rates
and asset valuations, could cause actual results to differ from the estimates
used in these financial statements.
46
<PAGE>
Notes To Statutory Financial Statements (Continued)
The following is a description of the Company's current principal accounting
policies and practices.
A. Investments
Bonds and stocks are valued in accordance with rules established by the National
Association of Insurance Commissioners. Generally, bonds are valued at amortized
cost, preferred stocks in good standing at cost, and common stocks, except for
unconsolidated subsidiaries, at fair value.
As promulgated by the National Association of Insurance Commissioners, the
Company adopted the retrospective method of accounting for amortization of
premium and discount on mortgage backed securities as of December 31, 1994.
Prepayment assumptions for mortgage backed securities were obtained from a
prepayment model, which factors in mortgage type, seasoning, coupon, current
interest rate and the economic environment. The effect of this change, $44.5
million as of December 31, 1994, was recorded as an increase to policyholders'
contingency reserves on the Statutory Statement of Financial Position and had no
material effect on 1996 or 1995 net income. Through December 31, 1994, premium
and discount on bonds were amortized into investment income over the stated
lives of the securities.
Mortgage loans are valued at principal less unamortized discount. Real estate is
valued at cost less accumulated depreciation, impairments and mortgage
encumbrances. Encumbrances totaled $27.3 million in 1996 and $3.0 million in
1995. Depreciation on investment real estate is calculated using the
straight-line and constant yield methods.
Policy loans are carried at the outstanding loan balance less amounts unsecured
by the cash surrender value of the policy.
Short-term investments are stated at amortized cost, which approximates fair
value.
Investments in unconsolidated subsidiaries, joint ventures and other forms of
partnerships are included in other investments on the Statutory Statement of
Financial Position and are accounted for using the equity method.
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves, as prescribed and permitted by the
Division of Insurance, stabilize the policyholders' contingency reserves against
fluctuations in the value of stocks, as well as declines in the value of bonds,
mortgage loans and real estate investments.
The Interest Maintenance Reserve captures after-tax realized capital gains and
losses which result from changes in the overall level of interest rates for all
types of fixed income investments, as well as other financial instruments,
including financial futures, U.S. Treasury purchase commitments, options,
interest rate swaps, interest rate caps and interest rate floors. These interest
rate related gains and losses are amortized into income using the grouped method
over the remaining life of the investment sold or over the remaining life of the
underlying asset. Net realized after tax capital gains of $77.1 million in 1996,
$130.7 million in 1995, and net realized after tax capital losses of $152.6
million in 1994 were charged to the Interest Maintenance Reserve. Amortization
of the Interest Maintenance Reserve into net investment income amounted to $26.9
million in 1996, $5.0 million in 1995, and $45.8 million in 1994. In 1994, the
Interest Maintenance Reserve resulted in a net loss deferral. In accordance with
the practices of the National Association of Insurance Commissioners, the 1994
balance was recorded as a reduction of policyholders' contingency reserves.
Realized capital gains and losses, less taxes, not includable in the Interest
Maintenance Reserve, are recognized in net income. Realized capital gains and
losses are determined using the specific identification method. Unrealized
capital gains and losses are included in policyholders' contingency reserves.
B. Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of pension, variable annuity and
variable life insurance contract holders. Assets consist principally of
marketable securities reported at fair value. Premiums, benefits and expenses of
the separate accounts are reported in the Statutory Statement of Income. The
Company receives administrative and investment advisory fees from these
accounts.
C. Non-admitted Assets
Assets designated as "non-admitted" (principally certain fixed assets,
receivables and Interest Maintenance Reserve, when in a net loss deferral
position) are excluded from the Statutory Statement of Financial Position by an
adjustment to policyholders' contingency reserves.
47
<PAGE>
Notes To Statutory Financial Statements (Continued)
D. Policyholders' Reserves and Funds
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience and
the 1941, 1958 and 1980 Commissioners' Standard Ordinary mortality tables with
assumed interest rates ranging from 2.5 to 6.0 percent.
Reserves for individual annuities, guaranteed investment contracts and deposit
administration and immediate participation guarantee funds are based on accepted
actuarial methods principally at interest rates ranging from 2.25 to 11.25
percent. Reserves for policies and contracts considered investment contracts
have a carrying value of $9,073.8 million (fair value of $9,324.6 million as
determined by discounted cash flow projections). Accident and health policy
reserves are generally calculated using the two-year preliminary term, net level
premium and fixed net premium methods and various morbidity tables.
During 1996, 1995 and 1994, the Company changed its valuation basis for certain
disability income contracts. The effects of these changes, $75.0 million in
1996, $108.2 million in 1995, and $51.1 million in 1994 were recorded as
decreases to policyholders' contingency reserves.
E. Premium and Related Expense Recognition
Life insurance premium revenue is recognized annually on the anniversary date of
the policy. Annuity premium is recognized when received. Accident and health
premiums are recognized as revenue when due. Commissions and other costs related
to issuance of new policies, maintenance and settlement costs are charged to
current operations.
F. Policyholders' Dividends
The Board of Directors annually approves dividends to be paid in the following
year. These dividends are allocated to reflect the relative contribution of each
group of policies to policyholders' contingency reserves and consider investment
and mortality experience, expenses and federal income tax charges.
G. Cash and Short-term Investments
For purposes of the Statutory Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of twelve months or less to
be short-term investments.
2. POLICYHOLDERS' CONTINGENCY RESERVES
Policyholders' contingency reserves represent surplus of the Company as reported
to regulatory authorities and are intended to protect policyholders against
possible adverse experience.
A. Surplus Notes
The Company issued surplus notes of $100.0 million at 7 1/2 percent and $250.0
million at 7 5/8 percent in 1994 and 1993, respectively. These notes are
unsecured and subordinate to all present and future indebtedness of the Company,
policy claims and prior claims against the Company as provided by the
Massachusetts General Laws. Issuance was approved by the Commissioner of
Insurance of the Commonwealth of Massachusetts ("the Commissioner").
All payments of interest and principal are subject to the prior approval of the
Commissioner. Sinking fund payments are due as follows: $62.5 million in 2021,
$87.5 million in 2022, $150.0 million in 2023 and $50.0 million in 2024.
Interest on the notes issued in 1994 is scheduled to be paid on March 1 and
September 1 of each year, beginning on September 1, 1994, to holders of record
on the preceding February 15 or August 15, respectively. Interest on the notes
issued in 1993 is scheduled to be paid on May 15 and November 15 of each year,
beginning on May 15, 1994, to holders of record on the preceding May 1 or
November 1, respectively. In accordance with regulations of the National
Association of Insurance Commissioners, interest expense is not recorded until
approval for payment is received from the Commissioner. Interest of $26.6
million was approved and paid in 1996 and 1995, and interest of $22.8 million
was approved and paid in 1994.
The proceeds of the notes, less a $32.2 million reserve in 1996 and a $35
million reserve in 1995 and 1994 for contingencies associated with the issuance
of the notes, are recorded as a component of the Company's policyholders'
contingency reserves as approved by the Commissioner. These reserves, as
permitted by the Division of Insurance, are included in investment reserves on
the Statutory Statement of Financial Position.
48
<PAGE>
Notes To Statutory Financial Statements (Continued)
3. EMPLOYEE BENEFIT PLANS
The Company's employee benefit plans include plans in place for the employees of
Massachusetts Mutual and Connecticut Mutual prior to the merger. These plans,
which were managed separately, reflect different assumptions for 1995. Employees
previously covered by the Connecticut Mutual pension plans will continue
coverage under these plans. All other employees, including employees hired after
the merger date, will be covered by the Massachusetts Mutual benefit plans.
A. Pension
The Company has two non-contributory defined benefit plans covering
substantially all of its employees. One plan includes employees previously
employed by Connecticut Mutual; the other includes all other eligible employees.
Benefits are based on the employees' years of service, compensation during the
last five years of employment and estimated social security retirement benefits.
The Company accounts for these plans following Financial Accounting Standards
Board Statement No. 87, Employers' Accounting for Pensions. Accordingly, as
permitted by the Massachusetts Division of Insurance, the Company has recognized
a pension asset of $97.2 million and $37.7 million in 1996 and 1995,
respectively. In 1995, a pension asset of $70.9 million associated with the
Connecticut Mutual plan was non-admitted in the financial statements, in
accordance with Connecticut insurance regulations. On the merger date, the
accounting for Connecticut Mutual pension plans was conformed to the
Massachusetts Mutual policy of recording pension plan assets and liabilities,
resulting in a $10.4 million increase in policyholders' contingency reserves.
Company policy is to fund pension costs in accordance with the requirements of
the Employee Retirement Income Security Act of 1974 and, based on such
requirements, no funding was required for the years ended December 31, 1996 and
1995. The assets of the plans are invested in the Company's general account and
separate accounts.
The benefit status of the defined benefit plans as of December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In Millions)
<S> <C> <C>
Accumulated benefit obligation $ 611.5 $ 537.5
Vested benefit obligation 606.5 525.7
Projected benefit obligation 665.5 622.5
Plan assets at fair value 1,021.7 941.3
</TABLE>
The following assumptions were used in determining the actuarial present value
of both the accumulated and projected benefit obligation.
<TABLE>
<CAPTION>
MassMutual Connecticut Mutual
Plan Plan
---------- ------------------
<S> <C> <C>
Discount rate - 1996 7.75% 7.75%
Discount rate - 1995 7.50 7.75
Increase in future compensation levels 5.00 5.00
Long-term rate of return on assets 10.00 9.00
</TABLE>
As a result of the sale of Mirus Life Insurance Company, there was a significant
reduction in plan participants which resulted in recognition of a pension plan
curtailment gain of $15.3 million in 1996.
The Company also has defined contribution plans for employees and agents. The
expense credited to operations for all pension plans is $32.7 million in 1996,
$10.9 million in 1995 and $5.0 million in 1994.
B. Life and Health
Certain life and health insurance benefits are provided to retired employees and
agents through group insurance contracts. Substantially all of the Company's
employees may become eligible for these benefits if they reach retirement age
while working for the Company. In 1993, the Company adopted the National
Association of Insurance Commissioners' accounting standard for postretirement
life and health benefit costs, requiring these benefits to be accounted for
using the accrual method for employees and agents eligible to retire and current
retirees.
49
<PAGE>
Notes To Statutory Financial Statements (Continued)
The following rates were used in determining the accumulated postretirement
benefit liability.
