<PAGE>
September 14, 1995
Dear Flex-Extra Contract Owner:
The information below supplements Massachusetts Mutual Life Insurance Company's
Flex-Extra Prospectus dated May 1, 1995. Please place this supplement with your
prospectus and retain it for future reference.
--------------------------------------------------------------------------------
FLEX-EXTRA
Supplement dated September 14, 1995
to the Prospectus dated May 1, 1995
The following should be read in conjunction with the information under the
heading MassMutual on page 8 of the Flex-Extra Prospectus:
As of September 13, 1995, the Boards of Directors of Massachusetts Mutual Life
Insurance Company and Connecticut Mutual Life Insurance Company had approved the
merger of Connecticut Mutual into MassMutual. The companies plan to execute a
definitive merger agreement in the near future. The merger is subject to
certain conditions, including member and regulatory approvals and is expected to
be completed as soon thereafter as possible. As a result of the merger,
MassMutual would become the nation's fifth largest mutual life insurance company
with estimated consolidated assets of $49 billion and estimated consolidated
contingency reserves of $2.5 billion. The companies believe that the merger of
MassMutual and Connecticut Mutual would be in the best interests of
policyholders because the combined enterprise will enjoy a strong capital
position, a diverse product portfolio and a competitive cost structure. The
merger will not affect any terms of contracts issued by MassMutual.
September 14, 1995
<PAGE>
PROSPECTUS
MAY 1, 1995
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
FLEX-EXTRA
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 1
(FOR TAX QUALIFIED ARRANGEMENTS)
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 2
(FOR NON-TAX QUALIFIED ARRANGEMENTS)
This prospectus (the "Prospectus") describes two flexible purchase payment,
individual, multiple fund variable annuity contracts and two single purchase
payment, individual, multiple fund variable annuity contracts (the "Contracts")
issued by Massachusetts Mutual Life Insurance Company ("MassMutual").
These Contracts provide for the accumulation of contract values prior to
maturity and for the distribution of annuity benefits thereafter.
Purchase payments may be allocated among the Divisions of a Separate Account and
the Guaranteed Principal Account, which is part of MassMutual's general account.
Purchase payments allocated to a Division of a Separate Account will be invested
in a corresponding fund (a "Fund") of the MML Series Investment Fund (the "MML
Trust"), or the Oppenheimer Variable Account Funds (the "Oppenheimer Trust").
The annuity benefits can be either fixed or variable amounts or a combination of
both. The Contract value prior to maturity, except for amounts allocated to the
Guaranteed Principal Account ("GPA"), and the amount of any variable annuity
payments thereafter, will vary with the investment performance of the Funds
which You have selected. MassMutual serves as depositor for the Separate
Accounts.
The Prospectuses for the MML Trust and the Oppenheimer Trust, which are attached
to this Prospectus, describe the investment objectives and risks of investing in
the Funds: MML Equity Fund; MML Money Market Fund; MML Managed Bond Fund; MML
Blend Fund; Oppenheimer Capital Appreciation Fund; Oppenheimer Global Securities
Fund; and Oppenheimer Strategic Bond Fund.
This Prospectus provides the information about Separate Accounts 1 and 2 that a
prospective investor should know before investing. Certain additional
information about the Separate Accounts is contained in a STATEMENT OF
ADDITIONAL INFORMATION dated May 1, 1995, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents for the STATEMENT OF ADDITIONAL INFORMATION appears on page 21
of this prospectus. The STATEMENT OF ADDITIONAL INFORMATION is available upon
written or oral request and without charge from the VA Service Unit, C351, 1295
State Street, Springfield, Massachusetts 01111, (413) 788-8411.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE PROSPECTUSES FOR MML SERIES
INVESTMENT FUND AND OPPENHEIMER VARIABLE ACCOUNT FUNDS, WHICH ARE ATTACHED
HERETO.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED FOR SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
(413) 788-8411
The effective date of this prospectus is May 1, 1995.
<PAGE>
TABLE OF CONTENTS
PAGE
----
SPECIAL TERMS.............................................................. 4
SPECIAL INFORMATION........................................................ 4
TABLE OF FEES AND EXPENSES................................................. 5
CONDENSED FINANCIAL INFORMATION............................................ 7
MASSMUTUAL, OPPENHEIMER MANAGEMENT CORPORATION, THE SEPARATE ACCOUNTS,
AND THE TRUSTS............................................................. 8
- MassMutual.............................................................. 8
- Oppenheimer Management Corporation...................................... 8
- The Separate Accounts................................................... 8
- The Trusts.............................................................. 8
- Investments and Objectives............................................ 9
- Possible Conflicts.................................................... 9
AN EXPLANATION OF THE CONTRACTS............................................ 10
- General................................................................. 10
- The Accumulation (Pay-In) Period........................................ 10
- How Contracts May Be Purchased........................................ 10
- Initial Purchase...................................................... 10
- Subsequent Purchases.................................................. 10
- Wire Transfers........................................................ 11
- Allocation of Purchase Payments....................................... 11
- Transfers Among Divisions and the Guaranteed Principal Account........ 11
- Automatic Transfers................................................... 11
- Right to Return Contracts............................................. 12
- The Death Benefit..................................................... 12
- The Annuity (Pay-Out) Period............................................ 12
- Annuity Benefits...................................................... 12
- Fixed Annuity......................................................... 12
- Variable Monthly Annuity.............................................. 12
- Payment Options....................................................... 13
- Fixed Time Payment Option............................................. 13
- Life Income Payments.................................................. 13
- Joint and Survivor Life Income Payments............................... 13
- Joint and Survivor Life Income Payments (Two Thirds to the Survivor).. 13
- Payments After Death of Variable Annuitant............................ 13
- Special Limitations................................................... 13
- Redemption Privilege.................................................... 13
- Automatic Partial Redemptions......................................... 14
- Tax Sheltered Annuity Redemption Restrictions......................... 14
- Election of Right to Make Loans for TSAs.............................. 14
CHARGES AND DEDUCTIONS..................................................... 14
- Asset Charge............................................................ 14
- Administrative Charge................................................... 15
- Sales Charge............................................................ 15
- Premium Taxes........................................................... 16
THE GUARANTEED PRINCIPAL ACCOUNT........................................... 16
DISTRIBUTION............................................................... 17
MISCELLANEOUS PROVISIONS................................................... 17
- Termination of Liability................................................ 17
- Adjustment of Units and Unit Values..................................... 17
- Periodic Statements..................................................... 17
2
<PAGE>
CONTRACT OWNER'S VOTING RIGHTS............................................. 17
RESERVATION OF RIGHTS...................................................... 17
FEDERAL TAX STATUS......................................................... 17
- Introduction............................................................ 17
- Tax Status of MassMutual................................................ 18
- Taxation of Contracts In General........................................ 18
- Penalty Taxes........................................................... 18
- Annuity Distribution Rules of Section 72(s)............................. 18
- Tax Withholding......................................................... 19
- Tax Reporting........................................................... 19
- Taxation of Qualified Plans, TSAs and IRAs.............................. 19
PERFORMANCE MEASURES....................................................... 20
- Standardized Average Annual Total Return................................. 20
- Additional Performance Measures.......................................... 20
ADDITIONAL INFORMATION..................................................... 21
3
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms mean:
YOU OR YOUR refers to the Contract Owner.
ACCUMULATED VALUE: The value of a Contract on or prior to the maturity date
equal to:
(1) the value of the Accumulation Units credited to a Contract in each Division
of a Separate Account, plus
(2) the value of amounts credited to a Contract in the Guaranteed Principal
Account.
ACCUMULATION UNIT: A unit of measurement used in determining the value of
amounts credited to a Contract in a Division of a Separate Account on or prior
to the Contract maturity date.
ANNUITANT: The person on whose life the Contract is issued.
ANNUITY UNIT: A unit of measurement used in determining the amount of each
Variable Monthly Annuity payment.
CONTRACT OWNER: The owner of a Contract. The Contract Owner could be the
Annuitant, an employer, a trust, a custodian or any entity specified in an
employee benefit plan. However, if the Contract is issued for use in
arrangements other than retirement plans which qualify for special federal tax
treatment, the Contract Owner may only be the annuitant, a custodian for a minor
annuitant under the Uniform Gifts (or Transfers) to Minors Act, or a
non-individual third party. If the Contract is issued under Section 403(b),
Section 408(b) or Section 408(k) of the Internal Revenue Code, the Contract
Owner must be the Annuitant.
CONTRACT YEAR: A period of 12 months starting on the effective date of Your
Contract and on each anniversary of the effective date.
DIVISION: A sub-account of a Separate Account, the assets of which consist of
shares of a specified Fund.
FIXED ANNUITY: A benefit providing for periodic payments of a fixed-dollar
amount throughout the annuity period. The benefit does not vary with or reflect
the investment performance of any Division of a Separate Account.
FUNDS: The separate series of shares of MML Series Investment Fund, and the
Oppenheimer Variable Account Funds, each of which are open-end, diversified
management investment companies in which the Divisions of the Separate Accounts
invest and any other investment companies in which Divisions may invest.
HOME OFFICE: Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, MA 01111.
GUARANTEED PRINCIPAL ACCOUNT ("GPA"): A part of MassMutual's general account
which credits interest at a rate declared periodically in advance but not less
than 3 1/2% per year.
MATURITY DATE: The date designated by the Contract Owner as of which Variable
Monthly Annuity payments (or, if elected, Fixed Annuity payments or a payment in
one sum) will begin.
PURCHASE PAYMENT: An amount paid to MassMutual by or on behalf of the Annuitant.
VALUATION DATE: Every day on which the net asset value of the shares of any of
the Funds is determined.
VALUATION PERIOD: The period, consisting of one or more days, from one Valuation
Time to the next Valuation Time.
VALUATION TIME: The time of the close of the New York Stock Exchange on a
Valuation Date. All actions which are to be performed on a Valuation Date will
be performed as of the Valuation Time.
VARIABLE MONTHLY ANNUITY: A benefit providing for periodic payments which vary
with and reflect the investment performance of one or more Divisions of a
Separate Account.
SPECIAL INFORMATION
. The Contracts are subject to a contingent deferred sales charge at a maximum
rate of 8% of the amount redeemed or the Maturity Value, as well as certain
other charges more fully described under CHARGES AND DEDUCTIONS on page 14.
. Certain distributions under the Contracts may be subject to a penalty tax of
10% of the amount of the distribution that is includable in gross income as
described in the FEDERAL TAX STATUS section on page 17.
. Partial or full redemption of a Contract may require MassMutual to withhold
20% of the amount redeemed as more fully described in the TAXATION OF QUALIFIED
PLANS, TSAS AND IRAS section on page 19.
. The Contracts entitle the purchaser to a 10-day revocation right, as more
fully described under RIGHT TO RETURN CONTRACTS on page 12.
4
<PAGE>
TABLE OF FEES AND EXPENSES
SINGLE PURCHASE PAYMENT CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases.......................... None
DEFERRED SALES LOAD (as a percentage of amount
redeemed).............................................. 5%, 4%, 3%, 2%, 1%
for Contract Years
1-5 respectively and
0% thereafter*
TRANSFER FEE............................................. None
ANNUAL ADMINISTRATIVE CHARGE............................. $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage
of average account values)
Mortality and Expense Risk Fee....................... 1.15%
Account Fees and Expenses............................ 0.15%
Total................................................ 1.30%
INVESTMENT FUND ANNUAL EXPENSES (as a percentage
of Fund average net assets)*
<TABLE>
<CAPTION>
MML MML OPPENHEIMER OPPENHEIMER OPPENHEIMER
MML MONEY MANAGED MML CAPITAL GLOBAL STRATEGIC
EQUITY MARKET BOND BLEND APPRECIATION SECURITIES BOND
FUND FUND FUND FUND FUND FUND FUND
------ ------ ------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees.. 0.41% 0.50% 0.49% 0.38% 0.75% 0.75% 0.75%
Other Expenses... 0.02% 0.05% 0.03% 0.01% 0.05% 0.20% 0.18%
Total............ 0.43% 0.55% 0.52% 0.39% 0.80% 0.95% 0.93%
</TABLE>
EXAMPLE
You would pay the following cumulative expenses on a $1,000 investment assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
MML MML OPPENHEIMER OPPENHEIMER OPPENHEIMER
MML MONEY MANAGED MML CAPITAL GLOBAL STRATEGIC
EQUITY MARKET BOND BLEND APPRECIATION SECURITIES BOND
FUND FUND FUND FUND FUND FUND FUND
------ ------ ------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
If Your Contract is redeemed at end of year:**
1............................................ $ 55 $ 57 $ 56 $ 55 $ 59 $ 60 $ 60
3............................................ 76 80 79 75 87 92 91
5............................................ 97 103 102 95 116 124 123
10............................................ 211 223 220 206 249 265 263
If Your Contract is not redeemed at end of year:**
1............................................ 18 19 19 18 22 23 23
3............................................ 56 60 59 55 68 72 72
5............................................ 97 103 102 95 116 124 123
10............................................ 211 223 220 206 249 265 263
</TABLE>
*Sales charges are subject to certain limitations. On the first redemption in
each Contract Year no Sales Charge will be deducted on an amount up to 10% of
the accumulated value. See CHARGES AND DEDUCTIONS - SALES CHARGE for further
information.
**The figures shown include a portion of the $30 Annual Administrative Charge,
pro-rated for a Contract with $50,000 in Accumulated Value. Expenses You would
bear if the Contract were annuitized will be the same as either the "redeemed"
or "not redeemed" Contract expenses shown in the Examples above, depending upon
the particular situations outlined in the CHARGES AND DEDUCTIONS - SALES CHARGE
section of the Prospectus.
The purpose of the table set forth above is to assist You in understanding the
various costs and expenses that Contract Owners bear directly or indirectly. The
table is based on estimated amounts for the most recent fiscal year and reflects
expenses of the Separate Account as well as MML Series Investment Fund and
Oppenheimer Variable Account Funds (see CHARGES AND DEDUCTIONS in the Prospectus
and INVESTMENT MANAGER in the MML Series Prospectus). The table does not include
any premium tax expenses which may apply. Premium taxes currently range up to
3.5% of premiums paid (see CHARGES AND DEDUCTIONS - PREMIUM TAXES).
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
TABLE OF FEES AND EXPENSES
FLEXIBLE PURCHASE PAYMENT CONTRACT
CONTRACT OWNER TRANSACTION EXPENSES
-----------------------------------
Sales Load Imposed on Purchases.......................... None
DEFERRED SALES LOAD (as a percentage of amount
redeemed).............................................. 8%, 8%, 7%, 6%, 5%,
4%, 3%, 2%, 1% for
Contract Years 1-9
respectively and
0% thereafter*
TRANSFER FEE............................................. None
ANNUAL ADMINISTRATIVE CHARGE............................. $35
----------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage
-------------------------------------------------
of average account values)
--------------------------
Mortality and Expense Risk Fee....................... 1.15%
Account Fees and Expenses............................ 0.15%
-----
Total................................................ 1.30%
INVESTMENT FUND ANNUAL EXPENSES (as a percentage
------------------------------------------------
of Fund average net assets)
---------------------------
<TABLE>
<CAPTION>
MML MML OPPENHEIMER OPPENHEIMER OPPENHEIMER
MML MONEY MANAGED MML CAPITAL GLOBAL STRATEGIC
EQUITY MARKET BOND BLEND APPRECIATION SECURITIES BOND
FUND FUND FUND FUND FUND FUND FUND
------ ------ ------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees.. 0.41% 0.50% 0.49% 0.38% 0.75% 0.75% 0.75%
Other Expenses... 0.02% 0.05% 0.03% 0.01% 0.05% 0.20% 0.18%
Total............ 0.43% 0.55% 0.52% 0.39% 0.80% 0.95% 0.93%
</TABLE>
EXAMPLE
You would pay the following cumulative expenses on a $1,000 investment assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
MML MML OPPENHEIMER OPPENHEIMER OPPENHEIMER
MML MONEY MANAGED MML CAPITAL GLOBAL STRATEGIC
EQUITY MARKET BOND BLEND APPRECIATION SECURITIES BOND
FUND FUND FUND FUND FUND FUND FUND
------ ------ ------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
If Your Contract is redeemed at end of year:**
1............................................ $ 94 $ 95 $ 95 $ 94 $ 98 $ 99 $ 99
3............................................ 121 125 124 120 132 136 135
5............................................ 149 154 153 147 167 174 173
10............................................ 231 243 240 226 269 284 282
If Your Contract is not redeemed at end of year:**
1............................................ 20 21 21 20 24 25 25
3............................................ 62 66 65 61 73 78 77
5............................................ 107 113 111 105 126 133 132
10............................................ 231 243 240 226 269 284 282
</TABLE>
*Sales charges are subject to certain limitations. On the first redemption in
each Contract Year no Sales Charge will be deducted on an amount up to 10% of
the accumulated value. See CHARGES AND DEDUCTIONS - SALES CHARGE for further
information.
**The figures shown include a portion of the $35 Annual Administrative Charge,
pro-rated for a Contract with $14,000 in Accumulated Value. Expenses You would
bear if the Contract were annuitized will be the same as either the "redeemed"
or "not redeemed" Contract expenses shown in the Examples above, depending upon
the particular situations outlined in the CHARGES AND DEDUCTIONS - SALES CHARGE
section of the Prospectus.
The purpose of the table set forth above is to assist You in understanding the
various costs and expenses that Contract Owners bear directly or indirectly. The
table is based on estimated amounts for the most recent fiscal year and reflects
expenses of the Separate Account as well as MML Series Investment Fund and
Oppenheimer Variable Account Funds (see CHARGES AND DEDUCTIONS in the Prospectus
and INVESTMENT MANAGER in the MML Series Prospectus). The table does not include
any premium tax expenses which may apply. Premium taxes currently range up to
3.5% of premiums paid (see CHARGES AND DEDUCTIONS - PREMIUM TAXES).
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
*ACCUMULATION UNIT VALUES (AUDITED)
<TABLE>
<CAPTION>
MML MML
MML MONEY MANAGED MML
MASSACHUSETTS MUTUAL VARIABLE ANNUITY EQUITY MARKET BOND BLEND
SEPARATE ACCOUNT 1 - FLEX-EXTRA (QUALIFIED) DIVISION DIVISION DIVISION DIVISION
ACCUMULATION UNIT VALUES ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1994...... $1.89 $1.41 $1.67 $1.85
December 31, 1993...... $1.84 $1.37 $1.75 $1.83
December 31, 1992...... $1.70 $1.35 $1.59 $1.69
December 31, 1991...... $1.56 $1.33 $1.50 $1.56
December 31, 1990...... $1.26 $1.27 $1.30 $1.28
December 31, 1989...... $1.28 $1.19 $1.22 $1.26
December 31, 1988...... $1.05 $1.10 $1.09 $1.06
December 31, 1987...... $0.92 $1.04 $1.03 $0.95
April 27, 1987*........ $1.00 $1.00 $1.00 $1.00
NUMBER OF ACCUMULATION
UNITS OUTSTANDING December 31, 1994...... 274,538,937 34,934,809 44,101,201 516,939,760
December 31, 1993...... 226,395,300 27,346,264 46,476,619 459,927,890
December 31, 1992...... 167,299,926 30,143,450 32,608,913 366,588,916
December 31, 1991...... 119,606,024 30,802,372 23,155,232 291,461,762
December 31, 1990...... 86,652,182 28,833,250 13,552,756 233,186,010
December 31, 1989...... 63,973,864 18,921,173 11,056,959 183,241,336
December 31, 1988...... 43,673,023 14,579,716 7,121,006 135,808,617
December 31, 1987...... 14,857,250 3,152,811 1,635,713 43,923,410
MML MML
MML MONEY MANAGED MML
MASSACHUSETTS MUTUAL VARIABLE ANNUITY EQUITY MARKET BOND BLEND
SEPARATE ACCOUNT 2 - FLEX-EXTRA (NON-QUALIFIED) DIVISION DIVISION DIVISION DIVISION
ACCUMULATION UNIT VALUES ----------- ---------- ---------- -----------
December 31, 1994...... $1.89 $1.41 $1.67 $1.85
December 31, 1993...... $1.84 $1.37 $1.75 $1.83
December 31, 1992...... $1.70 $1.35 $1.59 $1.69
December 31, 1991...... $1.56 $1.33 $1.50 $1.56
December 31, 1990...... $1.26 $1.27 $1.30 $1.28
December 31, 1989...... $1.28 $1.19 $1.22 $1.26
December 31, 1988...... $1.05 $1.10 $1.09 $1.06
December 31, 1987...... $0.92 $1.04 $1.03 $0.95
April 27, 1987*........ $1.00 $1.00 $1.00 $1.00
NUMBER OF ACCUMULATION
UNITS OUTSTANDING December 31, 1994...... 66,002,110 10,382,571 14,779,667 120,091,837
December 31, 1993...... 53,470,696 6,200,284 13,569,146 103,639,596
December 31, 1992...... 36,953,003 6,801,988 8,584,172 73,543,842
December 31, 1991...... 24,025,061 6,283,056 5,488,369 50,732,821
December 31, 1990...... 14,021,402 7,585,350 2,563,303 35,967,762
December 31, 1989...... 8,500,208 2,803,156 1,737,144 28,308,970
December 31, 1988...... 5,828,761 1,505,726 1,003,419 22,798,777
December 31, 1987...... 3,765,522 775,041 122,240 10,586,164
OPPENHEIMER OPPENHEIMER OPPENHEIMER
CAPITAL GLOBAL STRATEGIC
MASSACHUSETTS MUTUAL VARIABLE ANNUITY APPRECIATION SECURITIES BOND
SEPARATE ACCOUNT 1 - FLEX-EXTRA (QUALIFIED) FUND FUND FUND
ACCUMULATION UNIT VALUES ----------- ---------- ----------
December 31, 1994...... $1.01 $0.90 $0.98
NUMBER OF ACCUMULATION
UNITS OUTSTANDING December 31, 1994...... 10,580,565 19,122,038 3,515,388
OPPENHEIMER OPPENHEIMER OPPENHEIMER
CAPITAL GLOBAL STRATEGIC
MASSACHUSETTS MUTUAL VARIABLE ANNUITY APPRECIATION SECURITIES BOND
SEPARATE ACCOUNT 2 - FLEX-EXTRA (NON-QUALIFIED) FUND FUND FUND
ACCUMULATION UNIT VALUES ----------- ---------- ----------
December 31, 1994...... $1.01 $0.90 $0.98
NUMBER OF ACCUMULATION
UNITS OUTSTANDING December 31, 1994...... 4,250,795 6,903,141 1,621,487
</TABLE>
----------
* Commencement of Public Offerings.
FINANCIAL STATEMENTS
For financial statements and other information concerning the financial
condition of Massachusetts Mutual Variable Annuity Separate Account 1 -
Flex-Extra (Qualified) and Massachusetts Mutual Variable Annuity Separate
Account 2 - Flex-Extra (Non-Qualified) and of MassMutual, see the STATEMENT OF
ADDITIONAL INFORMATION.
7
<PAGE>
MASSMUTUAL, OPPENHEIMER MANAGEMENT CORPORATION, THE SEPARATE ACCOUNTS AND THE
TRUSTS
MASSMUTUAL
MassMutual is a mutual life insurance company chartered in 1851 under the laws
of Massachusetts. Its Home Office is located in Springfield, Massachusetts.
MassMutual is licensed to transact a life, accident and health insurance
business in all fifty states of the United States, the District of Columbia and
certain provinces of Canada. As of December 31, 1994, MassMutual had total
consolidated assets of $35.7 billion and consolidated contingency reserves in
excess of $1.9 billion.
MassMutual's individual Financial Statements are contained in the Statement of
Additional Information.
OPPENHEIMER MANAGEMENT CORPORATION
Oppenheimer Management Corporation ("OMC") is an investment advisor organized
under the laws of Colorado as a corporation; it was initially organized in 1959.
It (including a subsidiary) advises U.S. investment companies with assets
aggregating over $29 billion as of December 31, 1994, and with more than 2.4
million shareholder accounts. OMC is owned by Oppenheimer Acquisition
Corporation, a holding company owned in part by senior management of OMC and
ultimately controlled by MassMutual. OMC serves as investment advisor to the
Oppenheimer Variable Account Funds ("Oppenheimer Trust").
THE SEPARATE ACCOUNTS
Massachusetts Mutual Variable Annuity Separate Account 1 ("Separate Account 1")
was established for qualified plans on April 8, 1981. Massachusetts Mutual
Variable Annuity Separate Account 2 ("Separate Account 2") was established for
non-qualified plans on October 14, 1981. Each is a separate account of
MassMutual registered with the Securities and Exchange Commission as a unit
investment trust.
Each Separate Account is divided into seven Divisions:
(1) THE MML EQUITY DIVISION - invests in shares of MML Equity Fund (the "Equity
Fund"),
(2) THE MML MONEY MARKET DIVISION - invests in shares of MML Money Market Fund
(the "Money Market Fund"),
(3) THE MML MANAGED BOND DIVISION - invests in shares of MML Managed Bond Fund
(the "Managed Bond Fund") and
(4) THE MML BLEND DIVISION - invests in shares of MML Blend Fund (the "Blend
Fund").
(5) THE OPPENHEIMER CAPITAL APPRECIATION DIVISION - invests in shares of
Oppenheimer Capital Appreciation Fund, a series of the Oppenheimer Trust;
(6) THE OPPENHEIMER GLOBAL SECURITIES DIVISION - invests in shares of
Oppenheimer Global Securities Fund, a series of the Oppenheimer Trust; and
(7) THE OPPENHEIMER STRATEGIC BOND DIVISION - invests in shares of Oppenheimer
Strategic Bond Fund, also a series of the Oppenheimer Trust.
The value of both Accumulation Units and Annuity Units in each Division reflects
the investment results of its underlying Fund.
Although the assets of each Separate Account are owned by MassMutual, assets of
each Separate Account equal to the reserves and other Contract liabilities,
which depend on the investment performance of the Separate Account, are not
chargeable with liabilities arising out of any other business MassMutual may
conduct. The income and capital gains and losses, realized or unrealized, of
each Division of a Separate Account are credited to or charged against such
Division, without regard to the income and capital gains and losses of the other
Divisions or other accounts of MassMutual. This state law provision has been
supported in several recent decisions in states reviewing this issue. All
obligations arising under the Contracts, however, are general corporate
obligations of MassMutual.
Financial Statements of the Separate Accounts are contained in the Statement of
Additional Information.
THE TRUSTS
Each of the Trusts described below has separate assets and liabilities and a
separate net asset value per share. An investor's interest in a Separate Account
is limited to the Fund(s) in which shares are held. Since market risks are
inherent in all securities to varying degrees, assurance cannot be given that
the investment objective of any of the Funds will be met.
