<PAGE>
A Message To Our Contract Owners:
We are pleased to forward this combined Annual Report of the segment of
Massachusetts Mutual Variable Annuity Separate Account 1 ("Separate Account 1")
pertaining to Flex Extra (Qualified) (the "Segment"), the MML Series Investment
Fund, and the three Funds of the Oppenheimer Variable Account Funds available to
owners of Flex Extra Contracts. These reports are for the year ended December
31, 1997.
The Annual Report for the Segment begins on page 3. The Segment has net assets
of $4,021,743,691 as of December 31, 1997. Net asset values per accumulation
unit for the MML Equity, MML Money Market, MML Managed Bond, MML Blend,
Oppenheimer Capital Appreciation, Oppenheimer Global Securities and Oppenheimer
Strategic Bond Divisions as of December 31, 1997 are shown in detail in the
table on page 3.
The Annual Report for the MML Series Investment Fund begins on page 12. This
report contains a detailed description of the financial results of the MML
Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend Fund for
the year ended December 31, 1997.
The Annual Report for the Oppenheimer Variable Account Funds begins on page 40.
This report contains a detailed description of the financial results of the
Oppenheimer Capital Appreciation Fund, Oppenheimer Global Securities Fund and
Oppenheimer Strategic Bond Fund for the year ended December 31, 1997.
We appreciate the interest and confidence you have shown in Separate Account 1.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
/s/ Thomas B. Wheeler
Thomas B. Wheeler
Chairman and Chief Executive Officer
February 3, 1998
1
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Massachusetts Mutual Variable Annuity Separate Account 1
<S> <C>
Flex Extra (Qualified)
Statement of Assets and Liabilities as of December 31, 1997........................... 3
Statement of Operations For the Year Ended December 31, 1997.......................... 4
Statement of Changes in Net Assets For the Years Ended December 31, 1997 and 1996..... 5-6
Notes to Financial Statements......................................................... 7-10
Report of Independent Accountants..................................................... 11
MML Series Investment Fund
To Our Shareholders................................................................... 12-17
Statement of Assets and Liabilities as of December 31, 1997........................... 18
Statement of Operations For the Year Ended December 31, 1997.......................... 19
Statement of Changes in Net Assets For the Years Ended December 31, 1997 and 1996..... 20
Financial Highlights.................................................................. 21-23
Schedule of Investments as of December 31, 1997
MML Equity Fund...................................................................... 24-25
MML Money Market Fund................................................................ 26
MML Managed Bond Fund................................................................ 27-29
MML Blend Fund....................................................................... 30-35
Notes to Financial Statements......................................................... 36-38
Report of Independent Accountants..................................................... 39
Oppenheimer Variable Account Funds
Oppenheimer Fund Managers' Messages................................................... 40-42
Statement of Assets and Liabilities as of December 31, 1997........................... 43-45
Statement of Operations For the Year Ended December 31, 1997.......................... 46-48
Statement of Changes in Net Assets For the Years Ended December 31, 1997 and 1996..... 49-51
Financial Highlights.................................................................. 52-54
Statement of Investments as of December 31, 1997
Oppenheimer Capital Appreciation Fund................................................ 55-58
Oppenheimer Global Securities Fund................................................... 59-64
Oppenheimer Strategic Bond Fund...................................................... 65-87
Notes to Financial Statements......................................................... 88-99
Independent Auditors' Report.......................................................... 100
</TABLE>
2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<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>
ASSETS
Investments
Number of shares (Note 2) 40,091,402 69,062,080 8,976,723 67,254,696 7,492,349 9,404,081 12,940,788
============== ============== ============== ============== ============== ============== ==============
Identified cost (Note 6) $ 933,378,261 $ 69,062,080 $ 109,961,303 $1,240,049,503 $ 269,624,757 $ 160,754,628 $ 64,689,536
============== ============== ============== ============== ============== ============== ==============
Value (Note 3A) $1,420,965,411 $ 69,062,080 $ 111,391,938 $1,619,464,821 $ 306,886,595 $ 200,965,213 $ 66,256,832
Dividends receivable 114,574,493 302,121 1,791,050 121,400,824 - - -
Receivable for
accumulation units sold 700,385 222,829 32,937 651,948 145,443 110,998 14,408
Divisional transfers