<TABLE>
<CAPTION>
MassMutual Connecticut Mutual
Plan Plan
---------- ------------------
<S> <C> <C>
Discount rate - 1996 7.75% 7.75%
Discount rate - 1995 7.50 8.50
Assumed increases in medical cost
rates in the first year 7.25 11.00
declining to 5.25 6.00
within 5 years 5 years
</TABLE>
The initial transition obligation of $137.9 million is being amortized over
twenty years through 2012. At December 31, 1996 and 1995, the net unfunded
accumulated benefit obligation was $124.1 million and $109.2 million,
respectively, for employees and agents eligible to retire or currently retired
and $33.8 million and $42.7 million, respectively, for participants not eligible
to retire. A Retired Lives Reserve Trust was funded to pay life insurance
premiums for certain retired employees. Trust assets available for benefits were
$23.0 million in 1996.
As a result of the sale of Mirus Life Insurance Company, there was a significant
reduction in plan participants which resulted in recognition of a life and
health plan curtailment loss of $13.9 million in 1996.
The expense for 1996, 1995 and 1994 was $17.6 million, $22.9 million, and $19.8
million, respectively. A one percent increase in the annual assumed increase in
medical cost rates would increase the 1996 accumulated postretirement benefit
liability and benefit expense by $9.9 million and $1.5 million, respectively.
4. RELATED PARTY TRANSACTIONS
Pursuant to two 1994 reinsurance agreements with Mirus Life Insurance Company
(Mirus) whereby the Company assumed all of the single premium immediate annuity
business written by Mirus and ceded all of its group life, accident and health
business to Mirus. A gain from operations of this business was reflected in 1995
as a $41 million dividend received from Mirus, which was recorded as net
investment income on the Statutory Statement of Income. As previously discussed,
on March 31, 1996, the Company sold MassMutual Holding Company Two, Inc. a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company to WellPoint Health Networks, Inc.
The Company has a modified coinsurance quota-share reinsurance agreement with a
wholly-owned subsidiary, C.M. Life Insurance Company, whereby the Company
assumes 50% of the premiums on certain universal life policies issued by C.M.
Life in 1985 and 75% of the premiums with issue dates on or after January 1,
1986. The Company pays a stipulated expense allowance, death and surrender
benefits, and a modified coinsurance adjustment. Reserves for payment of future
benefits are retained by C.M. Life.
5. FEDERAL INCOME TAXES
Provision for federal income taxes is based upon the Company's best estimate of
its tax liability. No deferred tax effect is recognized for temporary
differences that may exist between financial reporting and taxable income.
Accordingly, the reporting of equity tax, using the most current information,
and other miscellaneous temporary differences, such as reserves, acquisition
costs and restructuring costs, resulted in an effective tax rate which is other
than the statutory tax rate.
The Internal Revenue Service has completed examining the Company's income tax
returns through the year 1992 for Massachusetts Mutual and 1991 for Connecticut
Mutual, and is currently examining Connecticut Mutual for the years 1992 through
1995. The Company believes any adjustments resulting from such examinations will
not materially affect its financial statements.
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for 1996
and 1995. The Company records the estimated effects of anticipated revisions in
the Statutory Statement of Income.
The Company plans to file its 1996 federal income tax return on a consolidated
basis with its life and non-life affiliates. The Company and its life and
non-life affiliates are subject to a written tax allocation agreement which
allocates tax liability in a manner permitted under Treasury regulations.
Generally, the agreement provides that loss members shall be compensated for the
use of their losses and credits by other members.
The Company made federal tax payments of $330.7 million in 1996, $147.3 million
in 1995 and has a credit of $9.9 million in 1994. At December 31, 1996 and 1995,
the Company established a liability for federal income taxes of $440.7 million
and $338.6 million, respectively.
50
<PAGE>
Notes To Statutory Financial Statements (Continued)
6. INVESTMENTS
The Company maintains a diversified investment portfolio. Investment policies
limit concentration in any asset class, geographic region, industry group,
economic characteristic, investment quality or individual investment. In the
normal course of business, the Company enters into commitments to purchase
privately placed bonds and to issue mortgage loans.
A. Bonds
The carrying value and estimated fair value of bonds are as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 8,042.6 $ 344.0 $ 56.3 $ 8,330.3
Debt Securities issued by Foreign Governments 95.2 10.2 0.5 104.9
Mortgage-backed securities 3,969.7 125.5 43.3 4,051.9
State and local governments 173.2 13.1 2.1 184.2
Industrial securities 11,675.2 528.0 133.3 12,069.9
Utilities 975.0 87.0 18.5 1,043.5
Affiliates 324.1 4.3 3.5 324.9
--------- --------- --------- ---------
TOTAL $25,255.0 $ 1,112.1 $ 257.5 $26,109.6
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
--------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 9,391.5 $ 837.0 $ 43.3 $10,185.2
Debt Securities issued by Foreign Governments 261.9 27.9 0.1 289.7
Mortgage-backed securities 3,265.4 176.3 9.4 3,432.3
State and local governments 106.0 15.2 0.1 121.1
Industrial securities 9,030.7 762.8 57.8 9,735.7
Utilities 1,417.6 152.4 2.9 1,567.1
Affiliates 152.0 4.4 1.2 155.2
--------- --------- --------- ---------
TOTAL $23,625.1 $ 1,976.0 $ 114.8 $25,486.3
========= ========= ========= =========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1996 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
--------- ---------
(In Millions)
<S> <C> <C>
Due in one year or less $ 680.0 $ 684.8
Due after one year through five years 5,128.8 5,219.7
Due after five years through ten years 6,879.6 7,112.6
Due after ten years 5,195.4 5,496.1
---------- ---------
17,883.8 18,513.2
Mortgage-backed securities, including securities guaranteed
by the U.S. Government 7,371.2 7,596.4
---------- ---------
TOTAL $25,255.0 $26,109.6
========== =========
</TABLE>
51
<PAGE>
Notes To Statutory Financial Statements (Continued)
Proceeds from sales of investments in bonds were $6,390.7 during 1996, $8,068.8
million during 1995 and $5,624.1 million during 1994. Gross capital gains of
$188.8 million in 1996, $255.5 million in 1995 and $100.3 million in 1994 and
gross capital losses of $79.9 million in 1996, $67.1 million in 1995 and $195.8
million in 1994 were realized on those sales, a portion of which were included
in the Interest Maintenance Reserve. The estimated fair value of non-publicly
traded bonds is determined by the Company using a pricing matrix.
B. Stocks
Preferred stocks in good standing had fair values of $150.8 million in 1996 and
$87.9 million in 1995, using a pricing matrix for non-publicly traded stocks and
quoted market prices for publicly traded stocks. Common stocks, except for
unconsolidated subsidiaries, had a cost of $249.2 million in 1996 and $350.5
million in 1995.
C. Mortgages
The fair value of mortgage loans, as determined from a pricing matrix for
performing loans and the estimated underlying real estate value for
non-performing loans, approximated carrying value less valuation reserves held.
D. Other
The carrying value of investments which were non-income producing for the
preceding twelve months was $23.1 million and $113.9 million at December 31,
1996 and 1995, respectively. The Company had restructured loans with book values
of $383.5 million, and $415.0 million at December 31, 1996 and 1995,
respectively. The loans typically have been modified to defer a portion of the
contracted interest payments to future periods. Interest deferred to future
periods totaled $2.2 million in 1996, $2.5 million in 1995 and $2.2 million in
1994. The Company made voluntary contributions to the Asset Valuation Reserve of
$6.8 million and $52.7 million in 1996 and 1994, respectively. No additional
voluntary contribution to the Asset Valuation Reserve was made in 1995.
It is not practicable to determine the fair value of policy loans as they do not
have a stated maturity.
7. PORTFOLIO RISK MANAGEMENT
The Company manages its investment risks primarily to reduce interest rate and
duration imbalances determined in asset/liability analyses. The fair values of
instruments described below, which are not recorded in the financial statements,
are based upon market prices or prices obtained from brokers. The Company does
not hold or issue financial instruments for trading purposes.
The notional amounts described do not represent amounts exchanged by the parties
and, thus, are not a measure of the exposure of the Company. The amounts
exchanged are calculated on the basis of the notional amounts and the other
terms of the instruments, which relate to interest rates, exchange rates,
security prices or financial or other indexes.
The Company enters into financial futures contracts for the purpose of managing
interest rate exposure. Margin requirements are met with the deposit of
securities. Futures contracts are generally settled with offsetting
transactions. Gains and losses on financial futures contracts are recorded when
the contract is closed and amortized through the Interest Maintenance Reserve
over the remaining life of the underlying asset. As of December 31, 1996, the
Company did not have any open financial futures contracts.
The Company utilizes interest rate swap agreements, options, and purchased caps
and floors to reduce interest rate exposures arising from mismatches between
assets and liabilities and to modify portfolio profiles to manage other risks
identified. Under interest rate swaps, the Company agrees to an exchange, at
specified intervals, between streams of variable rate and fixed rate interest
payments calculated by reference to an agreed-upon notional principal amount.
Net amounts receivable and payable are accrued as adjustments to interest income
and included in investment and insurance amounts receivable on the Statutory
Statement of Financial Position. Gains and losses realized on the termination of
contracts are amortized through the Interest Maintenance Reserve over the
remaining life of the associated contract. At December 31, 1996 and 1995, the
Company had swaps with notional amounts of $2,239.5 million and $1,819.8
million, respectively. The fair values of these instruments were $20.7 million
at December 31, 1996 and $9.2 million at December 31, 1995.
Options grant the purchaser the right to buy or sell a security or enter into a
derivative transaction at a stated price within a stated period. The Company's
option contracts have terms of up to fifteen years. The amounts paid for options
purchased are included in other investments on the Statutory Statement of
Financial Position. Gains and losses on these contracts are recorded at the
expiration or termination date and are amortized through the Interest
Maintenance Reserve over the remaining life of the underlying asset. At December
31, 1996 and 1995, the Company had option contracts with notional amounts of
$1,928.4 million and $1,819.8 million, respectively. The Company's credit risk
exposure was limited to the unamortized costs of $18.1 million and $21.7
million, which had fair values of $19.2 million and $63.5 million at December
31, 1996 and 1995, respectively.
52
<PAGE>
Notes To Statutory Financial Statements (Continued)
Interest rate cap agreements grant the purchaser the right to receive the excess
of a referenced interest rate over a given rate. Interest rate floor agreements
grant the purchaser the right to receive the excess of a given rate over a
referenced interest rate. Amounts paid for interest rate caps and floors are
amortized into interest income over the life of the asset on a straight-line
basis. Unamortized costs are included in other investments on the Statutory
Statement of Financial Position. Amounts receivable and payable are accrued as
adjustments to interest income and included in the Statutory Statement of
Financial Position as investment and insurance amounts receivable. Gains and
losses on these contracts, including any unamortized cost, are recognized upon
termination and are amortized through the Interest Maintenance Reserve over the
remaining life of the associated cap or floor agreement. At December 31, 1996
and 1995, the company had agreements with notional amounts of $3,859.6 million
and $3,366.3 million, respectively. The Company's credit risk exposure on these
agreements is limited to the unamortized costs of $22.0 million and $14.0
million at December 31, 1996 and 1995, respectively. The fair values of these
instruments were $15.2 million and $30.8 million at December 31, 1996 and 1995,
respectively.