Financial Statements for the MML Trust and for the Oppenheimer Trust are
contained in their respective Statements of Additional Information.
Additional information concerning the investment objectives and policies of the
Funds can be found in the current prospectuses for the Trusts which are attached
to this prospectus and should be read carefully before making any decision
concerning allocation of premium payments.
The Separate Accounts purchase and redeem shares of the Funds at their net asset
value without the imposition of any sales or redemption charge. Distributions
made on the shares of each Fund held by a Division of a Separate Account are
immediately reinvested in shares of the Fund at net asset value, which shares
are added to the assets of the appropriate Division of the Separate Account.
THE MML TRUST
The MML Trust is an open-end, diversified management investment company
consisting of four separate series of shares (the "MML Funds"), each having its
own investment objectives and policies. MassMutual serves as investment manager
of MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund, and MML Blend
Fund. Accordingly, Mass-
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Mutual is responsible for providing all necessary investment advisory,
management and administrative services needed by these Funds pursuant to
investment management agreements.
MassMutual has entered into investment sub-advisory agreements with Concert
Capital Management, Inc. ("Concert Capital"), a second tier, wholly-owned
subsidiary of MassMutual. These agreements provide that Concert Capital manages
the investment and reinvestment of the assets of MML Equity Fund and the assets
of the Equity Sector of the MML Blend Fund.
THE OPPENHEIMER TRUST
The Oppenheimer Trust is an open-end diversified management investment company
consisting of separate series of shares known as Funds. Each Fund has its own
investment objectives and policies. The Oppenheimer Divisions will invest in
corresponding shares of the Oppenheimer Trust.
INVESTMENTS AND OBJECTIVES:
(1) THE MML EQUITY FUND.
The assets of the MML Equity Fund are invested primarily in common stocks and
other equity-type securities. The primary investment objective of the MML Equity
Fund is to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. A secondary investment
objective is the preservation of capital when business and economic conditions
indicate that investing for defensive purposes is appropriate.
(2) THE MML MONEY MARKET FUND.
The assets of the MML Money Market Fund are invested in short-term debt
instruments, including but not limited to commercial paper, certificates of
deposit, bankers' acceptances and obligations issued, sponsored or guaranteed by
the United States government, its agencies or instrumentalities. The investment
objectives of the MML Money Market Fund are to achieve high current income, the
preservation of capital, and liquidity.
(3) THE MML MANAGED BOND FUND.
The assets of the MML Managed Bond Fund are invested primarily in publicly
issued, readily marketable, fixed income securities of such maturities as
MassMutual, as investment manager, deems appropriate from time to time in light
of market conditions and prospects. The investment objective of the MML Managed
Bond Fund is to achieve as high a total rate of return on an annual basis as is
considered consistent with the preservation of capital values.
(4) THE MML BLEND FUND.
The assets of the MML Blend Fund are invested in a portfolio of common stocks
and other equity-type securities, bonds and other debt securities with
maturities generally exceeding one year, and money market instruments and other
debt securities with maturities generally not exceeding one year. The investment
objective of the MML Blend Fund is to achieve as high a total rate of return
over an extended period of time, as is considered consistent with prudent
investment risk and the preservation of capital values.
(5) OPPENHEIMER CAPITAL APPRECIATION.
Oppenheimer Capital Appreciation Fund seeks to achieve a capital appreciation by
investing in "growth-type" companies.
(6) OPPENHEIMER GLOBAL SECURITIES FUND.
Oppenheimer Global Securities Fund seeks long-term capital appreciation by
investing a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries, and special situations which are
considered to have appreciation possibilities. Current income is not an
objective. The Fund's investments may be considered to be speculative.
(7) OPPENHEIMER STRATEGIC BOND FUND.
Oppenheimer Strategic Bond Fund seeks both a high level of current income
principally derived from interest on debt securities and to enhance such income
by writing covered call options on debt securities. The Fund invests
principally in: (i) foreign government and corporate debt securities; (ii) U.S.
Government securities; and (iii) lower-rated high yield debt securities. This
Fund's investments may be considered to be speculative.
A DESCRIPTION OF THE MML FUNDS AND THE OPPENHEIMER FUNDS, THEIR INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS, THEIR EXPENSES, THE RISKS ATTENDANT TO
INVESTMENT THEREIN, AND OTHER ASPECTS OF THEIR OPERATIONS ARE CONTAINED IN THE
PROSPECTUSES FOR MML SERIES INVESTMENT FUND AND OPPENHEIMER VARIABLE ACCOUNTS
FUND. AN INVESTOR SHOULD CAREFULLY READ THESE PROSPECTUSES BEFORE INVESTING.
POSSIBLE CONFLICTS
Assets of variable life insurance separate accounts are also invested in the MML
Trust. It is possible that under this arrangement, conflicts could arise between
the interests of Contract Owners and owners of variable life insurance policies.
The Trustees of the MML Trust will follow monitoring procedures to determine
whether material conflicts have arisen.
If an irreconcilable material conflict exists, the assets of the variable life
insurance separate accounts may be invested solely in shares of mutual funds
which offer their shares exclusively to variable life insurance separate
accounts, unless the owners of the variable life insurance policies and the
variable annuity contracts vote otherwise. For a discussion of other separate
accounts investing in the MML Trust and possible conflicts arising from such an
arrangement, see the STATEMENT OF ADDITIONAL INFORMATION.
The Oppenheimer Trust was established by Oppenheimer Management Corporation
("OMC") for use as an investment vehicle by variable contract separate
accounts such as the Separate Accounts. Since the Oppenheimer Trust is used by
other separate accounts, it is possible that a material irreconcilable conflict
may develop between the interests of Contract Owners and other separate accounts
investing in the Oppenheimer Trust. The Board of Trustees of the Oppenheimer
Trust (the "Board") will monitor the Oppenheimer Funds for the existence of
any such conflicts. If it is determined that a conflict exists, the Board will
notify MassMutual, and appropriate action will be taken to eliminate such
irreconcilable conflict. Such steps may include: (1) withdrawing the assets
allocable to some or all of the Separate Accounts from the particular
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Oppenheimer Fund and reinvesting such assets in a different investment medium,
including (but not limited to) another Oppenheimer Fund; (2) submitting the
question of whether such segregation should be implemented to a vote of all
affected Contract Owners; and (3) establishing a new registered management
investment company or managed separate account.
AN EXPLANATION OF THE CONTRACTS
The principal provisions of the Contracts are described below. For additional
information, refer to the Contracts and to the STATEMENT OF ADDITIONAL
INFORMATION. For a complete understanding of Your rights, You should also review
any applicable employee benefit plan documents.
GENERAL
The Contracts described herein are individual variable annuity contracts issued
by MassMutual. The flexible purchase payment Contracts and the single purchase
payment Contracts are the same except:
(1) different sales and administrative charges will apply (see CHARGES AND
DEDUCTIONS); and
(2) different minimum purchase payment amounts are required (see THE
ACCUMULATION (PAY-IN) PERIOD).
Otherwise, the Contracts are identical, except for differences associated with
tax-qualified plans.
Contracts issued by Separate Account 1 are sold for use in the following
retirement plans. These plans qualify (with necessary endorsement) for special
federal tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code"):
(1) pension and profit-sharing plans qualified under Section 401(a) or 403(a) of
the Code ("Qualified Plans"), which may also constitute participant-directed
individual account plans under Section 404(c) of ERISA;
(2) annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code ("Tax Sheltered
Annuities" or "TSAs");
(3) deferred compensation plans for state and local governments and tax-exempt
organizations established under the provisions of Section 457 of the Code; and
(4) Individual Retirement Annuities established in accordance with Section 408
of the Code ("IRAs"), including those established by employer contributions
under a Simplified Employee Pension Plan arrangement. At MassMutual's request,
the Internal Revenue Service has issued to MassMutual favorable opinion letters
approving specific versions of the Contract. IRA Contract Owners with these
Contracts will receive a copy of the favorable opinion letter. The Internal
Revenue Service approval is a determination only as to the form of the Contract
for use as an IRA and does not represent a determination of the merits of the
Contract as an IRA.
Under tax-qualified retirement plans, except Tax Sheltered Annuities and IRAs,
participants may not be the Contract Owners and, therefore, may have no Contract
Owners' rights. Under Section 457 deferred compensation plans, the state or
political subdivision or tax-exempt organization must be the Contract Owner. A
plan participant will have no secured interest in the Contract and must be a
general unsecured creditor of the state or political subdivision or tax-exempt
organization.
Contracts issued by Separate Account 2 are sold for use in arrangements other
than retirement plans which qualify for special federal tax treatment. The
following discussion applies to Contracts issued by both Separate Accounts
unless otherwise indicated:
Unless restricted by endorsement or the terms of the Contract, the Contract
Owner has all rights in the Contract prior to the maturity date, including the
right:
. to make a partial or full redemption of the Contract;
. to designate and change the beneficiaries who will receive the proceeds at the
death of the annuitant before the Maturity Date;
. to transfer amounts among the Divisions of a Separate Account and the
Guaranteed Principal Account; and
. to designate a payment option to begin on the Maturity Date.
Normally the Annuitant is the Contract Owner, unless the Contract was purchased
by an employer or a pension trust for use in a tax-qualified plan. Pension plans
may, under certain circumstances, obtain a Contract on the life of a substitute
Annuitant by executing an "Annuitant Exchange Rider."
THE ACCUMULATION (PAY-IN) PERIOD
HOW CONTRACTS MAY BE PURCHASED. The minimum initial purchase payment for
flexible purchase payment Contracts is $600 divided by the number of
installments (not more than 12) which You expect to make each year. If You
intend to make only one purchase payment over the lifetime of the flexible
purchase payment Contract, however, Your minimum initial purchase payment must
be at least $2,000. After making Your initial payment under a flexible purchase
payment Contract, You may make as many or as few subsequent purchase payments of
at least $50 as You desire.
The purchase payment for single purchase payment Contracts must be at least
$25,000. The Contract permits MassMutual to establish a maximum on the total
purchase payments which can be made under any Contract. This maximum will not be
less than $500,000.
INITIAL PURCHASE
You may place Your initial purchase payment, accompanied by a completed
Application, with Your registered representative.
SUBSEQUENT PURCHASES
You may make subsequent purchase payments by mailing Your check, clearly
indicating Your name and Contract number, to:
MASSMUTUAL VA
P.O. Box 92714
Chicago, IL 60675-2714
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WIRE TRANSFERS
You may make purchase payments by instructing Your bank to wire funds to:
Chase Manhattan Bank, New York, New York
ABA #021000021
MassMutual Account #910-2-517290
Ref: VA Income Contract #
Name: (Contract Owner)
ALLOCATION OF PURCHASE PAYMENTS. You may direct that Your purchase payments
(after deducting any applicable premium taxes) be allocated among the Guaranteed
Principal Account ("GPA") and the Divisions of a Separate Account. Such
allocation will be effective as of the Valuation Date which is on or next
follows the date a written designation is received in good order at the Home
Office. Purchase payments allocated to a Division will be applied to purchase
Accumulation Units in that Division at its Accumulation Unit value on the date
of purchase. These Accumulation Units will be used in determining the value of
amounts held in a Division of a Separate Account credited to a Contract on or
prior to the maturity date. The value of the Accumulation Units in each Division
will vary with and will reflect the investment performance of that Division
(which in turn will reflect the investment performance and expenses of the Fund
in which the assets of that Division are invested), any applicable taxes, and
the applicable Asset Charge. A more detailed description of how the value of an
Accumulation Unit is calculated is contained in the STATEMENT OF ADDITIONAL
INFORMATION.
The value of the Accumulation Units which You purchase is determined as of the
Valuation Time on the date on which MassMutual receives Your payment in good
order by mail at its Home Office or at a designated bank lock box, or by wire
transfer, provided that Your Contract application is complete. If the date of
receipt is not a Valuation Date, the value of the Accumulation Units purchased
will be determined as of the next Valuation Time after the date of receipt. If
an initial purchase payment is not applied to purchase Accumulation Units within
five business days after receipt (due to incomplete or ambiguous application
information, for example), the payment amount will be refunded unless specific
consent to retain the payment for a longer period is obtained from the
prospective purchaser.
TRANSFERS AMONG DIVISIONS AND THE GUARANTEED PRINCIPAL ACCOUNT. You may transfer
funds among the Divisions and into the GPA without charge, prior to 30 days
before the Maturity Date. MassMutual reserves the right to limit transfers to
not more than one every 90 days. To make a transfer among the Divisions, You may
direct MassMutual to cancel all or part of the Accumulation Units in any
Division of a Separate Account and use the value thereof to acquire Accumulation
Units in any other Division of the same Separate Account. Any such acquisition
will be made at the value of an Accumulation Unit in that Division determined on
the date the transfer is effective. Such transfers will be effective as of the
Valuation Date which is on, or next follows, the date Your written direction is
received in good order at the Home Office.
MassMutual has available, an automated, toll-free telephone system enabling
certain Contract Owners (with authorization and amendment forms on file) to
perform transfers and to obtain information concerning Contract account values.
To elect this service, a Contract Owner must complete an authorization and
return it to MassMutual. Normal transfer restrictions apply. Contract Owners who
use this system are required to authorize MassMutual to complete any transfer
requested. MassMutual will not be liable for complying with any telephone
instructions it reasonably believes to be genuine, nor for any loss, damage,
cost or expense in acting on telephone instructions. MassMutual will employ
reasonable procedures to ensure the legitimacy of telephone transfer requests.
Such procedures may include, among others, requiring forms of personal
identification prior to acting upon telephone instructions, providing written
confirmation of such transactions to the Contract, and/or tape recording of
telephone transfer request instructions received from a Contract Owner. If we
fail to follow such procedures, we may be liable for losses due to unauthorized
or fraudulent instructions. The availability of the automated telephone
transfer system is also subject to state insurance department approval. This
service is not available to Contracts owned by custodians, guardians, or
trustees.
Transfers of amounts out of the GPA to the Divisions of a Separate Account are
limited to one each Contract Year. Annual transfers out of the GPA cannot exceed
25% of amounts in the GPA on the date the transfer is made. If 25% is taken from
the GPA for three consecutive years, however, the fourth consecutive annual
transfer may be for the entire amount in the GPA, provided that no payments or
transfers have been made into the GPA during the period. (If the Contract is a
TSA with a right to make loans, the maximum value of any transfer from the GPA
is the lesser of: 25% of the fixed value of the Contract on the date the
transfer is made; or the fixed value of the Contract on the date of the
transfer, less the amount of any outstanding Contract loan.)
MassMutual reserves the right to limit any transfer or partial redemption from
the GPA during any Contract Year to not more than 25% (including all previous
and concurrent partial redemptions and transfers from the GPA) of the amounts in
the GPA on the date that the first transfer or partial redemption from the GPA
is made during that Contract Year. MassMutual further reserves the right to
prohibit transfers from the GPA to the Money Market Division of a Separate
Account.
You may not transfer amounts during the annuity (Pay-Out) phase or during the
period 30 days before the Maturity Date.
AUTOMATIC TRANSFERS. MassMutual has introduced four automatic transfer options
including: (i) dollar cost averaging; (ii) asset allocation; (iii) an interest
sweep option; and (iv) GPA liquidation. They will be available any time before
the Maturity Date. Only one of the automatic transfer options may be in effect
at a time. All options are subject to the transfer rules discussed above.
Although no charge is currently anticipated for this service, MassMutual
reserves the right to impose a fee in the future. We will provide You with more
information once these options are available.
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RIGHT TO RETURN CONTRACTS. You may return Your Contract to MassMutual any time
within 10 days (unless a longer period is required pursuant to applicable state
law) after the Contract has been delivered to You. If You exercise this right
and Your Contract is an IRA, You will receive the greater of:
(a) the Accumulated Value of the Contract plus any deductions for premium taxes
which have been made from purchase payments; or
(b) the amount of purchase payments made, less the net amount of any partial
redemptions (in Connecticut this amount will also apply for non-IRAs).
If You exercise this right and Your Contract is not an IRA, You will receive the
Accumulated Value of the Contract plus any premium tax deductions, except where
state law requires us to return the amount of purchase payment(s), less any
partial redemptions. For this purpose the Accumulated Value of the Contract will
be determined as of the Valuation Time on the date the Contract is received at
MassMutual's Home Office or at the next Valuation Time after receipt if the
Contract is received on other than a Valuation Date.
THE DEATH BENEFIT. If the Annuitant dies prior to the Maturity Date, the
beneficiary named in the Contract will receive the greater of:
(a) the total of all purchase payments made to the Contract, less the amount of
all partial redemptions; or
(b) the Accumulated Value of the Contract, determined as of the Valuation Date
which is on or next follows the date on which due proof of death is received at
MassMutual's Home Office (and less, in either case, the amount of any applicable
premium tax and the amount of any outstanding Contract debt if the Contract is a
TSA).
The death benefit may be paid in one sum within seven days after receipt of due
proof of death and all other requirements have been received by MassMutual at
its Home Office. With MassMutual's consent, the death benefit may be applied
under one or more of the payment options provided by the Contract (see Payment
Options). No sales charge is imposed upon the death benefit.
A beneficiary who is the surviving spouse of the Owner of a Contract issued as
an IRA may elect to treat the Contract as if he or she were the Contract Owner.
THE ANNUITY (PAY-OUT) PERIOD
ANNUITY BENEFITS. You may elect the Maturity Date of Your Contract. The Maturity
Date, however, may not be later than the Contract anniversary nearest the
Annuitant's 85th birthday (the Maturity Date may be deferred to age 90 where
states law permits if the Automatic Partial Redemption Program is elected). In
general, in order to avoid adverse tax consequences, distributions, either by
partial redemptions or by maturing the Contract, from a Contract issued as an
IRA, as a Tax Sheltered Annuity or under a qualified plan should begin for the
calendar year in which the Annuitant reaches age 70 1/2. Distributions should be
made each year thereafter in an amount no less than the Accumulated Value of the
Contract at the end of the previous year, divided by the applicable life
expectancy (see TAXATION OF QUALIFIED PLANS, TSAS AND IRAS for additional
information). You may elect to defer the Maturity Date to any permissible date
after the previously specified Maturity Date, provided that MassMutual receives
written notice within 90 days before the Maturity Date then in effect. You also
may elect to advance the Maturity Date to a date prior to the specified Maturity
Date or prior to any new Maturity Date You may have selected, provided that
written notice is received at MassMutual's Home Office at least 30 days before
the Maturity Date elected. For additional rules regarding TSAs, see REDEMPTION
PRIVILEGE - TAX SHELTERED ANNUITY REDEMPTION RESTRICTIONS.
When Your Contract approaches its Maturity Date, You may choose to receive
either Fixed Annuity payments (referred to as the "Fixed Income Option" in
Your Contract), Variable Monthly Annuity payments (referred to as the "Variable
Income Option" in Your Contract) or a combination of the two. You also may elect
to receive the Accumulated Value in one sum. A sales charge may be deducted from
the Accumulated Value of Your Contract in certain circumstances (see CHARGES AND
DEDUCTIONS). If applicable, a premium tax or any outstanding Contract debt may
also be deducted from the Accumulated Value (see CHARGES AND DEDUCTIONS -
PREMIUM TAXES and FEDERAL TAX STATUS - TAXATION OF QUALIFIED PLANS). If You have
made no election within a reasonable time after the maturity date, the Contract
will automatically pay a Variable Monthly Annuity under a life income option
with payments guaranteed for 10 years.
FIXED ANNUITY. If You select a Fixed Annuity, each annuity payment will be for a
fixed-dollar amount and will neither vary with nor reflect the investment
performance of a Separate Account or its Divisions. Refer to Your Contract for
further information regarding the Fixed Annuity and the payment options
thereunder.
VARIABLE MONTHLY ANNUITY. If You select a Variable Monthly Annuity, amounts held
in the GPA which are to be used to provide Variable Monthly Annuity payments
will be credited to the Divisions of the Separate Account on a pro rata basis
unless the Contract Owner instructs MassMutual otherwise. Each annuity payment
will be based upon the value of the Annuity Units credited to Your Contract. The
number of Annuity Units in each Division to be credited to Your Contract is
based on the value of the Accumulation Units in that Division and the applicable
Purchase Rate. The Purchase Rate will differ according to the payment option You
have elected and takes into account the age of the Annuitant(s). The value of
the Annuity Units will vary with, and reflect the investment performance of,
each Division to which Annuity Units are credited, based on an Assumed
Investment Rate of 4% per year. This Rate is a fulcrum rate around which
Variable Monthly Annuity payments will vary. An actual net rate of return for a
Division for the month greater than the Assumed Investment Rate will increase
Variable Monthly Annuity payments attributable to that Division. An actual net
rate of return for a Division for the month less than the Assumed Investment
Rate will decrease Variable Monthly Annuity payments attributable to that
Division.
For a more detailed description of how the value of an Annuity Unit and the
amount of Variable Monthly Annuity payments are calculated, see the Statement of
Additional Information.
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PAYMENT OPTIONS. You may elect either a Fixed or a Variable Monthly Annuity
payment option by submitting a written request in a form satisfactory to
MassMutual. MassMutual must receive this request at the Home Office prior to the
maturity date of the Contract. For a description of payment options available in
connection with Fixed Annuity benefits, refer to Your Contract. Below is a
description of Variable Monthly Annuity options which You may elect.
Variable Monthly Annuity payments may be received under several different
payment options. If the value of a Contract applied to any payment option is
less than $2,000 or produces an initial Variable Monthly Annuity payment of less
than $20, MassMutual may discharge its obligation by paying the value applied,
less any applicable Sales Charge, in one sum to the person entitled to receive
the first annuity payment.
Upon Your request, MassMutual will endorse a Contract to eliminate or restrict
any payment option in order that the plan pursuant to which the Contract is
issued remains qualified under the Code, provided such endorsement is not
otherwise contrary to law. MassMutual may make payment options available in
addition to those set forth in the Contract.
You may not change Your Variable Monthly Annuity payment option or transfer
amounts among the Divisions and the GPA after the Maturity Date (under the
fixed-time payment option, however, remaining unpaid Variable Monthly Annuity
payments may be withdrawn as described below).
FIXED TIME PAYMENT OPTION.
If You elect this option, Variable Monthly Annuity payments will be made for any
period selected, up to 30 years. If provided in the payment option election, You
may withdraw the full amount, subject to any applicable sales charge (see
CHARGES AND DEDUCTIONS), of the then present value of the remaining unpaid
Variable Monthly Annuity payments. The present value will be calculated using an
assumed investment rate of 4% per year unless a lower rate is required by state
law. A mortality risk charge continues to be assessed against Contract values
under this option (see CHARGES AND DEDUCTIONS) even though the Contract Owner
derives no further benefit from this risk charge since payments under this
option are not based upon the life expectancy of the Annuitant.
LIFE INCOME PAYMENTS.
If You elect this option, Variable Monthly Annuity payments will be made during
the lifetime of the Annuitant, either:
(1) without any guaranteed number of payments; or
(2) with a guaranteed number of payments on an "installment refund" basis; or
(3) with a guaranteed number of payments for 5 or 10 years.
Of these three alternatives, alternative (1) offers the maximum level of monthly
payments since there is no guarantee of a minimum number of payments or
provision for payments to the beneficiary upon the death of the Annuitant. Since
there is no such guarantee, however, it would be possible to receive only one
annuity payment if the Annuitant died prior to the due date of the second
annuity payment, two if he or she died before the third annuity payment date,
etc. Alternative (2) provides for a guaranteed number of payments for a term
equal to the nearest whole number of months determined by dividing the value
applied under a Contract by the dollar amount of the first Variable Monthly
Annuity payment.
JOINT AND SURVIVOR LIFE INCOME PAYMENTS.
If You elect this option, Variable Monthly Annuity payments will be made during
the joint lifetime of the two Annuitants and thereafter during the lifetime of
the survivor, either:
(1) without a guaranteed number of payments; or
(2) with a guaranteed number of payments for 10 years.
JOINT AND SURVIVOR LIFE INCOME PAYMENTS (TWO-THIRDS TO THE SURVIVOR).
If You elect this option, Variable Monthly Annuity payments will be made during
the joint lifetime of the two Annuitants and, thereafter, at two-thirds the
prior rate during the lifetime of the survivor, in both cases without a
guaranteed number of payments.
PAYMENTS AFTER DEATH OF VARIABLE ANNUITANT.
Generally, if a payment option with a guaranteed number of payments is elected,
and the Annuitant(s) should die before the guaranteed number of payments have
been completed, MassMutual will continue making the guaranteed payments to the
designated beneficiary.
SPECIAL LIMITATIONS.
Where the Contract is issued pursuant to a Tax Sheltered Annuity or as an IRA,
there are special limitations on the types of payment options which You may
elect.
REDEMPTION PRIVILEGE
Subject to the special rules regarding tax sheltered annuities discussed below,
You may redeem all or part of the Accumulated Value of a Contract on or prior to
its Maturity Date if the Annuitant is alive. The amount of any partial
redemption, however, must be at least $100. Requests for a partial redemption
which would reduce the Accumulated Value of the Contract to less than $500 will
be treated as a request for a full redemption. You may incur a sales charge upon
redemption. (See CHARGES AND DEDUCTIONS on page 14.) Any partial redemption will
be paid in one sum. If the entire Contract is redeemed, the cash redemption
value may be paid in one sum or applied under one or more of the payment
options. You must designate the Division(s) or the GPA from which any partial
redemption is to be made. A partial redemption from a Division will reduce the
number of Accumulation Units in that Division by an amount equal to the sum of
the redemption payment plus any sales charge, divided by the Accumulation Unit
Value. (See PREMIUM TAXES for information concerning a possible refund of
premium tax.)
For flexible purchase payment Contracts, MassMutual reserves the right to limit
any partial redemption from the GPA during any Contract Year to not more than
25% of the amounts in the GPA on the date that the first transfer or partial
redemption from the GPA is made during the Contract Year. Included in
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the 25% cap would be all previous partial redemptions and all previous and
concurrent transfers out of the GPA during that Contract Year.
The Accumulation Unit value on redemption is determined as of the Valuation Time
on the date on which the written request for redemption is received in good
order at MassMutual's Home Office or, if that date is not a Valuation Date, on
the next Valuation Date after receipt.
Redemption payments from a Separate Account will be made within seven days (or a
shorter period if required by law) after receipt of the necessary written
request at MassMutual's Home Office. The right of redemption, however, may be
suspended or payments postponed whenever:
(1) the New York Stock Exchange is closed, except for holidays and weekends;
(2) the Securities and Exchange Commission has determined that trading on the
New York Stock Exchange is restricted;
(3) the Securities and Exchange Commission permits suspension or postponement
and so orders; or
(4) an emergency exists, as defined by the Securities and Exchange Commission,
so that valuation of the assets of each Separate Account or disposal of
securities held by it is not reasonably practicable.
