<PAGE>
Registration No. 33-7724
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 12 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 12 /_/
--
Massachusetts Mutual Variable Annuity Separate Account 1
--------------------------------------------------------
(Exact Name of Registrant)
Massachusetts Mutual Life Insurance Company
-------------------------------------------
(Name of Depositor)
1295 State Street, Springfield, Massachusetts 01111
---------------------------------------------------
(Address of Depositor's Principal Executive Offices)
(413) 788-8411
Thomas F. English
-----------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485.
-
X on May 1, 1997 pursuant to paragraph (b) of Rule 485.
-
60 days after filing pursuant to paragraph (a) of Rule 485.
-
on (date) pursuant to paragraph (a) of Rule 485.
-
STATEMENT PURSUANT TO RULE 24f-2
The Registrant has registered an indefinite number or amount of its variable
annuity contracts under the Securities Act of 1933 pursuant to Rule 24f-2 under
the Investment Company Act of 1940. The Rule 24f-2 Notice for Registrant's
fiscal year ended December 31, 1996 was filed on or about February 28, 1997.
<PAGE>
CROSS REFERENCE TO ITEMS
REQUIRED BY FORM N-4
N-4 Item Caption in Prospectus
- -------- ---------------------
1.................................................. Cover Page
2.................................................. Glossary
3.................................................. Table of Fees and Expenses
4.................................................. Condensed Financial
Information; Performance
Measures
5.................................................. MassMutual, the Separate
Accounts and the Trust
6.................................................. Contract Charges;
Distribution
7.................................................. Miscellaneous Provisions;
An Explanation of the
Contracts; Reservation of
Rights; Contract Owner's
Voting Rights
8.................................................. The Annuity (Pay-Out)
Period
9.................................................. The Death Benefit
10................................................. The Accumulation (Pay-In)
Period; Distribution
11................................................. Right to Return Contract;
Redemption Privilege
12................................................. Federal Tax Status
13................................................. None
14................................................. Additional Information
<PAGE>
Caption in Statement of
Additional Information
----------------------
15................................................ Cover Page
16................................................ Table of Contents
17................................................ General Information
18................................................ Service Arrangements and
Distribution
21................................................ Performance Measures
22................................................ Contract Value Calculations
23................................................ Reports of Independent
Accountants and Financial
Statements
<PAGE>
PROSPECTUS
MAY 1, 1997
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, 1997, which has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference and is available upon written or oral request and without charge from
the Service Center, H305, P.O. Box 9067, Springfield, Massachusetts 01101.
1-800-234-5606.
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
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Special Terms................................................................................... 4
Special Information............................................................................. 4
Table of Fees and Expenses...................................................................... 5
Condensed Financial Information................................................................. 7
MassMutual, OppenheimerFunds, Inc., the Separate Accounts,
and The Trusts.................................................................................. 8
- MassMutual................................................................................. 8
- OppenheimerFunds, Inc...................................................................... 8
- The Separate Accounts...................................................................... 8
- The Trusts................................................................................. 8
- The MML Trust.............................................................................. 8
- The Oppenheimer Trust...................................................................... 9
- Investments and Objectives.............................................................. 9
An Explanation of the Contracts................................................................. 9
- General.................................................................................... 9
- The Accumulation (Pay-In) Period........................................................... 10
- How Contracts May Be Purchased.......................................................... 10
- Purchase Payments....................................................................... 10
- Wire Transfers.......................................................................... 10
- Crediting and Allocation of Purchase Payments........................................... 10
- Transfers Among Divisions and the Guaranteed Principal Account.......................... 11
- Automatic Transfers..................................................................... 11
- Right to Return Contracts............................................................... 11
- The Death Benefit....................................................................... 11
- The Annuity (Pay-Out) Period............................................................... 12
- Annuity Benefits........................................................................ 12
- Fixed Annuity........................................................................... 12
- Variable Monthly Annuity................................................................ 12
- Payment Options......................................................................... 12
- Fixed Time Payment Option............................................................... 12
- 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...................................................................... 14
- Contingent Deferred Sales Charge........................................................... 15
- Premium Taxes.............................................................................. 16
The Guaranteed Principal Account................................................................ 16
Distribution.................................................................................... 16
Miscellaneous Provisions........................................................................ 17
- Termination of Liability................................................................... 17
- Adjustment of Units and Unit Values........................................................ 17
- Periodic Statements........................................................................ 17
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Contract Owner's Voting Rights.................................................................... 17
Reservation of Rights............................................................................. 17
Federal Tax Status................................................................................ 17
- Introduction................................................................................. 17
- Tax Status of MassMutual..................................................................... 17
- 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
</TABLE>
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.
Service Center: The office at which the administration of the Contract
occurs.
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.
. Certain distributions under the Contracts may be subject to a penalty tax on
the amount of the distribution that is includable in gross income as described
in the Federal Tax Status section.
. 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.
. The Contracts entitle the purchaser to a 10-day revocation right, as more
fully described under Right to Return Contracts.
<PAGE>
Table Of Fees And Expenses
SINGLE PURCHASE PAYMENT CONTRACT
<TABLE>
<CAPTION>
Contract Owner Transaction Expenses
- -----------------------------------
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Investment Fund Annual Expenses (as a percentage of Fund average net assets)**
- ------------------------------------------------------------------------------
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........... 0.38% 0.49% 0.48% 0.37% 0.72% 0.73% 0.75%
Other Expenses............ 0.00% 0.03% 0.03% 0.00% 0.03% 0.08% 0.10%
Total..................... 0.38% 0.52% 0.51% 0.37% 0.75% 0.81% 0.85%
</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................................................ $ 64 $ 65 $ 65 $ 64 $ 68 $ 68 $ 68
3................................................ 84 88 88 84 95 97 98
5................................................ 104 111 111 103 123 126 128
10................................................ 203 218 217 202 242 248 252
If Your Contract is not redeemed at end of year:***
1................................................ 17 19 19 17 21 22 22
3................................................ 54 58 58 54 65 67 69
5................................................ 93 101 100 93 112 115 117
10................................................ 203 218 217 202 242 248 252
</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 expenses listed are for the year ended December 31, 1996.
***The figures shown include a portion of the $30 Annual Administrative Charge,
pro-rated for a Contract with $75,000 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
<TABLE>
<CAPTION>
Contract Owner Transaction Expenses
- -----------------------------------
<S> <C>
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
<CAPTION>
Separate Account Annual Expenses (as a percentage of average account values)
- ----------------------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Fee............................................ 1.15%
Account Fees and Expenses................................................. 0.15%
----
Total..................................................................... 1.30%
</TABLE>
<TABLE>
<CAPTION>
Investment Fund Annual Expenses (as a percentage of Fund average net assets)**
- ------------------------------------------------------------------------------
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....................... 0.38% 0.49% 0.48% 0.37% 0.72% 0.73% 0.75%
Other Expenses........................ 0.00% 0.03% 0.03% 0.00% 0.03% 0.08% 0.10%
Total................................. 0.38% 0.52% 0.51% 0.37% 0.75% 0.81% 0.85%
</TABLE>
Example
You would pay the following cumulative expenses on a $1,000 investment assuming
a 5% annual return on assets:
If Your Contract is redeemed at end of year:***
<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>
1..................................... $ 93 $ 95 $ 94 $ 93 $ 97 $ 97 $ 98
3..................................... 128 132 132 128 138 140 141
5..................................... 154 160 160 153 172 174 176
10..................................... 219 234 233 218 257 264 268
If Your Contract is not
redeemed at end of year:***
1..................................... 19 20 20 19 23 23 24
3..................................... 59 63 63 58 70 72 73
5..................................... 101 108 108 101 120 123 125
10..................................... 219 234 233 218 257 264 268
</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 expenses listed are for the year ended December 31, 1996.
***The figures shown include a portion of the $35 Annual Administrative Charge,
pro-rated for a Contract with $18,421 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>
Massachusetts Mutual Variable Annuity MML Equity MML Money MML Managed MML Blend
Separate Account 1 - Flex Extra (Qualified) Division Market Division Bond Division Division
Accumulation Unit Values -------- --------------- ------------- --------
- ----------------------------
<S> <C> <C> <C> <C>
December 31, 1996................ $2.91 $1.52 $2.00 $2.53
December 31, 1995................ $2.45 $1.47 $1.96 $2.25
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, 1996................ 374,083,546 51,271,090 52,403,544 566,300,198
December 31, 1995................ 323,311,630 41,803,874 49,720,989 546,216,626
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
<CAPTION>
Massachusetts Mutual Variable Annuity MML Equity MML Money MML Managed MML Blend
Separate Account 2 - Flex Extra (Non-Qualified) Division Market Division Bond Division Division
Accumulation Unit Values -------- --------------- ------------- --------
<S> <C> <C> <C> <C>
December 31, 1996................ $2.91 $1.52 $2.00 $2.53
December 31, 1995................ $2.45 $1.47 $1.96 $2.25
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, 1996................ 104,649,193 20,362,671 20,243,018 148,835,850
December 31, 1995................ 82,979,376 14,727,577 18,010,100 131,775,179
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
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Massachusetts Mutual Variable Annuity Capital Global Strategic
Separate Account 1 - Flex Extra (Qualified) Appreciation Securities Bond
Accumulation Unit Values Division Division Division
-------- -------- --------
<S> <C> <C> <C>
December 31, 1996................ $1.56 $1.05 $1.23
December 31, 1995................ $1.32 $0.91 $1.12
December 31, 1994................ $1.01 $0.90 $0.98
September 12, 1994*.............. $1.00 $1.00 $1.00
Number of Accumulation
Units Outstanding December 31, 1996................ 125,989,293 107,702,603 30,405,082
December 31, 1995................ 49,289,518 59,951,410 16,550,444
December 31, 1994................ 10,580,565 19,122,038 3,515,388
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Massachusetts Mutual Variable Annuity Capital Global Strategic
Separate Account 2 - Flex Extra (Non-Qualified) Appreciation Securities Bond
Accumulation Unit Values Division Division Division
-------- -------- --------
<S> <C> <C> <C>
December 31, 1996................ $1.56 $1.05 $1.23
December 31, 1995................ $1.32 $0.91 $1.12
December 31, 1994................ $1.01 $0.90 $0.98
September 12, 1994*.............. $1.00 $1.00 $1.00
Number of Accumulation
Units Outstanding December 31, 1996................ 44,476,705 42,255,790 21,134,436
December 31, 1995................ 15,969,333 20,647,408 11,113,034
December 31, 1994................ 4,250,795 6,903,141 1,621,487
</TABLE>
- -------------
* Commencement of Public Offerings.
Financial Statements
For audited 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, OppenheimerFunds, Inc., 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,
Puerto Rico and certain provinces of Canada.
On February 29, 1996, the merger of Connecticut Mutual Life Insurance Company
("Connecticut Mutual") with and into MassMutual was completed. The separate
existence of Connecticut Mutual has ceased. MassMutual continues its corporate
existence under its current name. The merger does not affect any provisions of,
or rights or obligations under, policies or contracts previously issued by
MassMutual. MassMutual has estimated statutory assets in excess of $55 billion,
and estimated total assets under management in excess of $130 billion.
OPPENHEIMERFUNDS, INC.
OppenheimerFunds, Inc. ("OFI") is an investment adviser 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 $62
billion as of December 31, 1996, and with more than 3 million shareholder
accounts. OFI is owned by Oppenheimer Acquisition Corporation, a holding company
owned in part by senior management of OFI and ultimately controlled by
MassMutual. OFI serves as investment adviser to the Oppenheimer Variable Account
Funds ("Oppenheimer Trust"). OFI is registered as an investment adviser under
the Investment Advisers Act of 1940.
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 other
obligations arising under the Contracts, however, are general corporate
obligations of MassMutual.
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.
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 a no-load, open-end, management investment company consisting
of five separate series of shares. Separate Account 1 and Separate Account 2
invest in MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML
Blend Fund (the "MML Funds"), each having its own investment objectives and
policies. MassMutual serves as investment manager of the MML Trust and is
responsible for providing all necessary investment advisery, management and
administrative services needed by these Funds pursuant to investment management
agreements.
Concert Capital Management, Inc. ("Concert") served as the investment
sub-advisor to MML Equity Fund and the Equity Sector of the MML Blend Fund from
1993-1996. Concert merged with and into David L. Babson & Company, Inc.
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("Babson") effective December 31, 1996. Both Concert and Babson are wholly-owned
subsidiaries of Babson Acquisition Corporation, which is a controlled subsidiary
of MassMutual. Thus, effective January 1, 1997, Babson serves as the investment
subadvisor to MML Equity Fund and the Equity Sector of the MML Blend Fund. Both
MassMutual and Babson are registered as investment advisers under the Investment
Advisers Act of 1940.
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.
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. If this contract is purchased in conjunction with an employee
benefit plan, you should also review any applicable employee benefit plan
documents for a complete understanding of your rights.
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);
(2) different minimum purchase payment amounts are required (see The
Accumulation (Pay-In) Period.); and
(3) certain differences associated with tax-qualified plans.
Contracts issued by Separate Account 1 are sold for use in the following
retirement plans which 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
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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 or a Savings Incentive match Plan for
Employees of Small Business Employers (a "SIMPLE" 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, but
for state and local governmental 457 plans, amounts have to be held for the
exclusive benefits of plan participants. For 457 plans for tax-exempt
organizations, all Contract Values will be subject to the claims of the
employer's creditors. In either case, the employee is only entitled to payment
in accordance with the Section 457 plan provisions.
Contracts issued by Separate Account 2 are sold for use in arrangements other
than retirement plans which qualify for special federal tax treatment. They may
also be purchased by Charitable Remainder Trusts.
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 is
$1,000,000 without prior Home Office Approval.
Purchase Payments
You may place Your initial purchase payment, accompanied by a completed
Application, with Your registered representative.
You should mail subsequent purchase payment checks, clearly indicating Your name
and Contract number, to:
MASSMUTUAL VA
P.O. Box 92714
Chicago, IL 60675-2714
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)
Crediting and Allocation of Purchase Payments. If the initial purchase payment
and forms required to issue a Contract are in good order, MassMutual will credit
the payment to the contract within two (2) business days after receipt at the
Service Center. If the forms required to issue the Contract are not in good
order (due to incomplete or ambiguous application information, for example),
MassMutual will try to get them in good order within five (5) business days
after receipt. MassMutual will refund the initial purchase payment at the end of
the five day period unless you have specifically consented to our retaining the
payment until all forms are in good order. MassMutual will credit to your
Contract subsequent purchase payments as of the day received in good order,
provided that the payment is received prior to that day's Valuation Time. If
received after that day's Valuation Time or on a day that is not a Valuation Day
(e.g. a day when the New York Stock Exchange is closed), MassMutual will credit
the payment to your account as of the next Valuation Date.
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 Sepa-
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rate Account. 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.
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. Depending on the time of day a transfer
request is received in good order, 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 Service Center.
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 four automatic transfer options including:
(i) dollar cost averaging; (ii) asset allocation; (iii) an interest sweep
option; and (iv) GPA liquidation. They are 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.
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
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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 Where state law permits, the Maturity Date may be
deferred to age 90 if the Automatic Partial Redemption program is elected. In
states where available, the Maturity Date may be deferred to age 100 on
Contracts purchased by a Charitable Remainder Trust. 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.
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
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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) 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
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.
In addition, a purchase payment amount is not available to satisfy a redemption
request until the check, or other instrument by which the purchase payment was
made, has been honored.
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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). 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). 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 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 described in greater detail in the attached
prospectus for the MML Series Fund. Similarly, OFI serves as investment adviser
for the Oppenheimer Funds. OFI receives a monthly management fee in its capacity
as investment adviser 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).
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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. CONTINGENT DEFERRED SALES CHARGE ("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.
- --------------------------------------------------------------------------------
Sales Charge
<TABLE>
<CAPTION>
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>
- --------------------------------------------------------------------------------
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.
Subject to state availability, for any new issue contract purchased by a
Charitable Remainder Trust, no sales charge will be imposed on redemptions in
each Contract Year equal to the greater of:
1. 10% of the accumulated value of the Contract on the date of the first
redemption in the Contract Year; or
2. Any amounts in excess of the net purchase payments made at that time.
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,
1998, no sales charge will be imposed upon redemption of a Contract where the
proceeds of such redemption are applied to the purchase of certain new
MassMutual group annuity contracts. 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
15
<PAGE>
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
Flex-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.
Owners of certain IRA or non-qualified Flex Extra variable annuity contracts
that are beyond the sales charge period may exchange such contracts for Panorama
Premier variable annuity contracts issued by CM Life Insurance Company, a
MassMutual life insurance subsidiary (the "Exchange Program"). When eligible
Flex Extra contracts are exchanged for Panorama Premier contracts, no Contingent
Deferred Sales Charge shall apply to initial purchase payments made pursuant to
the exchange but all subsequent purchase payments shall be subject to the
Contingent Deferred Sales Charges. Subject to state availability, the Exchange
Program will be available on or about May 1, 1997. The Company may terminate the
Exchange Program at any time at its sole discretion. See the Statement of
Additional Information for further information about the Exchange Program or
contact your registered representative or call MassMutual at (800) 234-5606.
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%. This charge may increase or decrease to
reflect either any change in the tax or any change of residence. You should
notify MassMutual of any change in residence. Any change in this charge would be
effective immediately. MassMutual does not expect to make a profit from this
charge.
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 SEC 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 MassMutual 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
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), 1414 Main
Street, Springfield, MA 01144-1013, became the principal underwriter of the
Contracts pursuant to an Underwriting and Servicing Agreement to which MML
Distributors, MassMutual and the Separate Account are parties. Prior to May 1,
1996, MML Investors Services, Inc. ("MMLISI"), also located at 1414 Main Street,
Springfield, MA 01144-1013, served as the principal underwriter of the
Contracts. Effective May 1, 1996, MMLISI serves as the co-underwriter of the
Contracts. Both MML Distributors and MMLISI are registered with the SEC as
broker-dealers under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (the "NASD").
MML Distributors may enter into selling agreements with other broker-dealers
which are registered with the SEC and are members of the NASD ("selling
brokers"). Contracts are sold through agents who are licensed by state insurance
officials to sell the Contracts. These agents are also registered
representatives of selling brokers or of MMLISI.
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<PAGE>
MML distributors does business under different variations of its name; including
the name MML Distributors, L.L.C. in the states of Illinois, Michigan, Oklahoma,
South Dakota and Washington; and the name MML Distributors, Limited Liability
Company in the states of Maine, Ohio and West Virginia.
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. 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
17
<PAGE>
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
endorsed before issue to provide that annuity payments be made only in
accordance with these distribution requirements, as applicable.
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<PAGE>
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. Effective for calendar years
beginning January 1, 2000, five year averaging of lump-sum distributions will no
longer be available.
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. For IRAs in SIMPLE
plans, distributions within the first two years of participation are subject
instead to a 25% penalty tax. 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;
(5) payment after age 55 and separation from service (not applicable to IRAs);
(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 (this provision is suspended for 1997, 1998 and
1999); and
(7) effective for calendar years beginning January 1, 1997, withdrawals from
IRAs by certain unemployed persons for payment of health insurance premiums.
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 by 5% owners, and from IRAs beginning at age 70 1/2, and from all others
in qualified plans and TSAs at the later of age 70 1/2 or when the employee
retires. 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:
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<PAGE>
(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;
(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 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.
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, 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.
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: (a) compared
to other variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service or similar services that rank mutual funds and other
investment companies by overall performance, investment objectives and assets;
(b) tracked by other ratings services, companies, publications or persons who
rank separate accounts or other investment products on overall performance or
other criteria; and (c) included in data bases that can be used to produce
reports and illustrations by organizations such as CDA Wiesenberger. 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>
FLEX EXTRA
- --------------------------------------------------------------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
(DEPOSITOR)
- --------------------------------------------------------------------------------
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 1
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 2
(REGISTRANTS)
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus of Massachusetts Mutual Variable Annuity
Separate Accounts 1 and 2 dated May 1, 1997 (the "Prospectus"). The Prospectus
may be obtained from Massachusetts Mutual Life Insurance Company, Annuity
Service Center, H305, P.O. Box 9067, Springfield, Massachusetts 01101,
1-800-234-5606.
Dated May 1, 1997
1
<PAGE>
TABLE OF CONTENTS
General Information and History......................................3
Service Arrangements and Distribution................................6
Contract Value Calculations
For Amounts Allocated to an Investment
Division of a Separate Account.......................................8
Performance Measures................................................12
Reports of Independent
Accountants and Financial
Statements.................................................Final Pages
2
<PAGE>
GENERAL INFORMATION
MassMutual
----------
Massachusetts Mutual Life Insurance Company ("MassMutual") is a mutual life
insurance company specially chartered by the Commonwealth of Massachusetts on
May 14, 1851. Its Home Office is located in Springfield, Massachusetts.
MassMutual is registered as an investment adviser under the Investment Advisers
Act of 1940 MassMutual serves as investment adviser for the MML Series
Investment Fund which is comprised of: MML Money Market Fund, MML Managed Bond
Fund, the MML Blend Fund and the MML Equity Fund (collectively the MML
"Funds").Concert Capital Management, Inc. ("Concert") served as the investment
sub-advisor to MML Equity Fund and the Equity Sector of the MML Blend Fund from
1993-1996. Concert merged with and into David L. Babson & Company, Inc.
("Babson") effective December 31, 1996. Both Concert and Babson are wholly owned
subsidiaries of Babson Acquisition Corporation, which is a controlled subsidiary
of MassMutual. Thus, effective January 1, 1997, Babson serves as the investment
sub-advisor to MML Equity Fund and the Equity Sector of the MML Blend Fund. Both
MassMutual and Babson are registered as investment advisers under the Investment
Advisers Act of 1940.
The Separate Accounts
---------------------
Massachusetts Mutual Variable Annuity Separate Account 1 ("Separate Account 1")
was established as a separate investment account of MassMutual on April 8, 1981
in accordance with the provisions of Chapter 175 of the Massachusetts General
Laws. Massachusetts Mutual Variable Annuity Separate Account 2 ("Separate
Account 2") was established as a separate investment account of MassMutual on
October 14, 1981 in accordance with the provisions of Chapter 175 of the
Massachusetts General Laws. Each Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940. A unit investment
trust is a type of investment company which invests its assets in the shares of
one or more management investment companies rather than directly in its own
portfolio of investment securities. Registration under the Investment Company
Act of 1940 does not involve supervision of the management or investment
practices or policies of the Separate Accounts or of MassMutual. Under
Massachusetts law, however, both MassMutual and each Separate Account are
subject to regulation by the Division of Insurance of the Commonwealth of
Massachusetts.
Each Separate Account is divided into seven Divisions. The MML Equity Division
invests in shares of MML Equity Fund, the MML Money Market Division invests in
shares of MML Money Market Fund, the MML Managed Bond Division invests in shares
of MML Managed Bond Fund and the MML Blend Division invests in shares of MML
Blend Fund. Each MML Fund is a series of MML Series Investment Fund (the "MML
Trust"). The Oppenheimer Global Securities Division invests in shares of
Oppenheimer Global Securities Fund. The Oppenheimer Capital Appreciation
Division invests in shares of Oppenheimer Capital Appreciation Fund, and the
Oppenheimer Strategic Bond Division invests in shares of Oppenheimer Strategic
Bond Fund. Each Oppenheimer Fund is a series of Oppenheimer Variable Account
Funds (the "Oppenheimer Trust").
The value of both Accumulation Units (see "The Accumulation (Pay-In) Period"
---
section) and Annuity Units (see "The Annuity (Pay Out) Period" section) in each
---
Division reflects the investment results of its underlying Fund.
Although the assets of each Separate Account are assets of MassMutual, assets of
each Separate Account equal to the reserves and other annuity 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. All obligations arising under the
Flex Extra Contracts (the "Contracts"), however, are general corporate
obligations of MassMutual.