The Company utilizes asset swap agreements to reduce exposures, such as currency
risk and prepayment risk, built into certain assets acquired. Cross-currency
interest rate swaps allow investment in foreign currencies, increasing access to
additional investment opportunities, while limiting foreign exchange risk.
Notional amounts relating to asset and currency swaps totaled $364.7 million and
$333.7 million at December 31, 1996 and 1995, respectively. The fair values of
these instruments were an unrecognized gain of $7.8 million at December 31, 1996
and $12.2 million at December 31, 1995.
The Company enters into forward U.S. Treasury commitments for the purpose of
managing interest rate exposure. The Company generally does not take delivery on
forward commitments. These commitments are instead settled with offsetting
transactions. Gains and losses on forward commitments are recorded when the
commitment is closed and amortized through the Interest Maintenance Reserve over
the remaining life of the asset. At December 31, 1996 and 1995, the Company had
U. S. Treasury purchase commitments which will settle during the following year
with contractual amounts of $1,639.4 million and $292.4 million and fair values
of $1,627.4 million and $298.8 million, respectively.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to financial instruments. This exposure is limited to
contracts with a positive fair value. The amounts at risk in a net gain position
were $53.9 million and $86.9 million at December 31, 1996 and 1995,
respectively. The Company monitors exposure to ensure counterparties are credit
worthy and concentration of exposure is minimized. Additionally, contingent
collateral positions have been obtained with counterparties when considered
prudent.
8. REINSURANCE
The Company cedes all of its group life and health business to UniCARE and has
other reinsurance agreements with other insurance companies in the normal course
of business. Premiums, benefits to policyholders and provisions for future
benefits are stated net of reinsurance. The Company remains liable to the
insured for the payment of benefits if the reinsurer cannot meet its obligations
under the reinsurance agreements. Premiums ceded were $793.5 million in 1996,
$904.1 million in 1995 and $151.4 million in 1994.
9. LIQUIDITY
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1996 are illustrated below:
<TABLE>
<CAPTION>
(In Millions)
<S> <C> <C>
Total policyholders' reserves and funds and separate account liabilities $47,148
Not subject to discretionary withdrawal (6,010)
Policy loans (4,752)
-------
Subject to discretionary withdrawal $36,386
---------
Total invested assets, including separate investment accounts $52,146
Policy loans and other invested assets (13,458)
-------
Readily marketable investments $38,688
---------
</TABLE>
53
<PAGE>
Notes To Statutory Financial Statements (Continued)
10. BUSINESS RISKS AND CONTINGENCIES
The Company is subject to insurance guaranty fund laws in the states in which it
does business. These laws assess insurance companies amounts to be used to pay
benefits to policyholders and claimants of insolvent insurance companies. Many
states allow these assessments to be credited against future premium taxes. The
Company believes such assessments in excess of amounts accrued will not
materially affect its financial position, results of operations or liquidity. In
1996 and 1995, the Company elected not to admit $15.3 million and $17.6 million,
respectively, of guaranty fund premium tax offset receivables relating to prior
assessments.
The Company is involved in litigation arising out of the normal course of its
business. Management intends to defend these actions vigorously. While the
outcome of litigation cannot be foreseen with certainty, it is the opinion of
management, after consultation with legal counsel, that the ultimate resolution
of these matters will not materially affect its financial position, results of
operations or liquidity.
11. RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the current
year presentation.
12. SUBSIDIARIES AND AFFILIATED COMPANIES
Summary of ownership and relationship of the Company and its subsidiaries and
affiliated companies as of December 31, 1996 is illustrated below. The Company
provides management or advisory services to these companies. Subsidiaries are
wholly-owned, except as noted.
Parent
------
Massachusetts Mutual Life Insurance Company
Subsidiaries of Massachusetts Mutual Life Insurance Company
-----------------------------------------------------------
C.M. Assurance Company
C.M. Benefit Insurance Company
C.M. Life Insurance Company
MassMutual Holding Company
MassMutual Holding Company Two, Inc. (Sold in March 1996)
MassMutual of Ireland, Limited
MML Bay State Life Insurance Company
MML Distributors, LLC
Subsidiaries of MassMutual Holding Company
------------------------------------------
GR Phelps, Inc.
MassMutual Holding Trust I
MassMutual Holding Trust II
MassMutual Holding MSC, Inc.
MassMutual International, Inc.
MassMutual Reinsurance Bermuda (Sold in December 1996)
MML Investor Services, Inc.
State House One (Liquidated in December 1996)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation
Charter Oak Capital Management, Inc.
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation
Oppenheimer Acquisition Corporation - 86.15%
54
<PAGE>
Notes To Statutory Financial Statements (Continued)
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc.
CM International, Inc.
CM Property Management, Inc.
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
Subsidiaries of MassMutual International
----------------------------------------
Compensa de Seguros de Vida S.A. - 33.5%
MassLife Seguros de Vida (Argentina) S. A.
MassMutual International (Bermuda) Ltd.
Mass Seguros de Vida (Chile) S. A. - 33.5%
MassMutual International (Luxemburg) S. A.
MassMutual Holding MSC, Incorporated
------------------------------------
MassMutual/Carlson CBO N. V. - 50%
MassMutual Corporate Value Limited - 46%
Affiliates of Massachusetts Mutual Life Insurance Company
---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
55
<PAGE>
PART II. INFORMATION NOT REQUIRED IN A PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
Not applicable.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
MassMutual directors and officers are indemnified under its by-laws.
No indemnification is provided with respect to any liability to any
entity which is registered as an investment company under the
Investment Company Act of 1940 or to the security holders thereof,
where the basis for such liability is willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of MassMutual pursuant to the foregoing provisions, or
otherwise, MassMutual has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
MassMutual of expenses incurred or paid by a director, officer or
controlling person of MassMutual 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,
MassMutual 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 Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
MassMutual is involved in the sale of several unregistered securities
products including certain products exempt from registration under
Section 3(c)(11) of the 1933 Act. Such products are issued for use
with qualified plans.
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
<S> <C> <C>
1 Form of Underwriting
Agreement with
MML Distributors, LLC Filed Herewith
3(i) MassMutual Articles of *
Incorporation
3(ii) MassMutual Bylaws *
4 Individual Annuity *
Contract
5 Opinion re legality Filed herewith
21 List of MassMutual Filed herewith
Subsidiaries
23 Consent of Filed herewith
Coopers & Lybrand L.L.P.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Independent Accountants
Consent of Arthur Filed herewith
Andersen L.L.P.
Independent Accountants
23(i) Financial Statement Filed herewith
Schedules
24 Powers of Attorney Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
*Incorporated by reference from Registrant's Registration Statement No.
33-84802 filed on October 5, 1994.
Item 17. Undertakings
------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement, including (but
not limited to) any addition or deletion of a managing
underwriter;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this Post-Effective Amendment No. 3 to Registration Statement No.
33-84802 to be signed on its behalf by the undersigned thereunto duly
authorized, all in the city of Springfield and the Commonwealth of
Massachusetts, on the 9th day of April, 1997.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: /s/ Thomas B. Wheeler*
---------------------------------------
Thomas B. Wheeler, Chief Executive Officer
Massachusetts Mutual Life Insurance Company
/s/ Richard M. Howe On April 9, 1997, as Attorney-in-Fact pursuant to
- -------------------- powers of attorney filed herewith.
*Richard M. Howe
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 3 to Registration Statement No. 33-84802 has been signed by the following
persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas B. Wheeler* Chief Executive Officer and April 9, 1997
- --------------------------- Chairman of the Board
Thomas B. Wheeler
/s/ John J. Pajak* President, Chief Operating April 9, 1997
- --------------------------- Officer and Director
John J. Pajak
/s/ Daniel J. Fitzgerald* Executive Vice President, April 9, 1997
- --------------------------- Chief Financial Officer &
Daniel J. Fitzgerald Chief Accounting Officer
/s/ Roger G. Ackerman* Director April 9, 1997
- ---------------------------
Roger G. Ackerman
/s/ James R. Birle* Director April 9, 1997
- ---------------------------
James R. Birle
/s/ Frank C. Carlucci, III* Director April 9, 1997
- ---------------------------
Frank C. Carlucci, III
/s/ Gene Chao* Director April 9, 1997
- ---------------------------
Gene Chao, Ph.D.
/s/ Patricia Diaz Dennis* Director April 9, 1997
- ---------------------------
Patricia Diaz Dennis
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Anthony Downs* Director April 9, 1997
- ---------------------------
Anthony Downs
/s/ James L. Dunlap* Director April 9, 1997
- ---------------------------
James L. Dunlap
/s/ William B. Ellis* Director April 9, 1997
- ---------------------------
William B. Ellis, Ph.D.
/s/ Robert M. Furek* Director April 9, 1997
- ---------------------------
Robert M. Furek
/s/ Charles K. Gifford* Director April 9, 1997
- ---------------------------
Charles K. Gifford
/s/ William N. Griggs* Director April 9, 1997
- ---------------------------
William N. Griggs
/s/ George B. Harvey* Director April 9, 1997
- ---------------------------
George B. Harvey
/s/ Barbara B. Hauptfuhrer* Director April 9, 1997
- ---------------------------
Barbara B. Hauptfuhrer
/s/ Sheldon B. Lubar* Director April 9, 1997
- ---------------------------
Sheldon B. Lubar
/s/ William B. Marx, Jr.* Director April 9, 1997
- ---------------------------
William B. Marx, Jr.
/s/ John F. Maypole* Director April 9, 1997
- ---------------------------
John F. Maypole
/s/ Donald F. McCullough* Director April 9, 1997
- ---------------------------
Donald F. McCullough
/s/ Alfred M. Zeien* Director April 9, 1997
- ---------------------------
Alfred M. Zeien
/s/ Richard M. Howe On April 9, 1997, as Attorney-in-Fact
- --------------------------- pursuant to powers of attorney filed herewith.