AUTOMATIC PARTIAL REDEMPTIONS. MassMutual has introduced, on a limited basis, an
automatic partial redemption program permitting certain Contract Owners to elect
to receive automatic partial redemptions on a periodic basis. This systematic
withdrawal program is available only during the accumulation phase of the
Contract. Amounts withdrawn may be includable in the gross income of the
Contract Owner in the year in which the withdrawal occurs. Additionally, a 10%
tax penalty may be applicable (as described more fully in the Penalty Taxes
section on page 18). Although no charge is currently imposed for use of this
service, we reserve the right to deduct a service fee, not to exceed $3.00 from
each scheduled redemption. Redemptions paid during each Contract Year under the
Automatic Partial Redemption program will be considered to be one redemption for
such Contract Year and if no prior redemption has occurred in the Contract Year
the 10% free corridor (as described more fully in the Sales Charge section on
page 15) will be applied on a cumulative basis for redemptions under this
program. (See CHARGES AND DEDUCTIONS - SALES CHARGE, pages 14-16).
Redemption payments may be subject to federal income tax and elective and/or
mandatory tax withholding. (See FEDERAL TAX STATUS).
TAX SHELTERED ANNUITY REDEMPTION RESTRICTIONS. The redemption of Internal
Revenue Code Section 403(b) annuities (Tax Sheltered Annuities, "TSAs") may be
restricted. Specifically, salary reduction contributions after 1988 and
post-1988 earnings on all salary reduction contributions may not be distributed
to the Annuitant until age 59 1/2, death, disability, or separation from service
with the TSA employer. Such salary reduction contributions may be withdrawn,
however, for "hardship". No redemptions may be made in connection with a
Contract issued pursuant to the Texas Optional Retirement Program for faculty
members of Texas public institutions of higher learning prior to the Annuitant's
termination of employment in all such institutions, retirement, death or
attainment of age 70 1/2.
For TSAs with the right to make a loan (see the following section), certain
further limitations apply to the redemption privilege. If a Contract Owner
wishes to redeem the entire Accumulated Value of such a TSA, any outstanding
Contract debt will be deducted from the redeemed amount. If the Contract Owner
redeems only part of the Accumulated Value, the Accumulated Value remaining in
the Contract after the redemption must not be less than the amount of any
outstanding Contract loan, interest on the loan for 12 months based on the loan
interest rate then in effect and any sales charges that would apply to such an
amount if redeemed. Amounts held in the GPA equal to the amount of any
outstanding Contract loan will not be available for partial redemption.
ELECTION OF RIGHT TO MAKE LOANS FOR TSAS. If the Contract is a (non-ERISA and
non-Texas ORP) TSA, an elective right to make a loan may be available in certain
states. This loan right is structured so that the Contract will continue to
comply with Code requirements and thereby preserve its preferred tax status.
There are limitations on the amount available for a loan and there is a required
repayment schedule. Should the Contract Owner default in making scheduled
repayments, the outstanding Contract debt will be deemed a taxable distribution
and the Company may redeem sufficient Contract values to repay the Contract
debt, to the extent such redemptions are not restricted under the Code.
CHARGES AND DEDUCTIONS
The Separate Accounts do not bear any expenses other than the charges stated
below.
1. ASSET CHARGE
MassMutual receives a daily-computed charge from the Separate Accounts for:
(1) assuming the risks that its estimates of longevity will be inadequate and
that its sales charge may be insufficient to cover the sales expenses associated
with the Contracts; and (2) for other administrative expenses.
This charge is currently equal to 1.30% on an annual basis of the net asset
value of the Separate Account assets attributable to the Contracts. The
mortality and expense risk part of this charge will be computed daily at an
annual rate which is currently equal to 1.15% and which will not exceed 1.25%
(.40% is for assuming mortality risks and .85% is for assuming expense risks) of
the net asset value of the Separate Account assets attributable to the
Contracts. The administrative expense part of this charge will be computed daily
at an annual rate of .15%. The total asset charge will not exceed 1.40%.
MassMutual, as the investment manager of each of the MML Series Funds, also
receives a quarterly fee from each MML Series Funds at the annual rate of .50%
of the first $100,000,000 of the Fund's average daily net asset value, .45% of
the next $200,000,000, .40% of the next $200,000,000 and .35% of any excess over
$500,000,000. These charges are de-
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<PAGE>
scribed in greater detail in the attached prospectus for the MML Series Fund.
Similarly, Oppenheimer Management Corporation ("OMC"), serves as investment
adviser for the Oppenheimer Funds. OMC receives a monthly management fee in its
capacity as investment advisor to the Oppenheimer Funds. This fee is computed
separately on the net assets of each Fund as of the close of each business day.
Except as stated below, the management fee rate is .75% of the first
$200 million of net assets, .72% of the next $200 million, .69% of the next
$200 million, .66% of the next $200 million and .60% of the net excess of $800
million. Strategic Bond Fund's management fee rate is .75% on the first $200
million of net assets, .72% on the next $200 million, .69% on the next
$200 million, .66% on the next $200 million, .60% on the next $200 million, and
.50% on the net assets in excess of $1 billion.
2. ADMINISTRATIVE CHARGE
In addition to that portion of the Asset Charge assigned to administrative
expenses, each year on the Contract anniversary date a charge is imposed against
each Contract to reimburse MassMutual for administrative expenses relating to
the issuance and maintenance of the Contract. The charge is currently $30 per
year on single purchase payment Contracts and $35 per year on flexible purchase
payment Contracts and will not be increased above $50 per year. This charge will
be deducted from the Divisions in the order listed in Your contract and then
from the GPA. The charge imposed against amounts in the GPA will not be greater
than 1% of the value of such amounts on the Contract anniversary date (before
the deduction of the charge).
The administration expenses portion of the Asset Charge and the annual
Administrative Charge have been set at a level that will recover no more than
the actual costs associated with administering the Contracts.
3. SALES CHARGE
Sales charges are not deducted from purchase payments. To reimburse MassMutual
for sales expenses for commissions, sales literature and related costs, a sales
charge may be imposed upon a full or partial redemption and upon the Accumulated
Value at the Maturity Date of the Contract.
The amount of any sales charge depends on when the Contract matures or is
redeemed (see table below). Though the sales charge declines over time as a
percentage of the amount redeemed or the Accumulated Value of the Contract at
maturity, the actual dollar amount may not necessarily decline.
For flexible purchase payment Contracts, the sales charge will be:
. 8% of the amount redeemed or the Accumulated Value of the Contract at maturity
in the first two Contract Years;
. 7% in the third Contract Year;
. 6% in the fourth Contract Year;
. 5% in the fifth Contract Year;
. 4% in the sixth Contract Year;
. 3% in the seventh Contract Year;
. 2% in the eighth Contract Year; and
. 1% in the Ninth Contract Year.
Thereafter, there is no sales charge.
For single purchase payment Contracts, the sales charge will be:
. 5% of the amount redeemed or the Accumulated Value of the Contract at maturity
in the first Contract Year;
. 4% in the second Contract Year;
. 3% in the third Contract Year,
. 2% in the fourth Contract Year; and
. 1% in the fifth Contract Year.
Thereafter, there is no sales charge.
The amount deducted for sales charges at any time, plus any sales charges
previously deducted, will not be more than 8.5% of the total purchase payments
made to that time. Further, on the first redemption in each Contract Year, and
on maturity if no partial redemption has been made in that Contract Year, no
sales charge will be deducted on an amount up to 10% of the Accumulated Value of
the Contract on the date of redemption or maturity. Any unused portion of this
10% "free corridor" is noncumulative and therefore cannot be carried over to
any later redemption or maturity.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SALES CHARGE
CONTRACT YEAR OF
REDEMPTION OR FLEXIBLE PURCHASE SINGLE PURCHASE
MATURITY PAYMENT CONTRACTS PAYMENT CONTRACTS
----------------- -----------------
<S> <C> <C>
First Contract Year................... 8% 5%
Second Contract Year.................. 8% 4%
Third Contract Year................... 7% 3%
Fourth Contract Year.................. 6% 2%
Fifth Contract Year................... 5% 1%
Sixth Contract Year................... 4% No Charge
Seventh Contract Year................. 3% No Charge
Eighth Contract Year.................. 2% No Charge
Ninth Contract Year................... 1% No Charge
Tenth and Subsequent Years............ No Charge No Charge
--------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
No sales charge will be imposed upon a death benefit nor upon a full redemption
or maturity of the Contract if the annuitant is age 59 1/2 or older and the
entire redemption or Accumulated Value of the Contract is:
(1) applied under a fixed lifetime payment option;
(2) applied under a fixed annuity, fixed time payment option, with payments for
10 years or more;
(3) applied to purchase a single premium immediate life annuity issued by
MassMutual or by a MassMutual affiliate; or
(4) applied to purchase a single premium immediate annuity certain, with
payments guaranteed for 10 years or more, sold by MassMutual or by a MassMutual
affiliate.
No sales charge will be imposed upon a full redemption or maturity of the
Contract if all proceeds of the Contract are:
(1) applied under a variable lifetime payment option; or
(2) applied under a variable fixed-time payment option, with payments for 10
years or more.
No sales charge will be imposed on the redemption of the present value of
remaining unpaid payments under a variable fixed-time-payment option if a sales
charge was imposed at redemption or maturity. Additionally, until April 30,
1996, no sales charge will be imposed upon redemption of a Contract where the
proceeds of such redemption are applied to the purchase of a new MassMutual
group annuity contract. This does not eliminate applicable charges under the
particular group contract, and upon surrender of the group contract, charges may
apply.
No sales charge will be imposed on the redemption of "excess contributions" to
a plan qualifying for special income tax treatment ("Qualified Plan"), TSAs or
IRAs. "Excess contributions" (including excess aggregate contributions) will be
defined as provided in the Internal Revenue Code and applicable regulations.
If, at any time prior to maturity, the effective annual interest rate credited
to any Contract amount allocated to the GPA falls below the Specified Interest
Rate for a calendar quarter, the Contract may be fully redeemed or may mature
without any deduction for sales charges. New York State requires values to be in
the GPA in order to be redeemed under this provision. The Specified Interest
Rate is equivalent to the average discount rate on 91-day United States Treasury
bills during the preceding quarter, reduced by 1.40%. Within 10 days following
the date that the effective annual interest credited to the GPA falls below the
Specified Interest Rate, we will send a written notice to the Contract Owner
indicating that redemption or maturity without a sales charge can be elected
until 60 days after such notice is mailed.
Under Contracts purchased by exchanging a previously issued MassMutual variable
annuity contract which provides for a deferred sales charge, the Contract Year
for purposes of assessing a sales charge percentage upon a redemption or
maturity will be based on the effective date of the exchanged contract. A
deferred sales charge will not be assessed, however, against any Contract if the
Contract was purchased by exchanging a previously issued MassMutual variable
annuity contract under which sales charges were waived due to an earlier
exchange or which was subject to an initial sales charge. If a fixed annuity
contract which has no surrender charge and has more than 60 days prior to its
maturity date, is allowed to be exchanged to a single purchase payment Contract,
then the Contract which is issued will not be subject to a sales charge upon
redemption or maturity.
To the extent sales expenses are not covered by the sales charge, they will be
recovered from MassMutual surplus, which may include proceeds derived from the
asset charge described above.
Any available waiver of sales charges will be applied on a non-discriminatory
basis.
4. PREMIUM TAXES
Any applicable premium tax will be deducted from purchase payments when received
by MassMutual or at the time of surrender, death, maturity or annuitization,
depending on the rules for the Annuitant's state of residence. Premium taxes on
annuities currently range up to 3.5%.
Lump sum payments upon a full or partial redemption of a Contract, or upon the
death of the Annuitant prior to the maturity date of a Contract, may result in a
reduction in the amount of premium tax paid by MassMutual with respect to that
Contract. In such event, in addition to the dollar amount redeemed or
Accumulated Value of the Contract upon death, MassMutual will make payment of
the lesser of: (1) the amount by which its premium tax is reduced; or (2) the
amount previously deducted from purchase payments for the premium tax.
THE GUARANTEED PRINCIPAL ACCOUNT
Because of exemptive and exclusionary provisions contained in the federal
securities laws, interests in MassMutual's general account (which include
interests in the GPA) have not been registered under the Securities Act of 1933
and the general account has not been registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the general account nor
any interests therein are subject to the provisions of these Acts and MassMutual
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this Prospectus relating to the general account.
Disclosures regarding the general account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
A Contract Owner may allocate or transfer all or part of the amount credited to
his or her Contract to the GPA. Such amounts shall become part of MassMutual's
general account assets. The allocation or transfer of amounts to the GPA does
not entitle a Contract Owner to share in the investment experience of those
assets. Instead, MassMutual guarantees that those amounts allocated to the GPA
will accrue interest daily at an effective annual rate of not less than 3.5%.
Although MassMutual is not obligated to credit interest at a rate higher than
3.5%, it may declare a higher rate applicable for such periods as it deems
appropriate. The crediting rate declared by Mass-
16
<PAGE>
Mutual is an effective annual rate. Upon request MassMutual will inform Contract
Owners of the then applicable rate.
For TSAs, MassMutual credits interest on loaned amounts held in the GPA at a
daily rate equivalent to the greater of an annual rate of 3.5% or the annual
loan interest rate in effect, less not more than 4%.
DISTRIBUTION
MML Investors Services, Inc., 1 Financial Plaza, 1350 Main Street, Springfield,
MA 01103-1686 ("MMLISI"), a wholly-owned subsidiary of MassMutual, acts as the
principal underwriter of the Contracts. MMLISI 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 Contracts are sold by registered
representatives of MMLISI who are also licensed to sell MassMutual insurance
products under state insurance law. The Contracts are offered in all states. The
Contracts may also be offered through broker-dealers having a selling agreement
with MMLISI.
MISCELLANEOUS PROVISIONS
TERMINATION OF LIABILITY. MassMutual's liability under a Contract terminates on
the death of the Annuitant(s) and on the completion of any guaranteed payments.
There is no liability for any proportionate monthly annuity payment from the
date of the last payment to the date of death.
ADJUSTMENT OF UNITS AND UNIT VALUES. MassMutual reserves the right in its sole
discretion to split or consolidate the number of Accumulation Units or Annuity
Units for any Division and correspondingly decrease or increase the Accumulation
or Annuity Unit values for any Division whenever it deems such action to be
desirable. Any such adjustment will have no adverse effect on rights under the
Contracts.
PERIODIC STATEMENTS. While a Contract is in force prior to the Maturity Date and
before the death of the Annuitant, MassMutual will furnish to the Contract Owner
at least semiannually a status report showing the number of Accumulation Units
credited to each Division of the Contract, the corresponding Accumulation Unit
values, the value of amounts in the GPA and the Accumulated Value of the
Contract.
CONTRACT OWNER'S VOTING RIGHTS
As long as a Separate Account continues to operate as a unit investment trust
under the Investment Company Act of 1940, the Contract Owner during the lifetime
of the Annuitant, or the beneficiary after the Annuitant's death, will be
entitled to give instructions as to how the shares of the Funds held in the
Separate Account (or other securities held in lieu of such shares) deemed
attributable to the Contract should be voted at meetings of shareholders of the
Funds or the Trust. Those persons entitled to give voting instructions will be
determined as of the record date for the meeting.
The number of Fund shares held in a Separate Account deemed attributable to a
Contract prior to its Maturity Date and during the lifetime of the Annuitant
will be determined on the basis of the value of Accumulation Units credited to
the Contract in the corresponding Division of the Separate Account as of the
record date. After the Maturity Date or after the death of the Annuitant, the
number of Fund shares deemed attributable to the Contract will be based on the
liability for future Variable Monthly Annuity payments under the Contract as of
the record date and thus the voting rights will decrease as payments are made.
Contract Owners or beneficiaries will receive proxy material and a form with
which voting instructions may be given. Fund shares held by a Separate Account
as to which no effective instructions have been received or which are
attributable to assets transferred from MassMutual's general account will be
voted for or against any proposition in the same proportion as the shares as to
which instructions have been received.
In situations where the Annuitant is not the Contract Owner, the Annuitant will
have the right to instruct the Contract Owner with respect to the votes
attributable to any vested interest he has in the Contract. MassMutual's
obligation in this instance will be to make available to the Contract Owner
copies of the proxy material for distribution to the Annuitant. Votes
representing interests as to which the Contract Owner is not instructed may, in
turn, be voted by the Contract Owner in his discretion.
The Contract Owner is a member of MassMutual and is entitled to vote at all
meetings of the members of MassMutual.
RESERVATION OF RIGHTS
MassMutual may, at any time, make any change in a Contract to the extent that
such change is required in order to make the Contract conform with any law or
regulation issued by any governmental agency to which MassMutual is subject. If
shares of any Fund should not be available or, if in the judgment of MassMutual,
investment in shares of a Fund is no longer appropriate in view of the purposes
of a Division of a Separate Account, shares of other series of the Trust or of
other registered, open-end investment companies may be substituted for such Fund
shares. Payments received after a date specified by MassMutual may be applied to
the purchase of shares of another Trust series or company in lieu of shares of
that Fund. In either event, approval of the Securities and Exchange Commission
must be obtained. MassMutual reserves the right to change the name of a Separate
Account or to add Divisions to a Separate Account for the purpose of investing
in additional investment vehicles.
FEDERAL TAX STATUS
Introduction
The ultimate effect of federal income taxes on the value of the Contract, on
annuity payments, and on the economic benefit to the Contract Owner, Annuitant
or beneficiary depends on a variety of factors, including the type of retirement
plan for which the Contract is purchased and the tax and employment status of
the individual concerned. The discussion contained herein is general in nature
and is not intended as tax advice. Each person concerned should consult a
competent tax adviser for complete information and advice. No attempt is made to
consider any applicable state or other local tax laws.
17
<PAGE>
Moreover, the discussion herein is based upon MassMutual's understanding of
current federal income tax laws as they are currently interpreted. No
representation is made regarding the likelihood of continuation of those current
federal income tax laws or of the current interpretations by the Internal
Revenue Service (the "IRS").
TAX STATUS OF MASSMUTUAL
Under existing federal law, no taxes are payable on investment income and
realized capital gains of the Separate Accounts credited to the Contracts.
Accordingly, MassMutual does not intend to make any charge to the Separate
Accounts to provide for company income taxes. MassMutual may, however, make such
a charge in the future if an unanticipated construction of current law or a
change in law results in a company tax liability attributable to the Separate
Accounts.
MassMutual may incur state and local taxes (in addition to premium taxes) in
several states. At present, these taxes are not significant. If they increase,
however, charges for such taxes attributable to the Separate Accounts may be
made.
TAXATION OF CONTRACTS IN GENERAL
Under Section 817(h) of the Code, a Contract (other than one used in a tax-
qualified retirement plan) will not be treated as an annuity contract and will
be taxed on the annual increase in earnings, if, as of the end of any quarter,
the Funds or the Fund on which the Contract is based are not adequately
diversified in accordance with regulations prescribed by the Treasury
Department. The Funds anticipate complying with the diversification
requirements.
Subject to certain annuity distribution rules (see ANNUITY DISTRIBUTION RULES OF
SECTION 72(S)), annuity payments under the Contracts are taxable under Section
72 of the Code. For contributions made after February 28, 1986, a Contract Owner
that is not a natural person will be taxed on the annual increase in the
earnings of a Contract unless the Contract Owner holds the Contract as agent for
a natural person. Otherwise, increases in the value of a Contract are not
subject to tax until actually or constructively received.
Amounts received prior to the maturity date from Contracts under non-tax
qualified arrangements (see TAXATION OF QUALIFIED PLANS for a discussion of
Contracts used in the qualified plan market) are subject to tax to the extent of
any earnings or gains in the Contract. Amounts received which are in excess of
such earnings or gains are considered a return of capital. Similarly, amounts
borrowed upon assignment or pledge of the Contract will be treated as amounts
received under the Contract and will be taxable to the same extent. For
Contracts entered into after October 21, 1988, all annuity contracts issued by
the same insurer and its affiliates to the same Contract Owner within the same
calendar year must be aggregated in determining the amount of gain realized on a
withdrawal from any one.
If the Contract is obtained in a tax-free exchange of contracts under Section
1035 of the Code, different tax rules may apply. If a distribution prior to the
Maturity Date of a Contract obtained in such an exchange is entirely
attributable to investments in the surrendered contract prior to August 14,
1982, the distribution will first be considered a return of capital to the
extent of those investments. Only the amounts received in excess of those
investments will be regarded as taxable earnings or gains.
PENALTY TAXES
In addition to the foregoing tax consequences, certain distributions under the
Contract will be subject to a penalty tax under Code Sections 72(q) (for non-tax
qualified Contracts) or 72(t) (for Contracts in tax qualified plans - see
TAXATION OF QUALIFIED PLANS, IRAS AND TSAS) of 10% of the amount of the
distribution that is includable in gross income. However, the following
distributions from non-tax qualified Contracts are not subject to the penalty
tax:
(1) withdrawals made after the Contract Owner is 59 1/2 years old;
(2) payments made to a beneficiary (or to the estate of an Annuitant) on or
after the death of the Annuitant;
(3) payments attributable to a Contract Owner becoming disabled; or
(4) substantially equal periodic payments made (at least annually) for the
lifetime (or life expectancy) of the Contract Owner or for the joint lifetimes
(or joint life expectancies) of the Contract Owner and the beneficiary.
When monthly annuity payments commence, they are taxable as ordinary income in
the year of receipt to the extent that they exceed that portion of the
"investment in the Contract" which is allocable to that year. The investment in
the Contract will equal the gross amount of purchase payments made under the
Contract less any amount that was previously received under the Contract but was
not included in gross income. The investment in the Contract would also be
increased by any amount that was previously included in gross income under the
Contract but was not received. This amount, divided by the anticipated number of
monthly annuity payments, gives the "excludable amount", which is the portion
of each annuity payment considered to be a return of capital and, therefore, not
taxable. Under this exclusion ratio the total amount excluded from payments
actually received is limited to the investment in the Contract. The rules for
determining the excludable amount are contained in Section 72 of the Code and
regulations thereunder and require adjustment when the payment option elected
provides a feature such as a guaranteed number of payments.
ANNUITY DISTRIBUTION RULES OF SECTION 72(s)
Annuity distribution requirements are imposed under Section 72(s) of the Code.
MassMutual understands that these requirements do not apply to Contracts issued
to or under Qualified Plans.
Under Section 72(s), a Contract will not be treated as an annuity subject to
Section 72 of the Code, unless it provides for certain required distributions
from and after the date of death of the Contract Owner. The Contracts will be
en-
18
<PAGE>
dorsed before issue to provide that annuity payments be made only in
accordance with these distribution requirements, as applicable.
TAX WITHHOLDING
Certain tax withholding is imposed on payments that are made under the Contracts
(for Contracts in tax qualified plans see - TAXATION OF QUALIFIED PLANS, IRAS
AND TSAS). Withheld amounts do not constitute an additional tax but are fully
creditable on the individual tax return of each payee who is affected by tax
withholding. Furthermore, no payments will be subject to the withholding if
(1) it is reasonable to believe that the payments are not includable in gross
income, or
(2) the payee elects not to have withholding apply.
The payee may make such an election either by filing an election form with
MassMutual or, in the case of redemptions, by following procedures that
MassMutual has established to enable payees to elect out of withholding. These
forms and procedures will be provided to payees by MassMutual upon a request for
payment.
Unless the Payee elects not to have withholding apply (for Contracts in tax
qualified plans see - TAXATION OF QUALIFIED PLANS, IRAS AND TSAS), MassMutual is
required to withhold, for federal income tax purposes, 10% of the taxable
portion of any redemption payment or non-periodic distribution under the
Contracts. Periodic annuity payments under the Contracts are subject to
withholding at the payee's wage base rate. If the payee of these annuity
payments does not file an appropriate withholding certificate (obtainable from
any local IRS office) with MassMutual, it will be presumed that the payee is
married claiming three exemptions.
TAX REPORTING
MassMutual is required to report all taxable payments and distributions to the
IRS and to the payees. Payees will receive reports of taxable payments and
distributions by January 31 of the year following the year of payment.
TAXATION OF QUALIFIED PLANS, TSAS AND IRAS
The tax rules applicable to participants in retirement plans which qualify for
special federal income tax treatment ("Qualified Plans") vary according to the
type of plan and its terms and conditions.
Increases in the value of a Contract are not subject to tax until received by
the employee or his beneficiary. Monthly annuity payments under Qualified Plans
are taxed as described above (see TAXATION OF CONTRACTS IN GENERAL), except that
the "investment in the Contract" under a Qualified Plan is normally the gross
amount of purchase payment made by the employee under the Contract or made by
the employer on the employee's behalf and included in the employee's taxable
income when made.
If the Annuitant receives a distribution which qualifies as a "lump sum
distribution" under the Code, he or she may be eligible for special "5-year
averaging" treatment of the funds received (or "10-year averaging" treatment if
he or she was age 50 or older on January 1, 1986). TSAs and IRAs are not
eligible for the "lump sum distribution" rules.
Certain TSA contributions may not be distributed to the Annuitant until age
59 1/2 death, disability, separation of service or hardship (see REDEMPTION
PRIVILEGE). Distributions from Qualified Plans, IRAs and TSAs may be subject to
a 10% penalty tax on amounts withdrawn before age 59 1/2. However, the
following distributions from Qualified Plans (and TSAs and IRAs except as
otherwise noted) are not subject to the penalty:
(1) payments made to a beneficiary (or estate of an Annuitant) on or after the
death of the Annuitant;
(2) payments attributable to an Annuitant becoming disabled;
(3) substantially equal periodic payments made (at least annually) for the
lifetime (or life expectancy) of the Annuitant or for the joint lifetimes (or
joint life expectancies) of the Annuitant and the beneficiary (for Qualified
Plans and TSAs, payments can only begin after the employee separates from
service);
(4) payment for certain medical expenses (not applicable to IRAs);
(5) payment after age 55 and separation from service (not applicable to IRAs);
and
(6) payments to an alternate payee pursuant to a qualified domestic relations
order under Code Section 414(p) (not applicable to IRAs). Excess retirement
accumulations may be subject to a 15% penalty tax. Excess distributions may be
subject to a 15% excise tax.