The Trusts
----------
3
<PAGE>
a. The MML Trust
-------------
The MML Trust is a no-load, open-end management investment company consisting of
five separate series of shares. Separate Account 1 and Separate Account 2 invest
in the following--MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund,
and MML Blend Fund (the MML "Funds") each of which has its own investment
objectives and policies. MassMutual organized the MML Trust for the purpose of
providing vehicles for the investment of assets held in various separate
investment accounts, including the Separate Accounts, established by MassMutual
or life insurance company subsidiaries of MassMutual. A Separate Account
purchases and redeems shares of the MML 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 MML Fund at net asset value, which shares are added
to the assets of the appropriate Division of the Separate Account. MassMutual
serves as investment manager of each of the MML Funds pursuant to separate
investment management agreements executed by MassMutual and each of the MML
Funds. Babson manages the investment and reinvestment of the assets of the MML
Equity Fund and the Equity Sector of MML Blend Fund pursuant to an Investment
Sub-advisory Agreement entered into between Babson and MassMutual. Both
MassMutual and Babson are registered as investment advisers under the Investment
Advisers Act of 1940. The MML Trust's Prospectus and Statement of Additional
Information contains a description of the MML Funds, their investment
objectives, policies and restrictions, their expenses, the risks attendant
therein, and aspects of their operation.
b. The Oppenheimer Trust
---------------------
The Oppenheimer Trust is a no-load, open-end, diversified management investment
company consisting of separate series of shares known as Funds. The Oppenheimer
Trust was established for use as an investment vehicle by variable contract
separate accounts such as the Separate Accounts. OppenheimerFunds, Inc. ("OFI")
serves as investment adviser to the Oppenheimer Trust
OFI is 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 $62 billion as of December 31, 1996, and with more
than 3 million shareholder accounts. OFI is owned by Oppenheimer Acquisition
Corporation, a holding company owned in part by senior management of OFI and
ultimately controlled by MassMutual. OFI is registered as an investment adviser
under the Investment Advisers Act of 1940. The Oppenheimer Trust's Prospectus
and Statement of Additional Information contains a description of the
Oppenheimer Funds, their investment objectives, policies, restrictions, their
expenses, risks associated with the Funds, and aspects of their operation.
Possible Conflicts
------------------
Assets of Massachusetts Mutual Variable Life Separate Accounts I and II,
registered separate investment accounts of MassMutual and MML Bay State Variable
Life Separate Account I, a registered separate investment account of MML Bay
State Life Insurance Company ("MML Bay State"), a Missouri corporation and a
wholly-owned subsidiary of MassMutual, are invested in the MML Funds. Because
Separate Account 1, Separate Account 2, Massachusetts Mutual Variable Annuity
Separate Account 3, and MML Bay State Variable Annuity Separate Account 1 are
also invested in the MML Funds, it is possible that material conflicts could
arise between owners of the Contracts and owners of variable life insurance
policies funded by the separate accounts listed above. Possible conflicts could
arise if: (i) state insurance regulators should disapprove of or require changes
in investment policies, investment advisers or principal underwriters, or if
MassMutual or MML Bay State should be permitted to act contrary to actions
approved by holders of the variable life insurance policies under rules of the
Securities and Exchange Commission ("SEC"); (ii) adverse tax treatment of the
Contracts or the variable life insurance policies would result from utilizing
the same Funds; (iii) different investment strategies would be more suitable for
the Contracts than for the variable life insurance policies; or (iv) state
insurance laws or regulations or other applicable laws would prohibit the
funding of variable annuity separate accounts and variable life separate
accounts by the same MML Funds. The Board of Trustees of the MML Trust will
follow monitoring procedures which have been developed to determine whether
material conflicts have arisen. Such Board will have a majority of Trustees who
are not interested persons of the MML Trust or MassMutual, and determinations
whether or not a material conflict exists will be made by a majority of such
disinterested Trustees. If a material irreconcilable conflict exists, MassMutual
and MML Bay State will take such action at their own expense as may be required
to cause Massachusetts Mutual Variable Life Separate Accounts I and II and MML
Bay State Variable Life Separate Account I , to be invested solely in shares of
mutual funds which offer their shares exclusively to variable life
4
<PAGE>
insurance separate accounts unless, in certain cases, the holders of both the
variable life insurance policies and the variable annuity Contracts vote not to
effect such segregation.
The Oppenheimer Trust was established for use as an investment vehicle by
variable contract separate accounts such as the Separate Accounts. Accordingly,
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 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.
Assignment of Contract
----------------------
MassMutual will not be charged with notice of any assignment of a Contract or of
the interest of any beneficiary or of any other person unless the assignment is
in writing and the original or MassMutual receives at its Home Office a true
copy thereof. MassMutual assumes no responsibility for the validity of any
assignment.
While the Contracts are generally assignable, all non-tax qualified (Separate
Account 2) Contracts must carry a non-transferability endorsement which
precludes their assignment. For qualified (Separate Account 1) Contracts, the
following exceptions and provisions should be noted:
(1) No person entitled to receive annuity payments under a Contract
or part or all of the Contract's value will be permitted to commute, anticipate,
encumber, alienate or assign such amounts, except upon the written authority of
the Contract Owner given during the Annuitant's lifetime and received in good
order by MassMutual at its Home Office. To the extent permitted by law, no
Contract nor any proceeds or interest payable thereunder will be subject to the
Annuitant's or any other person's debts, contracts or engagements, nor to any
levy or attachment for payment thereof;
(2) If an assignment of a Contract is in effect on the maturity date,
MassMutual reserves the right to pay to the assignee in one sum the amount of
the Contract's maturity value to which he is entitled, and to pay any balance of
such value in one sum to the Contract Owner, regardless of any payment options
which the Contract Owner may have elected. Moreover, if an assignment of a
Contract is in effect at the death of the Annuitant prior to the maturity date,
MassMutual will pay to the assignee in one sum, to the extent that he is
entitled, the greater of (a) the total of all purchase payments, less the net
amount of all partial redemptions, and (b) the Accumulated Value of the
Contract, and any balance of such value will be paid to the beneficiary in one
sum or applied under one or more of the payment options elected;
(3) Contracts used in connection with a tax-qualified retirement plan
must be endorsed to provide that they may not be sold, assigned or pledged for
any purpose unless they are owned by the trustee of a trust described in Section
401(a) or by the administrator of an annuity plan described under Section 403(a)
of the Code;
(4) Contracts used in connection with 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") must be
endorsed to provide that they are non-transferable. Non-ERISA TSA values may be
pledged, however, as collateral for Contract loans; and
(5) Contracts issued under a plan for an Individual Retirement
Annuity pursuant to Section 408 of the Code must be endorsed to provide that
they are non-transferable. Such Contracts may not be sold, assigned, discounted,
or pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose by the Annuitant to any person or party
other than MassMutual, except to a former spouse of the Annuitant in accordance
with the terms of a divorce decree or other written instrument incident to a
divorce.
Assignments may be subject to federal income tax.
RESTRICTIONS ON REDEMPTION
5
<PAGE>
Redemptions of TSAs may be restricted as required by Section 403(b)(11) of the
Internal Revenue Code (see, "Tax-Sheltered Annuity Redemption Restrictions" in
the prospectus for details). In restricting any such redemption, MassMutual
relies on the relief from sections 22(e), 27(c) and 27(d) of the Investment
Company Act of 1940 granted in American Council of Life Insurance [1988 Transfer
Binder] Fed. Sec. L. Rep (CCH) 78,904 (November 22, 1988) (the "No Action
Letter"). In relying on such relief, MassMutual hereby represents that it
complies with the provisions of paragraphs (1)-(4) as set forth in the No Action
Letter.
SERVICE ARRANGEMENTS AND DISTRIBUTION
Experts
Independent Accountants
-----------------------
The financial statements of the Separate Accounts and the statutory financial
statements of MassMutual included in this Statement of Additional Information
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., Springfield, Massachusetts 01101, independent accountants, given on the
authority of that firm as experts in accounting and auditing. Coopers &
Lybrand's report includes explanatory paragraphs relating to the use of
statutory accounting practices rather than generally accepted accounting
principles.
Distribution and Administration
-------------------------------
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), a
wholly-owned subsidiary of MassMutual, became the principal underwriter for each
Separate Account pursuant to an Underwriting and Servicing Agreement among
MassMutual, MML Distributors and the Separate Accounts. Prior to May 1, 1996,
MML Investors Services, Inc. ("MMLISI"), also a wholly-owned subsidiary of
MassMutual, served as principal underwriter for each Separate Account.
Effective May 1, 1996, MMLISI serves as co-underwriter for each Separate
Account.
MML Distributors may enter into selling agreements with other broker-dealers
which are registered with the SEC as broker-dealers under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. ("selling brokers"). The Contracts are sold through agents who are
licensed by state insurance department officials to sell the Contracts. These
agents are also registered representatives of selling brokers or MMLISI. The
Contracts are offered in all states and the District of Columbia.
Pursuant to the Underwriting and Servicing Agreement, both MML Distributors and
MMLISI will receive compensation for their activities as underwriters for each
Separate Account. Compensation paid to MMLISI in 1996 was $328,688. Compensation
paid to MML Distributors in 1996 was $10,000. Commissions will be paid through
MMLISI and MML Distributors to agents and selling brokers for selling the
Contracts. During 1996, 1995, and 1994, commission payments amounted to
$35,521,258, $27,288,843, and $23,948,009 respectively.
Under Administration Agreements, MassMutual has agreed to provide, or provide
for, and assume: (1) all services and expenses required for the administration
of those Contracts which depend in whole or in part on the investment
performance of the Separate Accounts; and (2) all services and expenses required
for the administration of the Separate Accounts other than the services and
expenses referred to in (1). MassMutual also has agreed to provide, or provide
for, and assume all services and expenses required for the Separate Accounts'
management-related services. MassMutual receives no compensation for such
services apart from the various charges against the Contracts described in the
Prospectus.
These Servicing and Administration Agreements may be terminated by the parties
without the payment of any penalty upon sixty days' written notice. The
agreements immediately terminate in the event of their assignment (within the
meaning of the Investment Company Act of 1940). The agreements may be amended at
any time by the mutual consent of the parties. Contract Owners will not receive
notice with respect to changes in the agreements.
The offering of the Contracts is continuous.
6
<PAGE>
Purchase of Securities Being Offered
------------------------------------
Interests in the Separate Account are sold to Contract Owners as accumulation
units. Until April 30, 1998, deferred contingent sales charges that may
otherwise have been applicable will be waived upon the surrender of a Contract
where the proceeds of such redemption are used to purchase certain new
MassMutual group contracts. Charges applicable to the particular group contract,
including any surrender charges, will continue to apply.
Exchange Program: Flex Extra Variable Annuity Contracts
-------------------------------------------------------
Owners of IRA or non-qualified Flex Extra variable annuity contracts that are
beyond the sales charge period may exchange such contracts for Panorama Premier
variable annuity contracts issued by CM Life Insurance Company, a MassMutual
life insurance subsidiary (the "Exchange Program"). For Flex Extra flexible
purchase payment contracts, the sales charge period ends in the tenth year. For
Flex Extra single purchase payment contracts, it ends in the sixth year. The
Exchange Program is only available in those states that have approved both
contracts. The entire Accumulated Value of the Flex Extra contract must be
transferred to the Panorama Premier application. While there is no upper limit
on the amount of the Accumulated Value, it must be at least $5,000 ($2,000 for
IRA contracts) on the date the owner signs the Panorama Premier application. An
exchange may occur if the contract owner has moneys in the Flex Extra GPA even
if the applicable state has not approved the Fixed Account feature of the
Panorama Premier contract. In that case, the contract owner may transfer GPA
moneys to any Panorama Premier sub-account. While moneys in Flex Extra's
Guaranteed Principal Account ("GPA") must be transferred to Panorama Premier's
Fixed Account, all other assets may be transferred into the sub-accounts
designated by the owner in the application for the Panorama Premier variable
annuity contract. The transfers shall occur within two business days of the
receipt in good order of the Panorama Premier application and all necessary
paperwork. For purposes of determining the amounts that can subsequently be
transferred from and between Accounts, a new Contract Year will begin upon the
issuance of the Panorama Premier contract.
When eligible Flex Extra contracts are exchanged for Panorama Premier contracts,
no Contingent Deferred Sales Charge shall apply to initial purchase payments
made pursuant to the exchange but all subsequent purchase payments shall be
subject to the Contingent Deferred Sales Charges.
The Exchange Program will be available on or about May 1, 1997. The Company may
terminate the Exchange Program at any time at its sole discretion. For further
information about the Exchange Program contact your registered representative or
call MassMutual at (800) 234-5606.
Generally, when a Panorama Premier contract is issued, the initial purchase
payment is deposited in a money market fund during the free look period. This
requirement, however, will not apply to the Exchange Program. As indicated in
the Prospectus (Highlights: Right to Examine Contract), the Contract can be
returned to the Company for any reason within ten (10) calendar days, or longer
in certain circumstances, after its receipt by the Contract Owner. If this right
is exercised, the contract will be terminated and treated as if it were never
issued. Furthermore, the Flex Extra contract will be reinstated as if it had
never been exchanged for the Panorama Premier contract.
In determining whether an exchange is appropriate, a contract owner should
carefully compare the Flex Extra and Panorama Premier contracts and should
carefully review the prospectuses for both products.
CONTRACT VALUE CALCULATIONS FOR AMOUNTS ALLOCATED TO AN
INVESTMENT DIVISION OF A SEPARATE ACCOUNT
The Accumulation (Pay-In) Period
--------------------------------
Valuation Date, Valuation Time and Valuation Period
---------------------------------------------------
Each day on which the net asset value of the shares of any of the Funds is
determined is a "Valuation Date." The value of shares of the Funds held in each
Separate Account is determined as of the "Valuation Time," which is the time of
the close of trading on the New York Stock Exchange (currently 4:00 p.m. New
York time) on a Valuation Date. A
7
<PAGE>
"Valuation Period" is the period, consisting of one or more days, from one
Valuation Time to the next succeeding Valuation Time.
Accumulation Unit Value
-----------------------
The value of an Accumulation Unit (the "Accumulation Unit Value") for each
Division of the Separate Account will vary from Valuation Date to Valuation
Date. The initial Accumulation Unit Value for each Division was set at
$1.00000000. The Accumulation Unit Value for each Division on any date
thereafter is equal to the product of the "Net Investment Factor" for that
Division (as defined below) for the Valuation Period which includes such date
and the Accumulation Unit Value for that Division on the preceding Valuation
Date.
Purchase of Accumulation Units in a Division
--------------------------------------------
of a Separate Account
---------------------
You may allocate purchase payments among the available investment Divisions of a
Separate Account and the Guaranteed Principal Account. At the end of each
Valuation Period, MassMutual will apply Your purchase payment (after deducting
any applicable premium taxes) to each Separate Account Division that you have
allocated in order to purchase Accumulation Units of the designated Division(s).
These Accumulation Units will be used in determining the value of amounts in the
Separate Account credited to the Contract on or prior to the maturity date and
the amount of variable annuity benefits at maturity. The value of the
Accumulation Units in each Division will vary with and will reflect the
investment performance and expenses of that Division (which in turn will reflect
the investment performance of the Fund in which the assets of the Division are
invested), any applicable taxes and the applicable Asset Charge.
The Accumulation Unit Value is determined as of the Valuation Time. Provided
that the Contract application is complete, Accumulation Units are purchased at
their Accumulation Unit Value within two days of the date on which a purchase
payment is received in good order in the mail or by wire transfer at the Home
Office Service Center or a designated bank lock box. If such date is not a
Valuation Date, or if the purchase payment is received after the Valuation Time
or other than by mail or wire transfer, the value of the Accumulation Units
purchased will be determined as of the next Valuation Time following the date
the payment is received. 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.
Net Investment Factor
---------------------
The Net Investment Factor for each Division for any Valuation Period is equal to
the sum of the Gross Investment Rate for that Division (as defined below) for
the Valuation Period and 1.00000000, decreased by the applicable Asset Charge.
The Net Investment Factor may be greater than or less than 1.00000000.
Gross Investment Rate
---------------------
The Gross Investment Rate for each Division of a Separate Account is equal to
the net earnings of that Division during the Valuation Period, divided by the
value of the net assets of that Division at the beginning of the Valuation
Period. The net earnings of each Division are equal to the accrued investment
income and capital gains and losses (realized and unrealized) of that Division
and an adjustment for taxes paid or provided for. The Gross Investment Rate will
be determined in accordance with generally accepted accounting principles and
applicable laws, rules and regulations. The Gross Investment Rate may be
positive or negative.
The policy of each Separate Account is to take dividends and capital gain
distributions on shares of the Funds held by each Separate Account in additional
shares and not in cash.
See the General Formulas section below for the general formulas used to compute
----------------
the value of an Accumulation Unit for any Division of a Separate Account, and
for a hypothetical illustration using such formulas.
8
<PAGE>
The Annuity (Pay-Out) Period
----------------------------
When your Contract approaches its maturity date, you may choose to have the
Accumulated Value of the Contract provide you at maturity with 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 lump sum. A Sales Charge (as described in the
Prospectus) may be deducted from the Accumulated Value of your Contract at
maturity. Fixed or Variable Monthly Annuity payments may be received under
several different payment options. If you have made no election within a
reasonable time after the maturity date, the Contract will provide you with the
automatic payment of a Variable Monthly Annuity under a life income option with
payments guaranteed for 10 years.
Fixed Annuity
-------------
If you select a Fixed Annuity, then each annuity payment will be for a
fixed-dollar amount and will not vary with or reflect the investment performance
of a Separate Account or its Divisions. For further information regarding the
type of annuity benefit and the payment options available thereunder, you should
refer to the Contracts.
Variable Monthly Annuity
------------------------
If you select a Variable Monthly Annuity, then each annuity payment will be
based upon the value of the Annuity Units. This value will vary with and reflect
the investment performance of each Division to which Annuity Units are credited.
The number of Annuity Units will not vary, but will remain fixed during the
annuity period unless a joint and survivor Payment Option with reduced survivor
income (as described in the Prospectus) is elected.
Variable Monthly Annuity payments will be made by withdrawal of assets from the
Separate Account.
Annuity Units and Monthly Payments
----------------------------------
The number of Annuity Units in each Division to be credited to a Contract is
determined in the following manner. First, the value of amounts attributable to
a Contract to each Division of a Separate Account is determined by multiplying
the number of Accumulation Units credited to a Division on the maturity date of
the Contract by the Accumulation Unit Value of that Division on the Payment
Calculation Date for the first Variable Monthly Annuity payment. Such value is
then multiplied by the "purchase rate" (as defined below) to determine the
amount of the first Variable Monthly Annuity payment attributable to each
Division. Finally, the amount of the first Variable Monthly Annuity payment
attributable to each Division is divided by the Annuity Unit Value for that
Division on the Payment Calculation Date for such payment to determine the
number of Annuity Units for that Division.
The dollar amount of each Variable Monthly Annuity payment (other than the first
payment under a Contract) is equal to the sum of the products obtained by
multiplying the number of Annuity Units in each Division credited to the
Contract by their value (the "Annuity Unit Value") on the Payment Calculation
Date.
Purchase Rate
-------------
The purchase rate for each Division is the amount of Variable Monthly Annuity
payment purchased by $1,000 of Accumulated Value at maturity date applied to
that Division. The purchase rates which will be applied will be those specified
in the Contract or those in use by MassMutual when the first Variable Monthly
Annuity payment is due, whichever provides the higher income. The purchase rate
will differ according to the payment option which you elect and takes into
account the age and year of birth of the Annuitant or Annuitants. The sex of the
Annuitant or Annuitants will also be considered unless the Contract is issued on
a unisex basis, including cases issued in connection with an employer-sponsored
plan covered by the United States Supreme Court case of Arizona Governing
-----------------
Committee v. Norris.
- -------------------
Assumed Investment Rates
------------------------
9
<PAGE>
The Assumed Investment Rate for each Separate Account Division will be 4% per
annum unless a lower rate is required by state law. The Assumed Investment Rate
will affect the amount by which Variable Monthly Annuity payments will vary from
month to month. If the actual net investment performance for a Division for the
period between the date any Variable Monthly Annuity payment is determined and
the date the next Variable Monthly Annuity payment is determined is equivalent
on an annual basis to an investment return at the Assumed Investment Rate, then
the amount of the next payment attributable to that Division will be equal to
the amount of the last payment. If such net investment performance for a
Division is equivalent to an investment return greater than the Assumed
Investment rate, the next payment attributable to that Division will be larger
than the last; if such net investment performance for a Division is equivalent
to a return smaller than the Assumed Investment Rate, then the next payment
attributable to that Division will be smaller than the last.
10
<PAGE>
Annuity Unit Value
------------------
The Annuity Unit Value for a Division depends on the Assumed Investment Rate and
on the Net Investment Factor for that Division. The initial Annuity Unit Value
for each Division was set at $1.00000000. An Annuity Unit Value for a Division
on any date thereafter is equal to the Net Investment Factor for the Valuation
Period which includes such date divided by the sum of 1.00000000 plus the rate
of interest for the number of days in such Valuation Period at an effective
annual rate equal to the Assumed Investment Rate, and multiplied by the Annuity
Unit Value for the Division on the preceding Valuation Date.
General Formulas
----------------
General Formulas to Determine Accumulation Unit Value and
---------------------------------------------------------
Annuity Unit Value for any Division of a Separate Account
---------------------------------------------------------
Gross Investment = Net Earnings during Valuation Period
Rate ------------------------------------
Value of Net Assets at beginning of
Valuation Period
Net Investment = Gross Investment Rate + 1.00000000 - Asset
Factor Charge
Accumulation = Accumulation Unit Value on Preceding
Unit Value Valuation Date X Net Investment Factor
Annuity Unit Value on Preceding Valuation
Date X Net Investment Factor
----------------------------
Annuity Unit = 1.00000000 + rate of interest for number of
Value days in current Valuation Period at Assumed
Investment Rate
Illustration of Computation of Accumulation
-------------------------------------------
and Annuity Unit Value Using Hypothetical Example
-------------------------------------------------
The above computations may be illustrated by the following hypothetical example:
Assume that the net earnings of the Division for the Valuation Period were
$11,760; that the value of net assets at the beginning of the Valuation Period
was $30,000,000; that the Asset Charge was .00003562 per day; that the values of
an Accumulation Unit and an Annuity Unit in the Division of the Separate Account
on the preceding Valuation Date were $1.13500000 and $1.06700000, respectively,
that the corresponding Assumed Investment Rate was 4% and that the Valuation
Period was one day.
The Gross Investment Rate for the Valuation Period would be .00039200 ($11,760
divided by $30,000,000). The Net Investment Factor would be 1.00035638
(.00039200 plus 1.00000000 minus .00003562). The new Accumulation Unit Value
would be $1.13540449 ($1.13500000 x 1.00035638). At an effective annual rate of
4%, the rate of interest for one day is .00010746, and the new Annuity Unit
Value would be $1.06726557 ($1.06700000 x 1.00035638 divided by 1.00010746).
11
<PAGE>
General Formulas to Determine Variable Monthly Annuity
------------------------------------------------------
Payments and Number of Annuity Units for any Division of a
----------------------------------------------------------
Separate Account
----------------
First Variable Accumulation Units Applied X Accumulation Unit
Monthly Annuity = Value on Payment Calculation Date for First Payment
Variable Monthly Annuity Payment X Purchase Rate
First Variable Monthly Annuity Payment
--------------------------------------
Number of = Annuity Unit Value on Payment Calculation Date
Annuity Units for First Variable Monthly Annuity Payment
Amount of
Subsequent = Number of Annuity Units X Annuity Unit Value
Variable Monthly on the Applicable Payment Calculation Date
Annuity Payments
Illustration of Computation of Variable Monthly Annuity
-------------------------------------------------------
Payments for a Contract Using Hypothetical Example
--------------------------------------------------
The above computations may be illustrated by the following hypothetical example:
Assume that 35,000 Accumulation Units in a Division of a Separate Account were
to be applied; that the purchase rate for the Assumed Investment Rate and
payment option elected was $5.65 per $1,000; that the Accumulation Unit Value of
such Division on the Payment Calculation Date for the first Variable Monthly
Annuity payment was $1.35000000; and that the Annuity Unit Value of such
Division on the Payment Calculation Date for the first Variable Monthly Annuity
payment was $1.20000000 and for the second Variable Monthly Annuity payment was
$1.20050000.
The first Variable Monthly Annuity payment would be $266.96 (35,000 x 1.35000000
x .00565). The number of Annuity Units of such Division credited would be
222.467 ($266.96 divided by $1.20000000). The amount of the second Variable
Monthly Annuity payment would be $267.07 (222.467 x $1.20050000). If the
Contract has Annuity Units credited in more than one Division of a Separate
Account, the above computation would be made for each Division and the Variable
Monthly Annuity Payment would be equal to the sum thereof.
PERFORMANCE MEASURES
MassMutual may show the performance for the Divisions of the Separate Account in
the following ways:
Standardized Average Annual Total Return
----------------------------------------
MassMutual will show the "Standardized Average Annual Total Return," formulated
as prescribed by the rules of the SEC, for each Division of the Separate
Account. 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
calculation assumes a single $1,000 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 in force Contracts investing in
each of the Divisions. The Company may choose to show Standardized Average
Annual Total Returns based on the inception of the underlying Fund.
