<PAGE>
Registration No.2-75413
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Post-Effective Amendment No. 18
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 18
Massachusetts Mutual Variable Annuity Separate Account 2
--------------------------------------------------------
(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, 1999 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.
- ---
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment.
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, 1998 was filed on or about March 22, 1999.
1
<PAGE>
CROSS REFERENCE TO ITEMS
REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
N-4 Item Caption in Prospectus
- -------- ---------------------
<S> <C>
1 ......................... Cover Page
2 ......................... Index of Special Terms
3 ......................... Table of Fees and Expenses
4 ......................... Condensed Financial
Information; Performance
5 ......................... The Company; Investment Choices
6 ......................... Expenses; Distributors
7 ......................... Ownership; Purchasing a Contract; Voting Rights;
Reservations of Rights; Contract Value; Cover Page
8 ......................... The Income Phase
9 ......................... Death Benefit
10 ........................ The Accumulation Phase; Distributors
11 ........................ Highlights; Withdrawals
12 ........................ Taxes
13 ........................ Legal Proceedings
14 ........................ Additional Information
</TABLE>
2
<PAGE>
Caption in Statement of
Additional Information
<TABLE>
<CAPTION>
<S> <C>
15 ........................ Cover Page
16 ........................ Table of Contents
17 ........................ General Information
18 ........................ Distribution and Administration; Experts
19 ........................ Purchase of Securities Being Offered
20 ........................ Distribution and Administration
21 ........................ Performance Measures
22 ........................ Contract Value Calculations and Annuity Payments
23 ........................ Financial Statements
</TABLE>
3
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
1
<PAGE>
Massachusetts Mutual Life Insurance Company
Massachusetts Mutual Variable Annuity Separate Account 1
(For Tax Qualified Arrangements)
Massachusetts Mutual Variable Annuity Separate Account 2
(For Non-Tax Qualified Arrangements)
Flex-Annuity
This prospectus describes the Flex-Annuity individual flexible purchase payment
variable annuity contracts offered by Massachusetts Mutual Life Insurance
Company. The contracts provide for accumulation of contract value and annuity
payments on a fixed and variable basis.
You, the contract owner, have four investment choices in these contracts. The
following four funds are offered through our separate accounts, Massachusetts
Mutual Variable Annuity Separate Account 1 and Massachusetts Mutual Variable
Annuity Separate Account 2.
MML Series Investment Fund
. MML Equity Fund
. MML Money Market Fund
. MML Managed Bond Fund
. MML Blend Fund
Please read this prospectus before investing. You should keep it for future
reference. It contains important information about the Flex-Annuity contracts.
To learn more about the Flex-Annuity contracts, you can obtain a copy of the
Statement of Additional Information (SAI) dated May 1, 1999. We filed the SAI
with the Securities and Exchange Commission (SEC), and it is legally a part of
this prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the SAI, material incorporated by reference and other information regarding
companies that file electronically with the SEC. The Table of Contents of the
SAI is on page 25 of this prospectus. For a free copy of the SAI, or for general
inquiries, call our Annuity Service Center at (800)-366-8226 or write to:
Annuity Service Center, H305, P.O. Box 9067, Springfield, Massachusetts
01102-9067.
The contracts:
. are not bank deposits.
. are not federally insured.
. are not endorsed by any bank or governmental agency.
. are not guaranteed and may be subject to loss of principal.
- --------------------------------------------------------------------------------
The SEC has not approved these contracts or determined that this prospectus is
accurate or complete. Any representation that it has is a criminal offense.
- --------------------------------------------------------------------------------
May 1, 1999.
1
<PAGE>
Table Of Contents
Highlights 4
Table of Fees and Expenses 5
The Company 7
The Flex-Annuity Contract 7
General Overview 7
Ownership of the Contact 8
Owner 8
Annuitant 8
Beneficiary 8
Purchase Payments 9
How Contracts Were Purchased 9
Allocation of Purchase Payments 11
Investment Choices 10
The Separate Account 10
The Funds 10
Contract Value 11
Accumulation Units 11
Transfers 11
Transfers During the Accumulation Phase 11
Transfers During the Income Phase 11
Withdrawals 11
Expenses 13
Insurance Charge 13
Administrative Charge 13
Contingent Deferred Sales Charge 13
Free Withdrawals 15
Premium Taxes 15
Transfer Fee 15
Income Taxes 15
Fund Expenses 15
The Income Phase 16
Fixed Annuity Payments 16
Variable Annuity Payments 17
Annuity Unit Value 17
Annuity Options 17
Payments After Death of an Annuitant 18
Payments on Death 19
Taxes 20
Annuity Contracts in General 20
Qualified and Non-Qualified Contracts 20
Withdrawals - Non-Qualified Contracts 20
Withdrawals - Qualified Contracts 21
Withdrawals - Tax Sheltered Annuities 21
Withdrawals - Texas Optional Retirement Program 22
Other Information 23
Performance 23
Standardized Total Returns 23
Nonstandard Total Returns 23
Yield and Effective Yield 23
Year 2000 23
Distributors 24
Assignment 24
Voting Rights 24
Reservation of Rights 24
Suspension of Payments or Transfers 24
Legal Proceedings 24
Financial Statements 24
Additional Information 25
Appendix A-
Condensed Financial Information A-1
2
<PAGE>
Index of Special Terms
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. The page that is indicated here is where we believe you will
find the best explanation for the word or term.
Page
Accumulation Phase 7
Accumulation Unit 11
Annuitant 8
Annuity Options 17
Annuity Payments 16
Annuity Service Center Cover Page
Annuity Unit Value 17
Contract Anniversary 13
Free Withdrawal 15
Income Phase 7
Maturity Date 16
Non-Qualified 20
Purchase Payment 9
Qualified 20
Separate Accounts 10
Tax Deferral 7
3
<PAGE>
Highlights
This prospectus describes the general provisions of the Flex-Annuity variable
annuity contracts. We offered the contracts for sale in tax-qualified
arrangements and non-tax qualified arrangements.
We no longer offer these contracts for sale to the public. Contract owners may
continue, however, to make purchase payments to their contract.
Free Look
You have a right to examine your contract. If you change your mind about owning
your contract, you can cancel it within 10 days after receiving it. When you
cancel the contract within this time period, we will not assess a contingent
deferred sales charge. You will receive back your contract value as of the
business day we receive your contract and written request at our Annuity Service
Center, plus any amount we deducted from your purchase payment(s). If your state
requires it, or if you purchase this contract as an IRA, we will return the
greater of your purchase payments less any withdrawals you took, or your
contract value, plus any amount we deducted from your purchase payment(s). In
some states, the period may be longer.
Contingent Deferred Sales Charge
We do not deduct a sales charge when we receive a purchase payment from you.
However, we may assess a contingent deferred sales charge if you withdraw any
part of or all of your contract value, or if on the maturity date of your
contract, you elect to receive fixed annuity payments or a lump sum payment.
The amount of the contingent deferred sales charge depends on:
. the amount of purchase payments you make and
. the length of time between when you make the purchase payments and when
you withdraw the value of the accumulation units purchased with them, or
when your contract reaches its maturity date and you elect to receive
fixed annuity payments or a lump sum payment.
The contingent deferred sales charge ranges from:
. 11% to 0% on the value of the accumulation units purchased with your
first $3,000 of purchase payments,
. 5% to 0% on the value of the accumulation units purchased with your
cumulative purchase payments between $3,000 and $35,000, and
. 0% on the value of the accumulation units purchased with your cumulative
purchase payments over $35,000.
Federal Income Tax Penalty
If you withdraw any of the contract value from your non-qualified contract, a
10% federal income tax penalty may be applied to the amount of the withdrawal
that is includible in your gross income for tax purposes. Some withdrawals may
be exempt from the penalty tax. They include any amounts:
. paid on or after you reach age 59 1/2;
. paid to your beneficiary after you die;
. paid if you become totally disabled as the term is defined in the Internal
Revenue Code;
. paid in a series of substantially equal payments made annually or more
frequently for life or a period not exceeding life expectancy;
. paid under immediate annuity; or
. that come from purchase payments made prior to August 14, 1982.
The Internal Revenue Code (the Code) treats any withdrawal as first coming from
earnings and then from your purchase payments. Separate tax penalties and
restrictions apply to withdrawals under qualified contracts. Please refer to the
Taxes section of this prospectus for more information.
4
<PAGE>
Table Of Fees And Expenses
Contract Owner Transaction Expenses
Sales Load Imposed on Purchase Payments None
Contingent Deferred Sales Load
(as a percentage of the current value of the accumulation units purchased in
each level now being withdrawn)
Level Cumulative Purchase Payments Contingent Deferred Sales Load
1 First $3,000 11% in year purchase payment is
made, decreasing 1% per contract
year until it is 0.
2 Next $32,000 5% in year purchase payment made,
decreasing 1% per contract year
until it is 0.
3 Over $35,000 0%
Transfer Fee None
Annual Administrative Fee $35
Separate Account Annual Expenses
(as a percentage of average account values)
Asset Charge for Mortality and Expense Risk 1.25%
Annual Fund Expenses
(as a percentage of average net assets as of December 31, 1998)
<TABLE>
<CAPTION>
Management Other
Fees Expenses Total
<S> <C> <C> <C>
MML Equity Fund* 0.37% 0.00%* 0.37%
MML Money Market Fund* 0.46% 0.03%* 0.49%
MML Managed Bond Fund* 0.45% 0.03%* 0.48%
MML Blend Fund* 0.37% 0.00%* 0.37%
</TABLE>
*We have agreed to bear the expenses of these Funds (other than the management
fee, interest, taxes, brokerage commissions and extraordinary expenses) in
excess of 0.11% of the average daily net asset value of these Funds through
April 30, 2000. We do not expect that we will be required to reimburse any
expenses of these Funds due to this undertaking in 1999.
5
<PAGE>
Examples
The following examples are designed to help you understand the expenses in the
contract. The examples show the cumulative expenses you would pay assuming you
invested $1,000 in a contract and allocated all of it to a fund that earned 5%
each year. All the expenses shown in the table of fees and expenses, including
the annual fund expenses, are assumed to apply.
<TABLE>
<CAPTION>
If you fully withdraw all of your money
at end of year: 1 3 5 10
<S> <C> <C> <C> <C>
MML Equity Division $103 $140 $158 $217
MML Money Market Division 104 143 164 230
MML Managed Bond Division 104 143 163 329
MML Blend Division 103 140 158 218
If you do not withdraw all of your contract
value at end of year: 1 3 5 10
MML Equity Division 18 55 94 205
MML Money Market Division 19 58 101 218
MML Managed Bond Division 19 58 100 217
MML Blend Division 18 55 94 205
</TABLE>
The purpose of the Table of Fees and Expenses is to assist you in understanding
the various costs and expenses that you will incur. The table reflects expenses
of the separate account and the funds.
The examples reflect the $35 annual administrative fee, pro-rated for an average
contract value of $29,167.
The examples do not reflect any premium taxes. However, premium taxes may apply.
The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
There is an accumulation unit value history contained in Appendix A - Condensed
Financial Information.
6
<PAGE>
The Company
Massachusetts Mutual Life Insurance Company (MassMutual), 1295 State Street,
Springfield, Massachusetts, is a mutual life insurance company chartered in 1851
under the laws of Massachusetts. MassMutual is currently licensed to transact
life, accident, and health insurance business in all states, the District of
Columbia, Puerto Rico and certain provinces of Canada.