IRAs are subject to limitations on the amount which may be contributed. The
deductibility of contributions by individuals or their spouses who are active
participants in an employer-maintained pension or profit-sharing plan may be
reduced based on the individual's adjusted gross income. In addition, certain
distributions from Qualified Plans and TSAs may be placed on a tax-deferred
basis into an IRA.
In general, tax law requires that minimum distributions be made from qualified
plans, TSAs and IRAs beginning at age 70 1/2. To avoid penalty taxes of 50
percent or more, required distributions, including distributions which should
have been distributed in prior years, should not be rolled over to IRAs.
Distributions from Qualified Plans and TSAs are subject to mandatory federal
income tax withholding. MassMutual is required to withhold 20% when a payment
from a Qualified Plan or TSA is an "eligible rollover distribution" and such
payment is not directly rolled over to another Qualified Plan, TSA or IRA. In
general, an "eligible rollover distribution" is any taxable distribution other
than:
(1) payments for the life (or life expectancy) of the Annuitant, or for joint
life (or joint life expectancies) of the Annuitant and the beneficiary;
19
<PAGE>
(2) payments made over a period of ten years or more; and
(3) required minimum distributions (see above). Plan Administrators should be
able to tell annuitants what other payments are not "eligible rollover
distributions."
Taxable distributions which are not "eligible rollover distributions" are
subject to the withholding rules for annuities (see - TAX WITHHOLDING).
PERFORMANCE MEASURES
MassMutual may show the performance under the Contracts in the following ways:
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
MassMutual will show the Standardized Average Annual Total Return for the
Divisions of the Separate Account which have been in existence for more than one
year. As prescribed by the rules of the U.S. Securities and Exchange Commission
("SEC"), the Standardized Average Annual Total Return is the effective annual
compounded rate of return that would have produced the cash redemption value
over the stated period had the performance remained constant throughout. The
Standardized Average Annual Total Return assumes a single $1000 payment made at
the beginning of the period and full redemption at the end of the period. It
reflects a deduction for the contingent deferred sales charge, the annual
administrative charge and all other Fund, Separate Account, and Contract level
charges except premium taxes, if any. The annual administrative charge is
apportioned among the Divisions of the Separate Account based upon the
percentages of inforce Contracts investing in each of the Divisions. For
Divisions of the Separate Account which have been in existence for less than one
year, MassMutual will show the aggregate total return as permitted by the SEC.
The aggregate total return assumes a single one thousand dollar payment made at
the beginning of the period and full redemption at the end of the period. It
reflects the change in unit value and a deduction of the contingent deferred
sales charge.
ADDITIONAL PERFORMANCE MEASURES
The performance figures discussed below are calculated on the basis of the
historical performance of the Funds, and may assume the Contracts were in
existence prior to April 27, 1987 (which they were not). Beginning April 27,
1987 (inception date), actual Accumulation Unit values are used for the
calculations for the MML Trust. The Oppenheimer Variable Account Funds were
added to the Contracts on September 12, 1994. For these funds, calculations may
be based on the premise that they were part of the contract from December 31, of
the inception year of each fund. Beginning September 12, 1994, actual
Accumulation Unit Values are used for the calculations for the Oppenheimer
Trust. The difference between the first set of additional performance measures,
PERCENTAGE CHANGE and ANNUALIZED RETURNS on Accumulation Unit Values, and the
second set, the NON-STANDARDIZED ANNUAL and AVERAGE ANNUAL TOTAL RETURNS, is
that the second set is based on specified premium patterns and includes the
deduction of the annual Administrative Charge, whereas the first set does not.
Additional details follow.
ACCUMULATION UNIT VALUES: PERCENTAGE CHANGE AND ANNUALIZED RETURNS.
MassMutual will show the PERCENTAGE CHANGE in the value of an Accumulation Unit
for a Division of the Separate Account with respect to one or more periods. The
ANNUALIZED RETURN, or average annual change in Accumulation Unit Values, may
also be shown with respect to one or more periods. For a one year period, the
PERCENTAGE CHANGE and the ANNUALIZED RETURN are effective annual rates of return
and are equal. For periods greater than one year, the ANNUALIZED RETURN is the
effective annual compounded rate of return for the periods stated. Since the
value of an Accumulation Unit reflects the Separate Account, the MML Series Fund
expenses and the Oppenheimer Fund expenses (See TABLE OF FEES AND EXPENSES), the
PERCENTAGE CHANGE and ANNUALIZED RETURN also reflect these expenses. These
percentages, however, do not reflect the annual Administrative Charge and the
contingent deferred sales charge or premium taxes (if any), which if included
would reduce the percentages reported. For periods of less than one year, the
percentage change in accumulation unit value may be shown.
The NON-STANDARDIZED ANNUAL TOTAL RETURN for a Division of the Separate Account
is the effective annual rate of return that would have produced the ending
Accumulated Value of the stated one year period.
The NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN for a Division of the Separate
Account is the effective annual compounded rate of return that would have
produced the ending Accumulated Value over the stated period had the performance
remained constant throughout.
Note: The NON-STANDARDIZED ANNUAL TOTAL RETURN will be less than the
NON-STANDARDIZED ANNUALIZED RETURN on Accumulation Unit values for the same
period due to the effect of the annual Administrative Charge. Additionally, the
magnitude of this difference will depend on the size of the Accumulated Value
from which the annual Administrative Charge is deducted.
YIELD AND EFFECTIVE YIELD. MassMutual may also show yield and effective yield
figures for the Money Market Division of the Separate Account. "Yield" refers
to the income generated by an investment in the Money Market Division over a
seven-day period, which is then "annualized". That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Money Market Division is assumed to be
re-invested. Therefore the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the annual Administrative Charge, the contingent deferred
sales charge or premium taxes (if any), which if included would reduce the
yields reported.
The performance measures discussed above reflect results of the Funds and are
not intended to indicate or predict future performance. For more detailed
information see the Statement of Additional Information.
20
<PAGE>
Performance information for the Separate Account Divisions may be compared to
other variable annuity separate accounts or other investment products surveyed
by Lipper Analytical Services, a nationally recognized independent reporting
service which ranks mutual funds and other investment companies by overall
performance, investment objectives and assets. Performance may also be tracked
by other ratings services, companies, publications or persons who rank separate
accounts or other investment products on overall performance or other criteria.
Performance figures will be calculated in accordance with standardized methods
established by each reporting service.
MassMutual may also show the application of general mathematical
principles in connection with the Contracts.
ADDITIONAL INFORMATION
For further information about the Contracts, You may obtain a Statement of
Additional Information prepared by MassMutual.
The Table of Contents of this Statement is as follows:
1. General Information and History
2. Service Arrangements and Distribution
3. Contract Value Calculations and Annuity Payments
4. Performance Measures
5. Reports of Independent Accountants and Financial Statements.
21
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This Prospectus sets forth the information about Separate Accounts 1 and 2 that
a prospective investor ought to know before investing. Certain additional
information about the Separate Accounts is contained in a Statement of
Additional Information dated May 1, 1995 which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information appears on page 21
of this Prospectus. To obtain a copy, return this request form to the address
shown below or telephone (413) 788-8411.
................................................................................
To: Massachusetts Mutual Life Insurance Company
VA Service Unit, C351
1295 State Street
Springfield, Massachusetts 01111
Please send me a Statement of Additional Information for MassMutual Flex-Extra.
Name ______________________________________________________________
Address ___________________________________________________________
___________________________________________________________
City ______________________ State ________________ Zip __________
Telephone _________________________________________________________
<PAGE>
PROSPECTUS
DATED MAY 1, 1995
MML SERIES INVESTMENT FUND
1295 STATE STREET
SPRINGFIELD, MASSACHUSETTS
(413) 788-8411
MML Series Investment Fund (the "MML Trust") is a no-load, diversified, open-end
management investment company having four separate series of shares (the
"Funds"), each of which has different investment objectives and is designed to
meet different investment needs.
THE FUNDS
MML EQUITY FUND - The investment objectives are primarily to achieve a superior
total rate of return over an extended period of time from both capital
appreciation and current income and secondarily, depending upon business and
economic conditions, to preserve capital. The Fund invests primarily in
equity-type securities.
MML MONEY MARKET FUND - The investment objectives are to achieve high current
income, the preservation of capital, and liquidity. The Fund invests in
short-term debt instruments, including commercial paper, certificates of
deposit, bankers' acceptances, and obligations of the United States, its
agencies and instrumentalities. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
MML MANAGED BOND FUND - The investment objective is to achieve as high a total
rate of return on an annual basis as is considered consistent with the
preservation of capital. The Fund invests primarily in investment grade,
publicly-traded, fixed income securities.
MML BLEND FUND - The investment objective is to achieve as high a level of total
rate of return over an extended period of time as is considered consistent with
prudent investment risk and the preservation of capital. The Fund invests in a
portfolio of common stocks and other equity-type securities, bonds and other
debt securities with maturities generally exceeding one year, and money market
instruments and other debt securities with maturities not exceeding one year.
For further information about each Fund's investment objectives and policies,
see "THE FUNDS" on page 8. There is no assurance that the investment objectives
of the Funds will be realized.
This Prospectus sets forth concisely the information about MML Trust and the
Funds that a prospective investor ought to know before investing. Certain
additional information about MML Trust and the Funds is contained in a Statement
of Additional Information dated May 1, 1995, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. This
additional information is available upon request and without charge. To obtain
such information, please contact the Secretary, MML Series Investment Fund, 1295
State Street, Springfield, Massachusetts 01111.
This Prospectus should be retained for future reference for information about
MML Trust and the Funds.
_________________________________
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 OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
FINANCIAL HIGHLIGHTS..................................................... 2
MANAGEMENT DISCUSSION.................................................... 5
GENERAL INFORMATION...................................................... 8
THE FUNDS................................................................ 8
INVESTMENT PRACTICES OF THE FUNDS AND RELATED RISKS...................... 10
INVESTMENT RESTRICTIONS.................................................. 13
INVESTMENT MANAGERS...................................................... 13
CAPITAL SHARES........................................................... 14
NET ASSET VALUE.......................................................... 15
SALE AND REDEMPTION OF SHARES............................................ 15
TAX STATUS............................................................... 15
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS................................ 16
INVESTMENT PERFORMANCE................................................... 16
MANAGEMENT OF MML TRUST.................................................. 16
</TABLE>
I. FINANCIAL HIGHLIGHTS
The information in the following tables has been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report on the financial statements of the
Funds is included in MML Trust's Annual Report and in its Statement of
Additional Information. Further information about the performance of the Funds
is contained in the Annual Report which may be obtained from MML Trust's
Secretary without charge.
MML EQUITY FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1994 1993* 1992 1991 1990 1989 1988 1987 1986 1985
---- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year.............. $20.510 $19.862 $18.735 $15.659 $16.764 $14.929 $13.828 $15.591 $13.832 $11.749
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income........... .594 .524 .543 .563 .636 .694 .646 .525 .495 .551
Net realized and
unrealized gain (loss)
on investments................. .248 1.365 1.420 3.440 (.722) 2.746 1.660 (.066) 2.174 2.792
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations..................... .842 1.889 1.963 4.003 (.086) 3.440 2.306 .459 2.669 3.343
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income.............. (.594) (.524) (.543) (.562) (.665) (.711) (.639) (.988) (.412) (.738)
Distribution from net
realized gains................. (.238) (.717) (.288) (.365) (.354) (.894) (.566) (1.234) (.498) (.522)
Distribution in excess of
net realized gains............. - - (.005) - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............. (.832) (1.241) (.836) (.927) (1.019) (1.605) (1.205) (2.222) (.910) (1.260)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value:
End of year.................... $20.520 $20.510 $19.862 $18.735 $15.659 $16.764 $14.929 $13.828 $15.591 $13.832
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return.................... 4.10% 9.52% 10.48% 25.56% (.51)% 23.04% 16.68% 2.10% 20.15% 30.54%
Net assets (in millions):
End of year.................... $ 820.8 $ 663.1 $ 490.6 $ 355.0 $ 235.4 $ 226.4 $ 172.8 $ 150.4 $ 141.5 $ 104.7
Ratio of expenses to
average net assets............. .43% .44% .46% .48% .49% .50% .50% .51% .52% .55%
Ratio of net investment
income to average net assets... 3.04% 3.23% 3.09% 3.43% 4.09% 4.30% 4.05% 3.44% 3.54% 4.49%
Portfolio turnover rate......... 9.99% 11.28% 9.07% 9.37% 13.50% 15.71% 15.97% 15.73% 14.73% 20.83%
</TABLE>
*As of January 1, 1993, Concert Capital Management, Inc. became the Investment
Sub-Adviser. See Investment Managers, page 13 for further information.
2
<PAGE>
MML MONEY MARKET FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year.................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income............... .038 .027 .034 .059 .078 .088 .072 .063 .064 .078
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations.... .038 .027 .034 .059 .078 .088 .072 .063 .064 .078
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income.................. (.038) (.027) (.034) (.059) (.078) (.088) (.072) (.063) (.064) (.078)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions................. (.038) (.027) (.034) (.059) (.078) (.088) (.072) (.063) (.064) (.078)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value:
End of year........................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return........................ 3.84% 2.75% 3.48% 6.01% 8.12% 9.16% 7.39% 6.49% 6.60% 8.03%
Net assets (in millions):
End of year........................ $ 91.8 $ 73.7 $ 84.6 $ 94.4 $114.6 $ 70.2 $ 66.4 $ 52.3 $ 33.5 $ 36.4
Ratio of expenses to
average net assets................. .55% .54% .53% .52% .54% .54% .55% .57% .57% .59%
Ratio of net investment
income to average net assets....... 3.81% 2.71% 3.42% 5.91% 7.80% 8.79% 7.20% 6.35% 6.44% 7.76%
</TABLE>
MML MANAGED BOND FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year................ $12.405 $12.041 $12.219 $11.318 $11.354 $10.919 $11.052 $12.541 $11.978 $11.160
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............. .792 .785 .870 .903 .943 .918 .906 .969 1.061 1.227
Net realized and unrealized gain
(loss) on investments and forward
commitments..................... (1.264) .618 .001 .916 (.036) .454 (.133) (.673) .597 .851
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations.. (.472) 1.403 .871 1.819 .907 1.372 .773 .296 1.658 2.078
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income................ (.792) (.784) (.869) (.902) (.943) (.918) (.906) (1.229) (1.095) (1.260)
Distribution from net realized
gains............................ - (.255) (.158) (.016) - (.019) - (.556) - -
Distribution in excess
of net realized gains............ - - (.022) - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............... (.792) (1.039) (1.049) (.918) (.943) (.937) (.906) (1.785) (1.095) (1.260)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value:
End of year...................... $11.141 $12.405 $12.041 $12.219 $11.318 $11.354 $10.919 $11.052 $12.541 $11.978
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return...................... (3.76%) 11.81% 7.31% 16.66% 8.38% 12.83% 7.13% 2.60% 14.46% 19.94%
Net assets (in millions):
End of year...................... $ 121.2 $ 129.1 $ 88.2 $ 67.0 $ 43.1 $ 40.0 $ 31.3 $ 26.2 $ 30.4 $ 24.7
Ratio of expenses to
average net assets............... .52% .54% .56% .57% .57% .59% .61% .60% .60% .62%*
Ratio of net investment
income to average net assets..... 6.69% 6.37% 7.28% 7.96% 8.40% 8.35% 8.25% 8.24% 8.87% 10.73%*
Portfolio turnover rate........... 32.77% 58.81% 39.51% 61.85% 69.93% 64.77% 74.92% 55.60% 203.76% 154.48%
</TABLE>
*Computed after giving effect to the expense reduction in management fee by
MassMutual. Without this reduction, (a) the ratio of expenses to average net
assets would have been .65% for the year ended December 31, 1985, and (b) the
ratio of net investment income to average net assets would have been 10.70% for
the year ended December 31, 1985.
3
<PAGE>
MML BLEND FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1994 1993* 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year............ $ 18.305 $ 17.846 $ 17.307 $14.839 $15.428 $13.876 $13.095 $13.774 $12.244 $10.392
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income......... .707 .655 .707 .736 .792 .823 .734 .624 .540 .608
Net realized and
unrealized gain (loss)
on investments and
forward commitments.......... (.271) 1.057 .880 2.771 (.445) 1.921 1.000 (.148) 1.653 1.887
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations................... .436 1.712 1.587 3.507 .347 2.744 1.734 .476 2.193 2.495
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income............ (.707) (.655) (.707) (.736) (.811) (.835) (.728) (.747) (.560) (.613)
Distribution from net
realized gains............... (.359) (.598) (.326) (.303) (.125) (.357) (.225) (.408) (.103) (.030)
Distribution in excess of
net realized gains........... (.003) - (.015) - - - - - - -
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total distributions........... (1.069) (1.253) (1.048) (1.039) (.936) (1.192) (.953) (1.155) (.663) (.643)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Net asset value:
End of year.................. $ 17.672 $ 18.305 $ 17.846 $17.307 $14.839 $15.428 $13.876 $13.095 $13.774 $12.244
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
Total return.................. 2.48% 9.70% 9.36% 24.00% 2.37% 19.96% 13.40% 3.12% 18.30% 24.88%
Net assets (in millions):
End of year.................. $1,444.3 $1,296.5 $1,013.3 $ 797.0 $ 574.2 $ 524.3 $ 401.2 $ 346.1 $ 236.2 $ 91.6
Ratio of expenses to
average net assets........... .39% .40% .41% .42% .44% .45% .46% .48% .51% .57%
Ratio of net investment
income to average net assets. 3.93% 3.60% 4.07% 4.54% 5.37% 5.57% 5.29% 4.77% 4.81% 6.29%
Portfolio turnover rate....... 26.59% 20.20% 25.43% 26.92% 24.55% 22.39% 25.70% 36.56% 58.75% 31.06%
</TABLE>
*As of January 1, 1993, Concert Capital Management, Inc. became the Investment
Sub-Adviser. See Investment Managers page 13 for further information.
Total return information shown in the Financial Highlights tables does not
reflect expenses that apply at the separate account level or to related
insurance products. Inclusion of these charges would reduce the total return
figures for all periods shown.
4
<PAGE>
II. MANAGEMENT DISCUSSION
A. ECONOMIC AND INVESTMENT ENVIRONMENT
The U.S. economy turned in a strong economic performance during 1994 with real
Gross Domestic Product growth in the 3.5 to 4 percent range. The force behind
the expansion continued to be the consumer, whose confidence rose early during
the year and remained high throughout the period. This performance is
especially impressive given that the growth occurred against a background of
sharply rising interest rates and a Federal Reserve Board (``Fed'') determined
to keep the economy from overheating. The Fed moved strongly during 1994,
raising the discount rate 3 times and the Fed funds' target 6 times. Reflecting
this tightening, yields on three month Treasury bills climbed more than 2.5
percent during the year.
One of the most notable economic statistics for 1994 was the growth in nonfarm
payrolls. Approximately $3.5 million new additions were made to nonfarm
payrolls throughout the year. This figure clearly benefited the consumer
causing personal incomes to rise at a pace around 6 percent. Another strong
point for the U.S. economy last year was the price picture which remained calm
as the Consumer Price Index moved up at roughly a 2.7 percent pace. Housing
starts remained high during 1994, despite an almost 2 percent increase in
mortgage rates. Other bright spots last year included business investment, auto
and truck sales, consumer durables and productivity in the manufacturing sector.
A notable drag on the economy was the performance of the trade deficit which
widened during the year. Our strong economy, combined with slower than expected
recoveries in other parts of the world, caused our net imports to rise. Another
drag on the economy, as noted above, was the 1994 performance of interest rates.
Three month Treasury bills climbed by more than 2.5 percent, while 30 year
Treasury bonds rose by more than 1.5 percent. Price increases were also evident
last year with base commodities climbing at double digit rates. Another concern
with regard to pricing is the level of capacity utilization (a measure of
producer output), which is at levels where price increases have historically
developed.
B. INVESTMENT OUTLOOK
In response to the Fed's tightening, interest rates moved significantly higher
during 1994, resulting in poorly performing bond markets. As an example, the
total return of the Lehman Government/Corporate index was a negative 3.5 percent
for 1994. Despite increasing corporate profits, the stock markets were hampered
by the sharp increase in rates. As a result, the 1994 total return for the
Standard & Poor's 500 index was only 1.3 percent.
During the first quarter of 1995, the bond market will likely be impacted by the
actions of the Federal Reserve. It seems reasonable to assume that the Fed will
continue to increase rates in early-mid 1995. This should cause economic growth
to moderate over the second half, which would be more beneficial to bonds. The
stock market will take its cue from the interaction of interest rate moves and
corporate profits.
C. MML EQUITY
The Standard & Poor's 500 Stock Index closed out 1994 with the third consecutive
year of very low volatility. However, the narrow trading range for the S & P
500 masked considerable volatility within the market. This internal volatility,
although possibly detrimental to investment performance, is not totally
unwelcome because it creates opportunities for value-oriented investors.
In the second half of 1994, we repurchased two portfolio companies previously
sold a few years ago, and implemented three new equity positions. In an effort
to increase the portfolio's exposure to the health care area, Schering-Plough, a
pharmaceutical and personal care products company, was repurchased after being
sold in 1990. Roadway Services, a diversified transportation company, was
repurchased at an attractive price after being sold off in 1992 at a substantial
gain. New companies to the portfolio included Honeywell, a leading factor in
commercial avionic systems and industrial process controls, Kerr-McGee, a medium
sized integrated energy company, and Pepsico, the leading producer of salty
snacks in the U. S. and the number two producer of soft drink concentrates in
the world.
5
<PAGE>
Three stocks were eliminated from the portfolio during the period. Gerber
Products was sold at a substantial gain subsequent to a tender offer; Crane
Company, a relatively small holding in the fund, was sold at a more modest
profit, and Lehman Brothers Holdings was sold. Fourteen positions were reduced
in size during the fourth quarter, while 16 were increased through additional
purchases. For the full year, eleven new stocks were added to the portfolio
while ten were eliminated.
EQUITY FUND
[EQUITY FUND GRAPH APPEARS HERE]
D. MML MONEY MARKET
The Fed aggressively tightened monetary policy throughout 1994 as it strived to
maintain economic expansion at a sustainable pace. During 1994 the Fed raised
the Federal funds target rate on six occasions between February and November for
an increase of 250 basis points to 5.50 percent. Additionally, the Fed
increased the discount rate three times for a total of 175 basis points to 4.75
percent.
As anticipation of the Fed's actions continued to convey uncertainty to the
market, the portfolio's average life fluctuated in the range of 32 to 52 days.
The Fund ended the year with an average life of 36 days as the portfolio was
continually monitored and adjusted to optimize return. Appropriately, given the
higher interest rate environment, the portfolio's seven-day yield increased
nearly 240 basis points to end the year at 5.31 percent.
MONEY MARKET FUND
[MONEY MARKET FUND GRAPH APPEARS HERE]
E. MML MANAGED BOND
This past calendar year was one of the worst in the bond market's history.
Negative returns were posted across almost the entire maturity spectrum and
across almost all market sectors. Only short maturities posted positive returns
for the year. Short-term rates responded dramatically to the Fed's actions as
they increased between 261 and 350 basis points. Intermediate-term Treasuries
rose approximately 250 basis points. The long-end of the market, thirty-year
bonds, reacted modestly in comparison by rising only 153 basis points. The
Treasury yield curve flattened dramatically during the year as short-term
interest rates rose more than long rates. The bulk of the flattening of the
curve occurred beyond the two year area.
The Managed Bond Fund has remained relatively consistent in its sector
allocations over the course of the year. Early in the first quarter, we
increased our position in the corporate sector, however by year-end we moved
this position back slightly. The reduction in our corporate holdings was made as
spreads declined to historically low levels. During the later part of the third
quarter and the first part of the fourth quarter, additional purchases of
asset-backed securities were made. Our mortgage position, however, was
relatively unchanged over the year. The remaining holdings are invested in
Treasuries, U.S. government agencies, and money market instruments.
6
<PAGE>
MANAGED BOND FUND
[MANAGED BOND FUND GRAPH APPEARS HERE]
F. MML BLEND
The Blend Fund combines the profiles of the MML Equity, Bond, and Money Market
Funds into a single portfolio. The specific allocation of stocks, bonds, and
money market issues is based upon the interrelation of current economic and
financial conditions and the values available in the stock and bond markets. As
these relationships change, the exposure to each capital market is gradually
adjusted within the designated ranges. On December 31, 1994, 53 percent of the
Fund was invested in common stocks, 19 percent in marketable bonds, and 28
percent in short-term securities.
BLEND FUND
[BLEND FUND GRAPH APPEARS HERE]
7
<PAGE>
III. GENERAL INFORMATION
MML Trust is a no-load, diversified, open-end management investment company,
objectives and policies. MML Trust was organized as a business trust under the
laws of The Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated December 19, 1984, as most recently amended on or
about April 16, 1993. MML Trust was established by Massachusetts Mutual Life
Insurance Company ("MassMutual") for the purpose of providing a vehicle for the
investment of assets of various separate investment accounts established by
MassMutual and its life insurance company subsidiaries, including MML Bay State
Life Insurance Company ("MML Bay State").
Shares of the Funds are offered solely to separate investment accounts
established by MassMutual and any life insurance company subsidiary.
MassMutual is responsible for providing all investment advisory, management, and
administrative services needed by the Funds pursuant to investment management
agreements. MassMutual has entered into investment sub-advisory agreements with
Concert Capital Management, Inc. ("Concert"), a second tier, wholly-owned
subsidiary of MassMutual. These agreements provide that Concert will manage the
equity investments of MML Equity Fund ("MML Equity") and the Equity Sector (the
"Equity Sector") of MML Blend Fund ("MML Blend"). Both MassMutual and Concert
are registered with the Securities and Exchange Commission (the "SEC") as
investment advisers (MassMutual and Concert referred to hereafter as
"Advisers"). For further information, see "Investment Managers" p.13.
IV. THE FUNDS
The investment objectives of each Fund discussed below are fundamental policies
and may not be changed without the vote of a majority of that Fund's outstanding
voting shares (as used in this Prospectus, a majority of the outstanding voting
shares of any Fund means the lesser of (1) 67% of that Fund's outstanding shares
present at a meeting of the shareholders if more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of that Fund's
outstanding shares). There is no assurance that the investment objectives of the
Funds will be realized. The success of these objectives depends to a great
extent upon managements' ability to assess changes in business and economic
conditions. For further information about investment policies and techniques,
see "Investment Practices of the Fund and Related Risks," at page 10.
A. MML EQUITY FUND
THE PRIMARY INVESTMENT OBJECTIVE OF MML EQUITY FUND ("MML EQUITY") IS TO
ACHIEVE A SUPERIOR TOTAL RATE OF RETURN OVER AN EXTENDED PERIOD OF TIME FROM
BOTH CAPITAL APPRECIATION AND CURRENT INCOME.