The following tables show the Standardized Average Annual Total Return for the
Divisions of the Separate Accounts for the period ended December 31, 1996.
12
<PAGE>
<TABLE>
<CAPTION>
Flexible Purchase Payment Contract
1996 5 Year (4/27/87)*
---- ------ ----------
<S> <C> <C> <C>
Equity Division 9.11% 11.43% 9.68%
Managed Bond Division (5.61) 4.94 4.10
Blend Division 3.33 8.31 6.71
Money Market Division (3.87) 1.95 8.39
1996 5 Year (9/12/94)*
---- ------ ----------
Oppenheimer Capital
Appreciation Division 9.64% N/A 17.21%
Oppenheimer Global
Securities Division 7.40 N/A (4.27)
Oppenheimer Strategic
Bond Division 2.62 N/A 4.22
* Since availability of Funds within contract
<CAPTION>
Single Purchase Payment Contract
1996 5 Year (4/27/87)*
---- ------ ----------
<S> <C> <C> <C>
Equity Division 13.50% 12.40% 10.97%
Managed Bond Division (1.91) 5.74 7.28
Blend Division 7.50 9.25 9.36
Money Market Division (0.13) 2.71 4.37
1996 5 Year (9/12/94)*
---- ------ ----------
Oppenheimer Capital
Appreciation Division 13.96% N/A 19.65%
Oppenheimer Global
Securities Division 11.61 N/A 0.81
Oppenheimer Strategic
Bond Division 6.61 N/A 8.26
* Since availability of Funds within the contract
</TABLE>
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 Funds. The Oppenheimer Variable Account Funds were
added to the contracts on September 12, 1994. For these funds, the calculations
may be based on the premise that they were part of the contract from the
inception date 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, 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.
13
<PAGE>
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 one year, 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 and Fund expenses (See Table of
Fees and Expenses-- of the Flex Extra Prospectus), the Percentage Change and
Annualized Returns also reflect these expenses. However, these percentages 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 by MassMutual.
14
<PAGE>
<TABLE>
<CAPTION>
Percentage Change in Accumulation Unit Values
---------------------------------------------
For Periods Ending 12/31/96
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S>
Equity Division 18.73% 86.32% 216.90%
Money Market Division 3.69 14.79 54.31
Managed Bond Division 1.93 33.18 96.00
Blend Division 12.50 61.97 170.93
Oppenheimer Capital
Appreciation 18.63 102.80 304.56
Oppenheimer Global
Securities 16.05 68.01 N/A
Oppenheimer Strategic
Bond 10.65 N/A N/A
<CAPTION>
Annualized Accumulation Unit Value Return
-----------------------------------------
For Periods Ending 12/31/96
---------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Division 18.73% 16.47% 13.25% 12.23%
Money Market Division 3.69 3.47 2.80 4.43
Managed Bond Division 1.93 4.43 5.90 6.96
Blend Division 12.50 11.47 10.13 10.48
Oppenheimer Capital
Appreciation Division 18.63% 12.30% 15.19% 15.00
Oppenheimer Global
Securities Division 16.05 2.91 10.94 N/A
Oppenheimer Strategic
Bond Division 10.65 6.17 N/A N/A
</TABLE>
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.
The performance figures discussed above reflect historical results of the Funds
and are not intended to indicate or to predict future performance.
Performance information for the Separate Account Divisions may be: (a) compared
to other variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
15
<PAGE>
reporting service or similar services that rank mutual funds and other
investment companies by overall performance, investment objectives and assets;
(b) tracked by other ratings services, companies, publications or persons who
rank separate accounts or other investment products on overall performance or
other criteria; and (c) included in data bases that can be used to produce
reports and illustrations by organizations such as CDA Wiesenberger. Performance
figures will be calculated in accordance with standardized methods established
by each reporting service.
YIELD AND EFFECTIVE YIELD
MassMutual may 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 reflect a deduction for all Fund, Separate Account, and Contract
level charges, assuming the Contract remains in force. The figures do not
reflect the $30 (for single purchase payment Contracts) or $35 (for flexible
purchase payment Contracts) annual administrative charge, the contingent
deferred sales charge or premium tax deductions (if any), which if included
would reduce the percentages reported.
The following tables show the 7-day Yield and Effective Yield for the Money
Market Division of the Separate Accounts for the periods ended December 31,
1996:
<TABLE>
<CAPTION>
7-Day Yield:
- -----------
<S> <C>
Separate Account 1 (Tax-Qualified Contracts)....................2.62%
Separate Account 2 (Non-Tax Qualified Contracts)................2.62%
7-Day Effective Yield:
- ---------------------
Separate Account 1 (Tax-Qualified Contracts)....................2.65%
Separate Account 2 (Non-Tax-Qualified Contracts)................2.65%
</TABLE>
The performance figures discussed above reflect historical results of the Funds
and are not intended to indicate or to predict future performance.
16
<PAGE>
FLEX EXTRA HYPOTHETICAL PROJECTIONS
Managed Bond Division
- ---------------------
$2,000 purchase payment made each December 31
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
-------------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 2,000 1,994 -0.30% -0.30%
12/31/1988 4,000 4,197 5.08% 3.25%
12/31/1989 6,000 6,876 10.96% 6.97%
12/31/1990 8,000 9,472 6.71% 6.87%
12/31/1991 10,000 13,181 14.90% 9.35%
12/31/1992 12,000 16,048 5.71% 8.37%
12/31/1993 14,000 19,887 10.19% 8.79%
12/31/1994 16,000 20,754 -5.18% 5.76%
12/31/1995 18,000 26,732 17.48% 7.82%
12/31/1996 20,000 29,251 1.81% 6.81%
</TABLE>
Managed Bond Division
- ---------------------
$50,000 single purchase payment made December 31, 1986
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
-------------------------
year's purchase payment One Average
Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 50,000 50,563 1.13% 1.13%
12/31/1988 50,000 53,478 5.77% 3.42%
12/31/1989 50,000 59,563 11.38% 6.00%
12/31/1990 50,000 63,735 7.00% 6.26%
12/31/1991 50,000 73,396 15.16% 7.98%
12/31/1992 50,000 77,727 5.90% 7.63%
12/31/1993 50,000 85,769 10.35% 8.01%
12/31/1994 50,000 81,435 -5.05% 6.29%
12/31/1995 50,000 95,765 17.60% 7.49%
12/31/1996 50,000 97,582 1.90% 6.92%
</TABLE>
Blend Division
- --------------
$2,000 purchase payment made each December 31
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
-------------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 2,000 2,006 0.30% 0.30%
12/31/1988 4,000 4,455 11.21% 7.40%
12/31/1989 6,000 7,620 18.05% 12.44%
12/31/1990 8,000 9,698 0.81% 7.85%
12/31/1991 10,000 14,292 22.17% 12.15%
12/31/1992 12,000 17,555 7.75% 10.98%
12/31/1993 14,000 21,143 8.12% 10.32%
12/31/1994 16,000 23,373 0.99% 8.38%
12/31/1995 18,000 30,852 21.59% 10.63%
12/31/1996 20,000 36,925 12.40% 10.91%
</TABLE>
Blend Division
- --------------
$50,000 single purchase payment made December 31, 1986
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
-------------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 50,000 50,873 1.75% 1.75%
12/31/1988 50,000 56,921 11.89% 6.70%
12/31/1989 50,000 67,427 18.46% 10.48%
12/31/1990 50,000 68,154 1.08% 8.05%
12/31/1991 50,000 83,440 22.43% 10.78%
12/31/1992 50,000 90,056 7.93% 10.30%
12/31/1993 50,000 97,501 8.27% 10.01%
12/31/1994 50,000 98,588 1.11% 8.86%
12/31/1995 50,000 119,983 21.70% 10.21%
12/31/1996 50,000 134,955 12.48% 10.44%
</TABLE>
17
<PAGE>
FLEX EXTRA HYPOTHETICAL PROJECTIONS
Money Market Division
- ---------------------
$2,000 purchase payment made each December 31
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
year's purchase payment ------------------------
----------------------- One Average
Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 2,000 2,073 3.65% 3.65%
12/31/1988 4,000 4,291 5.35% 4.77%
12/31/1989 6,000 6,754 7.36% 6.04%
12/31/1990 8,000 9,319 6.45% 6.20%
12/31/1991 10,000 11,812 4.36% 5.60%
12/31/1992 12,000 14,075 1.90% 4.58%
12/31/1993 14,000 16,269 1.21% 3.76%
12/31/1994 16,000 18,692 2.32% 3.45%
12/31/1995 18,000 21,532 4.06% 3.56%
12/31/1996 20,000 24,366 3.54% 3.56%
<CAPTION>
Money Market Division
- ---------------------
$50,000 single purchase payment made December 31, 1986
Values prior to current Non-Standardized
year's purchase payment -------------------------
----------------------- One Average
Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 50,000 52,534 5.07% 5.07%
12/31/1988 50,000 55,701 6.03% 5.55%
12/31/1989 50,000 60,033 7.78% 6.29%
12/31/1990 50,000 64,085 6.75% 6.40%
12/31/1991 50,000 67,046 4.62% 6.04%
12/31/1992 50,000 68,461 2.11% 5.38%
12/31/1993 50,000 69,408 1.38% 4.80%
12/31/1994 50,000 71,117 2.46% 4.50%
12/31/1995 50,000 74,095 4.19% 4.47%
12/31/1996 50,000 76,800 3.65% 4.39%
</TABLE>
Equity Division
- ---------------
$2,000 purchase payment made each December 31
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
year's purchase payment -------------------------
----------------------- One Average
Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 2,000 1,966 -1.70% -1.70%
12/31/1988 4,000 4,532 14.27% 8.62%
12/31/1989 6,000 7,911 21.11% 14.48%
12/31/1990 8,000 9,709 -2.04% 7.90%
12/31/1991 10,000 14,486 23.72% 12.62%
12/31/1992 12,000 17,946 8.86% 11.62%
12/31/1993 14,000 21,531 7.95% 10.78%
12/31/1994 16,000 24,144 2.61% 9.09%
12/31/1995 18,000 33,823 29.37% 12.42%
12/31/1996 20,000 42,498 18.63% 13.36%
<CAPTION>
Equity Division
- ---------------
$50,000 single purchase payment made December 31, 1986
Values prior to current Non-Standardized
-------------------------
year's purchase payment One Average
Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 50,000 49,879 -0.24% -0.24%
12/31/1988 50,000 57,339 14.96% 7.09%
12/31/1989 50,000 69,677 21.52% 11.70%
12/31/1990 50,000 68,439 -1.78% 8.16%
12/31/1991 50,000 84,842 23.97% 11.15%
12/31/1992 50,000 92,505 9.03% 10.80%
12/31/1993 50,000 99,989 8.09% 10.41%
12/31/1994 50,000 102,713 2.72% 9.42%
12/31/1995 50,000 132,988 29.48% 11.48%
12/31/1996 50,000 157,867 18.71% 12.18%
</TABLE>
18
<PAGE>
FLEX EXTRA HYPOTHETICAL PROJECTIONS
Capital Appreciation Division
- -----------------------------
$2,000 purchase payment made each December 31
<TABLE>
<CAPTION>
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 2,000 2,227 11.35% 11.35%
12/31/1988 4,000 4,702 11.24% 11.28%
12/31/1989 6,000 8,409 25.47% 17.85%
12/31/1990 8,000 8,516 -18.19% 2.52%
12/31/1991 10,000 16,025 52.39% 16.15%
12/31/1992 12,000 20,501 13.74% 15.53%
12/31/1993 14,000 28,244 25.52% 17.63%
12/31/1994 16,000 27,552 -8.90% 12.00%
12/31/1995 18,000 38,644 30.77% 15.02%
12/31/1996 20,000 48,183 18.55% 15.54%
<CAPTION>
Capital Appreciation Division
- -----------------------------
$50,000 single purchase payment made December 31, 1986
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1987 50,000 56,399 12.80% 12.80%
12/31/1988 50,000 63,107 11.89% 12.34%
12/31/1989 50,000 79,435 25.87% 16.68%
12/31/1990 50,000 65,190 -17.93% 6.86%
12/31/1991 50,000 99,529 52.68% 14.76%
12/31/1992 50,000 113,364 13.90% 14.62%
12/31/1993 50,000 142,444 25.65% 16.13%
12/31/1994 50,000 129,902 -8.80% 12.68%
12/31/1995 50,000 169,993 30.86% 14.56%
12/31/1996 50,000 201,641 18.62% 14.96%
<CAPTION>
Global Securities Division
- --------------------------
$2,000 purchase payment made each December 31
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1991 2,000 2,006 0.30% 0.30%
12/31/1992 4,000 3,638 -9.19% -6.16%
12/31/1993 6,000 9,444 67.51% 24.47%
12/31/1994 8,000 10,614 -7.25% 11.64%
12/31/1995 10,000 12,696 0.65% 8.07%
12/31/1996 12,000 17,019 15.81% 10.08%
<CAPTION>
Global Securities Division
- --------------------------
$50,000 single purchase payment made December 31, 1990
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1991 50,000 50,996 1.99% 1.99%
12/31/1992 50,000 46,729 -8.37% -3.33%
12/31/1993 50,000 78,534 68.06% 16.24%
12/31/1994 50,000 73,047 -6.99% 9.94%
12/31/1995 50,000 73,696 0.89% 8.07%
12/31/1996 50,000 85,493 16.01% 9.35%
<CAPTION>
Strategic Bond Division
- -----------------------
$2,000 purchase payment made each December 31
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/1994 2,000 1,865 -6.75% -6.75%
12/31/1995 4,000 4,366 12.96% 5.97%
12/31/1996 6,000 7,009 10.10% 7.98%
<CAPTION>
Strategic Bond Division
- -----------------------
$50,000 single purchase payment made December 31, 1993
Values prior to current Non-Standardized
-----------------------
year's purchase payment One Average
----------------------- Year Annual
Cumulative Accumulated Total Total
Date Payments Value Return Return
- ---------------------------------------------------------------------------
12/31/1994 50,000 47,459 -5.08% -5.08%
12/31/1995 50,000 54,010 13.80% 3.93%
12/31/1996 50,000 59,732 10.59% 6.11%
</TABLE>
19
<PAGE>
Report Of Independent Accountants
To the Contract Owners of Massachusetts Mutual Variable Annuity Separate Account
1 and the Board of Directors of Massachusetts Mutual Life Insurance Company
We have audited the statements of assets and liabilities of the Flex Extra
segment (Qualified) of Massachusetts Mutual Variable Annuity Separate Account 1
(comprising, respectively, the MML Equity Division, MML Money Market Division,
MML Managed Bond Division, MML Blend Division, Oppenheimer Capital Appreciation
Division, Oppenheimer Global Securities Division and Oppenheimer Strategic Bond
Division - the "Divisions") as of December 31, 1996, and the related
statements of operations and statements of changes in net assets for each of the
two years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included verification of investments owned as of December 31, 1996, by
examination of the records of MML Series Investment Fund and by confirmation
with Oppenheimer Variable Account Funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
Divisions constituting the Flex Extra segment (Qualified) of Massachusetts
Mutual Variable Annuity Separate Account 1 as of December 31, 1996, the results
of their operations and the changes in their net assets for the periods
indicated thereon, in conformity with generally accepted accounting principles.
Also, in our opinion, based on these audits and our previous audits, made in
accordance with generally accepted auditing standards, of the financial
statements of Flex Extra segment (Qualified) of Massachusetts Mutual Variable
Annuity Separate Account 1 for each respective period, indicated thereon, and
upon which we expressed an unqualified opinion, the financial information under
the caption "Condensed Financial Information" for each date appearing in the
Prospectus, is fairly stated in all material respects in relation to the
financial statements from which it has been derived.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 4, 1997
1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML Capital Global
Equity Market Bond Blend Appreciation Securities
Division Division Division Division Division Division
-------------- ------------ ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Number of shares (Note 2)..... 34,938,306 77,648,423 8,551,096 63,043,478 5,079,621 6,418,795
============== ============ ============ ============== ============ =============
Identified cost (Note 3B)..... $ 752,422,486 $ 77,648,423 $104,765,274 $1,120,625,529 $174,634,302 $ 100,022,742
============== ============ ============ ============== ============ =============
Value (Note 3A)............... $1,040,684,042 $ 77,648,423 $103,026,670 $1,385,274,952 $196,530,538 $ 113,163,361
Dividends receivable............ 48,469,573 318,646 1,637,096 47,318,044 -- --
Receivable for accumulation
units sold.................... 446,271 80,936 44,721 733,898 227,387 100,141
Divisional transfers pending
settlement.................... (213,352) 10,669 (26,513) (15,324) 85,463 124,206
Receivable from Massachusetts
Mutual Life Insurance Company. 15,082 -- 1,323 -- 3,076 8,704
Other assets.................... 1,095 -- 190 4,111 22 --
-------------- ------------ ------------ -------------- ------------ -------------
Total assets.................. 1,089,402,711 78,058,674 104,683,487 1,433,315,681 196,846,486 113,396,412
-------------- ------------ ------------ -------------- ------------ -------------
LIABILITIES
Redemptions pending settlement.. 191,624 14,792 14,680 85,661 2,677 1,248
Annuitant mortality
fluctuation reserve (Note 3D). 8,185 356 1,029 20,526 77 --
Payable to Massachusetts Mutual
Life Insurance Company........ -- 10,554 -- 44,188 -- --
-------------- ------------ ------------ -------------- ------------ -------------
Total liabilities............. 199,809 25,702 15,709 150,375 2,754 1,248
-------------- ------------ ------------ -------------- ------------ -------------
NET ASSETS...................... $1,089,202,902 $ 78,032,972 $104,667,778 $1,433,165,306 $196,843,732 $ 113,395,164
============== ============ ============ ============== ============ =============
Net assets:
Accumulation units - Value...... $1,088,930,073 $ 78,021,090 $104,633,439 $1,432,481,094 $196,841,170 $ 113,395,164
Annuity reserves (Note 3E)...... 272,829 11,882 34,339 684,212 2,562 --
-------------- ------------ ------------ -------------- ------------ -------------
Net assets.................... $1,089,202,902 $ 78,032,972 $104,667,778 $1,433,165,306 $196,843,732 $ 113,395,164
============== ============ ============ ============== ============ =============
Accumulation units
Contractowners................ 374,083,546 51,271,090 52,403,544 566,300,198 125,984,293 107,697,603
Massachusetts Mutual Life
Insurance Company............ -- -- -- -- 5,000 5,000
-------------- ------------ ------------ -------------- ------------ -------------
Total units (Note 7)......... 374,083,546 51,271,090 52,403,544 566,300,198 125,989,293 107,702,603
============== ============ ============ ============== ============ =============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1996............. $2.91 $1.52 $2.00 $2.53 $1.56 $1.05
December 31, 1995............. 2.45 1.47 1.96 2.25 1.32 0.91
December 31, 1994............. 1.89 1.41 1.67 1.85 1.01 0.90
December 31, 1993............. 1.84 1.37 1.75 1.83 -- --
December 31, 1992............. 1.70 1.35 1.59 1.69 -- --
<CAPTION>
Oppenheimer
Strategic
Bond
Division
-----------
<S> <C>
ASSETS
Investments
Number of shares (Note 2)..... 7,359,962
===========
Identified cost (Note 3B)..... $35,998,103
===========
Value (Note 3A)............... $37,462,208
Dividends receivable............ --
Receivable for accumulation
units sold.................... 28,969
Divisional transfers pending
settlement.................... 34,851
Receivable from Massachusetts
Mutual Life Insurance Company. 22,441
Other assets.................... --
-----------
Total assets.................. 37,548,469
-----------
LIABILITIES
Redemptions pending settlement.. 1,780
Annuitant mortality
fluctuation reserve (Note 3D). --
Payable to Massachusetts Mutual
Life Insurance Company........ --
-----------
Total liabilities............. 1,780
-----------
NET ASSETS...................... $37,546,689
===========
Net assets:
Accumulation units - Value...... $37,546,689
Annuity reserves (Note 3E)...... --
-----------
Net assets.................... $37,546,689
===========
Accumulation units
Contractowners................ 30,400,082
Massachusetts Mutual Life
Insurance Company............. 5,000
-----------
Total units (Note 7)........ 30,405,082
===========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1996............. $1.23
December 31, 1995............. 1.12
December 31, 1994............. 0.98
December 31, 1993............. --
December 31, 1992............. --
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -- Flex Extra
(Qualified)
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML Capital Global
Equity Market Bond Blend Appreciation Securities
Division Division Division Division Division Division
-------------- ------------ ------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends (Note 3B)............ $ 48,484,862 $ 3,320,726 $ 6,515,960 $ 84,906,785 $ 5,085,589 $ --
Expenses
Mortality and expense risk
fees and administrative
expenses (Note 4)............ 12,110,722 876,370 1,312,351 17,202,240 1,647,702 1,067,100
-------------- ------------ ------------ -------------- ------------ -------------
Net investment income (loss)
(Note 3C).................... 36,374,140 2,444,356 5,203,609 67,704,545 3,437,887 (1,067,100)
-------------- ------------ ------------ -------------- ------------ -------------
Net realized and unrealized
gain (loss) on investments
Net realized gain (loss) on
investments
(Notes 3B, 3C and 6)......... 10,382,200 -- 1,492 16,971,599 1,263,459 (62,553)
Change in net unrealized
appreciation/depreciation
of investments............... 115,060,848 -- (3,134,796) 72,870,820 11,417,050 13,625,232
-------------- ------------ ------------ -------------- ------------ -------------
Net gain (loss) on investments. 125,443,048 -- (3,133,304) 89,842,419 12,680,509 13,562,679
-------------- ------------ ------------ -------------- ------------ -------------
Net increase in net assets
resulting from operations.... $ 161,817,188 $ 2,444,356 $ 2,070,305 $ 157,546,964 $ 16,118,396 $ 12,495,579
============== ============ ============ ============== ============ =============
<CAPTION>
Oppenheimer
Strategic
Bond
Division
-----------
<S> <C>
Investment income
Dividends (Note 3B)............. $ 2,233,686
Expenses
Mortality and expense risk
fees and administrative
expenses (Note 4)............. 349,117
-----------
Net investment income (loss)
(Note 3C)..................... 1,884,569
-----------
Net realized and unrealized
gain (loss) on investments
Net realized gain (loss) on
investments
(Notes 3B, 3C and 6).......... 38,682
Change in net unrealized
appreciation/depreciation
of investments................ 928,108
-----------
Net gain (loss) on investments.. 966,790
-----------
Net increase in net assets
resulting from operations..... $ 2,851,359
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)........... $ 36,374,140 $ 2,444,356 $ 5,203,609 $ 67,704,545
Net realized gain (loss)
on investments....................... 10,382,200 -- 1,492 16,971,599
Change in net unrealized
appreciation/depreciation
of investments....................... 115,060,848 -- (3,134,796) 72,870,820
-------------- ------------ ------------ --------------
Net increase in net assets
resulting from operations............ 161,817,188 2,444,356 2,070,305 157,546,964
-------------- ------------ ------------ --------------
Capital transactions: (Note 7)
Net contract payments (Note 5)......... 202,988,508 48,076,014 23,398,821 216,725,735
Transfer to Guaranteed Principal
Account.............................. (3,718,121) (2,283,737) (630,775) (3,985,433)
Withdrawal of funds.................... (71,672,816) (10,940,328) (8,477,782) (121,978,327)
Reimbursement (payment) of
accumulation unit value fluctuation.. 238,612 (8,585) (5,812) 148,659
Net charge (credit) to annuitant
mortality fluctuation reserve
(Note 3D)............................ 1,013 103 435 (1,063)
Annuity benefit payments............... (24,165) (1,106) (3,131) (64,531)
Withdrawals due to administrative and
contingent deferred sales charges
(Note 5)............................. (2,599,700) (238,577) (699,939) (4,112,110)
Divisional transfers................... 9,266,576 (20,377,584) (8,417,236) (39,814,967)
-------------- ------------ ------------ --------------
Net increase in net assets
resulting from capital transactions.. 134,479,907 14,226,200 5,164,581 46,917,963
-------------- ------------ ------------ --------------
Total increase........................... 296,297,095 16,670,556 7,234,886 204,464,927
NET ASSETS, at beginning of the year..... 792,905,807 61,362,416 97,432,892 1,228,700,379
-------------- ------------ ------------ --------------
NET ASSETS, at end of the year........... $1,089,202,902 $ 78,032,972 $104,667,778 $1,433,165,306
============== ============ ============ ==============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
------------ ---------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)........... $ 3,437,887 $ (1,067,100) $ 1,884,569
Net realized gain (loss)
on investments....................... 1,263,459 (62,553) 38,682
Change in net unrealized
appreciation/depreciation
of investments....................... 11,417,050 13,625,232 928,108
------------ ------------- -----------
Net increase in net assets
resulting from operations............ 16,118,396 12,495,579 2,851,359
------------ ------------- -----------
Capital transactions: (Note 7)
Net contract payments (Note 5)......... 80,811,285 39,535,046 16,074,801
Transfer to Guaranteed Principal
Account.............................. (558,356) (353,662) (179,432)
Withdrawal of funds.................... (8,478,007) (6,026,082) (1,541,386)
Reimbursement (payment) of
accumulation unit value fluctuation.. 267,513 66,697 23,109
Net charge (credit) to annuitant
mortality fluctuation reserve
(Note 3D)............................ (159) -- --
Annuity benefit payments............... (238) -- --
Withdrawals due to administrative and
contingent deferred sales charges
(Note 5)............................. (247,046) (147,907) (43,382)
Divisional transfers................... 44,018,111 13,434,086 1,891,014
------------ ------------- -----------
Net increase in net assets
resulting from capital transactions.. 115,813,103 46,508,178 16,224,724
------------ ------------- -----------
Total increase........................... 131,931,499 59,003,757 19,076,083
NET ASSETS, at beginning of the year..... 64,912,233 54,391,407 18,470,606
------------ ------------- -----------
NET ASSETS, at end of the year........... $196,843,732 $ 113,395,164 $37,546,689
============ ============= ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -- Flex Extra
(Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............ $ 20,552,676 $ 2,324,415 $ 4,483,339 $ 54,858,846
Net realized gain (loss)
on investments........................ 4,668,022 -- 109,224 10,951,610
Change in net unrealized
appreciation/depreciation
of investments........................ 141,018,117 -- 8,886,210 147,158,889
-------------- ------------ ------------ --------------
Net increase in net assets
resulting from operations............. 166,238,815 2,324,415 13,478,773 212,969,345
-------------- ------------ ------------ --------------
Capital transactions: (Note 7)
Net contract payments (Note 5).......... 151,822,584 44,573,255 21,014,026 183,282,466
Transfer to Guaranteed Principal
Account............................... (3,293,914) (3,529,465) (597,641) (7,188,331)
Withdrawal of funds..................... (53,018,488) (7,195,621) (7,227,853) (94,798,994)
Reimbursement (payment) of accumulation
unit value fluctuation................ 297,179 (36,540) 13,525 96,276
Net charge (credit) to annuitant
mortality fluctuation reserve
(Note 3D)............................. (19,292) 198 6,036 10,573
Annuity benefit payments................ (16,496) (1,219) (1,767) (51,475)
Withdrawals due to administrative and
contingent deferred sales charges
(Note 5).............................. (2,164,257) (150,868) (610,253) (3,779,770)
Divisional transfers.................... 13,204,278 (23,823,309) (2,087,808) (17,128,209)
-------------- ------------ ------------ --------------
Net increase in net assets
resulting from capital transactions... 106,811,594 9,836,431 10,508,265 60,442,536
-------------- ------------ ------------ --------------
Total increase............................ 273,050,409 12,160,846 23,987,038 273,411,881
NET ASSETS, at beginning of the year...... 519,855,398 49,201,570 73,445,854 955,288,498
-------------- ------------ ------------ --------------
NET ASSETS, at end of the year............ $ 792,905,807 $ 61,362,416 $ 97,432,892 $1,228,700,379
============== ============ ============ ==============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Oppreciation Securities Bond
Division Division Division
----------- ---------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............ (330,798) $ 265,248 $ 745,872
Net realized gain (loss)
on investments........................ 206,286 (62,818) 349
Change in net unrealized
appreciation/depreciation
of investments........................ 10,311,411 367,280 645,457
------------ ------------- -----------
Net increase in net assets
resulting from operations............. 10,186,899 569,710 1,391,678
------------ ------------- -----------
Capital transactions: (Note 7)
Net contract payments (Note 5).......... 29,949,571 28,232,406 11,430,965
Transfer to Guaranteed Principal
Account............................... (144,983) (229,866) (22,610)
Withdrawal of funds..................... (2,140,828) (2,308,910) (250,910)
Reimbursement (payment) of accumulation
unit value fluctuation................ 106,547 (13,968) 9,180
Net charge (credit) to annuitant
mortality fluctuation reserve
(Note 3D)............................. -- -- --
Annuity benefit payments................ -- -- --
Withdrawals due to administrative and
contingent deferred sales charges
(Note 5).............................. (57,196) (42,380) (6,504)
Divisional transfers.................... 16,366,153 10,995,557 2,473,338
------------ ------------- -----------
Net increase in net assets
resulting from capital transactions... 44,079,264 36,632,839 13,633,459
------------ ------------- -----------
Total increase............................ 54,266,163 37,202,549 15,025,137
NET ASSETS, at beginning of the year...... 10,646,070 17,188,858 3,445,469
------------ ------------- -----------
NET ASSETS, at end of the year............ $ 64,912,233 $ 54,391,407 $18,470,606
============ ============= ===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -- Flex Extra
(Qualified)
Notes To Financial Statements
1. History
Massachusetts Mutual Variable Annuity Separate Account 1 ("Separate Account
1") is a separate investment account established on April 8, 1981 by
Massachusetts Mutual Life Insurance Company ("MassMutual"). Separate Account
1 operates as a registered unit investment trust pursuant to the Investment
Company Act of 1940 and the rules promulgated thereunder.