MassMutual had consolidated statutory assets in excess of $67 billion and
estimated total assets under management of $176.8 billion as of December 31,
1998.
The Flex-Annuity Contracts
General Overview
Flex-Annuity is a contract between you, the owner and us, MassMutual. The
contracts are intended for retirement savings or other long-term investment
purposes. In exchange for your purchase payments, we agree to pay you an income
when you choose to receive it. You select the income period beginning on a date
you designate that is in the future. The Flex-Annuity contracts, like all
deferred annuity contracts, have two phases - the accumulation phase and the
income phase. Your contract is in the accumulation phase until you decide to
begin receiving annuity payments that begin on the maturity date. During the
accumulation phase we provide a death benefit. Once you begin receiving annuity
payments, your contract enters the income phase.
You are not taxed on contract earnings until you take money from your contract.
This is known as tax deferral.
The contracts are called variable annuities because you can choose to allocate
your purchase payment(s) among four funds. The amount of money you are able to
accumulate in your contract during the accumulation phase depends on the
investment performance of the funds you select.
At the beginning of the income phase, you can choose to receive annuity payments
on a variable basis, fixed basis or a combination of both. If you choose
variable payments, the amount of the annuity payments will fluctuate depending
on the investment performance of the funds you select for the income phase. If
you select to receive payments on a fixed basis, the payments you receive will
remain level.
Contracts issued by Separate Account 1 are designed for use in retirement plans
which qualify for special federal tax treatment under the Code. The following
are the types of plans for which the contracts are suitable:
. pension and profit-sharing plans qualified under Section 401(a) or 403(a)
of the Code, and participant-directed individual account plans under
Section 404(c) of ERISA. These plans are sometimes referred to as ERISA
Plans;
. annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code. These
plans are sometimes called "Tax Sheltered Annuities" or "TSAs";
. deferred compensation plans for state and local governments and tax-exempt
organizations established under the provisions of Section 457 of the Code;
and
. Individual Retirement Annuities established in accordance with Section 408
of the Code. These are referred to as IRAs. This also includes IRA's under
a Simplified Employee Pension Plan.
Contracts issued by Separate Account 2 were sold for use in retirement plan
arrangements other than the qualified plans offered through Separate Account 1.
These contracts are referred to as non-qualified.
7
<PAGE>
Ownership Of A Contract
Owner
The owner is named at time of application. The owner of the contract must be the
annuitant, except in the following situations where there is:
. a custodian for a minor annuitant under the Uniform Gifts or Transfers to
Minors Act;
. a non-natural person;
. a trust; or
. an employer sponsored plan.
As the owner of the contract, you exercise all rights under the contract. The
owner names the beneficiary. Subject to any requirements of the Code applicable
to your contract, you may change the owner of the contract at any time prior to
the maturity date by written request. Changing the owner may result in tax
consequences.
Participants under a qualified contract, except for TSAs and IRAs, may not be
the contract owner. Therefore, the participants have no ownership rights. Under
Section 457 deferred compensation plans, the state or political subdivision or
tax-exempt organization must be the contract owner.
Annuitant
The annuitant is the person on whose life we base annuity payments. The
annuitant was named when we issued your contract.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any death benefit
You name the beneficiary at the time of application. Unless an irrevocable
beneficiary has been named, you can change the beneficiary at any time before
the annuitant dies. If an irrevocable beneficiary is named, this beneficiary
must consent to the exercise of any contract rights.
You can name different classes of beneficiaries, such as primary or secondary.
These classes set the order of payment. There may be more than one beneficiary
in a class.
8
<PAGE>
Purchase Payments
How Contracts Were Purchased
The minimum initial purchase payment was:
. $600 divided by the number of installments (not mote than 12) which you
expected to make each year; or
. $2,000, if you intended to make only one purchase payment over the lifetime
of the contract.
You can make additional purchase payments to your contract of at least $25.
We reserve the right to establish a maximum on the total purchase payments you
may make to your contract This maximum will be at least $500,000.
You may make additional purchase payments by:
. mailing your check that clearly indicates your name and contract number to
our lockbox:
MassMutual VA
P.O. Box 92714
Chicago, IL 60675-2714
. instructing your bank to wire transfer funds to:
Chase Manhattan Bank, New York, New York
ABA #021000021
MassMutual Account #910-2-517290
Ref: VA Income Contract #
Name: (Your Name)
We have the right to reject any purchase payment.
Allocation Of Purchase Payments
If you make additional purchase payments, we will apply them in the same way as
you requested on your application, unless you tell us otherwise. We will credit
these amounts to your contract on the business day we receive them at our
lockbox or Annuity Service Center. Our business day closes when the New York
Stock Exchange closes, usually 4:00 p.m. Eastern time. If we receive your
purchase payment at our lockbox or Annuity Service Center on a non-business day
or after the business day closes, we will credit the amount to your contract
effective the next business day.
9
<PAGE>
Investment Choices
The Separate Accounts
We established two separate accounts:
Massachusetts Mutual Variable Annuity Separate Account 1 (Separate Account 1)
and Massachusetts Mutual Variable Annuity Separate Account 2 (Separate Account
2). We established these separate accounts to hold the assets that underlie the
contracts. We established Separate Account 1 for qualified contracts on April 8,
1981, and Separate Account 2 for non-qualified contracts on October 14, 1981. We
have registered both separate accounts with the Securities and Exchange
Commission as unit investment trusts under the Investment Company Act of 1940.
We own the assets of the separate accounts. However, those separate account
assets equal to the reserves and other contract liabilities are not chargeable
with liabilities arising out of any other business we may conduct. All the
income, gains and losses (realized or unrealized) resulting from these assets
are credited to, or charged against, the contracts and not against any other
contracts we may issue.
We have divided each separate account into 4 divisions. Each of these divisions
invests in a fund. You bear the complete investment risk for purchase payments
that you allocate to a fund.
The Funds
The contract offers the 4 funds listed below.
MML Series Investment Fund ("MML Trust")
MML Trust is a no-load, open-end, investment company having eight series of
shares, each of which has a different investment objective designed to meet
different investment needs. Four of the series are available to you. MassMutual
serves as the investment adviser to the MML Trust. MassMutual has entered into a
subadvisory agreement with David L. Babson and Company, Inc. ("Babson"), a
controlled subsidiary of MassMutual. Babson manages the investment of the assets
of the MML Equity Fund and the equity sector of the MML Blend Fund.
MML Equity Fund. The MML Equity Fund seeks to achieve a superior rate of return
over time from both capital appreciation and current income and to preserve
capital by investing in equity securities.
MML Money Market Fund. The MML Money Market Fund seeks to maximize current
income, to preserve capital and to maintain liquidity by investing in money
market instruments.
MML Managed Bond Fund. The MML Managed Bond Fund seeks a high rate of return,
consistent with capital preservation, by investing primarily in investment
grade, publicly-traded, fixed income securities.
MML Blend Fund. The MML Blend Fund seeks a high total rate of return over time,
consistent with prudent investment risk and capital preservation, by investing
in equity, fixed income and money market securities.
- --------------------------------------------------------------------------------
There is no assurance that the funds will achieve their stated objective. The
fund prospectuses contain more detailed information about the funds. Current
copies of the fund prospectuses are attached to this prospectus. You should read
the information contained in the funds' prospectuses carefully before investing.
- --------------------------------------------------------------------------------
10
<PAGE>
Contract Value
Your contract value is your value in the separate account. Your value in the
separate account will vary depending on the investment performance of the funds
you choose. In order to keep track of your contract value, we use a unit of
measure called an accumulation unit. During the income phase of your contract we
call the unit an annuity unit.
Accumulation Units
Every business day we determine the value of an accumulation unit for each of
the funds. Changes in the accumulation unit value reflect the investment
performance of the funds as well as the deductions we make for our separate
account charges.
The value of an accumulation unit may go up or down from business day to
business day. The Statement of Additional Information contains more information
on the calculation of contract value.
When you make a purchase payment, we credit your contract with accumulation
units. We determine the number of accumulation units to credit by dividing the
amount of the purchase payment allocated to a fund by the value of one
accumulation unit for that fund. When you make a withdrawal, we deduct from your
contract accumulation units representing the withdrawal.
We calculate the value of an accumulation unit for each fund after the New York
Stock Exchange closes each business day. Any change in the accumulation unit
value will be reflected in your contract value.
Example:
On Monday we receive an additional purchase payment of $5,000 from you. You have
told us you want this to go to the MML Blend Fund. When the New York Stock
Exchange closes on that Monday, we determine that the value of an accumulation
unit for the MML Blend is $13.90. We then divide $5,000 by $13.90 and credit
your contract on Monday night with 359.71 accumulation units for the MML Blend
Fund.
Transfers
Transfers During the Accumulation Phase
You may transfer all or part of your contract value among the funds without
charge. You may not make transfers during the period 30 days before your
contract enters the income phase.
You can make transfers by telephone. If you want to use our automatic voice
response system, you must submit a written request to obtain a personal
identification number (PIN). We will use reasonable procedures to confirm that
instructions given to us by telephone are genuine. We may be liable for any
losses due to unauthorized or fraudulent instructions, if we fail to use such
procedures. We may tape record all telephone instructions. We do not offer the
telephone transfer service to contracts owned by custodians, guardians or
trustees.
Your transfer is effective on the business day we receive your request at our
Annuity Service Center. Our business day closes when the New York Stock Exchange
closes, usually 4:00 p.m. Eastern time. If we receive your transfer request
at our Annuity Service Center on a non-business day or after our business day
closes, your transfer request will be effective on the next business day.
Transfers During the Income Phase
We do not permit transfers during the income phase.
Withdrawals
During the accumulation phase you may make either a partial or total withdrawal
of your contract value. The Internal Revenue Code imposes special rules in the
case of a TSA contract.
11
<PAGE>
If you make a partial withdrawal, you must tell us from which investment
choice(s) you want the withdrawal taken. You must withdraw at least $100 or the
entire value in a fund, if less. If your request for a partial withdrawal will
reduce your contract value to less than $600, we will treat the request as a
full withdrawal of your contract value.
Full or partial withdrawals may be subject to a contingent deferred sales
charge.
When you make a total withdrawal you will receive the value of your contract:
. less any applicable contingent deferred sales charge;
. less any applicable premium tax;
. less any purchase payments we credited to your contract that have not
cleared the bank, until they clear the bank; and
. less an administrative charge if you fully withdraw your contract value on
a date other than the contract anniversary.
Your withdrawal is effective on the business day we receive your request at our
Annuity Service Center. If we receive your request at our Annuity Service Center
on a non-business day or after our business day closes, your withdrawal request
will be effective on the next business day. We will pay any withdrawal amount
within 7 days of our receipt of your fully completed written request at our
Annuity Service Center unless we are required to suspend or postpone withdrawal
payments.
You may receive your withdrawal amount in one lump sum or apply it to one of the
payment options offered.
- --------------------------------------------------------------------------------
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
- --------------------------------------------------------------------------------
12
<PAGE>
Expenses
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses ate:
Insurance Charge
Each business day we deduct an insurance charge from the assets of the separate
account. We do this as part of our calculation of the value of the accumulation
units and the annuity units. This charge is equal, on an annual basis, to 1.25%
of the daily value of the assets invested in each fund, after fund expenses are
deducted. We refer to this charge as an asset charge. This charge is for:
. the mortality risk associated with the insurance benefits we provide,
including our obligation to make annuity payments after the maturity date
regardless of how long all annuitants live, the death benefits, and the
guarantee of rates used to determine your annuity payments during the
income phase; and
. the expense risk that the current administrative charge and the contingent
deferred sales charge will be insufficient to cover the actual cost of
administering the contracts.