A secondary investment objective is the preservation of capital when business
and economic conditions indicate that investing for defensive purposes is
appropriate. Occasional investments may be made with the objective of short-term
appreciation when in the judgment of Concert general economic conditions dictate
that they may benefit MML Equity and are consistent with sound investment
procedure.
Normally, the assets of MML Equity will be invested primarily in common stocks
and other equity-type securities such as preferred stocks, securities
convertible into common stocks and warrants. Investments are made in securities
of companies which, in the opinion of Concert Capital, are of high quality,
offer above-average dividend growth potential and are attractively valued in the
marketplace. Investment quality and dividend growth potential are evaluated
using fundamental analysis emphasizing each issuer's historical financial
performance, balance sheet strength, management capability and competitive
position. Various valuation parameters are examined to determine the
attractiveness of individual securities. On average, the Fund's portfolio
securities will have price/earnings ratios and price/book value ratios below
those of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Stock Index"). Consideration is also given to securities of companies whose
current prices do not adequately reflect, in the opinion of Concert Capital, the
ongoing business value of the enterprise. These investments may be maintained in
both rising and declining markets. Concert intends to engage in the active
management of MML Equity's portfolio. The portfolio of the Fund is managed by
David B. Salerno, Managing Director of the Value Equity Group of Concert
Capital. He has been associated with MassMutual since 1975 and with Concert
Capital since January 1, 1993.
B. MML MONEY MARKET FUND
THE INVESTMENT OBJECTIVES OF MML MONEY MARKET FUND ("MML MONEY MARKET") ARE TO
ACHIEVE HIGH CURRENT INCOME, THE PRESERVATION OF CAPITAL, AND LIQUIDITY. THESE
OBJECTIVES ARE OF EQUAL IMPORTANCE.
MML Money Market will invest only in short-term (i.e., 397 days or less
remaining to maturity) debt instruments, including but not limited to commercial
paper; certificates of deposit; bankers' acceptances; short-term corporate
obligations; obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the government of the United States, its agencies or
instrumentalities ("U.S. Government securities"); and certain repurchase
agreements with respect to any of the securities listed above (which underlying
securities must be of the highest quality at the time the repurchase agreement
is entered into but which securities may have maturities of more than one year).
MML Money Market's dollar-weighted average portfolio maturity will be maintained
at 90 days or less.
MML Money Market's non-fundamental investment policy is that, at the time it
acquires a security, it will invest 100% of its net assets in Tier 1 Securities,
but it retains the right to invest no more than 5% of its net assets in Tier 2
Securities. A Tier 1 Security is one that is rated in the highest rating
category by at least one nationally recognized statistical rating organization
("NRSRO") such as Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). MML Money Market will invest no more than 5% of its
total assets in Tier 2 Securities. A Tier 2 Security is one that is rated in the
second highest rating category by at least one NRSRO. Securities which are
unrated may also qualify as
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Tier 1 and Tier 2 Securities if so determined by the Board of Trustees of MML
Trust (the "Board of Trustees"). For a description of S&P and Moody's ratings,
see the Statement of Additional Information.
Certificates of deposit and bankers' acceptances will be limited to obligations
of banks having deposits of at least $1,000,000,000 as of their most recently
published financial statements. The obligations of U.S. banks in which MML Money
Market may invest include Eurodollar obligations of their foreign branches. In
the case of foreign banks, the $1,000,000,000 deposit requirement will be
computed using exchange rates in effect at the time of their most recently
published financial statements.
Obligations of foreign issuers, including foreign branches of U.S. banks, will
not be acquired if MML Money Market's investment in such obligations would
exceed in the aggregate 25% of its net assets. Foreign obligations may be
affected by foreign governmental action, including imposition of currency
controls, interest limitations, withholding taxes, seizure of assets or the
declaration of a moratorium or restriction on payments of principal or interest.
Foreign branches of U.S. banks and foreign banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards, as domestic banks.
MML Money Market will make portfolio investments primarily in anticipation of or
in response to changing economic and money market conditions and trends. Trading
activity is expected to be relatively low. However, it is anticipated that from
time to time, MML Money Market will take advantage of temporary disparities in
the yield relationships among the different segments of the money market or
among particular instruments within the same segment of the market to make
purchases and sales when MassMutual deems that such transactions will improve
the yield or the quality of the portfolio.
The high quality debt instruments in which MML Money Market invests may not
offer as high a yield as may be achieved from lower quality instruments having
less safety. While MML Money Market invests exclusively in First and Second Tier
Securities, investment in MML Money Market is not without risk. If MML Money
Market disposes of an obligation prior to maturity, it may realize a loss or
gain. An increase in interest rates will generally reduce the value of portfolio
investments. In addition, investments are subject to the ability of the issuer
to make payment at maturity. MML Money Market will reassess whether a particular
security presents minimal credit risks in certain circumstances. For example, if
a security ceases to be a Second Tier Security, MML Money Market would dispose
of any such security as soon as practical.
C. MML MANAGED BOND FUND
THE INVESTMENT OBJECTIVE OF MML MANAGED BOND FUND ("MML MANAGED BOND") IS TO
ACHIEVE AS HIGH A TOTAL RATE OF RETURN ON AN ANNUAL BASIS AS IS CONSIDERED
CONSISTENT WITH THE PRESERVATION OF CAPITAL.
Normally, the assets of MML Managed Bond will be invested primarily in
investment grade, publicly-traded, fixed income securities of such maturities as
MassMutual deems appropriate from time to time in light of market conditions and
prospects. Except when invested for defensive purposes, at least 80% of total
invested assets at market value at the time of a purchase will consist of U.S.
Government securities and investment grade quality debt securities which have
been rated in the top four rating categories by S&P (AAA, AA, A or BBB) or
Moody's (Aaa, Aa, A or Baa) or, if unrated, which are judged by MassMutual to be
of equivalent quality to securities so rated. While debt securities rated BBB or
Baa are investment grade securities, they have speculative characteristics and
are subject to greater credit risk, and may be subject to greater market risk,
than higher-rated investment grade securities.
The remaining 20% of MML Managed Bond's total invested assets may be invested in
lower quality debt instruments and preferred stocks. Lower quality debt
instruments generally provide higher yields but are generally subject to greater
market fluctuations and risk of loss of income and principal than higher quality
debt securities. MassMutual seeks to reduce these risks through diversification,
credit analysis and attention to current developments and trends in both the
economy and the financial markets. During 1994, no debt securities were acquired
by MML Managed Bond which were not rated at least BBB/-/ by S&P or Baa/3/ by
Moody's.
In implementing the policies set forth in the preceding two paragraphs, MML
Managed Bond may also invest in the following:
(1) obligations (payable in U.S. dollars) issued or guaranteed as to principal
and interest by the Government of Canada, a Province of Canada, or any
instrumentality or political subdivision thereof, provided that no such
investment will be made if it would result in more than 25% of MML Managed
Bond's net assets being invested in such securities;
(2) publicly-traded debt securities issued or guaranteed by a national or state
bank holding company (as defined in the Federal Bank Holding Company Act, as
amended) having a rating within the three highest grades as determined by
Moody's (Aaa, Aa, or A) or S&P (AAA, AA, or A), and certificates of deposit of
such banks; and
(3) securities of foreign issuers, provided however, MML Managed Bond may invest
not more than 10% of its net assets in such securities, except as provided in
(1) above.
If MML Managed Bond disposes of an obligation prior to maturity, it may realize
a loss or a gain. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. In addition, investments are
subject to the ability of the issuer to make payment at maturity.
Normally, the Fund's duration will range from four to seven years. Portfolio
changes will be accomplished primarily through the reinvestment of cash flows
and selective trading.
The portfolio of the Fund is managed by Mary E. Wilson, Vice President and
Managing Director of MassMutual, with which she has been associated since 1982.
As such, she oversees all public fixed income trading for MassMutual and its
related subsidiaries and affiliates.
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D. MML BLEND FUND
THE INVESTMENT OBJECTIVE OF MML BLEND FUND ("BLEND") IS TO ACHIEVE AS HIGH
A LEVEL OF TOTAL RATE OF RETURN OVER AN EXTENDED PERIOD OF TIME AS IS CONSIDERED
CONSISTENT WITH PRUDENT INVESTMENT RISK AND THE PRESERVATION OF CAPITAL.
The Advisers will adjust the mix of investments among its three market sectors
to capitalize on perceived variations in return potential produced by the
interaction of changing financial market and economic conditions. The Advisers
expects that such adjustments will normally be made in a gradual manner over a
period of time. No investment will be made that would result in more than 90% of
MML Blend's net assets being invested in the Equity Sector or in more than 50%
of MML Blend's net assets being invested in the Bond Sector. Up to 100% of MML
Blend's net assets may be invested in the Money Market Sector. No minimum
percentage has been established for any of the sectors.
In addition to MML Blend's investment objective, each of its market sectors has
a specific investment objective. Within the Equity Sector, MML Blend will
attempt to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Within the Bond Sector,
MML Blend will attempt to achieve as high a total rate of return on an annual
basis as is considered consistent with the preservation of capital. Within the
Money Market Sector, MML Blend will attempt to achieve high current income, the
preservation of capital, and liquidity. The portfolio of the Fund is managed by
committee.
In seeking a high rate of return from dividends, interest income and capital
appreciation as well as in seeking to preserve capital, Advisers intend to
engage in the active management of MML Blend's portfolio. (See "Portfolio
Management" on page 12).
The portfolio of MML Blend will be invested in the following three market
sectors:
1. EQUITY SECTOR
The Equity Sector generally invests in equity-type securities in a substantially
similar manner as described in the discussion of MML Equity Fund on page 8.
2. BOND SECTOR
The Bond Sector generally invests in the types of bonds and other debt
securities described in the discussion of MML Managed Bond on page 9 with
maturities usually exceeding one year. The Bond Sector may also invest in debt
securities not described above, including lower quality securities and non-rated
securities acquired directly from issuers in direct placement transactions,
provided no such transaction shall cause such debt securities to exceed 10% of
MML Blend's total assets. Lower quality debt instruments generally provide
higher yields but are generally subject to greater market fluctuations and risk
of loss of income and principal than higher quality debt securities. During
1994, no debt securities were acquired by MML Blend which were not rated at
least BBB by S&P or Baa by Moody's.
3. MONEY MARKET SECTOR
The Money Market Sector invests in money market instruments and other debt
securities with maturities generally not exceeding one year, including:
(a) U.S. Treasury Bills and other U.S. Government securities;
(b) obligations (payable in U.S. dollars) issued or guaranteed as to principal
and interest by the Government of Canada, a Province of Canada, or any
instrumentality or political subdivision thereof, provided such obligations do
not exceed 25% of MML Blend Fund's total assets;
(c) obligations payable in U.S. dollars (including certificates of deposit, time
deposits or bankers' acceptances) of U.S. or Canadian chartered banks having
total deposits in excess of $1,000,000,000, U.S. branches of foreign banks where
said foreign banks have total deposits in excess of $1,000,000,000, U.S. savings
and loan associations having total deposits in excess of $1,000,000,000, and
Eurodollar certificates of deposit issued by foreign branches of U.S. banks
where said U.S. banks have total deposits in excess of $1,000,000,000;
Obligations of foreign banks and of foreign branches of U.S. banks may be
affected by foreign governmental action, including imposition of currency
controls, interest limitations, withholding taxes, seizure of assets or the
declaration of a moratorium or restriction on payments of principal or interest.
Foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks;
(d) commercial paper, including variable amount master notes, having a rating at
the time of purchase within the two highest grades as determined by Moody's (P-1
or P-2) or S&P (A-1 or A-2), or commercial paper or notes issued by companies
with an unsecured debt issue outstanding having a rating at the time of purchase
within the three highest grades as determined by Moody's (Aaa, Aa or A) or S&P
(AAA, AA or A) and U.S. dollar denominated foreign commercial paper;
(e) publicly-traded bonds, debentures and notes having a rating within the four
highest grades as determined by Moody's (Aaa, Aa, A or Baa) or S&P (AAA, AA, A
or BBB);
(f) repurchase agreements on any of the securities listed in paragraphs (a)
through (e) above, and
(g) securities of foreign issuers; provided, however, MML Blend may invest not
more than 10% of its net assets in such securities except as provided in (b) and
(c) above.
While debt securities rated BBB or Baa are investment grade securities, they
have speculative characteristics and are subject to greater credit risk, and may
be subject to greater market risk, than higher-rated investment grade
securities.
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V. INVESTMENT PRACTICES
OF THE FUNDS AND
RELATED RISKS
In managing their portfolios of investments, the Funds, pursuant to policies
adopted by the Board of Trustees or where considered appropriate by Advisers,
may engage in various investment-related practices. The Funds' significant
investment practices, which are pursuant to non-fundamental policies and
therefore may be changed by the Board of Trustees without consent of
shareholders, regarding these investment transactions and practices are
discussed below. For further information see the Statement of Additional
Information.
A. DERIVATIVES TRANSACTIONS
Each Fund is authorized to engage in transactions involving derivatives, as more
fully described in the Statement of Additional Information. For example, the
Funds may enter into financial futures transactions, write and purchase call and
put options, including call options on securities and futures, enter into
forward contracts and swap agreements, and other similar instruments
(collectively referred to as "Derivatives").
The Funds may use Derivatives to attempt to: (a) protect against possible
declines in the market value of a Fund's portfolio resulting from downward
trends in the debt securities markets generally due to increasing interest
rates, (b) protect a Fund's unrealized gains or limit unrealized losses in the
value of its securities, (c) to establish a position in the debt securities
markets as a temporary substitute for purchasing or selling particular debt
securities, (d) to manage the effective maturity or duration of fixed-income
securities in a Fund's portfolio, or (e) to manage its exposure to changing
security prices (collectively, "Derivatives Transactions"). Most, if not all, of
the hedging activity will involve the portfolios of MML Managed Bond and the
Bond Sector of MML Blend as MML Trust has no present intent to enter into
derivatives transactions with regard to MML Money Market, MML Equity, or the
Equity or Money Market Sectors of MML Blend. The Funds will not use Derivatives
for speculative purposes.
1. DERIVATIVES
Some of the Derivatives a Fund may use in Derivatives Transactions are described
below.
a. FINANCIAL FUTURES: Each Fund may enter into exchange-traded futures contracts
for the purchase or sale of debt obligations in order to hedge against
anticipated changes in interest rates. The purpose of hedging in debt
obligations is to establish with more certainty than would otherwise be possible
the effective rate of return on portfolio securities. A futures contract on debt
obligations is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of obligations having a standardized face value and rate of return. However,
positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
gain or a loss.
b. CALL AND PUT OPTIONS: Each Fund may write covered call options which are
traded on a national securities exchange with respect to securities in its
portfolio, provided that at all times it will have in its portfolio the
securities which it may be obligated to deliver if the option is exercised or
securities currently convertible into those securities. Each Fund may write call
options on securities in its portfolio in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option.
Each Fund may write covered put options. Put options are "covered" by a Fund,
for example, when it has established a segregated account of cash, short-term
money market instruments or high quality debt securities that can be liquidated
quickly to satisfy any obligation of the Fund to purchase the underlying
security. Each Fund may also write straddles (combinations of calls and puts on
the same underlying security). The writing of straddles generates additional
premium income but may present greater risk.
c. FORWARD CONTRACTS: Each Fund may purchase or sell securities on a "when
issued" or delayed delivery or on a forward commitment basis ("forward
contracts"). When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment for the securities can take place a
month or more after the commitment date. The securities so purchased or sold are
subject to market fluctuations, and no interest accrues to the purchaser during
this period. At the time of delivery, the securities may be worth more or less
than the purchase or sale price.
If a Fund enters into a forward contract, it will establish a segregated account
consisting of cash or high-grade obligations having a current market value equal
to or greater than the aggregate amount of that Fund's commitment under forward
contracts (that is, the purchase price of the underlying security on the
delivery date). While the Funds may also enter into forward contracts with the
initial intention of acquiring securities for its portfolio, they may dispose of
a commitment prior to settlement if Advisers deems it appropriate to do so. The
Funds may realize short-term gains or losses upon the sale of forward contracts.
As an alternative to maintaining all or part of the segregated account, a Fund
could buy call or put options to "cover" the forward contracts.
d. INTEREST RATE SWAP AGREEMENTS: Each Fund may enter into interest rate swap
agreements and related products, such as interest rate caps and floors, in an
attempt to preserve a return or spread on a particular investment or portion of
its portfolio, or, to protect against any increase in the price of securities a
Fund might consider purchasing at a later date. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of floating rate payments for fixed rate
payments.
e. CURRENCY TRANSACTIONS: The Bond Fund and the Bond Sector of MML Blend may
invest in foreign securities that are not denominated in U.S. dollars only if
the Fund contemporaneously enters into a foreign currency transaction to hedge
the currency risk associated with the particular foreign security.
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f. OTHER INSTRUMENTS: Each Fund may use other Derivatives and enter into other
Derivatives transactions that are, or become, appropriate in the context of each
Fund's investment objectives and policies - and in a manner and to the extent
permitted by law and authorized by the Board of Trustees.
2. DERIVATIVES - RISK FACTORS
There can be no assurance that the use of Derivatives by any of the Funds will
assist it in achieving its investment objectives. Risks inherent in the use of
Derivatives include: (1) the risk that interest rates and securities prices will
not move in the direction anticipated; (2) imperfect correlation between the
prices of futures, options, and forward contracts and the prices of the
securities being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) futures contracts and options can be highly volatile; (6) the writing of
call options could result in increases in the Funds' portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate; (7) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; (8) the risk that a Fund will not be able to
effect closing purchase transactions as to call options it has written at any
particular time or at any acceptable price; (9) forward contracts involve a risk
of a loss if the value of the security to be purchased declines prior to the
settlement date, which is in addition to the risk of decline of the Funds' other
assets, and (10) the inability of counterparties to perform.
3. DERIVATIVES - LIMITATIONS
MML Trust has imposed certain specific limitations on its use of derivatives.
For example: (1) a Fund would not enter into a futures contract if, as a result,
more than 5% of the Fund's total assets would be committed to initial margin
deposits on such contracts; (2) a Fund will not purchase a put or call option on
securities or investment related instruments if as a result more than 5% of its
total assets would be attributable to premiums paid for such options; (3) a Fund
would not write a covered call or put option if as a result more than 20% of the
Fund's total assets would be in one or more segregated accounts covering call
and put options; and (4) a Fund would not enter into a forward contract if as a
result more than 25% of the Fund's total assets would be in one or more
segregated accounts covering forward contracts.
B. PORTFOLIO MANAGEMENT
Advisers intend to use trading as a means of managing the portfolios of the
Funds in seeking to achieve their investment objectives. Advisers, on behalf of
the Funds, will engage in trading when they believe that the trade, net of
transaction costs, will improve interest income or capital appreciation
potential, or will lessen capital loss potential.
Whether the goals discussed above will be achieved through trading depends on
Advisers' ability to evaluate particular securities and anticipate relevant
market factors, including interest rate trends and variations from such trends.
Such trading places a premium on Advisers' ability to obtain relevant
information, evaluate it properly and take advantage of their evaluations by
completing transactions on a favorable basis. If Advisers' evaluations and
expectations prove to be incorrect, a Fund's income or capital appreciation may
be reduced and its capital losses may be increased. Portfolio trading involves
transaction costs, but, as explained above, will be engaged in when Advisers
believe that the result of the trading, net of transaction costs, will benefit
the Funds.
C. RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in illiquid securities up to 15% (10% in the case of MML
Money Market) of each Fund's net assets. Each Fund currently expects to invest,
if anything, no more than 10% of its net assets in such securities. This policy
does not limit purchases of securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933 that
are determined to be liquid by the Board of Trustees or by Advisers pursuant to
Board approved guidelines. Such guidelines take into account trading activity
for such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in particular Rule 144A
securities, a Fund's holdings of those securities may be illiquid. There may be
undesirable delays in selling these securities at prices representing fair
value.
D. REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
MML Money Market, MML Managed Bond and MML Blend may engage in repurchase
agreements and MML Blend may engage in reverse repurchase agreements. A
repurchase agreement is a contract pursuant to which a Fund agrees to purchase a
security and simultaneously agrees to resell it at an agreed-upon price at a
stated time, thereby determining the yield during the Fund's holding period. A
reverse repurchase agreement is a contract pursuant to which a Fund agrees to
sell a security and simultaneously agrees to repurchase it at an agreed-upon
price at a stated time. For a more detailed description of repurchase agreements
and reverse repurchase agreements, see the Statement of Additional Information.
E. SECURITIES LENDING
MML Managed Bond and MML Blend may make loans of portfolio securities of not
more than 10% of their respective total assets taken at current value, thereby
realizing additional income. Although lending portfolio securities may involve
the risk of delay in recovery of the securities loaned or possible loss of
rights in the collateral should the borrower fail financially, loans will be
made only to borrowers deemed by MassMutual to be of good standing.
F. FEDERAL TAXES
The extent to which the Funds may enter into Derivatives transactions and engage
in portfolio trading may be limited by the Internal Revenue Code's requirements
for qualification for regulated investment companies. It is each Fund's
intention to qualify as such. See "Certain Tax and Accounting Information" in
the Statement of Additional Information.
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G. CASH POSITIONS
Each Fund, other than MML Money Market, may hold cash or cash equivalents to
provide for liquidity (e.g. expenses and anticipated redemption payments) and so
that an orderly investment program may be carried out in accordance with the
Fund's investment policies. To provide liquidity or for temporary defensive
purposes, each Fund may invest any portion of its assets in investment grade
debt securities and MML Equity may also invest in non-convertible preferred
stocks.
VI. INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions, and
exceptions to such restrictions, that apply to each Fund which may not be
changed without a vote of a majority of the outstanding shares of such Fund.
(For a description of additional investment restrictions, reference should be
made to the Statement of Additional Information.)
A. INVESTMENT RESTRICTIONS
Each Fund will not:
(1) Pledge or mortgage assets taken at market to an extent greater than 15% of
the total assets of the Fund taken at cost;
(2) Borrow money, except from banks as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of making investments), and except
to the extent that each Fund engages in financial futures transactions (as
described on page 11) and in reverse repurchase agreements (as described on page
12), provided (a) that the aggregate amount of all such borrowings at the time
of borrowing does not exceed 10% of the total assets of the Fund taken at cost,
and (b) that immediately after the borrowing, and at all times thereafter, there
will be an asset coverage of at least 300% for all of the Fund's borrowings
(including all obligations under financial futures contracts on debt
obligations); and
(3) Concentrate its investments in any one industry, as determined by the Board
of Trustees, and in this connection it will not acquire securities of companies
in any one industry if, immediately after giving effect to any such acquisition,
more than 25% of the value of the total assets of the Fund would be invested in
such industry, with the following exceptions:
(a) In the case of MML Money Market there is no limitation in respect of
certificates of deposit and bankers' acceptances (see "The Funds - MML Money
Market Fund" on pages 8-9).
(b) MML Money Market, MML Managed Bond and the Bond Sector of MML Blend each
may invest up to 40% of the value of their respective total assets in each
of the electric utility and telephone industries. However, it currently is
MassMutual's intent not to invest more than 25% of any one of these funds
total assets in either the electric utility or telephone industries.
B. EXCEPTIONS
(1) Notwithstanding any of the above investment restrictions or those set forth
in the Statement of Additional Information, and in addition to the authority
each Fund had as of April 30, 1993, each Fund may engage in derivatives
transactions, techniques, and practices using futures, options, swap agreements,
and similar instruments, to the extent and in a manner permitted by law.
(2) Notwithstanding any of the above investment restrictions or those set forth
in the Statement of Additional Information, each Fund may invest in any security
or investment related instrument, or engage in any investment related
transaction or practice, such as newly developed debt securities or hedging
programs, provided that the Board of Trustees has determined that to do so is
consistent with the Fund's investment objectives and policies, has adopted
reasonable guidelines for use by the Fund's Advisers and provided further that
at the time of entering into such investment or transaction such investments or
instruments account for no more than 10% of the Fund's total assets.
VII. INVESTMENT MANAGERS
MassMutual serves as investment manager of each Fund pursuant to a separate
investment management agreement executed by MassMutual and each Fund. Under the
agreements, which are substantially identical, MassMutual is authorized to
engage in portfolio transactions on behalf of the Funds, subject to such general
or specific instructions as may be given by the Board of Trustees. MassMutual
also acts as the transfer agent and the dividend paying agent.
The investment management agreements between MassMutual and the Funds provide
that MassMutual will perform all administrative functions relating to the Funds
and will bear all expenses of the Funds except (1) taxes and corporate fees
payable to government agencies, (2) brokerage commissions (which may be higher
than other brokers charge if paid to a broker which provides brokerage and
research services to Advisers or for use in providing investment advice and
management to the Funds and other accounts over which Advisers exercise
investment discretion) and other capital items payable in connection with the
purchase or sale of Fund investments, (3) interest on account of any borrowings
by the Funds, (4) fees and expenses of Trustees of MML Trust who are not
interested persons, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), of the Advisers or MML Trust, and (5) fees of the Funds'
independent certified public accountants.
For providing the services described above, MassMutual is paid a quarterly fee
at the annual rate of .50% of the first $100,000,000 of the average daily net
asset value of each Fund, .45% of the next $200,000,000, .40% of the next
$200,000,000 and .35% of any excess over $500,000,000. MassMutual has agreed to
bear expenses of each Fund (other than the management fee, interest, taxes,
brokerage commissions and extraordinary expenses) in excess of .11% of average
daily net asset value through April 30, 1996. In 1994 MML Equity, MML Money
Market, MML Managed Bond, and MML Blend paid fees to MassMutual amounting to
.41%, .50%, .49% and .38%, respectively, of their average daily net assets
during the year.
13
<PAGE>
The investment management agreement between MassMutual and each Fund
automatically terminates: (1) unless its continuance is specifically approved at
least annually by the affirmative vote of a majority of the Board of Trustees,
which affirmative vote shall include a majority of the members of the Board who
are not interested persons (as defined in the 1940 Act) of MassMutual or of MML
Trust, or (2) upon its assignment. Under the terms of each investment management
agreement, each Fund recognizes MassMutual's control of the initials "MML" and
each Fund agrees that its right to use these initials is non-exclusive and can
be terminated by MassMutual at any time. Under each agreement, MassMutual's
liability regarding its investment management obligations and duties is limited
to situations involving its willful misfeasance, bad faith, gross negligence or
reckless disregard of such obligations and duties.