MassMutual maintains three segments within Separate Account 1. The segments
are Variable Annuity Fund 4, Flex-Annuity IV (Qualified) and Flex Extra
(Qualified.) These notes and the financial statements presented herein, with
the exception of Note 8, describe and consist only of the Flex Extra
(Qualified) segment (the "Segment").
On September 13, 1994, MassMutual paid $15,000 to provide the initial
capital for the Segment's three new divisions: 1,516 shares were purchased
in the management investment company described in Note 2 supporting the
three new Oppenheimer divisions of the Segment.
2. INVESTMENT OF THE SEGMENT'S ASSETS
The Flex Extra (Qualified) Segment maintains seven divisions. The MML Equity
Division invests in shares of MML Equity Fund, the MML Money Market Division
invests in shares of MML Money Market Fund, the MML Managed Bond Division
invests in shares of MML Managed Bond Fund, the MML Blend Division invests
in shares of MML Blend Fund, the Oppenheimer Capital Appreciation Division
invests in shares of Oppenheimer Capital Appreciation Fund, the Oppenheimer
Global Securities Division invests in shares of Oppenheimer Global
Securities Fund and the Oppenheimer Strategic Bond Division invests in
shares of Oppenheimer Strategic Bond Fund.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are the four series of shares of MML Series Investment Fund (the "MML
Trust"). The MML Trust is a no-load, registered, open-end, diversified
management investment company for which MassMutual serves as investment
manager. Concert Capital Management, Inc. ("Concert") served as the
investment sub-advisor to MML Equity Fund and the Equity Sector of the MML
Blend Fund from 1993-1996. Concert merged with and into David L. Babson &
Company, Inc. ("Babson") effective December 31, 1996. At such time, both
Concert and Babson were wholly-owned subsidiaries of Babson Acquisition
Corporation, which is a controlled subsidiary of MassMutual. Thus, effective
January 1, 1997, Babson serves as the investment sub-advisor to MML Equity
Fund and the Equity Sector of the MML Blend Fund. MassMutual paid Concert a
quarterly fee equal to an annual rate of .13% of the average daily net asset
value of MML Equity Fund and the Equity Sector of MML Blend Fund.
Oppenheimer Capital Appreciation Fund, Oppenheimer Global Securities Fund
and Oppenheimer Strategic Bond Fund (the "Oppenheimer Funds") are part of
the Oppenheimer Variable Account Funds (the "Oppenheimer Trust"). The
Oppenheimer Trust is a registered, open-end, diversified management
investment company, for which OppenheimerFunds, Inc. ("OFI"), a controlled
subsidiary of MassMutual, serves as investment advisor. (Prior to January 5,
1996, OFI was known as Oppenheimer Management Corporation.)
In addition to the seven divisions of the Segment, a contractowner may also
allocate funds to the Guaranteed Principal Account, which is part of
MassMutual's general account. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Principal Account, which is part of
MassMutual's general account, are not registered under the Securities Act of
1933; and the general account is not registered as an investment company
under the Investment Company Act of 1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Segment in preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Investment Valuation
The investments in MML Trust and Oppenheimer Trust are each stated at market
value which is the net asset value of each of the respective underlying
funds.
B. Accounting for Investments
Investment transactions are accounted for on trade date and identified cost
is the basis followed in determining the cost of investments sold for
financial statement purposes. Dividend income is recorded on the ex-dividend
date.
7
<PAGE>
Notes To Financial Statements (Continued)
C. Federal Income Taxes
Operations of the Segment form a part of the total operations of MassMutual,
and the Segment is not taxed separately. MassMutual is taxed as a life
insurance company under the provisions of the 1986 Internal Revenue Code, as
amended. The Segment will not be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. Under existing federal law,
no taxes are payable on investment income and realized capital gains
attributable to contracts which depend on the Segment's investment performance
(the "Contracts"). Accordingly, no provision for federal income tax has been
made. MassMutual may, however, make such a charge in the future if an
unanticipated change of current law results in a company tax liability
attributable to the Segment.
D. Annuitant Mortality Fluctuation Reserve
The Segment maintains a reserve as required by regulatory authorities to
provide for mortality losses incurred. The reserve is increased quarterly for
mortality gains and its proportionate share of any increases in value. The
reserve is charged quarterly for mortality losses and its proportionate share
of any decreases in value. Transfers to or from MassMutual are then made
quarterly to adjust the Segment. Net transfers from MassMutual to the Segment
totaled $4,592 and $4,751 for the years ended December 31, 1996 and 1995,
respectively. The reserve is subject to a maximum of 3% of the Segment's
annuity reserves. Any mortality losses in excess of this reserve will be
assumed by MassMutual. The reserve is not available to owners of Contracts
except to the extent necessary to cover mortality losses under the Contracts.
E. Annuity Reserves
Annuity reserves are developed by using accepted actuarial methods and are
computed using the 1971 Individual Annuity Mortality Table, as modified.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4.CHARGES FOR MORTALITY AND EXPENSE RISKS AND ADMINISTRATIVE EXPENSES
Daily charges are made which are currently equivalent on an annual basis to
1.30% of the net asset value of the Segment (the "Net Asset Value"). The
mortality and expense risk part of this charge is made daily at an annual rate
which is currently equal to 1.15%, and will not exceed 1.25% of the Net Asset
Value. The administrative expense part of this charge is made daily at an
annual rate of 0.15% of the Net Asset Value.
5.CHARGES/DEDUCTIONS FOR ADMINISTRATIVE CHARGES, CONTINGENT DEFERRED SALES
CHARGES AND PREMIUM TAXES
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
- ----------------- ------------ ----------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract payments............. $203,052,355 $48,091,136 $23,406,181 $216,793,903 $80,836,702 $39,547,481 $16,079,856
Less deduction for premium taxes.... 63,847 15,122 7,360 68,168 25,417 12,435 5,055
------------ ----------- ----------- ------------ ----------- ----------- -----------
Net contract payments............... $202,988,508 $48,076,014 $23,398,821 $216,725,735 $80,811,285 $39,535,046 $16,074,801
============ =========== =========== ============ =========== =========== ===========
Administrative and contingent
deferred sales charges............. $ 2,599,700 $ 238,577 $ 699,939 $ 4,112,110 $ 247,046 $ 147,907 $ 43,382
============ =========== =========== ============ =========== =========== ===========
</TABLE>
8
<PAGE>
Notes To Financial Statements (Continued)
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1995 Division Division Division Division Division Division Division
- ------------------ ------------ ----------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract payments............. $151,878,157 $44,589,570 $21,021,718 $183,349,554 $29,960,534 $28,242,740 $11,435,149
Less deduction for premium taxes.... 55,573 16,315 7,692 67,088 10,963 10,334 4,184
------------ ----------- ----------- ------------ ----------- ----------- -----------
Net contract payments.............. $151,822,584 $44,573,255 $21,014,026 $183,282,466 $29,949,571 $28,232,406 $11,430,965
============ =========== =========== ============ =========== =========== ===========
Administrative and contingent
deferred sales charges............. $ 2,164,257 $ 150,868 $ 610,253 $ 3,779,770 $ 57,196 $ 42,380 $ 6,504
============ =========== =========== ============ =========== =========== ===========
</TABLE>
6. PURCHASES AND SALES OF INVESTMENTS
<TABLE>
<CAPTION>
For the Year Ended Cost of Proceeds
December 31, 1996 Purchases from Sales
- ----------------- ------------ -----------
<S> <C> <C>
MML Equity Fund............................................................................ $173,553,588 $22,843,022
MML Money Market Fund...................................................................... 56,840,647 39,829,441
MML Managed Bond Fund...................................................................... 18,892,751 8,678,318
MML Blend Fund............................................................................. 149,632,782 49,044,813
Oppenheimer Capital Appreciation Fund...................................................... 123,298,138 4,600,925
Oppenheimer Global Securities Fund......................................................... 47,847,198 2,779,481
Oppenheimer Strategic Bond Fund............................................................ 19,227,083 1,153,101
</TABLE>
7. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
- ----------------- ------------ ------------ ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased.................. 76,729,920 32,480,215 12,127,911 92,070,370 54,010,610 40,693,793 13,773,056
Units withdrawn and transferred
to Guaranteed Principal Account (29,454,155) (9,371,630) (5,080,084) (55,096,078) (6,181,894) (6,690,628) (1,513,179)
Units transferred
between divisions.............. 3,500,347 (13,641,369) (4,364,007) (16,849,325) 28,872,959 13,748,028 1,594,761
Units transferred
to annuity reserves............ (4,196) -- (1,265) (41,395) (1,900) -- --
----------- ---------- --------- ---------- ----------- ---------- ----------
Net increase.................... 50,771,916 9,467,216 2,682,555 20,083,572 76,699,775 47,751,193 13,854,638
Units, at beginning of the year. 323,311,630 41,803,874 49,720,989 546,216,626 49,289,518 59,951,410 16,550,444
----------- ---------- ---------- ----------- ----------- ---------- ----------
Units, at end of the year....... 374,083,546 51,271,090 52,403,544 566,300,198 125,989,293 107,702,603 30,405,082
=========== ========== ========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1995 Division Division Division Division Division Division Division
- ----------------- ----------- ----------- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased.................. 69,805,040 31,553,182 11,492,855 89,689,954 26,275,918 31,405,388 10,919,028
Units withdrawn and transferred
to Guaranteed Principal Account (27,009,124) (8,148,539) (4,647,340) (51,873,389) (2,048,460) (2,920,128) (299,608)
Units transferred
between divisions.............. 6,031,280 (16,535,578) (1,214,131) (8,529,788) 14,481,495 12,344,112 2,415,636
Units transferred
to annuity reserves............ (54,503) -- (11,596) (9,911) -- -- --
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net increase..................... 47,772,693 6,869,065 5,619,788 29,276,866 38,708,953 40,829,372 13,035,056
Units, at beginning of the year.. 274,538,937 34,934,809 44,101,201 516,939,760 10,580,565 19,122,038 3,515,388
----------- ---------- ---------- ----------- ---------- ---------- ----------
Units, at end of the year........ 323,311,630 41,803,874 49,720,989 546,216,626 49,289,518 59,951,410 16,550,444
=========== ========== ========== =========== ========== ========== ==========
</TABLE>
9
<PAGE>
Notes To Financial Statements (Continued)
8.CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 1
As discussed in Note 1, the financial statements only represent activity of
the Flex Extra (Qualified) segment of the Massachusetts Mutual Variable
Annuity Separate Account 1. The combined net assets as of December 31, 1996
for the Massachusetts Mutual Variable Annuity Separate Account 1, which
includes the segments pertaining to the Variable Annuity Fund 4, Flex-Annuity
IV (Qualified) and Flex Extra (Qualified) are as follows:
<TABLE>
<CAPTION>
MML MML *Oppenheimer *Oppenheimer *Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
----------------- -------------- ----------- ------------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................. $1,214,719,428 $90,729,346 $119,495,147 $1,674,063,977 $196,846,486 $113,396,412 $37,548,469
Total liabilities............ 249,887 30,259 24,609 363,218 2,754 1,248 1,780
-------------- ----------- ------------ -------------- ------------ ------------ -----------
Net assets................... $1,214,469,541 $90,699,087 $119,470,538 $1,673,700,759 $196,843,732 $113,395,164 $37,546,689
============== =========== ============ ============== ============ ============ ===========
Net assets consist of:
Accumulation units - Value... $1,213,899,309 $90,602,466 $119,321,259 $1,672,789,860 $196,841,170 $113,395,164 $37,546,689
Annuity reserves............. 570,232 96,621 149,279 910,899 2,562 -- --
-------------- ----------- ------------ -------------- ------------ ------------ -----------
Net assets................... $1,214,469,541 $90,699,087 $119,470,538 $1,673,700,759 $196,843,732 $113,395,164 $37,546,689
============== =========== ============ ============== ============ ============ ===========
</TABLE>
*Offered on the Flex Extra (Qualified) Contracts only.
9.DISTRIBUTION AGREEMENT
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), a wholly-
owned subsidiary of MassMutual, serves as principal underwriter of the
contracts pursuant to an underwriting and servicing agreement among MML
Distributors, MassMutual and Separate Account I. MML Distributors is
registered with the Securities and Exchange Commission (the "SEC") as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"). MML
Distributors may enter into selling agreements with other broker-dealers who
are registered with the SEC and are members of the NASD in order to sell the
contracts.
Prior to May 1, 1996, MML Investors Services, Inc. ("MMLISI") a wholly-owned
subsidiary of MassMutual, served as principal underwriter of the contracts.
Effective May 1, 1996, MMLISI serves as co-underwriter of the policies
pursuant to underwriting and servicing agreements among MMLISI, MassMutual and
Separate Account I, MMLISI is registered with the SEC as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of the NASD. Registered
representatives of MMLISI sell the contracts as authorized variable life
insurance agents under applicable state insurance laws.
Under the sales agreement among MMLISI, MassMutual and Separate Account I,
agents receive commissions and service fees from MMLISI for selling and
servicing the contracts. MassMutual reimburses MMLISI for such compensation
and for other expenses incurred in marketing and selling the contracts.
10
<PAGE>
Report Of Independent Accountants
To the Contract Owners of Massachusetts Mutual Variable Annuity Separate Account
2 and the Board of Directors of Massachusetts Mutual Life Insurance Company
We have audited the statements of assets and liabilities of the Flex Extra
segment (Non-Qualified) of Massachusetts Mutual Variable Annuity Separate
Account 2 (comprising, respectively, the MML Equity Division, MML Money Market
Division, MML Managed Bond Division, MML Blend Division, Oppenheimer Capital
Appreciation Division, Oppenheimer Global Securities Division and Oppenheimer
Strategic Bond Division - the "Divisions") as of December 31, 1996, and the
related statements of operations and statements of changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included verification of investments owned as of December 31, 1996, by
examination of the records of MML Series Investment Fund and by confirmation
with Oppenheimer Variable Account Funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
Divisions constituting the Flex Extra segment (Non-Qualified) of Massachusetts
Mutual Variable Annuity Separate Account 2 as of December 31, 1996, the results
of their operations and the changes in their net assets for the periods
indicated thereon, in conformity with generally accepted accounting principles.