If the asset charge is not sufficient to cover the actual costs, we will bear
the loss. However, we do expect to profit from this charge.
Administrative Charge
On each contract anniversary, we impose an administrative charge against each
contract to reimburse us for expenses relating to the issuance and maintenance
of the contract. The charge is $35. We may increase this charge, but it will not
exceed $50.
We make this deduction from your contract value in proportion to your value in
each fund.
Your first contract anniversary is one calendar year from the date we issued
your contract.
We also deduct this charge between contract anniversary dates:
. if you fully withdraw your contract value;
. on the maturity date; or
. if the annuitant dies while the contract is in the accumulation phase, and
the death benefit is the contract value.
We will not assess the administrative charge against any contract purchased with
proceeds from:
. a variable annuity contract issued by MassMutual which was subject to an
initial sales charge;
. any fixed dollar life insurance or fixed dollar annuity contract issued by
MassMutual where such proceeds were not subject to a surrender charge; or
. a variable annuity contract held under a MassMutual Agent Pension Plan;
if within six months of the purchase of a contract, you had purchased a new
contract and kept both contracts in force.
We have set the administrative charge so that we do not profit from this charge.
Contingent Deferred Sales Charge
We do not deduct a sales charge when we receive a purchase payment. However, we
may assess a contingent deferred sales charge if:
. you withdraw all or part of your contract value, or
. you elect to receive fixed annuity payments on your contract maturity date,
or
. you elect to receive a lump-sum payment on your contract maturity date.
We use this charge to cover certain expenses related to the sale of the
contract.
The amount of the contingent deferred sales charge depends on the following two
factors:
13
<PAGE>
1. The total amount of purchase payments you make, and
2. The length of time between when you make the purchase payments and when you
withdraw them, or when your contract reaches its maturity date.
The contingent deferred sales charge ranges from 11% to 0% on the value of the
accumulation units purchased with your first $3,000 of purchase payments. We
will assess a contingent deferred sales charge of 11% if you redeem accumulative
units in the same contract year you purchased them. This charge decreases 1%
each contract year from the date you made the purchase payments.
The contingent deferred sales charge ranges from 5% to 0% on the value of the
accumulation units purchased with your cumulative purchase payments between
$3,000 and $35,000. We will assess a contingent deferred sales charge of 5% if
you redeem accumulation units in the same contract year you purchased them. This
charge declines 1% each contract year from the date you made the purchase
payments.
We do not assess a contingent deferred sales charge on the value of the
accumulation units purchased with your cumulative purchase payments in excess of
$35,000.
We will redeem accumulation units with the lowest applicable contingent deferred
sales charge First.
The contingent deferred charge is illustrated in the following table:
<TABLE>
<CAPTION>
Full contract years Charge Assessed Against the Value of Accumulation Units Purchased with:
since purchase
payments were First $3,000 of Next $32,000 of Cumulative Purchase
accepted Purchase Payments Purchase Payments Payments over $35,000
<S> <C> <C> <C>
1 11% 5% No Charge
2 10% 4% No Charge
3 9% 3% No Charge
4 8% 2% No Charge
5 7% 1% No Charge
6 6% No Charge No Charge
7 5% No Charge No Charge
8 4% No Charge No Charge
9 3% No Charge No Charge
10 2% No Charge No Charge
11 1% No Charge No Charge
12 or more No Charge No Charge No Charge
</TABLE>
14
<PAGE>
The amount of the contingent deferred sales charge we deduct at any time, plus
contingent deferred sales charges we previously deducted, will not exceed 8.5%
of the total purchase payments you made to that time.
In addition to the free withdrawals described later in this section, we will not
impose a contingent deferred sales charge under the following circumstances:
. Against purchase payments made by exchanging a previously issued MassMutual
variable annuity contract which was subject to an initial sales charge;
. Against purchase payments made by exchanging any fixed dollar life
insurance or fixed dollar annuity contract issued by MassMutual where such
proceeds were not subject to a surrender charge;
. Against purchase payments made by exchanging a variable annuity contract
held under the MassMutual Agent Pension Plan; or
. Against a contract exchanged for a Flex Extra variable annuity contract
issued by MassMutual.
Free Withdrawals
Beginning in the 5th contract year, we will not deduct a contingent deferred
sales charge if you redeem up to 10% of the number of accumulation units in each
fund as of the last day of the preceding contract year. You may not carry over
any unused portion of this 10% free withdrawal amount to any future contract
year.
Premium Taxes
Some states and other governmental entities charge premium taxes or similar
taxes. We are responsible for the payment of these taxes. We currently deduct
from any purchase payment any premium tax that is due when purchase payments are
made before allocating the payment to your investment choice. However, we will
deduct the premium taxes at the time of death, withdrawal of your total contract
value, or when annuity payments begin, if state law requires. We do not expect
to make a profit from this deduction. Premium taxes generally range from 0% to
3.5%, depending on the state.
Transfer Fee
There is no charge for transfers during the accumulation phase. We do not allow
transfers during the income phase.
Income Taxes
We will deduct from the contract any income taxes that we incur because of the
operation of the separate account. At the present time, we are not making any
such deductions. We will deduct any withholding taxes required by law.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
funds, which are described in the attached fund prospectuses. We may enter into
certain arrangements under which we are reimbursed by the funds' advisors,
distributors and/or affiliates for the administrative services that we provide.
15
<PAGE>
The Income Phase
If you want to receive regular income from your annuity, you can choose to
receive fixed or variable annuity payments under one of several annuity options.
You also may elect to receive your contract value in one sum. If you elect a
fixed annuity payment or a lump-sum payment, we may assess a contingent deferred
sales charge against your contract value on the maturity date.
You can choose the month and year in which those payments begin. We call that
date the maturity date.
We ask you to choose your maturity date when you purchase your contract. You can
defer your maturity date to any allowable date later than your current maturity
date provided we receive your written request at our Annuity Service Center at
least 90 days before the current maturity date. You can also elect to have an
earlier maturity date than the current date in effect, provided that we receive
the written request at least 31 days before the new maturity date you elected.
You may elect an annuity option at any time before the maturity date. If you do
not elect an annuity option by the maturity date, we will assume that you
selected a variable monthly annuity under a life income option with 120 payments
guaranteed.
Annuity payments must begin by the earlier of:
1. the contract anniversary nearest to the annuitant' s 85th birthday, if you
allocate your purchase payments to Separate Account 2;
2. the contract anniversary nearest to the annuitant' s 75th birthday, if you
allocate your purchase payments to Separate Account 1.
In order to avoid adverse tax consequences, you should begin to take
distributions at least equal to the minimum amount required by the IRS, no later
than the required beginning date. If your contract is an IRA, that date should
be the year you reach age 70 1/2. For qualified plans and TSAs, that date is the
later of your retirement or when you reach age 70 1/2.
At the maturity date, you have the same fund choices that you had during the
accumulation phase. If you elect variable annuity payments and do not tell us
otherwise, we will base your annuity payments on the investment allocations that
are in place on the maturity date.
After the maturity date, we will not assess a contingent deferred sales charge
if the annuitant withdraws up to the full amount of the then present value of
any remaining unpaid payments certain under the payment option. The beneficiary
may make these withdrawals if the annuitant has died. However, when you elect a
payment option, you may indicate that the annuitant does not have the right to
withdraw unpaid payments certain under the lifetime payment option or the joint
lifetime payment options.
Fixed Annuity Payments
If you choose Fixed payments, the payment amount will not vary. The payment
amount will depend upon the following 6 things:
. the value of your contract on the maturity date;
. the deduction of any applicable premium taxes;
. the annuity option you select;
. the age and sex of the annuitant (and joint annuitant if a joint payment
option is elected);
. the deduction of any applicable contingent deferred sales charge; and
. the deduction of an administrative charge.
16
<PAGE>
Variable Annuity Payments
If you choose variable payments, over time the payment amount will vary with the
investment performance of the funds. The first payment amount will depend on the
following 6 things:
. the value of your contract on the maturity date;
. the deduction of any applicable premium taxes;
. the deduction of an administrative charge;
. the annuity option you select;
. the age and sex of the annuitant (and joint annuitant if a joint payment
option is elected); and
. an assumed investment rate (AIR) of 4% per year.
Future variable payments will depend on the performance of the funds you
selected. If the actual performance exceeds the 4% assumed investment rate plus
the deductions for expenses, your annuity payments will increase. Similarly, if
the actual rate is less than 4% plus the amount of the deductions, your annuity
payments will decrease.
Annuity Unit Value
In order to keep track of the value of your variable annuity payment, we use a
unit of measure called an annuity unit We calculate the number or your annuity
units at the beginning of the income phase. During the income phase, the number
of annuity units will not change. However, the value of your annuity units will
change to reflect the investment performance of the funds you selected.
For a more detailed description of how the value of an annuity unit and the
amount of the variable annuity payments are calculated, see the Statement of
Additional Information.
Annuity Options
The following annuity options are available. After annuity payments begin, you
may not transfer among the funds. In addition, under most income options, you
may not change the annuity option, the frequency of annuity payments or make
withdrawals once your contract is in the income phase.
Fixed Income Payment Option. We will make each monthly payment for an agreed
fixed amount. Each monthly payment will be at least $10 for each $1,000 applied.
We will pay interest on the unpaid balance each month at a rate we determine.
This rate will not be less than 3% per year. Payments will continue until the
amount we hold runs out (Not available as a variable annuity payment.)
Fixed Time Payment Option. We will make equal monthly payments for any period
you select, up to 30 years. The amount of each payment depends on your contract
value at the maturity date, the period you select and the monthly payment rates
we use when your first payment is due. You may elect this option with either
fixed or variable payments.
Lifetime Payment Option. We will make fixed or variable annuity payments based
on the life of the annuitant. If you choose a variable annuity payment plan, the
payments are not guaranteed as to the amount, and may vary. If you elect this
option, annuity payments will be made either:
1. without any guaranteed number of payments;
2. with payments guaranteed for the amount applied; or
3. with payments guaranteed for 5 or 10 years.
Interest Payment Option. We will hold any amount applied under this option. We
will pay any interest on the unpaid balance each month at a rate we determine.
This rate will not be less than 3% per year. (Not available as a variable
annuity payment.)
Joint Lifetime Payment Option. We will make fixed or variable payments based on
the lives of 2 named people. If a fixed income is elected, the payments are
equal. If a variable income is elected, the payments are not guaranteed as to
amount and may vary. 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 of this option are:
17
<PAGE>
1. Payments for two lives only. We guarantee no specific number of payments.
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.
Joint Lifetime Payment Option With Reduced Payments. We will make Fixed or
variable monthly payments based on the lives of two annuitants. When one dies,
we will make reduced payments during the lifetime of the survivor. We will stop
payments once both annuitants have died. These reduced payments will be
two-thirds of what they would have been if both annuitants had continued to
live.
If your contract value is less than $2,000 on the maturity date, or if the
annuity option you elect produces an initial monthly payment of less than $20,
we reserve the right to pay you a lump sum less any applicable contingent
deferred sales charge, rather than a series of annuity payments.