*Richard M. Howe
</TABLE>
8
<PAGE>
EXHIBIT 1
UNDERWRITING AGREEMENT
Form of Underwriting Agreement with MML Distributors, LLC
<PAGE>
UNDERWRITING AND SERVICING AGREEMENT
This UNDERWRITING AND SERVICING AGREEMENT is made this 1st day of May, 1996, by
and between MML Distributors, LLC ("MML DISTRIBUTORS") and Massachusetts Mutual
Life Insurance Company ("MassMutual"), on its own behalf and on behalf of
_______________ Separate Account (the "Separate Account"), a separate account of
MassMutual, as follows:
WHEREAS, the Separate Account was established on _____________ pursuant to
authority of the Board of Directors of MassMutual in order to set aside and
invest assets attributable to certain variable annuity contracts (the
"Contracts") issued by MassMutual; and
WHEREAS, MassMutual has registered the Separate Account under the Investment
Company Act of 1940, as amended, (the "1940 Act") and has registered the
Contracts under the Securities Act of 1933, as amended, (the "1933 Act"); and
WHEREAS, MassMutual will continue the effectiveness of the registrations of the
Separate Account under the 1940 Act and the Contracts under the 1933 Act; and
WHEREAS, MassMutual intends for the Contracts to be sold by agents and brokers
who are required to be registered representatives of a broker-dealer that is
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934 ("1934 Act") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, MassMutual desires to engage MML DISTRIBUTORS, a broker-dealer
registered with the SEC under the 1934 Act and a member of the NASD, to act as
the principal underwriter ("Underwriter") of the Contracts, and to otherwise
perform certain duties and functions that are necessary and proper for the
distribution of the Contracts as required under applicable federal and state
securities laws and NASD regulations, and MML DISTRIBUTORS desires to act as
Underwriter for the sale of the Contracts and to assume such responsibilities;
10
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Underwriter. MassMutual hereby appoints MML DISTRIBUTORS as, and MML
DISTRIBUTORS agrees to serve as, Underwriter of the Contracts during the
term of this Agreement for purposes of federal and state securities laws.
MassMutual reserves the right, however, to refuse at any time or times to
sell any Contracts hereunder for any reason, and MassMutual maintains
ultimate responsibility for the sales of the Contracts.
MML DISTRIBUTORS shall use reasonable efforts to sell the Contracts but
does not agree hereby to sell any specific number of Contracts and shall be
free to act as underwriter of other securities. MML DISTRIBUTORS agrees to
offer the Contracts for sale in accordance with the prospectus then in
effect for the Contracts.
2. Services. MML DISTRIBUTORS agrees, on behalf of MassMutual and the
Separate Account, and in its capacity as Underwriter, to undertake at its
own expense except as otherwise provided herein, to provide certain sales,
administrative and supervisory services relative to the Contracts as
described below, and otherwise to perform all duties that are necessary
and proper for the distribution of the Contracts as required under
applicable federal and state securities laws and NASD regulations.
3. Selling Group. MML DISTRIBUTORS may enter into sales agreements for the
sale of the Contracts with independent broker-dealer firms ("Independent
Brokers") whose registered representatives have been or shall be licensed
and appointed as life insurance agents of MassMutual. All such agreements
shall be in a form agreed to by MassMutual. All such agreements shall
provide that the Independent Brokers must assume full responsibility for
continued compliance by itself and its associated persons with the NASD
Rules of Fair Practice (the "Rules") and all applicable federal and state
securities and insurance laws. All associated persons of such Independent
Brokers soliciting applications for the Contracts shall be duly and
appropriately licensed and appointed for the sale of the Contracts under
the Rules and applicable federal and state securities and insurance laws.
4. Compliance and Supervision. All persons who are engaged directly or
indirectly in the operations of MML DISTRIBUTORS and MassMutual in
connection with the offer or sale of the Contracts shall be considered a
"person associated" with MML DISTRIBUTORS as defined in Section 3(a)(18) of
the 1934 Act. MML DISTRIBUTORS shall have full responsibility for the
securities activities of each such person as contemplated by Section 15 of
the 1934 Act.
MML DISTRIBUTORS shall be fully responsible for carrying out all
compliance, supervisory and other obligations hereunder with respect to the
activities of its registered representatives as required by the Rules and
applicable federal and state securities laws. Without limiting the
generality of the foregoing, MML DISTRIBUTORS agrees that it shall be fully
responsible for:
(a) ensuring that no representative of MML DISTRIBUTORS shall offer or
sell the Contracts until such person is appropriately licensed,
registered, or otherwise qualified to offer and sell such Contracts
under the federal securities laws and any applicable securities laws
of each state or other jurisdiction in which such Contracts may be
lawfully sold, in which MassMutual is licensed to sell the Contracts,
and in which such person shall offer or sell the Contracts; and
(b) training and supervising MassMutual's agents and brokers who are also
registered representatives of MML DISTRIBUTORS for purposes of
complying on a continuous basis with the Rules and with federal and
state securities laws applicable in connection with the offering and
sale of the Contracts. In this connection, MML DISTRIBUTORS shall:
11
<PAGE>
(i) jointly conduct with MassMutual such training (including the
preparation and utilization of training materials) as in the
opinion of MML DISTRIBUTORS and MassMutual is necessary to
accomplish the purposes of this Agreement;
(ii) establish and implement reasonable written procedures for
supervision of sales practices of registered representatives of
MML DISTRIBUTORS who sell the Contracts;
(iii) provide a sufficient number of registered principals and an
adequately staffed compliance department to carry out the
responsibilities as set forth herein;
(iv) take reasonable steps to ensure that MassMutual agents and
brokers who are also registered representatives of MML
DISTRIBUTORS recommend the purchase of the Contracts only upon
reasonable grounds to believe that the purchase of the Contracts
is suitable for such applicant; and
(v) impose disciplinary measures on agents of MassMutual who are
also registered representatives of MML DISTRIBUTORS as required.
The parties hereto recognize that any registered representative of MML
DISTRIBUTORS or Independent Broker selling the Contracts as
contemplated by this Agreement shall also be acting as an insurance
agent of MassMutual or as an insurance broker, and that the rights of
MML DISTRIBUTORS and Independent Broker to supervise such persons
shall be limited to the extent specifically described herein or
required under applicable federal or state securities laws or NASD
regulations.
5. Registration and Qualification of Contracts. MassMutual has prepared or
caused to be prepared a registration statement describing the Contracts,
together with exhibits thereto (hereinafter referred to as the
"Registration Statement"). The Registration Statement includes a
prospectus (the "Prospectus") for the Contracts.
MassMutual agrees to execute such papers and to do such acts and things as
shall from time-to-time be reasonably requested by MML DISTRIBUTORS for the
purpose of qualifying and maintaining qualification of the Contracts for
sale under applicable state law and for maintaining the registration of the
Separate Account and interests therein under the 1933 Act and the 1940 Act,
to the end that there will be available for sale from time-to-time such
amounts of the Contracts as MML DISTRIBUTORS may reasonably request.
MassMutual shall advise MML DISTRIBUTORS promptly of any action of the SEC
or any authorities of any state or territory, of which it is aware,
affecting registration or qualification of the Separate Account, or rights
to offer the Contracts for sale.
If any event shall occur as a result of which it is necessary to amend or
supplement the Registration Statement in order to make the statements
therein, in light of the circumstances under which they were or are made,
true, complete or not misleading, MassMutual will forthwith prepare and
furnish to MML DISTRIBUTORS, without charge, amendments or supplements to
the Registration Statement sufficient to make the statements made in the
Registration Statement as so amended or supplemented true, complete and not
misleading in light of the circumstances under which they were made.
6. Representations of MassMutual. MassMutual represents and warrants to MML
DISTRIBUTORS and to the Independent Brokers as follows:
(a) MassMutual is an insurance company duly organized under the laws of
the Commonwealth of Massachusetts and is in good standing and is
authorized to conduct business under the laws of each state in which
the Contracts are sold, that the Separate Account was legally and
validly established as a segregated asset account under the Insurance
Code of Massachusetts, and that the
12
<PAGE>
Separate Account has been properly registered as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
(b) All persons that will be engaging in the offer or sale of the
Contracts will be authorized insurance agents of MassMutual.
(c) The Registration Statement does not and will not contain any
misstatements of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were or are
made, not materially misleading.
(d) MassMutual shall make available to MML DISTRIBUTORS copies of all
financial statements that MML DISTRIBUTORS reasonably requests for use
in connection with the offer and sale of the Contracts.
(e) No federal or state agency or bureau has issued an order preventing or
suspending the offer of the Contracts or the use of the Registration
Statement, or of any part thereof, with respect to the sale of the
Contracts.
(f) The offer and sale of the Contracts is not subject to registration, or
if necessary, is registered, under the Blue Sky laws of the states in
which the Contracts will be offered and sold.
(g) The Contracts are qualified for offer and sale under the applicable
state insurance laws in those states in which the Contracts shall be
offered for sale. In each state where such qualification is effected,
MassMutual shall file and make such statements or reports as are or
may be required by the laws of such state.
(h) This Agreement has been duly authorized, executed and delivered by
MassMutual and constitutes the valid and legally binding obligation of
MassMutual. Neither the execution and delivery of this Agreement by
MassMutual nor the consummation of the transactions contemplated
herein will result in a breach or violation of any provision of the
state insurance laws applicable to MassMutual, any judicial or
administrative orders in which it is named or any material agreement
or instrument to which it is a party or by which it is bound.
7. Representations of MML DISTRIBUTORS. MML DISTRIBUTORS represents and
warrants to MassMutual as follows:
(a) MML DISTRIBUTORS is duly registered as a broker-dealer under the 1934
Act and is a member in good standing of the NASD and, to the extent
necessary to perform the activities contemplated hereunder, is duly
registered, or otherwise qualified, under the applicable securities
laws of every state or other jurisdiction in which the Contracts are
available for sale.
(b) This Agreement has been duly authorized, executed and delivered by MML
DISTRIBUTORS and constitutes the valid and legally binding obligation
of MML DISTRIBUTORS. Neither the execution and delivery of this
Agreement by MML DISTRIBUTORS nor the consummation of the transactions
contemplated herein will result in a breach or violation of any
provision of the federal or state securities laws or the Rules,
applicable to MML DISTRIBUTORS, or any judicial or administrative
orders in which it is named or any material agreement or instrument to
which it is a party or by which it is bound.
(c) MML DISTRIBUTORS shall comply with the Rules and the securities laws
of any jurisdiction in which it sells, directly or indirectly, any
Contracts.
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8. Expenses. MML DISTRIBUTORS shall be responsible for all expenses incurred
in connection with its provision of services and the performance of its
obligations hereunder, except as otherwise provided herein.
MassMutual shall be responsible for all expenses of printing and
distributing the Prospectuses, and all other expenses of preparing,
printing and distributing all other sales literature or material for use in
connection with offering the Contracts for sale.