Also, in our opinion, based on these audits and our previous audits, made in
accordance with generally accepted auditing standards, of the financial
statements of Flex Extra segment (Non-Qualified) of Massachusetts Mutual
Variable Annuity Separate Account 2 for each respective period, indicated
thereon, and upon which we expressed an unqualified opinion, the financial
information under the caption "Condensed Financial Information" for each date
appearing in the Prospectus, is fairly stated in all material respects in
relation to the financial statements from which it has been derived.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 4, 1997
1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 - Flex Extra
(Non-Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment
Number of shares (Note 2).......................... 9,782,874 31,082,546 3,310,032 16,564,923
============ ============ =========== ============
Identified cost (Note 3B).......................... $223,666,741 $ 31,082,546 $40,320,358 $307,943,195
============ ============ =========== ============
Value (Note 3A).................................... $291,395,938 $ 31,082,546 $39,880,452 $363,986,480
Dividends receivable................................ 13,571,686 127,121 633,701 12,433,003
Receivable for accumulation units sold.............. 218,141 20,656 3,586 235,350
Divisional transfers pending settlement............. 12,379 31,206 (63,337) (21,159)
Receivable from Massachusetts Mutual
Life Insurance Company............................. 11,339 -- -- 160,506
Other assets........................................ 2,139 -- 16 909
------------ ------------ ----------- ------------
Total assets...................................... 305,211,622 31,261,529 40,454,418 376,795,089
------------ ------------ ----------- ------------
LIABILITIES
Redemptions pending settlement...................... 24,530 500 11,113 39,305
Annuitant mortality
fluctuation reserve (Note 3D)...................... 16,336 1,567 670 7,835
Payable to Massachusetts Mutual
Life Insurance Company............................. -- 220,614 1,358 --
------------ ------------ ----------- ------------
Total liabilities................................. 40,866 222,681 13,141 47,140
------------ ------------ ----------- ------------
NET ASSETS.......................................... $305,170,756 $ 31,038,848 $40,441,277 $376,747,949
============ ============ =========== ============
Net assets:
Accumulation units - value.......................... $304,626,211 $ 30,986,620 $40,418,957 $376,486,784
Annuity reserves (Note 3E).......................... 544,545 52,228 22,320 261,165
------------ ------------ ----------- ------------
Net assets........................................ $305,170,756 $ 31,038,848 $40,441,277 $376,747,949
============ ============ =========== ============
Accumulation units (Note 7)
Contract owners.................................... 104,649,193 20,362,671 20,243,018 148,835,850
Massachusetts Mutual Life Insurance Company........ -- -- -- --
------------ ------------ ----------- ------------
Total units....................................... 104,649,193 20,362,671 20,243,018 148,835,850
============ ============ =========== ============
NET ASSET VALUE PER ACCUMULATION UNIT
December 31, 1996.................................. $2.91 $1.52 $2.00 $2.53
December 31, 1995.................................. 2.45 1.47 1.96 2.25
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
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Investment
Number of shares (Note 2).......................... 1,793,472 2,518,494 5,128,924
=========== =========== ===========
Identified cost (Note 3B).......................... $63,055,445 $39,549,817 $25,212,501
=========== =========== ===========
Value (Note 3A).................................... $69,389,420 $44,401,047 $26,106,222
Dividends receivable................................ -- -- --
Receivable for accumulation units sold.............. 96,274 77,356 --
Divisional transfers pending settlement............. 20,938 16,715 3,258
Receivable from Massachusetts Mutual
Life Insurance Company............................. -- -- --
Other assets........................................ -- -- --
----------- ----------- -----------
Total assets...................................... 69,506,632 44,495,118 26,109,480
----------- ----------- -----------
LIABILITIES
Redemptions pending settlement...................... -- 4,265 10,041
Annuitant mortality
fluctuation reserve (Note 3D)...................... 479 -- --
Payable to Massachusetts Mutual
Life Insurance Company............................. 1,382 1,656 905
----------- ----------- -----------
Total liabilities................................. 1,861 5,921 10,946
----------- ----------- -----------
NET ASSETS.......................................... $69,504,771 $44,489,197 $26,098,534
=========== =========== ===========
Net assets:
Accumulation units - value.......................... $69,488,814 $44,489,197 $26,098,534
Annuity reserves (Note 3E).......................... 15,957 -- --
----------- ----------- -----------
Net assets........................................ $69,504,771 $44,489,197 $26,098,534
=========== =========== ===========
Accumulation units (Note 7)
Contract owners.................................... 44,471,705 42,250,790 21,129,436
Massachusetts Mutual Life Insurance Company........ 5,000 5,000 5,000
----------- ----------- -----------
Total units....................................... 44,476,705 42,255,790 21,134,436
=========== =========== ===========
NET ASSET VALUE PER ACCUMULATION UNIT
December 31, 1996.................................. $1.56 $1.05 $1.23
December 31, 1995.................................. 1.32 0.91 1.12
December 31, 1994.................................. 1.01 .90 .98
December 31, 1993.................................. -- -- --
December 31, 1992.................................. -- -- --
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 - Flex Extra
(Non-Qualified)
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Investment income
Dividends (Note 3B)............................... $ 13,575,697 $ 1,271,353 $ 2,453,943 $ 21,930,056
Expenses
Mortality and expense risk fee and administrative
expenses (Note 4)................................ 3,239,551 335,670 488,806 4,341,913
------------ ------------ ----------- ------------
Net investment income (loss) (Note 3C)............ 10,336,146 935,683 1,965,137 17,588,143
------------ ------------ ----------- ------------
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on investments
(Notes 3B, 3C and 6)............................. 3,274,794 -- (57,102) 4,031,214
Change in net unrealized appreciation/
depreciation of investments...................... 29,880,824 -- (1,040,417) 18,386,915
------------ ------------ ----------- ------------
Net gain (loss) on investments.................... 33,155,618 -- (1,097,519) 22,418,129
------------ ------------ ----------- ------------
Net increase in net assets
resulting from operations........................ $ 43,491,764 $ 935,683 $ 867,618 $ 40,006,272
============ ============ =========== ============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
------------ ----------- -----------
<S> <C> <C> <C>
Investment income
Dividends (Note 3B)............................... $ 1,681,676 $ -- $ 1,530,117
Expenses
Mortality and expense risk fee and administrative
expenses (Note 4)................................ 569,011 389,889 237,268
----------- ---------- -----------
Net investment income (loss) (Note 3C)............ 1,112,665 (389,889) 1,292,849
----------- ---------- -----------
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on investments
(Notes 3B, 3C and 6)............................. 1,076,088 (41,509) 162,434
Change in net unrealized appreciation/
depreciation of investments...................... 3,110,812 5,024,399 507,665
----------- ---------- -----------
Net gain (loss) on investments.................... 4,186,900 4,982,890 670,099
----------- ---------- -----------
Net increase in net assets
resulting from operations........................ $ 5,299,565 $4,593,001 $ 1,962,948
=========== ========== ===========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 - Flex Extra
(Non-Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss).................... $ 10,336,146 $ 935,683 $ 1,965,137 $ 17,588,143
Net realized gain (loss)
on investments................................. 3,274,794 -- (57,102) 4,031,214
Change in net unrealized
appreciation/depreciation
of investments................................. 29,880,824 -- (1,040,417) 18,386,915
------------ ------------ ----------- ------------
Net increase in net assets
resulting from operations...................... 43,491,764 935,683 867,618 40,006,272
------------ ------------ ----------- ------------
Capital transactions: (Note 7)
Net contract payments (Note 5).................. 63,096,331 23,153,412 10,051,057 66,315,310
Transfer to Guaranteed
Principal Account............................... (406,098) (1,076,853) (198,214) (639,853)
Withdrawal of funds............................. (9,321,565) (1,504,217) (2,193,095) (18,763,061)
Reimbursement (payment) of
accumulation unit value fluctuation............ 92,284 (239,053) 3,062 241,902
Net charge (credit) to annuitant
mortality fluctuation reserve (Note 3D)........ 1,997 873 113 (361)
Annuity benefit payments........................ (42,717) (6,181) (1,753) (16,988)
Withdrawal due to administrative and contingent
deferred sales charges (Note 5)................. (413,818) (32,059) (160,993) (677,385)
Divisional transfers............................ 5,013,904 (11,862,001) (3,230,231) (6,251,546)
------------ ------------ ----------- ------------
Net increase in net assets
resulting from capital transactions............ 58,020,318 8,433,921 4,269,946 40,208,018
------------ ------------ ----------- ------------
Total increase................................... 101,512,082 9,369,604 5,137,564 80,214,290
NET ASSETS, at beginning of the year............. 203,658,674 21,669,244 35,303,713 296,533,659
------------ ------------ ----------- ------------
NET ASSETS, at end of the year................... $305,170,756 $ 31,038,848 $40,441,277 $376,747,949
============ ============ =========== ============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
------------ ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss).................... $ 1,112,665 $ (389,889) $ 1,292,849
Net realized gain (loss)
on investments................................. 1,076,088 (41,509) 162,434
Change in net unrealized
appreciation/depreciation
of investments................................. 3,110,812 5,024,399 507,665
----------- ----------- -----------
Net increase in net assets
resulting from operations...................... 5,299,565 4,593,001 1,962,948
----------- ----------- -----------
Capital transactions: (Note 7)
Net contract payments (Note 5).................. 32,825,215 17,048,996 12,661,228
Transfer to Guaranteed Principal Account........ (83,985) (34,799) (98,236)
Withdrawal of funds............................. (1,304,021) (766,799) (477,552)
Reimbursement (payment) of
accumulation unit value fluctuation............ (2,046) 37,735 10,051
Net charge (credit) to annuitant
mortality fluctuation reserve (Note 3D)........ 863 -- --
Annuity benefit payments........................ (1,141) -- --
Withdrawal due to administrative and
contingent deferred sales charges (Note 5)..... (43,140) (28,423) (6,956)
Divisional transfers............................ 11,768,105 4,911,493 (349,724)
----------- ----------- -----------
Net increase in net assets
resulting from capital transactions............ 43,159,850 21,168,203 11,738,811
----------- ----------- -----------
Total increase................................... 48,459,415 25,761,204 13,701,759
NET ASSETS, at beginning of the year............. 21,045,356 18,727,993 12,396,775
----------- ----------- -----------
NET ASSETS, at end of the year................... $69,504,771 $44,489,197 $26,098,534
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 - Flex Extra
(Non-Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................. $ 5,362,298 $ 669,651 $ 1,568,599 $ 13,065,102
Net realized gain (loss)
on investments.............................. 1,554,530 -- (44,762) 2,519,294
Change in net unrealized
appreciation/depreciation
of investments.............................. 33,768,936 -- 3,111,870 34,277,378
------------ ------------ ----------- ------------
Net increase in net assets
resulting from operations................... 40,685,764 669,651 4,635,707 49,861,774
------------ ------------ ----------- ------------
Capital transactions: (Note 7)
Net contract payments (Note 5)............... 39,732,947 16,427,475 7,615,589 41,088,235
Transfer to Guaranteed Principal Account..... (918,951) (385,908) (245,777) (1,173,515)
Withdrawal of funds.......................... (5,561,082) (420,467) (1,259,499) (11,545,884)
Reimbursement (payment) of
accumulation unit value fluctuation......... 54,493 (2,313) (1,338) 67,822
Net charge (credit) to annuitant
mortality fluctuation reserve (Note 3D)..... (9,504) 705 -- (7,868)
Annuity benefit payments..................... (21,041) (6,184) (1,713) (18,844)
Withdrawal due to administrative and
contingent deferred sales charge (Note 5)... (302,371) (15,657) (136,011) (569,650)
Divisional transfers......................... 4,882,414 (9,275,448) 63,361 (3,239,220)
------------ ------------ ----------- ------------
Net increase in net assets
resulting from capital transactions......... 37,856,905 6,322,203 6,034,612 24,601,076
------------ ------------ ----------- ------------
Total increase................................ 78,542,669 6,991,854 10,670,319 74,462,850
NET ASSETS, at beginning of the year.......... 125,116,005 14,677,390 24,633,394 222,070,809
------------ ------------ ----------- ------------
NET ASSETS, at end of the year................ $203,658,674 $ 21,669,244 $35,303,713 $296,533,659
============ ============ =========== ============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
------------ ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................. $ (107,312) $ 67,143 $ 495,411
Net realized gain (loss)
on investments.............................. 170,354 (100,374) (1,942)
Change in net unrealized
appreciation/depreciation
of investments.............................. 3,155,742 137,434 441,853
----------- ------------ -----------
Net increase in net assets
resulting from operations................... 3,218,784 104,203 935,322
----------- ------------ -----------
Capital transactions: (Note 7)
Net contract payments (Note 5)............... 10,141,274 9,762,193 9,272,678
Transfer to Guaranteed Principal Account..... (31,812) (29,799) (41,245)
Withdrawal of funds.......................... (293,306) (294,919) (193,739)
Reimbursement (payment) of
accumulation unit value
fluctuation.................................. 20,250 (14,029) 1,008
Net charge (credit) to annuitant
mortality fluctuation reserve (Note 3D)..... (5,529) -- --
Annuity benefit payments..................... (625) -- --
Withdrawal due to
administrative and contingent
deferred sales charge (Note 5).............. (9,339) (8,178) (3,563)
Divisional transfers......................... 3,728,547 3,003,268 837,078
----------- ------------ -----------
Net increase in net assets
resulting from capital transactions......... 13,549,460 12,418,536 9,872,217
----------- ------------ -----------
Total increase................................ 16,768,244 12,522,739 10,807,539
NET ASSETS, at beginning of the year.......... 4,277,112 6,205,254 1,589,236
----------- ------------ -----------
NET ASSETS, at end of the year................ $21,045,356 $ 18,727,993 $12,396,775
=========== ============ ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 - Flex Extra
(Non-Qualified)
Notes To Financial Statements
1. HISTORY
Massachusetts Mutual Variable Annuity Separate Account 2 ("Separate Account
2") is a separate investment account established on October 14, 1981 by
Massachusetts Mutual Life Insurance Company ("MassMutual"). Separate Account
2 operates as a registered unit investment trust pursuant to the Investment
Company Act of 1940 and the rules promulgated thereunder.
MassMutual maintains two segments within Separate Account 2. The segments are
Flex-Annuity IV (Non-Qualified), and Flex Extra (Non-Qualified). These notes
and the financial statements presented herein, with the exception of Note 8,
describe and consist only of the Flex Extra (Non-Qualified) segment, (the
"Segment").
On September 13, 1994, MassMutual paid $15,000 to provide the initial capital
for the Segment's three new divisions: 1,516 shares were purchased in the
management investment company described in Note 2 supporting the three new
Oppenheimer divisions of the Segment.
2. INVESTMENT OF THE SEGMENT'S ASSETS
The Flex Extra (Non-Qualified) Segment maintains seven divisions. The MML
Equity Division invests in shares of MML Equity Fund, the MML Money Market
Division invests in shares of MML Money Market Fund, the MML Managed Bond
Division invests in shares of MML Managed Bond Fund, the MML Blend Division
invests in shares of MML Blend Fund, the Oppenheimer Capital Appreciation
Division invests in shares of Oppenheimer Capital Appreciation Fund, the
Oppenheimer Global Securities Division invests in shares of Oppenheimer
Global Securities Fund and the Oppenheimer Strategic Bond Division invests in
shares of Oppenheimer Strategic Bond Fund.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are the four series of shares of MML Series Investment Fund (the "MML
Trust"). The MML Trust is a no-load, registered, open-end, diversified
management investment company for which MassMutual serves as investment
manager. Concert Capital Management, Inc. ("Concert") served as the
investment sub-advisor to MML Equity Fund and the Equity Sector of the MML
Blend Fund from 1993-1996. Concert merged with and into David L. Babson &
Company, Inc. ("Babson") effective December 31, 1996. At such time, both
Concert and Babson were wholly-owned subsidiaries of Babson Acquisition
Corporation, which is a controlled subsidiary of MassMutual. Thus, effective
January 1, 1997, Babson serves as the investment sub-advisor to MML Equity
Fund and the Equity Sector of the MML Blend Fund. MassMutual paid Concert a
quarterly fee equal to an annual rate of .13% of the average daily net asset
value of MML Equity Fund and the Equity Sector of MML Blend Fund.
Oppenheimer Capital Appreciation Fund, Oppenheimer Global Securities Fund and
Oppenheimer Strategic Bond Fund (the "Oppenheimer Funds") are part of the
Oppenheimer Variable Account Funds (the "Oppenheimer Trust"). The Oppenheimer
Trust is a registered, open-end, diversified management investment company,
for which OppenheimerFunds, Inc. ("OFI"), a controlled subsidiary of
Mass Mutual, serves as investment advisor. (Prior to January 5, 1996, OFI was
known as Oppenheimer Management Corporation.)
In addition to the seven divisions of the Segment, a contractowner may also
allocate funds to the Guaranteed Principal Account, which is part of
MassMutual's general account. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Principal Account, which is part of
MassMutual's general account, are not registered under the Securities Act of
1933 and the general account is not registered as an investment company under
the Investment Company Act of 1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Segment in preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Investment Valuation
The investments in MML Trust and Oppenheimer Trust are each stated at market
value which is the net asset value of each of the respective underlying
funds.
B. Accounting for Investments
Investment transactions are accounted for on trade date and identified cost
is the basis followed in determining the cost of investments sold for
financial statement purposes. Dividend income is recorded on the ex-dividend
date.
5
<PAGE>
Notes To Financial Statements (Continued)
C. Federal Income Taxes
Operations of the Segment form a part of the total operations of MassMutual,
and the Segment is not taxed separately. MassMutual is taxed as a life
insurance company under the provisions of the 1986 Internal Revenue Code, as
amended. The Segment will not be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. Under existing federal law,
no taxes are payable on investment income and realized capital gains
attributable to contracts which depend on the Segment's investment
performance (the "Contracts"). Accordingly, no provision for federal income
tax has been made. MassMutual may, however, make such a charge in the future
if an unanticipated change of current law results in a company tax liability
attributable to the Segment.
D. Annuitant Mortality Fluctuation Reserve
The Segment maintains a reserve as required by regulatory authorities to
provide for mortality losses incurred. The reserve is increased quarterly for
mortality gains and its proportionate share of any increases in value. The
reserve is charged quarterly for mortality losses and its proportionate share
of any decreases in value. Transfers to or from MassMutual are then made
quarterly to adjust the Segment. Net transfers from MassMutual to the Segment
totaled $13,603 for 1996 and net transfers from the Segments to MassMutual
totaled $20,526 for 1995. The reserve is subject to a maximum of 3% of the
Segment's annuity reserves. Any mortality losses in excess of this reserve
will be assumed by MassMutual. The reserve is not available to owners of
Contracts except to the extent necessary to cover mortality losses under the
Contracts.
E. Annuity Reserves
Annuity reserves are developed by using accepted actuarial methods and are
computed using the 1971 Individual Annuity Mortality Table, as modified.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. CHARGES FOR MORTALITY AND EXPENSE RISKS AND ADMINISTRATIVE EXPENSES
Daily charges are made which are currently equivalent on an annual basis to
1.30% of the net asset value of the Segment (the "Net Asset Value"). The
mortality and expense risk part of this charge is made daily at an annual
rate which is currently equal to 1.15%, and will not exceed 1.25% of the Net
Asset Value. The administrative expense part of this charge is made daily at
an annual rate of 0.15% of the Net Asset Value.
5. CHARGES/DEDUCTIONS FOR ADMINISTRATIVE CHARGES, CONTINGENT DEFERRED SALES
CHARGES AND PREMIUM TAXES
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract
payments............................. $63,110,398 $23,158,574 $10,053,298 $66,330,095 $32,832,533 $17,052,797 $12,664,050
Less deduction for premium taxes...... 14,067 5,162 2,241 14,785 7,318 3,801 2,822
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net contract payments................. $63,096,331 $23,153,412 $10,051,057 $66,315,310 $32,825,215 $17,048,996 $12,661,228
=========== =========== =========== =========== =========== =========== ===========
Administrative and contingent
deferred sales charges............... $ 413,818 $ 32,059 $ 160,993 $ 677,385 $ 43,140 $ 28,423 $ 6,956
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
6
<PAGE>
Notes To Financial Statements (Continued)
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1995 Division Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract
payments............................. $39,793,885 $16,452,670 $ 7,627,269 $41,151,252 $10,156,830 $ 9,777,165 $ 9,286,899
Less deduction for premium taxes...... 60,938 25,195 11,680 63,017 15,554 14,972 14,221
----------- ----------- ---------- ----------- ----------- ---------- -----------
Net contract payments................. $39,732,947 $16,427,475 $ 7,615,589 $41,088,235 $10,141,276 $ 9,762,193 $ 9,272,678
=========== =========== =========== =========== =========== =========== ===========
Administrative and contingent
deferred sales charges............... $ 302,371 $ 15,657 $ 136,011 $ 569,650 $ 9,339 $ 8,178 $ 3,563
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
6. PURCHASES AND SALES OF INVESTMENTS
<TABLE>
<CAPTION>
For the Year Ended Cost of Proceeds
December 31, 1996 Purchases from Sales
----------------- --------- ----------
<S> <C> <C>
MML Equity Fund................................ $69,789,684 $ 7,493,762
MML Money Market Fund.......................... 32,088,355 22,487,220
MML Managed Bond Fund.......................... 9,998,550 3,577,699
MML Blend Fund................................. 67,403,606 13,722,051
Oppenheimer Capital Appreciation Fund.......... 47,774,106 3,578,114
Oppenheimer Global Securities Fund............. 23,046,303 2,341,328
Oppenheimer Strategic Bond Fund................ 15,162,385 2,017,996
</TABLE>
7. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
- ------------------ -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased................... 23,748,397 15,506,587 5,209,506 28,119,708 21,863,854 17,480,468 10,826,740
Units withdrawn and transferred to
Guaranteed Principal Account..... (3,806,870) (1,920,968) (1,320,409) (8,468,204) (961,532) (843,248) (497,893)
Units transferred
between divisions................ 1,841,893 (7,950,525) (1,656,179) (2,590,833) 7,605,050 4,971,162 (307,445)
Units transferred
to annuity reserves.............. (113,603) -- -- -- -- -- --
---------- ---------- ---------- ----------- ---------- ---------- ----------
Net Increase...................... 21,669,817 5,635,094 2,232,918 17,060,671 28,507,372 21,608,382 10,021,402
Units, at beginning of the year... 82,979,376 14,727,577 18,010,100 131,775,179 15,969,333 20,647,408 11,113,034
---------- ---------- ---------- ----------- ---------- ---------- ----------
Units, at end of the year......... 104,649,193 20,362,671 20,243,018 148,835,850 44,476,705 42,255,790 21,134,436
=========== ========== ========== =========== ========== ========== ==========
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1995 Division Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased................... 17,916,248 11,386,818 4,115,036 19,762,011 8,800,567 10,789,436 8,899,205
Units withdrawn and transferred to
Guaranteed Principal Account..... (3,139,770) (604,506) (905,078) (6,462,251) (280,904) (365,903) (228,731)
Units transferred
between divisions................ 2,216,906 (6,437,306) 20,475 (1,599,514) 3,215,238 3,320,734 821,073
Units transferred
to annuity reserves.............. (16,118) -- -- (16,904) (16,363) -- --
---------- ---------- ---------- ----------- ---------- ---------- ---------
Net increase...................... 16,977,266 4,345,006 3,230,433 11,683,342 11,718,538 13,744,267 9,491,547
Units, at beginning of the year... 66,002,110 10,382,571 14,779,667 120,091,837 4,250,795 6,903,141 1,621,487
---------- ---------- ---------- ----------- ---------- ---------- ---------
Units, at end of the year......... 82,979,376 14,727,577 18,010,100 131,775,179 15,969,333 20,647,408 11,113,034
========== ========== ========== =========== ========== ========== ==========
</TABLE>
7
<PAGE>
Notes To Financial Statements (Continued)
8. CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 2
As discussed in Note 1, the financial statements only represent activity of
the Flex Extra (Non-Qualified) segment of Separate Account 2. The combined
net assets as of December 31, 1996 for Separate Account 2, which includes the
segments pertaining to Flex-Annuity IV (Non-Qualified) and Flex Extra (Non-
Qualified) are as follows:
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............... $316,974,265 $37,960,341 $42,342,419 $405,596,585 $69,506,632 $44,495,118 $26,109,480
Total liabilities.......... 45,418 223,261 14,716 59,945 1,861 5,921 10,946
------------ ----------- ----------- ------------ ----------- ----------- -----------
Net assets................. $316,928,847 $37,737,080 $42,327,703 $405,536,640 $69,504,771 $44,489,197 $26,098,534
============ =========== =========== ============ =========== =========== ===========
Net assets consist of:
Accumulation units - Value. $316,232,580 $37,670,168 $42,252,860 $405,087,351 $69,488,814 $44,489,197 $26,098,534
Annuity reserve............ 696,267 66,912 74,843 449,289 15,957 -- --
------------ ----------- ----------- ------------ ----------- ----------- -----------
Net assets................. $316,928,847 $37,737,080 $42,327,703 $405,536,640 $69,504,771 $44,489,197 $26,098,534
============ =========== =========== ============ =========== =========== ===========
</TABLE>
9. DISTRIBUTION AGREEMENT
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), a wholly-
owned subsidiary of MassMutual, serves as principal underwriter of the
contracts pursuant to an underwriting and servicing agreement among MML
Distributors, MassMutual and Separate Account 2. MML Distributors is
registered with the Securities and Exchange Commission (the "SEC") as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. (the "NASD"). MML
Distributors may enter into selling agreements with other broker-dealers who
are registered with the SEC and are members of the NASD in order to sell the
contracts.
Prior to May 1, 1996, MML Investors Services, Inc. ("MMLISI") a wholly-owned
subsidiary of MassMutual, served as principal underwriter of the contracts.
Effective May 1, 1996, MMLISI serves as co-underwriter of the policies
pursuant to underwriting and servicing agreements among MMLISI, MassMutual
and Separate Account 2, MMLISI is registered with the SEC as a broker-dealer
under the Securities Exchange Act of 1934 and is a member of the NASD.
Registered representatives of MMLISI sell the contracts as authorized
variable life insurance agents under applicable state insurance laws.
Under the sales agreement among MMLISI, MassMutual and Separate Account 2,
agents receive commissions and service fees from MMLISI for selling and
servicing the contracts. MassMutual reimburses MMLISI for such compensation
and for other expenses incurred in marketing and selling the contracts.
Offered through MML Investors Services, Inc., Springfield, Massachusetts.
8
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY FINANCIAL STATEMENTS
as of December 31, 1996 and 1995
and for the years ended December 31, 1996, 1995 and 1994
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Policyholders of
Massachusetts Mutual Life Insurance Company
We have audited the accompanying statutory statement of financial position of
Massachusetts Mutual Life Insurance Company as of December 31, 1996 and 1995,
and the related statutory statements of income, changes in policyholders'
contingency reserves, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Connecticut Mutual Life Insurance Company for the year ended
December 31, 1995 or for each of the two years in the period ended December 31,
1995, which, after restatement for the 1996 pooling of interests, reflect 25% of
assets as of December 31, 1995, 26% and 26% of revenue, and 22% and 6% of net
gain from operations for the years ended December 31, 1995 and 1994,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Connecticut Mutual Life Insurance Company, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company prepared these
financial statements using statutory accounting practices of the National
Association of Insurance Commissioners and the accounting practices prescribed
or permitted by the Division of Insurance of the Commonwealth of Massachusetts
and, prior to 1996, the Department of Insurance of the State of Connecticut,
which practices differ from generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles, although not
determinable at this time, are presumed to be material.
In our report dated February 5, 1996, we expressed our opinion that the 1995 and
1994 financial statements, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of the
Massachusetts Mutual Life Insurance Company as of December 31, 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles ("GAAP"). As described in Note 1 to the financial statements,
financial statements of mutual life insurance enterprises issued or reissued
after 1996, and prepared in accordance with statutory accounting principles, are
no longer considered to be presentations in conformity with GAAP. Accordingly,
our present opinion on the 1995 and 1994 statutory financial statements as
presented herein is different from that expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996.
In our opinion, based upon our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Massachusetts Mutual Life Insurance Company at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, on the
statutory basis of accounting described in Note 1.
Coopers & Lybrand L.L.P
Independent Accountants
Springfield, Massachusetts
February 7, 1997
2
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- -------
(In Millions)
<S> <C> <C>
Assets:
Bonds $25,255.0 $23,625.1
Common stocks 336.6 416.1
Mortgage loans 3,897.1 3,908.2
Real estate 1,840.9 1,652.6
Other investments 1,425.6 1,489.9
Policy loans 4,752.3 4,518.4
Cash and short-term investments 1,075.4 2,342.8
Investment and insurance amounts receivable 1,102.4 1,059.3
Separate account assets 13,563.5 11,309.5
Other assets 97.9 174.6
--------- ---------
$53,346.7 $50,496.5
========= =========
</TABLE>
See notes to statutory financial statements.
3
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF FINANCIAL POSITION, continued
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
(In Millions)
<S> <C> <C>
Liabilities:
Policyholders' reserves and funds $33,341.5 $32,893.1
Policyholders' dividends 885.3 832.6
Policy claims and other benefits 373.8 395.5
Federal income taxes 440.7 338.5
Asset valuation reserve 689.2 566.8
Investment reserves 208.4 188.4
Separate account reserves and liabilities 13,563.1 11,309.6
Amounts due on investments purchased and
other liabilities 1,206.1 1,371.1
---------- ----------
50,708.1 47,895.6
Policyholders' contingency reserves 2,638.6 2,600.9
---------- ----------
$53,346.7 $50,496.5
========== ==========
</TABLE>
See notes to statutory financial statements.