Payments After Death of an Annuitant
Generally, if a payment option with a guaranteed number of payments is elected,
and the annuitant dies before we have completed the guaranteed number of
payments, we will pay in one sum the present value of any unpaid payments under
the option to the beneficiary. We will determine the present value as of the
business day we receive written notice of death at our Annuity Service Center.
Limitation on Payment Options
If you purchase a contract as a TSA or an IRA, the Internal Revenue Code imposes
restrictions on the types of payment options that you may elect.
18
<PAGE>
Payments On Death
Death Of Annuitant During Accumulation Phase
If the annuitant dies during the accumulation phase, we will pay a death benefit
to the beneficiary. The death benefit will be the greater of:
1. the total of all purchase payments, less any withdrawals and any applicable
charges; or
2. your contract value as of the business day we receive proof of death, less
any applicable administrative charge.
We will deduct the amount of any applicable premium taxes.
We may pay the death benefit in one sum within 7 days after we receive due proof
of death and all other required forms at our Annuity Service Center. With our
consent, you may have the death benefit paid under one of the available payment
options.
We will credit interest on the death benefit until we pay the death benefit in
one sum or apply it to a payment option, at the greater of:
. the interest rate we currently pay on amounts held in our general account
under interest payment settlement options, or
. the rate earned by the Money Market Division, adjusted by the deduction of
the asset charge.
We do not impose a contingent deferred sales charge on death benefit
payments.
19
<PAGE>
Taxes
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included in the Statement of Additional Information an additional discussion
regarding taxes.
Annuity Contracts In General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you are taxed
depending on how you take the money out and the type of contract - qualified or
non-qualified.
You, as the owner of a non-qualified annuity, will generally not be taxed on
increases in the value of your contract until a distribution occurs - either as
a withdrawal or as annuity payments. When you make a withdrawal, you are taxed
on the amount of the withdrawal that is earnings. For annuity payments,
different rules apply. A portion of each annuity payment is treated as a partial
return of your purchase payments and is not taxed. The remaining portion of the
annuity payment is treated as ordinary income. How the annuity payment is
divided between taxable and non-taxable portions depends upon the period over
which the annuity payments are expected to be made. Annuity payments received
after you have recovered all of your purchase payments are fully includible in
income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
Qualified And Non-Qualified Contracts
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs) and pension and profit-sharing plans, which include 401(k) plans and H.R.
10 Plans.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your contract, the Code treats that withdrawal as
first coming from earnings and then from your purchase payments. Such withdrawn
earnings are includible in income.
The Code also provides that any amount received under an annuity contract that
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
1. paid on or after you reach age 59 1/2;
2. paid to your beneficiary after you die;
3. paid if you become totally disabled (as that term is defined in the Code);
4. paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
5. paid under an immediate annuity; or
20
<PAGE>
6. which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
If you have no cost basis for your interest in a qualified contract, the full
amount of any distribution is taxable to you as ordinary income. If you do have
a cost basis for your interest, a portion of the distribution is taxable,
generally based on the ratio of your cost basis to your total contract value.
Special tax rules may be available for certain distributions from a qualified
contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including contracts issued and
qualified under Code Sections 401 (Pension and Profit-Sharing Plans), 408
(Individual Retirement Annuities - IRAs), and 408A (Roth IRAs). Exceptions from
the penalty tax are as follows:
. distributions made on or after you reach age 59 1/2;
. distributions made after your death or disability (as defined in Code
Section 72(m)(7);
. after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for your
life (or life expectancy) or the joint lives (or joint life expectancies)
of you and your designated beneficiary (in applying this exception to
distributions from IRAs, a separation from service is not required);
. distributions made after separation of service if you have reached age 55
(not applicable to distributions from IRAs);
. distributions made to you up to the amount allowable as a deduction to you
under Code Section 213 for amounts you paid during the taxable year for
medical care;
. distributions made to an alternate payee pursuant to a qualified domestic
relations order (not applicable to distributions from IRAs);
. distributions from an IRA for the purchase of medical insurance (as
described in Code Section 213(d)(1)(D)) for you and your spouse and
dependents if you received unemployment compensation for at least 12 weeks
and have not been re-employed for at least 60 days);
. distributions from an IRA to the extent they do not exceed your qualified
higher education expenses (as defined in Code Section 72(t)(7) for the
taxable year; and
. distributions from an IRA which are qualified first-time home buyer
distributions (as defined in Code Section 72(t)(8)).
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which you attain
age 70 1/2 or (b) the calendar year in which you retire. The date set forth in
(b) does not apply to an IRA. Required distributions do not apply to a Roth IRA
during your lifetime. Required distributions must be over a period not exceeding
your life expectancy or the joint lives or joint life expectancies of you and
your designated beneficiary. If required minimum distributions are not made, a
50% penalty tax is imposed on the amount that should have been distributed.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of purchase payments made by owners through
salary reductions from certain Tax-Sheltered Annuities. Withdrawals of salary
reduction amounts and their earnings can only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled, as that term is defined in the Code; or
. in the case of hardship.
In the case of hardship, the owner can only withdraw his/her own purchase
payments made through salary reductions and not any earnings. Any contract value
as of December 31, 1988 is not subject to these restrictions. Additionally,
return of "excess contributions" or amounts paid to a spouse as a result of a
qualified domestic
21
<PAGE>
Withdrawals - Texas Optional
Retirement Program
No withdrawals 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 before you:
. terminate employment in all such institutions and repay employer
contributions if termination occurs during the First twelve months of
employment;
. retire;
. die; or
. attain age 70 1/2.
22
<PAGE>
Other Information
Performance
We may advertise certain performance-related information. This information
reflects historical performance and is not intended to indicate or predict the
future performance.
Standardized Total Returns
We will show standardized average annual total returns for separate account
divisions that have been in existence for more than one year. These returns
assume you made a single $1,000 payment at the beginning of the period and
withdrew the entire amount at the end of the period. The return reflects a
deduction for the contingent deferred sales charge, the administrative charge
and all other separate account and contact level charges, except premium taxes,
if any.
If a division has been in existence for less than one year, we will show the
aggregate total return. This assumes you made a single $1,000 payment at the
beginning of the period and withdrew the entire amount at the end of the period.
The return reflects the change in unit value and a deduction of the contingent
deferred sales charge.
Nonstandard Total Returns
We will also show total returns based on historical performance of the divisions
and underlying funds. We may assume the contacts were in existence prior to
their inception date, August 18, 1982, which they were not. Total return
percentages included all fund level and separate account level charges. They do
not include a contingent deferred sales charge, administrative charge, or
premium taxes, if any. If these charges were included, returns would be less
than those shown.
Total Returns compare the value of an accumulation unit at the beginning of a
period with the value of an accumulation unit at the end of the period.
Average Annual Total Returns measure this performance over a period of time
greater than one year. Average annual total returns compare values over a given
period of time and express the percentage as an average annual rate.
Yield and Effective Yield
We may also show yield and effective yield for the MML Money Market Fund over a
seven-day period, which we will then "annualize". This means that when we
calculate yield, we assume that the amount of money the investment earns for the
week is earned each week over a 52-week period. We show this as a percentage of
the investment. We calculate the "effective yield" similarly, but when we
annualize the amount, we assume the income earned is reinvested. Therefore the
effective yield is slightly higher than the yield because of the compounding
effect.
Year 2000
Like other businesses and governments around the world, we could be adversely
affected if the computer systems used by us and those with which we do business
do not properly recognize the year 2000. This is commonly known as the "Year
2000 issue".
In 1996, we began an enterprise-wide process of identifying, evaluating and
implementing changes to computer systems and applications software to address
the Year 2000 issue on our own behalf and on behalf of certain subsidiaries. We
are addressing the Year 2000 issue internally with modifications to existing
programs and conversions to new programs. We are also seeking assurances from
vendors, customers, service providers, governments and others with which we
conduct business, to determine their year 2000 readiness.
The costs related to the Year 2000 issue are currently being expensed, and when
measured against net gain from operations, are not material to us.
23
<PAGE>
Distributors
MML Investors Services, Inc. (MMLISI), a wholly-owned subsidiary of MassMutual,
acted as the principal underwriter for the contracts. The contracts are no
longer offered for sale to the public. However, you may continue to make
purchase payments to your contract. MMLISI is the current broker-dealer for the
existing contracts. MMLISI's address is 1414 Main Street, Springfield,
Massachusetts 01144-1013.
Assignment
The contract cannot be sold, discounted, assigned or pledged as a collateral for
a loan, security for the performance of any other obligation, or any other
purpose to anyone other than us.
Voting Rights
We are the legal owner of the fund shares. However, when a fund solicits proxies
in conjunction with a vote of shareholders, it is required to obtain from you
and other owners, instructions as to how to vote those shares. When we receive
those instructions, we will vote all of the shares, for which we have not
received voting instructions, in proportion to those instructions. This will
also include any shares that we own on our own behalf If we determine that we
are no longer required to comply with the above, we will vote the shares in our
own right.
During the accumulation phase of your contract and while the annuitant is
living, we determine the number of shares you may vote by dividing your contract
value in each fund, if any, by $100. Fractional shares are counted. During the
income phase or after the annuitant dies, we determine the number of shares you
may vote based on our liability for future variable monthly annuity payments.
Reservation Of Rights
We reserve the right to:
. Substitute another fund for one of the funds you have selected;
. Add separate account divisions;
. Change the name of a separate account; and
. Split or consolidate the number of accumulation units or annuity units for
any separate account division and correspondingly decrease or increase the
accumulation or annuity unit values for any division.
If we exercise any of these rights, we will receive prior approval from the
Securities and Exchange Commission, when necessary. We will also give you notice
of our intent to exercise any of these rights.
Suspension Of Payments Or Transfers
We may be required to suspend or postpone payments for withdrawals or transfers
from the funds for any period when:
. the New York Stock Exchange is closed (other than customary weekend and
holiday closings) or trading on the New York Stock Exchange is restricted;
or
. an emergency exists as a result of which disposal of shares of the funds is
not reasonably practicable or we cannot reasonably value the shares of the
fund; or
. during any other period when the Securities and Exchange Commission, by
order, so permits for your protection.
Legal Proceedings
We are currently not involved in any legal proceedings that might adversely
impact the contracts.
Financial Statements
We have included our financial statements and those of the Separate Accounts in
the Statement of Additional Information.
24
<PAGE>
Additional Information
For further information about the contract, you may obtain a Statement of
Additional Information. You can call the telephone number indicated on the cover
page or you can write to us. For you convenience we have included a form for
that purpose.
The Table of Contents of this statement is as follows:
1. General Information
2. Assignment of Contract
3. Restrictions on Redemptions
4. Distribution and Administration
5. Purchase of Securities Being Offered
6. Contract Value Calculation and Annuity Payments
7. Performance Measures
8. Federal Tax Matters
9. Experts
10. Financial Statements
25
<PAGE>
To: Massachusetts Mutual Life Insurance Company
Annuity Service Center, H305
P.O. Box 9067
Springfield, Massachusetts 01102-9067
Please send me a Statement of Additional Information for MassMutual's Flex-
Annuity.
Name
----------------------------------------
Address
----------------------------------------
----------------------------------------
City State Zip
-------------- ------ --------
Telephone
----------------------------------------
26
<PAGE>
Appendix A
Flex-Annuity Condensed Financial Information
The following schedules include accumulation unit values for the periods
indicated. We have extracted this data from the separate account's audited
financial statements. You should read this information in conjunction with the
separate accounts' audited Financial statements and related notes which are
included in the Statement of Additional Information.
