<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. 13 / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 13
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, 1998 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, 1997 was filed on March 20, 1998.
1
<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
2
<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
3
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
4
<PAGE>
PROSPECTUS
MAY 1, 1998
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 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 Aggressive Growth Fund (Prior to May 1, 1998, this Fund
was called 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, 1998, which has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference and is available upon written or oral (1-800-272-2216) request and
without charge from the Service Center, H305, P.O. Box 9067, Springfield,
Massachusetts 01102-9067.
The Securities and Exchange Commission (SEC) maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
------------------
material incorporated by reference and other information regarding registrants
that is filed with the SEC electronically.
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
1
<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 ........................................... 13
- Life Income Payments ................................................ 13
- Joint and Survivor Life Income Payments ............................. 13
- Joint and Survivor Life Income Payments (Two Thirds to the Survivor) 13
- Payments After Death of Variable Annuitant .......................... 13
- Special Limitations ................................................. 13
- - Redemption Privilege .................................................... 13
- Automatic Partial Redemptions ......................................... 14
- Tax Sheltered Annuity Redemption Restrictions ......................... 14
- Election of Right to Make Loans for TSAs .............................. 14
Charges and Deductions .................................................... 14
- Separate Account Charges .............................................. 14
- Mortality and Expense Risk Charge ..................................... 14
- Other Administrative Expenses ......................................... 14
- Contract Charges ...................................................... 15
- Administrative Charge ................................................. 15
- Contingent Deferred Sales Charge ...................................... 15
- Premium Taxes ......................................................... 16
- Fund Expenses ......................................................... 16
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
The Guaranteed Principal Account .......................................... 16
Distribution .............................................................. 17
Miscellaneous Provisions .................................................. 17
- Termination of Liability .............................................. 17
- Adjustment of Units and Unit Values ................................... 17
- Periodic Statements ................................................... 17
Contract Owner's Voting Rights ............................................ 17
Reservation of Rights ..................................................... 18
Federal Tax Status ........................................................ 18
- Introduction .......................................................... 18
- Tax Status of MassMutual .............................................. 18
- Taxation of Contracts In General ...................................... 18
- Penalty Taxes ......................................................... 18
- Annuity Distribution Rules of Section 72(s) ........................... 19
- Tax Withholding ....................................................... 19
- Tax Reporting ......................................................... 19
- Taxation of Qualified Plans, TSAs, IRAs, Roth IRAs and SIMPLE IRAs .... 19
Performance Measures ...................................................... 20
- Standardized Average Annual Total Return .............................. 20
- Additional Performance Measures ....................................... 21
Additional Information .................................................... 22
</TABLE>
3
<PAGE>
Special Terms
As used in this Prospectus, the following terms mean:
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 Date: The date the application is signed is the Contract Date. However,
Contracts which are purchased in connection with a Qualified Plan may have a
Contract Date which is the common anniversary date with other Contracts under
that Qualified Plan.
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 in which Divisions may invest. The MML
Trust is a no-load, open-end management investment company and the Oppenheimer
Trust is a diversified open-end investment company.
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.
You or Your refers to the Contract Owner.
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.
4
<PAGE>
Table Of Fees And Expenses
SINGLE PURCHASE PAYMENT CONTRACT
<TABLE>
<CAPTION>
Contract Owner 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/1/
Transfer Fee ..................................................................... None
Annual Administrative Charge/2/ .................................................. $30
Separate Account Annual Expenses (as a percentage of average account values)
- ----------------------------------------------------------------------------
Mortality and Expense Risk Fee ................................................. 1.15%
Other Administrative Expenses .................................................. 0.15%
----
Total .......................................................................... 1.30% /2/
</TABLE>
<TABLE>
<CAPTION>
Investment Fund Annual Expenses (as percentage of Fund average net assets)/3/
- -----------------------------------------------------------------------------
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Aggressive Global Strategic
Equity Market Bond Blend Growth/4/ Securities Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees........... 0.35% 0.48% 0.44% 0.37% 0.71% 0.70% 0.75%
Other Expenses............ 0.00% 0.04% 0.03% 0.00% 0.02% 0.06% 0.08%
Total..................... 0.35% 0.52% 0.47% 0.37% 0.73% 0.76% 0.83%
</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 Aggressive Global Strategic
Equity Market Bond Blend Growth 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:/5/
1........................................... $64 $65 $65 $64 $67 $68 $68
3........................................... 83 88 87 84 95 95 98
5........................................... 103 112 109 104 122 124 127
10.......................................... 201 219 213 204 241 244 251
If Your Contract is not redeemed at end of year:/5/
1........................................... 17 19 18 18 21 21 22
3........................................... 54 59 57 54 65 66 68
5........................................... 92 101 98 94 112 113 117
10.......................................... 201 219 213 204 241 244 251
</TABLE>
/1/ 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.
/2/ These charges are shown on a current basis. MassMutual reserves the right to
increase the charges up to $50, and 1.40% respectively. For more information
please see CHARGES AND DEDUCTIONS.
/3/ The expenses listed are for the year ended December 31, 1997.
/4/ Prior to May 1, 1998, the Oppenheimer Aggressive Growth Fund was named the
Oppenheimer Capital Appreciation Fund.
/5/ The figures shown include a portion of the $30 Annual Administrative Charge,
pro-rated for a Contract with $60,000 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 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/1/
Transfer Fee................................................................... None
Annual Administrative Charge/2/................................................ $35
Separate Account Annual Expenses (as a percentage of average account values)
- ----------------------------------------------------------------------------
Mortality and Expense Risk Fee............................................... 1.15%
Other Administrative Expenses................................................ 0.15%
----
Total........................................................................ 1.30% /2/
</TABLE>
Investment Fund Annual Expenses (as a percentage of Fund average net assets)/3/
- -------------------------------------------------------------------------------
<TABLE>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Aggressive Global Strategic
Equity Market Bond Blend Growth/4/ Securities Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees................... 0.35% 0.48% 0.44% 0.37% 0.71% 0.70% 0.75%
Other Expenses.................... 0.00% 0.04% 0.03% 0.00% 0.02% 0.06% 0.08%
Total............................. 0.35% 0.52% 0.47% 0.37% 0.73% 0.76% 0.83%
</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:/5/
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Aggressive Global Strategic
Equity Market Bond Blend Growth/4/ 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.................... 128 132 131 128 138 139 141
5.................... 153 161 159 154 172 173 176
10................... 218 236 230 221 257 261 268
If Your Contract is not redeemed at end of year:/5/
1.................... 19 21 20 19 23 23 24
3.................... 58 64 62 59 70 71 73
5.................... 101 109 107 102 120 122 125
10................... 218 236 230 221 257 261 268
</TABLE>
/1/ 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.
/2/ These charges are shown on a current basis. MassMutual reserves the right to
increase the charge up to $50, and 1.40% respectively. For more information
please see CHARGES AND DEDUCTIONS.
/3/ The expenses listed are for the year ended December 31, 1997.
/4/ Prior to May 1, 1998, the Oppenheimer Aggressive Growth Fund was named the
Oppenheimer Capital Appreciation Fund.
/5/ The figures shown include a portion of the $35 Annual Administrative Charge,
pro-rated for a Contract with $16,667 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 UNITS AND 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
-------- --------------- ------------- --------
<S> <C> <C> <C> <C>
Number of Accumulation
Units Outstanding December 31, 1997 413,935,012 44,060,821 52,035,004 574,212,871
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
Massachusetts Mutual Variable Annuity
Separate Account 2- Flex Extra (Non-Qualified)
Number of Accumulation
Units Outstanding December 31, 1997 126,208,946 19,294,078 21,418,834 163,896,980
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
Accumulation Unit Values
Separate Account 1 and
Separate Account 2 December 31, 1997 $3.70 $1.58 $2.17 $3.02
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
April 27, 1987* $1.00 $1.00 $1.00 $1.00
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Massachusetts Mutual Variable Annuity Capital Appreciation Global Securities Strategic Bond
Separate Account 1 - Flex Extra (Qualified) Division Division Division
-------- -------- --------
<S> <C> <C> <C>
Number of Accumulation
Units Outstanding December 31, 1997 177,604,099 157,068,622 49,826,459
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
Massachusetts Mutual Variable Annuity
Separate Account 2 - Flex Extra (Non-Qualified)
Number of Accumulation December 31, 1997 66,601,368 67,261,990 33,692,490
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
Accumulation Unit Values
Separate Account 1 and
Separate Account 2 December 31, 1997 $1.72 $1.28 $1.33
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
</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.
MassMutual has estimated unconsolidated statutory assets in excess of $57
billion, and estimated total assets under management in excess of $152 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 $75
billion as of December 31, 1997, and with more than 3.5 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 Aggressive Growth Fund (Prior to May 1, 1998, this Fund was called
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 six 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 advisory, management and
administrative services needed by these Funds pursuant to investment management
agreements. David L. Babson and Company, Inc., a subsidiary of MassMutual,
serves as the investment subadviser 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.
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THE OPPENHEIMER TRUST
The Oppenheimer Trust is a diversified open-end 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 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.
(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.
(5) Oppenheimer Aggressive Growth Fund.*
Oppenheimer Aggressive Growth Fund seeks to achieve a capital appreciation by
investing in "growth-type" companies.
*Prior to May 1, 1998, the Oppenheimer Aggressive Growth Fund was known
as Oppenheimer Capital Appreciation Fund.
(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. Please
consult the Oppenheimer Trust prospectus for a more complete discussion of the
risks and investment objectives associated with this Fund.
(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, high risk, debt securities. This
Fund's investments may be considered to be speculative. Please consult the
Oppenheimer Trust prospectus for a more complete discussion of the risks and
investment objectives associated with this Fund.
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 Trust and Oppenheimer Trust. 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"):
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(1) pension and profit-sharing plans qualified under Section 401(a) or 403(a) of
the Code ("Qualified Plans"), which may also constitute participant-directed
individual account plans under Section 404(c) of ERISA;
(2) annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code ("Tax Sheltered
Annuities" or "TSAs");
(3) deferred compensation plans for state and local governments and tax-exempt
organizations established under the provisions of Section 457 of the Code; and
(4) Individual Retirement Annuities established in accordance with Section 408
of the Code ("IRAs"), including a Roth IRA and 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.
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You may direct that Your purchase payments (after deducting any applicable
premium taxes) be allocated among the Guaranteed Principal Account ("GPA") and
the Divisions of a Separate Account. 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. Mass- Mutual 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, Mass-Mutual 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. The Contract must be
accompanied by a written request signed by you that indicates you wish to return
the Contract. 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
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(b) the Accumulated Value of the Contract, determined as of the Valuation Date
which is on or next follows the date on which due proof of death is received
at MassMutual's Home Office (and less, in either case, the amount of any
applicable premium tax and the amount of any outstanding Contract debt if
the Contract is a TSA).
The death benefit may be paid in one sum within seven days after receipt of due
proof of death and all other requirements have been received by MassMutual at
its Home Office. With MassMutual's consent, the death benefit may be applied
under one or more of the payment options provided by the Contract (see Payment
Options). No sales charge is imposed upon the death benefit.
A beneficiary who is the surviving spouse of the Owner of a Contract issued as
an IRA may elect to treat the Contract as if he or she were the Contract Owner.
THE ANNUITY (PAY-OUT) PERIOD
Annuity Benefits. You may elect the Maturity Date of Your Contract. The Maturity
Date, however, may not be later than the Contract anniversary nearest the
Annuitant's 85th birthday 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.
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You may not change Your Variable Monthly Annuity payment option or transfer
amounts among the Divisions and the GPA after the Maturity Date (under the
fixed-time payment option, however, remaining unpaid Variable Monthly Annuity
payments may be withdrawn as described below).
Fixed Time Payment Option.
If You elect this option, Variable Monthly Annuity payments will be made for any
period selected, up to 30 years. If provided in the payment option election, You
may withdraw the full amount, subject to any applicable sales charge (see
Charges And Deductions), of the then present value of the remaining unpaid
Variable Monthly Annuity payments. The present value will be calculated using an
assumed investment rate of 4% per year unless a lower rate is required by state
law. A mortality risk charge continues to be assessed against Contract values
under this option (see Charges And Deductions) even though the Contract Owner
derives no further benefit from this risk charge since payments under this
option are not based upon the life expectancy of the Annuitant.
Life Income Payments.
If You elect this option, Variable Monthly Annuity payments will be made during
the lifetime of the Annuitant, either:
(1) without any guaranteed number of payments; or
(2) with a guaranteed number of payments on an "installment refund" basis; or
(3) with a guaranteed number of payments for 5 or 10 years.
Of these three alternatives, alternative (1) offers the maximum level of monthly
payments since there is no guarantee of a minimum number of payments or
provision for payments to the beneficiary upon the death of the Annuitant. Since
there is no such guarantee, however, it would be possible to receive only one
annuity payment if the Annuitant died prior to the due date of the second
annuity payment, two if he or she died before the third annuity payment date,
etc. Alternative (2) provides for a guaranteed number of payments for a term
equal to the nearest whole number of months determined by dividing the value
applied under a Contract by the dollar amount of the first Variable Monthly
Annuity payment.
Joint and Survivor Life Income Payments.
If You elect this option, Variable Monthly Annuity payments will be made during
the joint lifetime of the two Annuitants and thereafter during the lifetime of
the survivor, either:
(1) without a guaranteed number of payments; or
(2) with a guaranteed number of payments for 10 years.
Joint and Survivor Life Income Payments (Two-Thirds to the Survivor).
If You elect this option, Variable Monthly Annuity payments will be made during
the joint lifetime of the two Annuitants and, thereafter, at two-thirds the
prior rate during the lifetime of the survivor, in both cases without a
guaranteed number of payments.
Payments After Death of Variable Annuitant.
Generally, if a payment option with a guaranteed number of payments is elected,
and the Annuitant(s) should die before the guaranteed number of payments have
been completed, MassMutual will continue making the guaranteed payments to the
designated beneficiary
Special Limitations.
Where the Contract is issued pursuant to a Tax Sheltered Annuity or as an IRA,
there are special limitations on the types of payment options which You may
elect.
REDEMPTION PRIVILEGE
Subject to the special rules regarding tax sheltered annuities discussed below,
You may redeem all or part of the Accumulated Value of a Contract on or prior to
its Maturity Date if the Annuitant is alive. The amount of any partial
redemption, however, must be at least $100. Requests for a partial redemption
which would reduce the Accumulated Value of the Contract to less than $500 will
be treated as a request for a full redemption. You may incur a sales charge upon
redemption. (See Charges And Deductions) A 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
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(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.
Automatic Partial Redemptions. MassMutual has an automatic partial redemption
program that permits Contract Owners in most states 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.
Contract Owners who elect automatic partial redemptions may elect to have the
redeemed amounts transferred electronically to their bank account. 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) 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
Separate Account Charges
1. MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period, the Company deducts a Mortality and Expense Risk Charge
which is currently equal, on an annual basis, 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 average daily net asset value of the Separate Accounts. The
mortality risks assumed by the Company arise from its contractual obligation to
make Annuity Payments after the Annuity Date (determined in accordance with the
Annuity Option chosen by the Contract Owner) regardless of how long all
Annuitants live. This assures that neither an Annuitant's own longevity, nor an
improvement in life expectancy greater than expected, will have any adverse
effect on the Annuity Payments the Annuitant will receive under the Contract.
Further, the Company bears a mortality risk in that it guarantees the annuity
purchase rates for the Annuity Options under the Contract whether for a Fixed
Annuity or a Variable Annuity. Also, there is a mortality risk borne by the
Company with respect to the death benefit and to the waiver of the Contingent
Deferred Sales Charge upon the death of the Owner. The expense risk assumed by
the Company is that all actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees and the costs of
other services may exceed the amount recovered from the Annual Contract
Maintenance Charge and the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount deducted
proves more than sufficient, the excess will be a profit to the Company. The
Company expects a profit from this charge. Mortality and Expense Risk Charge is
guaranteed by the Company and cannot be increased.
2. OTHER ADMINISTRATIVE EXPENSES
Each Valuation Period, the Company deducts an Administrative Expense which is
currently equal, on an annual basis, to 0.15% of the average daily net asset
value of the Separate Accounts. This charge, together with the Annual
Administrative Charge (see below), is to reimburse the Company for the
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expenses it incurs in the establishment and maintenance of the Contracts and the
Separate Accounts. These expenses include but are not limited to: preparation of
the Contracts, confirmation statements, annual and periodic reports and
statements, maintenance of Contract Owner records, maintenance of Separate
Account records, administrative personnel costs, mailing costs, data processing
costs, legal fees, accounting fees, filing fees, the costs of other services
necessary for Contract Owner servicing and all accounting, valuation, regulatory
and reporting requirements. Since this charge is an asset-based charge, the
amount of the charge attributable to a particular Contract may have no
relationship to the administrative costs actually incurred by that
Contract.
The total Separate Account charges will not exceed 1.40%.
Contract Charges
1. ADMINISTRATIVE CHARGE
In addition to that portion of the Asset Charge assigned to administrative
expenses, each year on the Contract anniversary date a charge is imposed against
each Contract to reimburse MassMutual for administrative expenses relating to
the issuance and maintenance of the Contract. The charge is currently $30 per
year on single purchase payment Contracts and $35 per year on flexible purchase
payment Contracts and will not be increased above $50 per year. This charge will
be deducted from the Divisions in the order listed in Your contract and then
from the GPA.
The charge imposed against amounts in the GPA will not be greater than 1% of the
value of such amounts on the Contract anniversary date (before the deduction of
the charge).
The administration expenses portion of the Asset Charge and the annual
Administrative Charge have been set at a level that will recover no more than
the actual costs associated with administering the Contracts.
2. 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Sales Charge
Contract Year of
Redemption or Flexible Purchase Single Purchase
Maturity Payment Contracts Payment Contracts
----------------- -----------------
<S> <C> <C>
First Contract Year........................... 8% 5%
Second Contract Year.......................... 8% 4%
Third Contract Year........................... 7% 3%
Fourth Contract Year.......................... 6% 2%
Fifth Contract Year........................... 5% 1%
Sixth Contract Year........................... 4% No Charge
Seventh Contract Year......................... 3% No Charge
Eighth Contract Year.......................... 2% No Charge
Ninth Contract Year........................... 1% No Charge
Tenth and Subsequent Years.................... No Charge No Charge
- ----------------------------------------------------------------------------------------------
</TABLE>
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
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<PAGE>
(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,
1999, 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 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 C.M. Life Insurance Company, a
MassMutual subsidiary and, subject to state availability, MassMutual (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. The
Exchange Program is subject to state availability. 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.
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.
FUND EXPENSES
The Accumulated Value of each Separate Account reflects the value of shares held
in the MML Trust and the Oppenheimer MML Trust. Each Trust charges certain
investment advisory fees and other expenses against the value of each Fund. For
a complete description of the expenses and deductions for each Trust, please
review the accompanying prospectuses for each Trust.
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.
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<PAGE>
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
MML Distributors, LLC ("MML Distributors"), 1414 Main Street, Springfield, MA
01144-1013, is the principal underwriter of the Contracts pursuant to an
Underwriting and Servicing Agreement to which MML Distributors, MassMutual and
the Separate Account are parties. MML Investors Services, Inc. ("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.
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 Trusts. 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 by dividing the Contract's value held in each Division of the
Separate Account, if any, by $100. Fractional votes are counted. 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.
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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 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, Roth IRAs, SIMPLE 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;
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<PAGE>
(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.
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,
Roth IRAs, SIMPLE 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, Roth IRAs, SIMPLE 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, IRAS, ROTH IRAS AND SIMPLE 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, Roth IRAs, SIMPLE IRAs,
and TSAs may be subject to a 10% penalty tax on amounts withdrawn before age 59
1/2. For IRAs in SIMPLE plans, distribu-
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<PAGE>
tions 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 all 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 all
IRAs);
(6) payments to an alternate payee pursuant to a qualified domestic relations
order under Code Section 414(p) (not applicable to IRAs);
(7) effective for calendar years beginning January 1, 1997, withdrawals from all
IRAs by certain unemployed persons for payment of health insurance premiums;
(8) effective for calendar years beginning January 1, 1998, withdrawals from
IRAs for the payment of certain higher education expenses; and
(9) effective for calendar years beginning January 1, 1998, withdrawals from
IRAs for certain first-time homebuyer expenses, subject to a $10,000 lifetime
cap.
IRAs are subject to limitations on the amount which may be contributed. The
deductibility of contributions by individuals or their spouses 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. No minimum distributions are required from a
Roth IRA.
Distributions from Qualified Plans and TSAs are subject to mandatory federal
income tax withholding. MassMutual is required to withhold 20% when a payment
from a Qualified Plan or TSA is an "eligible rollover distribution" and such
payment is not directly rolled over to another Qualified Plan, TSA or IRA. In
general, an "eligible rollover distribution" is any taxable distribution other
than:
(1) payments for the life (or life expectancy) of the Annuitant, or for joint
life (or joint life expectancies) of the Annuitant and the beneficiary;
(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).
Special rules apply in the case of Roth IRAs, which are specially designated
IRAs. Contributions to Roth IRAs are not deductible and are limited based on
modified adjusted gross income. Contrary to regular IRAs, contributions are
permitted after age 70 1/2.
Qualified distributions from Roth IRAs are not included in income. Distributions
that are not qualified distributions are treated first as a return of investment
to the extent of the individual's contributions to Roth IRAs and as a taxable
distribution to the extent of any excess. Roth IRAs are not subject to required
minimum distribution rules.
An individual (other than a married individual filing separately) with an
adjusted gross income of $100,000 or less may roll over distributions within 60
days from a regular IRA to a Roth IRA or may convert a regular IRA into a Roth
IRA. While the rollover would be subject to tax, it would not be subject to the
10% premature distribution penalty tax. If the rollover occurs during 1998, the
income is spread out over four tax years.
A SIMPLE IRA is an individual retirement account or annuity for which the only
contributions are those under a qualified salary reduction arrangement and which
meets certain vesting, participation and administrative requirements. Eligible
employees who received at least $5,000 in compensation from the employer for any
two preceding years and who are reasonably expected to receive at least $5,000
in compensation for the current year may make a salary reduction arrangement or
receive nonelective contributions. Special rules apply to employee and employer
contributions. Distributions from SIMPLE IRAs are taxed under rules applicable
to IRAs in the year of distribution,
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
20
<PAGE>
made at the beginning of the period and full redemption at the end of the
period. It reflects a deduction for the contingent deferred sales charge, the
annual administrative charge and all other Fund, Separate Account, and Contract
level charges except premium taxes, if any. The annual administrative charge is
apportioned among the Divisions of the Separate Account based upon the
percentages of inforce Contracts investing in each of the Divisions.
For Divisions of the Separate Account which have been in existence for less than
one year, MassMutual will show the aggregate total return as permitted by the
SEC. The aggregate total return assumes a single one thousand dollar payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the change in unit value and a reduction of the contingent
deferred sales charge.
ADDITIONAL PERFORMANCE MEASURES
The performance figures discussed below are calculated on the basis of the
historical performance of the Funds, and may assume the Contracts were in
existence prior to April 27, 1987 (which they were not). Beginning April 27,
1987 (inception date), actual Accumulation Unit values are used for the
calculations for the MML Trust. The Oppenheimer 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 Trust
expenses and the Oppenheimer Trust 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 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.
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.
21
<PAGE>
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.
The Statement of Additional Information contains financial statements for
MassMutual and for Separate Accounts 1 and 2.
22
<PAGE>
This Prospectus sets forth the information about Separate Accounts 1 and 2 that
a prospective investor ought to know before investing. Certain additional
information about the Separate Accounts is contained in a Statement of
Additional Information dated May 1, 1998, which has been filed with the SEC and
is incorporated herein by reference. The table of Contents for the Statement of
Additional Information appears on the last page of this Prospectus. To obtain a
copy, return this request form to the address shown below or telephone
1-800-272-2216.
- --------------------------------------------------------------------------------
To: Massachusetts Mutual Life Insurance Company
Annuity Service Center, H305
P.O. Box 9067
Springfield, MA 01102-9067
Please send me a Statement of Additional Information for MassMutual's Flex
Extra.