MassMutual is a mutual life insurance company organized in 1851 under the laws
of The Commonwealth of Massachusetts. MassMutual is licensed to transact a life,
accident and health insurance business in all states of the United States, the
District of Columbia and certain Provinces of Canada. At December 31, 1994
MassMutual had total assets of approximately $35.2 billion, including
approximately $17.7 billion in debt securities, $3.0 billion in mortgage loans,
$197.0 million in common stocks (excluding investments in subsidiaries), $1.3
billion in real estate and $2.4 billion in other investments. The persons who
are responsible for the management of the bond and money market portfolios of
MassMutual are also responsible for managing investments of the Funds.
As of January 1, 1993, MassMutual transferred its equity investment advisory
operations to Concert. All of the senior investment professionals of
MassMutual's Equity Management Department transferred to and became employees of
Concert. MassMutual indirectly owns 100% of Concert's voting stock and a
majority of Concert's Directors are officers and employees of MassMutual.
Concert manages institutional investment advisory accounts pursuant to written
contracts. As of December 31, 1994, Concert had $4.4 billion of assets under
management.
Pursuant to two investment sub-advisory agreements with MassMutual, Concert
manages the investment of the assets of MML Equity and the Equity Sector of MML
Blend and MassMutual pays Concert a quarterly fee equal to an annual rate of
.13% of the average daily net asset value. The agreements provide that they
automatically terminate upon the termination of the respective investment
management agreements between MassMutual and MML Equity and MML Blend. Concert
also serves as the investment sub-adviser to Oppenheimer Value Stock Fund which
had net assets of $104 million as of December 31, 1994.
Securities held by the Funds are also frequently held by Advisers in their
investment accounts and by other investment companies for which Advisers act as
investment advisers. If the same security is purchased or sold for any Fund and
such investment account or companies at the same time, such purchases or sales
normally will be combined, to the extent practicable, and will be allocated as
nearly as practicable on a pro rata basis in proportion to the amounts to be
purchased or sold for each. In determining the amounts to be purchased or sold,
the main factors to be considered will be the investment objectives of the
respective portfolios, the relative size of portfolio holdings of the same or
comparable security, availability of cash for investment by the various
portfolios and the size of their respective investment commitments. It is
believed that the ability of the Funds to participate in larger volume
transactions will, in most cases, produce better execution for the Funds. In
some cases, however, this procedure could have a detrimental effect on the price
and amount of a security available to a Fund or the price at which a security
may be sold. It is the opinion of MML Trust's management that, such execution
advantage and the desirability of retaining Advisers as investment managers of
the Funds outweigh the disadvantages, if any, which might result from this
procedure.
VIII. CAPITAL SHARES
MML Trust is a "series" company which is authorized to issue shares in separate
series of the same class. Shares of four series have been authorized,
constituting the interests in the four Funds described in this Prospectus. Under
MML Trust's Declaration of Trust, however, the Board of Trustees is authorized
to create new shares in addition to the Funds without the necessity of a vote of
shareholders of MML Trust. MML Trust may issue an unlimited number of shares of
the same class, in one or more series as MML Trustees may authorize, with or
without par value as MML Trustees may prescribe. Each share of a particular
series represents an equal proportionate interest in that series with each other
share of the same series, none having priority or preference over another. Each
series shall be preferred over all other series in respect of the assets
allocated to that series. Each share of a particular series is entitled to a pro
rata share of any distributions declared by that series and, in the event of
liquidation, a pro rata share of the net assets of that series remaining after
satisfaction of outstanding liabilities. When issued, shares are fully paid and
nonassessable and have no preemptive, conversion or subscription rights.
MML Trust is not required to hold annual meetings of shareholders. Special
meetings may be called for purposes such as electing MML Trustees, voting on
management agreements, and with respect to such additional matters relating to
MML Trust as may be required by MML Trust's Declaration of Trust and the 1940
Act. Shareholders holding 10% of the shares of MML Trust may call a meeting to
be held to consider removal of MML Trustees. On any matter submitted to
shareholders, shares of each Fund entitle their holder to one vote per share
(with proportionate voting for fractional shares), irrespective of the relative
net asset values of the Funds' shares. On any matters submitted to a vote of
shareholders, all shares of MML Trust then entitled to vote shall be voted by
individual Fund, except that (i) when required by the 1940 Act, shares shall be
voted in the aggregate and not by individual Fund, and (ii) when MML Trustees
have determined that any matter affects only the interests of one or more Funds,
then only shareholders of such Fund or Funds shall be entitled to vote thereon.
Shareholder inquiries should be made by contacting the Secretary, MML Series
Investment Fund, 1295 State Street, Springfield, Massachusetts 01111.
The assets of certain variable annuity and variable life insurance separate
accounts for which MassMutual or an affiliate is the depositor are invested in
shares of the Funds. Because these separate accounts are invested in the same
underlying Funds it is possible that material conflicts could arise between
owners of the variable life insurance contracts and owners
14
<PAGE>
of the variable annuity contracts. Possible conflicts could arise if (i) state
insurance regulators should disapprove or require changes in investment
policies, investment advisers or principal underwriters or if the depositor
should be permitted to act contrary to actions approved by holders of the
variable life or variable annuity contracts under rules of the Securities and
Exchange Commission, (ii) adverse tax treatment of the variable life or variable
annuity contracts would result from utilizing the same underlying Funds, (iii)
different investment strategies would be more suitable for the variable annuity
contracts than the variable life contracts, or (iv) state insurance laws or
regulations or other applicable laws would prohibit the funding of both variable
life and variable annuity separate accounts by the same Funds.
The Board of Trustees will follow monitoring procedures which have been
developed to determine whether material conflicts have arisen and what action,
if any, should be taken in the event of such conflicts. If a material
irreconcilable conflict should arise between owners of the variable life
insurance contracts and owners of the variable annuity contracts, one or the
other group of owners may have to terminate its participation in the Funds. More
information regarding possible conflicts between variable annuity and variable
life insurance contracts is contained in the prospectuses for those contracts.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of MML Trust. However, MML Trust's
Declaration of Trust disclaims liability of the shareholders, MML Trustees, or
officers of MML Trust for acts or obligations of MML Trust, which are binding
only on the assets and property of MML Trust, and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by MML Trust or MML Trustees. MML Trust's Declaration of Trust provides
for indemnification out of MML Trust property for all loss and expense of any
shareholder held personally liable for the obligations of MML Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and MML Trust itself would be unable to meet its
obligations.
IX. NET ASSET VALUE
The net asset value of each Fund's shares is determined once daily as of the
normal close of trading on the New York Stock Exchange (presently 4:00 p.m.) on
each day on which the Exchange is open for trading.
A. MML MONEY MARKET FUND
It is the intention of MML Money Market to maintain a per share net asset value
of $1.00, although this cannot be assured. Since the net income of MML Money
Market is declared as a dividend each time it is determined, the net asset value
per share of MML Money Market remains at $1.00 per share immediately after each
determination and dividend declaration. Any increase in the value of a
shareholder's investment in MML Money Market representing the reinvestment of
dividend income is reflected by an increase in the number of shares of MML Money
Market in the shareholder's account, which increase is recorded promptly after
the end of each calendar month. MML Money Market's portfolio instruments are
valued on the basis of amortized cost.
B. OTHER FUNDS
Generally, the other Funds value portfolio securities on the basis of market
value. For example, equity securities, including those traded on national
securities exchanges, the NASDAQ national market system, or over-the-counter
securities not so listed, are valued by one or more pricing services, as
authorized by the Board of Trustees. Normally, the values are based upon the
last reported sale price of the security. Long-term bonds are valued on the
basis of valuations furnished by a pricing service, authorized by the Board of
Trustees, which determines valuations taking into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. Debt obligations with less than one year but more than sixty days
to maturity are valued on the basis of their market value, and debt obligations
having a maturity of sixty days or less are generally valued at amortized cost
when the Board of Trustees believes that amortized cost approximates market
value. If acquired, preferred stocks will be valued on the basis of their market
value if market quotations are readily available. Futures contracts are valued
based on market prices unless such prices do not reflect the fair value of the
contract, in which case they will be valued by or under the direction of the
Board of Trustees. In all other cases, assets (including restricted securities)
will be valued at fair value as determined in good faith by the Board of
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board of Trustees.
X. SALE AND REDEMPTION OF SHARES
The shares of each Fund are sold at their net asset value (which in the case of
MML Money Market is expected to remain at $1.00) as next computed after receipt
of the purchase order, without the deduction of any selling commission or "sales
load."
Each Fund redeems its shares at their net asset value (which in the case of MML
Money Market is expected to remain at $1.00) as next computed after receipt of
the request for redemption. The redemption price for shares of MML Equity, MML
Managed Bond and MML Blend may be more or less than the shareholder's cost. No
fee is charged on redemption.
Redemption payments will be made within seven days after receipt of the written
request therefore by MML Trust, except that the right of redemption may be
suspended or payments postponed when permitted by applicable law and
regulations.
XI. TAX STATUS
It is the policy of each Fund to comply, and in 1994 each Fund did comply, with
the provisions of the Internal Revenue Code applicable to regulated investment
companies. As a result, none of the Funds will be subject to federal income tax
on
15
<PAGE>
any net income or any capital gains to the extent they are distributed or are
deemed to have been distributed to shareholders.
Regulations issued under Internal Revenue Code Section 817(h) require each of
the Funds to be adequately diversified in order for a variable annuity and
variable life contract funded by MML Trust to receive favorable tax treatment as
an annuity or life insurance contract. Among other requirements, the regulations
limit each Fund's investment in a single issuer to 55% of its assets; while this
requirement applies to U.S. Government securities, each government agency or
instrumentality is treated for this purpose as a separate issuer. The Funds
intend to comply with these diversification requirements. For further
information, see the Statement of Additional Information.
Tax consequences to investors in the separate investment accounts which are
invested in the Funds are described in the prospectuses for such accounts.
XII. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds intend to declare capital gain and ordinary income dividends and to
distribute such dividends in a manner designed to avoid a 4% excise tax on
undistributed regulated investment company income, imposed by the Tax Reform Act
of 1986. The declaration and distribution policies specific to each Fund are
outlined below.
A. MML EQUITY FUND
Distributions, if any, are declared and paid annually. Distributions may be
taken either in cash or in additional shares of MML Equity at net asset value on
the day after the record date for the distribution, at the option of the
shareholder.
B. MML MONEY MARKET FUND
The net income of MML Money Market, as defined below, is determined as of the
normal close of trading on the New York Stock Exchange on each day on which the
Exchange is open, and all the net income so determined is declared as a dividend
to shareholders of record as of that time. Dividends are distributed promptly
after the end of each calendar month in additional shares of MML Money Market at
the then current net asset value, or in cash, at the option of the shareholder.
For this purpose the net income of MML Money Market (from the time of the
immediately preceding determination thereof) consists of all interest income
accrued on its portfolio, plus realized gains or minus realized losses, and less
all expenses and liabilities chargeable against income. Interest income includes
discount earned (including both original issue and market discount) on paper
purchased at a discount, less amortization of premium, accrued ratably to the
date of maturity. Expenses, including the compensation payable to MassMutual,
are accrued each day.
Should MML Money Market incur or anticipate any unusual expense, or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Board of Trustees would at that time
consider whether to adhere to the present dividend policy described above or to
revise it in the light of the then prevailing circumstances. For example, if MML
Money Market's net asset value per share were reduced, or were anticipated to be
reduced, below $1.00, the Board of Trustees might suspend further dividend
payments until the net asset value returned to $1.00. Thus, such expenses or
losses or depreciation might result in an investor receiving no dividends for
the period during which he held his shares and in his receiving upon redemption
a price per share lower than that which he paid.
C. MML MANAGED BOND AND MML BLEND FUNDS
Dividends out of net investment income are declared and paid quarterly. Capital
gains declarations and distributions of net capital gains, if any, for the year
are made annually. Distributions may be taken either in cash or in additional
shares of the applicable Fund at net asset value on the day after the record
date for the distribution, at the option of the shareholder.
XIII. INVESTMENT PERFORMANCE
Each of the Funds may from time to time advertise certain investment performance
figures. These figures are based on historical earnings and are not intended to
indicate future performance.
MML Money Market may quote its yield and its effective yield. The yield of MML
Money Market refers to the income generated by the Fund over a seven-day period
(which period will be stated in the advertisement). This income is then assumed
to be earned each week over a 52-week period. The effective yield is calculated
similarly, but the income earned by an investment in the Fund is assumed to be
reinvested.
MML Managed Bond, MML Blend and MML Equity may also quote yield. The yield for
each of these Funds refers to the net investment income earned by the Fund over
a 30-day period (which period will be stated in the advertisement). This income
is then assumed to be earned for a full year and to be reinvested each month for
six months. The resulting semi-annual yield is doubled.
Each of the Funds may advertise its total return and its holding period return
for various periods of time. Total return is calculated by determining, over a
period of time, which will be stated in the advertisement, the average annual
compounded rate of return that an investment in the Fund earned over that
period, assuming reinvestment of all distributions. Holding period return refers
to the percentage change in the value of an investment in a Fund over a period
of time (which period will be stated in the advertisement), assuming
reinvestment of all distributions. Total return and holding period return differ
from yield in that the return figures include capital changes in an investment
while yield measures the rate of net income generated by a Fund. Total return
differs from holding period return principally in that total return is an
average annual figure while holding period return is an aggregate figure for the
entire period.
These investment performance figures may be of limited use for comparative
purposes because they do not reflect charges imposed by the separate investment
accounts invested in the Funds which, if included, would decrease the
performance fig-
16
<PAGE>
ures. For more information about the investment performance of the Funds, see
the Statement of Additional Information.
XIV. MANAGEMENT OF MML TRUST
The affairs of MML Trust are generally supervised by its Board of Trustees and
officers. As stated previously, MassMutual acts as investment manager of each of
the Funds and Concert is the sub-adviser to MML Equity and the Equity Sector of
MML Blend. In those capacities, MassMutual and Concert are part of the
management of MML Trust. For more information concerning the management of MML
Trust, reference should be made to the Statement of Additional Information.
The name MML Series Investment Fund is the designation of Trustees under a
Declaration of Trust dated December 19, 1984, as amended from time to time. The
obligations of MML Trust are not personally binding upon, nor shall resort be
had to the property of, any of the Trustees, shareholders, officers, employees
or agents of MML Trust, but MML Trust's property only shall be bound.
17
<PAGE>
MML SERIES INVESTMENT FUND
1295 State Street
Springfield, Massachusetts 01111
--------------------
INVESTMENT MANAGER
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
1295 State Street
Springfield, Massachusetts 01111
INVESTMENT SUB-ADVISOR
CONCERT CAPITAL MANAGEMENT, INC.
125 High Street
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
2300 BayBank Tower
Springfield, Massachusetts 01101
CUSTODIAN
CITIBANK N.A.
111 Wall Street
New York, New York 10005
--------------------
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. No person is authorized to make any
representations in connection with this offering other than those contained in
this Prospectus.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, CO 80231
1-800-525-7048
Prospectus dated May 1, 1995
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end
investment company consisting of nine separate funds. Three of these Funds are
available for use with Massachusetts Mutual Life Insurance Company's Flex-Extra
Annuity. The three available OppenheimerFunds (collectively the "Funds") are as
follows:
OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks to
achieve capital appreciation by investing in "growth-type" companies.
OPPENHEIMER GLOBAL SECURITIES FUND ("Global Securities Fund") seeks long-term
capital appreciation by investing a substantial portion of assets in securities
of foreign issuers, "growth-type" companies, cyclical industries and special
situations which are considered to have appreciation possibilities. Current
income is not an objective. These securities may be considered to be
speculative.
OPPENHEIMER STRATEGIC BOND FUND ("Strategic Bond Fund") seeks a high level of
current income principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities. The Fund
intends to invest principally in: (i) foreign government and corporate debt
securities, (ii) U.S. Government securities, and (iii) lower-rated high yield
domestic debt securities, commonly known as "junk bonds", which are subject to a
greater risk of loss of principal and nonpayment of interest than higher-rated
securities. These securities may be considered to be speculative.
THIS PROSPECTUS MAY BE USED TO OFFER OR SELL ONLY THOSE FUNDS LISTED ABOVE.
Shares of the Funds are sold only to provide benefits under variable life
insurance policies and variable annuity contracts (collectively, the
"Accounts"). The Accounts invest in shares of one or more of the Funds in
accordance with allocation instructions received from Account owners. Such
allocation rights are further described in the accompanying Account Prospectus.
Shares are redeemed to the extent necessary to provide benefits under an
Account.
This Prospectus explains concisely what you should know before investing in the
Trust and the Funds. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the Funds in the
May 1, 1995 Statement of Additional Information. For a free copy, call
Oppenheimer Shareholder Services, the Funds' Transfer Agent, at 1-800-525-7048,
or write to the Transfer Agent at the address on the back cover. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
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 OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
ABOUT THE FUNDS
OVERVIEW OF THE FUNDS........................... 3
FINANCIAL HIGHLIGHTS............................ 4
INVESTMENT OBJECTIVES AND POLICIES.............. 7
HOW THE FUNDS ARE MANAGED....................... 13
PERFORMANCE OF THE FUNDS........................ 14
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES............................... 17
HOW TO SELL SHARES.............................. 17
DIVIDENDS, CAPITAL GAINS AND TAXES.............. 17
APPENDIX A: DESCRIPTION OF TERMS................ A-1
APPENDIX B: DESCRIPTION OF SECURITIES RATINGS... B-1
</TABLE>
2
<PAGE>
OVERVIEW OF THE FUNDS
Some of the important facts about the Funds are summarized below, with
references to the section of this Prospectus where more complete information can
be found. You should carefully read the entire Prospectus before making a
decision about investing. Keep the Prospectus for reference after you invest.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The CAPITAL APPRECIATION FUND'S
investment objective is to achieve capital appreciation by investing in "growth-
type" companies. The GLOBAL SECURITIES FUND'S investment objective is to seek
long-term capital appreciation by investing a substantial portion of assets in
securities of foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation possibilities. The
STRATEGIC BOND FUND'S investment objective is to seek a high level of current
income principally derived from interest on debt securities and seeks to enhance
such income by writing covered call options on debt securities.
WHAT DO THE FUNDS INVEST IN? To seek their respective investment objectives, the
Funds invest as follows. CAPITAL APPRECIATION FUND primarily invests in "growth-
type" companies. GLOBAL SECURITIES FUND primarily invests in securities of
foreign issuers, "growth-type" companies, cyclical industries and special
situations. STRATEGIC BOND FUND primarily invests in foreign government and
corporate debt securities, U.S. Government securities, and lower-rated high
yield domestic and foreign debt securities, commonly known as "junk bonds."
These investments are more fully explained for each Fund in "Investment
Objectives and Policies," starting on page 7.
WHO MANAGES THE FUNDS? The Funds' investment adviser is Oppenheimer Management
Corporation, which (including a subsidiary) advises investment company
portfolios having over $29 billion in assets. Each Fund's portfolio manager is
primarily responsible for the selection of securities of that Fund. The
portfolio managers are as follows: for STRATEGIC BOND FUND, David Negri (joined
by Arthur Steinmetz); for CAPITAL APPRECIATION FUND, Paul LaRocco; and for
GLOBAL SECURITIES FUND, George Evans. The Manager is paid an advisory fee by
each Fund, based on its assets. The Trust's Board of Trustees, elected by
shareholders, oversees the investment adviser and the portfolio manager. Please
refer to "How The Funds Are Managed," starting on page 13 for more information
about the Manager and its fees.
HOW RISKY ARE THE FUNDS? While different types of investments have risks that
differ in type and magnitude, all investments carry risk to some degree. Changes
in overall market movements or interest rates, or factors affecting a particular
industry or issuer, can affect the value of the Funds' investments and their
price per share. Equity investments are generally subject to a number of risks
including the risk that values will fluctuate as a result of changing
expectations for the economy and individual issuers. For both equity and income
investments, foreign investments are subject to the risk of adverse currency
fluctuation and additional risks and expenses in comparison to domestic
investments. Therefore, in comparing levels of risk among the equity funds,
Capital Appreciation Fund is less risky than Global Securities Fund. Fixed-
income investments are generally subject to the risk that values will fluctuate
with inflation, with lower-rated fixed-income investments being subject to a
greater risk that the issuer will default in its interest or principal payment
obligations.
HOW CAN I BUY OR SELL SHARES? Shares of each Fund are offered only for purchase
by Accounts as an investment medium for variable life insurance policies and
variable annuity contracts. Account owners should refer to the accompanying
Account Prospectus on how to buy or sell shares of the Funds.
HOW HAVE THE FUNDS PERFORMED? Strategic Bond Fund measures its performance by
quoting its yield. All of the Funds may measure their performance by quoting
average annual total return and cumulative total return, which measure
historical performance. Those returns can be compared to the returns (over
similar periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The performance of all Funds can
also be compared to broad market indices, which we have done starting on page
16. Please remember that past performance does not guarantee future results.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table on the following pages presents selected financial information,
including per share data and expense ratios and other data about all the Funds.
The information is based on each such Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report on the Funds' financial statements for the fiscal year
ended December 31, 1994, is included in the Statement of Additional Information.
<TABLE>
<CAPTION>
OPPENHEIMER CAPITAL APPRECIATION FUND
--------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986/(2)/ 1986/(1)/
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $ 31.64 $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $ 14.39 $13.12 $16.21 $13.71
Income (loss) from
investment operations:
Net investment income .10 .05 .06 .08 .32 .50 .33 .21 .12 .09
Net realized and
unrealized gain (loss) on
investments and options
written (2.22) 6.71 3.43 8.18 (3.54) 3.93 1.60 1.67 (1.24) 3.40
--------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations (2.12) 6.76 3.49 8.26 (3.22) 4.43 1.93 1.88 (1.12) 3.49
--------------------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.04) (.06) (.14) (.26) (.53) (.34) -- (.34) (.21) (.20)
Distributions from net
realized gain on
investments and options
written (3.53) (1.10) (.55) -- (1.41) -- (.01) (.27) (1.76) (.79)
--------------------------------------------------------------------------------------------------------
Total dividends and
distributions to
shareholders (3.57) (1.16) (.69) (.26) (1.94) (.34) (.01) (.61) (1.97) (.99)
--------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 25.95 $ 31.64 $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $14.39 $13.12 $16.21
========================================================================================================
TOTAL RETURN, AT NET ASSET
VALUE/(3)/ (7.59)% 27.32% 15.42% 54.72% (16.82)% 27.57% 13.41% 14.34% (1.65)% N/A
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $185,774 $136,885 $83,335 $49,371 $23,295 $27,523 $13,667 $9,692 $4,549 $3,852
Average net assets (in
thousands) $153,832 $ 98,228 $56,371 $34,887 $24,774 $21,307 $13,239 $8,598 $3,099 $2,292
Number of shares
outstanding at end of
period (in thousands) 7,158 4,326 3,201 2,125 1,528 1,349 838 674 347 238
Ratios to average net
assets:
Net investment income .50% .23% .30% .81% 1.93% 3.27% 2.13% 1.68% 2.36%/(4)/ 2.27%
Expenses .57% .47% .54% .63% .71% .68% .73% .75% 1.01%/(4)/ 2.17%
Portfolio turnover
rate/(5)/ 96.5% 122.8% 78.9% 122.3% 222.0% 130.5% 128.7% 138.7% 100.1% 464.8%
</TABLE>
1. For the year ended June 30, 1986. Operating results were achieved by
Centennial Capital Appreciation Fund, a separate investment company acquired
by OCAP on August 14, 1986.
2. For the six months ended December 31, 1986. Operating results prior to August
15, 1986 were achieved by Centennial Capital Appreciation Fund, a separate
investment company acquired by OCAP on August 14, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
OPPENHEIMER GLOBAL SECURITIES FUND
-------------------------------------------------------
1994 1993 1992 1991 1990/(1)/
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 16.30 $ 9.57 $ 10.38 $10.04 $10.00
Income (loss) from investment operations:
Net investment income .04 (.02) .07 .04 --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (.96) 6.75 (.80) .30 .04
-------------------------------------------------------
Total income (loss) from investment operations (.92) 6.73 (.73) .34 .04
-------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) -- (.04) -- --
Distributions from net realized gain on
investments and foreign currency transactions (.25) -- (.04) -- --
-------------------------------------------------------
Total dividends and distributions to shareholders (.29) -- (.08) -- --
-------------------------------------------------------
Net asset value, end of period $ 15.09 $ 16.30 $ 9.57 $10.38 $10.04
-------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE/(2)/ (5.72)% 70.32% (7.11)% 3.39% .40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $297,842 $96,425 $13,537 $7,339 $ 432
Average net assets (in thousands) $214,545 $31,696 $11,181 $3,990 $ 263
Number of shares outstanding at end of period 19,743 5,917 1,415 707 43
(in thousands)
Ratios to average net assets:
Net investment income .54% .72% 1.04% .75% .08%/(3)/
Expenses .91% .92% 1.06% 1.32% 6.84%/(3)/
Portfolio turnover rate/(4)/ 70.4% 65.1% 34.1% 29.5% 0.0%
</TABLE>
1. For the period from November 12, 1990 (commencement of operations) to
December 31, 1990.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
5
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
OPPENHEIMER STRATEGIC BOND FUND
------------------------------------
1994 1993/(1)/
------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 5.12 $ 5.00
Income (loss) from investment operations:
Net investment income .35 .10
Net realized and unrealized gain (loss) on investments, options
written and foreign currency transactions (.54) .11
------------------------------------
Total income (loss) from investment operations (.19) .21
------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.32) (.09)
Distributions from net realized gain on investments,
options written and foreign currency transactions -- --
Distributions in excess of net realized gain on investments (.01) --
------------------------------------
Total dividends and distributions to shareholders (.33) (.09)
------------------------------------
Net asset value, end of period $ 4.60 $ 5.12
------------------------------------
TOTAL RETURN, AT NET ASSET VALUE/(2)/ (3.78)% 4.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $20,320 $9,887
Average net assets (in thousands) $15,389 $4,259
Number of shares outstanding at end of period (in thousands) 4,418 1,930
Ratios to average net assets:
Net investment income 8.36% 5.67%/(3)/
Expenses .87% .96%/(3)/
Portfolio turnover rate/(4)/ 136.6% 10.9%
</TABLE>
1. For the period from May 3, 1993 (commencement of operations) to December 31,
1993.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES - STRATEGIC BOND FUND.
The investment objective of Strategic Bond Fund is to seek a high level of
current income principally derived from interest on debt securities and to
enhance such income by writing covered call options on debt securities. Although
the premiums received by Strategic Bond Fund from writing covered calls are a
form of capital gain, the Fund generally will not make investments in securities
with the objective of seeking capital appreciation.