9. Sales Literature and Advertising. MML DISTRIBUTORS agrees to ensure that
it uses and distributes only the Prospectus, statements of additional
information, or other applicable and authorized sales literature then in
effect in selling the Contracts. MML DISTRIBUTORS is not authorized to
give any information or to make any representations concerning the
Contracts other than those contained in the current Registration Statement
filed with the SEC or in such sales literature as may be authorized by
MassMutual.
MML DISTRIBUTORS agrees to make timely filings with the SEC, the NASD, and
such other regulatory authorities as may be required of any sales
literature or advertising materials relating to the Contracts and intended
for distribution to prospective investors. MassMutual shall review and
approve all advertising and sales literature concerning the Contracts
utilized by MML DISTRIBUTORS. MML DISTRIBUTORS also agrees to furnish to
MassMutual copies of all agreements and plans it intends to use in
connection with any sales of the Contracts.
10. Applications. All applications for Contracts shall be made on application
forms supplied by MassMutual, and shall be remitted by MML DISTRIBUTORS or
Independent Brokers promptly, together with such forms and any other
required documentation, directly to MassMutual at the address indicated on
such application or to such other address as MassMutual may, from time to
time, designate in writing. All applications are subject to acceptance or
rejection by MassMutual at its sole discretion.
11. Payments. All money payable in connection with any of the Contracts,
whether as premiums, purchase payments or otherwise, and whether paid by,
or on behalf of any applicant or Contract owner, is the property of
MassMutual and shall be transmitted immediately in accordance with the
administrative procedures of MassMutual without any deduction or offset for
any reason, including by example but not limitation, any deduction or
offset for compensation claimed by MML DISTRIBUTORS. Checks or money
orders as payment on any Contract shall be drawn to the order of
"Massachusetts Mutual Life Insurance Company." No cash payments shall be
accepted by MML DISTRIBUTORS in connection with the Contracts. Unless
otherwise agreed to by MassMutual in writing, neither MML DISTRIBUTORS nor
any of MassMutual's agents nor any broker shall have an interest in any
surrender charges, deductions or other fees payable to MassMutual as set
forth herein.
12. Insurance Licenses. MassMutual shall apply for and maintain the proper
insurance licenses and appointments for each of the agents and brokers
selling the Contracts in all states or jurisdictions in which the Contracts
are offered for sale by such person. MassMutual reserves the right to
refuse to appoint any proposed agent or broker, and to terminate an agent
or broker once appointed. MassMutual agrees to be responsible for all
licensing or other fees required under pertinent state insurance laws to
properly authorize
agents or brokers for the sale of the Contracts; however, the foregoing
shall not limit MassMutual's right to collect such amount from any person
or entity other than MML DISTRIBUTORS.
13. Agent/Broker Compensation. Commissions or other fees due all brokers and
agents in connection with the sale of Contracts shall be paid by
MassMutual, on behalf of MML DISTRIBUTORS, to the persons entitled thereto
in accordance with the applicable agreement between each such broker or
agent and MassMutual or a general agent thereof. MML DISTRIBUTORS shall
assist MassMutual in the payment of such amounts as MassMutual shall
reasonably request, provided that MML DISTRIBUTORS shall not be required to
perform any acts that would subject it to registration under the insurance
laws of any state.
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The responsibility of MML DISTRIBUTORS shall include the performance of all
activities by MML DISTRIBUTORS necessary in order that the payment of such
amounts fully complies with all applicable federal and state securities
laws. Unless applicable federal or state securities law shall require,
MassMutual retains the ultimate right to determine the commission rate paid
to its agents.
14. MML DISTRIBUTORS Compensation. As payment for its services hereunder, MML
DISTRIBUTORS shall receive an annual fee that has the following components:
(1) a fixed fee in the amount of $_____ per year, and (2) a variable fee
in the amount of ___ basis points (.000x) per year of new sales of the
Contracts. Payments shall commence and be made no later than December 31
of the year in which a Contract is issued. The variable component of the
fee shall be paid to MML DISTRIBUTORS' affiliate, MML Insurance Agency,
Inc. ("MMLIAI"). The fixed component shall be renegotiated annually
commencing in 1997. The last agreed-to amounts for each of these fees
shall remain in effect until the new fees are mutually agreed upon and are
set forth in schedules attached hereto.
15. Books and Records. MML DISTRIBUTORS and MassMutual shall each cause to be
maintained and preserved for the period prescribed such accounts, books,
and other documents as are required of it by the 1934 Act and any other
applicable laws and regulations. In particular, without limiting the
foregoing, MML DISTRIBUTORS shall cause all the books and records in
connection with the offer and sale of the Contracts by its registered
representatives to be maintained and preserved in conformity with the
requirements of Rules 17a-3 and 17a-4 under the 1934 Act, to the extent
that such requirements are applicable to the Contracts. The books,
accounts, and records of MML DISTRIBUTORS and MassMutual as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. The payment of
premiums, purchase payments, commissions and other fees and payments in
connection with the Contracts by its registered representatives shall be
reflected on the books and records of MML DISTRIBUTORS as required under
applicable NASD regulations and federal and state securities laws
requirements.
MML DISTRIBUTORS and MassMutual, from time to time during the term of this
Agreement, shall divide the administrative responsibility for maintaining
and preserving the books, records and accounts kept in connection with the
Contracts; provided, however, in the case of books, records and accounts
kept pursuant to a requirement of applicable law or regulation, the
ultimate and legal responsibility for maintaining and preserving such
books, records and accounts shall be that of the party which is required to
maintain or preserve such books, records and accounts under the applicable
law or regulation, and such books, records and accounts shall be maintained
and preserved under the supervision of that party. MML DISTRIBUTORS and
MassMutual shall each cause the other to be furnished with such reports as
it may reasonably request for the purpose of meeting its reporting and
recordkeeping requirements under such regulations and laws, and under the
insurance laws of the Commonwealth of Massachusetts and any other
applicable states or jurisdictions.
MML DISTRIBUTORS and MassMutual each agree and understand that all
documents, reports, records, books, files and other materials required
under applicable Rules and federal and state securities laws shall be the
property of MML DISTRIBUTORS, unless such documents, reports, records,
books, files and other materials are required by applicable regulation or
law to be also maintained by MassMutual, in which case such material shall
be the joint property of MML DISTRIBUTORS and MassMutual. All other
documents, reports, records, books, files and other materials maintained
relative to this Agreement shall be the property of MassMutual. Upon
termination of this Agreement, all said material shall be returned to the
applicable party.
MML DISTRIBUTORS and MassMutual shall establish and maintain facilities and
procedures for the safekeeping of all books, accounts, records, files, and
other materials related to this Agreement. Such books, accounts, records,
files, and other materials shall remain confidential and shall not be
voluntarily disclosed to any other person or entity except as described
below in section 16.
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16. Availability of Records. MML DISTRIBUTORS and MassMutual shall each submit
to all regulatory and administrative bodies having jurisdiction over the
sales of the Contracts, present or future, any information, reports, or
other material that any such body by reason of this Agreement may request
or require pursuant to applicable laws or regulations. In particular,
without limiting the foregoing, MassMutual agrees that any books and
records it maintains pursuant to paragraph 15 of this Agreement which are
required to be maintained under Rule 17a-3 or 17a-4 of the 1934 Act shall
be subject to inspection by the SEC in accordance with Section 17(a) of the
1934 Act and Sections 30 and 31 of the 1940 Act.
17. Confirmations. MassMutual agrees to prepare and mail a confirmation for
each transaction in connection with the Contracts at or before the
completion thereof as required by the 1934 Act and applicable
interpretations thereof, including Rule 10b-10 thereunder. Each such
confirmation shall reflect the facts of the transaction, and the form
thereof will show that it is being sent on behalf of MML DISTRIBUTORS or
Independent Broker acting in the capacity of agent for MassMutual.
18. Indemnification. MassMutual shall indemnify MML DISTRIBUTORS, Independent
Brokers, their registered representatives, officers, directors, employees,
agents and controlling persons and hold such persons harmless, from and
against any and all losses, damages, liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever
(including reasonable attorneys' fees and disbursements) resulting or
arising out of or based upon an allegation or finding that: (i) the
Registration Statement or any application or other document or written
information provided by or on behalf of MassMutual includes any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in light of the circumstances under which
they are made, not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, written information furnished to
MassMutual by MML DISTRIBUTORS, Independent Brokers, or their registered
representatives specifically for use in the preparation thereof, or (ii)
there is a misrepresentation, breach of warranty or failure to fulfill any
covenant or warranty made or undertaken by MassMutual hereunder.
MML DISTRIBUTORS will indemnify MassMutual, its officers, directors,
employees, agents and controlling persons and hold such persons harmless,
from and against any and all losses, damages, liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever
(including reasonable attorneys' fees and disbursements) resulting or
arising out of or based upon an allegation or finding that: (i) MML
DISTRIBUTORS or its registered representatives offered or sold or engaged
in any activity relating to the offer and sale of the Contracts which was
in violation of any provision of the federal securities laws or, (ii) there
is a material misrepresentation, material breach of warranty or material
failure to fulfill any covenant or warranty made or undertaken by MML
DISTRIBUTORS hereunder.
Promptly after receipt by an indemnified party under this paragraph 18 of
notice of the commencement of any action by a third party, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this paragraph 18, notify the indemnifying party
of the commencement thereof; but the omission to notify the indemnifying
party will not relieve the indemnifying party from liability which the
indemnifying party may have to any indemnified party otherwise than under
this paragraph. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this paragraph for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
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19. Independent Contractor. MML DISTRIBUTORS shall be an independent
contractor. MML DISTRIBUTORS is responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees.
MML DISTRIBUTORS assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes thereunder.
20. Termination. Subject to termination as hereinafter provided, this
Agreement shall remain in full force and effect for the initial term of the
Agreement, which shall be for a two year period commencing on the date
first above written, and this Agreement shall continue in full force and
effect from year to year thereafter, until terminated as herein provided.
This Agreement may be terminated by either party hereto upon 30 days
written notice to the other party, or at any time upon the mutual written
consent of the parties hereto. This Agreement shall automatically be
terminated in the event of its assignment. Subject to MassMutual's
approval, however, MML DISTRIBUTORS may delegate any duty or function
assigned to it in this agreement provided that such delegation is
permissible under applicable law. Upon termination of this Agreement, all
authorizations, rights and obligations shall cease except the obligations
to settle accounts hereunder, including the settlement of monies due in
connection with the Contracts in effect at the time of termination or
issued pursuant to applications received by MassMutual prior to
termination.