Name
----------------------------------------------------------------------
Address
-------------------------------------------------------------------
-------------------------------------------------------------------
City State Zip
------------------------ ------------------------ --------------
Telephone
-----------------------------------------------------------------
23
<PAGE>
PART B
INFORMATION REQUIRED IN A
6
<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, 1998 (the "Prospectus"). The Prospectus
is available upon written or oral (1-800-272-2216) request, from Massachusetts
Mutual Life Insurance Company, Annuity Service Center, H305, P.O. Box 9067,
Springfield, Massachusetts 01102-9067.
Dated May 1, 1998
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 ................... 7
Performance Measures ............................. 11
Reports of Independent
Accountants and Financial
Statements ................................. Final Pages
1
<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 (the "MML Trust") which is comprised of six funds, four of which
are available to Contract Owners: MML Money Market Fund, MML Managed Bond Fund,
the MML Blend Fund and the MML Equity Fund (collectively the MML "Funds"). David
L. Babson and Company, Inc. ("Babson"), a subsidiary of MassMutual, serves as
the investment sub-adviser 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 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
Aggressive Growth Fund (Prior to May 1, 1998, this fund was called 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 result 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.
2
<PAGE>
The Trusts
----------
a. The MML Trust
-------------
(1) The MML Trust is a no-load, open-end management investment company
consisting of six separate series of shares of which four are available to
Contract Owners. 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 diversified open-end 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 $75 billion as of December 31, 1997, and with more
than 3.5 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 registered variable life separate investment accounts of MassMutual
and its wholly-owned subsidiary, MML Bay State Life Insurance Company ("MML Bay
State) are invested in the MML Funds. Because registered variable annuity
separate investment accounts of MassMutual and MML Bay State 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 various life separate accounts. 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 MassMutual's and
MML Bay State's variable life separate accounts to be invested solely in
shares
3
<PAGE>
of mutual funds which offer their shares exclusively to variable life 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.
4
<PAGE>
RESTRICTIONS ON REDEMPTION
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
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 on the statutory financial statements of MassMutual includes
explanatory paragraphs relating to the use of statutory accounting practices
rather than generally accepted accounting principles.
Distribution and Administration
-------------------------------
MML Distributors, LLC ("MML Distributors"), a wholly-owned subsidiary of
MassMutual, is the principal underwriter for each Separate Account pursuant to
an Underwriting and Servicing Agreement among MassMutual, MML Distributors and
the Separate Accounts. MML Investors Services, Inc. ("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 1997 was $350,000. Compensation
paid to MML Distributors in 1997 was $10,000. Commissions will be paid through
MMLISI and MML Distributors to agents and selling brokers for selling the
Contracts. During 1997, 1996, and 1995, commission payments amounted to
$38,134,964, $35,521,258, and $27,288,843 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.
5
<PAGE>
Purchase of Securities Being Offered
------------------------------------
Interests in the Separate Account are sold to Contract Owners as accumulation
units. Until April 30, 1999, 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 MassMutual, subject to state availability
or 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 Contract. 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 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.
6
<PAGE>
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 "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
7
<PAGE>
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.
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.
8
<PAGE>
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
------------------------
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.
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
9
<PAGE>
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).
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.
10
<PAGE>
PERFORMANCE MEASURES
MassMutual may show the performance for the Divisions of the Separate Accounts
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
Accounts which has been in existence for more than one year. 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
Accounts based upon the percentages of in force Contracts investing in each of
the Divisions. MassMutual may choose to show Standardized Average Annual Total
Returns based on the inception of the underlying Fund.
For Divisions of the Separate Accounts which have been in existence for less
than one year, MassMutual will show the aggregate total return as permitted by
the SEC. The aggregate total return assumes a single one thousand dollar payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the change in unit value and a reduction of the contingent
deferred sales charge.
The following tables show the Standardized Average Annual Total Return for the
Divisions of the Separate Accounts for the period ended December 31, 1997.
Flexible Purchase Payment Contract
1997 5 Years 10 Years Since Inception*
Equity Division 17.35% 14.93% 14.28% --
Managed Bond Division 9.74 10.54 11.54 --
Blend Division 0.52 5.45 7.57 --
Money Market Division (3.73) 2.28 4.22 --
Oppenheimer Capital
Appreciation Division 1.88 N/A N/A 15.76%
Oppenheimer Global
Securities Division 12.34 N/A N/A 5.56
Oppenheimer Strategic
Bond Division (0.47) N/A N/A 7.03
* Since availability of Funds within contract (9/12/94)
11
<PAGE>
Single Purchase Payment Contract
1997 5 Years 10 Years Since Inception*
Equity Division 21.48% 15.92% 14.34% --
Managed Bond Division 14.14 11.50 11.60 --
Blend Division 4.45 6.25 7.58 --
Money Market Division 0.01 3.05 4.23 --
Oppenheimer Capital
Appreciation Division 5.90 N/A N/A 16.97%
Oppenheimer Global
Securities Division 16.53 N/A N/A 6.81
Oppenheimer Strategic
Bond Division 3.41 N/A N/A 8.26
* Since availability of Funds within the contract (9/12/94)
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 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 Funds.
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.
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 - in 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.
12
<PAGE>
Percentage Change in Accumulation Unit Values
---------------------------------------------
For Periods Ending 12/31/97
---------------------------
1 Year 5 Years 10 Years
------ ------- --------
MML Equity 27.00% 116.95% 303.19%
MML Money Market 3.84 16.68 52.42
MML Managed Bond 8.53 36.43 110.22
MML Blend 19.39 79.11 217.73
Oppenheimer Capital Appreciation 10.27 96.29 295.29
Oppenheimer Global Securities 21.16 122.00 N/A
Oppenheimer Strategic Bond 7.33 N/A N/A
Annualized Accumulation Unit Value Return
-----------------------------------------
For Periods Ending 12/31/97
---------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
MML Equity 27.00% 24.99% 16.75% 14.96%
MML Money Market 19.39 17.81 12.36 12.26
MML Managed Bond 8.53 9.17 6.41 7.71
MML Blend 3.84 3.92 3.13 4.30
Oppenheimer Capital
Appreciation 10.27 19.63 14.44 14.73
Oppenheimer Global
Securities 21.16 12.37 17.29 N/A
Oppenheimer Strategic
Bond 7.33 10.58 N/A N/A
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
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
13
<PAGE>
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 inforce. The figures do not reflect
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,
1997:
Before Annual Maintenance Charge
7-Day Yield:
- -----------
Separate Account 1 (Tax-Qualified Contracts) ........................... 3.93%
Separate Account 2 (Non-Tax Qualified Contracts) ....................... 3.93%
7-Day Effective Yield:
- ---------------------
Separate Account 1 (Tax-Qualified Contracts) ........................... 4.00%
Separate Account 2 (Non-Tax-Qualified Contracts) ....................... 4.00%
The performance figures discussed above reflect historical results of the Funds
and are not intended to indicate or to predict future performance.
After Annual Maintenance Charge (Separate Accounts 1 and 2)
Flexible Purchase Single Purchase
Contracts Contracts
Annual Maintenance Charge
Deduction 0.21% 0.05%
7-Day Yield 3.72% 3.88%
7-Day Effective Yield 3.79% 3.95%
14
<PAGE>
Flex Extra Hypothetical Projections
Managed Bond Division
- ---------------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 2,000 2,086 4.30% 4.30%
12/31/1989 4,000 4,523 10.70% 8.48%
12/31/1990 6,000 6,953 6.59% 7.55%
12/31/1991 8,000 10,279 14.81% 10.28%
12/31/1992 10,000 12,974 5.66% 8.81%
12/31/1993 12,000 16,494 10.15% 9.16%
12/31/1994 14,000 17,531 -5.21% 5.63%
12/31/1995 16,000 22,940 17.45% 7.97%
12/31/1996 18,000 25,386 1.79% 6.81%
12/31/1997 20,000 29,686 8.40% 7.07%
Managed Bond Division
- ---------------------
$50,000 single purchase payment made December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 50,000 52,882 5.76% 5.76%
12/31/1989 50,000 58,899 11.38% 8.53%
12/31/1990 50,000 63,024 7.00% 8.02%
12/31/1991 50,000 72,577 15.16% 9.76%
12/31/1992 50,000 76,859 5.90% 8.98%
12/31/1993 50,000 84,811 10.35% 9.21%
12/31/1994 50,000 80,525 -5.05% 7.04%
12/31/1995 50,000 94,695 17.60% 8.31%
12/31/1996 50,000 96,491 1.90% 7.58%
12/31/1997 50,000 104,689 8.50% 7.67%
Blend Division
- --------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 2,000 2,209 10.45% 10.45%
12/31/1989 4,000 4,958 17.80% 15.20%
12/31/1990 6,000 7,006 0.69% 7.95%
12/31/1991 8,000 10,995 22.09% 13.13%
12/31/1992 10,000 13,995 7.70% 11.42%
12/31/1993 12,000 17,288 8.08% 10.53%
12/31/1994 14,000 19,474 0.96% 8.26%
12/31/1995 16,000 26,106 21.57% 10.81%
12/31/1996 18,000 31,585 12.38% 11.09%
12/31/1997 20,000 40,062 19.29% 12.33%
Blend Division
- --------------
$50,000 single purchase payment made December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 50,000 55,944 11.89% 11.89%
12/31/1989 50,000 66,269 18.46% 15.13%
12/31/1990 50,000 66,983 1.08% 10.24%
12/31/1991 50,000 82,006 22.43% 13.17%
12/31/1992 50,000 88,508 7.93% 12.10%
12/31/1993 50,000 95,824 8.27% 11.45%
12/31/1994 50,000 96,892 1.11% 9.91%
12/31/1995 50,000 117,919 21.70% 11.32%
12/31/1996 50,000 132,633 12.48% 11.45%
12/31/1997 50,000 158,322 19.37% 12.22%
15
<PAGE>
Flex Extra Hypothetical Projections
Money Market Division
- ---------------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 2,000 2,092 4.60% 4.60%
12/31/1989 4,000 4,382 7.09% 6.24%
12/31/1990 6,000 6,786 6.33% 6.28%
12/31/1991 8,000 9,161 4.27% 5.49%
12/31/1992 10,000 11,366 1.84% 4.30%
12/31/1993 12,000 13,522 1.17% 3.42%
12/31/1994 14,000 15,876 2.28% 3.14%
12/31/1995 16,000 18,597 4.03% 3.33%
12/31/1996 18,000 21,322 3.52% 3.37%
12/31/1997 20,000 24,183 3.69% 3.43%
Money Market Division
- ---------------------
$50,000 single purchase payment made December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 50,000 53,013 6.03% 6.03%
12/31/1989 50,000 57,134 7.77% 6.90%
12/31/1990 50,000 60,989 6.75% 6.85%
12/31/1991 50,000 63,806 4.62% 6.29%
12/31/1992 50,000 65,151 2.11% 5.44%
12/31/1993 50,000 66,051 1.38% 4.75%
12/31/1994 50,000 67,676 2.46% 4.42%
12/31/1995 50,000 70,508 4.18% 4.39%
12/31/1996 50,000 73,081 3.65% 4.31%
12/31/1997 50,000 75,857 3.80% 4.26%
Equity Division
- ---------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 2,000 2,270 13.50% 13.50%
12/31/1989 4,000 5,161 20.87% 18.24%
12/31/1990 6,000 7,007 -2.15% 7.96%
12/31/1991 8,000 11,135 23.63% 13.67%
12/31/1992 10,000 14,291 8.80% 12.15%
12/31/1993 12,000 17,579 7.91% 11.02%
12/31/1994 14,000 20,083 2.57% 9.03%
12/31/1995 16,000 28,563 29.34% 12.79%
12/31/1996 18,000 36,253 18.62% 13.77%
12/31/1997 20,000 48,547 26.91% 15.67%
Equity Division
- ---------------
$50,000 single purchase payment made December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 50,000 57,478 14.96% 14.96%
12/31/1989 50,000 69,846 21.52% 18.19%
12/31/1990 50,000 68,605 -1.78% 11.12%
12/31/1991 50,000 85,048 23.97% 14.20%
12/31/1992 50,000 92,730 9.03% 13.15%
12/31/1993 50,000 100,232 8.09% 12.29%
12/31/1994 50,000 102,962 2.72% 10.87%
12/31/1995 50,000 133,310 29.47% 13.04%
12/31/1996 50,000 158,250 18.71% 13.66%
12/31/1997 50,000 200,949 26.98% 14.92%
16
<PAGE>
Flex Extra Hypothetical Projections
Capital Appreciation Division
- -----------------------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 2,000 2,209 10.45% 10.45%
12/31/1989 4,000 5,270 25.21% 19.85%
12/31/1990 6,000 5,939 -18.31% -0.51%
12/31/1991 8,000 12,090 52.29% 17.22%
12/31/1992 10,000 16,018 13.68% 16.14%
12/31/1993 12,000 22,610 25.49% 18.43%
12/31/1994 14,000 22,413 -8.93% 11.79%
12/31/1995 16,000 31,918 30.74% 15.24%
12/31/1996 18,000 40,203 18.53% 15.79%
12/31/1997 20,000 46,502 10.19% 14.93%
Capital Appreciation Division
- -----------------------------
$50,000 single purchase payment made December 31, 1987
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1988 50,000 55,944 11.89% 11.89%
12/31/1989 50,000 70,415 25.87% 18.67%
12/31/1990 50,000 57,784 -17.94% 4.94%
12/31/1991 50,000 88,218 52.67% 15.25%
12/31/1992 50,000 100,478 13.90% 14.98%
12/31/1993 50,000 126,249 25.65% 16.69%
12/31/1994 50,000 115,129 -8.81% 12.65%
12/31/1995 50,000 150,657 30.86% 14.78%
12/31/1996 50,000 178,701 18.61% 15.20%
12/31/1997 50,000 197,025 10.25% 14.70%
Global Securities Division
- --------------------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1990
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
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%
12/31/1997 14,000 23,008 20.97% 12.45%
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 Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
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%
12/31/1997 50,000 103,550 21.12% 10.96%
Strategic Bond Division
- -----------------------
$2,000 purchase payment made each December 31
First purchase payment made on December 31, 1993
Values prior to current Non-Standardized
year's purchase payment ----------------
----------------------- One Average
Year Annual
Cumulative Acumulated Total Total
Date Payments Value Return Return
- ----------------------------------------------------------
12/31/1994 2,000 1,865 -6.75% -6.75%
12/31/1995 4,000 4,366 12.96% 5.98%
12/31/1996 6,000 7,009 10.10% 7.98%
12/31/1997 8,000 9,634 6.94% 7.57%
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 Acumulated 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%
12/31/1997 50,000 64,078 7.28% 6.40%
17
<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, 1997, the related statements of
operations for the year then ended and the statements of changes in net assets
for each of the two years in the period then ended. These financial statements
are the responsibility of 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, 1997, 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, 1997, the results
of their operations for the year then ended and the changes in their net assets
for each of the two years in the period then ended in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 3, 1998
F-1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
MML MML Oppenheimer
MML Money Managed MML Capital
Equity Market Bond Blend Appreciation
Division Division Division Division Division
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Number of shares (Note 2) 40,091,402 69,062,080 8,976,723 67,254,696 7,492,349
=============== =============== =============== =============== ===============
Identified cost (Note 6) $ 933,378,261 $ 69,062,080 $ 109,961,303 $ 1,240,049,503 $ 269,624,757
=============== =============== =============== =============== ===============
Value (Note 3A) $ 1,420,965,411 $ 69,062,080 $ 111,391,938 $ 1,619,464,821 $ 306,886,595
Dividends receivable 114,574,493 302,121 1,791,050 121,400,824 --
Receivable for accumulation units sold 700,385 222,829 32,937 651,948 145,443
Divisional transfers pending settlement (134,559) 315,432 (4,679) (95,069) (29,882)
Other assets -- 1,024 -- -- --
--------------- --------------- --------------- --------------- ---------------
Total assets 1,536,105,730 69,903,486 113,211,246 1,741,422,524 307,002,156
LIABILITIES
Redemptions pending settlement 226,259 30,110 8,994 88,564 8,619
Annuitant mortality fluctuation reserve
(Note 3D) 20,509 396 2,888 50,711 1,066
Payable to Massachusetts Mutual
Life Insurance Company 4,899,849 236,261 346,135 5,446,197 975,705
--------------- --------------- --------------- --------------- ---------------
Total liabilities 5,146,617 266,767 358,017 5,585,472 985,390
--------------- --------------- --------------- --------------- ---------------
NET ASSETS $ 1,530,959,113 $ 69,636,719 $ 112,853,229 $ 1,735,837,052 $ 306,016,766
=============== =============== =============== =============== ===============
Net Assets:
Accumulation units--Value $ 1,530,275,491 $ 69,623,504 $ 112,756,961 $ 1,734,146,672 $ 305,981,239
Annuity reserves (Note 3E) 683,622 13,215 96,268 1,690,380 35,527
--------------- --------------- --------------- --------------- ---------------
Net assets $ 1,530,959,113 $ 69,636,719 $ 112,853,229 $ 1,735,837,052 $ 306,016,766
=============== =============== =============== =============== ===============
Accumulation units (Note 8)
Contract owners 413,935,012 44,060,821 52,035,004 574,212,871 177,599,099
Massachusetts Mutual Life
Insurance Company -- -- -- -- 5,000
--------------- --------------- --------------- --------------- ---------------
Total Units 413,935,012 44,060,821 52,035,004 574,212,871 177,604,099
=============== =============== =============== =============== ===============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1997 $ 3.70 $ 1.58 $ 2.17 $ 3.02 $ 1.72
December 31, 1996 2.91 1.52 2.00 2.53 1.56
December 31, 1995 2.45 1.47 1.96 2.25 1.32
December 31, 1994 1.89 1.41 1.67 1.85 1.01
December 31, 1993 1.84 1.37 1.75 1.83 --
<CAPTION>
Oppenheimer Oppenheimer
Global Strategic
Securities Bond
Division Division
--------------- ---------------
<S> <C> <C>
ASSETS
Investments
Number of shares (Note 2) 9,404,081 12,940,788
=============== ===============
Identified cost (Note 6) $ 160,754,628 $ 64,689,536
=============== ===============
Value (Note 3A) $ 200,965,213 $ 66,256,832
Dividends receivable --
Receivable for accumulation units sold 110,998 14,408
Divisional transfers pending settlement (29,798) (21,446)
Other assets -- --
--------------- ---------------
Total assets 201,046,413 66,249,794
LIABILITIES
Redemptions pending settlement 58,374 (1,851)
Annuitant mortality fluctuation reserve
(Note 3D) 624 793
Payable to Massachusetts Mutual
Life Insurance Company 611,007 186,448
--------------- ---------------
Total liabilities 670,005 185,390
--------------- ---------------
NET ASSETS $ 200,376,408 $ 66,064,404
=============== ===============
Net Assets:
Accumulation units--Value $ 200,355,611 $ 66,037,957
Annuity reserves (Note 3E) 20,797 26,447
--------------- ---------------
Net assets $ 200,376,408 $ 66,064,404
=============== ===============
Accumulation units (Note 8)
Contract owners 157,063,622 49,821,459
Massachusetts Mutual Life
Insurance Company 5,000 5,000
--------------- ---------------
Total Units 157,068,622 49,826,459
=============== ===============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1997 $ 1.28 $ 1.33
December 31, 1996 1.05 1.23
December 31, 1995 0.91 1.12
December 31, 1994 0.90 0.98
December 31, 1993 -- --
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<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) $114,589,712 $ 3,754,994 $ 6,941,117 $162,752,698 $ 10,620,416 $ 1,580,928
Expenses
Mortality and expense risk fees and
administrative expenses (Note 4) 17,097,939 963,457 1,377,107 20,687,456 3,329,641 2,084,279
------------- ------------- ------------- ------------- ------------- ------------
Net investment income (loss) (Note 3C) 97,491,773 2,791,537 5,564,010 142,065,242 7,290,775 (503,351)
------------- ------------- ------------- ------------- ------------- ------------
Net realized and unrealized
gain on investments
Net realized gain on investments
(Notes 3B, 3C and 7) 12,495,460 -- 8,195 24,142,272 4,123,760 1,178,693
Change in net unrealized appreciation/
depreciation of investments 199,325,594 -- 3,169,238 114,765,896 15,365,603 27,069,966
------------- ------------- ------------- ------------- ------------- ------------
Net gain on investments 211,821,054 -- 3,177,433 138,908,168 19,489,363 28,248,659
------------- ------------- ------------- ------------- ------------- ------------
Net increase in net assets
resulting from operations $309,312,827 $ 2,791,537 $ 8,741,443 $280,973,410 $ 26,780,138 $ 27,745,308
============= ============= ============= ============= ============= ============
<CAPTION>
Oppenheimer
Strategic
Bond
Division
-------------
<S> <C>
Investment income
Dividends (Note 3B) $ 4,203,985
Expenses
Mortality and expense risk fees and
administrative expenses (Note 4) 677,962
-------------
Net investment income (loss) (Note 3C) 3,526,023
-------------
Net realized and unrealized
gain on investments
Net realized gain on investments
(Notes 38, 3C and 7) 228,380
Change in net unrealized appreciation/
depreciation of investments 103,191
-------------
Net gain on investments 331,571
-------------
Net increase in net assets
resulting from operations $ 3,857,594
=============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended December 31,1997
<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) $ 97,491,773 $ 2,791,537 $ 5,564,010 $ 142,065,242
Net realized gain on investments 12,495,460 -- 8,195 24,142,272
Change in net unrealized appreciation/
depreciation of investments 199,325,594 -- 3,169,238 114,765,896
----------------- -------------- --------------- -----------------
Net increase in net assets resulting from operations 309,312,827 2,791,537 8,741,443 280,973,410
----------------- -------------- --------------- -----------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 220,631,779 40,836,523 17,525,135 207,397,147
Transfer to Guaranteed Principal Account (6,025,604) (2,473,788) (630,184) (5,168,376)
Withdrawal of funds (110,143,524) (10,374,826) (9,127,017) (158,292,213)
Reimbursement (payment) of accumulation
unit value fluctuation 618,242 (81,658) (27,032) 404,089
Net charge (credit) to annuitant mortality
fluctuation reserve (Note 3D) (5,639) 142 14,949 (228,565)
Annuity benefit payments (47,741) (1,141) (7,638) (145,635)
Withdrawals due to administrative and
contingent deferred sales charges (Note 6) (3,163,446) (169,648) (714,396) (4,417,293)
Divisional transfers 30,579,317 38,923,394 (7,589,809) (17,850,818)
----------------- -------------- --------------- -----------------
Net increase (decrease) in net assets
resulting from capital transactions 132,443,384 (11,187,790) (555,991) 21,698,336
----------------- -------------- --------------- -----------------
Total increase (decrease) 441,756,211 (8,396,253) 8,185,451 302,671,746
NET ASSETS, at beginning of the year 1,089,202,902 78,032,972 104,667,778 1,433,165,306
----------------- -------------- --------------- -----------------
NET ASSETS, at end of the year $ 1,530,959,113 $ 69,636,719 $ 112,853,229 $ 1,735,837,052
================= ============== =============== =================
<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) $ 7,290,775 $ (503,351) $ 3,526,023
Net realized gain on investments 4,123,760 1,178,693 228,380
Change in net unrealized appreciation/
depreciation of investments 15,365,603 27,069,966 103,191
--------------- --------------- --------------
Net increase in net assets resulting from operations 26,780,138 27,745,308 3,857,594
--------------- --------------- --------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 85,295,016 52,890,477 25,868,183
Transfer to Guaranteed Principal Account (708,095) (386,663) (355,058)
Withdrawal of funds (16,117,822) (10,726,014) (3,266,354)
Reimbursement (payment) of accumulation
unit value fluctuation 103,934 685,959 (7,779)
Net charge (credit) to annuitant mortality
fluctuation reserve (Note 3D) 535 210 (3,801)
Annuity benefit payments (3,061) 299 441
Withdrawals due to administrative and
contingent deferred sales charges (Note 6) (493,582) (221,028) (51,547)
Divisional transfers 14,315,971 16,992,696 2,476,036
--------------- --------------- --------------
Net increase (decrease) in net assets
resulting from capital transactions 82,392,896 59,235,936 24,660,121
--------------- --------------- --------------
Total increase (decrease) 109,173,034 86,981,244 28,517,715
NET ASSETS, at beginning of the year 196,843,732 113,395,164 37,546,689
--------------- --------------- --------------
NET ASSETS, at end of the year $ 306,016,766 $ 200,376,408 $ 66,064,404
=============== =============== ==============
</TABLE>
See Notes to Financial Statements.