4
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
Income:
Premium income $6,328.6 $5,727.7 $6,177.2
Net investment and other income 2,861.1 2,898.4 2,803.1
-------- -------- --------
9,189.7 8,626.1 8,980.3
-------- -------- --------
Benefits and expenses:
Policy benefits and payments 6,048.2 5,152.2 5,449.6
Addition to policyholders' reserves and funds 854.7 1,205.4 1,263.2
Commissions and operating expenses 763.5 833.7 959.3
State taxes, licenses and fees 96.4 89.4 105.6
Merger restructuring costs 66.1 44.0 -
-------- -------- --------
7,828.9 7,324.7 7,777.7
-------- -------- --------
Net gain before federal income taxes and dividends 1,360.8 1,301.4 1,202.6
Federal income taxes 276.7 206.2 139.7
-------- -------- --------
Net gain from operations before dividends 1,084.1 1,095.2 1,062.9
Dividends to policyholders 859.9 819.0 824.7
-------- -------- --------
Net gain from operations 224.2 276.2 238.2
Net realized capital gain (loss) 40.3 (85.8) (164.3)
-------- -------- --------
Net income $ 264.5 $ 190.4 $ 73.9
======== ======== ========
</TABLE>
See notes to statutory financial statements.
5
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Policyholders' contingency reserves, beginning of year $2,600.9 $2,569.1 $2,470.2
-------- -------- --------
Increases (decreases) due to:
Net income 264.5 190.4 73.9
Net unrealized capital gain (loss) (1.7) 88.7 29.5
Merger restructuring costs, net of tax - (45.4) -
Surplus notes - - 100.0
Change in asset valuation and investment reserves (142.4) (75.6) (38.2)
Change in valuation bases of policyholders' reserves (72.2) (108.2) (51.1)
Change in accounting for mortgage backed securities - 44.5
Change in non-admitted assets and other (10.5) (18.1) (59.7)
-------- -------- --------
37.7 31.8 98.9
-------- -------- --------
Policyholders' contingency reserves, end of year $2,638.6 $2,600.9 $2,569.1
======== ======== ========
</TABLE>
See notes to statutory financial statements.
6
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---------- ---------- ----------
(In Millions)
<S> <C> <C> <C>
Operating activities:
Net income $ 264.5 $ 190.4 $ 73.9
Addition to policyholders' reserves and funds,
net of transfers to separate accounts 426.7 575.8 546.9
Net realized capital (gain) loss (40.3) 85.8 164.3
Other changes (232.8) (25.2) 124.2
---------- ---------- ----------
Net cash provided by operating activities 418.1 826.8 909.3
---------- ---------- ----------
Investing activities:
Purchases of investments and loans (10,171.5) (10,364.2) (8,351.6)
Sales or maturities of investments and receipts
from repayment of loans 8,539.3 9,671.1 7,468.7
---------- ---------- ----------
Net cash used in investing activities (1,632.2) (693.1) (882.9)
---------- ---------- ----------
Financing activities:
Issuance of surplus notes - - 100.0
Repayments of long-term debt (53.3) (46.4) (125.0)
---------- ---------- ----------
Net cash used by financing activities (53.3) (46.4) (25.0)
---------- ---------- ----------
Increase (decrease) in cash and short-term investments (1,267.4) 87.3 1.4
Cash and short-term investments, beginning of year 2,342.8 2,255.5 2,254.1
---------- ---------- ----------
Cash and short-term investments, end of year $ 1,075.4 $ 2,342.8 $ 2,255.5
---------- ---------- ----------
</TABLE>
See notes to statutory financial statements.
7
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS
Massachusetts Mutual Life Insurance Company ("the Company") is a mutual life
insurance company and as such has no shareholders. The Company's primary
business is individual life insurance, annuity and disability income products
distributed primarily through career agents. The Company also provides a wide
range of pension products and services, as well as investment services to
individuals, corporations and institutions in all 50 states and the District of
Columbia.
On March 1, 1996, the operations of the former Connecticut Mutual Life Insurance
Company (" Connecticut Mutual") were merged into the Company. This merger was
accounted for under the pooling of interests method of accounting. For the
purposes of this presentation, these financial statements reflect historical
amounts giving retroactive effect as if the merger had occurred on January 1,
1994 in conformity with the practices of the National Association of Insurance
Commissioners and the accounting practices prescribed or permitted by the
Division of Insurance of the Commonwealth of Massachusetts and, prior to the
merger, the Department of Insurance of the State of Connecticut. In 1996,
merger-related expenses totaling $66.1 million were recorded in the Statutory
Statement of Income. In 1995, merger-related expenses incurred by Massachusetts
Mutual (the Company prior to the merger) of $44.0 million, were recorded in the
statutory statement of income and the expenses incurred by Connecticut Mutual of
$45.4 million, net of tax, were recorded as a component of changes in
policyholders' contingency reserves, as permitted by each company's regulatory
authority. On the merger date, policyholder reserves attributable to disability
income contracts were strengthened by $75.0 million, investment reserves for
real estate were increased by $49.8 million and net prepaid pension assets were
increased by $10.4 million. The separate results of each company prior to the
merger for the year ended December 31, 1995, are as follows: (a) income was
$6,443.8 million for Massachusetts Mutual and $2,182.3 million for Connecticut
Mutual; (b) net income was $160.7 million for Massachusetts Mutual and $29.6
million for Connecticut Mutual and (c) policyholders' contingency reserves
increased by $143.7 million for Massachusetts Mutual and decreased by $112.0
million for Connecticut Mutual.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly the MML Pension Insurance Company; currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc. The Company received total consideration of
$402.2 million ($340.0 million in cash and $62.2 million in notes receivable)
and recognized a before tax gain of $187.9 million. The Company, pursuant to a
1994 reinsurance agreement, cedes its group life, accident and health business
to UniCARE. The Company's investment in MassMutual Holding Company Two, Inc.
amounted to $187.8 million at December 31, 1995; its gain from operations
reflected a $41 million dividend in 1995. Additionally, this investment
produced an unrealized gain of $13.9 million in 1995 and an unrealized loss of
$12.6 million in 1994.
1. Summary of Accounting Practices
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted
by the Division of Insurance of the Commonwealth of Massachusetts and, prior
to the merger, The Department of Insurance of the State of Connecticut
("statutory accounting practices"), which practices were also considered to
be in conformity with generally accepted accounting principles ("GAAP"). In
1993, the Financial Accounting Standards Board ("FASB") issued interpretation
No. 40 ("Fin. 40"), "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", which clarified
that mutual life insurance companies issuing financial statements described
as prepared in conformity with GAAP after 1995 are required to apply all
applicable GAAP pronouncements in preparing those financial statements. In
January 1995, the FASB issued Statement No. 120 ("SFAS 120"), Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises
for Certain Long-Duration Participating Contracts," which among other things,
extended the applicability of certain FASB statements to mutual life
insurance companies and deferred the effective date of Fin. 40 to financial
8
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
statements issued or reissued after 1996. As required by generally accepted
auditing standards, the opinion expressed by our independent accountants on
the 1995 and 1994 financial statements is different from that expressed in
their previous report.
The accompanying statutory financial statements are different in some
respects from GAAP financial statements. The more significant differences
are as follows: (a) acquisition costs, such as commissions and other costs
in connection with acquiring new business, are charged to current operations
as incurred, whereas GAAP would require these expenses to be capitalized and
recognized over the life of the policies; (b) policy reserves are based upon
statutory mortality and interest requirements without consideration of
withdrawals, whereas GAAP reserves would be based upon reasonably
conservative estimates of mortality, morbidity, interest and withdrawals; (c)
bonds are generally carried at amortized cost whereas GAAP would value bonds
at fair value and (d) deferred income taxes are not provided for book-tax
timing differences whereas GAAP would record deferred income taxes.
Management has not yet completed GAAP financial statements, but believes that
policyholders' contingency reserves based upon GAAP will be higher than
policyholders' contingency reserves based upon statutory accounting
practices.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
as well as disclosures of contingent assets and liabilities at the date of
the financial statements. Management must also make estimates and
assumptions that affect the amounts of revenues and expenses during the
reporting period. Future events, including changes in the levels of
mortality, morbidity, interest rates and asset valuations, could cause actual
results to differ from the estimates used in these financial statements.
The following is a description of the Company's current principal accounting
policies and practices.
a. Investments
Bonds and stocks are valued in accordance with rules established by the
National Association of Insurance Commissioners. Generally, bonds are
valued at amortized cost, preferred stocks in good standing at cost, and
common stocks, except for unconsolidated subsidiaries, at fair value.
As promulgated by the National Association of Insurance Commissioners,
the Company adopted the retrospective method of accounting for
amortization of premium and discount on mortgage backed securities as of
December 31, 1994. Prepayment assumptions for mortgage backed securities
were obtained from a prepayment model, which factors in mortgage type,
seasoning, coupon, current interest rate and the economic environment.
The effect of this change, $44.5 million as of December 31, 1994, was
recorded as an increase to policyholders' contingency reserves on the
Statutory Statement of Financial Position and had no material effect on
1996 or 1995 net income. Through December 31, 1994, premium and discount
on bonds were amortized into investment income over the stated lives of
the securities.
Mortgage loans are valued at principal less unamortized discount. Real
estate is valued at cost less accumulated depreciation, impairments and
mortgage encumbrances. Encumbrances totaled $27.3 million in 1996 and
$3.0 million in 1995. Depreciation on investment real estate is
calculated using the straight-line and constant yield methods.
Policy loans are carried at the outstanding loan balance less amounts
unsecured by the cash surrender value of the policy.
Short-term investments are stated at amortized cost, which approximates
fair value.
9
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
Investments in unconsolidated subsidiaries, joint ventures and other forms
of partnerships are included in other investments on the Statutory
Statement of Financial Position and are accounted for using the equity
method.
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves, as prescribed and permitted by the
Division of Insurance, stabilize the policyholders' contingency reserves
against fluctuations in the value of stocks, as well as declines in the
value of bonds, mortgage loans and real estate investments.
The Interest Maintenance Reserve captures after-tax realized capital gains
and losses which result from changes in the overall level of interest rates
for all types of fixed income investments, as well as other financial
instruments, including financial futures, U.S. Treasury purchase
commitments, options, interest rate swaps, interest rate caps and interest
rate floors. These interest rate related gains and losses are amortized
into income using the grouped method over the remaining life of the
investment sold or over the remaining life of the underlying asset. Net
realized after tax capital gains of $77.1 million in 1996, $130.7 million
in 1995, and net realized after tax capital losses of $152.6 million in
1994 were charged to the Interest Maintenance Reserve. Amortization of the
Interest Maintenance Reserve into net investment income amounted to $26.9
million in 1996, $5.0 million in 1995, and $45.8 million in 1994. In 1994,
the Interest Maintenance Reserve resulted in a net loss deferral. In
accordance with the practices of the National Association of Insurance
Commissioners, the 1994 balance was recorded as a reduction of
policyholders' contingency reserves.
Realized capital gains and losses, less taxes, not includable in the
Interest Maintenance Reserve, are recognized in net income. Realized
capital gains and losses are determined using the specific identification
method. Unrealized capital gains and losses are included in policyholders'
contingency reserves.
b. Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of pension,
variable annuity and variable life insurance contract holders. Assets
consist principally of marketable securities reported at fair value.
Premiums, benefits and expenses of the separate accounts are reported in
the Statutory Statement of Income. The Company receives administrative and
investment advisory fees from these accounts.
c. Non-admitted Assets
Assets designated as "non-admitted" (principally certain fixed assets,
receivables and Interest Maintenance Reserve, when in a net loss deferral
position) are excluded from the Statutory Statement of Financial Position
by an adjustment to policyholders' contingency reserves.
d. Policyholders' Reserves and Funds
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience
and the 1941, 1958 and 1980 Commissioners' Standard Ordinary mortality
tables with assumed interest rates ranging from 2.5 to 6.0 percent.
Reserves for individual annuities, guaranteed investment contracts and
deposit administration and immediate participation guarantee funds are
based on accepted actuarial methods principally at interest rates ranging
from 2.25 to 11.25 percent. Reserves for policies and contracts considered
investment contracts have a carrying value of $9,073.8 million (fair value
of $9,324.6 million as determined by discounted cash flow projections).
Accident and health policy reserves are generally calculated using the
10
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
two-year preliminary term, net level premium and fixed net premium
methods and various morbidity tables.
During 1996, 1995 and 1994, the Company changed its valuation basis for
certain disability income contracts. The effects of these changes, $75.0
million in 1996, $108.2 million in 1995, and $51.1 million in 1994 were
recorded as decreases to policyholders' contingency reserves.
e. Premium and Related Expense Recognition
Life insurance premium revenue is recognized annually on the anniversary
date of the policy. Annuity premium is recognized when received. Accident
and health premiums are recognized as revenue when due. Commissions and
other costs related to issuance of new policies, maintenance and
settlement costs are charged to current operations.
f. Policyholders' Dividends
The Board of Directors annually approves dividends to be paid in the
following year. These dividends are allocated to reflect the relative
contribution of each group of policies to policyholders' contingency
reserves and consider investment and mortality experience, expenses and
federal income tax charges.
g. Cash and Short-term Investments
For purposes of the Statutory Statement of Cash Flows, the Company
considers all highly liquid investments purchased with a maturity of
twelve months or less to be short-term investments.
2. Policyholders' Contingency Reserves
Policyholders' contingency reserves represent surplus of the Company as
reported to regulatory authorities and are intended to protect policyholders
against possible adverse experience.
a. Surplus Notes
The Company issued surplus notes of $100.0 million at 7 1/2 percent
and $250.0 million at 7 5/8 percent in 1994 and 1993, respectively. These
notes are unsecured and subordinate to all present and future
indebtedness of the Company, policy claims and prior claims against the
Company as provided by the Massachusetts General Laws. Issuance was
approved by the Commissioner of Insurance of the Commonwealth of
Massachusetts ("the Commissioner").
All payments of interest and principal are subject to the prior approval
of the Commissioner. Sinking fund payments are due as follows: $62.5
million in 2021, $87.5 million in 2022, $150.0 million in 2023 and $50.0
million in 2024.
Interest on the notes issued in 1994 is scheduled to be paid on March 1
and September 1 of each year, beginning on September 1, 1994, to holders
of record on the preceding February 15 or August 15, respectively.
Interest on the notes issued in 1993 is scheduled to be paid on May 15 and
November 15 of each year, beginning on May 15, 1994, to holders of record
on the preceding May 1 or November 1, respectively. In accordance with
regulations of the National Association of Insurance Commissioners,
interest expense is not recorded until approval for payment is received
from the Commissioner. Interest of $26.6 million was approved and paid in
1996 and 1995, and interest of $22.8 million was approved and paid in
1994.
11
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
The proceeds of the notes, less a $32.2 million reserve in 1996 and a $35
million reserve in 1995 and 1994 for contingencies associated with the
issuance of the notes, are recorded as a component of the Company's
policyholders' contingency reserves as approved by the Commissioner. These
reserves, as permitted by the Division of Insurance, are included in
investment reserves on the Statutory Statement of Financial Position.
3. Employee Benefit Plans
The Company's employee benefit plans include plans in place for the employees
of Massachusetts Mutual and Connecticut Mutual prior to the merger. These
plans, which were managed separately, reflect different assumptions for 1995.
Employees previously covered by the Connecticut Mutual pension plans will
continue coverage under these plans. All other employees, including
employees hired after the merger date, will be covered by the Massachusetts
Mutual benefit plans.
a. Pension
The Company has two non-contributory defined benefit plans covering
substantially all of its employees. One plan includes employees previously
employed by Connecticut Mutual; the other includes all other eligible
employees. Benefits are based on the employees' years of service,
compensation during the last five years of employment and estimated social
security retirement benefits. The Company accounts for these plans
following Financial Accounting Standards Board Statement No. 87,
Employers' Accounting for Pensions. Accordingly, as permitted by the
Massachusetts Division of Insurance, the Company has recognized a pension
asset of $97.2 million and $37.7 million in 1996 and 1995, respectively.
In 1995, a pension asset of $70.9 million associated with the Connecticut
Mutual plan was non-admitted in the financial statements, in accordance
with Connecticut insurance regulations. On the merger date, the accounting
for Connecticut Mutual pension plans was conformed to the Massachusetts
Mutual policy of recording pension plan assets and liabilities, resulting
in a $10.4 million increase in policyholders' contingency reserves.
Company policy is to fund pension costs in accordance with the
requirements of the Employee Retirement Income Security Act of 1974 and,
based on such requirements, no funding was required for the years ended
December 31, 1996 and 1995. The assets of the plans are invested in the
Company's general account and separate accounts.
The benefit status of the defined benefit plans as of December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
(In Millions)
Accumulated benefit obligation $ 611.5 $537.5
Vested benefit obligation 606.5 525.7
Projected benefit obligation 665.5 622.5
Plan assets at fair value 1,021.7 941.3
</TABLE>
The following assumptions were used in determining the actuarial present
value of both the accumulated and projected benefit obligation.
<TABLE>
<CAPTION>
MassMutual Connecticut Mutual
Plan Plan
----------- -----------
<S> <C> <C>
Discount rate - 1996 7.75% 7.75%
Discount rate - 1995 7.50 7.75
Increase in future compensation levels 5.00 5.00
Long-term rate of return on assets 10.00 9.00
</TABLE>
12
<PAGE>
As a result of the sale of Mirus Life Insurance Company, there was a
significant reduction in plan participants which resulted in recognition of
a pension plan curtailment gain of $15.3 million in 1996.
The Company also has defined contribution plans for employees and agents.
The expense credited to operations for all pension plans is $32.7 million
in 1996, $10.9 million in 1995 and $5.0 million in 1994.
b. Life and Health
Certain life and health insurance benefits are provided to retired
employees and agents through group insurance contracts. Substantially all
of the Company's employees may become eligible for these benefits if they
reach retirement age while working for the Company. In 1993, the Company
adopted the National Association of Insurance Commissioners' accounting
standard for postretirement life and health benefit costs, requiring these
benefits to be accounted for using the accrual method for employees and
agents eligible to retire and current retirees.
The following rates were used in determining the accumulated postretirement
benefit liability.
<TABLE>
<CAPTION>
MassMutual Connecticut Mutual
Plan Plan
----------- -----------
<S> <C> <C>
Discount rate - 1996 7.75% 7.75%
Discount rate - 1995 7.50 8.50
Assumed increases in medical cost
rates in the first year 7.25 11.00
declining to 5.25 6.00
within 5 years 5 years
</TABLE>
The initial transition obligation of $137.9 million is being amortized over
twenty years through 2012. At December 31, 1996 and 1995, the net unfunded
accumulated benefit obligation was $124.1 million and $109.2 million,
respectively, for employees and agents eligible to retire or currently
retired and $33.8 million and $42.7 million, respectively, for participants
not eligible to retire. A Retired Lives Reserve Trust was funded to pay
life insurance premiums for certain retired employees. Trust assets
available for benefits were $23.0 million in 1996.
As a result of the sale of Mirus Life Insurance Company, there was a
significant reduction in plan participants which resulted in recognition of
a life and health plan curtailment loss of $13.9 million in 1996.
The expense for 1996, 1995 and 1994 was $17.6 million, $22.9 million, and
$19.8 million, respectively. A one percent increase in the annual assumed
increase in medical cost rates would increase the 1996 accumulated
postretirement benefit liability and benefit expense by $9.9 million and
$1.5 million, respectively.
4. Related Party Transactions
Pursuant to two 1994 reinsurance agreements with Mirus Life Insurance Company
(Mirus) whereby the Company assumed all of the single premium immediate
annuity business written by Mirus and ceded all of its group life, accident
and health business to Mirus. A gain from operations of this business was
reflected in 1995 as a $41 million dividend received from Mirus, which was
recorded as net investment income on the Statutory Statement of Income. As
previously discussed, on March 31, 1996, the Company sold MassMutual
13
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
Holding Company Two, Inc. a wholly-owned subsidiary, and its subsidiaries,
including Mirus Life Insurance Company to WellPoint Health Networks, Inc.
The Company has a modified coinsurance quota-share reinsurance agreement with
a wholly-owned subsidiary, C.M. Life Insurance Company, whereby the Company
assumes 50% of the premiums on certain universal life policies issued by C.M.
Life in 1985 and 75% of the premiums with issue dates on or after January 1,
1986. The Company pays a stipulated expense allowance, death and surrender
benefits, and a modified coinsurance adjustment. Reserves for payment of
future benefits are retained by C.M. Life.
5. Federal Income Taxes
Provision for federal income taxes is based upon the Company's best estimate
of its tax liability. No deferred tax effect is recognized for temporary
differences that may exist between financial reporting and taxable income.
Accordingly, the reporting of equity tax, using the most current information,
and other miscellaneous temporary differences, such as reserves, acquisition
costs and restructuring costs, resulted in an effective tax rate which is
other than the statutory tax rate.
The Internal Revenue Service has completed examining the Company's income tax
returns through the year 1992 for Massachusetts Mutual and 1991 for
Connecticut Mutual, and is currently examining Connecticut Mutual for the
years 1992 through 1995. The Company believes any adjustments resulting from
such examinations will not materially affect its financial statements.
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for
1996 and 1995. The Company records the estimated effects of anticipated
revisions in the Statutory Statement of Income.
The Company plans to file its 1996 federal income tax return on a
consolidated basis with its life and non-life affiliates. The Company and
its life and non-life affiliates are subject to a written tax allocation
agreement which allocates tax liability in a manner permitted under Treasury
regulations. Generally, the agreement provides that loss members shall be
compensated for the use of their losses and credits by other members.
The Company made federal tax payments of $330.7 million in 1996, $147.3
million in 1995 and has a credit of $9.9 million in 1994. At December 31,
1996 and 1995, the Company established a liability for federal income taxes
of $440.7 million and $338.6 million, respectively.
6. Investments
The Company maintains a diversified investment portfolio. Investment
policies limit concentration in any asset class, geographic region, industry
group, economic characteristic, investment quality or individual investment.
In the normal course of business, the Company enters into commitments to
purchase privately placed bonds and to issue mortgage loans.
14
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
a. Bonds
The carrying value and estimated fair value of bonds are as follows:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In Millions)
U. S. Treasury Securities $ 8,042.6 $ 344.0 $ 56.3 $ 8,330.3
and Obligations of U. S.
Government Corporations
and Agencies
Debt Securities issued by 95.2 10.2 .5 104.9
Foreign Governments
Mortgage-backed securities 3,969.7 125.5 43.3 4,051.9
State and local governments 173.2 13.1 2.1 184.2
Industrial securities 11,675.2 528.0 133.3 12,069.9
Utilities 975.0 87.0 18.5 1,043.5
Affiliates 324.1 4.3 3.5 324.9
--------- -------- ------ ---------
TOTAL $25,255.0 $1,112.1 $257.5 $26,109.6
========= ======== ====== =========
<CAPTION>
December 31, 1995
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
U. S. Treasury Securities $ 9,391.5 $ 837.0 $ 43.3 $10,185.2
and Obligations of U. S.
Government Corporations
and Agencies
Debt Securities issued by
Foreign Governments 261.9 27.9 0.1 289.7
Mortgage-backed securities 3,265.4 176.3 9.4 3,432.3
State and local governments 106.0 15.2 0.1 121.1
Industrial securities 9,030.7 762.8 57.8 9,735.7
Utilities 1,417.6 152.4 2.9 1,567.1
Affiliates 152.0 4.4 1.2 155.2
--------- -------- ------ ---------
TOTAL $23,625.1 $1,976.0 $114.8 $25,486.3
========= ======== ====== =========
</TABLE>
15
<PAGE>
The carrying value and estimated fair value of bonds at December 31, 1996
by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
--------- ---------
(In Millions)
<S> <C> <C>
Due in one year or less $ 680.0 $ 684.8
Due after one year through five years 5,128.8 5,219.7
Due after five years through ten years 6,879.6 7,112.6
Due after ten years 5,195.4 5,496.1
--------- ---------
17,883.8 18,513.2
Mortgage-backed securities, including securities
guaranteed by the U.S. Government 7,371.2 7,596.4
--------- ---------
TOTAL $25,255.0 $26,109.6
========= =========
</TABLE>
Proceeds from sales of investments in bonds were $6,390.7 during 1996,
$8,068.8 million during 1995 and $5,624.1 million during 1994. Gross
capital gains of $188.8 million in 1996, $255.5 million in 1995 and $100.3
million in 1994 and gross capital losses of $79.9 million in 1996, $67.1
million in 1995 and $195.8 million in 1994 were realized on those sales, a
portion of which were included in the Interest Maintenance Reserve. The
estimated fair value of non-publicly traded bonds is determined by the
Company using a pricing matrix.
b. Stocks
Preferred stocks in good standing had fair values of $150.8 million in 1996
and $87.9 million in 1995, using a pricing matrix for non-publicly traded
stocks and quoted market prices for publicly traded stocks. Common stocks,
except for unconsolidated subsidiaries, had a cost of $249.2 million in
1996 and $350.5 million in 1995.
c. Mortgages
The fair value of mortgage loans, as determined from a pricing matrix for
performing loans and the estimated underlying real estate value for non-
performing loans, approximated carrying value less valuation reserves held.
d. Other
The carrying value of investments which were non-income producing for the
preceding twelve months was $23.1 million and $113.9 million at December
31, 1996 and 1995, respectively. The Company had restructured loans with
book values of $383.5 million, and $415.0 million at December 31, 1996 and
1995, respectively. The loans typically have been modified to defer a
portion of the contracted interest payments to future periods. Interest
deferred to future periods totaled $2.2 million in 1996, $2.5 million in
1995 and $2.2 million in 1994. The Company made voluntary contributions to
the Asset Valuation Reserve of $6.8 million and $52.7 million in 1996 and
1994, respectively. No additional voluntary contribution to the Asset
Valuation Reserve was made in 1995.