pending settlement (134,559) 315,432 (4,679) (95,069) (29,882) (29,798) (21,446)
Other assets - 1,024 - - - - -
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total assets 1,536,105,730 69,903,486 113,211,246 1,741,422,524 307,002,156 201,046,413 66,249,794
LIABILITIES
Redemptions pending
settlement 226,259 30,110 8,994 88,564 8,619 58,374 (1,851)
Annuitant mortality
fluctuation reserve
(Note 3D) 20,509 396 2,888 50,711 1,066 624 793
Payable to Massachusetts
Mutual Life Insurance
Company 4,899,849 236,261 346,135 5,446,197 975,705 611,007 186,448
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 5,146,617 266,767 358,017 5,585,472 985,390 670,005 185,390
-------------- -------------- -------------- -------------- -------------- -------------- --------------
NET ASSETS $1,530,959,113 $ 69,636,719 $ 112,853,229 $1,735,837,052 $ 306,016,766 $ 200,376,408 $ 66,064,404
============== ============== ============== ============== ============== ============== ==============
Net Assets:
Accumulation units--Value $1,530,275,491 $ 69,623,504 $ 112,756,961 $1,734,146,672 $ 305,981,239 $ 200,355,611 $ 66,037,957
Annuity reserves (Note 3E) 683,622 13,215 96,268 1,690,380 35,527 20,797 26,447
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Net assets $1,530,959,113 $ 69,636,719 $ 112,853,229 $1,735,837,052 $ 306,016,766 $ 200,376,408 $ 66,064,404
============== ============== ============== ============== ============== ============== ==============
Accumulation units (Note 8)
Contractowners 413,935,012 44,060,821 52,035,004 574,212,871 177,599,099 157,063,622 49,821,459
Massachusetts Mutual Life
Insurance Company - - - - 5,000 5,000 5,000
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Total Units 413,935,012 44,060,821 52,035,004 574,212,871 177,604,099 157,068,622 49,826,459
============== ============== ============== ============== ============== ============== ==============
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1997 $ 3.70 $ 1.58 $ 2.17 $ 3.02 $ 1.72 $ 1.28 $ 1.33
December 31, 1996 2.91 1.52 2.00 2.53 1.56 1.05 1.23
December 31, 1995 2.45 1.47 1.96 2.25 1.32 0.91 1.12
December 31, 1994 1.89 1.41 1.67 1.85 1.01 0.90 0.98
December 31, 1993 1.84 1.37 1.75 1.83 - - -
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<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>
Investment Income
Dividends (Note 3B) $ 114,589,712 $ 3,754,994 $ 6,941,117 $ 162,752,698 $ 10,620,416 $ 1,580,928 $ 4,203,985
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 2,084,279 677,962
------------- ------------- ------------- ------------- ------------- ------------- ------------
Net investment income
(loss)(Note 3C) 97,491,773 2,791,537 5,564,010 142,065,242 7,290,775 (503,351) 3,526,023
------------- ------------- ------------- ------------- ------------- ------------- ------------
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 1,178,693 228,380
Change in new unrealized
appreciation/depreciation
of investments 199,325,594 -- 3,169,238 114,765,896 15,365,603 27,069,966 103,191
------------- ------------- ------------- ------------- ------------- ------------- -----------
Net gain on investments 211,821,054 -- 3,177,433 138,908,168 19,489,363 28,248,659 331,571
------------- ------------- ------------- ------------- ------------- ------------- -----------
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 $ 3,857,594
============= ============= ============= ============= ============= ============= ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended December 31, 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 mortally
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.
5
<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 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>
Increase (decrease) in net
assets
Operations:
Net investment income
(loss) $ 36,374,140 $ 2,444,356 $ 5,203,609 $ 67,704,545 $ 3,437,887 $ (1,067,100) $ 1,884,569
Net realized gain (loss)
on investments 10,382,200 - 1,492 16,971,599 1,263,459 (62,553) 38,682
Change in net unrealized
appreciation/depreciation
of investments 115,060,848 - (3,134,796) 72,870,820 11,417,050 13,625,232 928,108
--------------- -------------- -------------- -------------- -------------- -------------- --------------
Net increase in net assets
resulting from operations 161,817,188 2,444,356 2,070,305 157,546,964 16,118,396 12,495,579 2,851,359
--------------- -------------- -------------- -------------- -------------- -------------- --------------
Capital transactions:
(Note 8)
Net contract payments
(Note 5) 202,986,508 48,076,014 23,398,821 216,725,735 80,811,285 39,535,045 16,074,801
Transfer to Guaranteed
Principal Account (3,718,121) (2,283,737) (630,775) (3,985,433) (558,356) (353,662) (179,432)
Withdrawal of funds (71,672,816) (10,940,328) (8,477,782) (121,978,327) (8,478,007) (6,026,082) (1,541,386)
Reimbursement (payment)
of accumulation unit
value fluctuation 283,612 (8,585) (5,812) 148,659 267,513 66,697 23,109
Net charge (credit) to
annuitant mortality
fluctuation reserve
(Note 3D) 1,013 103 435 (1,063) (159) - -
Annuity benefit payments (24,165) (1,106) (3,131) (64,531) (238) - 0