F-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 8)
Net contract payments (Note 6) 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 6) (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 8)
Net contract payments (Note 6) 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 6) (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.
F-5
<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 9, 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 Segments 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 SEGMENTS 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 four series of shares of MML Series Investment Fund (the "MML
Trust"). The MML Trust is a registered, no-load, open-end, management
investment company for which MassMutual serves as investment manager.
Concert Capital Management, Inc. ("Concert") served as the investment
sub-adviser to MML Equity Fund and the Equity Sector of the MML Blend Fund
from 1993-1996. Concert merged with and into David L. Babson and Company,
Inc. ("Babson") effective December 31, 1996. At such time, both Concert and
Babson were wholly-owned subsidiaries of DLB Acquisition Corporation, which
is a controlled subsidiary of MassMutual. Thus, effective January 1, 1997,
Babson serves as the investment sub-adviser to MML Equity Fund and the
Equity Sector of the 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 adviser.
In addition to the seven divisions of the Segment, a contractowner may also
allocate funds to the Guaranteed Principal Account, which is part of
MassMutuals general account. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Principal Account, which is part of
MassMutuals 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.
6
<PAGE>
Notes To Financial Statements (Continued)
Investment Valuation
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.
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.
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 Segments 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.
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 $314,296 and $4,592 for the years ended December 31, 1997
and 1996. The reserve is subject to a maximum of 3% of the Segments 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.
Annuity Reserves
Annuity reserves are developed by using accepted actuarial methods and are
computed using the 1971 Individual Annuity Mortality Table, as modified.
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.
7
<PAGE>
Notes To Financial Statements (Continued)
5. 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 contracts
pursuant to underwriting and servicing agreements among MMLISI, MassMutual
and Separate Account 1. 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.
Pursuant to the underwriting and servicing agreements, commissions or other
fees due to registered representatives for selling and servicing the
contracts are paid by MassMutual on behalf of MML Distributors or MMLISI.
MML Distributors and MMLISI also receive compensation for their activities
as underwriters of the contracts.
6. 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 Band
December 31, 1997 Division Division Division Division Division Division Division
- ----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract
payments $220,705,230 $40,850,118 $17,530,970 $207,466,192 $85,323,412 $52,908,085 $25,876,795
Less deduction for
premium taxes 73,451 13,595 5,834 69,045 28,396 17,608 8,612
------------ ----------- ----------- ------------ ----------- ----------- -----------
Net contract payments $220,631,779 $40,838,523 $17,525,135 $207,397,147 $85,295,016 $52,890,477 $25,869,183
============ =========== =========== ============ =========== =========== ===========
Administrative and contingent
deferred sales changes $ 3,163,446 $ 169,648 $ 714,396 $ 4,417,293 $ 493,582 $ 221,028 $ 51,547
============ =========== =========== ============ =========== =========== ===========
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strategic
For The Year Ended Equity Market Bond Blend Appreciation Securities Band
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 $39,647,481 $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 $ 247,045 $ 147,507 $ 43,382
============ =========== ============ ============ =========== =========== ===========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENTS
<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, 1997 Division Division Division Division Division Division Division
- ----------------- ------------- ------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of purchases $ 192,549,800 $ 53,285,630 $ 15,668,061 $152,255,006 $ 103,034,534 $67,711,214 $31,200,414
Proceeds from sales $ 24,089,485 $ 61,871,973 $ 10,480,226 $ 56,973,305 $ 12,167,838 $ 8,158,022 $ 2,737,360
</TABLE>
8
<PAGE>
Notes To Financial Statements (Continued)
8. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For the Year Ended Equity Market Bond Blend
December 31, 1997 Division Division Division Division
----------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Units purchased 66,867,037 26,589,900 8,539,512 75,090,722
Units withdrawn and transferred to
Guaranteed Principal Account (36,091,954) (9,646,887) (5,122,869) (60,240,402)
Units transferred between divisions 9,184,319 (25,151,983) (3,762,518) (6,512,498)
Units transferred to annuity reserves (107,936) (1,199) (22,665) (425,149)
------------- ------------- ------------- -------------
Net increase 39,851,466 (7,210,269) (368,540) 7,912,673
Units, at beginning of the year 374,083,546 51,271,090 52,403,544 566,300,198
------------- ------------- ------------- -------------
Units, at end of the year 413,935,012 44,060,821 52,035,004 574,212,871
============= ============= ============= =============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
For the Year Ended Appreciation Securities Bond
December 31, 1997 Division Division Division
----------------- -------------- ------------ ------------
<S> <C> <C> <C>
Units purchased 53,068,628 44,442,770 20,330,179
Units withdrawn and transferred to
Guaranteed Principal Account (10,630,862) (9,432,090) (2,867,197)
Units transferred between divisions 9,198,583 14,374,660 1,981,363
Units transferred to annuity reserves (21,543) (19,321) (22,968)
-------------- ------------ ------------
Net increase 51,614,806 49,366,019 19,421,377
Units, at beginning of the year 125,989,293 107,702,603 30,405,082
-------------- ------------ ------------
Units, at end of the year 177,604,099 157,068,622 49,826,459
============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For the Year Ended Equity Market Bond Blend
December 31, 1996 Division Division Division Division
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Units purchased 76,729,920 32,480,215 12,127,911 92,070,370
Units withdrawn and transferred to
Guaranteed Principal Account (29,454,155) (9,371,630) (5,080,084) (55,096,078)
Units transferred between divisions 3,500,347 (13,641,369) (4,364,007) (16,849,325)
Units transferred to annuity reserves (4,196) (1,265) (41,395)
------------ ------------ ------------ ------------
Net increase 50,771,916 9,467,216 2,682,555 20,083,572
Units, at beginning of the year 323,311,630 41,803,874 49,720,989 546,216,626
------------ ------------ ------------ ------------
Units, at end of the year 374,083,546 51,271,090 52,403,544 566,300,198
============ ============ ============ ============
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Capital Global Strategic
For the Year Ended Appreciation Securities Bond
December 31, 1996 Division Division Division
----------------- ------------ ------------ ------------
Units purchased 54,010,610 40,693,793 13,773,056
Units withdrawn and transferred to
Guaranteed Principal Account (6,181,894) (6,690,628) (1,513,179)
Units transferred between divisions 28,872,959 13,748,028 1,594,761
Units transferred to annuity reserves (1,900)
------------ ------------ ------------
Net increase 76,699,775 47,751,193 13,854,638
Units, at beginning of the year 49,289,518 59,951,410 16,550,444
------------ ------------ ------------
Units, at end of the year 125,989,293 107,702,603 30,405,082
============ ============ ============
</TABLE>
9. 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, 1997
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
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total assets $1,681,068,834 $ 81,866,648 $ 126,726,663 $1,996,744,040
Total liabilities 6,473,624 304,046 468,183 6,404,412
-------------- -------------- -------------- --------------
Net assets $1,674,595,210 $ 81,562,601 $ 126,258,480 $1,990,339,628
============== ============== ============== ==============
Net assets consist of
Accumulation units--Value $1,673,535,433 $ 81,469,025 $ 126,048,573 $1,998,168,324
Annuity reserves 1,059,777 93,576 209,907 2,171,304
-------------- -------------- -------------- --------------
Net assets $1,674,595,210 $ 81,562,601 $ 126,258,480 $1,990,339,628
============== ============== ============== ==============
<CAPTION>
*Oppenheimer *Oppenheimer *Oppenheimer
Capital Global Strategic
Appreciation Securities Bond
Division Division Division
-------------- -------------- --------------
<S> <C> <C> <C>
Total assets $ 307,002,156 $ 201,046,413 $ 66,249,794
Total liabilities 985,390 670,005 185,390
-------------- -------------- --------------
Net assets $ 306,016,766 $ 200,376,408 $ 66,054,404
============== ============== ==============
Net assets consist of
Accumulation units--Value $ 305,981,239 $ 200,355,611 $ 66,037,957
Annuity reserves 35,527 20,797 26,447
-------------- -------------- --------------
Net assets $ 306,016,766 $ 200,376,408 $ 66,064,404
============== ============== ==============
</TABLE>
*Offered on the Flex Extra (Qualified) Contracts only.
9
<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, 1997, the related
statements of operations for the year then ended, and the statements of changes
in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of 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, 1997, 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, 1997, the results
of their operations for the year then ended, and the changes in their net assets
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 3, 1998
F-1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 -- Flex Extra (Non-
Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
MML MML Oppenheimer
MML Money Managed MML Capital
Equity Market Bond Blend Appreciation
Division Division Division Division Division
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment
Number of shares (Note 2) 12,239,972 30,501,721 3,694,191 19,190,164 2,812,806
============= ============= ============= ============= =============
Identified cost (Note 3B) $ 309,729,024 $ 30,501,721 $ 44,850,764 $ 373,658,873 $ 103,590,681
============= ============= ============= ============= =============
Value (Note 3A) $ 433,823,103 $ 30,501,721 $ 45,841,122 $ 462,091,082 $ 115,212,543
Dividends receivable 34,979,784 135,972 737,071 34,639,985 --
Receivable for accumulation units sold 106,886 45,918 8,501 265,217 2,289
Divisional transfers pending settlement (57,551) (37,482) -- 175,752 (35,697)
Other assets 1,069 86 -- -- --
------------- ------------- ------------- ------------- -------------
Total assets 468,853,291 30,648,215 40,586,694 497,172,036 115,179,135
LIABILITIES
Redemptions pending settlement 3,036 1,944 1,463 47,695 1,005
Annuitant mortality fluctuation reserve (Note 3D) 26,210 1,473 675 19,233 2,479
Payable to Massachusetts Mutual
Life Insurance Company 1,368,798 105,818 148,638 1,488,321 350,337
------------- ------------- ------------- ------------- -------------
Total liabilities 1,398,044 109,235 150,776 1,555,249 353,821
------------- ------------- ------------- ------------- -------------
NET ASSETS $ 467,455,247 30,536,980 $ 46,435,918 $ 495,616,787 $ 114,825,314
============= ============= ============= ============= =============
Net Assets:
Accumulation units--value $ 466,581,592 $ 30,487,886 $ 46,413,422 $ 494,975,674 $ 114,742,673
Annuity reserves (Note 3E) 873,655 49,094 22,496 641,113 82,841
------------- ------------- ------------- ------------- -------------
Net assets $ 467,455,247 $ 30,536,980 $ 46,435,918 $ 495,616,787 $ 114,825,314
============= ============= ============= ============= =============
Accumulation units (Note 8)
Contract owners 126,208,946 19,294,078 21,418,834 163,896,980 66,596,368
Massachusetts Mutual Life Insurance Company -- -- -- -- 5,000
------------- ------------- ------------- ------------- -------------
Total units 126,208,948 19,294,078 21,418,834 163,896,980 66,601,368
============= ============= ============= ============= =============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1997 $ 3.70 $ 1.58 $ 2.17 $ 3.02 $ 1.72
December 31, 1996 2.91 1.52 2.00 2.53 1.56
December 31, 1995 2.45 1.47 1.98 2.25 1.32
December 31, 1994 1.89 1.41 1.67 1.85 1.01
December 31, 1993 1.84 1.37 1.75 1.83 --
<CAPTION>
Oppenheimer Oppenheimer
Global Strategic
Securities Bond
Division Division
------------- -------------
<S> <C> <C>
ASSETS
Investment
Number of shares (Note 2) 4,031,193 8,748,361
============= =============
Identified cost (Note 3B) $ 70,557,780 $ 43,995,938
============= =============
Value (Note 3A) $ 86,146,602 $ 44,791,610
Dividends receivable -- --
Receivable for accumulation units sold (12,218) 6,358
Divisional transfers pending settlement (39,578) (5,443)
Other assets -- --
------------- -------------
Total assets 86,094,806 44,792,525
LIABILITIES
Redemptions pending settlement 1,097 (131)
Annuitant mortality fluctuation reserve (Note 3D) 1,186 574
Payable to Massachusetts Mutual
Life Insurance Company 254,090 118,293
------------- -------------
Total liabilities 256,373 118,736
------------- -------------
NET ASSETS $ 85,838,433 $ 44,673,789
============= =============
Net Assets:
Accumulation units--value $ 85,798,913 $ 44,654,652
Annuity reserves (Note 3E) 39,520 19,137
------------- -------------
Net assets $ 85,838,433 $ 44,673,789
============= =============
Accumulation units (Note 8)
Contract owners 67,256,990 33,687,490
Massachusetts Mutual Life Insurance Company 5,000 5,000
------------- -------------
Total units 67,261,990 33,692,490
============= =============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1997 $ 1.28 $ 1.33
December 31, 1996 1.05 1.23
December 31, 1995 0.91 1.12
December 31, 1994 0.90 0.98
December 31, 1993 -- --
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2 -- Flex Extra (Non-
Qualified)
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<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) $34,984,139 $ 1,644,905 $ 2,806,330 $45,965,374 $ 3,784,177 $ 636,367
Expenses
Mortality and expense risk fees and
administrative expenses (Note 4) 5,021,916 421,669 553,859 5,672,257 1,215,711 864,290
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) (Note 3C) 29,962,223 1,223,236 2,252,471 40,293,117 2,568,466 (227,923)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized
gain (loss) on investments
Net realized gain (loss) on investments
(Notes 3B, 3C and 7) 3,995,208 -- (129,754) 3,906,765 1,859,540 672,399
Change in net unrealized appreciation/depreciation
of investments 56,364,883 -- 1,430,263 32,388,925 5,287,887 10,737,591
----------- ----------- ----------- ----------- ----------- -----------
Net gain on Investments 60,360,091 -- 1,300,509 36,295,690 7,147,427 11,409,990
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations $90,322,314 $ 1,223,236 $ 3,552,980 $76,588,807 $ 9,715,893 $11,182,067
=========== =========== =========== =========== =========== ===========
<CAPTION>
Oppenheimer
Strategic
Bond
Division
-----------
<S> <C>
Investment income
Dividends (Note 3B) $ 2,814,886
Expenses
Mortality and expense risk fees and
administrative expenses (Note 4) 454,125
-----------
Net investment income (loss) (Note 3C) 2,360,761
-----------
Net realized and unrealized
gain (loss) on investments
Net realized gain (loss) on investments
(Notes 3B, 3C and 7) 265,330
Change in net unrealized appreciation/depreciation
of investments (98,049)
-----------
Net gain on Investments 167,281
-----------
Net increase in net assets
resulting from operations $ 2,528,042
===========
</TABLE>
See Notes to Financial Statements.
F-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, 1997
<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) $ 29,962,223 $ 1,223,236 $ 2,252,471 $ 40,293,117
Net realized gain (loss) on investments 3,995,208 -- (129,754) 3,906,765
Change in net unrealized appreciation/
depreciation of investments 56,384,883 -- 1,430,263 32,388,925
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 90,322,314 1,223,236 3,552,980 76,588,807
------------- ------------- ------------- -------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 79,822,005 29,025,850 7,330,551 74,021,346
Transfer to Guaranteed Principal Account (686,004) (836,607) (29,730) (1,028,944)
Withdrawal of funds (21,584,372) (2,883,292) (2,340,472) (30,075,190)
Reimbursement (payment) of accumulation
unit value fluctuation 75,647 (27,552) (14,359) 72,329
Net charge (credit) to annuitant mortality
fluctuation reserve (Note 3D) 15,921 1,036 98 116,335
Annuity benefit payments (90,925) (6,164) (1,792) (48,008)
Withdrawal due to administrative and
contingent deferred sales charge (Note 6) (608,584) (76,927) (169,876) (859,781)
Divisional transfers 14,998,489 (26,921,448) (2,332,759) 81,944
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital transactions 71,962,177 (1,725,104) 2,441,661 42,280,031
------------- ------------- ------------- -------------
Total increase (decrease) 162,284,491 (501,868) 5,994,641 118,868,838
NET ASSETS, at beginning of the year 305,170,756 31,038,848 40,441,277 376,747,949
------------- ------------- ------------- -------------
NET ASSETS, at end of the year $ 407,455,247 $ 30,536,980 $ 46,435,918 $ 495,616,787
============= ============= ============= =============
<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) $ 2,568,466 $ (227,923) $ 2,360,761
Net realized gain (loss) on investments 1,859,540 672,399 265,330
Change in net unrealized appreciation/
depreciation of investments 5,287,887 10,737,591 (98,049)
------------- ------------- -------------
Net increase in net assets resulting from operations 9,715,893 11,182,067 2,528,042
------------- ------------- -------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 32,643,684 24,464,625 17,949,943
Transfer to Guaranteed Principal Account (94,758) (109,511) (154,782)
Withdrawal of funds (3,542,674) (2,368,503) (1,185,985)
Reimbursement (payment) of accumulation
unit value fluctuation 18,607 247,069 (8,222)
Net charge (credit) to annuitant mortality
fluctuation reserve (Note 3D) (5,645) (1,369) (466)
Annuity benefit payments (3,228) (906) (1,675)
Withdrawal due to administrative and
contingent deferred sales charge (Note 6) (123,218) (55,447) (22,280)
Divisional transfers 6,711,882 7,991,211 (529,320)
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital transactions 35,604,650 30,167,169 16,047,213
------------- ------------- -------------
Total increase (decrease) 45,320,543 41,349,236 18,575,255
NET ASSETS, at beginning of the year 69,504,771 44,489,197 26,098,534
------------- ------------- -------------
NET ASSETS, at end of the year $ 114,825,314 $ 85,838,433 $ 44,673,789
============= ============= =============
</TABLE>
See Notes to Financial Statements.
F-4
<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 8)
Net contract payments (Note 6) 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 (9,321,585) (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 charge (Note 6) (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 5,137,584 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 $ (369,869) $ 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 5,299,585 4,593,001 1,962,948
------------- -------------- -------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 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 charge (Note 6) (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.
F-5
<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 9, 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 Segments 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 SEGMENTS 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 four series of shares of MML Series Investment Fund (the "MML
Trust"). The MML Trust is a registered, no-load, open-end, management
investment company for which MassMutual serves as investment manager.
Concert Capital Management, Inc. ("Concert") served as the investment
sub-adviser to MML Equity Fund and the Equity Sector of the MML Blend Fund
from 1993-1996. Concert merged with and into David L. Babson and Company,
Inc. ("Babson") effective December 31, 1996. At such time, both Concert and
Babson were wholly-owned subsidiaries of DLB Acquisition Corporation, which
is a controlled subsidiary of MassMutual. Thus, effective January 1, 1997,
Babson serves as the investment sub-adviser to MML Equity Fund and the
Equity Sector of the 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
MassMutuals general account. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Principal Account, which is part of
MassMutuals 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.
6
<PAGE>
Notes To Financial Statements (Continued)
A. Investment Valuation
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.
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 Segments 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 $96,577 and $13,603 for the years ended December 31, 1997
and 1996. The reserve is subject to a maximum of 3% of the Segments 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.
7
<PAGE>
Notes To Financial Statements (Continued)
5. 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 contracts 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.
Pursuant to the underwriting and servicing agreements, commissions or
other fees due to registered representatives for selling and servicing
the contracts are paid by MassMutual on behalf of MML Distributors or
MMLISI. MML Distributors and MMLISI also receive compensation for their
activities as underwriters of the contracts.
6. 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, 1997 Division Division Division Division Division Division Division
- ----------------- ------------ ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract payments $79,836,957 $29,031,287 $ 7,331,924 $74,035,211 $32,649,799 $24,469,208 $17,953,305
Less deduction for premium taxes 14,952 5,437 1,373 13,865 6,115 4,583 3,362
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net contract payments $79,822,005 $29,025,850 $ 7,330,551 $74,021,346 $32,643,684 $24,464,625 $17,949,943
=========== =========== =========== =========== =========== =========== ===========
Administrative and contingent
deferred sales charges $ 608,584 $ 76,927 $ 169,876 $ 859,781 $ 123,218 $ 55,447 $ 22,280
=========== =========== =========== =========== =========== =========== ===========
<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>
7. PURCHASES AND SALES OF INVESTMENTS
<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, 1997 Division Division Division Division Division Division Division
- ----------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of purchases $90,439,140 $31,021,028 $10,877,541 $72,320,129 $44,420,315 $33,866,060 $21,357,518
Proceeds from sales $ 8,372,066 $31,601,853 $ 6,217,380 $10,511,217 $ 5,744,618 $ 3,530,495 $ 2,839,412
</TABLE>
8
<PAGE>
Notes To Financial Statements (Continued)
8. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML Capital Global
For the Year Ended Equity Market Bond Blend Appreciation Securities
December 31, 1997 Division Division Division Division Division Division
- ----------------- ------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Units purchased 23,980,117 18,815,512 3,549,709 26,608,171 20,186,682 20,424,317
Units withdrawn and transferred to
Guaranteed Principal Account (6,849,483) (2,514,040) (1,235,363) (11,415,234) (2,331,176) (2,117,295)
Units transferred between divisions 4,508,179 (17,370,065) (1,138,530) (44,299) 4,311,250 6,733,265
Units transferred to annuity reserves (79,060) -- -- (87,508) (42,093) (34,087)
------------ ----------- ------------ ------------ ------------ ------------
Net increase (decrease) 21,559,753 (1,068,593) 1,175,816 15,061,130 22,124,663 25,006,200
Units, at beginning of the year 104,649,193 20,362,671 20,243,018 148,835,850 44,476,705 42,255,790
------------ ----------- ------------ ------------ ------------ ------------
Units, at end of the year 126,208,946 19,294,078 21,418,834 163,896,980 66,601,368 67,261,990
============ =========== ============ ============ ============ ============
<CAPTION>
Oppenheimer
Strategic
For the Year Ended Bond
December 31, 1997 Division
- ----------------- ------------
<S> <C>
Units purchased 14,063,381
Units withdrawn and transferred to
Guaranteed Principal Account (1,079,729)
Units transferred between divisions (409,028)
Units transferred to annuity reserves (16,570)
------------
Net increase (decrease) 12,558,054
Units, at beginning of the year 21,134,436
------------
Units, at end of the year 33,692,490
============
</TABLE>
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML Capital Global
For the Year Ended Equity Market Bond Blend Appreciation Securities
December 31, 1996 Division Division Division Division Division Division
- ----------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <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
Units withdrawn and transferred to
Guaranteed Principal Account (3,806,870) (1,920,968) (1,320,409) (8,468,204) (961,532) (843,248)
Units transferred between divisions 1,841,893 (7,950,525) (1,656,179) (2,590,833) 7,605,050 4,971,162
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
Units, at beginning of the year 82,979,376 14,727,577 18,010,100 131,775,179 15,969,333 20,647,408
------------ ------------ ------------ ------------ ------------ ------------
Units, at end of the year 104,649,193 20,362,671 20,243,018 148,835,850 44,476,705 42,255,790
============ ============ ============ ============ ============ ============
<CAPTION>
Oppenheimer
Strategic
For the Year Ended Bond
December 31, 1996 Division
- ----------------- ------------
<S> <C>
Units purchased 10,826,740
Units withdrawn and transferred to
Guaranteed Principal Account (497,893)
Units transferred between divisions (307,445)
Units transferred to annuity reserves --
------------
Net increase 10,021,402
Units, at beginning of the year 11,113,034
------------
Units, at end of the year 21,134,436
============
</TABLE>
9. 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, 1997 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
Equity Market Bond Blend Appreciation Securities Bond
Division Division Division Division Division Division Division
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $481,258,433 $ 33,937,805 $ 48,461,650 $527,902,365 $115,179,135 $ 86,094,806 $ 44,792,525
Total Liabilities 1,470,647 131,412 172,084 1,713,289 353,821 256,373 118,736
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Assets $479,787,786 $ 33,806,393 $ 48,289,566 $526,189,076 $114,825,314 $ 85,838,433 $ 44,673,789
============ ============ ============ ============ ============ ============ ============
Net assets consist of:
- ---------------------
Accumulation units--Value 478,736,140 33,743,314 48,214,218 525,349,870 114,742,673 85,798,913 44,654,652
Annuity reserves 1,051,646 63,079 75,348 839,206 82,641 39,520 19,137
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net assets 479,787,786 $ 33,806,393 $ 48,289,566 $526,189,076 $114,825,314 $ 85,838,433 $ 44,673,789
============ ============ ============ ============ ============ ============ ============
</TABLE>
*Offered on the Flex Extra (Non-Qualified) contracts only
9
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY FINANCIAL STATEMENTS
as of December 31, 1997 and 1996
and for the years ended December 31, 1997, 1996 and 1995
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Policyholders of
Massachusetts Mutual Life Insurance Company
We have audited the accompanying statutory statements of financial position of
Massachusetts Mutual Life Insurance Company as of December 31, 1997 and 1996,
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, 1997. 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 statutory
financial statements of Connecticut Mutual Life Insurance Company ("Connecticut
Mutual") for the year ended December 31, 1995, which statements reflect total
revenue and net gain from operations constituting 26% and 22% of the related
Company totals after restatement for the merger of the two companies. 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, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As described more fully in Note 1, these financial statements were prepared in
conformity with 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, for the
pre-merger balances of Connecticut Mutual, the Department of Insurance of the
State of Connecticut (collectively "statutory accounting practices"), 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 reasonably
determinable at this time, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company at December 31, 1997 and 1996, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1997.