Accumulation Units and Unit Values
<TABLE>
<CAPTION>
Massachusetts Mutual Variable Annuity MML MML MML MML
Separate Account 1 - Flex Annuity (Qualified) Equity Money Market Managed Bond Blend
Accumulation Units Values Division Division Division Division
<S> <C> <C> <C> <C>
December 31, 1998 $11.54 $2.28 $3.90 $5.60
December 31, 1997 $10.05 $2.20 $3.65 $4.99
December 31, 1996 $ 7.91 $2.11 $3.37 $4.18
December 31, 1995 $ 6.66 $2.04 $3.30 $3.71
December 31, 1994 $ 5.14 $1.95 $2.80 $3.05
December 31, 1993 $ 5.00 $1.90 $2.95 $3.01
December 31, 1992 $ 4.62 $1.88 $2.67 $2.78
December 31, 1991 $ 4.24 $1.84 $2.52 $2.57
December 31, 1990 $ 3.42 $1.75 $2.19 $2.10
December 31, 1989 $ 3.48 $1.64 $2.04 $2.08
</TABLE>
<TABLE>
<CAPTION>
Number of Accumulation
Units Outstanding
<S> <C> <C> <C> <C>
December 31, 1998 12,419,937 4,719,389 3,075,568 44,465,458
December 31, 1997 12,873,716 4,264,075 3,129,633 48,121,541
December 31, 1996 14,317,232 4,615,046 3,717,153 54,207,831
December 31, 1995 15,282,232 5,241,173 4,286,573 61,250,763
December 31, 1994 16,469,073 6,974,443 4,945,453 70,616,166
December 31, 1993 17,562,315 8,006,953 5,750,922 76,447,631
December 31, 1992 17,875,111 10,519,720 5,930,663 79,879,754
December 31, 1991 18,399,891 14,021,162 6,296,661 84,037,712
December 31, 1990 19,165,311 16,823,422 6,887,453 88,687,128
December 31, 1989 20,324,896 15,177,104 7,739,167 95,071,411
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Massachusetts Mutual Variable Annuity
Separate Account 2- MML MML MML MML
Flex-Annuity IV (Non-Qualified) Equity Money Market Managed Bond Blend
Accumulation Unit Values Division Division Division Division
<S> <C> <C> <C> <C>
December 31, 1998 $11.14 $2.30 $4.16 $5.73
December 31, 1997 $ 9.70 $2.22 $3.90 $5.11
December 31, 1996 $ 7.64 $2.13 $3.59 $4.28
December 31, 1995 $ 6.43 $2.06 $3.52 $3.80
December 31, 1994 $ 4.96 $1.97 $2.99 $3.12
December 31, 1993 $ 4.83 $1.92 $3.15 $3.08
December 31, 1992 $ 4.46 $1.90 $2.85 $2.85
December 31, 1991 $ 4.09 $1.86 $2.69 $2.64
December 31, 1990 $ 3.30 $1.77 $2.33 $2.15
December 31, 1989 $ 3.35 $1.66 $2.18 $2.13
</TABLE>
<TABLE>
<CAPTION>
Number of Accumulation
Units Outstanding
<S> <C> <C> <C> <C>
December 31, 1998 1,077,330 1,404,475 590,373 5,047,675
December 31, 1997 1,252,526 1,467,953 461,926 5,943,641
December 31, 1996 1,519,742 3,131,074 510,781 6,685,070
December 31, 1995 1,762,666 2,571,690 635,797 7,357,523
December 31, 1994 2,013,658 2,706,939 679,696 8,272,609
December 31, 1993 2,035,263 2,954,111 897,140 9,139,911
December 31, 1992 2,051,039 3,743,611 1,054,692 10,152,013
December 31, 1991 2,064,417 5,466,614 1,219,069 10,031,827
December 31, 1990 2,204,866 5,473,347 1,220,315 11,131,588
December 31, 1989 2,371,065 6,421,931 1,736,773 12,818,548
</TABLE>
A-2
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
1
<PAGE>
FLEX-ANNUITY
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, 1999 (the "Prospectus"). The Prospectus
may be obtained from Massachusetts Mutual Life Insurance Company, Annuity
Service Center, H305, P.O. Box 9067, Springfield, Massachusetts 01102-9067,
1-800-366-8226.
Dated May 1, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Information........................................... 2
Assignment of Contract........................................ 2
Restrictions on Redemption.................................... 3
Distribution and Administration............................... 3
Purchase of Securities Being Offered.......................... 4
Contract Value Calculations and Annuity Payments.............. 4
Performance Measures.......................................... 8
Federal Tax Matters........................................... 11
Experts....................................................... 17
Financial Statements....................................Final Pages
</TABLE>
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. It is currently licensed to transact life (including variable
life), accident, and health insurance business in all states, the District of
Columbia, Puerto Rico and certain provinces of Canada. MassMutual had
consolidated statutory assets in excess of $67 billion and estimated total
assets under management of $176.8 billion as of December 31, 1998. Its Home
Office is located in Springfield, Massachusetts.
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.
Although the assets of each Separate Account are assets of MassMutual, assets of
each Separate Account equal to the reserves and other Flex-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-Annuity contracts (the "contracts"), however, are general corporate
obligations of MassMutual.
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 a true copy thereof is received at its Home
Office. 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
2
<PAGE>
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 less
the administrative charge, 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;
(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 of other written instrument
incident to a divorce.
Assignments for value may be subject to federal income tax.
RESTRICTIONS ON REDEMPTION
Redemptions of TSAs may be restricted as required by Section 403(b)(11) of the
Internal Revenue Code (see, "Withdrawals - Tax-Sheltered Annuities" in the
prospectus for details). In restricting any such redemption, MassMutual relies
on the relief from sections 22(c), 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 represents that it complies with the
provisions of paragraphs (1)-(4) as set forth in the No Action Letter.
DISTRIBUTION AND ADMINISTRATION
Under a Servicing Agreement between MML Investors Services, Inc. ("MMLISI"), a
wholly-owned subsidiary of MassMutual, and the Separate Accounts, MMLISI agreed
to act as principal underwriter for each Separate Account and each Separate
Account agreed that MMLISI would be its exclusive principal underwriter.
Under the Servicing Agreement, MMLISI may receive compensation for its
activities as principal underwriter. In 1998 and 1997 there was no such
compensation. Commissions will be paid through MMLISI to agents for selling the
contracts. During 1998 and 1997, commission payments amounted to $234,373 and
$337,411, 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 contract described in the
Prospectus.
3
<PAGE>
These Servicing and Administrative Agreements may be terminated by the parties
without the payment of any penalty upon thirty 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. The contract owner will not
receive notice with respect of changes in the agreement.
As of March 31, 1988, the contracts are no longer offered for sale. Purchase
payments will, however, continue to be accepted under the contracts.
PURCHASE OF SECURITIES BEING OFFERED
Interests in the Separate Account are sold to contractholders as accumulation
units. Charges associated with such securities are discussed in the Expenses
section of the prospectus.
CONTRACT VALUE CALCULATIONS AND ANNUITY PAYMENTS
The Accumulation Phase
----------------------
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 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 four Divisions of the Separate
Account. At the end of each Valuation Period MassMutual will apply your purchase
payment (after deducting any applicable premium taxes) 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 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 on the date a purchase payment is received in good
order by MassMutual in the mail or by wire transfer at MassMutual's Annuity
Service Center or a designated bank lock box. If the date of receipt 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 a purchase payment is not applied to purchase
Accumulation Units within five business days after receipt at MassMutual's
Annuity Service Center (due to incomplete or ambiguous instructions, for
example) the payment will be refunded unless specific consent to retain the
payment for a longer period is obtained from the prospective purchaser.
4
<PAGE>
Net Investment Factor
---------------------
The Net Investment Factor for each Division for any Valuation Period is equal to
the sum of the Gross Investment Rate for that Division (as defined below) for
the Valuation Period and 1.00000000, decreased by the applicable Asset Charge.
The Net Investment Factor may be greater than or less than 1.00000000.
Gross Investment Rate
---------------------
The Gross Investment Rate for each Division of a Separate Account is equal to
the net earnings of that Division during the Valuation Period, divided by the
value of the net assets of that Division at the beginning of the Valuation
Period. The net earnings of each Division are equal to the accrued investment
income and capital gains and losses (realized and unrealized) of that Division
and an adjustment for taxes paid or provided for. The Gross Investment Rate will
be determined in accordance with generally accepted accounting principles and
applicable laws, rules and regulations. The Gross Investment Rate may be
positive or negative.
The policy of each Separate Account is to take dividends and capital gain
distributions on shares of the Funds held by each Separate Account in additional
shares and not in cash.
See the General Formulas section 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 Income Phase
----------------
When your contract approaches its maturity date, you may choose to have the
contract value 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 contract value in
one lump sum. If you elect a fixed annuity or a lump sum payment, a contingent
deferred sales charge (as described in the Prospectus) may be deducted from the
accumulated value of your contract at maturity. If, however, you elect a
variable monthly annuity, no contingent deferred sales charge will be deducted
from the accumulated value of your contract. 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 is elected. Variable monthly annuity payments will be made by withdrawal
of assets from the Separate Account.
5
<PAGE>
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 attributable to each
Division of the contract is determined by multiplying the number of Accumulation
Units credited to a Division on the maturity date of the contract by the
Accumulation Unit value of that Division on the payment calculation date for the
first variable monthly annuity payment. Such value is then multiplied by the
purchase rate (as defined below) to determine the amount of the first variable
monthly annuity payment attributable to each Division. Finally, the amount of
the first variable monthly annuity payment attributable to each Division is
divided by the Annuity Unit Value for that Division on the payment calculation
date for such payment to determine the number of Annuity Units for that
Division.
The dollar amount of each variable monthly annuity payment (other than the first
payment under a contract) is equal to the sum of the products obtained by
multiplying the number of Annuity Units in each Division credited to the
contract by their value (the "Annuity Unit Value") on the payment calculation
date.
Purchase Rate
-------------
The purchase rate for each Division is the amount of variable monthly annuity
payment purchased by $1,000 of Accumulated Value at maturity date applied to
that Division. The purchase rates which will be applied will be those specified
in the contract or those in use by MassMutual when the first variable monthly
annuity payment is due, whichever provides the higher income. The purchase rate
will differ according to the payment option which you elect and takes into
account the age and year of birth of the annuitant or annuitants. The sex of the
annuitant or annuitants will also be considered unless the contract is issued on
a unisex basis, including cases issued in connection with an employer-sponsored
plan covered by the United States Supreme Court case of Arizona Governing
-----------------
Committee v. Norris.
- --------------------
Assumed Investment Rates
------------------------
The Assumed Investment Rate for each 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 Separate Account 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.