Withdrawals due to
administrative and
contingent deferred
sales charges (Note 6) (2,599,700) (238,577) (699,939) (4,112,110) (247,046) (147,907) (43,382)
Divisional transfers 9,266,576 (20,377,584) (8,417,236) (39,814,967) 44,018,111 13,434,086 1,891,014
--------------- -------------- -------------- -------------- -------------- -------------- --------------
Net increase in net assets
resulting from capital
transactions 134,479,907 14,226,200 5,164,581 46,917,963 115,813,103 46,508,178 16,224,724
--------------- -------------- -------------- -------------- -------------- -------------- --------------
Total increase 296,297,095 16,670,556 7,234,886 204,464,927 131,931,499 59,003,757 19,076,083
NET ASSETS, at beginning
of the year 792,905,807 61,362,416 97,432,892 1,228,700,379 64,912,233 54,391,407 18,470,606
--------------- -------------- -------------- -------------- -------------- -------------- --------------
NET ASSETS, at end of
the year $1,089,202,902 $ 78,032,972 $ 104,667,778 $1,433,165,306 $ 196,843,732 $ 113,395,164 $ 37,546,689
=============== ============== ============== ============== ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 - Flex Extra
(Qualified)
Notes To Financial Statements
1. HISTORY
Massachusetts Mutual Variable Annuity Separate Account 1 ("Separate Account
1") is a separate investment account established on April 8, 1981 by
Massachusetts Mutual Life Insurance Company ("MassMutual"). Separate Account
1 operates as a registered unit investment trust pursuant to the Investment
Company Act of 1940 and the rules promulgated thereunder.
MassMutual maintains three segments within Separate Account 1. The segments
are Variable Annuity Fund 4, Flex-Annuity IV (Qualified) and Flex Extra
(Qualified.) These notes and the financial statements presented herein, with
the exception of Note 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 Segment's three new divisions: 1,516 shares were purchased
in the management investment company described in Note 2 supporting the
three new Oppenheimer divisions of the Segment.
2. INVESTMENT OF THE SEGMENT'S ASSETS
The Flex Extra (Qualified) Segment maintains seven divisions. The MML Equity
Division invests in shares of MML Equity Fund, the MML Money Market Division
invests in shares of MML Money Market Fund, the MML Managed Bond Division
invests in shares of MML Managed Bond Fund, the MML Blend Division invests
in shares of MML Blend Fund, the Oppenheimer Capital Appreciation Division
invests in shares of Oppenheimer Capital Appreciation Fund, the Oppenheimer
Global Securities Division invests in shares of Oppenheimer Global
Securities Fund and the Oppenheimer Strategic Bond Division invests in
shares of Oppenheimer Strategic Bond Fund.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are 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
MassMutual's general account. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Principal Account, which is part of
MassMutual's general account, are not registered under the Securities Act of
1933; and the general account is not registered as an investment company
under the Investment Company Act of 1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Segment in preparation of the financial statements in
conformity with generally accepted accounting principles.
7
<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 Segment's investment
performance (the "Contracts"). Accordingly, no provision for federal income
tax has been made. MassMutual may, however, make such a charge in the future
if an unanticipated change of current law results in a company tax liability
attributable to the Segment.
D. Annuitant Mortality Fluctuation Reserve
The Segment maintains a reserve as required by regulatory authorities to
provide for mortality losses incurred. The reserve is increased quarterly
for mortality gains and its proportionate share of any increases in value.
The reserve is charged quarterly for mortality losses and its proportionate
share of any decreases in value. Transfers to or from MassMutual are then
made quarterly to adjust the Segment. Net transfers from MassMutual to the
Segment totaled $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 Segment's annuity
reserves. Any mortality losses in excess of this reserve will be assumed by
MassMutual. The reserve is not available to owners of Contracts except to
the extent necessary to cover mortality losses under the Contracts.
E. Annuity Reserves
Annuity reserves are developed by using accepted actuarial methods and are
computed using the 1971 Individual Annuity Mortality Table, as modified.
F. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. CHARGES FOR MORTALITY AND EXPENSE RISKS AND ADMINISTRATIVE EXPENSES
Daily charges are made which are currently equivalent on an annual basis to
1.30% of the net asset value of the Segment (the "Net Asset Value"). The
mortality and expense risk part of this charge is made daily at an annual
rate which is currently equal to 1.15%, and will not exceed 1.25% of the Net
Asset Value. The administrative expense part of this charge is made daily at
an annual rate of 0.15% of the Net Asset Value.