The Fund intends to invest principally in: (i) lower-rated high yield domestic
debt securities; (ii) U.S. Government securities, and (iii) foreign government
and corporate debt securities. Under normal circumstances, the Fund's assets
will be invested in each of these three sectors. However, Strategic Bond Fund
may from time to time invest up to 100% of its total assets in any one sector
if, in the judgment of the Manager, the Fund has the opportunity of seeking a
high level of current income without undue risk to principal. Accordingly, the
Fund's investments should be considered speculative. Distributable income will
fluctuate as the Fund assets are shifted among the three sectors.
. High Yield Securities. The higher yields and high income sought by Strategic
Bond Fund are generally obtainable from securities in the lower rating
categories of the established rating services, commonly known as "junk bonds."
Such securities are rated "Baa" or lower by Moody's or "BBB" or lower by
Standard & Poor's. Strategic Bond Fund may invest in securities rated as low
as "C" by Moody's or "D" by Standard & Poor's. Such ratings indicate that the
obligations are speculative in a high degree and may be in default. Risks of
high yield, high risk securities are discussed under "Risk Factors" below.
Strategic Bond Fund's portfolio at December 31, 1994, contained securities in
the following rating categories as rated by Standard & Poor's (the percentages
relate to the weighted average of the bonds in each rating category as a
percentage of that Fund's total assets): AAA, 22.53%; AA, 2.41%; BBB, .41%;
BB, 5.32%; B, 20.57%; CCC, 3.17%; D, .62%; unrated, 17.76%. If a bond was not
rated by Standard & Poor's but was rated by Moody's, it is included in the
comparable category. The Manager will not rely principally on the ratings
assigned by rating services. Strategic Bond Fund is not obligated to dispose
of securities whose issuers subsequently are in default or if the rating of
such securities is reduced. Appendix B of this Prospectus describes these
rating categories. Strategic Bond Fund may also invest in unrated securities
which, in the opinion of the Manager, offer yields and risks comparable to
those of securities which are rated.
. International Securities. The Fund may invest in foreign government and
foreign corporate debt securities (which may be denominated in U.S. dollars or
in non-U.S. currencies) issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies
or instrumentalities. These investments may include (i) U.S.
dollar-denominated debt obligations known as "Brady Bonds," which are issued
for the exchange of existing commercial bank loans to foreign entities for new
obligations that are generally collateralized by zero coupon Treasury
securities having the same maturity, (ii) debt obligations such as bonds
(including sinking fund and callable bonds), (iii) debentures and notes
(including variable rate and floating rate instruments), and (iv) preferred
stocks and zero coupon securities. Further information about investments in
foreign securities is set forth below under "Other Investment Techniques and
Strategies - Foreign Securities."
. U.S. Government Securities. U.S. Government Securities are debt obligations
issued by or guaranteed by the United States Government or one of its agencies
or instrumentalities. Although U.S. Government Securities are considered among
the most creditworthy of fixed-income investments and their yields are
generally lower than the yields available from corporate debt securities, the
values of U.S. Government Securities (and of fixed-income securities
generally) will vary inversely to changes in prevailing interest rates. To
compensate for the lower yields available on U.S. Government securities,
Strategic Bond Fund will attempt to augment these yields by writing covered
call options against them. See "Hedging," below. Certain of these obligations,
including U.S. Treasury notes and bonds, and mortgage-backed securities
guaranteed by the Government National Mortgage Association ("Ginnie Maes"),
are supported by the full faith and credit of the United States. Certain other
U.S. Government Securities, issued or guaranteed by Federal agencies or
government-sponsored enterprises, are not supported by the full faith and
credit of the United States. These latter securities may include obligations
supported by the right of the issuer to borrow from the U.S. Treasury, such as
obligations of Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association bonds ("Fannie Maes"). U.S. Government
Securities in which the Fund may invest include zero coupon U.S. Treasury
securities, mortgage-backed securities and money market instruments.
Zero coupon Treasury securities are: (i) U.S. Treasury notes and bonds which
have been stripped of their unmatured interest coupons and receipts; or (ii)
certificates representing interests in such stripped debt obligations or
coupons. Because a zero coupon security pays no interest to its holder during
its life or for a substantial period of time, it usually trades at a deep
discount from its face or par value and will be subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Because the
Fund accrues taxable income from these securities without receiving cash, the
Fund may be required to sell portfolio securities in order to pay cash dividends
or to meet redemptions. The Fund may invest up to 50% of its total assets at the
time of purchase in zero coupon securities issued by either corporations or the
U.S. Treasury.
. Domestic Securities. The Fund's investments in domestic securities may include
preferred stocks, participation interests and zero coupon securities. Domestic
investments include fixed-income securities and dividend-paying common stocks
issued by domestic corporations in any industry which may be denominated in
U.S. dollars or non-U.S. currencies.
The Fund's investments may include securities which represent participation
interests in loans made to corporations (see "Participation Interests," below)
and in pools of residential mortgage loans which may be guaranteed by agencies
or instrumentalities of the U.S. Government (e.g. Ginnie Maes,
7
<PAGE>
Freddie Macs and Fannie Maes), including collateralized mortgage-backed
obligations ("CMOs"), or which may not be guaranteed. Such securities differ
from conventional debt securities which provide for periodic payment of interest
in fixed amounts (usually semi-annually) with principal payments at maturity or
specified call dates. Mortgage-backed securities provide monthly payments which
are, in effect, a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at lower rates than the original
investment, thus reducing the yield of the Fund. CMOs in which the Fund may
invest are securities issued by a U.S. Government instrumentality or private
corporation that are collateralized by a portfolio of mortgages or mortgage-
backed securities which may or may not be guaranteed by the U.S. Government. The
issuer's obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage-backed securities. Mortgage-backed
securities may be less effective than debt obligations of similar maturity at
maintaining yields during periods of declining interest rates.
The Fund may also invest in CMOs that are "stripped." That means that the
security is divided into two parts, one of which receives some or all of the
principal payments (and is known as a "P/O") and the other which receives some
or all of the interest (and is known as an "I/O"). P/Os and I/Os are generally
referred to as "derivative investments," discussed further below.
The yield to maturity on the class that receives only interest is extremely
sensitive to the rate of payment of the principal on the underlying mortgages.
Principal prepayments increase that sensitivity. Stripped securities that pay
"interest only" are therefore subject to greater price volatility when interest
rates change, and they have the additional risk that if the underlying mortgages
are prepaid, the Fund will lose the anticipated cash flow from the interest on
the prepaid mortgages. That risk is increased when general interest rates fall,
and in times of rapidly falling interest rates, the Fund might receive back less
than its investment.
The value of "principal only" securities generally increases as interest rates
decline and prepayment rates rise. The price of these securities is typically
more volatile than that of coupon-bearing bonds of the same maturity.
Stripped securities are generally purchased and sold by institutional investors
through investment banking firms. At present, established trading markets have
not yet developed for these securities. Therefore, some stripped securities may
be deemed "illiquid." If the Fund holds illiquid stripped securities, the amount
it can hold will be subject to the Fund's investment policy limiting investments
in illiquid securities to 15% of the Fund's assets.
The Fund may also enter into "forward roll" transactions with mortgage-backed
securities. The Fund sells mortgage-backed securities it holds to banks or other
buyers and simultaneously agrees to repurchase a similar security from that
party at a later date at an agreed-upon price. Forward rolls are considered to
be a borrowing. The Fund is required to place liquid assets in a segregated
account with its custodian bank in an amount equal to its obligation under the
forward roll. The main risk of this investment strategy is risk of default by
the counterparty.
The Fund may also invest in asset-backed securities, which are securities that
represent fractional undivided interests in pools of consumer loans and trade
receivables, similar in structure to the mortgage-backed securities in which the
Fund may invest, described above. Payments of principal and interest are passed
through to holders of asset-backed securities and are typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guarantee by another entity or having a priority to certain of the
borrower's other securities. The degree of credit enhancement varies, and
generally applies to only a fraction of the asset-backed security's par value
until exhausted.
RISK FACTORS. The securities in which Strategic Bond Fund principally invests
are considered speculative and involve greater risk than lower yielding, higher
rated fixed-income securities, while providing higher yields than such
securities. Lower rated securities may be less liquid, and significant losses
could be experienced if a substantial number of other holders of such securities
decide to sell at the same time. Other risks may involve the default of the
issuer or price changes in the issuer's securities due to changes in the
issuer's financial strength or economic conditions. Issuers of lower rated or
unrated securities are generally not as financially secure or creditworthy as
issuers of higher-rated securities. This Fund is not obligated to dispose of
securities when issuers are in default or if the rating of the security is
reduced. These risks are discussed in more detail in the Statement of Additional
Information.
INVESTMENT OBJECTIVES AND POLICIES - CAPITAL APPRECIATION FUND AND GLOBAL
SECURITIES FUND.
CAPITAL APPRECIATION FUND. In seeking its objective of capital appreciation,
Capital Appreciation Fund will emphasize investments in securities of "growth-
type" companies. Such companies are believed to have relatively favorable long-
term prospects for increasing demand for their goods or services, or to be
developing new products, services or markets, and normally retain a relatively
larger portion of their earnings for research, development and investment in
capital assets. "Growth-type" companies may also include companies developing
applications for recent scientific advances. Capital Appreciation Fund may also
invest in cyclical industries and in "special situations" that the Manager
believes present opportunities for capital growth. "Special situations" are
anticipated acquisitions, mergers or other unusual developments which, in the
opinion of the Manager, will increase the value of an issuer's securities,
regardless of general business conditions or market movements. An additional
risk is present in this type of investment since the price of the security may
be expected to decline if the anticipated development fails to occur.
GLOBAL SECURITIES FUND. The objective of Global Securities Fund is to seek long-
term capital appreciation. Current income is not an objective. In seeking its
objective, the Fund will invest a substantial portion of its invested assets in
securities of foreign issuers, "growth-type" companies (those which, in the
opinion of the Manager, have relatively
8
<PAGE>
favorable long-term prospects for increasing demand or which develop new
products and retain a significant part of earnings for research and
development), cyclical industries (e.g. base metals, paper and chemicals) and
special investment situations which are considered to have appreciation
possibilities (e.g., private placements of start-up companies). The Fund may
invest without limit in "foreign securities" (as defined below in "Other
Investment Techniques and Strategies - Foreign Securities") and thus the
relative amount of such investments will change from time to time. It is
currently anticipated that Global Securities Fund may invest as much as 80% or
more of its total assets in foreign securities. Under normal market conditions,
the Fund will invest its total assets in securities of issuers traded in markets
of at least three countries (which may include the United States). See "Other
Investment Techniques and Strategies - Foreign Securities," below, for further
discussion as to the possible rewards and risks of investing in foreign
securities and as to additional diversification requirements for the Fund's
foreign investments.
CAN THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Funds have
investment objectives, described above, as well as investment policies each
follows to try to achieve its objectives. Additionally, the Funds use certain
investment techniques and strategies in carrying out those investment policies.
The Funds' investment policies and techniques are not "fundamental" unless this
Prospectus or the Statement of Additional Information says that a particular
policy is "fundamental." Each Fund's investment objectives are fundamental
policies.
The Trust's Board of Trustees may change non-fundamental policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is explained
in the Statement of Additional Information).
OTHER INVESTMENT TECHNIQUES AND STRATEGIES. Some of the Funds can also use the
investment techniques and strategies described below. These techniques involve
certain risks. The Statement of Additional Information contains more information
about these practices, including limitations on their use that are designed to
reduce some of the risks.
SPECIAL RISKS - BORROWING FOR LEVERAGE. From time to time, Capital Appreciation
Fund, Strategic Bond Fund, and Global Securities Fund may borrow money from
banks to buy securities. These Funds will borrow only if they can do so without
putting up assets as security for a loan. This is a speculative investment
method known as "leverage." This investing technique may subject the Fund to
greater risks and costs than funds that do not borrow. These risks may include
the possibility that a Fund's net asset value per share will fluctuate more than
funds that don't borrow, since a Fund pays interest on borrowings and interest
expense affects a Fund's share price and yield. Global Securities Fund may
borrow up to 10% of the value of its total assets. Global Securities Fund will
not borrow, if as a result of such borrowing more than 25% of its total assets
would consist of investments in when-issued or delayed delivery securities or
borrowed funds. Borrowing for Leverage is subject to regulatory limits described
in more detail in "Borrowing" in the Statement of Additional Information.
Pursuant to an undertaking by Capital Appreciation Fund, Strategic Bond Fund,
and Global Securities Fund, borrowing by each such Fund is limited to 25% of the
value of its net assets, which is further limited to 10% if the borrowing is for
a purpose other than to facilitate redemptions. Neither percentage limitation is
a fundamental policy.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES. Capital Appreciation Fund, Global
Securities Fund and Strategic Bond Fund may each invest in securities of small,
unseasoned companies. These are companies that have been in operation for less
than three years, counting the operations of any predecessors. Securities of
these companies may have limited liquidity (which means that the Fund may have
difficulty selling them at an acceptable price when it wants to) and the prices
of these securities may be volatile. Capital Appreciation Fund, Global
Securities Fund and Strategic Bond Fund are not subject to this restriction.
PARTICIPATION INTERESTS. Strategic Bond Fund and Global Securities Fund may
acquire participation interests in U.S. dollar-denominated loans that are made
to U.S. or foreign companies (the "borrower"). They may be interests in, or
assignments of, the loan, and are acquired from the banks or brokers that have
made the loan or are members of the lending syndicate. No more than 5% of a
Fund's net assets can be invested in participation interests of the same
borrower. The Manager has set certain creditworthiness standards for issuers of
loan participations, and monitors their creditworthiness. The value of loan
participation interests primarily depends upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may have
difficulty making payments. If a borrower fails to make scheduled interest or
principal payments, the Fund could experience a decline in the net asset value
of its shares. Some borrowers may have senior securities rated as low as "C" by
Moody's or "D" by Standard & Poor's, but may be deemed acceptable credit risks.
Participation interests are subject to each Fund's limitations on investments in
illiquid securities. See "Illiquid and Restricted Securities" below.
FOREIGN SECURITIES. Each Fund may purchase "foreign securities" that is,
securities of companies organized under the laws of countries other than the
United States that are traded on foreign securities exchanges or in the foreign
over-the-counter markets. Securities of foreign issuers that are represented by
American Depository Receipts ("ADRs"), or that are listed on a U.S. securities
exchange or are traded in the United States over-the-counter markets are not
considered "foreign securities" for this purpose because they are not subject to
many of the special considerations and risks (discussed below and in the
Statement of Additional Information) that apply to foreign securities traded and
held abroad. If a Fund's securities are held abroad, the countries in which such
securities may be held and the sub-custodians holding them must be approved by
the Fund's Board of Trustees under applicable SEC rules. Each Fund may also
invest in debt obligations issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, subject to the investment policies described
9
<PAGE>
above. Foreign securities which the Funds may purchase may be denominated in
U.S. dollars or in non-U.S. currencies. The Funds may convert U.S. dollars into
foreign currency, but only to effect securities transactions and not to hold
such currency as an investment, other than in hedging transactions (see
"Hedging" below).
It is currently intended that Capital Appreciation Fund will invest no more than
25% of its total assets in foreign securities or in government securities of any
foreign country or in obligations of foreign banks. Global Securities Fund and
Strategic Bond Fund have no restrictions on the amount of their assets that may
be invested in foreign securities. Investments in securities of issuers in non-
industrialized countries generally involve more risk and may be considered
highly speculative.
The Funds have undertaken to comply with the foreign country diversification
guidelines of Section 10506 of the California Insurance Code, as follows:
Whenever a Fund's investment in foreign securities exceeds 25% of its net
assets, it will invest its assets in securities of issuers located in a minimum
of two different foreign countries; this minimum is increased to three foreign
countries if foreign investments comprise 40% or more of a Fund's net assets, to
four if 60% or more and to five if 80% or more. In addition, no such Fund will
have more than 20% of its net assets invested in securities of issuers located
in any one foreign country; that limit is increased to 35% for Australia,
Canada, France, Japan, the United Kingdom or Germany.
The percentage of each Fund's assets that will be allocated to foreign
securities will vary depending on the relative yields of foreign and U.S.
securities, the economies of foreign countries, the condition of their financial
markets, the interest rate climate of such countries, and the relationship of
such countries' currencies to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data. Subsequent foreign currency
losses may result in a Fund having previously distributed more income in a
particular period than was available from investment income, which could result
in a return of capital to shareholders. Each such Fund's portfolio of foreign
securities may include those of a number of foreign countries or, depending upon
market conditions and subject to the above diversification requirements those of
a single country. In summary, foreign securities markets may be less liquid and
more volatile than the markets in the U.S. Risks of foreign securities investing
may include foreign withholding taxation, changes in currency rates or currency
blockage, currency exchange costs, difficulty in obtaining and enforcing
judgments against foreign issuers, relatively greater brokerage and custodial
costs, risk of expropriation or nationalization of assets, less publicly
available information, and differences between domestic and foreign legal,
auditing, brokerage and economic standards. See "Investment Objectives and
Policies - Foreign Securities" in the Statement of Additional Information for
further details.
WARRANTS AND RIGHTS. Warrants basically are options to purchase stock at set
prices that are valid for a limited period of time. Rights are options to
purchase securities, normally granted to current holders by the issuer. Each of
the Funds may invest up to 5% of its total assets in warrants and rights. That
5% does not apply to warrants and rights that have been acquired as part of
units with other securities or that were attached to other securities. No more
than 2% of each such Fund's total assets may be invested in warrants that are
not listed on either the New York or American Stock Exchanges. For further
details about these investments, see "Warrants and Rights" in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. Each Fund may acquire securities that are subject to
repurchase agreements to generate income while providing liquidity. In a
repurchase transaction, the Fund buys a security and simultaneously sells it to
the vendor for delivery at a future date. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on the
delivery date, the Fund may incur costs in disposing of the collateral and may
experience losses if there is any delay in its ability to do so. No Fund will
enter into a repurchase agreement that causes more than 15% of its net assets to
be subject to repurchase agreements having a maturity beyond seven days. There
is no limit on the amount of a Fund's net assets that may be subject to
repurchase agreements of seven days or less.
ILLIQUID AND RESTRICTED SECURITIES. Under the policies and procedures
established by the Board of Trustees, the Manager determines the liquidity of a
Fund's investments. Investments may be illiquid because of the absence of a
trading market, making it difficult to value them or dispose of them promptly at
an acceptable price. A restricted security is one that has a contractual
restriction on resale or cannot be sold publicly until it is registered under
the Securities Act of 1933. No Fund will invest more than 15% of its net assets
in illiquid or restricted securities; no Fund presently intends to invest more
than 10% of its net assets in illiquid or restricted securities. This policy
applies to participation interests, bank time deposits, master demand notes and
repurchase transactions maturing in more than seven days, over-the-counter
("OTC") options held by any Fund and that portion of assets used to cover such
OTC options [Global Securities Fund and Strategic Bond Fund]; it does not apply
to certain restricted securities that are eligible for resale to qualified
institutional purchasers.
LOANS OF PORTFOLIO SECURITIES. To attempt to increase its income, each Fund may
lend its portfolio securities to brokers, dealers and other financial
institutions. These loans are limited to 25% of the Fund's net assets and are
subject to other conditions described in the Statement of Additional
Information. The Funds presently do not intend to lend portfolio securities, but
if any Fund does, the value of securities loaned is not expected to exceed 5% of
the value of that Fund's total assets.
"WHEN-ISSUED" OR DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed delivery" basis. These terms refer to securities that have been created
and for which a market exists, but which are not available for immediate
delivery. There may be a risk of loss to a Fund if the value of the security
changes prior to the settlement date.
HEDGING. As described below, the Funds may purchase and sell certain kinds of
futures contracts, put and call options, forward contracts, and options on
futures and broadly-based stock or bond indices, or enter into interest rate
swap agreements. These are all referred to as "hedging instruments."
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The Funds do not use hedging instruments for speculative purposes, and have
limits on the use of them, described below. The hedging instruments the Funds
may use are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional Information.
The Funds may buy and sell options, futures and forward contracts for a number
of purposes. They may do so to try to manage their exposure to the possibility
that the prices of their portfolio securities may decline, or to establish a
position in the securities market as a temporary substitute for purchasing
individual securities. Strategic Bond Fund may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as selling
futures, buying puts and writing covered calls, hedge the Funds' portfolio
against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend to
increase the Funds' exposure to the securities market. Forward contracts are
used to try to manage foreign currency risks on Funds' foreign investments.
Foreign currency options are used to try to protect against declines in the
dollar value of foreign securities the Funds own, or to protect against an
increase in the dollar cost of buying foreign securities. Writing covered call
options may also provide income to the Funds for liquidity purposes or to raise
cash to distribute to shareholders.
Futures. Global Securities Fund, Capital Appreciation Fund, and Strategic Bond
Fund may buy and sell futures contracts that relate to broadly-based stock
indices (these are referred to as Stock Index Futures). Strategic Bond Fund and
Global Securities Fund may buy and sell futures contracts that relate to
interest rates (these are referred to as Interest Rate Futures). These types of
Futures are described in "Hedging" in the Statement of Additional Information.
Put and Call Options. The Funds may buy and sell certain kinds of put options
(puts) and call options (calls).
The Funds may buy calls only on securities, broadly-based stock and bond
indices, foreign currencies and Futures that the Fund is permitted to buy and
sell (as explained above) or to terminate their obligation on a call that the
Fund previously wrote. The Funds may write (that is, sell) covered call options
on up to 100% of each Fund's assets. When a Fund writes a call, it receives cash
(called a premium). The call gives the buyer the ability to buy the investment
on which the call was written from that Fund at the call price during the period
in which the call may be exercised. If the value of the investment does not rise
above the call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Funds may purchase put options. Buying a put on an investment gives that
Fund the right to sell the investment at a set price to a seller of a put on
that investment. The Funds can buy only those puts that relate to (1) securities
(whether or not that Fund owns such securities), (2) Futures that the Fund is
permitted to buy and sell (as explained above), (3) broadly-based stock or bond
indices or (4) foreign currencies. A Fund can buy a put on a Future whether or
not that Fund owns the particular Future in its portfolio. A Fund may not sell a
put other than a put that it previously purchased.
The Funds may buy and sell puts and calls only if certain conditions are met:
(1) calls the Funds buy or sell must be listed on a securities or commodities
exchange, or quoted on the Automated Quotation System of the National
Association of Securities Dealers, Inc. ("NASDAQ"); (2) in the case of puts and
calls on foreign currency, they must be traded on a securities or commodities
exchange, or in the over-the-counter market, or quoted by recognized dealers in
those options; (3) none of the Funds will write puts if, as a result, more than
50% of its net assets would be required to be segregated liquid assets; (4) each
call the Funds write must be "covered" while it is outstanding: that means a
Fund must own the investment on which the call was written or it must own other
securities that are acceptable for the escrow arrangements required for calls;
(5) a Fund may write calls on Futures contracts it owns, but these calls must be
covered by securities or other liquid assets the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised; (6) a call or put
option may not be purchased if the value of all of a Fund's put and call options
would exceed 5% of that Fund's total assets.
If a call written by a Fund is exercised, the Fund forgoes any possible profit
from an increase in the market price of the underlying security over the
exercise price less the commissions paid on the sale. In addition, the Fund
could experience capital losses which might cause previously distributed short-
term capital gains to be recharacterized as non-taxable return of capital to
shareholders.
Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Funds use them to "lock-in" the U.S. dollar price of a security
denominated in a foreign currency that a Fund has bought or sold, or to protect
against losses from changes in the relative values of the U.S. dollar and a
foreign currency. Such Funds may also use "cross hedging," where a Fund hedges
against changes in currencies other than the currency in which a security it
holds isdenominated.
Interest Rate Swaps. Strategic Bond Fund, High Income Fund and Bond Fund can
also enter into interest rate swap transactions. In an interest rate swap, a
Fund and another party exchange their right to receive or their obligation to
pay interest on a security. For example, they may swap a right to receive
floating rate payments for fixed rate payments. A Fund enters into swaps only on
securities it owns. Strategic Bond Fund may not enter into swaps with respect to
more than 50% of its total assets. Also, Strategic Bond Fund will segregate
liquid assets (such as cash or U.S. Government securities) to cover any amounts
it could owe under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed.
Hedging instruments can be volatile investments and may involve special risks.
The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than what is required for normal
portfolio management. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, hedging strategies may reduce that
Fund's return. A Fund could also experience losses if the prices of its futures
and options positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market for the future or
option.
Options trading involves the payment of premiums and has special tax effects on
the Funds. There are also special risks
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in particular hedging strategies. If a covered call written by a Fund is
exercised on a security that has increased in value, that Fund will be required
to sell the security at the call price and will not be able to realize any
profit if the security has increased in value above the call price. The use of
forward contracts may reduce the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency. To limit its
exposure in foreign currency exchange contracts, each Fund limits its exposure
to the amount of its assets denominated in the foreign currency. Interest rate
swaps are subject to credit risks (if the other party fails to meet its
obligations) and also to interest rate risks. Strategic Bond Fund could be
obligated to pay more under its swap agreements than it receives under it, as a
result of interest rate changes. These risks are described in greater detail in
the Statement of Additional Information.
DERIVATIVE INVESTMENTS. Each Fund (other than Money Fund) can invest in a number
of different kinds of "derivative investments." Such Funds may use some types of
derivatives for hedging purposes, and may invest in others because they offer
the potential for increased income and principal value. In general, a
"derivative investment" is a specially-designed investment whose performance is
linked to the performance of another investment or security, such as an option,
future, index or currency. In the broadest sense, derivative investments include
exchange-traded options and futures contracts (please refer to "Hedging").
One risk of investing in derivative investments is that the company issuing the
instrument might not pay the amount due on the maturity of the instrument. There
is also the risk that the underlying investment or security might not perform
the way the Manager expected it to perform. The performance of derivative
investments may also be influenced by interest rate changes in the U.S. and
abroad. All of these risks can mean that a Fund will realize less income than
expected from its investments, or that it can lose part of the value of its
investments, which will affect that Fund's share price. Certain derivative
investments held by the Funds may trade in the over-the-counter markets and may
be illiquid. If that is the case, the Funds' investment in them will be limited,
as discussed in "Illiquid and Restricted Securities."
Another type of derivative the Funds may invest in is an "index-linked" note. On
the maturity of this type of debt security, payment is made based on the
performance of an underlying index, rather than based on a set principal amount
for a typical note. Another derivative investment such Funds may invest in are
currency-indexed securities. These are typically short-term or intermediate-term
debt securities. Their value at maturity or the interest rates at which they pay
income are determined by the change in value of the U.S. dollar against one or
more foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This variety of index security offers the potential for greater
income but at a greater risk of loss.