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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, on the
statutory basis of accounting described in Note 1.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 6, 1998
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION
December 31,
1997 1996
---- ----
(In Millions)
Assets:
Bonds............................................. $23,890.3 $24,299.3
Common stocks..................................... 354.7 336.6
Mortgage loans.................................... 4,863.7 4,852.8
Real estate....................................... 1,697.7 1,840.9
Other investments................................. 1,963.8 1,425.6
Policy loans...................................... 4,950.4 4,752.3
Cash and short-term investments................... 1,941.2 1,075.4
--------- ---------
39,661.8 38,582.9
Investment and insurance amounts receivable....... 1,064.9 1,102.4
Other assets...................................... 104.8 97.9
--------- ---------
40,831.5 39,783.2
Separate account assets........................... 16,803.1 13,563.5
--------- ---------
$57,634.6 $53,346.7
========= =========
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION, Continued
December 31,
1997 1996
---- ----
(In Millions)
Liabilities:
Policyholders' reserves and funds................. $33,783.2 $33,341.5
Policyholders' dividends.......................... 954.1 885.3
Policyholders' claims and other benefits.......... 353.4 373.8
Federal income taxes.............................. 436.5 440.7
Asset valuation reserve........................... 840.6 689.2
Investment reserves............................... 132.8 208.4
Amounts due on investments puchased and
other liabilities................................ 1,457.9 1,206.1
--------- ---------
37,958.5 37,145.0
Separate account reserves and liabilities......... 16,802.8 13,563.1
--------- ---------
54,761.3 50,708.1
Policyholders' contingency reserves............... 2,873.3 2,638.6
--------- ---------
$57,634.6 $53,346.7
========= =========
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Revenue:
Premium income............................................ $6,764.8 $6,328.6 $5,727.7
Net investment and other income........................... 2,904.4 2,861.1 2,898.4
-------- -------- --------
9,669.2 9,189.7 8,626.1
-------- -------- --------
Benefits and expenses:
Policy benefits and payments.............................. 6,597.3 6,048.2 5,152.2
Addition to policyholder's reserves and funds............. 720.8 854.7 1,205.4
Commissions and operating expenses........................ 766.1 763.5 833.7
State taxes, licenses and fees............................ 81.5 96.4 89.4
Merger restructuring costs................................ - 66.1 44.0
-------- -------- --------
8,165.7 7,828.9 7,324.7
-------- -------- --------
Net gain before federal income taxes and dividends........ 1,503.5 1,360.8 1,301.4
Federal income taxes...................................... 284.4 276.7 206.2
-------- -------- --------
Net gain from operations before dividends................. 1,219.1 1,084.1 1,095.2
Dividends to policyholders................................ 919.5 859.9 819.0
-------- -------- --------
Net gain from operations.................................. 299.6 224.2 276.2
Net realized capital gain (loss).......................... (42.5) 40.3 (85.8)
-------- -------- --------
Net income................................................ $ 257.1 $ 264.5 $ 190.4
======== ======== ========
</TABLE>
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Policyholder's contingency reserves, beginning of year.... $2,638.6 $2,600.9 $2,569.1
-------- -------- --------
Increases (decreases) due to:
Net income............................................... 257.1 264.5 190.4
Net unrealized capital gain (loss)....................... 119.1 (1.7) 88.7
Merger restructuring costs, net of fax................... - - (45.4)
Change in asset valuation and investment reserves........ (76.0) (142.4) (75.6)
Change in prior year policyholders' reserves............. (55.4) (72.2) (108.2)
Change in non-admitted assets and other.................. (10.1) (10.5) (18.1)
-------- -------- --------
234.7 37.7 31.8
-------- -------- --------
Policyholders' contingency reserves, end of year.......... $2,873.3 $2,638.6 $2,600.9
======== ======== ========
</TABLE>
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Operating acitivites:
Net income............................................... $ 257.1 $ 264.5 $ 190.4
Addition to policyholders' reserves and funds,
net of transfers to separate accounts................... 421.3 426.7 575.8
Net realized capital (gain) loss......................... 42.5 (40.3) 85.8
Other changes............................................ (58.1) (232.8) (25.2)
--------- --------- ---------
Net cash provided by operating activities................ 662.8 418.1 826.8
--------- --------- ---------
Investing activities:
Purchases of investments and loans....................... (12,292.7) (10,171.5) (10,364.2)
Sales or maturities of investments and receipts
from repayment of loans................................. 12,545.7 8,539.3 9,671.1
--------- --------- ---------
Net cash provided by (used in) investing activities...... 253.0 (1,632.2) (693.1)
--------- --------- ---------
Financing activities:
Repayments of long-term debt............................. (50.0) (53.3) (46.4)
--------- --------- ---------
Net cash used by financing activities.................... (50.0) (53.3) (46.4)
--------- --------- ---------
Increase (decrease) in cash and short-term investments... 865.8 (1,267.4) 87.3
Cash and short-term investments, beginning of year....... 1,075.4 2,342.8 2,255.5
--------- --------- ---------
Cash and short-term investments, end of year............. $ 1,941.2 $ 1,075.4 $ 2,342.8
========= ========= =========
</TABLE>
See Notes to Statutory Financial Statements.
<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,
1995 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. 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, policyholders' 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 with all adjustments reflected as a
change to policyholders' contingency reserves. The separate results of each
company prior to the merger for the year ended December 31, 1995, were as
follows: (a) revenue 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
included a $41.0 million dividend received from MIRUS in 1995. Additionally,
this investment produced an unrealized gain of $13.9 million in 1995.
1. SUMMARY OF ACCOUNTING PRACTICES
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the statutory accounting practices of the National
Association of Insurance Commissioners ("NAIC") and the accounting practices
prescribed or permitted by the Division of Insurance of the Commonwealth of
Massachusetts and, for the pre-merger balances of Connecticut Mutual, the
Department of Insurance of the State of Connecticut (collectively "statutory
accounting practices"), which practices were at one time also considered to be
in conformity with generally accepted accounting principles ("GAAP").
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs directly related to
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 generally requests they be valued at fair value; (d)
deferred income taxes are not provided for book-tax timing differences as would
be required by GAAP, and (e) payments received for universal and variable life
products, variable annuities and investment related products are reported as
premium revenue, whereas under GAAP, these payments would be recorded as
deposits to policyholders' account balances.
The NAIC is currently engaged in an extensive project ("Codification") to codify
statutory accounting principles with a goal of providing a comprehensive guide
of statutory accounting principles for use by insurers in all states. This
comprehensive guide, which has not been approved by the NAIC or any state
insurance department, includes seventy-two Statements of Statutory Accounting
Principles ("SSAPs") and is expected to be effective no earlier than January 1,
1999. The effect of adopting these SSAPs shall be reported as an adjustment to
surplus on the effective date. Management is currently reviewing the impact of
Codification. However, since the SSAPs have not been finalized, the ultimate
impact cannot be determined at this time.
<PAGE>
Notes To Statutory Financial Statements (Continued)
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 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.
Mortgage loans are valued at unpaid principal less unamortized discount. Real
estate is valued at cost less accumulated depreciation, impairment allowances
and mortgage encumbrances. Encumbrances totaled $14.2 million in 1997 and $27.3
million in 1996. Depreciation on investment real estate is calculated using the
straight-line and constant yield methods.
Policy loans are carried at the outstanding loan balance less amounts unsecured
by the cash surrender value of the policy.
Short-term investments are stated at amortized cost, which approximates fair
value.
Investments in unconsolidated subsidiaries and affiliates, 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 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 $95.4 million in 1997,
$73.1 million in 1996, and net realized after tax capital losses of $130.7
million in 1995 were charged to the Interest Maintenance Reserve. Amortization
of the Interest Maintenance Reserve into net investment income amounted to $31.0
million in 1997, $26.9 million in 1996, and $5.0 million in 1995.
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.
<PAGE>
Notes To Statutory Financial Statements (Continued)
D. Policyholders' Reserves and Funds
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience and
the 1941, 1958 and 1980 Commissioners' Standard Ordinary mortality tables with
assumed interest rates ranging from 2.5 to 6.0 percent.
Reserves for individual annuities, guaranteed investment contracts and deposit
administration and immediate participation guarantee funds are based on accepted
actuarial methods principally at interest rates ranging from 2.25 to 11.25
percent. Reserves for policies and contracts considered investment contracts
have a carrying value of $8,077.9 million and $9,073.8 million at December 31,
1997 and 1996, respectively (fair value of $8,250.0 million and $9,324.6 million
at December 31, 1997 and 1996, respectively as determined by discounted cash
flow projections). Accident and health policy reserves are generally calculated
using the two-year preliminary term, net level premium and fixed net premium
methods and various morbidity tables.
The Company made certain changes in the valuation of policyholders' reserves of
$55.4 million in 1997 and $72.2 million in 1996. The effects of these changes
were recorded as a decrease 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 when incurred.
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. The liability
for policyholders' dividends is equal to the estimated amount of dividends to be
paid in the following calendar year.
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 cash and 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.
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, 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, to holders of record on the
preceding May 1 or November 1, respectively. Interest expense is not recorded
until approval for payment is received from the Commissioner. Interest of $26.6
million was approved and paid in 1997, 1996 and 1995.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The proceeds of the notes, less a $28.3 million reserve in 1997, and a $32.2
million reserve in 1996 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. 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 $157.4 million and $97.2 million at December 31, 1997 and
1996, respectively. On the merger date, the accounting for Connecticut Mutual
pension plans was conformed to the Company's 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, 1997, 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:
1997 1996
---- ----
(In Millions)
Accumulated benefit obligation $ 663.1 $ 611.5
Vested benefit obligation 653.8 606.5
Projected benefit obligation 713.9 665.5
Plan assets at fair value 1,154.2 1,201.7
The following assumptions were used in determining the actuarial present value
of both the accumulated and projected benefit obligations.
MassMutual Connecticut Mutual
Plan Plan
---- ----
Discount rate - 1997 7.25% 7.25%
Discount rate - 1996 7.75 7.75
Increase in future compensation levels 4.00 5.00
Long-term rate of return on assets 10.00 9.00
In 1997, there was a significant reduction in plan participants in the
Connecticut Mutual Plan which resulted in recognition of a pension plan
curtailment gain of $10.7 million.
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 $38.9 million in 1997,
$32.7 million in 1996 and $10.9 million in 1995.
<PAGE>
Notes To Statutory Financial Statements (Continued)
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. The Company adopted the National Association of
Insurance Commissioners' accounting standard for post-retirement 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 assumptions were used in determining the accumulated
postretirement benefit liability.
MassMutual Connecticut Mutual
Plan Plan
---- ----
Discount - 1997 7.25% 7.25%
Discount - 1996 7.75 7.75
Assumed increases in medical cost
rates in the first year 6.25 - 6.75 9.50
declining to 4.75 5.00
within 5 years 5 years
The initial transition obligation of $137.9 million is being amortized over
twenty years through 2012. At December 31, 1997 and 1996, the net unfunded
accumulated benefit obligation was $124.2 million and $124.1 million,
respectively, for employees and agents eligible to retire or currently retired
and $34.7 million and $33.8 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
$21.7 million and $23.0 million at December 31, 1997 and 1996, respectively.
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 1997, 1996 and 1995 was $16.5 million, $17.6 million, and $22.9
million, respectively. A one percent increase in the annual assumed increase in
medical cost rates would increase the 1997 accumulated postretirement benefit
liability and benefit expense by $10.9 million and $1.4 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 $41.0 million dividend received from Mirus, which was recorded as net
investment income on the Statutory Statement of Income. As previously discussed,
on March 31, 1996, the Company sold MassMutual Holding Company Two, Inc. a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company to WellPoint Health Networks, Inc.
The Company has a modified coinsurance quota-share reinsurance agreement with a
wholly-owned subsidiary, C.M. Life Insurance Company, whereby the Company
assumes 75% of the premiums on certain universal life policies issued by C.M.
Life. 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 current 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 (essentially a reduction in the
deduction for policyholder dividends) and miscellaneous temporary differences,
such as reserves, acquisition costs and restructuring costs, resulted in
effective tax rates which differ from 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 Massachusetts Mutual for the years 1993 and
1994, and Connecticut Mutual for the years 1992 through 1995. The Company
believes any adjustments resulting from such examinations will not materially
affect its financial statements.
<PAGE>
Notes to Statutory Financial Statements (Continued)
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for 1997
or 1996. The Company records the estimated effects of anticipated revisions in
the Statutory Statement of Income.
The Company plans to file its 1997 federal income tax return on a consolidated
basis with its life and non-life affiliates with the exception of C.M. Life
Insurance Company. The Company and its eligible life and non-life affiliates
are subject to a written tax allocation agreement, which allocates the group's
consolidated tax liability for payment purposes. Generally, the agreement
provides that members with losses shall be compensated for the use of their
losses and credits by other members.
The Company made federal tax payments of $353.4 million in 1997, $330.7 million
in 1996 and $147.3 million in 1995.
6. INVESTMENTS
The Company maintains a diversified investment portfolio. Investment policies
limit concentration in any asset class, geographic region, industry group,
economic characteristic, investment quality or individual investment. In the
normal course of business, the Company enters into commitments to purchase
privately placed bonds and to issue mortgage loans.
A. Bonds
The carrying value and estimated fair value of bonds are as follows:
December 31, 1997
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(In Millions)
U.S. Treasury securities $ 6,241.0 $ 470.5 $10.3 $ 6,701.2
and obligations of U.S.
government corporations
and agencies
Debt securities issued by
foreign governments 83.5 4.4 3.0 84.9
Mortgage-backed securities 3,390.8 187.9 9.0 3,569.7
State and local governments 361.9 23.9 .6 385.2
Corporate debt securities 12,148.9 765.2 46.9 12,867.2
Utilities 871.8 100.1 2.2 969.7
Affiliates 792.4 2.8 1.0 794.2
--------- -------- ----- ---------
TOTAL $23,890.3 $1,554.8 $73.0 $25,372.1
========= ======== ===== =========
December 31, 1996
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(In Millions)
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 8,042.6 $ 344.0 $ 56.3 $ 8,330.3
Debt securities issued by 95.2 10.2 .5 104.9
foreign governments
Mortgage-backed securities 3,014.0 119.0 43.3 3,089.6
State and local governments 173.2 13.1 2.1 184.2
Corporate debt 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 $24,299.3 $1,105.6 $257.5 $25,147.3
========= ======== ====== =========
<PAGE>
Notes To Statutory Financial Statements (Continued)
The carrying value and estimated fair value of bonds at December 31, 1997 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.
Estimated
Carrying Fair
Value Value
----- -----
(In Millions)
Due in one year or less $ 519.7 $ 523.0
Due after one year through five years 3,972.1 4,104.6
Due after five years through ten years 7,423.3 7,838.1
Due after ten years 5,254.9 5,888.1
--------- ---------
17,170.0 18,353.8
Mortgage-backed securities, including
securities guaranteed by the U.S.
Government 6,720.3 7,018.3
--------- ---------
TOTAL $23,890.3 $25,372.1
========= =========
Proceeds from sales of investments in bonds were $11,427.8 million during 1997,
$6,390.7 million during 1996 and $8,068.8 million during 1995. Gross capital
gains of $200.7 million in 1997, $188.8 million in 1996 and $255.5 million in
1995 and gross capital losses of $68.8 million in 1997, $255.5 million in 1996
and $67.1 million in 1995 were realized on those sales, portions 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 $145.5 million in 1997 and
$150.8 million in 1996, 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 $250.3 million in 1997 and $249.2
million in 1996.
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.
The Company had restructured loans with book values of $202.3 million, and
$383.5 million at December 31, 1997 and 1996, respectively. These loans
typically have been modified to defer a portion of the contracted interest
payments to future periods. Interest deferred to future periods totaled $5.1
million in 1997, $2.2 million in 1996 and $2.5 million in 1995.
D. Other
The carrying value of investments which were non-income producing for the
preceding twelve months was $5.7 million and $23.1 million at December 31, 1997
and 1996, respectively. The Company made voluntary contributions to the Asset
Valuation Reserve of $6.8 million 1996. No additional voluntary contribution to
the Asset Valuation Reserve was made in 1997.
It is not practicable to determine the fair value of policy loans as they do not
have a stated maturity.
7. PORTFOLIO RISK MANAGEMENT
The Company manages its investment risks, primarily to reduce interest rate and
duration imbalances determined in asset/liability analyses. The fair values of
these 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 these financial instruments for trading purposes.
<PAGE>
Notes To Statutory Financial Statements (Continued)
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, 1997 and
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, 1997 and 1996, the
Company had swaps with notional amounts of $3,220.2 million and $2,090.3
million, respectively. The fair values of these instruments were $20.9 million
at December 31, 1997 and $14.8 million at December 31, 1996.
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 option contract. At December
31, 1997 and 1996, the Company had option contracts with notional amounts of
$5,388.2 million and $1,928.4 million, respectively. The Company's credit risk
exposure was limited to the unamortized costs of $59.0 million and $18.1
million, which had fair values of $99.6 million and $19.2 million at December
31, 1997 and 1996, respectively.
Interest rate cap agreements grant the purchaser the right to receive the excess
of a referenced interest rate over a given rate calculated by reference to an
agreed upon notional amount. Interest rate floor agreements grant the purchaser
the right to receive the excess of a given rate over a referenced interest rate
calculated by reference to an agreed upon notional amount. 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, 1997 and 1996, the company had agreements with
notional amounts of $3,348.6 million and $3,859.6 million, respectively. The
Company's credit risk exposure on these agreements is limited to the unamortized
costs of $18.2 million and $22.0 million at December 31, 1997 and 1996,
respectively. The fair values of these instruments were $23.4 million and $15.2
million at December 31, 1997 and 1996, 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. The
net cash flows from asset and currency swaps are recognized as adjustments to
the underlying assets' interest income. Gains and losses realized on the
termination of these contracts adjusts the bases of the underlying asset.
Notional amounts relating to asset and currency swaps totaled $225.6 million and
$364.7 million at December 31, 1997 and 1996, respectively. The fair values of
these instruments were an unrecognized loss of $1.7 million at December 31, 1997
and an unrecognized gain of $7.8 million at December 31, 1996.
<PAGE>
Notes To Statutory Financial Statements (Continued)
Equity swap agreements are utilized to hedge exposure to market risk on public
and private equity positions held in the Company's investment portfolio. Under
equity swaps, the Company agrees to an exchange, at points in time specified in
each contract, between streams of variable or fixed rate interest payments and
the change in an underlying index, equity or basket of equities. The change in
the underlying item is calculated by reference to the level of such item
specified in the agreement. 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. Changes in the
value of these contracts are recorded as realized gains and losses in the
Statutory Statement of Income when contracts are closed. At December 31, 1997
and 1996, the Company had equity swap contracts with notional amounts of $160.0
million and $149.2 million, respectively. The fair values of these instruments
were an unrealized loss of $5.1 million at December 31, 1997 and an unrealized
gain of $11.9 million at December 31, 1996.
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, 1997 and 1996, the Company had
U. S. Treasury purchase commitments which will settle during the following year
with contractual amounts of $1,100.7 million and $1,639.4 million with fair
values of $1,117.6 million and $1,627.4 million, respectively including net
unrealized gains of $16.9 million at December 31, 1997 and net unrealized losses
of $12.0 million at December 31, 1996.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to derivative financial instruments. This exposure is limited
to contracts with a positive fair value. The amounts at risk in a net gain
position were $146.7 million and $53.9 million at December 31, 1997 and 1996,
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 $294.6 million in 1997,
$793.5 million in 1996 and $904.1 million in 1995.
9. LIQUIDITY
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1997 are illustrated below:
(In Millions)
Total policyholders' reserves and funds and
separate account liabilities $50,804.2
Not subject to discretionary withdrawal (5,283.7)
Policy loans (4,950.4)
---------
Subject to discretionary withdrawal $40,570.1
=========
Total invested assets, including separate $56,464.7
Policy loans and other invested assets (14,823.3)
---------
Marketable investments $41,641.4
=========
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
1997 and 1996, the Company elected not to admit $21.4 million and $15.3 million,
respectively, of guaranty fund premium tax offset receivables relating to prior
assessments.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The Company is involved in litigation arising in and 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 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.
12. SUBSIDIARIES AND AFFILIATED COMPANIES
A summary of ownership and relationship of the Company and its subsidiaries and
affiliated companies as of December 31, 1997 is illustrated below. The Company
provides management or advisory services to these companies. Subsidiaries are
wholly-owned, except as noted.
Parent
- ------
Massachusetts Mutual Life Insurance Company
Subsidiaries of Massachusetts Mutual Life Insurance Company
- -----------------------------------------------------------
C.M. Assurance Company
C.M. Benefit Insurance Company
C.M. Life Insurance Company
MassMutual Holding Company
MassMutual Holding Company Two, Inc. (Sold in March 1996)
MassMutual of Ireland, Limited
MML Bay State Life Insurance Company
MML Distributors, LLC
Subsidiaries of MassMutual Holding Company
------------------------------------------
GR Phelps, Inc.
MassMutual Holding Trust I
MassMutual Holding Trust II
MassMutual Holding MSC, Inc.
MassMutual International, Inc.
MassMutual Reinsurance Bermuda (Sold in December 1996)
MML Investor Services, Inc.
State House One (Liquidated in December 1996)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation -- 98.5%
Charter Oak Capital Management, Inc. -- 80.0%
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation -- 84.8%
Oppenheimer Acquisition Corporation -- 88.55%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc. -- (Liquidated in December 1997)
CM International, Inc.
CM Property Management, Inc. -- (Liquidated in December 1997)
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
<PAGE>
Notes To Statutory Financial Statements (Continued)
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. -- 100%
MassMutual Corporate Value Limited -- 46%
9048 -- 5434 Quebec, Inc.
Affiliates of Massachusetts Mutual Life Insurance Company
- ---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
<PAGE>
PART C
OTHER INFORMATION
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, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended December
31, 1997 and 1996
Notes to Financial Statements
The Depositor
-------------
Report of Independent Accountants
Statutory Statements of Financial Position as of December 31,
1997 and 1996
Statutory Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Statutory Statements of Changes in Policyholders' Contingency
Reserves for the years ended December 31, 1997, 1996 and 1995
Statutory Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
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 Post-Effective Amendment No. 17 to
Registration Statement under the Securities Act
of 1933, File No. 2-75412.
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
Exhibit 4 (i) Form of Flexible Purchase Payment Multi-Fund
Variable Annuity Contract.*
12
<PAGE>
Exhibit 5 Form of Application used with the Flexible
Purchase Payment Multi-Fund Variable Annuity
Contract in Exhibit 4.*
Exhibit 6 (i) Copy of the Charter of Incorporation of
Massachusetts Mutual Life Insurance Company,
incorporated by reference to Registration
Statement File No. 333- 22557, filed on February
28, 1997.
(ii) Copy of the By-Laws of Massachusetts Mutual
Life Insurance Company incorporated by reference
to Registration Statement File No. 333-22557,
filed on February 28, 1997.
Exhibit 7 None
Exhibit 8 (a) Copy of the Form of Participation Agreement
between Massachusetts Mutual Life Insurance
Company, MML Bay State Life Insurance Company,
C.M. Life Insurance Company, Oppenheimer Funds,
Inc. and Oppenheimer Variable Account Funds,
Inc., incorporated by reference to Registration
Statement File No. 333-22557, filed on February
28, 1997.