8
<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 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 $ 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 $ 40,836,523 $ 17,525,135 $ 207,397,147 $ 85,295,016 $ 52,890,477 $ 25,868,183
============= ============= ============= ============= ============= ============= =============
Administrative and
contingent deferred
sales charges $ 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 Bond
December 31, 1996 Division Division Division Division Division Division Division
- ----------------- ------------ ------------- -------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross contract
payments $ 203,052,355 $ 48,091,136 $ 23,406,181 $ 216,793,903 $ 80,836,702 $ 39,547,481 $ 16,079,856
Less deduction for
premium taxes 63,847 15,122 7,360 68,168 25,417 12,435 5,055
------------- ------------- ------------- ------------- ------------- ------------- -------------
Net contract payments $ 202,988,508 $ 48,076,014 $ 23,398,821 $ 216,725,735 $ 80,811,285 $ 39,535,046 $ 16,074,801
============= ============= ============= ============= ============= ============= =============
Administrative and
contingent deferred
sales charges $ 2,599,700 $ 238,577 $ 699,939 $ 4,112,110 $ 247,046 $ 147,907 $ 43,382
============= ============= ============= ============= ============= ============= =============
</TABLE>
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>
9
<PAGE>
Notes To Financial Statements (Continued)
8. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strageic
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>
Units purchased 66,867,037 26,589,800 8,539,512 75,090,722 53,068,628 44,442,770 20,330,179
Units withdrawn and transferred to
Guaranteed Principal Account (36,091,954) (8,646,887) (5,122,869) (60,240,402) (10,630,862) (9,432,090) (2,867,197)
Units transferred between divisions 9,184,319 (25,151,983) (3,762,518) (6,512,498) 9,198,583 14,374,660 1,981,363
Units transferred to annuity reserves (107,936) (1,199) (22,665) (425,149) (21,543) (19,321) (22,968)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase 39,851,466 (7,210,269) (368,540) 7,912,673 51,614,806 49,366,019 19,421,377
Units, at beginning of the year 374,083,546 51,271,090 52,403,544 566,300,198 125,989,293 107,702,603 30,405,082
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units, at end of the year 413,935,012 44,060,821 52,035,004 574,212,871 177,604,099 157,068,622 49,826,459
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML Capital Global Strageic
For the Year Ended Equity Market Bond Blend Appreciation Securities Bond
December 31, 1996 Division Division Division Division Division Division Division
- ------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased 76,729,920 32,480,215 12,127,911 92,070,370 54,010,610 40,693,793 13,733,056
Units withdrawn and transferred to
Guaranteed Principal Account (29,454,155) (9,371,630) (5,080,084) (55,096,078) (6,181,894) (6,690,628) (1,513,179)
Units transferred between divisions 3,500,347 (13,641,369) (4,364,007) (16,849,325) 28,872,959 13,748,028 1,594,761
Units transferred to annuity reserves (4,196) (1,265) (41,395) (1,900)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase 50,771,916 9,467,216 2,682,555 20,083,572 76,699,775 47,751,193 13,854,638
Units, at beginning of the year 323,311,630 41,803,874 49,730,989 546,216,626 49,289,518 59,951,410 16,550,444
----------- ----------- ----------- ----------- ----------- ----------- -----------
Units, at end of the year 374,083,546 51,271,090 52,403,544 566,300,198 125,989,293 107,702,603 30,405,082
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
9. CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACOUNT 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 *Oppenheimer *Oppenheimer *Oppenheimer
MML Money Managed MML Capital Global Strageic
Equity Market Bond Blend Appreciation Securities Bond
Division Division Division Division Division Division Division
--------------- ------------- ------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 1,681,068,834 $ 81,866,648 $ 126,726,663 $ 1,966,744,040 $ 307,002,156 $ 201,046,413 $ 66,249,794
Total liabilities 6,473,624 304,046 468,183 6,404,412 985,390 670,005 185,390
Net assets $ 1,674,595,210 $ 81,562,601 $ 126,258,480 $ 1,990,339,628 $ 306,016,766 $ 200,376,408 $ 66,064,404
=============== ============= ============= =============== ============== ============= =============
Net assets consist of:
Accumulation units--
Value $ 1,673,535,433 $ 81,469,025 $ 126,048,573 $ 1,988,168,324 $ 305,981,239 $ 200,355,611 $ 66,037,957
Annuity reserves 1,059,777 93,576 209,907 2,171,304 35,527 20,797 26,447
--------------- ------------- ------------- --------------- -------------- ------------- -------------
Net assets $ 1,674,595,210 $ 81,562,601 $ 126,258,480 $ 1,990,339,628 $ 306,016,766 $ 200,376,408 $ 66,064,404
=============== ============= ============= =============== ============== ============= =============
</TABLE>
*Offered on the Flex Extra (Qualified) Contracts only.
10
<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
11