6
<PAGE>
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 Annuity Unit Value on Preceding Valuation
Value = Date X Net Investment Factor
-----------------------------------------
1.00000000 plus rate of interest for number of days in
current Valuation Period at Assumed Investment Rate
Illustration of Computation of Accumulation
-------------------------------------------
and Annuity Unit Value Using Hypothetical Example
-------------------------------------------------
The above computations may be illustrated by the following hypothetical example:
Assume that the net earnings of the Division for the Valuation Period were
$11,760; that the value of net assets at the beginning of the Valuation Period
was $30,000,000; that the asset charge was .00003425 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 1.00035775
(.00039200 plus 1.00000000 minus .00003425). The new Accumulation Unit Value
would be $1.13540605 ($1.13500000 x 1.00035775). At an effective annual rate of
4%, the rate of interest for one day is .00010746, and the new Annuity Unit
Value would be $l.06726703 ($1.06700000 x 1.00035775 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
Monthly Annuity = Unit Value on Payment Calculation Date for
Payment First Variable Monthly Annuity Payment X
Purchase Rate
Number of First Variable Monthly Annuity Payment
--------------------------------------
Annuity Units = Annuity Unit Value on Payment Calculation
Date for First Variable Monthly Annuity Payment
Amount of
Subsequent Variable
Monthly Annuity = Number of Annuity Units X Annuity Unit Value
Payments on the Applicable Payment Calculation Date
7
<PAGE>
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 $l.20050000). If the
contract has Annuity Units credited in more than one Division of a Separate
Account, the above computation would be made for each Division and the variable
monthly annuity payment would be equal to the sum thereof.
PERFORMANCE MEASURES
MassMutual may advertise certain performance-related information. This
information reflects historical performance and is not intended to indicate or
predict future performance.
Standardized Average Annual Total Return
----------------------------------------
MassMutual will show standardized average annual total returns for each Separate
Account Division that has been in existence for more than one year. These
returns assume you made a single $1,000 payment at the beginning of the period
and withdrew the entire amount at the end of the period. The return reflects a
deduction for the contingent deferred sales charge, and all other fund, Separate
Account and contract level charges, except premium taxes, if any.
If a Separate Account Division has been in existence for less than one year,
MassMutual will show the aggregate total return. This assumes you made a single
$1,000 payment at the beginning of the period and withdrew the entire amount at
the end of the period. The return reflects the change in unit value and a
deduction of the contingent deferred sales charge.
The following tables show the standardized average annual total return for the
Divisions for the period ended December 31, 1998.
Separate Account 1-Flex-Annuity
(Tax-Qualified Contracts)
1-Year 5-Year 10-Year
------ ------ -------
MML Equity Division 5.29% 16.52% 14.27%
MML Money Market Division -4.94 2.23 3.77
MML Managed Bond Division -2.05 4.26 7.51
MML Blend Division 1.81 10.50 11.02
Separate Account 2- Flex-Annuity
(Non-Tax-Qualified Contracts)
1-Year 5-Year 10-Year
------ ------ -------
MML Equity Division 5.33% 16.55% 14.30%
MML Money Market Division -5.01 2.16 3.71
MML Managed Bond Division -2.05 4.26 7.53
MML Blend Division 1.84 10.53 11.04
8
<PAGE>
Non-Standard Total Returns
--------------------------
MassMutual will also show total returns based on historical performance of the
Divisions and underlying funds. MassMutual may assume the contracts were in
existence prior to their inception date (August 18, 1982), which they were not.
Total return percentages include all fund level and separate account level
charges. They do not include a contingent deferred sales charge, annual
administrative charge, or premium taxes, if any. If these charges were included,
returns would be less than those shown.
Total Returns compare the value of an accumulation unit at the beginning of a
period with the value of an accumulation unit at the end of the period.
Average Annual Total Returns measure this performance over a period of time
greater than one year. Average annual total returns compare values over a given
period of time and express the percentage as an average annual rate.
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 their inception date (August 18, 1982) which they were not.
Beginning on the contract inception date (August 18, 1982), actual accumulation
unit values are used for the calculations.
Average Annual Total Returns
For Periods Ending December 31, 1998
Separate Account 1- Flex-Annuity
(Tax-Qualified Contracts)
1-Year 5-Year 10-Year
------ ------ -------
MML Equity 14.77% 18.20% 14.97%
MML Money Market 3.87 3.67 4.12
MML Managed Bond 6.80 5.75 7.85
MML Blend 12.16 13.20 12.31
Separate Account 2- Flex-Annuity
(Non-Tax-Qualified Contracts)
1-Year 5-Year 10-Year
------ ------ -------
MML Equity 14.77% 18.20% 14.97%
MML Money Market 3.87 3.67 4.12
MML Managed Bond 6.80 5.75 7.87
MML Blend 12.16 13.20 12.31
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 service that rank mutual funds and other investment
companies by overall performance, investment objectives and assets; (b) compared
to indices; (c) tracked by other ratings services, companies, publications or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (d) 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.
9
<PAGE>
MassMutual may also show yield and effective yield for the Money Market Division
over a seven-day period, which MassMutual then "annualizes". This means that
when MassMutual calculates yield, it assumes that the amount of money the
investment earns for the week is earned each week over a 52-week period.
MassMutual shows this as a percentage of the investment. MassMutual calculates
the "effective yield" similarly but when it annualizes the amount, MassMutual
assumes the income earned is re-invested. Therefore, the effective yield is
slightly higher than the yield because of the compounding effect.
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 7-day yield and effective yield for the Money Market Division for the period
ended December 31, 1998 are as follows:
Before Annual Administrative Charge Deduction
7-Day Yield:
- -----------
Separate Account 1
(Tax-Qualified Contracts) .............................................. 3.54%
Separate Account 2
(Non-Tax Qualified Contracts) .......................................... 3.54%
7-Day Effective Yield:
- ---------------------
Separate Account 1
(Tax-Qualified Contracts) ............................................. 3.60%
Separate Account 2
(Non-Tax-Qualified Contracts) ......................................... 3.60%
After Annual Administrative Charge Deduction (0.12%)
7-Day Yield:
- -----------
Separate Account 1
(Tax-Qualified Contracts) ............................................. 3.42%
Separate Account 2
(Non-Tax Qualified Contracts) ......................................... 3.42%
7-Day Effective Yield:
- ---------------------
Separate Account 1
(Tax-Qualified Contracts) ............................................. 3.48%
Separate Account 2
(Non-Tax-Qualified Contracts) ......................................... 3.48%
The performance figures discussed above reflect historical results of the Funds
and are not intended to indicate or to predict future performance.
10
<PAGE>
FEDERAL TAX MATTERS
General
Note: The following description is based upon MassMutual's understanding of
current federal income tax law applicable to annuities in general. MassMutual
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. MassMutual does not guarantee the tax status of the contracts.
Purchasers bear the complete risk that the contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
Section 72 of the Code governs taxation of annuities in general. An owner is
generally not taxed on increases in the value of a contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the annuity option selected. For a lump sum payment received as a total
withdrawal (total surrender), the recipient is taxed on the portion of the
payment that exceeds the cost basis of the contract. For non-qualified
contracts, this cost basis is generally the purchase payments, while for
qualified contracts there may be no cost basis. The taxable portion of the lump
sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the contract (adjusted for any period or refund feature) bears
to the expected return under the contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
qualified plans there may be no cost basis in the contract within the meaning of
Section 72 of the Code. Owners, annuitants and beneficiaries under the contracts
should seek competent financial advice about the tax consequences of any
distributions.
MassMutual is taxed as a life insurance company under the Code. For federal
income tax purposes, the separate account is not a separate entity from
MassMutual, and its operations form a part of MassMutual.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the contract prior to the
receipt of payments under the contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the contract meet the
diversification requirements if; as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the contract. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed
11
<PAGE>
adequately diversified if: (1) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (2) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
MassMutual intends that all investment portfolios underlying the contracts will
be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the separate account will cause the owner to be treated as the
owner of the assets of the separate account, thereby resulting in the loss of
favorable tax treatment for the contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of owner control which may be exercised under the contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the owner to be considered as the owner of the assets of the separate
account resulting in the imposition of federal income tax to the owner with
respect to earnings allocable to the contract prior to receipt of payments under
the contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the owner being
retroactively determined to be the owner of the assets of the separate account.
Due to the uncertainty in this area, MassMutual reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
contracts will be taxed currently to the owner if the owner is a non-natural
person, e.g., a corporation or certain other entities. Such contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a contract held by a trust or other entity as an
agent for a natural person nor to contracts held by qualified plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
contract to be owned by a non-natural person.
12
<PAGE>
Tax Treatment of Assignments
An assignment or pledge of a contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions). The 20% withholding requirement also does not apply to
hardship distributions from a 401(k) plan made after December 31, 1998.
Participants should consult their own tax counsel or other tax adviser regarding
withholding requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% tax penalty), but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to qualified contracts. However, separate
tax withdrawal penalties and restrictions may apply to such qualified contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Qualified Plans
The contracts offered herein are designed to be suitable for use under various
types of qualified plans. Taxation of participants in each qualified plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
annuitants and beneficiaries are cautioned that benefits under a qualified plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into MassMutual's administrative procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the contracts comply with
applicable law. Following are general
13
<PAGE>
descriptions of the types of qualified plans with which the contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding qualified plans are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing a contract
issued under a qualified plan.
Contracts issued pursuant to qualified plans include special provisions
restricting contract provisions that may otherwise be available as described
herein. Generally, contracts issued pursuant to qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from qualified contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
---------------------------------
Norris that optional annuity benefits provided under an employer's deferred
- ------
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The contracts sold by MassMutual in connection with
qualified plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. Tax Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 50l(c)(3) of the Code. These qualifying employers may make
contributions to the contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the contracts. The amount of contributions
to the tax sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
b. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish qualified
plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" plans. Contributions made to the plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
14
<PAGE>
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year. Lower
maximum limitations apply to individuals with adjusted gross incomes between
$95,000 and $110,000 in the case of single taxpayers, between $150,000 and
$160,000 in the case of married taxpayers filing joint returns, and between $0
and $10,000 in the case of married taxpayers filing separately. An overall
$2,000 annual limitation continues to apply to all of a taxpayer's IRA
contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year period beginning
with tax year 1998.
Purchasers of contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the contracts to provide benefits under the plan.
Contributions to the plan for the benefit of employees will not be includible in
the gross income of the employees until distributed from the plan. The tax
consequences to participants may vary depending upon the particular plan design.
However, the Code places limitations and restrictions on all Plans including on
such items as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals - Qualified Contracts" below.) Purchasers of contracts for use with
Corporate Pension or Profit Sharing Plans should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a qualified contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a qualified
contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities), and 408 (Individual
Retirement Annuities) and 408A (Roth IRAs). To the extent amounts are not
includible in gross income because they have been rolled over to an IRA or to
another eligible qualified plan, no tax penalty will be imposed. The tax penalty
will not apply to the following distributions: (a) if distribution is made on or
after the date on which the owner or annuitant (as applicable) reaches age
59 1/2; (b) distributions following the death or
15
<PAGE>
disability of the owner or annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m) (7) of the Code); (c) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the owner or annuitant (as applicable) or the joint lives (or
joint life expectancies) of such owner or annuitant (as applicable) and his or
her designated beneficiary; (d) distributions to an owner or annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the owner or annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the owner or annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)( 1)(D) of the Code) for the owner or annuitant (as
applicable) and his or her spouse and dependents if the owner or annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the owner or annuitant (as applicable) has
been re-employed for at least 60 days); (h) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the owner or annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code.) The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions do not apply to a Roth IRA during the lifetime
of the Owner. Required distributions must be over a period not exceeding the
life expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the contract owner's
value which represents contributions made by the owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect transfers between tax sheltered annuity plans. Contract owners should
consult their own tax counsel or other tax adviser regarding any distributions.
Section 457 Deferred Compensation ("Section 457") Plans
Employees of (and independent contractors who perform services for) certain
state and local governmental units, or certain tax-exempt employers, may
participate in a Section 457 plan of the employer, allowing them to defer part
of their salary or other compensation. The amount deferred, and accrued income
thereon, will not be taxable until it is paid or otherwise made available to the
employee.