Exhibit 9 Opinion of and Consent of Counsel.*
Exhibit 10 (i) Written consent of Coopers & Lybrand
L.L.P., Independent Accountants.(*) (ii) Powers
of Attorney, incorporated by reference to
Registration Statement File No. 333-22557, filed
on February 28, 1997.
Exhibit 11 None
Exhibit 12 None
Exhibit 13 Copy of the Form of Schedule of Computation of
Performance, incorporated by reference to
Registrant's Post Effective Amendment No. 12 to
Registration Statement, File No. 33-7724
Exhibit 14 None
*Filed herewith
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.
13
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Name and Position Principal Occupation(s) During Past Five Years
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Roger G. Ackerman, Director Chairman and Chief Executive Officer, since 1996, President and Chief Operating Officer,
One Riverfront Plaza, HQE 2 1990-1996, Corning, Inc.
Corning, NY 14831
- ----------------------------------------------------------------------------------------------------------------------------------
James R. Birle, Director Chairman, since 1997, and Founder, since 1994, President, 1994-1997, Resolute
2 Soundview Drive Partners, LLC; General Partner, Blackstone Group, 1988-1994
Greenwich, CT 06836
- ----------------------------------------------------------------------------------------------------------------------------------
Gene Chao, Director Chairman, President and CEO, Computer Projections, Inc., since 1991
733 SW Vista Avenue
Portland, OR 97205
- ----------------------------------------------------------------------------------------------------------------------------------
Patricia Diaz Dennis, Director Senior Vice President and Assistant General Counsel, SBC Communications Inc.,
175 East Houston, Room 4-A-70 since 1995; Special Counsel, Sullivan & Cromwell, 1993-1995; Assistant Secretary of
San Antonio, TX 78205 State for Human Rights and Humanitarian Affairs, U.S. Department of State, 1992-1993
- ----------------------------------------------------------------------------------------------------------------------------------
Anthony Downs, Director Senior Fellow, The Brookings Institution, since 1977
1775 Massachusetts Ave., N.W.
Washington, DC 20036-2188
- ----------------------------------------------------------------------------------------------------------------------------------
James L. Dunlap, Director President and Chief Operating Officer, United Meridian Corporation, since 1996;
1201 Louisiana, Suite 1400 Senior Vice President, Texaco, Inc. 1987-1996
Houston, TX 77002-5603
- ----------------------------------------------------------------------------------------------------------------------------------
William B. Ellis, Director Senior Fellow, Yale University School of Forestry and Environmental Studies, since
31 Pound Foolish Lane 1995; Chairman and Chief Executive Officer, Northeast Utilities, 1983-1995
Glastonbury, CT 06033
- ----------------------------------------------------------------------------------------------------------------------------------
Robert M. Furek, Director Chairman, State Board of Trustees for the Hartford School System, since 1997;
1 State Street, Suite 2310 President and Chief Executive Officer, Heublein, Inc., 1987-1996
Hartford, CT 06103
- ----------------------------------------------------------------------------------------------------------------------------------
Charles K. Gifford, Director Chairman and Chief Executive Officer, since 1995, and President, 1989-1995,
100 Federal Street BankBoston, N.A. and Chairman, since 1998, and Chief Executive Officer, since
Boston, MA 02110 1985, BankBoston Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
William N. Griggs, Director Managing Director, Griggs & Santow, Inc., since 1983
75 Wall Street, 20/th/ Floor
New York, NY 10005
- ----------------------------------------------------------------------------------------------------------------------------------
George B. Harvey, Director Retired Chairman, President and CEO, Pitney Bowes, since 1996
One Landmark Square
Suite 1905, 19/th/ Floor
Stamford, CT 06901
- ----------------------------------------------------------------------------------------------------------------------------------
Barbara B. Hauptfuhrer, Director Director of various corporations, since 1972
1700 Old Welsh Road
Huntingdon Valley, PA 19006
- ----------------------------------------------------------------------------------------------------------------------------------
Sheldon B. Lubar, Director Chairman, Lubar & Co. Incorporated, since 1977
700 North Water Street, Suite 1200
Milwaukee, WI 53202
- ----------------------------------------------------------------------------------------------------------------------------------
William B. Marx, Jr., Director Retired Senior Executive Vice President, Lucent Technologies, since 1996; Executive
5 Peacock Lane Vice President and CEO Multimedia Products Group, AT&T, 1994-1996; Executive
Village of Golf, FL 33436-5299 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
55 Sandy Hook Road - North
Sarasota, FL 34242
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
John J. Pajak, Director, President and President and Chief Operating Officer, since 1996, Vice Chairman and Chief
Chief Operating Officer Administrative Officer, 1996-1996, Executive Vice President, 1987-1996, MassMutual
1295 State Street
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
Thomas B. Wheeler, Director, Chairman Chairman and Chief Executive Officer, since 1996, President and Chief Executive
and Chief Executive Officer Officer, 1988-1996, MassMutual
1295 State Street
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
Alfred M. Zeien, Director Chairman and Chief Executive Officer, The Gillette Company, since 1991
Prudential Tower
Boston, MA 02199
- ----------------------------------------------------------------------------------------------------------------------------------
Executive Vice Presidents:
- ----------------------------------------------------------------------------------------------------------------------------------
Lawrence V. Burkett, Jr. Executive Vice President and General Counsel, since 1993, Senior Vice President and
1295 State Street Deputy General Counsel, 1992-1993, MassMutual
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
Peter J. Daboul Executive Vice President and Chief Information Officer, since 1997, Senior Vice
1295 State Street President, 1990-1997, MassMutual
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
John B. Davies Executive Vice President, since 1994, Associate Executive Vice President, 1994-1994,
1295 State Street General Agent, 1982-1993, MassMutual
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
Daniel J. Fitzgerald Executive Vice President, since 1994, Corporate Financial Operations, 1994-1997,
1295 State Street Senior Vice President, 1991-1994
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
James E. Miller Executive Vice President, since 1997 and 1987-1996, MassMutual; Senior Vice
1295 State Street President, UniCare Life and Health Insurance Company, 1996-1997
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
John V. Murphy Executive Vice President, since 1997, MassMutual; Executive Vice President and
1295 State Street Chief Operating Officer, David L. Babson & Co., Inc., 1995-1997; Chief Operating
Springfield, MA 01111 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, since 1993, Executive Vice
1295 State Street President, 1992-1993, MassMutual
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Zubretsky Executive Vice President and Chief Financial Officer, since 1997, MassMutual; Chief
1295 State Street Financial Officer, 1996, HealthSource; Coopers & Lybrand, 1990-1996
Springfield, MA 01111
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
15
<PAGE>
LIST OF SUBSIDIARIES AND AFFILIATES
The following entities are, or may be deemed to be, controlled by MassMutual
through the direct or indirect ownership of such entities' stock.
1. CM Assurance Company, a Connecticut life, accident, disability and health
insurer, all the stock of which is owned by MassMutual.
2. CM Benefit Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
3. C.M. Life Insurance Company, a Connecticut life, accident, disability and
health insurer, all the stock of which is owned by MassMutual.
4. MML Bay State Life Insurance Company, a Connecticut life and health
insurer, all the stock of which is owned by MassMutual.
5. 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 herein.
6. MassMutual Holding Company, a Delaware holding company, all the stock of
which is owned by MassMutual.
7. MassMutual of Ireland, Limited., 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.
8. 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.
9. MassMutual Institutional Funds, a registered open-end investment company
organized as a Massachusetts business trust, all of the shares are owned by
MassMutual.
10. 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.
11. MML Investors Services, Inc., registered broker-dealer incorporated in
Massachusetts, MassMutual Holding Company owns 86% of the capital stock and
F.R. Phelps & Co., Inc. owns 14% of the capital stock of MML Investors
Services, Inc..
12. MassMutual Holding MSC, Inc., a Massachusetts corporation, which acts as a
holding company for MassMutual positions in investment entities organized
outside the United States. MassMutual Holding Company owns all the
outstanding shares of MassMutual Holding MSC, Inc.
13. MassMutual Holding Trust I, a Massachusetts business trust, which acts as a
holding company for certain MassMutual investment subsidiaries. MassMutual
Holding Company owns all the outstanding shares of MassMutual Holding Trust
I..
14. MassMutual Holding Trust II, a Massachusetts business trust, which acts as
a holding company for certain MassMutual investment subsidiaries.
MassMutual Holding Company owns all the outstanding shares of MassMutual
Holding Trust II.
15. 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.
16. MML Insurance Agency, Inc., a licensed insurance broker incorporated in
Massachusetts, all of the stock of which is owned by MML Investors
Services, Inc.
17. MML Securities Corporation, a "Massachusetts Securities Corporation", all
of the stock of which is owned by MML Investors Services, Inc.
18. DISA Insurance Services Agency of America, Inc. (Alabama), a licensed
insurance broker incorporated in Alabama. MML
16
<PAGE>
Insurance Agency, Inc. owns all the shares of outstanding stock.
19. 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.
20. MML Insurance Agency of Mississippi, P.C., a Mississippi professional
corporation that operates as an insurance broker, and is controlled by MML
Insurance Agency, Inc.
21. 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.
22. MML Insurance Agency of Ohio, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Ohio and operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. through a voting trust agreement.
23. MML Insurance Agency of Texas, Inc., a subsidiary of MML Insurance Agency,
Inc., is incorporated in the state of Texas and operates as an insurance
broker. The outstanding capital stock is controlled by MML Insurance
Agency, Inc. through an irrevocable proxy arrangement.
24. MassMutual/Carlson CBO N.V., a Netherlands Antilles corporation which
operated a collateralized bond obligation fund. MassMutual Holding
MSC, Inc. and Carlson Investment Management Co. each owns 99% of the
outstanding shares.
25. MassMutual Corporate Value Limited, a Cayman Islands corporation that
owns approximately 93% of MassMutual Corporate Value Partners
Limited. MassMutual Holding MSC, Inc. owns 46.19% of the outstanding
capital stock of MassMutual Corporate Value Limited.
26. MassMutual Corporate Value Partners Limited, a Cayman Islands corporation
that operates as a high yield bond fund. MassMutual Corporate Value Limited
holds an approximately 93% ownership interest in this company.
27. 9048-5434 Quebec, Inc., a Quebec corporation, which operates as the owner
of hotel property in Montreal, Quebec, Canada. MassMutual Holdings MSC,
Inc. owns all the shares of 9048-5434 Quebec, Inc.
28. Antares Leveraged Capital Corp., a Delaware corporation that operates as a
finance company. MassMutual Holding Trust I owns approximately 98.7% of the
capital stock of Antares.
29. 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.
30. Cornerstone Real Estate Advisers, Inc., a Massachusetts equity real
estate advisory corporation, all the stock of which is owned by
MassMutual Holding Trust I.
31. DLB Acquisition Corporation ("DLB") is a Delaware corporation, which
serves as a holding company for David L. Babson and Company,
Incorporated. MassMutual Holding Trust I owns 83.7% of the
outstanding capital stock of DLB.
32. 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.
33. David L. Babson and Company, Incorporated, a registered investment adviser
incorporated in Massachusetts, all of the stock of which is owned by DLB.
34. 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.
35. 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.
36. 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.
17
<PAGE>
37. OppenheimerFunds, Inc., a registered investment adviser incorporated in
Colorado, all of the stock of which is owned by Oppenheimer Acquisition
Corporation
38. 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.
39. HarbourView Asset Management Corporation, a registered investment adviser
incorporated in New York, all the stock of which is owned by
OppenheimerFunds, Inc.
40. MultiSource Service, Inc., a Colorado corporation that operates as a
clearing broker, 80% of the stock of which is owned by OppenheimerFunds,
Inc.
41. OppenheimerFunds Distributor, Inc., a registered broker-dealer incorporated
in New York, all the stock of which is owned by OppenheimerFunds, Inc.
42. Oppenheimer Partnership Holdings, Inc., a Delaware holding company, all the
stock of which is owned by OppenheimerFunds, Inc.
43. Oppenheimer Real Asset Management, Inc., a commodity pool operator
incorporated in Delaware, all the stock of which is owned by
OppenheimerFunds, Inc.
44. Shareholder Financial Services, Inc., a transfer agent incorporated in
Colorado, all the stock of which is owned by OppenheimerFunds, Inc.
45. Shareholder Services, Inc., a transfer agent incorporated in Colorado, all
the stock of which is owned by OppenheimerFunds, Inc.
46. Centennial Capital Corporation, a Delaware corporation that formerly
sponsor a unit investment trust. Centennial Asset Management
Corporation owns all the outstanding shares of Centennial Capital
Corporation.
47. 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.
48. 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.
49. 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.
50. 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.
51. CM Property Management, Inc., a Connecticut real estate holding company,
all the stock of which is owned by MassMutual Holding Trust II.
52. 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.
53. MMHC Investment, Inc., a Delaware corporation which is a passive investor
in MassMutual/Darby CBO LLC, MassMutual High Yield Partners LLC and other
MassMutual investments. MassMutual Holding Trust II owns all the
outstanding stock of MMHC Investment, Inc.
54. 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.
18
<PAGE>
55. MML Realty Management Corporation, a property manager incorporated in
Massachusetts, all the stock of which is owned by MassMutual Holding Trust
II.
56. 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.
57. MassMutual/Darby CBO IM Inc., a Delaware corporation which operates as the
LLC Manager of MassMutual/Darby CBO LLC MMHC Investment, Inc. owns 50% of
the capital stock of this company
58. MassMutual/Darby CBO LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and
emerging market issuers. MassMutual holds 1.79%, MMHC Investment holds
44.91% and MassMutual High Yield Partners LLC holds 2.39% of the ownership
interest in this company.
59. Urban Properties, Inc., a Delaware real estate holding and development
company, all the stock of which is owned by MassMutual Holding Trust II.
60. 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.
61. Westheimer 335 Suites Limited Partnership, a Texas limited partnership of
which Westheimer 335 Suites, Inc. is the general partner.
62. MassMutual Internacional (Argentina) S.A., an Argentine corporation, which
operates as a holding company. MassMutual International Inc. owns 99.9% of
the outstanding shares and MassMutual Holding Company owns the remaining
0.1% of the shares.
63. 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 0.1%
of the shares.
64. MassMutual International (Bermuda) Ltd., a Bermuda life insurance company,
all of the stock of which is owned by MassMutual International Inc.
65. MassMutual International (Luxembourg) S.A. a Luxembourg corporation, which
operates as an insurance company. MassMutual International Inc. owns 99.9%
of the outstanding shares and MassMutual Holding Company owns the remaining
0.1% of the shares.
66. MassLife Seguros de Vida S.A., a life insurance company incorporated in
Argentina. MassMutual International Inc. owns 99.9% of the outstanding
capital stock of MassLife Seguros de Vida S.A.
67. MassMutual Services, S.A., an Argentine corporation, which operates as a
service company. MassMutual Internacional (Argentina) S.A. owns 99.9% of
the outstanding shares and MassMutual International, Inc. own 0.1% of the
shares.
68. Mass Seguros de Vida S.A., a life insurance company incorporated in Chile.
MassMutual Internacional (Chile S.A.) owns 33.5% of the outstanding capital
stock of Mass Seguros de Vida S.A.
69. 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.
70. Compania Seguros de Vida Corp, S.A., a Chilean insurance company. Origen
Inversiones S.A. owns 99% of the outstanding shares of this company
71. Oppenheimer Series Fund Inc., a Maryland corporation and a registered open-
end investment company of which MassMutual and its affiliates own a
majority of the outstanding shares issued by the fund.
72. 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.
19
<PAGE>
73. The DLB Fund Group, an open-end management investment company, advised by
David L. Babson and Company Incorporated. MassMutual owns at least 25% of
each series.
MassMutual acts as the investment adviser to each of the following investment
companies and as such may be deemed to control them.
1. 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.
2. MassMutual Corporate Investors, a registered closed-end Massachusetts
business trust.
3. MassMutual Corporate Value Partners, Limited, a Cayman Islands corporation
that operates as a high-yield bond fund. MassMutual Corporate Value Limited
holds an approximately 93% ownership interest in this company.
4. 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.
5. MassMutual Institutional Funds, a registered open-end Massachusetts
business trust, all of the shares are owned by MassMutual.
6. MassMutual Participation Investors, a registered closed-end Massachusetts
business trust.
7. MassMutual/Carlson CBO N.V., a Netherlands Antilles corporation which
operates a collateralized bond obligation fund. MassMutual Holding MSC,
Inc. and Carlson Investment Management Co. each own 50% of the outstanding
shares.
8. MassMutual/Darby CBO, LLC, a Delaware limited liability company that
operates as a fund investing in high yield debt securities of U.S. and
emerging market issuers. MassMutual owns 1.79% , MMHC investment, Inc. owns
44.91% and MassMutual High Yield Partners LLC owns 2.39% of the ownership
interest in this company.
Item 27. Number of Contract Owners
-------------------------
As of February 6, 1998, there were 186,647 Separate Account 1
Contracts in force.
Item 28. Indemnification
---------------
MassMutual directors and officers are indemnified under its
by-laws. No indemnification is provided with respect to any
liability to any entity which is registered as an investment
company under the Investment Company Act of 1940 or to the
security holders thereof, where the basis for such liability is
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of MassMutual pursuant to the foregoing
provisions, or otherwise, MassMutual has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by MassMutual of expenses incurred or
paid by a director, officer or controlling person of MassMutual
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, MassMutual will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
20
<PAGE>
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 member
representatives of the principal underwriter.
OFFICERS AND MEMBER REPRESENTATIVES
MML DISTRIBUTORS, LLC
Kenneth M. Rickson Member Representative One Monarch Place
G.R. Phelps & Co., Inc. 1414 Main Street
Springfield, MA 01144-1013
Margaret Sperry Member Representative 1295 State Street
Massachusetts Mutual Springfield, MA 01111-0001
Life Insurance Co.
Kenneth M. Rickson Chief Executive Officer, One Monarch Place
President, and Main OSJ 1414 Main Street
Supervisor Springfield, MA 01144-1013
John E. Forrest Vice President One Monarch Place
1414 Main Street
Springfield, MA 01144-1013
Michael L. Kerley Vice President One Monarch Place
Assistant Secretary 1414 Main Street
Springfield, MA 01144-1013
Ronald E. Thomson Vice President One Monarch Place
1414 Main Street
Springfield, MA 01144-1013
James T. Bagley Treasurer 1295 State Street
Springfield, MA 01111
Bruce C. Frisbie Assistant Treasurer 1295 State Street
Springfield, MA 01111-0001
Raymond W. Anderson Assistant Treasurer 140 Garden Street
Hartford, CT 06154
Ann F. Lomeli Secretary 1295 State Street
Springfield, MA 01111-0001
Eileen D. Leo Assistant Secretary One Monarch Place
1414 Main Street
Springfield, MA 01144-1013
Marilyn A. Sponzo Chief Legal Officer One Monarch Place
1414 Main Street
Springfield, MA 01144-1013
Robert Rosenthal Compliance Officer One Monarch Place
1414 Main Street
21
<PAGE>
Springfield, MA 01144-1013
Melissa Thompson Registration Manager One Monarch Place
1414 Main Street
Springfield, MA 01144-1013
Ruth B. Howe Director of Continuing One Monarch Place
Education 1414 Main Street
Springfield, MA 01144-1013
Peter D. Cuozzo Variable Life Supervisor and 140 Garden Street
Hartford OSJ Supervisor Hartford, CT 06154
Maureen Ford Variable Annuity Supervisor 140 Garden Street
Hartford, CT 06154
Anne Melissa Dowling Large Corporate Markets 140 Garden Street
Supervisor Hartford, CT 06154
(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
OFFICER BUSINESS ADDRESS
- ----------------------------------------------------------------------
Kenneth M. Rickson One Monarch Place
President 1414 Main Street
Springfield, MA 01144-1013
Michael L. Kerley One Monarch Place
Vice President, Chief Legal Officer, 1414 Main Street
Chief Compliance Officer, Assistant Secretary Springfield, MA 01144-1013
Ronald E. Thomson One Monarch Place
Vice President, Treasurer 1414 Main Street
Springfield, MA 01144-1013
Ann F. Lomeli 1295 State Street
Secretary Springfield, MA 01111
John E. Forrest One Monarch Place
Vice President 1414 Main Street
National Sales Director Springfield, MA 01144-1013
Eileen D. Leo One Monarch Place
Assistant Secretary, 1414 Main Street
Assistant Treasurer Springfield, MA 01144-1013
David Deonarine One Monarch Place
Sr. Registered Options Principal 1414 Main Street
Springfield, MA 01144-1013
Nicholas J. Orphan 245 Peach Tree Center
Ave., Suite 2330
Regional Supervisor (South) Atlanta, GA 30303
Robert W. Kumming 1295 State Street
Regional Pension Management Supervisor (East/Central) Springfield, MA 01111
Peter J. Zummo 1295 State Street
Regional Pension Management Supervisor (South/West) Springfield, MA 01111
Bruce Lukowiak 6263 North Scottsdale Rd.,
Regional Supervisor (West) Suite 222
Scottsdale, AZ 85250
22
<PAGE>
Gary L. Greenfield 1 Lincoln Center, Suite 1490
Regional Supervisor (Central) Oakbrook Terrace, IL 60181
Burvin E. Pugh, Jr. 1295 State Street
Chief Agency Field Force Supervisor Springfield, MA 01111
John P. McCloskey 1295 State Street
Regional Supervisor (East) Springfield, MA 01144
Susan Alfano 1295 State Street
Director Springfield, MA 01111
Lawrence V. Burkett, Jr. 1295 State Street
Chairman of the Board of Directors Springfield, MA 01111
Peter Cuozzo, CLU, ChFC 140 Garden Street
Director Hartford, CT 06154
John B. Davies 1295 State Street
Director Springfield, MA 01111
Anne Melissa Dowling 140 Garden Street
Director Hartford, CT 01654
Maureen R. Ford 140 Garden Street
Director Hartford, CT 01654
Gary T. Huffman 1295 State Street
Director Springfield, MA 01111
Douglas J. Jangraw 140 Garden Street
Director Hartford, CT 01654
(c) See the section captioned "Service Arrangements and
Distribution" in the Statement of Additional Information.
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.
23
<PAGE>
(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,
Massachusetts Mutual Variable Annuity Separate Account 1, certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
No. 13 pursuant to Rule 485(b) under the Securities Act of 1933 and has caused
this Post-Effective Amendment No. 13 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 10th day of
April, 1998.
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 10, 1998, as Attorney-in-Fact pursuant to
- --------------------- powers of attorney.
*Richard M. Howe
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 13 to Registration Statement No. 33-7724 has been signed by the following
persons in the capacities and on the duties indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas B. Wheeler* Chief Executive Officer and April 10, 1998
- --------------------------- Chairman of the Board
Thomas B. Wheeler
/s/ John J. Pajak* President, Chief April 10, 1998
- --------------------------- Operating Officer
John J. Pajak and Director
/s/ Joseph M. Zubretsky* Executive Vice President, April 10, 1998
- --------------------------- Chief Financial Officer &
Joseph M. Zubretsky Chief Accounting Officer
/s/ Roger G. Ackerman Director --
- ---------------------------
Roger G. Ackerman
/s/ James R. Birle* Director April 10, 1998
- ---------------------------
James R. Birle
/s/ Gene Chao* Director April 10, 1998
- ---------------------------
24
<PAGE>
Gene Chao, Ph.D.
/s/ Patricia Diaz Dennis* Director April 10, 1998
- ---------------------------
Patricia Diaz Dennis
/s/ Anthony Downs* Director April 10, 1998
- ---------------------------
Anthony Downs
/s/ James L. Dunlap* Director April 10, 1998
- ---------------------------
James L. Dunlap
/s/ William B. Ellis* Director April 10, 1998
- ---------------------------
William B. Ellis, Ph.D.
/s/ Robert M. Furek* Director April 10, 1998
- ---------------------------
Robert M. Furek
/s/ Charles K. Gifford* Director April 10, 1998
- ---------------------------
Charles K. Gifford
/s/ William N. Griggs* Director April 10, 1998
- ---------------------------
William N. Griggs
/s/ George B. Harvey* Director April 10, 1998
- ---------------------------
George B. Harvey
/s/ Barbara B. Hauptfuhrer* Director April 10, 1998
- ---------------------------
Barbara B. Hauptfuhrer
/s/ Sheldon B. Lubar* Director April 10, 1998
- ---------------------------
Sheldon B. Lubar
/s/ William B. Marx, Jr.* Director April 10, 1998
- ---------------------------
William B. Marx, Jr.