It is not practicable to determine the fair value of policy loans as they
do not have a stated maturity.
16
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
7. Portfolio Risk Management
The Company manages its investment risks primarily to reduce interest rate
and duration imbalances determined in asset/liability analyses. The fair
values of instruments described below, which are not recorded in the
financial statements, are based upon market prices or prices obtained from
brokers. The Company does not hold or issue financial instruments for
trading purposes.
The notional amounts described do not represent amounts exchanged by the
parties and, thus, are not a measure of the exposure of the Company. The
amounts exchanged are calculated on the basis of the notional amounts and the
other terms of the instruments, which relate to interest rates, exchange
rates, security prices or financial or other indexes.
The Company enters into financial futures contracts for the purpose of
managing interest rate exposure. Margin requirements are met with the
deposit of securities. Futures contracts are generally settled with
offsetting transactions. Gains and losses on financial futures contracts are
recorded when the contract is closed and amortized through the Interest
Maintenance Reserve over the remaining life of the underlying asset. As of
December 31, 1996, the Company did not have any open financial futures
contracts.
The Company utilizes interest rate swap agreements, options, and purchased
caps and floors to reduce interest rate exposures arising from mismatches
between assets and liabilities and to modify portfolio profiles to manage
other risks identified. Under interest rate swaps, the Company agrees to
an exchange, at specified intervals, between streams of variable rate and
fixed rate interest payments calculated by reference to an agreed-upon
notional principal amount. Net amounts receivable and payable are accrued
as adjustments to interest income and included in investment and insurance
amounts receivable on the Statutory Statement of Financial Position. Gains
and losses realized on the termination of contracts are amortized through the
Interest Maintenance Reserve over the remaining life of the associated
contract. At December 31, 1996 and 1995, the Company had swaps with notional
amounts of $2,239.5 million and $1,819.8 million, respectively. The fair
values of these instruments were $20.7 million at December 31, 1996 and $9.2
million at December 31, 1995.
Options grant the purchaser the right to buy or sell a security or enter into
a derivative transaction at a stated price within a stated period. The
Company's option contracts have terms of up to fifteen years. The amounts
paid for options purchased are included in other investments on the Statutory
Statement of Financial Position. Gains and losses on these contracts are
recorded at the expiration or termination date and are amortized through the
Interest Maintenance Reserve over the remaining life of the underlying asset.
At December 31, 1996 and 1995, the Company had option contracts with notional
amounts of $1,928.4 million and $1,819.8 million, respectively. The
Company's credit risk exposure was limited to the unamortized costs of $18.1
million and $21.7 million, which had fair values of $19.2 million and $63.5
million at December 31, 1996 and 1995, respectively.
Interest rate cap agreements grant the purchaser the right to receive the
excess of a referenced interest rate over a given rate. Interest rate floor
agreements grant the purchaser the right to receive the excess of a given
rate over a referenced interest rate. Amounts paid for interest rate caps
and floors are amortized into interest income over the life of the asset on a
straight-line basis. Unamortized costs are included in other investments on
the Statutory Statement of Financial Position. Amounts receivable and
payable are accrued as adjustments to interest income and included in the
Statutory Statement of Financial Position as investment and insurance amounts
receivable. Gains and losses on these contracts, including any unamortized
cost, are recognized upon termination and are amortized through the Interest
Maintenance Reserve over the remaining life of the associated cap or floor
agreement. At December 31, 1996 and 1995, the company had agreements with
notional amounts of $3,859.6 million and $3,366.3 million, respectively. The
Company's credit risk
17
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
exposure on these agreements is limited to the unamortized costs of $22.0
million and $14.0 million at December 31, 1996 and 1995, respectively. The
fair values of these instruments were $15.2 million and $30.8 million at
December 31, 1996 and 1995, respectively.
The Company utilizes asset swap agreements to reduce exposures, such as
currency risk and prepayment risk, built into certain assets acquired.
Cross-currency interest rate swaps allow investment in foreign currencies,
increasing access to additional investment opportunities, while limiting
foreign exchange risk. Notional amounts relating to asset and currency swaps
totaled $364.7 million and $333.7 million at December 31, 1996 and 1995,
respectively. The fair values of these instruments were an unrecognized gain
of $7.8 million at December 31, 1996 and $12.2 million at December 31, 1995.
The Company enters into forward U.S. Treasury commitments for the purpose of
managing interest rate exposure. The Company generally does not take
delivery on forward commitments. These commitments are instead settled with
offsetting transactions. Gains and losses on forward commitments are
recorded when the commitment is closed and amortized through the Interest
Maintenance Reserve over the remaining life of the asset. At December 31,
1996 and 1995, the Company had U. S. Treasury purchase commitments which will
settle during the following year with contractual amounts of $1,639.4 million
and $292.4 million and fair values of $1,627.4 million and $298.8 million,
respectively.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments. This exposure is
limited to contracts with a positive fair value. The amounts at risk in a
net gain position were $53.9 million and $86.9 million at December 31, 1996
and 1995, respectively. The Company monitors exposure to ensure
counterparties are credit worthy and concentration of exposure is minimized.
Additionally, contingent collateral positions have been obtained with
counterparties when considered prudent.
8. Reinsurance
The Company cedes all of its group life and health business to UniCARE and
has other reinsurance agreements with other insurance companies in the normal
course of business. Premiums, benefits to policyholders and provisions for
future benefits are stated net of reinsurance. The Company remains liable to
the insured for the payment of benefits if the reinsurer cannot meet its
obligations under the reinsurance agreements. Premiums ceded were $793.5
million in 1996, $904.1 million in 1995 and $151.4 million in 1994.
9. Liquidity
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1996 are illustrated below:
<TABLE>
<CAPTION>
(In Millions)
<S> <C> <C>
Total policyholders' reserves and funds and
separate account liabilities $ 47,148
Not subject to discretionary withdrawal (6,010)
Policy loans (4,752)
--------
Subject to discretionary withdrawal $ 36,386
--------
Total invested assets, including separate
investment accounts $ 52,146
Policy loans and other invested assets (13,458)
--------
Readily marketable investments $ 38,688
--------
</TABLE>
18
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
10. Business Risks and Contingencies
The Company is subject to insurance guaranty fund laws in the states in which
it does business. These laws assess insurance companies amounts to be used to
pay benefits to policyholders and claimants of insolvent insurance companies.
Many states allow these assessments to be credited against future premium
taxes. The Company believes such assessments in excess of amounts accrued will
not materially affect its financial position, results of operations or
liquidity. In 1996 and 1995, the Company elected not to admit $15.3 million and
$17.6 million, respectively, of guaranty fund premium tax offset receivables
relating to prior assessments.
The Company is involved in litigation arising out of the normal course of its
business. Management intends to defend these actions vigorously. While the
outcome of litigation cannot be foreseen with certainty, it is the opinion of
management, after consultation with legal counsel, that the ultimate resolution
of these matters will not materially affect its financial position, results of
operations or liquidity.
11. Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
12. Subsidiaries and Affiliated Companies
Summary of ownership and relationship of the Company and its subsidiaries and
affiliated companies as of December 31, 1996 is illustrated below. The Company
provides management or advisory services to these companies. Subsidiaries are
wholly-owned, except as noted.
19
<PAGE>
NOTES TO STATUTARY FINANCIAL STATEMENTS, Continued
Parent
- ------
Massachusetts Mutual Life Insurance Company
Subsidiaries of Massachusetts Mutual Life Insurance Company
- -----------------------------------------------------------
C.M. Assurance Company
C.M. Benefit Insurance Company
C.M. Life Insurance Company
MassMutual Holding Company
MassMutual Holding Company Two, Inc. (Sold in March 1996)
MassMutual of Ireland, Limited
MML Bay State Life Insurance Company
MML Distributors, LLC
Subsidiaries of MassMutual Holding Company
------------------------------------------
GR Phelps, Inc.
MassMutual Holding Trust I
MassMutual Holding Trust II
MassMutual Holding MSC, Inc.
MassMutual International, Inc.
MassMutual Reinsurance Bermuda (Sold in December 1996)
MML Investor Services, Inc.
State House One (Liquidated in December 1996)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation
Charter Oak Capital Management, Inc.
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation
Oppenheimer Acquisition Corporation - 86.15%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc.
CM International, Inc.
CM Property Management, Inc.
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
Subsidiaries of MassMutual International
----------------------------------------
Compensa de Seguros de Vida S.A. - 33.5%
MassLife Seguros de Vida (Argentina) S. A.
MassMutual International (Bermuda) Ltd.
Mass Seguros de Vida (Chile) S. A. - 33.5%
MassMutual International (Luxemburg) S. A.
MassMutual Holding MSC, Incorporated
------------------------------------
MassMutual/Carlson CBO N. V. - 50%
MassMutual Corporate Value Limited - 46%
20
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
Affiliates of Massachusetts Mutual Life Insurance Company
- ---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
21
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS, Continued
22
<PAGE>
Part C
Item 24. Financial Statements and Exhibits
---------------------------------
a) Financial Statements:
Financial Statements Included in Part A
---------------------------------------
Condensed Financial Information
Financial Statements Included in Part B
---------------------------------------
The Registrant
--------------
Report of Independent Accountants
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1995
Notes to Financial Statements
The Depositor
-------------
Report of Independent Accountants
Statutory Statement of Financial Position as of December 31,
1996 and 1995
Statutory Statement of Income for the years ended December 31,
1996, 1995 and 1994
Statutory Statement of Changes in Policyholders' Contingency
Reserves for the years ended December 31, 1996, 1995 and 1994
Statutory Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Statutory Financial Statements
(b) Exhibits:
Exhibit 1 Copy of Resolution of the Executive Committee of
the Board of Directors of Massachusetts Mutual
Life Insurance Company, authorizing the
establishment of the Registrant, incorporated by
reference to Exhibit A(1) to Registrant's
Registration Statement under the Investment
Company Act of 1940, File No. 811-3200.
Exhibit 2 None
Exhibit 3 (i)(a)Copy of Distribution Agreement between the
Registrant and MML Distributors, LLC, incorporated
by reference to Exhibit 3 (i)(a) to Registrant's
Post Effective Amendment No. 11 to Registration
Statement under the Securities Act of 1933, File
No. 33-7724.
(i)(b) Copy of Co-Underwriting Agreement between
the Registrant and MML Investors Services, Inc.,
incorporated by reference to Exhibit 3 (i)(b) to
the Registrant's Post Effective Amendment No. 11
to Registration Statement under the Securities Act
of 1933, File No. 33-7724.
(ii) None
<PAGE>
Exhibit 4 (i) Copy of the form of Flexible Purchase Payment
Multi-Fund Variable Annuity Contract, incorporated
by reference to Exhibit 4 to Registrant's
Registration Statement under the Securities Act of
1933, File No. 33-7724.
Exhibit 5 The form of Application used with the Flexible
Purchase Payment Multi-Fund Variable Annuity
Contract in Exhibit 4 above, incorporated by
reference to Exhibit 5 to Registrant's
Registration Statement under the Securities Act of
1933, File No. 33-7724.
Exhibit 6 (i) Copy of the Articles of Incorporation of
Massachusetts Mutual Life Insurance Company,
incorporated by reference to Exhibit A (6) (a) to
Registrant's Registration Statement under the
Investment Company Act of 1940, File No. 811-3200.
(ii) By-laws of Massachusetts Mutual Life
Insurance Company incorporated by reference to
Exhibit (6)(ii) to Registrant's Registration
Statement under the Securities Act of 1933, File
No. 811-3200.
Exhibit 7 None
Exhibit 8 None
Exhibit 9 Opinion of and Consent of Counsel, incorporated
by reference to Exhibit 9 to Registrant's Post
Effective Amendment No. 11 to Registration
Statement under the Securities Act of 1933, File
No. 33-7724.
Exhibit 10 (i) Written consent of Coopers & Lybrand L.L.P.,
independent accountants.
(ii) Powers of Attorney
Exhibit 11 None
Exhibit 12 None
Exhibit 13 Schedule of Computation of Performance
Exhibit 14 Financial Data Schedule
Item 25. Directors and Executive Officers of MassMutual
----------------------------------------------
The directors and executive vice presidents of MassMutual,
their positions and their other business affiliations and
business experience for the past five years are listed
below.
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Name and Position Principal Occupation(s ) During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Roger G. Ackerman, Director Chairman and Chief Executive Officer, Corning, Inc., since 1996, President
and Chief Operating Officer 1990-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
James R. Birle, Director President and Founder, Resolute Partners, LLC, since 1994; General Partner,
Blackstone Group, 1988-1994.
- ------------------------------------------------------------------------------------------------------------------------------------
Frank C. Carlucci, III, Director Chairman, The Carlyle Group, Inc., since 1989.
- ------------------------------------------------------------------------------------------------------------------------------------
Gene Chao, Director Chairman, President and CEO, Computer Projections, Inc. since 1991.
- ------------------------------------------------------------------------------------------------------------------------------------
Patricia Diaz Dennis, Director Senior Vice President and Assistant General Counsel, SBC Communications
Inc. since 1995; Special Counsel, Sullivan & Cromwell, 1993-1995; Assistant
Secretary of State for Human Rights and Humanitarian Affairs, U.S.
Department of State, 1992-1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony Downs, Director Senior Fellow, The Brookings Institution, since 1977.
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Dunlap, Director President and Chief Operating Officer, United Meridian Corporation, since
1996; Senior Vice President, Texaco, Inc. 1987-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
William B. Ellis, Director Senior Fellow, Yale University School of Forestry and
Environmental Studies, since 1995; Chairman and Chief Executive Officer,
Northeast Utilities, 1983-1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Furek, Director President and Chief Executive Officer, Heublein, Inc., 1987-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Charles K. Gifford, Director Chief Executive Officer, First National Bank of Boston and The Bank of
Boston Corporation, since 1996, Chairman, President and CEO 1995-1996,
President and CEO 1989-1995.
- ------------------------------------------------------------------------------------------------------------------------------------
William N. Griggs, Director Managing Director, Griggs & Santow, Inc., since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
George B. Harvey, Director Chairman, President and CEO, Pitney Bowes, 1983-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara B. Hauptfuhrer, Director Director of various corporations, since 1972.
- ------------------------------------------------------------------------------------------------------------------------------------
Sheldon B. Lubar, Director Chairman, Lubar & Co. Incorporated, since 1977.
- ------------------------------------------------------------------------------------------------------------------------------------
William B. Marx, Jr., Director Senior Executive Vice President, Lucent Technologies 1996-1996; Executive
Vice President and CEO Multimedia Products Group, AT&T, 1994-1996; Executive
Vice President and CEO, Network Systems Group, 1993-1994; Group Executive
and President, AT&T Network Systems, 1989-1993.
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Maypole, Director Managing Partner, Peach State Real Estate Holding Company, since 1984.
- ------------------------------------------------------------------------------------------------------------------------------------
Donald F. McCullough, Director Retired Chairman and Chief Executive Officer, Collins & Aikman Corp.,
since 1988.
- ------------------------------------------------------------------------------------------------------------------------------------
John J. Pajak, Director, President and President and Chief Operating Officer, MassMutual, since 1996, Vice
Chief Operating Officer Chairman and Chief Operating Officer Administrative Officer, 1996-1996,
Executive Vice President, 1987-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas B. Wheeler, Director, Chairman and Chairman and Chief Executive Officer, MassMutual, since 1996, President
Chief Executive Officer and Chief Executive Officer, 1988-1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred M. Zeien, Director Chairman and Chief Executive Officer, The Gillette Company, since 1991.
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice Presidents:
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence V. Burkett, Jr. Executive Vice President and General Counsel, MassMutual, since 1993,
Senior Vice President and Deputy General Counsel 1992-1993.
- ------------------------------------------------------------------------------------------------------------------------------------
John B. Davies Executive Vice President, MassMutual, since 1994; Associate Executive Vice
President 1994-1994; General Agent, 1982-1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Fitzgerald Executive Vice President, Corporate Financial Operations, MassMutual, since
1994, Senior Vice President, 1991-1994.
- ------------------------------------------------------------------------------------------------------------------------------------
John M. Naughton Executive Vice President, MassMutual, 1984-1997.
- ------------------------------------------------------------------------------------------------------------------------------------
John V. Murphy Executive Vice President, MassMutual, since 1997, Executive Vice President
and Chief Operating Officer, David L. Babson & Co., Inc., 1995-1997; Chief
Operating Officer, Concert Capital Management, Inc., 1993-1995; Senior Vice
President and Chief Financial Officer, Liberty Financial Companies, 1977-
1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary E. Wendlandt Executive Vice President and Chief Investment Officer, MassMutual, since
1993, Executive Vice President, 1992-1993, Senior Vice President, 1983-1992.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
----------------------------------------------------------------
or Registrant
-------------
The assets of the Registrant, under state law, are assets
of MassMutual.
The Registrant may also be deemed to be under common control with
other separate accounts established by MassMutual and its life
insurance subsidiaries, C.M. Life Insurance Company and MML Bay
State Life Insurance Company, which are registered as unit
investment trusts under the Investment Company Act of 1940.
The following entities are, or may be deemed to be, controlled by
MassMutual through the direct or indirect ownership of such
entities' stock.
LIST OF SUBSIDIARIES AND AFFILIATES
<TABLE>
<CAPTION>
<S> <C>
1. MassMutual Holding Company, a Delaware corporation, all the stock of which
is owned by MassMutual.
2. MML Series Investment Fund, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares of
which are owned by separate accounts of MassMutual and companies
controlled by MassMutual.
3. MassMutual Institutional Funds, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares are owned by
MassMutual.
4. MML Bay State Life Insurance Company, a Missouri corporation, all the
stock of which is owned by MassMutual.
5. MassMutual of Ireland, Ltd., incorporated in the Republic of Ireland,
to operate a group life and health claim office for MassMutual, all
of the stock of which is owned by MassMutual.
6. CM Assurance Company, a Connecticut life, accident, disability and health
insurer, all the stock of which is owned by MassMutual.
7. CM Benefit Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
8. C.M. Life Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
9. MML Distributors, LLC, formerly known as Connecticut Mutual Financial
Services, LLC, a registered broker-dealer incorporated as a limited
liability company in Connecticut. MassMutual has a 99% ownership interest
and G.R. Phelps & Co. has a 1% ownership interest.
10. Panorama Series Fund, Inc., a registered open-end investment company
organized as a Maryland corporation. Shares of the fund are sold only to
MassMutual and its affiliates.
11. MassMutual Holding Trust I, a Massachusetts business trust, which acts as a
holding company for certain MassMutual subsidiaries and affiliates, all of
the stock of which is owned by MassMutual Holding Company.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
12. MassMutual Holding Trust II, a Massachusetts business trust, which acts as
a holding company for certain MassMutual subsidiaries and affiliates, all
of the stock of which is owned by MassMutual Holding Company.
13. MassMutual Holding MSC, Inc., a Massachusetts corporation, which acts as a
holding company for certain MassMutual subsidiaries and affiliates, all of
the stock of which is owned by MassMutual Holding Company.
14. MML Investors Services, Inc., registered broker-dealer incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding
Company.
15. G.R. Phelps & Company, Inc., Connecticut corporation which formerly
operated as a securities broker-dealer, all the stock of which is owned by
MassMutual Holding Company.
16. MassMutual International, Inc., a Delaware corporation that acts as a
holding company of and provides services to international insurance
companies, all of the stock of which is owned by MassMutual Holding
Company.
17. MassLife Seguros de Vida S.A. (Argentina), a life insurance company
incorporated in Argentina. MassMutual International Inc. owns 99.99% of the
outstanding capital stock of MassLife Seguros de Vida S.A.
18. Cornerstone Real Estate Advisers, Inc., a Massachusetts equity real estate
advisory corporation, all the stock of which is owned by MassMutual Holding
Trust I.
19. DLB Acquisition Corporation ("DLB") is a Delaware corporation, which serves
as a holding company for certain investment advisory subsidiaries of
MassMutual. MassMutual Holding Trust I owns 83.7% of the outstanding
capital stock of DLB.
20. Oppenheimer Acquisition Corporation ("OAC") is a Delaware corporation,
which serves as a holding company for OppenheimerFunds, Inc. MassMutual
Holding Trust I owns 86% of the capital stock of OAC
21. Antares Leveraged Capital Corp., a Delaware corporation that operates as a
finance company, all of the stock of which is owned by MassMutual Holding
Trust I.
22. Charter Oak Capital Management, Inc., a Delaware corporation that operates
as an investment manager. MassMutual Holding Trust I owns 80% of the
capital stock of Charter Oak.
23. MML Realty Management Corporation, a property manager incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding Trust
II.
24. Westheimer 335 Suites, Inc., was incorporated in Delaware to serve as a
general partner of the Westheimer 335 Suites Limited Partnership.
MassMutual Holding Trust II owns all the stock of Westheimer 335 Suites,
Inc.
25. CM Advantage, Inc., a Connecticut corporation that acts as a general
partner in real estate limited partnerships. MassMutual Holding Trust II
owns all of the outstanding stock.
26. CM International, Inc., a Delaware corporation that holds a mortgage pool
and issues collateralized bond obligations. MassMutual Holding Trust II
owns all the outstanding stock of CM International, Inc.
27. CM Property Management, Inc., a Connecticut real estate holding company,
all the stock of which is owned by MassMutual Holding Trust II.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
28. Urban Properties, Inc., a Delaware real estate holding and development
company, all the stock of which is owned by MassMutual Holding Trust II.
29. MMHC Investment, Inc., a Delaware corporation which is a passive investor
in MassMutual High Yield Partners LLC. MassMutual Holding Trust II owns all
the outstanding stock of MMHC Investment, Inc.
30. HYP Management, Inc., a Delaware corporation which is the LLC Manager for
MassMutual High Yield Partners LLC and owns 1.28% of the LLC units of such
entity. MassMutual Holding Trust II owns all the outstanding stock of HYP
Management, Inc.
31. MassMutual Corporate Value Limited, a Cayman Islands corporation that owns
approximately 90% of MassMutual Corporate Value Partners Limited.
MassMutual Holding MSC, Inc. owns 46.19% of the outstanding capital stock
of MassMutual Corporate Value Limited.
32. MassMutual International (Bermuda) Ltd., a Bermuda life insurance company,
all of the stock of which is owned by MassMutual International Inc.
33. MassMutual Internacional (Chile) S.A. a Chilean corporation, which operates
as a holding company. MassMutual International Inc. owns 99% of the
outstanding shares and MassMutual Holding Company owns the remaining 1% of
the shares.
34. MassMutual International (Luxembourg) S.A. a Luxembourg corporation, which
operates as an insurance company. MassMutual International Inc. owns 99% of
the outstanding shares and MassMutual Holding Company owns the remaining 1%
of the shares.
35. Mass Seguros de Vida S.A., a life insurance company incorporated in Chile.
MassMutual Holding Company owns 33.5% of the outstanding capital stock of
Mass Seguros de Vida S.A.
36. MML Insurance Agency, Inc., a licensed insurance broker incorporated in
Massachusetts, all of the stock of which is owned by MML Investors
Services, Inc.
37. MML Securities Corporation, a Massachusetts securities corporation, all of
the stock of which is owned by MML Investors Services, Inc.