16
<PAGE>
The maximum amount that can be deferred under a Section 457 plan in any tax year
is generally one-third of the employee's includible compensation, up to $8,000
(in 1998). Includible compensation means earnings for services rendered to the
employer which are includible in the employee's gross income, excluding the
contributions under the Section 457 plan or a Tax-Sheltered Annuity. Certain
catch-up deferrals are permitted during the last three (3) years before an
employee attains normal retirement age. The contract purchased is issued to the
employer, and the employee has no rights or vested interest in the contract. All
contract value must be held for the exclusive benefit of the employee, and
payments can only be made in accordance with Section 457 plan provisions.
Presently, tax-free transfers of assets in a section 457 plan can only be made
to another section 457 plan in certain limited cases.
Purchasers of contracts for use with Section 457 plans should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
EXPERTS
We have included the financial statements of MassMutual and Massachusetts Mutual
Variable Annuity Separate Accounts 1 and 2 in this Statement of Additional
Information in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
PricewaterhouseCoopers LLP'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.
PricewaterhouseCoopers LLP is located in Springfield, Massachusetts 01101.
17
<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
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the divisions of the
Flex Annuity IV (Non-Qualified) segment of Massachusetts Mutual Variable Annuity
Separate Account 2 (hereafter referred to as "the Account") at December 31,
1998, the results of each of their operations for the year then ended and the
changes in each of their net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
December 31, 1998 by correspondence with the investment company, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Springfield, Massachusetts
February 25, 1999
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2-
Flex-Annuity IV (Non-Qualified)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,1998 MML MML
MML Money Managed MML
Equity Market Bond Blend
ASSETS Division Division Division Division
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investment in the MML Series Investment Fund
Number of shares (Note 2) 297,100 3,245,209 196,475 1,095,619
=========== =========== =========== ===========
Identified cost (Note 3B) $ 7,830,368 $ 3,245,209 $ 2,418,466 $21,579,686
=========== =========== =========== ===========
Value (Note 3A) $11,645,634 $ 3,245,209 $ 2,474,871 $27,481,598
Dividends receivable 589,783 13,247 44,822 1,721,558
Other assets 35 -- 7 9
----------- ----------- ----------- -----------
Total assets 12,235,452 3,258,456 2,519,700 29,203,165
LIABILITIES
Annuitant mortality fluctuation reserve (Note 3D) 5,656 399 1,568 5,018
Payable to Massachusetts Mutual Life Insurance Company 42,549 9,523 7,785 98,118
----------- ----------- ----------- -----------
Total liabilities 48,205 9,922 9,353 103,136
----------- ----------- ----------- -----------
NET ASSETS $12,187,247 $ 3,248,534 $ 2,510,347 $29,100,029
=========== =========== =========== ===========
Net Assets:
Accumulation units-value $11,998,723 $ 3,235,241 $ 2,458,077 $28,932,775
Annuity reserves (Note 3E) 188,524 13,293 52,270 167,254
----------- ----------- ----------- -----------
Net assets $12,187,247 $ 3,248,534 $ 2,510,347 $29,100,029
=========== =========== =========== ===========
Contract owners accumulation units (Note 8) 1,077,330 1,404,475 590,373 5,047,675
=========== =========== =========== ===========
NET ASSET VALUE PER ACCUMULATION UNIT
Flex Annuity IV Contracts (Note 8)
December 31, 1998 $ 11.14 2.30 $ 4.16 $ 5.73
December 31, 1997 9.70 2.22 3.90 5.11
December 31, 1996 7.64 2.13 3.59 4.28
December 31, 1995 6.43 2.06 3.52 3.80
December 31, 1994 4.96 1.97 2.99 3.12
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2-
Flex-Annuity IV (Non-Qualified)
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income
Dividends (Note 3B) $ 589,902 $ 140,498 $ 150,516 $ 2,485,176
Expenses
Mortality and expense risk fees and administrative
expenses (Note 4 and 6) 155,683 34,819 28,628 372,570
----------- ----------- ----------- -----------
Net investment income (Note 3C) 434,219 105,679 121,888 2,112,606
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments
Net realized gain on investments (Notes 3B, 3C and 7) 1,500,704 -- 16,515 2,242,270
Change in net unrealized appreciation of investments (238,875) -- 11,663 (947,816)
----------- ----------- ----------- -----------
Net gain on investments 1,261,829 -- 28,178 1,294,454
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations $ 1,696,048 $ 105,679 $ 150,066 $ 3,407,060
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2-
Flex-Annuity IV (Non-Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
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 $ 434,219 $ 105,679 $ 121,888 $ 2,112,606
Net realized gain on investments 1,500,704 -- 16,515 2,242,270
Change in net unrealized appreciation
of investments (238,875) -- 11,663 (947,816)
------------- ------------ ------------ ------------
Net increase in net assets
resulting from operations 1,696,048 105,679 150,066 3,407,060
------------- ------------ ------------ ------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 1,781 (116,401) 4,806 109,303
Withdrawal of funds (1,933,768) (294,367) (38,401) (3,939,156)
Payment of accumulation unit
value fluctuation (14,436) (376) 279 (7,219)
Net charge (credit) to
annuitant mortality fluctuation
reserve (Note 3D) 2,633 454 (2,365) (22,546)
Annuity benefit payments (17,783) (1,664) (4,548) (27,198)
Withdrawal due to administrative
charges and contingent deferred
sales charges (Note 6) (9,142) (1,569) (1,527) (27,375)
Divisional transfers 129,375 287,365 548,389 (965,129)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital transactions (1,841,340) (126,558) 506,633 (4,879,320)
------------- ------------ ------------ ------------
Total increase (decrease) (145,292) (20,879) 656,699 (1,472,260)
NET ASSETS, at beginning
of the year 12,332,539 3,269,413 1,853,648 30,572,289
------------- ------------ ------------ ------------
NET ASSETS, at end
of the year $ 12,187,247 $ 3,248,534 $ 2,510,347 $ 29,100,029
============ ============ ============ ============
<CAPTION>
1997
------------------------------------------------------------
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 $ 771,685 $ 116,445 $ 94,816 $ 2,538,525
Net realized gain on investments 1,888,269 -- 17,470 1,757,050
Change in net unrealized appreciation
of investments 253,100 -- 36,708 939,006
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations 2,913,054 116,445 148,994 5,234,581
------------ ------------ ------------ ------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 93,455 139,335 11,527 215,112
Withdrawal of funds (2,009,951) (3,604,494) (162,050) (4,041,646)
Payment of accumulation unit
value fluctuation 3,292 (2,577) 50,178 (61,327)
Net charge (credit) to
annuitant mortality fluctuation
reserve (Note 3D) 1,973 406 (52,609) (845)
Annuity benefit payments (16,272) (1,665) (4,541) (24,487)
Withdrawal due to administrative
charges and contingent deferred
sales charges (Note 6) (12,847) (2,378) (2,465) (31,749)
Divisional transfers (398,256) (73 891) (21,812) 493,959
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital transactions (2,338,606) (3,545,264) (181,772) (3,450,983)
------------ ------------ ------------ ------------
Total increase (decrease) 574,448 (3,428,819) (32,778) 1,783,598
NET ASSETS, at beginning
of the year 11,758,091 6,698,232 1,886,426 28,788,691
------------ ------------ ------------ ------------
NET ASSETS, at end
of the year $ 12,332,539 $ 3,269,413 $ 1,853,648 $ 30,572,289
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 2-Flex-Annuity IV (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.
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-Annuity IV (Non-Qualified)
segment (the "Segment").
2. INVESTMENT OF THE SEGMENT'S ASSETS
The Segment maintains four 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.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are four of six separate series of shares of the MML Series Investment
Fund (the "MML Trust"). The MML Trust is a no-load, open-end, management
investment company registered under the Investment Company Act of 1940.
MassMutual serves as investment manager of the MML Trust David L. Babson &
Company, Inc. ("Babson"), a controlled subsidiary of MassMutual, serves as
the investment sub-adviser to MML Equity Fund and the Equity Sector of the
MML Blend Fund.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Segment in the preparation of the financial statements
in conformity with generally accepted accounting principles.
A. Investment Valuation
The investments in MML Equity Fund, MML Money Market Fund, MML Managed Bond
Fund and MML Blend Fund are each stated at market value which is the net
asset value of each of the respective 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. 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.
F-5
<PAGE>
Notes To Financial Statements (Continued)
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 the Segment to
MassMutual totaled $70,343 and $29,402 for the years ended December 31,
1998 and 1997. 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
Daily charges for mortality and expense risks assumed by MassMutual are
made which are equivalent on an annual basis to 1.25% of the value of the
Segment's Contracts.
5. DISTRIBUTION AGREEMENT
MML Investors Services, Inc. ("MMLISI"), a wholly-owned subsidiary of
MassMutual, serves as the principal underwriter of the contracts. MMLISI is
registered as a broker-dealer under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. The
contracts are no longer offered for sale to the public. Contract owners may
continue, however, to make purchase payments under existing contracts.
MMLISI is the current broker-dealer for the existing contracts.
Pursuant to the underwriting and servicing agreements, commissions or other
fees due to registered representatives for servicing the contracts are paid
by MassMutual on behalf of MMLISI. MMLISI also receives compensation for
its activities as underwriter of the contracts.