/s/ John F. Maypole* Director April 10, 1998
- ---------------------------
John F. Maypole
/s/ Alfred M. Zeien* Director April 10, 1998
- ---------------------------
Alfred M. Zeien
/s/ Richard M. Howe On April 10, 1998, as Attorney-in-Fact pursuant
- ---------------------------
*Richard M. Howe to powers of attorney.
25
<PAGE>
REPRESENTATION BY REGISTRANT'S COUNSEL
--------------------------------------
As counsel to the Registrant, I, James M. Rodolakis, have reviewed this
Post-Effective Amendment No. 13 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/James M. Rodolakis
-----------------------------
James M. Rodolakis
Counsel
Massachusetts Mutual Life
Insurance Company
26
<PAGE>
EXHIBIT LIST
Exhibit 4 Form of Flexible Purchase Payment Multi-Fund Variable
Annuity Contract
Exhibit 5 Form of Application used with the Flexible Purchase Payment
Multi-Fund Variable Annuity Contract
Exhibit 9 Opinion of and Consent of Counsel
Exhibit 10(i) Written consent of Coopers & Lybrand, L.L.P., Independent
Accountants
27
<PAGE>
Exhibit 4
[LETTERHEAD OF MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY APPEARS HERE]
Flexible Purchase Payment Multi-Fund
Variable Annuity Contract
- --------------------------------------------------------------------------------
Contract Number
Annuitant
Amount
- --------------------------------------------------------------------------------
Dear Contract Owner:
READ YOUR CONTRACT CAREFULLY. It has been written in readable language to help
you understand its terms. We have used examples to explain some of the
provisions. These examples do not reflect the actual amounts or status of this
contract. As you read through the contract, remember the words "we", "us" and
"our" refer to Massachusetts Mutual Life Insurance Company.
We will pay the maturity benefit to the Payee when this contract matures if
the Annuitant is living at that time. If the Annuitant dies before this contract
matures, we will pay the death benefit to the Beneficiary when due proof of the
Annuitant's death is received at our Home Office. Either payment is subject to
the terms of this contract which are contained on this and the following pages.
For service or information on this contract, contact the agent who sold the
contract, any of our agency offices or our Home Office.
YOU HAVE A RIGHT TO RETURN THIS CONTRACT. If you decide not to keep this
contract, return it within ten days after you receive it. It may be returned by
delivering or mailing it to our Home Office, to any of our agency offices or to
the agent who sold the contract. Then, the contract will be as though it had
never been issued. We will promptly refund the accumulated value of this
contract on the date we receive it, plus any deductions made from the purchase
payment.
Signed for Massachusetts Mutual Life Insurance Company at Springfield,
Massachusetts.
Sincerely yours,
/s/SIGNATURE APPEARS HERE /s/SIGNATURE APPEARS HERE
President Secretary
This Contract provides that: A monthly life income is payable
beginning on the date this contract matures if
the Annuitant is living at that time
A death benefit is payable if the Annuitant dies
before this contract matures
Flexible purchase payments may be made to the
date this contract matures or to the Annuitant's
death, if earlier.
This Contract is not participating. It does not provide for the payment of
dividends.
All values and payments based on the investment performance of the Separate
Account shown on the Schedule Page are variable and not guaranteed as to dollar
amount.
<PAGE>
Contract Summary
This Summary briefly describes some of the major contract provisions. Since it
does not go into detail, the actual provisions will control. See those
provisions for full information and any limits that may apply. The "Where To
Find It" on the inside of the back cover shows where these provisions may be
found.
We will pay a maturity benefit if the Annuitant is living on the maturity date
and the contract is in force at that time. We will pay a death benefit if the
Annuitant dies before this contract matures and while it is in force. "In force"
means that the contract has not terminated. Since this is a variable annuity
contract, neither of these benefits is guaranteed as to dollar amount. Instead,
all values and benefits which depend on the investment performance of the
Separate Account shown on the Schedule Page are variable and not guaranteed as
to dollar amount.
The first purchase payment for this contract is shown on the Schedule Page. Any
normal purchase payment elected is also shown on the Schedule Page. However,
purchase payments for this contract are flexible. Therefore, after the first one
has been paid, there is no requirement that any specific amount of purchase
payment be made on any date. Instead, within the limits stated in the contract,
any amount may be paid on any date before the maturity date or the death of the
Annuitant, if earlier.
Rights available under this contract include:
. The right to assign this contract.
. The right to change the Owner, the Payee or any Beneficiary.
. The right to redeem this contract.
. The right to make partial redemptions.
. The right to change the date this contract matures.
. The right to allocate purchase payments among the Guaranteed Principal
Account and the divisions of the Separate Account.
. The right to transfer values between the Guaranteed Principal Account
and the divisions of the Separate Account.
This contract also includes a number of Payment Options. These provide alternate
ways to pay the maturity value, the death benefit or the amount payable upon
redemption of this contract.
<PAGE>
Part 1. The Basics Of This Contract
In this Part we discuss some basic concepts that
are necessary to understand this contract.
The Parties Involved - The Owner is the person who owns this contract, as
Owner, Annuitant, shown on our records.
Beneficiary, Irrevocable
Beneficiary, Payee The Annuitant is the person on whose life this
contract is issued. Payment of the maturity benefit
will be made if that person is living when this
contract matures. The Annuitant may be the Owner of
this contract, or someone else may be the Owner.
Example: You buy a contract on your own life and
name yourself as Owner. In this case, you
are both the Annuitant and Owner. If you
buy a contract on your spouse's life and
name yourself as Owner, then the
Annuitant and Owner are different people.
A Beneficiary is any person named on our records to
receive death proceeds after the Annuitant dies.
There may be different classes of Beneficiaries,
such as primary and secondary. These classes set
the order of payment. There may be more than one
Beneficiary in a class.
Example: Debbie is named as primary (first)
Beneficiary. Anne and Scott are named as
Beneficiaries in the secondary class. If
Debbie is alive when the Annuitant dies,
she receives any death benefit. But if
Debbie is dead and Anne and Scott are
alive when the Annuitant dies, Anne and
Scott receive any death benefit.
Any Beneficiary may be named an Irrevocable
Beneficiary. An Irrevocable Beneficiary is one
whose consent is needed to change that Beneficiary.
Also, this Beneficiary must consent to the exercise
of other contract rights.
The Payee is the person named on our records to
receive the maturity benefit when this contract
matures.
Dates - Contract Date, Two important dates (shown on the Schedule Page)
Contract Anniversary are the Contract Date and the Issue Date.
Date, Contract Year,
Issue Date, Maturity The Contract Date is the starting point for
Date determining Contract Anniversary Dates and Contract
Years. The first Contract Anniversary Date is one
year after the Contract Date. The period from the
Contract Date to the first Contract Anniversary
Date, or from one Contract Anniversary Date to the
next, is called a Contract Year.
Example: The Contract Date is June 10, 19X1. The
first Contract Anniversary Date is June
10, 19X2. The period from June 10, 19X1
to June 10, 19X2 is a Contract Year.
The Issue Date is used to determine the start of
the contestability period. We discuss
contestability below.
Another important date is the maturity date shown
on the Schedule Page. This is the date the maturity
benefit is payable unless an earlier or later
maturity date is elected. The maturity benefit will
be payable only if this contract is in force and
the Annuitant is living on the maturity date.
This Is A Legal Contract This annuity is a legal contract between the Owner
and us. The entire contract consists of the
application and the annuity, which includes any
riders. We have issued this contract in return for
the application and the payment of the first
purchase payment. Any change or waiver of its terms
must be in writing and signed by our Secretary or
an Assistant Secretary to be effective.
Trusts And Other We are not responsible for carrying out the terms
Agreements of any trust or other agreement which is not a part
of this contract. Our only responsibility is to
perform according to the terms of the contract.
- 2 -
<PAGE>
- 3 -
Representations And We rely on all statements made by or for the
Contestability Annuitant in the application. Legally, these
statements are considered to be representations and
not warranties. We can contest the validity of this
contract for any material misrepresentation of a
fact. To do so, however, the misrepresentation must
have been made in the application and a copy of the
application must have been attached to this
contract when issued.
We must bring any legal action to contest the
validity of this contract within two years from its
Issue Date. After that we cannot contest its
validity.
Misstatement Of Age One of the questions in the application concerns
the Annuitant's date of birth. If the date of birth
given is not correct, all benefits and amounts
payable under this contract will be what would have
been provided if the correct date of birth had been
given.
No monthly life income payments will be made unless
satisfactory proof of the Annuitant's date of birth
has been received.
Meaning Of In Force "In force" means that this contract has not
terminated. This contract is in force from its
Issue Date or, if later, the date the first
purchase payment is paid. Payment of future
purchase payments is not required to continue this
contract in force.
Home Office Our main office in Springfield, Massachusetts is
called the Home Office. The address is
Massachusetts Mutual Life Insurance Company,
Springfield, Massachusetts 01111.
Contract State This contract shall be construed according to the
laws of the state in which it was entered into.
Part 2. Purchase Payments
Purchase payments are the amounts that may be paid
to us under this contract. Purchase payments for
this contract are discussed in this Part.
The First The first purchase payment for this contract is
Purchase Payment shown on the Schedule Page. It is due on the
Contract Date. This contract will not be in force
until the first purchase payment has been paid to
us.
Normal Purchase The normal annual purchase payment for this
Payments contract is shown on the Schedule Page. Other
frequencies of payment are also shown. The
frequency for this contract is as elected in the
application. This frequency may be changed by
giving us advance written notice.
Net Purchase Payments A net purchase payment is a purchase payment we
receive less any premium tax we deduct at that
time.
Purchase Payment After the first purchase payment has been paid, we
Flexibility And Notices will send notices for the normal purchase payment
on the frequency in effect. However, payment of
those purchase payments is not required to continue
the contract in force. Instead, any amount may be
paid at any time before the maturity date, or the
death of the Annuitant if earlier. Each purchase
payment cannot be less than $50 without our
consent.
We will stop sending notices if no purchase payment
has been made for 18 consecutive months. However,
if a purchase payment is paid after that time, we
will send notices again.
We have the right to set a maximum limit on the
total amount of purchase payments that may be made
under this contract. Any such limit will not be
less than $500,000.
<PAGE>
Where To Pay All purchase payments are payable to us at our Home
Office or at the place shown for payment on the
notice. Upon request, a receipt signed by our
Secretary or an Assistant Secretary will be given
for any purchase payment.
Part 3. Accounts, Values And Charges
This contract provides that certain values
(referred to as variable values) are based on the
investment performance of the Separate Account and
are not guaranteed as to dollar amount. This
contract also provides that other values (referred
to as fixed values) are based on the interest
credited to the Guaranteed Principal Account. This
Part gives information about these Accounts, and
the values and charges connected with them.
Allocation Of Purchase Each net purchase payment we receive will be
Payments allocated among the Guaranteed Principal Account
and the divisions of the Separate Account, as
directed in the application. This allocation will
remain in effect until changed by any later written
election satisfactory to us and received at our
Home Office.
The Separate Account The Separate Account shown on the Schedule Page is
a separate investment account which we have
established under Massachusetts law. This Separate
Account has four divisions. They are:
. The Equity Division. Amounts credited to this
division are invested in shares of MML Equity
Fund, or its successor. This Fund invests
primarily in common stocks and other equity
securities.
. The Money Market Division. Amounts credited to
this division are invested in shares of MML
Money Market Fund, or its successor. This Fund
invests primarily in short-term debt
instruments.
. The Managed Bond Division. Amounts credited to
this division are invested in shares of MML
Managed Bond Fund, or its successor. This Fund
invests primarily in fixed-income securities.
. The Blend Division. Amounts credited to this
division are invested in shares of MML Blend
Fund, or its successor. This Fund may invest
in:
. Common stocks and other equity
securities;
. Money market instruments and other debt
securities with maturities generally not
exceeding one year; and
. Bonds and other debt securities with
maturities generally exceeding one year.
We have the right to establish additional divisions
of the Separate Account from time to time. Amounts
credited to any additional divisions established
would be invested in shares of other Funds. For any
division, we have the right to substitute new
Funds.
Values in any division are variable and are not
guaranteed. They depend on the investment results
of the Separate Account shown on the Schedule Page.
Valuation Date And Variable values are determined on each valuation
Valuation Period date. A valuation date is any date on which the
New York Stock Exchange (or its successor) is open
for trading. A valuation period is the period of
time from the end of one valuation date to the end
of the next valuation date.
Accumulation Units And Accumulation units are used to measure the
Annuity Units variable values on or before the maturity date of
this contract. Annuity units are used to
determine the amount of each payment of Variable
Monthly Income after those payments have begun.
The value of any unit can vary from valuation
date to valuation date. That value reflects the
investment performance of the division of the
Separate Account applicable to that unit.
- 4 -
<PAGE>
- 5 -
Purchase Of The amount of each net purchase payment we receive
Accumulation Units for allocation to the Separate Account will be
applied to purchase accumulation units. The amount
applied will be apportioned among the divisions of
the Separate Account, as directed in the
application. This apportionment will remain in
effect until changed by any later written
direction satisfactory to us and received at our
Home Office.
Date Of Purchase Accumulation units will be purchased in any
division of the Separate Account as of the
valuation date which is on or next follows the
date the purchase payment is received by us, but
not earlier than the Contract Date. However, if
any purchase payment is received other than by
mail at our Home Office after the time set for
valuation of the Separate Account, that purchase
payment will be deemed to have been received on
the next day. Accumulation units will be purchased
at the unit value on the date of purchase. The
number of units purchased will be the amount
applied divided by the accumulation unit value on
the date of purchase.
Example: The amount applied is $550. The date of
purchase is June 10, 19X4. The
accumulation unit value on that date is
$10. The number of units purchased would
be 55. ($550 divided by $10 = 55). If,
instead, the unit value was $11, then the
amount applied would purchase 50 units.
($550 divided by $11 = 50).
Variable Value Of The value of the accumulation units credited to
Contract this contract in a division of the Separate
Account is equal to the accumulation unit value in
that division on the date the value is determined,
multiplied by the number of those units in that
division.
The variable value of this contract on any date is
the total of the values of this contract in each
division of the Separate Account.
The Guaranteed The Guaranteed Principal Account is part of our
Principal Account general account. It has no connection with, and
does not depend on, the investment performance of
the Separate Account.
We have the right to establish additional
guaranteed principal accounts from time to time.
Fixed Value Of Contract The fixed value of this contract is the
accumulation at interest of:
. The net purchase payments which are allocated
for this contract to the Guaranteed Principal
Account; plus
. Any amounts transferred into the Guaranteed
Principal Account for this contract from the
Separate Account; less
. Any redemptions and transfers from the
Guaranteed Principal Account for this
contract; and less
. Any administrative charges taken from the
Guaranteed Principal Account for this
contract.
Interest On Fixed Value The fixed value of this contract earns interest at
not less than an annual rate of 3 1/2%. We may
credit a higher interest rate for any period of
time. Interest is credited daily to and including
the date the fixed value is determined upon
redemption, transfer, maturity, or death.
Accumulated Value Of The accumulated value of this contract on any date
Contract is the variable value plus the fixed value, both
determined as of that date.
Administrative Charge An administrative charge will be assessed each year
on the Contract Anniversary Date. The amount of
this charge will be determined each year by us.
However, it will not be greater than $50, or any
lower limit required by law.
Each charge, when it is assessed, will be taken
from the sources set forth below and in the order
shown until the charge has been satisfied.
<PAGE>
First, the Managed Bond Division of the Separate
Account. Second, the Blend Division of the Separate
Account. Third, the Equity Division of the Separate
Account. Fourth, the Money Market Division of the
Separate Account. Fifth, the Guaranteed Principal
Account.
If the administrative charge, or any part thereof,
is to be deducted from the Guaranteed Principal
Account, the amount deducted from that Account will
be the lesser of:
. The administrative charge, or part thereof,
not deducted from the Separate Account; or
. One percent of the value of the Guaranteed
Principal Account (before the deduction is
made) on the Contract Anniversary Date on
which the administrative charge is assessed.
For divisions of the Separate Account, the charge
will be made by a reduction in the number of
accumulation units this contract has in that
division. For the Guaranteed Principal Account, the
charge will be made by a reduction in the fixed
value this contract has in that Account.
The yearly administrative charge discussed in this
provision is in addition to any charge for
administrative expenses contained in the asset
charge discussed in the Net Investment Factor
provision in Part 7.
Deductions For Sales Sales charges are not deducted from purchase
Charges payments when received by us. Instead, we may make
deductions for sales charges from amounts payable
upon full or partial redemption of this contract.
We may also make deductions for sales charges from
the maturity value on the maturity date of this
contract.
There are, however, three limits on the deduction
for sales charges. These limits are discussed in
the next three paragraphs.
The amount we deduct for sales charges at any time,
plus any sales charges previously deducted, will
not be more than 8 1/2% of the total purchase
payments made to that time.
On the first redemption in each Contract Year, and
on maturity if no partial redemption has been made
in the Contract Year of maturity, 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. This 10% limit is not
cumulative. That is, any unused portion of this
limit cannot be carried over to any later
redemption or maturity.
No sales charges will be deducted if, at the
Annuitant's actual age 59 1/2 or older, the entire
redemption value or maturity value is:
. Applied under Payment Option C, E or F, either
variable or fixed.
. Applied under Payment Option B, either
variable or fixed, with payments for 10 years
or more.
. Applied to purchase a single premium immediate
life annuity sold by us or any of our
subsidiary companies.
. Applied to purchase a single premium immediate
annuity certain, with payments for 10 years or
more, sold by us or any of our subsidiary
companies.
Amount Of Sales Charge Subject to the limits discussed above, the amount
of any sales charge depends on when the contract is
matured or the redemption is made. It will be a
percent of the accumulated value of the contract at
maturity or the amount being redeemed. These
percents are:
Contract Year Percent Contract Year Percent
------------- ------- ------------- -------
First 8% Sixth 4%
Second 8% Seventh 3%
Third 7% Eighth 2%
Fourth 6% Ninth 1%
Fifth 5% Tenth and later 0%
- 6 -
<PAGE>
- 7 -
Part 4. Life Benefits
A variable annuity contract provides a maturity
benefit if the Annuitant is living on the maturity
date and the contract is in force at that time. It
provides a death benefit if the Annuitant dies
before the maturity date while the contract is in
force. There are other rights and benefits
available under this contract. These "Life
Benefits" are discussed in this Part.
Contract Ownership
Rights Of Owner While the Annuitant is living, the Owner may
exercise all rights given by this contract or
allowed by us. These rights include assigning this
contract, changing Beneficiaries, changing
ownership, enjoying all contract benefits and
exercising all contract options. The consent of any
Irrevocable Beneficiary is needed to exercise any
contract right.
Assigning This Contract This contract may be assigned. But for any
assignment to be binding on us, we must receive a
signed copy of it at our Home Office. We will not
be responsible for the validity of any assignment.
Once we receive a signed copy, the rights of the
Owner and the interest of any Beneficiary or any
other person will be subject to the assignment.
Changing The Owner, The Owner, the Payee or Beneficiary may be changed
Payee Or Beneficiary while the Annuitant is living. We do not limit the
number of changes that may be made. To make a
change, a written request, satisfactory to us, must
be received at our Home Office. The change will
take effect as of the date the request is signed,
even if the Annuitant dies before we receive it.
Each change will be subject to any payment we made
or other action we took before receiving the
request.
Transfers Of Values Transfers of values may be made upon written
direction received at our Home Office. These
transfers are:
. Transfers of values between divisions of the
Separate Account. These transfers will be made
by cancelling all or part of the accumulation
units in a division and applying the value of
the cancelled units to purchase units in any
other division.
. Transfers of values from one or more divisions
of the Separate Account to the Guaranteed
Principal Account. These transfers will be
made by cancelling all or part of the
accumulation units in a division and applying
the value of the cancelled units to the
Guaranteed Principal Account.
. Transfers of values from the Guaranteed
Principal Account to one or more divisions of
the Separate Account. These transfers will be
made by applying all or part of the value in
the Guaranteed Principal Account to purchase
accumulation units in one or more divisions of
the Separate Account.
Unit values will be determined as of the valuation
date which is on or next follows the date the
written direction is received at our Home Office.
Limitations On Transfers of values out of the Guaranteed Principal
Transfers Account to the Separate Account are limited to one
in each Contract Year. The maximum value of any
transfer from the Guaranteed Principal Account is
25% of the fixed value of this contract on the date
the transfer is made. However, we reserve the right
to further limit any transfer from the Guaranteed
Principal Account during any Contract Year so that
the sum of:
. That transfer; and
. All previous and concurrent partial
redemptions from the Guaranteed Principal
Account during that Contract Year;
<PAGE>
cannot be more than 25% of the fixed value of this
contract on the date of the first such transfer or
partial redemption during that Contract Year.
We reserve the right to limit all transfers to not
more than one every 90 days. We also reserve the
right to prohibit transfers from the Guaranteed
Principal Account to the Money Market Division of
the Separate Account.
Transfers cannot be made within 30 days before this
contract matures.
Redeeming This Contract
Right To Redeem This contract may be redeemed for its cash
redemption value any time before it matures and
while the Annuitant is living. Redemption will be
effective on the date we receive this contract and
a written redemption request, satisfactory to us,
at our Home Office. A later effective date may be
elected in the redemption request.
Cash Redemption Value The cash redemption value of this contract is the
accumulated value on the valuation date which is on
or next follows the effective date of redemption
less any deductions for sales charges and less any
premium tax we deduct at that time. The accumulated
value of this contract is described in "Part 3.
Accounts, Values And Charges".
Partial Redemptions Partial redemptions may be made at any time before
this contract matures and while the Annuitant is
living. The request for a partial redemption must
state the Account (or Accounts) from which the
partial redemption will be made. For any partial
redemption from the Separate Account, the request
must also state the division (or divisions) from
which redemption will be made.
Partial redemptions from the Guaranteed Principal
Account will be made by reducing the value in that
Account to provide the partial redemption including
any sales charge deduction that applies to that
redemption. Partial redemptions from a division (or
divisions) of the Separate Account will be made by
cancelling a sufficient number of accumulation
units to provide the partial redemption including
any sales charge deduction that applies to that
redemption.
Any partial redemption will be subject to the
limits set forth below.
. Any partial redemption must be for at least
$500.
. The accumulated value of the contract
remaining after a partial redemption must be
at least $500.
We reserve the right to limit any partial
redemption from the Guaranteed Principal Account
during any Contract year so that the sum of:
. That partial redemption; and
. All previous partial redemptions from the
Guaranteed Principal Account during that
Contract Year; and
. Any previous or concurrent transfer from the
Guaranteed Principal Account during that
Contract Year;
cannot be more than 25% of the fixed value of this
contract on the date of the first such transfer or
partial redemption during that Contract Year.
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<PAGE>
-9-
Redemption Or If, at any time, the Credited Interest Rate falls
Maturity Without below the Specified Interest Rate, this contract may
Charge be redeemed or matured without any deduction for sales
charges.
For the purpose of this provision, the following
definitions apply:
. Credited Interest Rate means the annual
equivalent of the interest rate credited to the
Guaranteed Principal Account.
. Specified Interest Rate means the Treasury Bill
Index (as described below) reduced by 1.40%.
On the 15th day of March, June, September, and
December, we determine the Treasury Bill Index to be
effective during the period beginning on the first day
of the next calendar quarter and ending on the last
day of that quarter. The Index is equal to the
arithmetic average of the discount rates established
at the regular weekly auctions of 91-day United States
Treasury Bills. Auctions occurring during the period
beginning with the 16th day of the last month of the
preceding calendar quarter and ending with the 15th
day of the last month of the current calendar quarter
are used to determine this average.
Example: On March 15, 19X2 we determine that the
Treasury Bill Index for the period December
16, 19X1 through March 15, 19X2 is 10.5%. We
reduce the index by 1.40%. The Specified
Interest Rate for the calendar quarter
beginning April 1, 19X2 and ending June 30,
19X2 is 9.10%.