Other derivative investments the Funds may invest in include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or is
payable in an amount based on the price of the issuer's common stock at the time
of maturity. In either case there is a risk that the amount payable at maturity
will be less than the principal amount of the debt (because the price of the
issuer's common stock is not as high as was expected).
PORTFOLIO TURNOVER. A change in the securities held by the Fund is known as
"portfolio turnover." The Funds may engage frequently in short-term trading to
try to achieve their objectives. High turnover and short-term trading involve
correspondingly greater commission expenses and transaction costs for Capital
Appreciation Fund and Global Securities Fund and to a lesser extent, higher
transaction costs for Strategic Bond Fund. The "Financial Highlights," above
show the portfolio turnover for the past fiscal years for each Fund which is not
expected to exceed a portfolio turnover rate of 200% in the current fiscal year.
If any Fund derives 30% or more of its gross income from the sale of securities
held less than three months, it may fail to qualify under the tax laws as a
regulated investment company (see "Dividends, Capital Gains and Taxes," below).
SHORT SALES AGAINST-THE-BOX. In a short sale, the seller does not own the
security that is sold, but normally borrows the security to fulfill its delivery
obligation. The seller later buys the security to repay the loan, in the
expectation that the price of the security will be lower when the purchase is
made, resulting in a gain. The Funds may not sell securities short except that
each Fund may sell securities short in collateralized transactions referred to
as "short sales against-the-box." No more than 15% of any Fund's net assets will
be held as collateral for such short sales at any one time.
OTHER INVESTMENT RESTRICTIONS
Each of the Funds has certain investment restrictions which, together with its
investment objective, are fundamental policies. Under some of those
restrictions, each Fund cannot: (1) with respect to 75% of its total assets,
invest in securities (except those of the U.S. Government or its agencies or
instrumentalities) of any issuer if immediately thereafter, either (a) more than
5% of that Fund's total assets would be invested in securities of that issuer,
or (b) that Fund would then own more than 10% of that issuer's voting securities
or 10% in principal amount of the outstanding debt securities of that issuer
(the latter limitation on debt securities does not apply to Strategic Bond
Fund); (2) lend money except in connection with the acquisition of debt
securities which a Fund's investment policies and restrictions permit it to
purchase; the Funds may also make loans of portfolio securities (see "Loans of
Portfolio Securities"); (3) pledge, mortgage or hypothecate any assets to secure
a debt; the escrow arrangements which are involved in options trading are not
considered to involve such a mortgage, hypothecation or pledge; (4) concentrate
investments in any particular industry; therefore the Funds will not purchase
the securities of issuers primarily engaged in the same industry if more than
25% of the total value of that Fund's assets would (in the absence of special
circumstances) consist of securities of companies in a single industry; and
(5) deviate from the percentage requirements and other restrictions listed under
"Warrants and Rights," and the first paragraph under "Special Risks-Borrowing
for Leverage." None of the percentage limitations and restrictions described
above and in the Statement of Additional Information for the Funds with respect
to writing covered calls, hedging, short sales and derivatives is a fundamental
policy.
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All of the percentage restrictions described above and elsewhere in this
Prospectus, other than those described under "Other Investment Techniques and
Strategies-Special Risks-Borrowing for Leverage," apply only at the time a Fund
purchases a security. A Fund need not dispose of a security merely because the
size of the Fund's assets has changed or the security has increased in value
relative to the size of the Fund. There are other fundamental policies discussed
in the Statement of Additional Information. The Trustees of the Trust are
required to monitor events to identify any irreconcilable conflicts which may
arise between the variable life insurance policies and variable annuity
contracts that invest in the Funds. Should any conflict arise which ultimately
requires that any substantial amount of assets be withdrawn from any Fund, its
operating expenses could increase.
HOW THE FUNDS ARE MANAGED
ORGANIZATION AND HISTORY. The Trust was organized in 1984 as a Massachusetts
business trust. The Trust is an open-end, diversified management investment
company, with an unlimited number of authorized shares of beneficial interest.
It consists of nine separate Funds - As noted above, this Prospectus describes
the following three funds: Capital Appreciation Fund, organized in 1986, Global
Securities Fund, organized in 1990, and Strategic Bond Fund, organized in 1993.
The Trust is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Funds' activities, review
performance, and review the actions of the Manager. "Trustees and Officers of
the Trust" in the Statement of Additional Information names the Trustees and
provides more information about them and the officers of the Trust. Although the
Trust is not required by law to hold annual meetings, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Trust's Declaration of Trust.
THE MANAGER AND ITS AFFILIATES. The Funds are managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Funds' investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees, under
Investment Advisory Agreements for each Fund which state the Manager's
responsibilities. The Agreements set forth the fees paid by each Fund to the
Manager and describe the expenses that each Fund is responsible to pay to
conduct its business.
The Manager has operated as an investment adviser since 1959. The Manager
(including a subsidiary) currently manages investment companies, including other
OppenheimerFunds, with assets of more than $29 billion as of December 31, 1994,
and with more than 2.4 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company that is owned in part by senior
officers of the Manager and controlled by Massachusetts Mutual Life Insurance
Company, a mutual life insurance company.
PORTFOLIO MANAGERS. The Portfolio Managers of Strategic Bond Fund are David P.
Negri and Arthur P. Steinmetz. They are the persons principally responsible for
the day-to-day management of the Fund since May 1993. During the past five
years, Messrs. Steinmetz and Negri have also served as officers of other
OppenheimerFunds. The Portfolio Manager of Global Securities Fund is George
Evans. He has been the person principally responsible for the day-to-day
management of that Fund since February, 1991. During the past five years, he has
also served as an Associate Portfolio Manager for other OppenheimerFunds and
formerly served as an international equities portfolio manager/analyst with
Brown Brothers Harriman & Co. The Portfolio Manager of Capital Appreciation Fund
is Paul LaRocco. He has been the person principally responsible for the day-to-
day management of that Fund's portfolio since January 1994. During the past five
years, he has also served as an Associate Portfolio Manager for other
OppenheimerFunds and formerly served as a securities analyst with Columbus
Circle Investors, prior to which he was an investment analyst for Chicago Title
& Trust Co. Each of the Portfolio Managers named above are also Vice Presidents
of the Trust.
FEES AND EXPENSES. The monthly management fee payable to the Manager is computed
separately on the net assets of each Fund as of the close of business each day.
The management fee rates that became effective September 1, 1994 are as follows:
(i) for Capital Appreciation Fund and Global Securities Fund: 0.75% of the first
$200 million of net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of net assets over $800
million; and (ii) for Strategic Bond Fund: 0.75% of the first $200 million of
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $200 million, and 0.50% of net
assets over $1 billion. The management fee rates in effect prior to September 1,
1994 are contained in note 8 to the Funds' financial statements included in the
Statement of Additional Information.
During the fiscal year ended December 31, 1994, the management fee (computed on
an annualized basis as a percentage of the net assets of all the Funds as of the
close of business each day) and the total operating expenses as a percentage of
average net assets of each Fund, when restated to reflect the current management
fee rates described above and the current limitation on expenses described in
the Statement of Additional Information, were as follows:
TOTAL
MANAGEMENT OPERATING
FEES EXPENSES(1)
Capital Appreciation Fund .75% .80%
Global Securities Fund .75% .95%
Strategic Bond Fund .75% .93%
--------------------
(1) This table does not reflect expenses that apply at the separate account
level or to related insurance products.
The Funds pay expenses related to their daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those
expenses are paid out of the Funds' assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the investment advisory agreement is contained in the
Statement of Additional Information.
There is also information about the Funds' brokerage policies and practices in
"Brokerage Policies of the Funds" in the
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Statement of Additional Information. That section discusses how brokers and
dealers are selected for the Funds' portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory agreements
to consider whether brokers have sold shares of the Funds or any other funds for
which the Manager serves as investment adviser.
SHAREHOLDER INQUIRIES. Inquiries by policy owners for Account information are to
be directed to the insurance company issuing the Account at the address or
telephone number shown in the accompanying Account Prospectus.
PERFORMANCE OF THE FUNDS
EXPLANATION OF PERFORMANCE TERMINOLOGY. Strategic Bond Fund uses the terms
"yield," "total return," and "average annual total return" to illustrate
performance. All the Funds use the terms "average annual total return" and
"total return" to illustrate their performance. This performance information may
be useful to help you see how well your investment has done and to compare it to
other funds or market indices, as we have done below.
It is important to understand that the Funds' total returns and yields represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but more
detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Funds' performance. Each
Fund's investment performance will vary over time, depending on market
conditions, the composition of the portfolio and expenses.
YIELD. Yield for Strategic Bond Fund will be computed in a standardized manner
for mutual funds, by dividing the Fund's net investment income per share earned
during a 30-day base period by the maximum offering price (equal to the net
asset value) per share on the last day of the period. This yield calculation is
compounded on a semi-annual basis, and multiplied by 2 to provide an annualized
yield. The Statement of Additional Information describes a dividend yield and a
distribution return that may also be quoted for this Fund.
TOTAL RETURNS. There are different types of total returns used to measure each
Fund's performance. Total return is the change in value of a hypothetical
investment in the Fund over a given period, assuming that all dividends and
capital gains distributions are reinvested in additional shares. The cumulative
total return measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return over the
entire period. However, average annual total returns do not show the Funds'
actual year-by-year performance.
HOW HAVE THE FUNDS PERFORMED? Below is a discussion by the Manager of the Funds'
performance during their last fiscal year ended December 31, 1994, followed by a
graphical comparison of each Fund's performance to an appropriate broad-based
market index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the Funds' fiscal year ended
December 31, 1994, the Manager emphasized the following investment strategies
and techniques. For CAPITAL APPRECIATION FUND, stocks of well-managed,
innovative companies in sectors with high potential were emphasized, including
technology, health care and consumer cyclicals, such as specialty retailing. For
GLOBAL SECURITIES FUND, emerging markets such as Latin America were emphasized,
including stocks with strong earnings potential driven by corporate
restructurings and the privatization of state-owned industries. For STRATEGIC
BOND FUND, corporate bonds in U.S. companies that derive a large percentage of
their earnings from Europe were emphasized, foreign fixed-income securities were
emphasized in Latin American, Asian and Eastern European countries, and U.S.
government securities of a longer term were emphasized.
COMPARING EACH FUND'S PERFORMANCE TO THE MARKET. The charts below show the
performance of hypothetical $10,000 investments in each Fund held until December
31, 1994. Performance information does not reflect charges that apply to
separate accounts investing in the Funds and is not restated to reflect the
increased management fee rates that took effect September 1, 1994. If these
charges and expenses were taken into account, performance would be lower.
The performance of Capital Appreciation Fund is compared to the performance of
the S&P 500 Index, a broad-based index of equity securities widely regarded as a
general measurement of the performance of the U.S. equity securities market.
Global Securities Fund's performance is compared to the Morgan Stanley World
Index, an unmanaged index of issuers listed on the stock exchanges of 20 foreign
countries and the U.S., and is widely recognized as a measure of global stock
market performance. Strategic Bond Fund's performance is compared to the Lehman
Brothers Aggregate Bond Index and the Salomon Brothers World Government Bond
Index. The Salomon Brothers World Government Bond Index is an unmanaged index of
fixed-rate bonds having a maturity of one year or more, and is widely recognized
as a benchmark of fixed income performance on a world-wide basis. Index
performance reflects the reinvestment of dividends but does not consider the
effect of capital gains or transaction costs, and none of the data below shows
the effect of taxes. Also, a Fund's performance reflects the effect of that
Fund's business and operating expenses. While index comparisons may be useful to
provide a benchmark for a Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in the one index. Moreover, the
index performance data does not reflect any assessment of the risk of the
investments included in the index.
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COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Appreciation Fund and S&P Index
[GRAPH APPEARS HERE]
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Global Securities Fund and Morgan Stanley World Index
[GRAPH APPEARS HERE]
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COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Bond Fund, Lehman Brothers Aggregate Bond Index and
Salomon Brothers World Government Bond Index
[GRAPH APPEARS HERE]
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ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
Shares of each Fund are offered only for purchase by Accounts as an investment
medium for variable life insurance policies and variable annuity contracts, as
described in the accompanying Account Prospectus. The sale of shares will be
suspended during any period when the determination of net asset value is
suspended and may be suspended by the Board of Trustees whenever the Board
judges it in that Fund's best interest to do so. Shares of each Fund are offered
at their respective offering price, which (as used in this Prospectus and the
Statement of Additional Information) is net asset value (without sales charge).
All purchase orders are processed at the offering price next determined after
receipt by the Trust of a purchase order in proper form. The offering price (and
net asset value) is determined as of the close of The New York Stock Exchange,
which is normally 4:00 P.M., New York time, but may be earlier on some days. Net
asset value per share of each Fund is determined by dividing the value of that
Fund's net assets by the number of its shares outstanding. The Board of Trustees
has established procedures for valuing each Fund's securities. In general, those
valuations are based on market value.
HOW TO SELL SHARES
Payment for shares tendered by an Account for redemption is made ordinarily in
cash and forwarded within seven days after receipt by the Trust's transfer
agent, Oppenheimer Shareholder Services (the "Transfer Agent"), of redemption
instructions in proper form, except under unusual circumstances as determined by
the Securities and Exchange Commission. The Trust understands that payment to
the Account owner will be made in accordance with the terms of the accompanying
Account Prospectus. The redemption price will be the net asset value next
determined after the receipt by the Transfer Agent of a request in proper form.
The market value of the securities in the portfolio of the Funds is subject to
daily fluctuations and the net asset value of the Funds' shares (other than
shares of the Money Fund) will fluctuate accordingly. Therefore, the redemption
value may be more or less than the investor's cost.
DIVIDENDS, CAPITAL GAINS AND TAXES
Dividends and Distributions of Strategic Bond Fund. The Trust intends to declare
Strategic Bond Fund, dividends quarterly, payable in March, June, September and
December.
Dividends and Distributions of Capital Appreciation Fund and Global Securities
Fund. The Trust intends to declare Capital Appreciation Fund and Global
Securities Fund dividends on an annual basis.
CAPITAL GAINS. Any Fund may make a supplemental distribution annually in
December out of any net short-term or long-term capital gains derived from the
sale of securities, premiums from expired calls written by the Fund, and net
profits from hedging transactions. Each Fund may also make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. All dividends and capital gains distributions paid on shares of any
of the Funds are automatically reinvested in additional shares of that Fund at
net asset value determined on the distribution date. There are no fixed dividend
rates and there can be no assurance as to payment of any dividends or the
realization of any capital gains.
TAX TREATMENT TO THE ACCOUNT AS SHAREHOLDER. Dividends paid by each Fund from
its ordinary income and distributions of each Fund's net realized short-term or
long-term capital gains are includable in gross income of the Accounts holding
such shares. The tax treatment of such dividends and distributions depends on
the tax status of that Account.
TAX STATUS OF THE FUNDS. If the Funds qualify as "regulated investment
companies" under the Internal Revenue Code, the Trust will not be liable for
Federal income taxes on amounts paid as dividends and distributions from any of
the Funds. The Funds did qualify during their last fiscal year and the Trust
intends that they will qualify in current and future years. However, the Code
contains a number of complex tests relating to qualification which any Fund
might not meet in any particular year (see, e.g., "Other Investment Techniques
and Strategies - Portfolio Turnover"). If any Fund does not so qualify, it would
be treated for tax purposes as an ordinary corporation and would receive no tax
deduction for payments made to shareholders of that Fund. The above discussion
relates solely to Federal tax laws. This discussion is not exhaustive and a
qualified tax adviser should be consulted.
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APPENDIX A - DESCRIPTION OF TERMS
Some of the terms used in the Prospectus and the Statement of Additional
Information are described below:
BANK OBLIGATIONS include CERTIFICATES OF DEPOSIT which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually 14 days to one year) at
a stated interest rate. BANKERS' ACCEPTANCES are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer; these instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. TIME DEPOSITS
are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. BANK NOTES are short-term direct
credit obligations of the issuing bank or bank holding company.
COMMERCIAL PAPER consists of short-term (usually 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. VARIABLE RATE MASTER DEMAND NOTES are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement between the holder and the borrower. The holder has the
right to increase the amount under the note at any time up to the face amount,
or to decrease the amount borrowed, and the borrower may repay up to the face
amount of the note without penalty.
CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other
business organizations, including business trusts, in order to finance their
long-term credit needs.
LETTERS OF CREDIT are obligations by the issuer (a bank or other person) to
honor drafts or other demands for payment upon compliance with specified
conditions.
SECURITIES ISSUED OR GUARANTEED BY THE UNITED STATES GOVERNMENT OR ITS AGENCIES
OR INSTRUMENTALITIES include issues of the United States Treasury, such as
bills, certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress. Such
agencies and instrumentalities include, but are not limited to, Bank for
Cooperatives, Federal Financing Bank, Federal Home Loan Bank, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Issues of the United States
Treasury are direct obligations of the United States Government. Issues of
agencies or instrumentalities are (i) guaranteed by the United States Treasury,
or (ii) supported by the issuing agency's or instrumentality's right to borrow
from the United States Treasury, or (iii) supported by the issuing agency's or
instrumentality's own credit.
A-1
<PAGE>
APPENDIX B - DESCRIPTION OF SECURITIES RATINGS
This is a description of (i) the two highest rating categories for Short Term
Debt and Long Term Debt by the Rating Organizations referred to under
"Investment Objectives and Policies, and (ii) additional rating categories that
apply principally to investments by Strategic Bond Fund. The rating descriptions
are based on information supplied by the Rating Organizations to subscribers.
SHORT TERM DEBT RATINGS.
Moody's Investors Service, Inc. ("Moody's"): The following rating designations
for commercial paper (defined by Moody's as promissory obligations not having
original maturity in excess of nine months), are judged by Moody's to be
investment grade, and indicate the relative repayment capacity of rated issuers:
PRIME-1: Superior capacity for repayment. Capacity will normally be evidenced by
the following characteristics: (a) leveling market positions in well-established
industries; (b) high rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (d) broad margins in earning coverage of fixed financial charges and
high internal cash generation; and (e) well established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Strong capacity for repayment. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation ("S&P"): The following ratings by S&P for
commercial paper (defined by S&P as debt having an original maturity of no more
than 365 days) assess the likelihood of payment:
A-1: Strong capacity for timely payment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2: Satisfactory capacity for timely payment. However, the relative degree of
safety is not as high as for issues designated "A-1".
Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following short-term
ratings to debt obligations that are payable on demand or have original
maturities of generally up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes:
F-1+: Exceptionally strong credit quality; the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality; assurance of timely payment is only slightly
less in degree than issues rated "F-1+".
F-2: Good credit quality; satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned "F-1+" or "F-1"
ratings.
Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for commercial
paper (defined by Duff & Phelps as obligations with maturities, when issued, of
under one year), asset-backed commercial paper, and certificates of deposit (the
ratings cover all obligations of the institution with maturities, when issued,
of under one year, including bankers' acceptance and letters of credit):
DUFF 1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings, including
commercial paper (with maturities up to 12 months), are as follows:
A1+: Obligations supported by the highest capacity for timely repayment.
A1: Obligations supported by a very strong capacity for timely repayment.
A2: Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic, or
financial conditions.
Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply to
commercial paper, certificates of deposit, unsecured notes, and other securities
having a maturity of one year or less.
TBW-1: The highest category; indicates the degree of safety regarding timely
repayment of principal and interest is very strong.
TBW-2: The second highest rating category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
LONG TERM DEBT RATINGS.
These rating categories apply principally to investments by High Income Fund,
Strategic Bond Fund and Bond Fund. For Money Fund only, the two highest rating
categories of each Rating Organization are relevant for securities purchased
with a remaining maturity of 397 days or less, or for rating issuers of
short-term obligations.
Moody's: Bonds (including municipal bonds) are rated as follows:
Aaa: Judged to be the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an
B-1
<PAGE>
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong positions of such issues.
Aa: Judged to be of high quality by all standards. Together with the "Aaa"
group, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A: Possess many favorable investment attributes and are to be considered as
upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Considered medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well.
Ba: Judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate and not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Of poor standing and may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Represent obligations which are speculative in a high degree and are often
in default or have other marked shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's: Bonds are rated as follows:
AAA: The highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and differ from "AAA"
rated issues only in small degree.
A: Have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to adverse effects of change in circumstances and
economic conditions.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this capacity than for bonds in the "A"
category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation
and"CC" the highest degree. While such bonds will likely have some equality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds rated "D"
are in default and payment of interest and/or repayment of principal is in
arrears.
Fitch:
AAA: Considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA: Considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Plus (+) and minus (-) signs are used
in the "AA" category to indicate the relative position of a credit within that
category.
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+".
Duff & Phelps:
AAA: The highest credit quality. The risk factors are negligible, being only
slightly more than the risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Plus (+) and
minus (-) signs are used in the "AA" category to indicate the relative position
of a credit within that category.
IBCA: Long-term obligations (with maturities of more than 12 months) are rated
as follows:
AAA: The lowest expectation for investment risk. Capacity for timely repayment
of principal and interest is substantial such that adverse changes in business,
economic, or financial conditions are unlikely to increase investment risks
significantly.
AA: A very low expectation for investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very significantly.
A plus (+) or minus (-) sign may be appended to a long term rating to denote
relative status within a rating category.
TBW: TBW issues the following ratings for companies. These ratings assess the
likelihood of receiving payment of principal and interest on a timely basis and
incorporate TBW's opinion as to the vulnerability of the company to adverse
developments, which may impact the market's perception of the company, thereby
affecting the marketability of its securities.
A: Possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its natural
money markets. If weakness
B-2
<PAGE>
or vulnerability exists in any aspect of the company's business, it is entirely
mitigated by the strengths of the organization.
A/B: The company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, it not quite as
favorable as for companies in the highest rating category.
B-3
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
INVESTMENT ADVISER
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
TRANSFER AGENT
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
CUSTODIAN OF PORTFOLIO SECURITIES
The Bank of New York
One Wall Street
New York, New York 10015
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
LEGAL COUNSEL
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
NO DEALER, BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION, AND IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, OPPENHEIMER MANAGEMENT CORPORATION OR ANY AFFILIATE
THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH STATE.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS PROSPECTUS
For
Flex-Extra
Graphic Appendix List
---------------------
Page 15 - Top of Page
(Graph comparing total return of Capital Appreciation Fund shares to performance
of S&P 500 Index)
<TABLE>
<CAPTION>
Average Annual Total Return at 12/31/94/(1)/
1 year 5 years Life of Fund
<S> <C> <C>
-7.59% 11.81% 13.28%
</TABLE>
(1) The inception date of the Fund was 8/15/86. The average annual total returns
and the ending accounting value in the graph reflect reinvestment of all
dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Page 15 - Bottom of Page
(Graph comparing total return of Global Securities Fund shares to performance of
Morgan Stanley World Index)
<TABLE>
<CAPTION>
Average Annual Total Return at 12/31/94/(1)/
1 year Life of Fund
<S> <C>
-5.72% 11.15%
</TABLE>
(1) The inception date of the Fund was 11/12/90. The average annual total
returns and the ending account value in the graph reflect reinvestment of all
dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
<PAGE>
Page 16 - Top of Page
(Graph comparing total return of Strategic Bond Fund to performance of Lehman
Brothers Aggregate Bond Index and Salomon Brothers World Government Bond Index)
<TABLE>
<CAPTION>
Average Annual Total Return at 12/31/94/(1)/
1 year Life of Fund
<S> <C>
-3.78% 0.19%
</TABLE>
--------------------------
/(1)/The inception date of the Fund was 5/3/93. The average annual total returns
and the ending account value in the graph reflect reinvestment of all dividends
and capital gains distributions. Past performance is not predictive of future
performance. Graphs are not drawn to same scale.
2
<PAGE>
Graphics Appendix List
MML Series
Page 6
Top of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Equity Fund and the Standard &
Poor's 500 Index. In the upper left portion of the graph is a table listing
the average annual total returns for the MML Equity Fund for the 1, 5, and
10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr 4.10%
5 Yr 9.49%
10 Yr 13.72%
</TABLE>
<TABLE>
<CAPTION>
Plot points for graph: MML Equity S & P 500
<S> <C> <C>
1/1/85 10,000 10,000
1985 13,049 13,177
1986 15,678 15,639
1987 16,007 16,460
1988 18,677 19,192
1989 22,981 25,278
1990 22,863 24,476
1991 28,707 31,934
1992 31,715 34,367
1993 34,733 37,828
1994 36,159 38,324
</TABLE>
Page 6
Bottom of page: a table listing the average annual total returns for the
MML Money Market Fund and the Lipper Taxable Money Market Fund Average for
the 1, 5, and 10 year time periods.
<TABLE>
<CAPTION>
MML Money Lipper Taxable
Plot points for table: Market Money Mkt.
<S> <C> <C>
1 Yr 3.84% 3.65%
5 Yr 4.82% 4.59%
10 Yr 6.17% 5.89%
</TABLE>
<PAGE>
MML Series
Page 7
Top of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Managed Bond Fund and the Lehman
Brothers Government/Corporate Bond Index. In the upper left portion of the
graph is a table listing the average annual total returns for the MML
Managed Bond Fund for the 1, 5, and 10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr -3.76%
5 Yr 7.86%
10 Yr 9.53%
</TABLE>
<TABLE>
<CAPTION>
MML Managed Lehman Brothers
Plot points for graph: Bond G/C Bond
<S> <C> <C>
1/1/85 10,000 10,000
1985 11,994 12,134
1986 13,729 14,022
1987 14,086 14,346
1988 15,090 15,431
1989 17,026 17,631
1990 18,452 19,091
1991 21,526 22,170
1992 23,099 23,848
1993 25,827 26,486
1994 24,855 25,556
</TABLE>
Page 7
Bottom of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Blend Fund and the Lipper
Balanced Fund Index. In the upper left portion of the graph is a table
listing the average annual total returns for the MML Blend Fund for the 1,
5, and 10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr 2.48%
5 Yr 9.31%
10 Yr 12.46%
</TABLE>
<TABLE>
<CAPTION>
Lipper
Plot points for graph: MML Blend Balanced
<S> <C> <C>
1/1/85 10,000 10,000
1985 12,488 12,983
1986 14,774 15,376
1987 15,234 16,010
1988 17,276 17,800
1989 20,725 21,306
1990 21,216 21,446
1991 26,309 26,985
1992 28,772 28,942
1993 31,561 32,329
1994 32,343 31,523
</TABLE>