21. Interpretation. This Agreement shall be subject to the provisions of the
1934 Act and the rules, regulations, and rulings thereunder and of the
NASD, from time to time in effect, and the terms hereof shall be
interpreted and construed in accordance therewith. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule, or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be interpreted in accordance with the laws
of the Commonwealth of Massachusetts.
22. Non-exclusivity. The services of MML DISTRIBUTORS and MassMutual to the
Separate Account hereunder are not to be deemed exclusive and MML
DISTRIBUTORS and MassMutual shall be free to render similar services to
others so long as their services hereunder are not impaired or interfered
with hereby.
23. Amendment. This Agreement constitutes the entire Agreement between the
parties hereto and may not be modified except in a written instrument
executed by all parties hereto.
24. Interests in and of MML DISTRIBUTORS. It is understood that any of the
policyholders, directors, officers, employees and agents of MassMutual may
be a shareholder, director, officer, employee, or agent of, or be otherwise
interested in, MML DISTRIBUTORS, any affiliated person of MML DISTRIBUTORS,
any organization in which MML DISTRIBUTORS may have an interest, or any
organization which may have an interest in MML DISTRIBUTORS; that MML
DISTRIBUTORS, any such affiliated person or any such organization may have
an interest in MassMutual; and that the existence of any such dual interest
shall not affect the validity hereof or of any transaction hereunder except
as otherwise provided in the Charter, Articles of Incorporation, or By-Laws
of MassMutual and MML DISTRIBUTORS, respectively, or by specific provision
of applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officials thereunto duly authorized and seals to
be affixed, as of the day and year first above written.
ATTEST: MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY, on its behalf
and on behalf of _______________
SEPARATE ACCOUNT
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By:
------------------------------
ATTEST: MML Distributors, LLC
By:
-------------------------------
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EXHIBIT 5
OPINION RE LEGALITY
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April 9, 1997
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
RE: Massachusetts Mutual Fixed Account with Market Value
Adjustment; Commission File No. 33-84802
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 3 to the Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933 for
Massachusetts Mutual Fixed Account with Market Value Adjustment (the "Fixed
Account") offered in connection with OppenheimerFunds LifeTrust Variable
Annuity contract, issued by MassMutual.
The Fixed Account offers investors the choice among various guarantee
periods to which account value may be allocated. If such amounts remain in
the Fixed Account for the chosen guarantee period, then a guaranteed rate
of interest will be paid. If, however, amounts are withdrawn prior to the
expiration of the selected guarantee period, such withdrawal will be
subject to a market value adjustment.
As Second Vice President and Associate General Counsel for Massachusetts
Mutual Life Insurance Company, ("MassMutual"), I provide legal advice to
MassMutual in connection with the operation of its variable products. In
such role I have participated in the preparation of Post-Effective
Amendment No. 3 to the Registration Statement for the Fixed Account.
In so acting, I have made such examination of the law and examined such
records and documents as in my judgment are necessary or appropriate to
enable me to render the opinion expressed below. I am of the following
opinion:
1. MassMutual is a valid and subsisting corporation, organized and
operated under Massachusetts law, and subject to regulation by the
Massachusetts Commissioner of Insurance.
2. The securities being registered, when sold will be legally issued,
fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Post-
Effective Amendment.
Very truly yours,
Richard M. Howe
Richard M. Howe
Second Vice President and
Associate General Counsel
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EXHIBIT 21
LIST OF SUBSIDIARIES AND AFFILIATES
1. MassMutual Holding Company, a Delaware corporation, all the stock of which
is owned by MassMutual.
2. MML Series Investment Fund, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares of which are
owned by separate accounts of MassMutual and companies controlled by
MassMutual.
3. MassMutual Institutional Funds, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares are owned by
MassMutual.
4. MML Bay State Life Insurance Company, a Missouri corporation, all the stock
of which is owned by MassMutual.
5. MassMutual of Ireland, Ltd., incorporated in the Republic of Ireland, to
operate a group life and health claim office for MassMutual, all of the
stock of which is owned by MassMutual.
6. CM Assurance Company, a Connecticut life, accident, disability and health
insurer, all the stock of which is owned by MassMutual.
7. CM Benefit Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
8. C.M. Life Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
9. MML Distributors, LLC, formerly known as Connecticut Mutual Financial
Services, LLC, a registered broker-dealer incorporated as a limited
liability company in Connecticut. MassMutual has a 99% ownership interest
and G.R. Phelps & Co. has a 1% ownership interest.
10. Panorama Series Fund, Inc., a registered open-end investment company
organized as a Maryland corporation. Shares of the fund are sold only to
MassMutual and its affiliates.
11. MassMutual Holding Trust I, a Massachusetts business trust, which acts as a
holding company for certain MassMutual subsidiaries and affiliates, all of
the stock of which is owned by MassMutual Holding Company.
12. MassMutual Holding Trust II, a Massachusetts business trust, which acts as
a holding company for certain MassMutual subsidiaries and affiliates, all
of the stock of which is owned by MassMutual Holding Company.
13. MassMutual Holding MSC, Inc., a Massachusetts corporation, which acts as a
holding company for certain MassMutual subsidiaries and affiliates, all of
the stock of which is owned by MassMutual Holding Company.
14. MML Investors Services, Inc., registered broker-dealer incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding
Company.
15. G.R. Phelps & Company, Inc., Connecticut corporation which formerly
operated as a securities broker-dealer, all the stock of which is owned by
MassMutual Holding Company.
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16. MassMutual International, Inc., a Delaware corporation that acts as a
holding company of and provides services to international insurance
companies, all of the stock of which is owned by MassMutual Holding
Company.
17. MassLife Seguros de Vida S.A. (Argentina), a life insurance company
incorporated in Argentina. MassMutual International Inc. owns 99.99% of
the outstanding capital stock of MassLife Seguros de Vida S.A.
18. Cornerstone Real Estate Advisers, Inc., a Massachusetts equity real estate
advisory corporation, all the stock of which is owned by MassMutual Holding
Trust I.
19. DLB Acquisition Corporation ("DLB") is a Delaware corporation, which serves
as a holding company for certain investment advisory subsidiaries of
MassMutual. MassMutual Holding Trust I owns 83.7% of the outstanding
capital stock of DLB.
20. Oppenheimer Acquisition Corporation ("OAC") is a Delaware corporation,
which serves as a holding company for OppenheimerFunds, Inc. MassMutual
Holding Trust I owns 86% of the capital stock of OAC.
21. Antares Leveraged Capital Corp., a Delaware corporation that operates as a
finance company, all of the stock of which is owned by MassMutual Holding
Trust I.
22. Charter Oak Capital Management, Inc., a Delaware corporation that operates
as an investment manager. MassMutual Holding Trust I owns 80% of the
capital stock of Charter Oak.
23. MML Realty Management Corporation, a property manager incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding Trust
II.
24. Westheimer 335 Suites, Inc., was incorporated in Delaware to serve as a
general partner of the Westheimer 335 Suites Limited Partnership.
MassMutual Holding Trust II owns all the stock of Westheimer 335 Suites,
Inc.
25. CM Advantage, Inc., a Connecticut corporation that acts as a general
partner in real estate limited partnerships. MassMutual Holding Trust II
owns all of the outstanding stock.
26. CM International, Inc., a Delaware corporation that holds a mortgage pool
and issues collateralized bond obligations. MassMutual Holding Trust II
owns all the outstanding stock of CM International, Inc.
27. CM Property Management, Inc., a Connecticut real estate holding company,
all the stock of which is owned by MassMutual Holding Trust II.
28. Urban Properties, Inc., a Delaware real estate holding and development
company, all the stock of which is owned by MassMutual Holding Trust II.
29. MMHC Investment, Inc., a Delaware corporation which is a passive investor
in MassMutual High Yield Partners LLC. MassMutual Holding Trust II owns
all the outstanding stock of MMHC Investment, Inc.
30. HYP Management, Inc., a Delaware corporation which is the LLC Manager for
MassMutual High Yield Partners LLC and owns 1.28% of the LLC units of such
entity. MassMutual Holding Trust II owns all the outstanding stock of HYP
Management, Inc.
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31. MassMutual Corporate Value Limited, a Cayman Islands corporation that owns
approximately 90% of MassMutual Corporate Value Partners Limited.
MassMutual Holding MSC, Inc. owns 46.19% of the outstanding capital stock
of MassMutual Corporate Value Limited.
32. MassMutual International (Bermuda) Ltd., a Bermuda life insurance company,
all of the stock of which is owned by MassMutual International Inc.
33. MassMutual Internacional (Chile) S.A. a Chilean corporation, which operates
as a holding company. MassMutual International Inc. owns 99% of the
outstanding shares and MassMutual Holding Company owns the remaining 1% of
the shares.
34. MassMutual International (Luxembourg) S.A. a Luxembourg corporation, which
operates as an insurance company. MassMutual International Inc. owns 99%
of the outstanding shares and MassMutual Holding Company owns the remaining
1% of the shares.
35. Mass Seguros de Vida S.A., a life insurance company incorporated in Chile.
MassMutual Holding Company owns 33.5% of the outstanding capital stock of
Mass Seguros de Vida S.A.
36. MML Insurance Agency, Inc., a licensed insurance broker incorporated in
Massachusetts, all of the stock of which is owned by MML Investors
Services, Inc.
37. MML Securities Corporation, a Massachusetts securities corporation, all of
the stock of which is owned by MML Investors Services, Inc.
38. OppenheimerFunds, Inc., a registered investment adviser incorporated in
Colorado, all of the stock of which is owned by Oppenheimer Acquisition
Corporation
39. David L. Babson and Company, Incorporated, a registered investment adviser
incorporated in Massachusetts, all of the stock of which is owned by DLB
Acquisition Corporation.
40 Cornerstone Office Management, LLC, a Delaware limited liability company
that is 50% owned by Cornerstone Real Estate Advisers, Inc. and 50% owned
by MML Realty Management Corporation.
41. Westheimer 335 Suites Limited Partnership, a Texas limited partnership of
which Westheimer 335 Suites, Inc. is the general partner.
42. MassMutual High Yield Partners LLC, a Delaware limited liability company,
that operates as a high yield bond fund. MassMutual holds 5.28%, MMHC
Investment Inc. holds 35.99%, and HYP Management, Inc. hold 1.28% for a
total of 42.55% of the ownership interest in this company.
43 MassMutual Corporate Value Partners Limited, a Cayman Islands corporation
that operates as a high yield bond fund. MassMutual Corporate Value
Limited holds an approximately 90% ownership interest in this company.