If the regular auction program for 91-day Treasury
Bills is discontinued, we will, with the approval of
the insurance supervisory official of the state where
this contract was delivered, use a comparable index.
Within 10 days following the date that the Credited
Interest Rate falls below the Specified Interest Rate,
we will send a written notice to the Owner at the last
known address shown on our records stating that
redemption or maturity without charge can be elected
until further notice.
If the Credited Interest Rate once again becomes equal
to or greater than the Specified Interest Rate, we
will send a second written notice to the Owner at the
last known address shown on our records. This second
written notice will state that the opportunity to
redeem or mature without charge will end 60 days from
the date the second written notice was sent.
Any redemption or maturity elected under this
provision must become effective before the end of 60
days from the date the second written notice was sent.
When And How We Pay Any partial redemption made will be paid in one sum.
However, if the entire contract is redeemed, the cash
redemption value may be paid in one sum, or it may be
applied under any payment option elected. See "Part 6.
Payment Options".
We will pay all redemptions within seven days after
the written request for the redemption is received by
us at our Home Office. However:
. For redemptions from the Separate Account, this
time period is subject to any extension permitted
under federal laws, rules and regulations which
apply to redemption of variable annuity
contracts.
. For redemptions from the Guaranteed Principal
Account, we may delay payment for up to six
months from the date the request is received by
us at our Home Office. If payment is delayed 30
days or more, we will add interest at an annual
rate of 3%.
<PAGE>
Right To Change The Maturity Date
Electing An Early Before this contract matures and while it is in force,
Maturity Date the maturity date may be changed to any date that is
earlier than the maturity date then in effect. To
elect an earlier maturity date, we require that a
written election for the change be received at our
Home Office at least 30 days before the early maturity
date wanted.
Electing A Later Before this contract matures and while it is in force,
Maturity Date the maturity date may be changed to any date that is
later than the maturity date then in effect. However,
that later maturity date must be on or before the
Contract Anniversary Date nearest the Annuitant's 85th
birthday. To elect a later maturity date, we require
that a written election be received at our Home Office
within 90 days before the maturity date then in
effect. Any rider this contract has will be cancelled
when the change is made.
Other Provisions Regarding Life Benefits
Periodic Statements While this contract is in force before the maturity
date, or the Annuitant's death if earlier, we will
send a Status Report to the Owner at least
semiannually. This Report will show:
. The number of accumulation units in each
division of the Separate Account; and
. The accumulation unit value in each division of
the Separate Account; and
. The variable value of this contract; and
. The fixed value of this contract; and
. The accumulated value of this contract.
All this information will be as of a date which is not
more than 45 days before the date the Status Report is
mailed.
We will also give the Owner any other periodic
reports, containing information about this contract,
that may be required by federal or state law.
Receipt Of Papers Any written directions, requests or other papers
received other than by mail at our Home Office after
the time set for valuation of the Separate Account
will be deemed to have been received the next day.
Contract Is Not "Not participating" means that this contract does not
Participating share in any distribution of our divisible surplus.
Part 5. Maturity Benefit And Death Benefit
The maturity benefit is the payment we will make when
this contract matures if the Annuitant is living at
that time. The death benefit is the amount of money we
will pay when we receive due proof at our Home Office
that the Annuitant has died before the contract
matures. These benefits are discussed in this Part.
Maturity Benefit
Maturity Value The maturity value is the accumulated value of this
contract on the valuation date which is on or next
follows the maturity date with these deductions:
. Any premium tax we deduct at that time.
. Any deduction for sales charges that applies.
-10-
<PAGE>
-11-
Monthly Life Income When this contract matures, the maturity value will be
applied to provide a monthly life income under
Variable Payment Option C, as described in "Part 6.
Payment Options". This income will be based on the
life of the Annuitant and will be paid for the
lifetime of the Annuitant. The first payment is due on
the maturity date. Future payments will be due on the
same day of the month as the maturity date. The final
payment will be the last one due before the
Annuitant's death.
There is a guarantee as to the first 120 income
payments. If the Annuitant dies before all these
payments are made, we will continue to make payments
until 120 income payments have been made.
Alternate Settlements At There are other settlements available when this
Maturity contract matures. That is, the Owner may elect to have
the maturity value applied under any other payment
option discussed in Part 6, or paid in one sum.
In any case, if an assignment of this contract is in
effect on the maturity date, we have the right to pay
the maturity value in one sum. Any amount due the
assignee will be paid to the assignee. The balance, if
any, will be paid to the Owner.
Restriction On Rights The Annuitant cannot assign, transfer or place any
restriction on this contract without the Owner's
written consent. No income payment under this contract
can be assigned, transferred or taken in advance of
its due date, and the right to receive any income
payments cannot be restricted, without the Owner's
written consent. In any case, the Owner's written
consent must be given before the Annuitant dies and
must be received at our Home Office.
Death Benefit
Amount Of Death If the Annuitant dies before this contract matures and
Benefit while it is in force, the death benefit will be the
greater of:
. The total of all purchase payments made, less
the amount of any partial redemptions, or
. The accumulated value of this contract on the
valuation date which is on or next follows the
date proof of death is received at our Home
Office,
less, in either case, any premium tax we deduct at
that time.
Interest On Maturity Or Death Benefit
Interest Payable If the maturity value is paid in one sum after this
contract matures, we will add interest from the
valuation date which is on or next follows the
maturity date to the date of payment. If the death
benefit is paid in one sum, we will add interest from
the valuation date which is on or next follows the
date proof of death is received to the date of
payment.
<PAGE>
If the death benefit is applied under a payment
option, interest will be paid from the valuation date
which is on or next follows the date written notice of
death is received to the effective date of that
option. It will be paid in one sum to the Beneficiary
living on the effective date.
In all cases, the amount of interest will be the
greater of:
. The same as would be paid under Option D of the
payment options for the applicable period of
time. See "Part 6. Payment Options" for a
description of Option D.
. The same as would be earned by the Money Market
Division of the Separate Account, adjusted to
remove mortality and expense risk charges, for
the applicable period of time.
Part 6. Payment Options
These are Optional Methods of Settlement. They provide
alternate ways in which payment can be made. This
contract provides Fixed Income payment options. It
also provides Variable Income payment options. These
two types of options are discussed below. Any other
payment option agreed to by us may be elected.
Fixed Income Payment A Fixed Income payment option is one which provides
Options payments that are guaranteed by us under our general
account. The amounts of these payments do not depend
on the investment performance of the Separate Account.
All the payment options described in this Part are
available on a Fixed Income basis. They are described
in terms of monthly payments. However, annual,
semiannual or quarterly payments may be requested
instead. The amount of these payments will be
determined in a way which is consistent with monthly
payments and will be quoted on request.
Variable Income A Variable Income payment option is one which provides
Payment Options that payments are not guaranteed as to dollar amount.
Instead, they are based on the investment performance
of the Separate Account. Payment options B, C, E and F
are available on a Variable Income basis. Payment can
only be made monthly. The manner in which the dollar
amounts of Variable Income payments are computed is
set forth in "Part 7. Notes On Our Computations".
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<PAGE>
-13-
Availability Of Payment All or part of the death benefit, the maturity value
Options or the cash redemption value may be applied under any
payment option. If the contract is assigned, any
amount due to the assignee will be paid in one sum.
The balance, if any, may be applied under any payment
option.
If the Schedule Page shows that this contract was
issued on a unisex rate basis, the female rates shown
in the Option C, E and F Tables apply in all cases.
The male rates in those Tables do not apply to unisex
rate contracts.
Minimum Amounts If the amount to be applied under any option is less
than $2,000, we may pay that amount in one sum
instead. If payments under a Fixed Income option
amount to less than $20 each, we have the right to
make payments at less frequent intervals. If the first
payment under a Variable Income option amounts to less
than $20, we have the right to make a one sum payment.
Option A Fixed Income Payment Option (Not available as a
Variable Income option). Each monthly payment will be
for an agreed fixed amount. The amount of each payment
may not be less than $10 for each $1,000 applied.
Interest will be credited each month on the unpaid
balance and added to it. This interest will be at a
rate determined by us, but not less than the
equivalent of 3% per year. Payments continue until the
amount we hold runs out. The last payment will be for
the balance only.
Option B Fixed Time Payment Option (Available as a Fixed Income
option and as a Variable Income option). For either
option, monthly payments will be made for any period
selected, up to 30 years. For Fixed Income Option B,
the monthly payments are equal. They depend on the
total amount applied, the period selected and the
monthly payment rates we are using when the first
payment is due. The rate for any payment will not be
less than shown in the Fixed Income Option B Table.
For Variable Income Option B, the payments are not
guaranteed as to amount and may vary during the period
selected. The Variable Income Option B Table shows the
first monthly payment for each $1,000 applied.
<PAGE>
Fixed Income Option B Table
Minimum Monthly Payment Rates For Each $1,000 Applied
Monthly Monthly
Years Payment Years Payment
1 $84.47 16 $6.53
2 42.86 17 6.23
3 28.99 18 5.96
4 22.06 19 5.73
5 17.91 20 5.51
6 15.14 21 5.32
7 13.16 22 5.15
8 11.68 23 4.99
9 10.53 24 4.84
10 9.61 25 4.71
11 8.86 26 4.59
12 8.24 27 4.47
13 7.71 28 4.37
14 7.26 29 4.27
15 6.87 30 4.18
For quarterly payment, multiply by
2.993. For semiannual payment, multiply
by 5.963. For annual payment, multiply
by 11.839.
Variable Income Option B Table
Monthly Payment Rates For First Payment For Each
$1,000 Applied, Based On 4% Assumed Investment Rate
Monthly Monthly
Years Payment Years Payment
1 $84.84 16 $7.00
2 43.25 17 6.71
3 29.40 18 6.44
4 22.47 19 6.21
5 18.32 20 6.00
6 15.56 21 5.81
7 13.59 22 5.64
8 12.12 23 5.49
9 10.97 24 5.35
10 10.06 25 5.22
11 9.31 26 5.10
12 8.69 27 5.00
13 8.17 28 4.90
14 7.72 29 4.80
15 7.34 30 4.72
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<PAGE>
-15-
Option C Lifetime Payment Option (Available as a Fixed Income
option and as a Variable Income option). For Fixed
Income Option C, the monthly payments are equal. For
Variable Income Option C, the payments are not
guaranteed as to amount and may vary. For either
option, the payments are based on the life of a named
person. Payments will continue for the life of that
person. The three variations are:
(1) Payments for life only. No specific number of
payments is guaranteed. Payments stop when the named
person dies.
(2) Payments guaranteed for amount applied. Payments
stop when they equal the amount applied or when the
named person dies, whichever is later. For Fixed
Income Option C, "amount applied" means the dollar
amount used to provide the income. For Variable Income
Option C, "amount applied" means a number of monthly
payments. This number is equal to the dollar amount
used to provide the income divided by the dollar
amount of the first monthly payment.
(3) Payments guaranteed for 5 or 10 years. Payments
stop at the end of the selected guaranteed period or
when the named person dies, whichever is later.
The Fixed Income Option C Table shows the minimum
monthly payment for each $1,000 applied. The Variable
Income Option C Table shows the minimum amount of the
first monthly payment for each $1,000 applied. The
actual payments will be based on the monthly payment
rates we are using when the first payment is due. They
will not be less than shown in the Table.
Fixed Income Option C Table
Minimum Monthly Payment Rates For Each $1,000 Applied
Payments Payments Guaranteed For
Age* For Life Amount 5 10 20
Male Female Only Applied Years Years Years
35 40 $3.30 $3.25 $3.29 $3.28 $3.27
40 45 3.47 3.41 3.46 3.45 3.43
45 50 3.69 3.60 3.68 3.67 3.62
50 55 3.96 3.83 3.95 3.93 3.85
55 60 4.31 4.13 4.30 4.27 4.14
60 65 4.77 4.49 4.75 4.70 4.44
65 70 5.41 4.96 5.38 5.26 4.77
70 75 6.30 5.56 6.21 5.96 5.07
75 80 7.50 6.31 7.30 6.77 5.30
80 85 9.16 7.29 8.72 7.64 5.43
85 11.48 8.54 10.46 8.44 5.49
*Age on birthday nearest the due date of the first payment. Monthly payment
rates for ages not shown will be furnished on request. Monthly payment rates for
ages over 85 are the same as those for 85.
<PAGE>
Variable Income Option C Table
Minimum Monthly Payment Rates For First Payment For Each
$1,000 Applied, Based On 4% Assumed Investment Rate
Payments Payments Guaranteed For
Adjusted For Life Amount 5 10
Age* Only Applied Years Years
M F M F M F M F
40 $4.11 $3.92 $4.04 $3.87 $4.10 $3.91 $4.09 $3.90
45 4.31 4.07 4.20 4.01 4.30 4.06 4.28 4.05
50 4.55 4.26 4.40 4.18 4.54 4.25 4.51 4.23
55 4.85 4.50 4.64 4.39 4.83 4.49 4.78 4.47
60 5.22 4.82 4.94 4.66 5.19 4.80 5.11 4.77
65 5.70 5.23 5.31 5.00 5.66 5.21 5.53 5.15
70 6.35 5.80 5.79 5.44 6.28 5.76 6.06 5.65
75 7.23 6.59 6.40 6.00 7.08 6.52 6.70 6.28
80 8.42 7.68 7.19 6.68 8.14 7.50 7.45 7.01
85 10.07 9.10 8.21 7.47 9.51 8.70 8.25 7.72
*Age on birthday nearest the due date of the first
payment, adjusted according to the table in the
Basis Of Computation provision in Part 7. Monthly
payment rates for adjusted ages not shown will be
furnished on request. Monthly payment rates for
adjusted ages over 85 are the same as those for
85.
Option D Interest Payment Option (Not available as a Variable
Income option). We will hold any amount applied under
this option. Interest on the unpaid balance will be
paid each month at a rate determined by us. This rate
will not be less than the equivalent of 3% per year.
Option E Joint Lifetime Payment Option (Available as a Fixed
Income option and as a Variable Income option). For
Fixed Income Option E, the monthly payments are equal.
For Variable Income Option E, the payments are not
guaranteed as to amount and may vary. For either
option, the payments are based on the lives of two
named persons. While both are living, one payment will
be made each month. When one dies, payments continue
for the lifetime of the other. The two variations are:
(1) Payments for two lives only. No specific number of
payments is guaranteed. Payments stop when both
persons have died.
(2) Payments guaranteed for 10 years. Payments stop at
the end of 10 years, or when both named persons have
died, whichever is later.
The Fixed Income Option E Table shows the minimum
monthly payment for each $1,000 applied. The Variable
Income Option E Table shows the minimum amount of the
first monthly payment for each $1,000 applied. The
actual payments will be based on the monthly rates we
are using when the first payment is due. They will not
be less than shown in the Table.
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<PAGE>
-17-
Fixed Income Option E Table
Minimum Monthly Payment Rates For Each $1,000 Applied
Payments For Two Lives Only
M50 M55 M60 M65 M70 M75
Age* F55 F60 F65 F70 F75 F80
M F
50 55 $3.53 $3.64 $3.72 $3.80 $3.85 $3.89
55 60 3.64 3.78 3.91 4.03 4.12 4.18
60 65 3.72 3.91 4.10 4.27 4.42 4.54
65 70 3.80 4.03 4.27 4.52 4.76 4.97
70 75 3.85 4.12 4.42 4.76 5.11 5.44
75 80 3.89 4.18 4.54 4.97 5.44 5.92
80 85 3.91 4.23 4.63 5.12 5.71 6.36
Payments Guaranteed For 10 Years
M50 M55 M60 M65 M70 M75
Age* F55 F60 F65 F70 F75 F80
M F
50 55 $3.52 $3.63 $3.71 $3.79 $3.84 $3.88
55 60 3.63 3.77 3.90 4.02 4.11 4.17
60 65 3.71 3.90 4.09 4.26 4.41 4.53
65 70 3.79 4.02 4.26 4.51 4.75 4.94
70 75 3.84 4.11 4.41 4.75 5.08 5.38
75 80 3.88 4.17 4.53 4.94 5.38 5.82
80 85 3.90 4.22 4.61 5.08 5.62 6.19
* Age on the birthday nearest the due date of the first payment. Monthly
payment rates for ages not shown will be furnished on request. Monthly payment
rates for ages over 85 are the same as those for 85.
Variable Income Option E Table
Minimum Monthly Payment Rates For First Payment For Each
$1,000 Applied, Based On 4% Assumed Investment Rate
Payments For Two Lives Only - Both Males
Adjusted
Age* M 50 M 55 M 60 M 65 M 70 M 75 M 80 M 85
M 50 $4.05 $4.14 $4.22 $4.29 $4.35 $4.40 $4.45 $4.48
M 55 4.14 4.25 4.35 4.45 4.54 4.62 4.69 4.74
M 60 4.22 4.35 4.49 4.63 4.76 4.88 4.98 5.05
M 65 4.29 4.45 4.63 4.81 5.00 5.17 5.32 5.44
M 70 4.35 4.54 4.76 5.00 5.25 5.49 5.72 5.91
M 75 4.40 4.62 4.88 5.17 5.49 5.83 6.16 6.46
M 80 4.45 4.69 4.98 5.32 5.72 6.16 6.63 7.08
M 85 4.48 4.74 5.05 5.44 5.91 6.46 7.08 7.74
(Continued)
<PAGE>
Payments For Two Lives Only - Both Females
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
F 50 $3.90 $3.97 $4.04 $4.09 $4.14 $4.17 $4.20 $4.22
F 55 3.97 4.07 4.15 4.23 4.30 4.36 4.40 4.43
F 60 4.04 4.15 4.27 4.39 4.49 4.58 4.65 4.70
F 65 4.09 4.23 4.39 4.55 4.70 4.84 4.95 5.04
F 70 4.14 4.30 4.49 4.70 4.91 5.12 5.30 5.45
F 75 4.17 4.36 4.58 4.84 5.12 5.42 5.70 5.93
F 80 4.20 4.40 4.65 4.95 5.30 5.70 6.10 6.46
F 85 4.22 4.43 4.70 5.04 5.45 5.93 6.46 6.98
Payments For Two Lives Only - One Male, One Female
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
M 50 $3.97 $4.06 $4.15 $4.23 $4.30 $4.37 $4.42 $4.46
M 55 4.03 4.14 4.26 4.37 4.48 4.57 4.64 4.71
M 60 4.08 4.22 4.37 4.52 4.66 4.80 4.91 5.00
M 65 4.13 4.29 4.47 4.66 4.86 5.05 5.22 5.36
M 70 4.16 4.35 4.56 4.80 5.06 5.33 5.57 5.78
M 75 4.19 4.39 4.63 4.92 5.25 5.60 5.95 6.26
M 80 4.21 4.43 4.69 5.01 5.41 5.86 6.34 6.79
M 85 4.23 4.45 4.73 5.09 5.54 6.09 6.70 7.32
Payments Guaranteed For 10 Years - Two Males
Adjusted
Age* M 50 M 55 M 60 M 65 M 70 M 75 M 80 M 85
M 50 $4.04 $4.13 $4.21 $4.28 $4.34 $4.39 $4.44 $4.47
M 55 4.13 4.24 4.34 4.44 4.53 4.61 4.67 4.72
M 60 4.21 4.34 4.48 4.62 4.75 4.86 4.95 5.02
M 65 4.28 4.44 4.62 4.80 4.98 5.15 5.28 5.39
M 70 4.34 4.53 4.75 4.98 5.22 5.46 5.66 5.83
M 75 4.39 4.61 4.86 5.15 5.46 5.77 6.07 6.32
M 80 4.44 4.67 4.95 5.28 5.66 6.07 6.48 6.85
M 85 4.47 4.72 5.02 5.39 5.83 6.32 6.85 7.35
Payments Guaranteed For 10 Years - Two Females
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
F 50 $3.89 $3.96 $4.03 $4.08 $4.13 $4.16 $4.19 $4.21
F 55 3.96 4.06 4.14 4.22 4.29 4.35 4.39 4.42
F 60 4.03 4.14 4.26 4.38 4.48 4.57 4.64 4.69
F 65 4.08 4.22 4.38 4.54 4.69 4.83 4.94 5.02
F 70 4.13 4.29 4.48 4.69 4.90 5.11 5.28 5.41
F 75 4.16 4.35 4.57 4.83 5.11 5.39 5.65 5.86
F 80 4.19 4.39 4.64 4.94 5.28 5.65 6.01 6.31
F 85 4.21 4.42 4.69 5.02 5.41 5.86 6.31 6.72
(Continued)
-18-
<PAGE>
-19-
Payments Guaranteed For 10 Years - One Male, One Female
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
M 50 $3.96 $4.05 $4.14 $4.22 $4.29 $4.36 $4.41 $4.45
M 55 4.02 4.13 4.25 4.36 4.47 4.56 4.63 4.69
M 60 4.07 4.21 4.36 4.51 4.65 4.79 4.89 4.97
M 65 4.12 4.28 4.46 4.65 4.85 5.04 5.19 5.31
M 70 4.15 4.34 4.55 4.79 5.05 5.30 5.53 5.71
M 75 4.18 4.38 4.62 4.91 5.23 5.56 5.88 6.14
M 80 4.20 4.42 4.68 5.00 5.38 5.80 6.23 6.59
M 85 4.22 4.44 4.72 5.06 5.50 6.00 6.53 7.00
* Age on birthday nearest the due date of the first payment,
adjusted according to the table in the Basis Of Computation
provision in Part 7. Monthly payment rates for adjusted ages not
shown will be furnished on request. Monthly payment rates for
adjusted ages over 85 are the same as those for 85.
-----------------------------------------------------------------------
Option F Joint Lifetime Payment Option With Reduced Payments (Available
as a Fixed Income option and as a Variable Income option).
Monthly payments are based on the lives of two named persons.
Payments will continue while both are living. When one dies,
reduced payments will continue for the lifetime of the other.
These reduced payments will be two-thirds of what they would
have been if both persons had continued to live. Payments stop
when both persons have died.
The Fixed Income Option F Table shows the minimum monthly
payment for each $1,000 applied. The Variable Income Option F
Table shows the minimum amount of the first monthly payment for
each $1,000 applied. The actual payments will be based on the
rates we are using when the first payment is due. They will not
be less than shown in the Table.
--------------------------------------------------------------------------
Fixed Income Option F Table
Minimum Monthly Payment Rates For Each $1,000 Applied
Payments For Two Lives Only
M50 M55 M60 M65 M70 M75
Age* F55 F60 F65 F70 F75 F80
M F
50 55 $3.80 $3.94 $4.10 $4.28 $4.47 $4.66
55 60 3.94 4.11 4.30 4.51 4.73 4.96
60 65 4.10 4.30 4.52 4.77 5.05 5.33
65 70 4.28 4.51 4.77 5.08 5.42 5.77
70 75 4.47 4.73 5.05 5.42 5.85 6.30
75 80 4.66 4.96 5.33 5.77 6.30 6.88
80 85 4.86 5.19 5.61 6.13 6.77 7.51
* Age on the birthday nearest the due date of the first payment. Monthly
payment rates for ages not shown will be furnished on request. Monthly
payment rates for ages over 85 are the same as those for 85.