38. OppenheimerFunds, Inc., a registered investment adviser incorporated in
Colorado, all of the stock of which is owned by Oppenheimer Acquisition
Corporation.
39. David L. Babson and Company, Incorporated, a registered investment adviser
incorporated in Massachusetts, all of the stock of which is owned by DLB
Acquisition Corporation.
40. Cornerstone Office Management, LLC, a Delaware limited liability company
that is 50% owned by Cornerstone Real Estate Advisers, Inc. and 50% owned
by MML Realty Management Corporation.
41. Westheimer 335 Suites Limited Partnership, a Texas limited partnership of
which Westheimer 335 Suites, Inc. is the general partner.
42. MassMutual High Yield Partners LLC, a Delaware limited liability company,
that operates as a high yield bond fund. MassMutual holds 5.28%, MMHC
Investment Inc. holds 35.99%, and HYP Management, Inc. hold 1.28% for a
total of 42.55% of the ownership interest in this company.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
43. MassMutual Corporate Value Partners Limited, a Cayman Islands corporation
that operates as a high yield bond fund. MassMutual Corporate Value Limited
holds an approximately 90% ownership interest in this company.
44. First Israel Mezzanine Investors, Ltd., an Israeli corporation which
operates as managing general partner of First Israel Mezzanine Investors
Fund, LP. MassMutual holds a 33% ownership interest in First Israel
Mezzanine Investors, Ltd.
45. First Israel Mezzanine Investors Fund, LP, a Delaware limited partnership,
of which MassMutual holds a 37.5% ownership interest.
46. MBD Mezzanine Investments, LLC, a Delaware limited liability company, which
operates as the participating general partner of First Israel Mezzanine
Investors Fund, LP. MassMutual holds a 33% ownership interest in MBD
Mezzanine Investments, LLC.
47. Diversified Insurance Services Agency of America, Inc. (Alabama), a
licensed insurance broker incorporated in Alabama. MML Insurance Agency,
Inc. owns all the shares of outstanding stock.
48. Diversified Insurance Services Agency of America, Inc. (Hawaii), a licensed
insurance broker incorporated in Hawaii. MML Insurance Agency, Inc. owns
all the shares of outstanding stock.
49. MML Insurance Agency of Nevada, Inc., a Nevada corporation that operates as
an insurance broker, all of the stock of which is owned by MML Insurance
Agency, Inc.
50. MML Insurance Agency of Ohio, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Ohio that operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. by means of a voting trust.
51. MML Insurance Agency of Texas, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Texas that operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. by means of a voting trust.
52. MML Insurance Agency of Mississippi, P.C., a Mississippi professional
corporation that operates as an insurance broker, all of the stock of which
is owned by MML Insurance Agency, Inc.
53. Origen Inversiones S.A., a Chilean corporation which operates as a holding
company. MassMutual Internacional (Chile) S.A. holds a 33.5% ownership
interest in this corporation.
54. Babson Securities Corporation, a registered broker-dealer incorporated in
Massachusetts, all of the stock of which is owned by David L. Babson and
Company, Incorporated.
55. Potomac Babson Incorporated, a Massachusetts corporation, is a registered
investment adviser. David L. Babson and Company Incorporated owns 60% of
the outstanding shares of Potomac Babson Incorporated.
56. Babson-Stewart-Ivory International, a Massachusetts general partnership,
which operates as a registered investment adviser. David L. Babson and
Company Incorporated holds a 50% ownership interest in the partnership.
57. Oppenheimer Value Stock Fund ("OVSF") is a series of Oppenheimer Integrity
Funds, a Massachusetts business trust. OVSF is a registered open-end
investment company of which MassMutual owns 40% of the outstanding shares
of beneficial interest.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
58. Oppenheimer Series Fund I Inc., a Maryland corporation and a registered
open-end investment company of which MassMutual and its affiliates own
approximately 27% of the outstanding shares of beneficial interest.
59. Centennial Asset Management Corporation, a Delaware corporation that serves
as the investment adviser and general distributor of the Centennial Funds.
OppenheimerFunds, Inc. owns all the stock of Centennial Asset Management
Corporation.
60. HarbourView Asset Management Corporation, a registered investment adviser
incorporated in New York, all the stock of which is owned by
OppenheimerFunds, Inc.
61. Main Street Advisers, Inc., a Delaware corporation, all the stock of which
is owned by OppenheimerFunds, Inc.
62. OppenheimerFunds Distributor, Inc., a registered broker-dealer incorporated
in New York, all the stock of which is owned by OppenheimerFunds, Inc.
63. Oppenheimer Partnership Holdings, Inc., a Delaware holding company, all the
stock of which is owned by OppenheimerFunds, Inc.
64. Shareholder Financial Services, Inc., a transfer agent incorporated in
Colorado, all the stock of which is owned by OppenheimerFunds, Inc.
65. Shareholder Services, Inc., a transfer agent incorporated in Colorado, all
the stock of which is owned by OppenheimerFunds, Inc.
66. MultiSource Service, Inc., a Colorado corporation that operates as a
clearing broker, all of the stock of which is owned by OppenheimerFunds,
Inc.
67. Centennial Capital Corporation, a former sponsor of unit investment trust
incorporated in Delaware, all the stock of which is owned by Centennial
Asset Management Corporation.
68. Compensa Compania Seguros De Vida, a Chilean insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company
69. Cornerstone Suburban Office Investors, LP, a Delaware limited partnership,
which operates as a real estate operating company. Cornerstone Office
Management, LLC holds a 1% general partnership interest in this fund and
MassMutual holds a 99% limited partnership interest.
70. 505 Waterford Park Limited Partnership, a Delaware limited partnership,
which holds title to an office building in Minneapolis, Minnesota. MML
Realty Management Corporation holds a 1% general partnership interest in
this partnership and MassMutual holds a 99% limited partnership interest.
71. The DLB Fund Group, an open-end management investment company, of which
MassMutual owns at least 25% of each series.
MassMutual is the investment adviser the following investment companies, and as
such may be deemed to control them.
1. MassMutual Corporate Investors, a registered closed-end Massachusetts
business trust.
2. MassMutual Participation Investors, a registered closed-end Massachusetts
business trust.
</TABLE>
<PAGE>
3. MML Series Investment Fund, a registered open-end Massachusetts business
trust, all of the shares are owned by separate accounts of MassMutual and
companies controlled by MassMutual.
4. MassMutual Institutional Funds, a registered open-end Massachusetts
business trust, all of the shares are owned by MassMutual.
5. MassMutual/Carlson CBO N.V., a Netherlands Antilles corporation that issued
Collateralized Bond Obligations on or about May 1, 1991, which is owned
equally by MassMutual interests (MassMutual and MassMutual Holding MSC,
Inc.) and Carlson Investment Management Co.
6. MassMutual Corporate Value Partners, Limited, an off-shore unregistered
investment company.
7. MassMutual High Yield Partners LLC, a high yield bond fund organized as
Delaware limited liability company.
Item 27. Number of Contract Owners
-------------------------
As of February 11, 1997, there were 174,156 Separate Account 1
Contracts were in force.
Item 28. Indemnification
---------------
MassMutual directors and officers are indemnified under its by-laws.
No indemnification provided with respect to any liability to any
entity which is registered as an investment company under the
Investment Company Act of 1940 or to the security holders thereof,
where the basis for such liability is willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of MassMutual pursuant to the foregoing
provisions, or otherwise, MassMutual has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by MassMutual of expenses incurred or paid by
a director, officer or controlling person of MassMutual in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, MassMutual will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
----------------------
(a) MML Distributors, LLC, a wholly owned subsidiary of MassMutual, acts
as principal underwriter for registered separate accounts of
MassMutual, C.M. Life and MML Bay State.
(b)(1) MML Distributors, LLC is the principal underwriter of the Contracts.
The following people are officers and directors of the principal
underwriter.
<PAGE>
OFFICERS AND MEMBER REPRESENTATIVES
MML DISTRIBUTORS, LLC
<TABLE>
<CAPTION>
Name and Position
with Principal Underwriter Principal Business Address
- -------------------------- --------------------------
<S> <C>
Kenneth M. Rickson One Monarch Place
Member Representative 1414 Main Street
G.R. Phelps & Co., Inc. Springfield, MA 01144-1013
Margaret Sperry 1295 State Street
Member Representative Springfield, MA 01111-0001
Massachusetts Mutual
Life Insurance Co.
Kenneth M. Rickson One Monarch Place
President 1414 Main Street
Springfield, MA 01144-1013
Ronald E. Thomson One Monarch Place
Vice President 1414 Main Street
Springfield, MA 01144-1013
Michael L. Kerley One Monarch Place
Vice President 1414 Main Street
Chief Legal Officer Springfield, MA 01144-1013
Assistant Secretary
John O'Connor One Monarch Place
Vice President 1414 Main Street
Springfield, MA 01144-1013
Robert S. Rosenthal One Monarch Place
Compliance Officer 1414 Main Street
Springfield, MA 01144-1013
James T. Birchall One Monarch Place
Treasurer 1414 Main Street
Springfield, MA 01144-1013
Bruce C. Frisbie 1295 State Street
Assistant Treasurer Springfield, MA 01111-0001
Raymond W. Anderson 140 Garden Street
Assistant Treasurer Hartford, CT 01654
Ann F. Lomeli 1295 State Street
Secretary Springfield, MA 01111-0001
</TABLE>
<PAGE>
(b)(2) MML Investors Services, Inc. is the co-underwriter of the
Contracts. The following people are the officers and directors
of the co-underwriter.
MML INVESTORS SERVICES, INC.
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Name and Position
with Co-Underwriter Principal Business Address
- ------------------- --------------------------
<S> <C>
Kenneth M. Rickson One Monarch Place
President and Chief 1414 Main Street
Operating Officer Springfield, MA 01144-1013
Michael L. Kerley One Monarch Place
Second Vice President 1414 Main Street
Chief Legal Officer Springfield, MA 01144-1013
Assistant Secretary
Ronald E. Thomson One Monarch Place
Treasurer and Second 1414 Main Street
Vice President Springfield, MA 01144-1013
Thomas J. Finnegan, Jr. 1295 State Street
Secretary/Clerk Springfield, MA 01111
Marilyn A. Sponzo One Monarch Place
Assistant Secretary 1414 Main Street
Springfield, MA 01144-1013
John E. Forrest One Monarch Place
Second Vice President 1414 Main Street
National Sales Director Springfield, MA 01144-1013
Eileen D. Leo One Monarch Place
Assistant Treasurer 1414 Main Street
Springfield, MA 01103-1013
William Bartol One Monarch Place
Compliance Officer 1414 Main Street
Springfield, MA 01144-1013
Robert S. Rosenthal One Monarch Place
Compliance Officer 1414 Main Street
Springfield, MA 01144-1013
Trudy A. Fearon One Monarch Place
Sr. Registered Options Principal 1414 Main Street
Springfield, MA 01144-1013
Dennis L. Reyhons 1295 State Street
Regional Supervisor/South Springfield, MA 01111
Nicholas J. Orphan 245 Peach Tree Center Ave.
Regional Supervisor/South Suite 2330
Atlanta, GA 30303
</TABLE>
<PAGE>
<TABLE>
<S> <C>
William L. Tindall 1295 State Street
Chief Pension Management Springfield, MA 01111
Field Force Supervisor
Robert W. Kumming 1295 State Street
Regional Pension Management Springfield, MA 01111
Supervisor (East/Central)
Peter J. Zummo 1295 State Street
Regional Pension Management Springfield, MA 01111
Supervisor (South/West)
Bruce Lukowiak 6263 North Scottsdale Rd.
Regional Supervisor/West Suite 222
Scottsdale, AZ 85250
Robert Burke One Lincoln Centre
Regional Supervisor/Central Suite 1490
Oak Brook Terrace, IL
60181-4271
Lawrence V. Burkett 1295 State Street
Chairman of the Board Springfield, MA 01111
of Directors
Peter Cuozzo, CLU, ChFC 1295 State Street
Director Springfield, MA 01111
John B. Davies 1295 State Street
Director Springfield, MA 01111
Daniel J. Fitzgerald 1295 State Street
Director Springfield, MA 01111
Maureen R. Ford 140 Garden Street
Director Hartford, CT 01654
Gary T. Huffman 1295 State Street
Director Springfield, MA 01111
Isadore Jermyn, FIA, ASA 1295 State Street
Director Springfield, MA 01111
Susan Alfano 1295 State Street
Director Springfield, MA 01111
Anne Melissa Dowling 140 Garden Street
Director Hartford, CT 01654
</TABLE>
(c) See the section captioned "Service Arrangements and Distribution" in
the Statement of Additional Information.
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the Registrant through
Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, Massachusetts 01111.
Item 31. Management Related Services
---------------------------
None
Item 32. Undertakings
------------
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that
the audited financial statements in the Registration Statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a
space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional
Information;
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request.
(d) Registrant asserts that the Separate Account meets the definition of
a separate account under the Investment Company Act of 1940.
(e) Massachusetts Mutual Life Insurance Company hereby represents that
the fees and charges deducted under the flexible and single purchase
payment, individual, multiple fund variable annuity contracts
described in this Registration Statement in the aggregate, are
reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Massachusetts
Mutual Life Insurance Company.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this Post-Effective Amendment No. 12 to Registration Statement No. 33-
7724 to be signed on its behalf by the undersigned thereunto duly authorized,
all in the city of Springfield and the Commonwealth of Massachusetts, on the
21st day of April, 1997.
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 1
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Thomas B. Wheeler*
-------------------------------------
Thomas B. Wheeler, Chief Executive Officer
Massachusetts Mutual Life Insurance Company
/s/ Richard M. Howe On April 21, 1997, as Attorney-in-Fact pursuant to
- ------------------- powers of attorney filed herewith.
*Richard M. Howe
<PAGE>
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 12 to Registration Statement No. 33-7724 has been signed by the following
persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas B. Wheeler* Chief Executive Officer and April 21, 1997
- --------------------------- Chairman of the Board
Thomas B. Wheeler
/s/ John J. Pajak* President, Chief Operating Officer April 21, 1997
- --------------------------- and Director
John J. Pajak
/s/ Daniel J. Fitzgerald* Executive Vice President, April 21, 1997
- --------------------------- Chief Financial Officer &
Daniel J. Fitzgerald Chief Accounting Officer
/s/ Roger G. Ackerman* Director April 21, 1997
- ---------------------------
Roger G. Ackerman
/s/ James R. Birle* Director April 21, 1997
- ---------------------------
James R. Birle
/s/ Frank C. Carlucci, III* Director April 21, 1997
- ---------------------------
Frank C. Carlucci, III
/s/ Gene Chao* Director April 21, 1997
- ---------------------------
Gene Chao, Ph.D.
/s/ Patricia Diaz Dennis* Director April 21, 1997
- ---------------------------
Patricia Diaz Dennis
/s/ Anthony Downs* Director April 21, 1997
- ---------------------------
Anthony Downs
/s/ James L. Dunlap* Director April 21, 1997
- ---------------------------
James L. Dunlap
/s/ William B. Ellis* Director April 21, 1997
- ---------------------------
William B. Ellis, Ph.D.
/s/ Robert M. Furek* Director April 21, 1997
- ---------------------------
Robert M. Furek
/s/ Charles K. Gifford* Director April 21, 1997
- ---------------------------
Charles K. Gifford
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ William N. Griggs* Director April 21, 1997
- ---------------------------
William N. Griggs
/s/ George B. Harvey* Director April 21, 1997
- ---------------------------
George B. Harvey
/s/ Barbara B. Hauptfuhrer* Director April 21, 1997
- ---------------------------
Barbara B. Hauptfuhrer
/s/ Sheldon B. Lubar* Director April 21, 1997
- ---------------------------
Sheldon B. Lubar
/s/ William B. Marx, Jr.* Director April 21, 1997
- ---------------------------
William B. Marx, Jr.
/s/ John F. Maypole* Director April 21, 1997
- ---------------------------
John F. Maypole
/s/ Donald F. McCullough* Director April 21, 1997
- ---------------------------
Donald F. McCullough
/s/ Alfred M. Zeien* Director April 21, 1997
- ---------------------------
Alfred M. Zeien
/s/ Richard M. Howe On April 21, 1997, as Attorney-in-Fact pursuant to
- --------------------------- powers of attorney filed herewith.
*Richard M. Howe
</TABLE>
<PAGE>
REPRESENTATION BY REGISTRANT'S COUNSEL
--------------------------------------
As counsel to the Registrant, I, Richard M. Howe, have reviewed this Post-
Effective Amendment No. 12 to Registration Statement No. 33-7724, and represent,
pursuant to the requirement of paragraph (e) of Rule 485 under the Securities
Act of 1933, that this Amendment does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) of said
Rule 485.
/s/ Richard M. Howe
----------------------
Richard M. Howe
2nd VP and Associate General Counsel
Massachusetts Mutual Life
Insurance Company
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
<S> <C>
Exhibit 10 (i) Written consent of Coopers & Lybrand, L.L.P.,
independent accountants
(ii) Powers of Attorney
Exhibit 13 Schedule of Computation of Performance
Exhibit 14 Financial Data Schedule
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Massachusetts Mutual Life Insurance Company
We consent to the inclusion in Post-Effective Amendment No. 12 to the
Registration Statement of Massachusetts Mutual Variable Annuity Separate Account
1 - Flex Extra segment on Form N-4, (Registration No. 33-7724) of our report,
which includes explanatory paragraphs relating to the use of statutory
accounting practices, which practices are no longer considered to be in
accordance with generally accepted accounting principles, and the change in our
opinion for prior years, dated February 7, 1997, on our audits of the statutory
financial statements of Massachusetts Mutual Life Insurance Company, and of our
reports dated February 4, 1997 on our audits of Massachusetts Mutual Variable
Annuity Separate Account 1 - Flex Extra segment (Qualified) and Massachusetts
Mutual Variable Annuity Separate Account 2 - Flex Extra segment (Non-Qualified).
We also consent to the reference to our Firm under the caption "Independent
Accountants" in the Statement of Additional Information.
Springfield, Massachusetts
April 25, 1997
<PAGE>
POWER OF ATTORNEY
MASSMUTUAL SEPARATE INVESTMENT ACCOUNTS
---------------------------------------
The Undersigned, John J. Pajak, President and Chief Operating Officer of
Massachusetts Mutual Life Insurance Company ("MassMutual"), does hereby
constitute and appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M.
Howe, and Michael Berenson, and each of them individually, as his true and
lawful attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as President and Chief Operating Officer of MassMutual that said attorneys and
agents may deem necessary or advisable to enable MassMutual to comply with the
Securities Act of 1933, as amended (the "1933 Act"), the Investment Company Act
of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MassMutual separate
investment accounts (the "MassMutual Separate Accounts"). This power of attorney
authorizes such attorneys and agents to sign the Undersigned's name on his
behalf as President and Chief Operating Officer of MassMutual to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MassMutual Separate Account, including but not
limited to those listed below.
MassMutual Separate Investment Account C
Massachusetts Mutual Variable Annuity Fund 1
Massachusetts Mutual Variable Annuity Fund 2
Massachusetts Mutual Variable Annuity Separate Account 1
Massachusetts Mutual Variable Annuity Separate Account 2
Massachusetts Mutual Variable Annuity Separate Account 3
Massachusetts Mutual Variable Life Separate Account I
Massachusetts Mutual Variable Life Separate Account II
Panorama Separate Account
CML Variable Annuity Account A
CML Variable Annuity Account B
CML Accumulation Annuity Account E
Connecticut Mutual Variable Life Separate Account I
CML/OFFITBANK Separate Account
<PAGE>
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 17th day of
February, 1997.
/s/ John J. Pajak
- --------------------------- ______________________________
John J. Pajak Witness
President and Chief Operating Officer
<PAGE>
FLEX EXTRA EXHIBIT 13
SCHEDULE OF COMPUTATION OF PERFORMANCE
The following examples are calculated in accordance with the methods described
in the Prospectus and Statement of Additional Information:
1. Standardized Average Annual Total Return
Assuming experience from the Equity Division, on a Single Purchase Payment
Contract $ 1,000 Purchase Payment on 12/31/95
A $30 Annual Administrative Fee was charged on each contract anniversary.
For this calculation, it is prorated among divisions, with 33% allocated to
the Equity Division.
The Deferred Sales Load for a Single Purchase Payment Contract on
12/31/1995 would have been 4%. The 10% free corridor was also applicable.
<TABLE>
<CAPTION>
Dates Accumulation Unit Values
<S> <C>
12/31/1995 2.45170806
12/31/1996 2.91092748
<CAPTION>
The Standardized Average Annual Total Return for the period 12/31/95-12/31/96: 13.50%
<S> <C>
Accumulated Value on 12/31/1996
((1000/2.45170806) x 2.91092748) - (.33 x 30) $1,177.41
Ending Redeemable Value on 12/31/1996
1177.41 - (.9 x .04 x 1177.41) $1,135.02
Standardized Average Annual Total Return, 12/31/95 - 12/31/96
((1135.02/1000)- 1) x 100 13.50%
</TABLE>
2. Percentage Change in Accumulation Unit Values
Assuming experience from the Blend Division
<TABLE>
<S> <C> <C> <C>
Unit Value 12/31/1995 2.24841768
Unit Value 12/31/1996 2.52954369
Percentage Change in Unit Values for 1996 12.50%
(2.52954369-2.24841768)/2.24841768 x 100
</TABLE>
<PAGE>
3. Annualized Accumulation Unit Value(AUV) Return
For a one year period, the annualized AUV return is equal to the percentage
change in accumulation unit values.
For periods greater than one year, the annualized AUV return is an average
annual change in accumulation unit values, based on the percentage change.
Assuming experience from the Blend Division
<TABLE>
<S> <C> <C> <C>
Unit Value 12/31/93 1.82609139
Unit Value 12/31/96 2.52954369
Percentage Change in Unit Values for the 3 year period ending 12/31/95 38.52%
(2.52954369 - 1.82609139) /1.82609139 x 100
Annualized AUV Return for the 3 year period ending 12/31/96 11.47%
((1.3852[SYMBOL APPEARS HERE](1/3)) - 1) x 100
The symbol [SYMBOL APPEARS HERE] is being used to denote exponentiation.
</TABLE>
4. Non-Standardized Average Annual Total Return
<TABLE>
<CAPTION>
Assuming experience from the Managed Bond Division
<S> <C> <C> <C>
Single Purchase Payment 12/31/86 $50,000
Accumulated Value 12/31/96 $97,582
Average Annual Total Return 6.92%
((97582/50,000)[SYMBOL APPEARS HERE](1/10) - 1 ) x 100
The symbol [SYMBOL APPEARS HERE] is being used to denote exponentiation.
</TABLE>
5. One Year Total Return
Assuming experience from the Money Market Division
<TABLE>
<S> <C> <C> <C>
Single Purchase Payment 12/31/86 $50,000
Accumulated Value 12/31/95 $74,095
Accumulated Value 12/31/96 $76,800
One Year Total Return 3.65%
</TABLE>
((76,800-74,095)/74,095) x 100
<PAGE>
6. 7-day Money Market Yield and Effective Yield, Separate Account 1
Assuming experience from the Money Market Division
For the period ending 12/31/96
<TABLE>
<S> <C> <C>
Unit Value 12/24/96 1.52097506
Unit Value 12/26/96 1.52097819
Unit Value 12/31/96 1.52173653
</TABLE>
<TABLE>
<S> <C> <C>
To get the change in value from 12/24/96 to 12/26/96, take 100% of
the change from 12/24/96 to 12/26/96:
((1.52097819/1.52097506)-1) 0.000002
Change in value from 12/26/96 to 12/31/96:
(1.52173653/1.52097819)-1 0.000499
Combine to get change in value from 12/24/96 to 12/31/96:
(0.000002+0.000499) 0.000501
Yield: .000501 x (366/7) x 100 = 2.62%
Effective Yield: ((1.000501)[SYMBOL APPEARS HERE](366/7) -1 )x100 = 2.65%
The symbol [SYMBOL APPEARS HERE] is being used
to denote exponentiation.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,366,116,859
<INVESTMENTS-AT-VALUE> 2,953,790,194
<RECEIVABLES> 99,456,308
<ASSETS-OTHER> 5,418
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,053,251,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 397,377
<TOTAL-LIABILITIES> 397,377
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,052,854,543
<DIVIDEND-INCOME> 150,547,608
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 34,565,602
<NET-INVESTMENT-INCOME> 115,982,006
<REALIZED-GAINS-CURRENT> 28,594,879
<APPREC-INCREASE-CURRENT> 210,767,262
<NET-CHANGE-FROM-OPS> 355,344,147
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 734,678,803
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,658,942,718
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