44. First Israel Mezzanine Investors, Ltd., an Israeli corporation which
operates as managing general partner of First Israel Mezzanine Investors
Fund, LP. MassMutual holds a 33% ownership interest in First Israel
Mezzanine Investors, Ltd.
45. First Israel Mezzanine Investors Fund, LP, a Delaware limited partnership,
of which MassMutual holds a 37.5% ownership interest.
46. MBD Mezzanine Investments, LLC, a Delaware limited liability company, which
operates as the participating general partner of First Israel Mezzanine
Investors Fund, LP. MassMutual holds a 33% ownership interest in MBD
Mezzanine Investments, LLC.
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47. Diversified Insurance Services Agency of America, Inc. (Alabama), a
licensed insurance broker incorporated in Alabama. MML Insurance Agency,
Inc. owns all the shares of outstanding stock.
48. Diversified Insurance Services Agency of America, Inc. (Hawaii), a licensed
insurance broker incorporated in Hawaii. MML Insurance Agency, Inc. owns
all the shares of outstanding stock.
49. MML Insurance Agency of Nevada, Inc., a Nevada corporation that operates as
an insurance broker, all of the stock of which is owned by MML Insurance
Agency, Inc.
50. MML Insurance Agency of Ohio, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Ohio that operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. by means of a voting trust.
51. MML Insurance Agency of Texas, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Texas that operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. by means of a voting trust.
52. MML Insurance Agency of Mississippi, P.C., a Mississippi professional
corporation that operates as an insurance broker, all of the stock of which
is owned by MML Insurance Agency, Inc.
53. Origen Inversiones S.A., a Chilean corporation which operates as a holding
company. MassMutual Internacional (Chile) S.A. holds a 33.5% ownership
interest in this corporation.
54. Babson Securities Corporation, a registered broker-dealer incorporated in
Massachusetts, all of the stock of which is owned by David L. Babson and
Company, Incorporated.
55. Potomac Babson Incorporated, a Massachusetts corporation, is a registered
investment adviser. David L. Babson and Company Incorporated owns 60% of
the outstanding shares of Potomac Babson Incorporated.
56. Babson-Stewart-Ivory International, a Massachusetts general partnership,
which operates as a registered investment adviser. David L. Babson and
Company Incorporated holds a 50% ownership interest in the partnership.
57. Oppenheimer Value Stock Fund ("OVSF") is a series of Oppenheimer Integrity
Funds, a Massachusetts business trust. OVSF is a registered open-end
investment company of which MassMutual owns 40% of the outstanding shares
of beneficial interest.
58. Oppenheimer Series Fund I Inc., a Maryland corporation and a registered
open-end investment company of which MassMutual and its affiliates own
approximately 27% of the outstanding shares of beneficial interest.
59. Centennial Asset Management Corporation, a Delaware corporation that serves
as the investment adviser and general distributor of the Centennial Funds.
OppenheimerFunds, Inc. owns all the stock of Centennial Asset Management
Corporation.
60. HarbourView Asset Management Corporation, a registered investment adviser
incorporated in New York, all the stock of which is owned by
OppenheimerFunds, Inc.
61. Main Street Advisers, Inc., a Delaware corporation, all the stock of which
is owned by OppenheimerFunds, Inc.
24
<PAGE>
62. OppenheimerFunds Distributor, Inc., a registered broker-dealer incorporated
in New York, all the stock of which is owned by OppenheimerFunds, Inc.
63. Oppenheimer Partnership Holdings, Inc., a Delaware holding company, all the
stock of which is owned by OppenheimerFunds, Inc.
64. Shareholder Financial Services, Inc., a transfer agent incorporated in
Colorado, all the stock of which is owned by OppenheimerFunds, Inc.
65. Shareholder Services, Inc., a transfer agent incorporated in Colorado, all
the stock of which is owned by OppenheimerFunds, Inc.
66. MultiSource Service, Inc., a Colorado corporation that operates as a
clearing broker, all of the stock of which is owned by OppenheimerFunds,
Inc.
67. Centennial Capital Corporation, a former sponsor of unit investment trust
incorporated in Delaware, all the stock of which is owned by Centennial
Asset Management Corporation.
68. Compensa Compania Seguros De Vida, a Chilean insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company
69. Cornerstone Suburban Office Investors, LP, a Delaware limited partnership,
which operates as a real estate operating company. Cornerstone Office
Management, LLC holds a 1% general partnership interest in this fund and
MassMutual holds a 99% limited partnership interest.
70. 505 Waterford Park Limited Partnership, a Delaware limited partnership,
which holds title to an office building in Minneapolis, Minnesota. MML
Realty Management Corporation holds a 1% general partnership interest in
this partnership and MassMutual holds a 99% limited partnership interest.
71. The DLB Fund Group, an open-end management investment company, of which
MassMutual owns at least 25% of each series.
MassMutual is the investment adviser the following investment companies, and as
such may be deemed to control them.
1. MassMutual Corporate Investors, a registered closed-end Massachusetts
business trust.
2. MassMutual Participation Investors, a registered closed-end Massachusetts
business trust.
3. MML Series Investment Fund, a registered open-end Massachusetts business
trust, all of the shares are owned by separate accounts of MassMutual and
companies controlled by MassMutual.
4. MassMutual Institutional Funds, a registered open-end Massachusetts
business trust, all of the shares are owned by MassMutual.
5. MassMutual/Carlson CBO N.V., a Netherlands Antilles corporation that issued
Collateralized Bond Obligations on or about May 1, 1991, which is owned
equally by MassMutual interests (MassMutual and MassMutual Holding MSC,
Inc.) and Carlson Investment Management Co.
6. MassMutual Corporate Value Partners, Limited, an off-shore unregistered
investment company.
7. MassMutual High Yield Partners LLC, a high yield bond fund organized as
Delaware limited liability company.
25
<PAGE>
EXHIBIT 23
CONSENTS OF EXPERTS
Consent of Arthur Andersen LLP
Consent of Coopers & Lybrand LLP
26
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement for Massachusetts Mutual Life Insurance Company.
Arthur Andersen LLP
Hartford, Connecticut
April 9, 1997
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Policyholders of Connecticut Mutual Life Insurance Company
We have audited the accompanying balance sheet of Connecticut Mutual Life
Insurance Company (the Company) as of December 31, 1995, and the related
statements of operations, surplus and cash flows for each of the two years in
the period ended December 31, 1995 (not presented separately herein). 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our originally issued report dated February 15, 1996, we expressed an opinion
that the 1995 financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Department of the State of Connecticut,
presented fairly, in all material respects, the financial position of the
Company as of December 31, 1995, and the results of its operations, and its cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. As described in Note
1 to the financial statements, pursuant to the provisions of Statement of
Financial Accounting Standards No. 120 (SFAS No. 120), Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts, financial statements of mutual life
insurance enterprise for periods ending on or before December 15, 1996, prepared
using accounting practices prescribed or permitted by insurance regulators
(statutory financial statements) are no longer considered presentations in
conformity with generally accepted accounting principles when presented for
comparative purposes with the enterprise's financial statements for periods
subsequent to the effective date of SFAS No. 120. Accordingly, our present
opinion on the presentation of the 1995 financial statements in accordance with
generally accepted accounting principles, as presented herein, is different from
that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
accordance with generally accepted accounting principles, the financial position
of Connecticut Mutual Life Insurance Company as of December 31, 1995, or the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995.
In our opinion, the financial statements referred to above do present fairly, in
all material respects, the financial position of Connecticut Mutual Life
Insurance Company as of December 31, 1995 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995
in conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Connecticut.
Arthur Andersen LLP
Hartford, Connecticut
February 15, 1996
28
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Massachusetts Mutual Life Insurance Company
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-84802) of our report, which includes explanatory paragraphs relating to the
use of statutory accounting practices, which practices are no longer considered
to be in accordance with generally accepted accounting principles, and the
change in our opinion for prior years, dated February 7, 1997 on our audits of
the statutory financial statements and statutory financial statement schedules
of Massachusetts Mutual Life Insurance Company. We also consent to the reference
to our Firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
April 9, 1997
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Massachusetts Mutual Life Insurance Company
We have audited the accompanying statutory financial statements and statutory
financial statement schedules of Massachusetts Mutual Life Insurance Company,
listed in Item XI of this Form S-1. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We did not audit the
financial statements of Connecticut Mutual Life Insurance Company for the year
ended December 31, 1995, or for each of the two years in the period ended
December 31, 1995, which, after restatements for the 1996 pooling of interest,
reflect 25% of assets as of December 31, 1995, 26% and 26% of revenue, and 22%
and 6% of net gain from operations for the years ended December 31, 1995 and
1994, respectively. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amount
included for Connecticut Mutual Life Insurance Company, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company prepared these
financial statements using statutory accounting practices of the National
Association of Insurance Commissioners and the accounting practices prescribed
or permitted by the Division of Insurance of the Commonwealth of Massachusetts
and, prior to 1996, the Department of Insurance of the State of Connecticut,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
determinable at this time, are presumed to be material.
In our report dated February 5, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of the
Massachusetts Mutual Life Insurance Company as of December 31, 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles ("GAAP"). As described in Note 1 to the financial statements,
financial statements of mutual life insurance enterprises issued or reissued
after 1996, and prepared in accordance with statutory accounting principles, are
no longer considered to be presentations in conformity with GAAP. Accordingly,
our present opinion on the 1995 and 1994 statutory financial statements as
presented herein is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996.