--------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Variable Income Option F Table
Minimum Monthly Payment Rates For First Payment For Each
$1,000 Applied, Based On 4% Assumed Investment Rate
Payments For Two Lives Only - Both Males
Adjusted
Age* M 50 M 55 M 60 M 65 M 70 M 75 M 80 M 85
M 50 $4.37 $4.49 $4.62 $4.77 $4.94 $5.13 $5.33 $5.53
M 55 4.49 4.63 4.78 4.95 5.14 5.35 5.57 5.81
M 60 4.62 4.78 4.95 5.15 5.37 5.61 5.87 6.14
M 65 4.77 4.95 5.15 5.37 5.63 5.92 6.22 6.54
M 70 4.94 5.14 5.37 5.63 5.94 6.28 6.65 7.04
M 75 5.13 5.35 5.61 5.92 6.28 6.69 7.15 7.65
M 80 5.33 5.57 5.87 6.22 6.65 7.15 7.72 8.35
M 85 5.53 5.81 6.14 6.54 7.04 7.65 8.35 9.15
Payments For Two Lives Only - Both Females
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
F 50 $4.12 $4.23 $4.34 $4.47 $4.61 $4.78 $4.97 $5.15
F 55 4.23 4.34 4.47 4.61 4.78 4.97 5.18 5.38
F 60 4.34 4.47 4.62 4.78 4.98 5.19 5.43 5.66
F 65 4.47 4.61 4.78 4.98 5.20 5.46 5.73 6.00
F 70 4.61 4.78 4.98 5.20 5.47 5.78 6.11 6.44
F 75 4.78 4.97 5.19 5.46 5.78 6.15 6.56 6.98
F 80 4.97 5.18 5.43 5.73 6.11 6.56 7.07 7.60
F 85 5.15 5.38 5.66 6.00 6.44 6.98 7.60 8.27
Payments For Two Lives Only - One Male, One Female
Adjusted
Age* F 50 F 55 F 60 F 65 F 70 F 75 F 80 F 85
M 50 $4.24 $4.35 $4.48 $4.63 $4.80 $5.00 $5.21 $5.42
M 55 4.35 4.48 4.62 4.79 4.98 5.20 5.44 5.68
M 60 4.46 4.61 4.77 4.96 5.18 5.44 5.71 5.98
M 65 4.59 4.75 4.94 5.16 5.42 5.71 6.03 6.36
M 70 4.74 4.92 5.13 5.38 5.69 6.04 6.42 6.81
M 75 4.90 5.10 5.34 5.63 5.98 6.40 6.87 7.36
M 80 5.07 5.29 5.56 5.89 6.30 6.80 7.37 7.98
M 85 5.25 5.49 5.79 6.16 6.63 7.23 7.92 8.68
* Age on birthday nearest the due date of the first payment, adjusted
according to the table in the Basis Of Computation provision in Part 7.
Monthly payment rates for adjusted ages not shown will be furnished on
request. Monthly payment rates for adjusted ages over 85 are the same as
those for 85.
- --------------------------------------------------------------------------------
-20-
<PAGE>
-21-
Electing A Payment To elect any option, we require that a written request,
Option satisfactory to us, be received at our Home Office. The
Owner may elect an option during the Annuitant's
lifetime. If the death benefit is payable in one sum
when the Annuitant dies, the Beneficiary may elect an
option with our consent.
Options for any amount payable to an association,
corporation, partnership or fiduciary are available
with our consent. However, a corporation or partnership
may apply any amount payable to it under Option C, E or
F if the option payments are based on the life or lives
of the Annuitant, the Annuitant's spouse, any child of
the Annuitant, or any other person agreed to by us.
Effective Date And The effective date of an option is the date the amount
Payment Date is applied under that option. For a death benefit, this
is the date that due proof of the Annuitant's death is
received at our Home Office. For a maturity value, it
is the date the contract matures. For the cash
redemption value, it is the effective date of
redemption.
The first payment is due on the effective date, except
that the first payment under Option D is due one month
later. A later date for the first payment may be
requested in the payment option election. All payment
dates will fall on the same day of the month as the
first one. No payment will become due until a payment
date. No part payment will be made for any period
shorter than the time between payment dates.
Example: Monthly payments are being made to your son on
the 1st of each month. He dies on the 10th. No part
payment is due your son or his estate for the period
between the 1st and the 10th.
Withdrawals And If provided in the payment option election, all or part
Changes of the unpaid balance under Options A or D may be
withdrawn or applied under any other option.
If provided in the payment option election, the
commuted value of the future payments under Variable
Income Option B may be withdrawn. In this case, the
number of annuity units that Variable Income Option B
has in each division of the Separate Account will be
commuted at the Assumed Investment Rate. The commuted
units in each division will be multiplied by the
annuity unit value for that division on the date the
commuted value is determined. The commuted value will
be the sum of the values determined for each division
less any deduction for sales charges that applies.
A deduction for sales charges will apply only if:
. No sales charges were deducted when the
redemption or maturity value was applied under
Variable Income Option B; and
. A deduction for sales charges would be made if
this contract was redeemed or matured in one
sum on the date commutation is made; and
. Commutation is made during the lifetime of the
person receiving the Option B payments.
The amount of the sales charge deduction will be the
same as if this contract was redeemed for an amount
equal to the commuted value (before deduction the sales
charge) on the date commutation is made.
Income Protection To the extent permitted by law, each option payment and
any withdrawal shall be free from legal process and the
claim of any creditor of the person entitled to them.
No option payment and no amount held under an option
can be taken or assigned in advance of its payment
date, unless the Owner's written consent is given
before the Annuitant dies. This consent must be
received at our Home Office.
<PAGE>
Part 7. Notes On Our Computations
This Part covers some technical points about this
contract.
Net Investment Factor For each division of the Separate Account, the Net
Investment Factor for any valuation period is the gross
investment rate for that period plus 1.00000000 and
minus an asset charge. This asset charge will be not
more than .00003836 for each day of a valuation period.
The Net Investment Factor may be greater or less than
1.00000000.
For each division of the Separate Account, the gross
investment rate for any valuation period is equal to:
. The net earnings of that division during the
valuation period, divided by
. The value of the total 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 reduced by
any amount charged against that division for taxes paid
or reserved for by us. The gross investment rate will
be determined by us in accordance with generally
accepted accounting principals and applicable laws,
rules and regulations. This determination shall be
conclusive upon the Owner, the Annuitant, any
Beneficiary and any assignee and any other person under
this contract.
Accumulation Unit The value of an accumulation unit in each division was
Value set at $1.00000000 on the first valuation date selected
by us. The value on any date thereafter is equal to the
product of the Net Investment Factor for that division
for the valuation period which includes that date and
the value of the corresponding accumulation unit value
on the preceding valuation date.
Annuity Unit Value All annuity unit values in each division were set at
$1.00000000 on the first valuation date selected by us.
The value on any date thereafter is equal to (a) the
Net Investment Factor for that division for the
valuation period which includes that date divided by
(b) the sum of 1.00000000 and the rate of interest for
the number of days in the valuation period, computed at
an effective annual rate equal to the Assumed
Investment Rate, and multiplied by (c) the
corresponding annuity unit value on the preceding
valuation date.
Assumed Investment The Assumed Investment Rate is the annual interest rate
Rate assumed in determining the first payment of variable
payment options. The amount of each subsequent payment
from each division of the Separate Account will depend
on the relationship between the Assumed Investment Rate
and the actual investment performance of that division.
The Assumed Investment Rate will be 4% per annum. If a
4% rate would result in a first variable payment larger
than that permitted under applicable state law, we will
select a lower rate which will comply with that law.
Adjustment Of Units We have the right to split or consolidate the number of
And Values accumulation units or annuity units credited to the
contract, with a corresponding increase or decrease in
the unit values. We may exercise this right whenever we
consider an adjustment of units to be desirable.
However, strict equity will be preserved in making any
adjustment. No adjustment will have any material effect
on the benefits, provisions or investment return of
this contract, or on the Owner, Annuitant, any
Beneficiary, any assignee or other person, or on us.
Payment Calculation Payments under a Variable Income option are calculated
Date on a payment calculation date. That date is the
earliest valuation date which is not more than 10 days
before the due date of the payment.
-22-
<PAGE>
-23-
Computing Variable The amount payable from each division of the Separate
Income Payments Account (and which is to be applied to provide variable
income payments) will include a pro-rata share of any
amount payable from the Guaranteed Principal Account
which is to be applied to provide variable income
payments. This amount is multiplied by the rates we are
using for the option as of the date the first payment
is due. For each division, the figure which results is
multiplied by the ratio of the value of an accumulation
unit on the first payment calculation date to the value
of an accumulation unit on the date the first payment
is due. The total of the amount of income determined
for each division is the first payment. It is due on
the first payment date.
Future payments under a Variable Income option are
measured by annuity units. The number of annuity units
in each division is the portion of the first payment
provided by that division divided by the annuity unit
value for that division on the first payment
calculation date.
For payments after the first one, the annuity units in
each division are multiplied by the annuity unit value
on the payment calculation date that applies. The
payment to be made on the payment due date is the sum
of the amounts provided by each division.
Basis Of Computation In computing the minimum payments under Fixed Income
Payment Options C, E and F, we use mortality rates from
the 1983 Table "a" with Projection G for 30 years and
with female rates set back five years.
For Variable Income options C, E and F, we use
mortality rates based on the 1971 Individual Annuity
Mortality Table (1971 IAM) projected to decrease 1 1/2%
annually from 1971. The Variable Income Option C, E and
F Tables are computed for annuitants born in 1942. For
all other years of birth, the mortality improvement is
determined by adjusting the annuitant's age according
to the following table:
Date of Birth Adjustment to Actual Age
1900-1904 +8 Years
1905-1909 +7 Years
1910-1914 +6 Years
1915-1919 +5 Years
1920-1924 +4 Years
1925-1929 +3 Years
1930-1934 +2 Years
1935-1939 +1 Year
1940-1944 +0 Years
1945-1949 -1 Year
1950-1954 -2 Years
1955-1959 -3 Years
1960-1964 -4 Years
1965-1969 -5 Years
1970-1974 -6 Years
1975-1979 -7 Years
1980-1984 -8 Years
1985-1989 -9 Years
1990-1994 -10 Years
1995-1999 -11 Years
The annual interest rate used is the Assumed Investment
Rate discussed in this Part.
<PAGE>
Guarantees All benefits, payments and values under this contract
which depend on the investment performance of the
Separate Account may increase or decrease, as discussed
in this Part. However, we guarantee that the dollar
amounts of variable benefits will not be adversely
affected by variations of actual expenses from expense
charges stated in this contract. Also, those benefits
will not be adversely affected by variations in actual
mortality from the mortality assumptions stated in this
contract.
A part of the assets of the Separate Account is the
reserve for variable benefits and liabilities which
depend on the investment performance of that Account.
That part of the assets shall not be charged with any
liabilities we have which arise from any business we
conduct which does not depend on the performance of
that Account.
The values and benefits of the Guaranteed Principal
Account under this contract are not less than those
required by the laws of the state in which this
contract is delivered.
-24-
<PAGE>
WHERE TO FIND IT
Page No.
The Schedule Page.................................................... 1
Part 1. - The Basics Of This Contract.................................. 2
The Parties Involved - Owner, Annuitant,
Beneficiary, Irrevocable Beneficiary,
Payee............................................................. 2
Dates - Contract Date, Contract
Anniversary Date, Contract Year, Issue
Date, Maturity Date............................................... 2
This Is A Legal Contract............................................ 2
Trusts And Other Agreements......................................... 2
Representations And Contestability.................................. 3
Misstatement Of Age................................................. 3
Meaning Of In Force................................................. 3
Home Office......................................................... 3
Contract State...................................................... 3
Part 2. - Purchase Payments............................................ 3
The First Purchase Payment.......................................... 3
Normal Purchase Payments............................................ 3
Net Purchase Payments............................................... 3
Purchase Payment Flexibility And Notices............................ 3
Where To Pay........................................................ 4
Part 3. - Accounts, Values And Charges................................. 4
Allocation Of Purchase Payments..................................... 4
The Separate Account................................................ 4
Valuation Date And Valuation Period................................. 4
Accumulation Units And Annuity Units................................ 4
Purchase Of Accumulation Units...................................... 5
Date Of Purchase.................................................... 5
Variable Value Of Contract.......................................... 5
The Guaranteed Principal Account.................................... 5
Fixed Value Of Contract............................................. 5
Interest On Fixed Value............................................. 5
Accumulated Value Of Contract....................................... 5
Administrative Charge............................................... 5
Deductions For Sales Charges........................................ 6
Amount Of Sales Charge.............................................. 6
Part 4. - Life Benefits................................................ 7
Contract Ownership................................................... 7
Rights Of Owner..................................................... 7
Assigning This Contract............................................. 7
Changing The Owner, Payee Or
Beneficiary....................................................... 7
Transfers Of Values................................................. 7
Limitations On Transfers............................................ 7
Redeeming This Contract.............................................. 8
Right To Redeem..................................................... 8
Cash Redemption Value............................................... 8
Partial Redemptions................................................. 8
Redemption Or Maturity Without Charge............................... 9
When And How We Pay................................................. 9
Right To Change The Maturity Date.................................... 10
Electing An Early Maturity Date..................................... 10
Electing A Later Maturity Date...................................... 10
Other Provisions Regarding Life Benefits............................. 10
Periodic Statements................................................. 10
Receipt Of Papers................................................... 10
Contract Is Not Participating....................................... 10
Part 5. - Maturity Benefit And Death Benefit........................... 10
Maturity Benefit..................................................... 10
Maturity Value...................................................... 10
Monthly Life Income................................................. 10
Alternate Settlements At Maturity................................... 11
Restriction On Rights............................................... 11
Death Benefit........................................................ 11
Amount Of Death Benefit............................................. 11
Interest On Maturity Or Death Benefit................................ 11
Interest Payable.................................................... 11
Part 6. - Payment Options.............................................. 12
Fixed Income Payment Options........................................ 12
Variable Income Payment Options..................................... 12
Availability Of Payment Options..................................... 13
Minimum Amounts..................................................... 13
Electing A Payment Option........................................... 21
Effective Date And Payment Date..................................... 21
Withdrawals And Changes............................................. 21
Income Protection................................................... 21
Part 7. - Notes On Our Computations.................................... 22
Net Investment Factor............................................... 22
Accumulation Unit Value............................................. 22
Annuity Unit Value.................................................. 22
Assumed Investment Rate............................................. 22
Adjustment Of Units And Values...................................... 22
Payment Calculation Date............................................ 22
Computing Variable Income Payments.................................. 23
Basis Of Computation................................................ 23
Guarantees.......................................................... 24
Any Riders and Endorsements, and a Copy of The Application For The Contract,
Follow Page 24.
<PAGE>
Flexible Purchase Payment Multi-Fund
Variable Annuity Contract
This Contract provides that:
A monthly life income is payable beginning on the date this contract matures if
the Annuitant is living at that time
A death benefit is payable if the Annuitant dies before this contract matures
Flexible purchase payments may be made to the date this contract matures or to
the Annuitant's death, if earlier
This Contract is not participating. It does not provide for the payment of
dividends.
Notice Of Annual Meeting
The Owner is hereby notified that by virtue of this contract he or she is a
member of Massachusetts Mutual Life Insurance Company and is entitled to vote
either in person or by proxy at any and all meetings of said Company. The annual
meetings are held at its Home Office, in Springfield, Massachusetts, on the
second Wednesday of April in each year at 2 o'clock p.m.
<PAGE>
Exhibit 5
INDIVIDUAL DEFERRED VARIABLE ANNUITY APPLICATION
To Massachusetts Mutual Life Insurance Company
Springfield, Massachusetts 01111-0001
Please print or type
- --------------------------------------------------------------------------------
1. Annuitant Name
.........................................................
(First Name - Middle I - Last Name)
Mailing Address
.........................................................
.........................................................
Citizenship, if not USA
.........................................................
Date of Birth Sex [_]M [_]F
----------
mo day yr
Tele. No. ( ) ( )
----------------- --------------------
day eve
SS# or Tax ID#
----------------------------------
Visa [_] Permanent [_] Temporary
- --------------------------------------------------------------------------------
2. Owner if other than Annuitant (Joint Ownership not allowed)
Name
.........................................................
Mailing Address
.........................................................
Date of Birth
----------
mo day yr
Tele. No. ( ) ( )
----------------- --------------------
day eve
SS# or Tax ID#
----------------------------------
- --------------------------------------------------------------------------------
3. Beneficiary (Give name and relationship to Annuitant)
Primary .................................................................
Secondary .................................................................
Select [_] and any lawful children of the Annuitant
only [_] and any children born of the marriage of the Annuitant and
one said spouse
[_] and any children born of the marriage of or legally
adopted by the Annuitant and said spouse
[_] issue per stirpes of Secondary Beneficiary
Payment to the primary and secondary beneficiaries shall be made monthly
under Option D, Interest Payments, with unlimited right of withdrawal and
right to elect any payment option unless otherwise requested or unless not
available. In the event Option D is not available, payment will be made in
one sum. One sum will apply to Individual Retirement Annuities, Tax-
Sheltered Annuities, and Qualified plans.
Special requests:
(i) [_] One sum for [_] All beneficiaries [_] Primary
[_] Secondary
(ii) [_] Deferral Clause of [_] 30 days [_] ___ days for /
[_] All beneficiaries
[_] Primary Beneficiary Only
If two or more persons are the beneficiaries in any class, payment shall be
made to them equally or to the survivor(s) unless otherwise requested. If
there is no beneficiary entitled to payment when the Annuitant dies and the
Annuitant is the Owner at that time, payment shall be made to the estate of
the Annuitant. But if the Annuitant is not the Owner, payment shall be made
to the Owner. In both cases, payment will be made in one sum.
- --------------------------------------------------------------------------------
4. Purchaser if other than Annuitant [_] Owner [_] Employer [_] Other
If "Employer" or "Other," give name and address below
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
(street) (city) (state) (zip)
- --------------------------------------------------------------------------------
5. Market [_] (Primary) Individual Retirement Annuity (IRA)
[_] (Spousal) Individual Retirement Annuity (IRA)
[_] Non-Qualified
[_] Simplified Employee Pension Plan (SEP)
[_] Tax-Sheltered Annuity (TSA)
If TSA, check one selection from each of (a), (b), and (c):
(a) [_] 501(c)(3) organization
[_] Public Educational Institution
(b) [_] ERISA
[_] Non-ERISA
(c) purchase payments will be:
[_] Salary Reduction (Employee)
[_] Other Contributions (Employer)
[_] Both
- --------------------------------------------------------------------------------
6. Contract Type [_] Flexible Purchase Payment (FPVA)
[_] Single Purchase Payment (SPVA)
($25,000 minimum)
- --------------------------------------------------------------------------------
7. a) Maturity Date: Contract Anniversary nearest age
--------
or date
------------------------------------------
b) Contract Date
------------------------------------------
- --------------------------------------------------------------------------------
8. Purchase Payment Allocation (Whole %; Must total 100%)
___% MML Managed Bond ___% Oppenheimer Capital Appreciation
___% MML Blend ___% Oppenheimer Global Securities
___% MML Equity ___% Oppenheimer Strategic Bond
___% MML Money Market ___% .................................
___% Guar. Principal Acct. ___% .................................
<PAGE>
<TABLE>
<S> <C>
9. Estimated First Purchase Payment $___________________________________ 11. Frequency
[_] Annual [_] Semi-annual [_] Quarterly
If regular IRA or SEP apply to [_] current year [_] prior year [_] Monthly (TM or Invoice only)
[_] Single Premium
10. Billing Type [_] Regular [_] Triple M
[_] Invoice (No. ________________________) 12. Amount to be billed $ _________________________________
TSA Installments (omit the months of ____________________________) 13. Suppress billing [_] Yes [_] N0
- ------------------------------------------------------------------------------------------------------------------------------------
14. [_] Mailings to Owner unless otherwise requested here [_] Other notices (e.g. confirmation notices,
[_] Premium Notices quarterly statement, etc.)
Name Name
--------------------------------------------------------------- -------------------------------------------------------
Address Address
------------------------------------------------------------ ----------------------------------------------------
(street) (city) (state) (zip) (street) (city) (state) (zip)
- ------------------------------------------------------------------------------------------------------------------------------------
15. Telephone Authorization elected [_] Yes [_] No
16. Will this annuity contract replace any other annuity or life insurance? [_] Yes [_] No
(If "yes," give company name, amount of life insurance, policy number, and plan in 19)
17. Is the contract applied for intended to qualify for a 1035 exchange? [_] Yes [_] No
(If "yes," please attach assignment form, contract being exchanged, and blank surrender form.)
18. Rider(s) [_] Disability Benefit (Complete appropriate Waiver Supplement)
19. Remarks
</TABLE>
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Agreement and Signature
The person(s) signing below agree that:
The Application - This is an application for an annuity. The application also
includes any amendments or supplements to it. To the best of the knowledge and
belief of the person(s) signing below, all statements in this application are
complete and true and were correctly recorded.
Agent Authority - No agent can change the terms of this application or any
contract issued by the Company. No agent can waive any of the Company's rights
or requirements, or extend the time for any payment to the Company.
Telephone Authorization - If this option is elected, telephone transactions may
be made to the extent available and as permitted by the Company. The Company
will follow reasonable procedures to confirm that instructions received by
telephone are genuine. These measures include, among others, requiring forms of
personal identification prior to acting on telephone instructions, providing
written confirmation of such transactions, and/or recording telephone requests.
If the Company fails to take such precautions, it may be liable for losses
resulting from fraudulent requests.
Changes and Corrections - Any change or correction of the application will be
shown on an Amendment of Application attached to the contract. Acceptance of any
contract issued will be acceptance of any change or correction of the
Application made by the Company. However, any correction or change of amounts,
classification, age at issue, riders, or plan of annuity must be agreed to in
writing.
Tax-Sheltered Annuity Distribution Notice - I understand that Purchase Payments
made after 1988 though a Salary Reduction Agreement (Agreement) and post-1988
earnings on all purchase payments made through an Agreement may not be
distributed until age 59 1/2, death, disability, or separation from service.
Post-1988 purchase payments made through an Agreement may be distributed in case
of financial hardship. I further understand the investment alternatives
available under my employer's TSA Arrangement, to which I may elect to transfer
my annuity contract value.
Taxpayer Identification - The Owner certifies, under penalties of perjury, that:
(i) the number referred to in 1 or 2 of this application is his/her correct
Taxpayer Identification Number (or he/she is waiting for a number to be issued);
and (ii) he/she is not subject to backup withholding either because he/she has
not been notified by the Internal Revenue Service (IRS) that he/she is subject
to backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified him/her that he/she is no longer subject to
backup withholding. If the IRS has notified said Owner that he/she is subject to
backup withholding and he/she has not received notice from the IRS that backup
withholding has terminated, he/she should strike out the language above in (ii)
that he/she is not subject to backup withholding due to notified payee
underreporting.
Owner Certifies - (1) Receipt of current prospectus for contract applied for;
(2) Knowledge that variable value of the contract may increase or decrease with
experience of the Separate Account, without any minimum guarantee of value; (3)
Knowledge that withdrawal of value from the contract before age 59 1/2 may
result in tax penalty.
- --------------------------------------- ---------------------------------------
Purchaser Owner (if other than Purchaser)
Signed at on
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city state date
- --------------------------------------- ---------------------------------------
General Agent Signature of Agent
<PAGE>
Exhibit 9
Opinion of and Consent of Counsel
April, 1998
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Re: Post-Effective Amendment No. 13 to Registration Statement
No. 33-7724 filed on Form N-4
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 13 to Registration Statement No. 33-7724 on Form N-4 under the
Securities Act of 1933 for Massachusetts Mutual Life Insurance Company's
("MassMutual") flexible premium variable annuity contract (the "Contract").
Massachusetts Mutual Variable Annuity Separate Account 1 issues the Contract.
As Attorney for MassMutual, I provide legal advice to MassMutual in connection
with the operation of its variable products. In such role I am familiar with the
Post-Effective Amendment for the Contract. In so acting, I have made such
examination of the law and examined such records and documents as in my judgment
are necessary or appropriate to enable me to render the opinion expressed below.
I am of the following opinion:
1. MassMutual is a valid and subsisting corporation, organized and operated
under the laws of the Commonwealth of Massachusetts and is subject to regulation
by the Massachusetts Commissioner of Insurance.
2. Massachusetts Mutual Variable Annuity Separate Account 1 is a separate
account validly established and maintained by MassMutual in accordance with
Massachusetts law.
3. All of the prescribed corporate procedures for the issuance of the Contract
have been followed, and all applicable state laws have been complied with.
I hereby consent to the use of this opinion as an exhibit to this Post-Effective
Amendment.
Very truly yours,
/s/ James M. Rodolakis
James M. Rodolakis
Counsel
30
<PAGE>
Exhibit 10(i) CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Massachusetts Mutual Life Insurance Company
We consent to the inclusion in this Post-Effective Amendment No. 13 to the
Registration Statement of Massachusetts Mutual Variable Annuity Separate Account
1 - Flex Extra (Qualified) segment on Form N-4 (Registration No. 33-7724), of
our reports dated February 3, 1998 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), and of our report dated February 6, 1998 on our audits of the
statutory financial statements of Massachusetts Mutual Life Insurance Company,
which includes explanatory paragraphs relating to the use of statutory
accounting practices, which differ from generally accepted accounting
principles. We also consent to the reference to our Firm under the caption
"Independent Accountants" in the Statement of Additional Information.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
April 24, 1998
31