In our opinion, based upon our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Massachusetts Mutual Life Insurance Company at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, on the
statutory basis of accounting described in Note 1. In addition, in our opinion,
the statutory financial statement schedules referred to above, when considered
in relation to the basic statutory financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 7, 1997
30
<PAGE>
Exhibit 23(i)
FINANCIAL STATEMENT SCHEDULES
31
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I: SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Amount
at which
Cost or shown on
Other Fair Balance
Basis Value Sheet
----- ----- -----
<S> <C> <C> <C>
Bonds:
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 8,043 $ 8,330 $ 8,043
Debt Securities issued by Foreign Governments 95 105 95
Mortgage-backed securities 3,970 4,052 3,970
State and local governments 173 184 173
Industrial Securities 11,675 12,070 11,675
Utilities 975 1,044 975
Affiliates 324 325 324
------- ------- -------
Total Bonds 25,255 26,110 25,255
------- ------- -------
Common Stock:
Public utilities 43 43 43
Banks, Trusts and Insurance Companies 7 11 11
Industrial, Miscellaneous and Other 199 283 283
------- ------- -------
Subtotal 249 337 337
Other, Including Subsidiaries 693 884 884
------- ------- -------
Total Common Stock 942 $ 1,221 1,221
------- ======= -------
Mortgage Loans on Real Estate 3,897 3,897
Real Estate:
Properties in Satisfaction of Debt 132 132
Investment Real Estate 1,636 1,636
------- -------
Subtotal - Real Estate Investment 1,768 1,768
Real Estate - Other 73 73
------- -------
Total Real Estate 1,841 1,841
------- -------
Policy Loans 4,752 4,752
Cash and Short-term investments 1,075 1,075
Other Investments 546 542
------- -------
Total Investments 38,308 38,583
------- -------
Related Parties:
Bonds 324 $ 324 324
Common Stock 693 884 884
------- ------- -------
Total Related Parties 1,017 $ 1,208 1,208
------- ======= -------
Investments Other than Investments in Related
Parties $37,291 $37,375
======= =======
</TABLE>
32
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE III: SUPPLEMENTARY INSURANCE INFORMATION (1) (2)
December 31, 1996
(In Millions)
<TABLE>
<CAPTION>
Policyholders' Net Policy Benefits
Policyholders' Dividends Investment and Payments Other
Reserves and Claims and Premium and Other and Increase Insurance
Segment Funds Other Benefits Income Income (2) in Reserves Commissions Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Individual line $24,901 $1,252 $4,286 $2,062 $4,235 $323 $523
Pension Management 8,441 7 2,043 799 2,668 12 67
------- ------ ------ ------ ------ ---- ----
$33,342 $1,259 $6,329 $2,861 $6,903 $335 $590
======= ====== ====== ====== ====== ==== ====
Year ended December 31, 1995
Individual line $23,280 $1,221 $3,925 $1,994 $3,796 $331 $562
Pension Management 9,613 7 1,803 904 2,561 9 66
------- ------ ------ ------ ------ ---- ----
$32,893 $1,228 $5,728 $2,898 $6,357 $340 $628
======= ====== ====== ====== ====== ==== ====
Year ended December 31, 1994
Individual line $21,764 $1,246 $3,878 $1,782 $3,733 $334 $515
Pension Management 10,531 7 1,566 967 2,399 8 74
Life & Health Benefits Management 0 0 733 55 581 26 108
------- ------ ------ ------ ------ ---- ----
$32,295 $1,253 $6,177 $2,804 $6,713 $368 $697
======= ====== ====== ====== ====== ==== ====
</TABLE>
(1) Deferred policy acquisition cost column has been omitted from this schedule
because it does not apply to mutual life insurance companies.
(2) Includes other income of $80 million, $61 million and $116 million for
1996, 1995 and 1994, respectively.
33
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY (1)
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(In Millions)
Additions Realized Unrealized Net change to Balance
Balance at Reserve Transfers Capital Capital Policyholders' at end
beginning of Contributions among Gains Gains Contingency of
Description period (2) categories (Losses) (3) (Losses) (4) Reserves (5) period (6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of and for the year ended
December 31, 1994 (1)
Bonds, Preferred Stocks and Short-
term Investments $169 $ 39 ($ 14) ($ 12) $ 26 $ 39 $208
Mortgage Loans 213 90 14 ( 110) (3) (9) 204
Real Estate 138 22 3 ( 41) 3 ( 13) 125
Other Investments 96 9 ( 3) 7 (2) 11 107
Special investment reserve for
surplus notes 25 10 0 0 0 10 35
---- ---- ------ ------ ---- ----- ----
Total $641 $170 $ 0 ($156) $ 24 $ 38 $679
==== ==== ====== ====== ==== ===== ====
Detail (7):
Asset Valuation Reserve $432 $470
General Investment Reserves 209 209
---- ----
Total $641 $679
==== ====
Total
As of and for the year ended
December 31, 1995
-----------------
Bonds, Preferred Stocks and Short-
term Investments $208 $ 44 $ ( 2) $ (1) $(39) $ 2 $210
Mortgage Loans 204 11 2 (70) (6) (63) 141
Real Estate 125 27 27 (42) (2) 10 135
Other Investments 107 5 ( 27) 18 131 127 234
Special investment reserve for
surplus notes 35 0 0 0 0 0 35
---- ---- ------ ------ ---- ----- ----
Total $679 $ 87 $ 0 $ (95) $ 84 $ 76 $755
==== ==== ====== ====== ==== ===== ====
Detail (7):
Asset Valuation Reserve $470 $567
General Investment Reserves 209 188
---- ----
Total $679 $755
==== ====
As of and for the year ended
December 31, 1996
-----------------
Bonds, Preferred Stocks and Short-
term Investments $210 $ 40 0 $ (7) $ (9) $ 24 $234
Mortgage Loans 141 37 0 (37) 0 141
Real Estate 135 41 $ 154 (79) (11) 105 240
Other Investments 234 (154) 200 (30) 16 250
Special investment reserve for
surplus notes 35 (3) 0 0 0 (3) 32
---- ---- ------ ------ ---- ----- ----
Total $755 $115 $ 0 $ 77 $(50) $ 142 $897
==== ==== ====== ====== ==== ===== ====
Detail (7):
Asset Valuation Reserve $567 $689
General Investment Reserves 188 208
---- ----
Total $755 $897
==== ====
</TABLE>
(1) $78 million of reserves previously netted against Mortgage Loans and Real
Estate has been reclassified to General Investment Reserves for current year
presentation.
(2) Amounts represent contributions calculated using a statutory formula plus
amounts deemed necessary by the Company. Represents the net impact on
Policyholders' Contingency Reserves for investment gains and losses not related
to changes in interest rates.
(3) These amounts offset realized capital gains and losses, net of tax, that
have been recorded as a component of net income. Amounts include realized
capital gains and losses, net of tax, on sales not related to interest
fluctuations, repayments of mortgage loans at a discount, mortgage loan
foreclosures, and real estate permanent write-downs.
(4) These amounts offset unrealized capital gains, recorded as a change in
Policyholders' Contingency Reserves (Surplus). Amounts include unrealized losses
due to market value reductions of securities with a NAIC quality rating of 6 and
net changes in the undistributed earnings of subsidiaries.
(5) Amounts represent the reserve contribution (note 2) less amounts already
recorded (notes 3 and 4). This net change in reserves is recorded as a charge to
Policyholders' Contingency Reserves.
(6) The balance is comprised of the Asset Valuation Reserve and General
Investment Reserves which are recorded separately as liabilities on the
Statement of Financial Position.
(7) The Asset Valuation Reserve is a component of Total Adjusted Capital, while
General Investment Reserves are excluded from Total Adjusted Capital, according
to the NAIC definition.
34
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
SCHEDULE IV: REINSURANCE
<TABLE>
<CAPTION>
(In Millions)
Percentage of
Ceded Assumed Amount
Gross to Other from Other Net Assumed
Year ended December 31, 1996 Amount Companies Companies Amount to Net
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $202,572 $45,012 $ 719 $158,279 0.5%
======== ======= ======= ======== ===
Premiums and other considerations
Individual life & annuities $ 4,663 $ 711 $ 47 $ 3,999 1.2%
Group life & annuities 2,405 75 0 2,330 0.0
-------- ----- ---- ------- ----
Total Premium and other considerations $ 7,068 $ 786 $ 47 $ 6,329 0.7%
======== ====== ======= ======== ====
Year ended December 31, 1995
Life Insurance in Force $200,804 $44,331 $ 855 $157,328 0.5%
======== ======= ===== ======== ====
Premiums and other considerations
Individual life & annuities $ 4,472 $ 818 $ 68 $ 3,722 1.8%
Group life & annuities 2,081 85 10 2,006 0.5
-------- ------- ----- -------- ----
Total Premium and other considerations $ 6,553 $ 903 $ 78 $ 5,728 1.4%
======== ======= ===== ======== ====
Year ended December 31, 1994
Life Insurance in Force $223,805 $68,908 $1,115 $156,012 0.7%
======== ======= ====== ======== ====
Premiums and other considerations
Individual life & annuities $ 3,387 $ 103 $ 71 $ 3,355 2.1%
Group life & annuities 1,926 10 7 1,923 0.4
Accident & health 938 39 0 899 0.0
------- ------ ----- -------- ----
Total Premium and other considerations $ 6,251 $ 152 $ 78 $ 6,177 1.3%
======= ====== ===== ======== ====
</TABLE>
35
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
37
<PAGE>
POWER OF ATTORNEY
MassMutual SEPARATE INVESTMENT ACCOUNTS
---------------------------------------
The Undersigned, John J. Pajak, President and Chief Operating Officer of
Massachusetts Mutual Life Insurance Company("MassMutual"), does hereby
constitute and appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M.
Howe, and Michael Berenson, and each of them individually, as his true and
lawful attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as President and Chief Operating Officer of MassMutual that said attorneys and
agents may deem necessary or advisable to enable MassMutual to comply with the
Securities Act of 1933, as amended (the "1933 Act"), the Investment Company Act
of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MassMutual separate
investment accounts (the "MassMutual Separate Accounts"). This power of attorney
authorizes such attorneys and agents to sign the Undersigned's name on his
behalf as President and Chief Operating Officer of MassMutual to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MassMutual Separate Account, including but not
limited to those listed below.
MassMutual Separate Investment Account C
Massachusetts Mutual Variable Annuity Fund 1
Massachusetts Mutual Variable Annuity Fund 2
Massachusetts Mutual Variable Annuity Separate Account 1
Massachusetts Mutual Variable Annuity Separate Account 2
Massachusetts Mutual Variable Annuity Separate Account 3
Massachusetts Mutual Variable Life Separate Account I
Massachusetts Mutual Variable Life Separate Account II
Panorama Separate Account
CML Variable Annuity Account A
CML Variable Annuity Account B
CML Accumulation Annuity Account E
Connecticut Mutual Variable Life Separate Account I
CML/OFFITBANK Separate Account
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 17th day of February,
1997.
/s/ John J. Pajak
---------------------------- --------------------------
John J. Pajak Witness
President and Chief Operating Officer
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 25,255
<DEBT-MARKET-VALUE> 26,110
<EQUITIES> 337
<MORTGAGE> 3,897
<REAL-ESTATE> 1,841
<TOTAL-INVEST> 38,583
<CASH> 1,075
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 53,347
<POLICY-LOSSES> 33,342
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 374
<POLICY-HOLDER-FUNDS> 885
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 2,639
<TOTAL-LIABILITY-AND-EQUITY> 53,347
6,329
<INVESTMENT-INCOME> 2,861
<INVESTMENT-GAINS> 40
<OTHER-INCOME> 0
<BENEFITS> 7,762
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 926
<INCOME-PRETAX> 541
<INCOME-TAX> 277
<INCOME-CONTINUING> 265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