F-6
<PAGE>
Notes To Financial Statements (Continued)
6. CHARGES/DEDUCTIONS FOR ADMINISTRATIVE CHARGES, CONTINGENT DEFERRED SALES
CHARGES AND PREMIUM TAXES
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For The Year Ended Equity Market Bond Blend
December 31 1998 Division Division Division Division
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross contract payments $ 12,566 $ (821,324) $ 33,914 $ 771,240
Less deduction for premium taxes 10,785 (704,923) 29,108 661,937
----------- ----------- ----------- -----------
Net contract payments $ 1,781 $ (116,401) $ 4,806 $ 109,303
=========== =========== =========== ===========
Administrative and contingent deferred sales charges $ 9,142 $ 1,569 $ 1,527 $ 27,375
=========== =========== =========== ===========
<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>
Gross contract payments $ 94,151 $ 140,373 $ 11,613 $ 216,715
Less deduction for premium taxes 696 1,038 86 1,603
----------- ----------- ----------- -----------
Net contract payments $ 93,455 $ 139,335 $ 11,527 $ 215,112
=========== =========== =========== ===========
Administrative and contingent deferred sales charges $ 12,847 $ 2,378 $ 2,465 $ 31,749
=========== =========== =========== ===========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENTS
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For The Year Ended Equity Market Bond Blend
December 31 1998 Division Division Division Division
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of purchases $ 1,799,569 $ 1,388,020 $ 916,894 $ 3,362,036
Proceeds from sales 2,895,266 1,420,421 315,481 5,761,957
</TABLE>
F-7
<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, 1998 Division Division Division Division
- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Units purchased (955) (52,549) 1,202 21,515
Units withdrawn (186,945) (130,708) (9,841) (734,346)
Units transferred between divisions 12,704 119,779 137,086 (183,135)
---------- ---------- ---------- ----------
Net increase (decrease) (175,196) (63,478) 128,447 (895,966)
Units, at beginning of the year 1,252,526 1,467,953 461,926 5,943,641
---------- ---------- ---------- ----------
Units, at end of the year 1,077,330 1,404,475 590,373 5,047,675
========== ========== ========== ==========
<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 10,422 63,128 3,139 35,300
Units withdrawn (237,757) (1,687,119) (44,739) (885,001)
Units transferred between divisions (39,881) (39,130) (7,255) 108,272
---------- ---------- ---------- ----------
Net decrease (267,216) (1,663,121) (48,855) (741,429)
Units, at beginning of the year 1,519,742 3,131,074 510,781 6,685,070
---------- ---------- ---------- ----------
Units, at end of the year 1,252,526 1,467,953 461,926 5,943,641
========== ========== ========== ==========
</TABLE>
9. CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 2
As discussed in Note 1, the financial statements only represent activity of
the Flex-Annuity IV (Non-Qualified) segment of Separate Account 2. The
combined net assets as of December 31, 1998 of 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 $596,618,457 $ 38,051,959 $ 63,822,955 $617,131,808 $144,292,620 $115,002,229 $ 52,414,963
Total Liabilities 2,009,831 348,232 187,024 2,285,207 526,065 400,300 180,296
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Assets $594,608,626 $ 37,703,727 $ 63,635,931 $614,846,601 $143,766,555 $114,601,929 $ 52,234,667
============ ============ ============ ============ ============ ============ ============
Net assets consist of:
- ---------------------
Accumulation units--Value 592,387,267 37,598,885 63,517,569 613,784,592 143,228,398 114,564,587 52,176,080
Annuity reserves 2,221,359 104,842 118,362 1,062,009 538,157 37,342 58,587
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net assets $594,608,626 $ 37,703,727 $ 63,635,931 $614,846,601 $143,766,555 $114,601,929 $ 52,234,667
============ ============ ============ ============ ============ ============ ============
</TABLE>
*Offered on the Flex Extra contracts only
F-8
<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
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the divisions of the
Variable Annuity Fund 4 and Flex Annuity IV (Qualified) segments of
Massachusetts Mutual Variable Annuity Separate Account 1 (hereafter referred to
as "the Account") at December 31, 1998, the results of each of their operations
for the year then ended and the changes in each of their net assets for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at December 31, 1998 by correspondence with
the investment company, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Springfield, Massachusetts
February 25, 1999
F-1
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -
Variable Annuity Fund 4 and Flex-Annuity IV (Qualified)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the MML Series Investment Fund
Number of shares (Note 2) 3,535,662 11,153,735 965,302 9,431,117
============ ============ ============ ============
Identified cost (Note 3B) $ 80,779,709 $ 11,153,735 $ 11,784,915 $176,911,691
============ ============ ============ ============
Value (Note 3A) $138,589,989 $ 11,153,735 $ 12,159,310 $236,562,268
Dividends receivable 7,018,769 44,928 220,218 14,819,212
Receivable from Massachusetts Mutual
Life Insurance Company - - - -
Other assets 1,749 282 65 3,546
------------ ------------ ------------ ------------
Total assets 145,610,507 11,198,945 12,379,593 251,385,026
LIABILITIES
Annuitant mortality fluctuation reserve (Note 3D) 17,908 2,269 1,300 14,665
Payable to Massachusetts Mutual Life Insurance Company 570,350 17,988 87,279 1,068,890
------------ ------------ ------------ ------------
Total liabilities 588,258 20,257 88,579 1,083,555
------------ ------------ ------------ ------------
NET ASSETS $145,022,249 $ 11,178,688 $ 12,291,014 $250,301,471
============ ============ ============ ============
Net Assets:
Accumulation units-value $144,425,324 $ 11,103,063 $ 12,247,668 $249,812,625
Annuity reserves (Note 3E) 596,925 75,625 43,346 488,846
------------ ------------ ------------ ------------
Net assets $145,022,249 $ 11,178,688 $ 12,291,014 $250,301,471
============ ============ ============ ============
Contractowners accumulation units (Note 8) 12,419,937 4,719,389 3,075,568 44,465,458
============ ============ ============ ============
NET ASSET VALUE PER ACCUMULATION UNIT
Variable Annuity Fund 4 Contracts
December31, 1998 $ 12.53 $ 2.67 $ 4.61 $ 6.05
December31, 1997 10.86 2.55 4.29 5.36
December31, 1996 8.51 2.45 3.93 4.47
December31, 1995 7.12 2.34 3.84 3.95
December31, 1994 5.47 2.24 3.24 3.23
Flex-Annuity IV Contracts
December31, 1998 $ 11.54 $ 2.28 $ 3.90 $ 5.60
December31, 1997 10.05 2.20 3.65 4.99
December31, 1996 7.91 2.11 3.37 4.18
December31, 1995 6.66 2.04 3.30 3.71
December31, 1994 5.14 1.95 2.80 3.05
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -
Variable Annuity Fund 4 and Flex-Annuity IV (Qualified)
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income
Dividends (Note 3B) $ 7,020,121 $ 576,655 $ 837,679 $ 21,228,003
Expenses
Mortality and expense risk fees (Note 4 and 6) 1,738,267 129,945 158,962 3,068,827
------------ ------------ ------------ ------------
Net investment income (Note 3C) 5,281,854 446,710 678,717 18,159,176
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments
Net realized gain on investments (Notes 3B, 3C and 7) 14,210,634 -- 108,221 15,752,768
Change in net unrealized appreciation/depreciation of investments 231,274 -- 106,881 (4,964,364)
------------ ------------ ------------ ------------
Net gain on investments 14,441,908 -- 215,102 10,788,404
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations $ 19,723,762 $ 446,710 $ 893,819 $ 28,947,580
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -
Variable Annuity Fund 4 and Flex-Annuity IV (Qualified)
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
MML MML
MML Money Managed MML
Equity Market Bond Blend
Division Division Division Division
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income(loss) $ 5,281,854 $ 446,710 $ 678,717 $ 18,159,176
Net realized gain
on investments 14,210,634 -- 108,221 15,752,768
Change in net unrealized appreciation/
depreciation of investments 231,274 -- 106,881 (4,964,364)
--------------- --------------- --------------- ---------------
Net increase in net assets
resulting from operations 19,723,762 446,710 893,819 28,947,580
--------------- --------------- --------------- ---------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 2,466,721 175,530 206,834 5,220,296
Withdrawal of funds (22,108,471) (2,478,180) (2,165,098) (35,159,415)
Reimbursement (payment) of
accumulation unit value fluctuation (12,533) (894) 109,281 (44,524)
Net charge (credit) to
annuitant mortality fluctuation
reserve (Note 3D) (10,142) 1,142 (182,559) (66,546)
Annuity benefit payments (47,641) (8,709) (9,378) (47,457)
Withdrawal due to administrative
charges and contingent deferred
sales charges (Note 6) (154,800) (15,832) (18,209) (337,671)
Divisional transfers 1,529,256 1,133,039 51,073 (2,713,368)
--------------- --------------- --------------- ---------------
Net decrease in net assets
assets resulting from capital
transactions (18,337,610) (1,193,904) (2,008,056) (33,148,685)
--------------- --------------- --------------- ---------------
Total increase (decrease) 1,386,152 (747,194) (1,114,237) (4,201,105)
NET ASSETS, at beginning
of the year 143,636,097 11,925,882 13,405,251 254,502,576
--------------- --------------- --------------- ---------------
NET ASSETS, at end
of the year $ 145,022,249 $ 11,178,688 $ 12,291,014 $ 250,301,471
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
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) $ 9,170,126 $ 477,217 $ 731,070 $ 21,203,229
Net realized gain
on investments 11,189,116 -- 94,985 15,516,402
Change in net unrealized appreciation/
depreciation of investments 12,290,703 -- 316,741 7,373,762
--------------- --------------- --------------- ---------------
Net increase in net assets
resulting from operations 32,649,945 477,217 1,142,796 44,093,393
--------------- --------------- --------------- ---------------
Capital transactions: (Note 8)
Net contract payments (Note 6) 3,001,622 494,755 265,014 6,144,790
Withdrawal of funds (18,454,626) (4,005,052) (2,012,392) (32,691,847)
Reimbursement (payment) of
accumulation unit value fluctuation (151,405) (7,987) (11,044) (55,938)
Net charge (credit) to
annuitant mortality fluctuation
reserve (Note 3D) 5,582 1,201 7,629 8,245
Annuity benefit payments (30,566) (8,972) (12,113) (40,838)
Withdrawal due to administrative
charges and contingent deferred
sales charges (Note 6) (169,948) (20,592) (22,076) (397,954)
Divisional transfers 1,518,854 2,329,197 (755,323) 3,092,728
--------------- --------------- --------------- ---------------
Net decrease in net assets
assets resulting from capital
transactions (14,280,487) (1,217,450) (2,540,305) (30,126,270)
--------------- --------------- --------------- ---------------
Total increase (decrease) 18,369,458 (740,233) (1,397,509) 13,967,123
NET ASSETS, at beginning
of the year 125,266,639 12,666,115 14,802,760 240,535,453
--------------- --------------- --------------- ---------------
NET ASSETS, at end
of the year $ 143,636,097 $ 11,925,882 $ 13,405,251 $ 254,502,576
=============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
Massachusetts Mutual Variable Annuity Separate Account 1 -Variable Annuity Fund
4 and Flex-Annuity IV (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 Variable Annuity
Fund 4 and Flex-Annuity IV (Qualified) segments (the "Segment").
2. INVESTMENT OF THE SEGMENT'S ASSETS
The Variable Annuity Fund 4 and the Flex-Annuity IV (Qualified) segments each
have four 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.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are four of the six separate series of shares of the MML Series
Investment Fund (the "MML Trust"). The MML Trust is a no-load, open-end,
management investment company registered under the Investment Company Act of
1940. MassMutual serves as investment manager of the MML Trust. David L.
Babson and Company, Inc. ("Babson"), a controlled subsidiary of MassMutual,
serves as the investment sub-adviser to MML Equity Fund and the Equity Sector
of the MML Blend Fund.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Segment in preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Investment Valuation
Investments in MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund
and MML Blend Fund are each stated at market value which is the net asset
value of each of the respective 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.
F-5
<PAGE>
Notes To Financial Statements (Continued)
C. Federal Income Taxes
Operations of the Segment form a part of the total operations of MassMutual,
and the Segment is not taxed separately. MassMutual is taxed as a life
insurance company under the provisions of the 1986 Internal Revenue Code, as
amended. The Segment will not be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. Under existing federal law,
no taxes are payable on investment income and realized capital gains
attributable to Contracts which depend on the Segment's investment
performance. 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 Segments. Net transfers from the Segments to
MassMutual totaled $162,413 for the year ended December 31, 1998 and net
transfers from MassMutual to the Segments totaled $31,303 for the year ended
December 31, 1997. 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
A. Variable Annuity Fund 4 Contracts
Currently, daily charges for mortality and expense risks assumed by
MassMutual are made which are equivalent on an annual basis to 0.730% of the
value of the Variable Annuity Fund 4 Contracts. Effective on January 1 of any
year after the first Contract year, the daily charge made for the assumption
of mortality and expense risks will be as determined by MassMutual, but in no
event will such charge be at an annual rate of more than 1.2045% of the value
of the Variable Annuity Fund 4 Contracts.
B. Flex-Annuity IV (Qualified) Contracts
Daily charges for mortality and expense risks assumed by MassMutual are made
which are equivalent on an annual basis to 1.25% of the value of the
Flex-Annuity IV Contracts.
F-6
<PAGE>
Notes To Financial Statements (Continued)
5. DISTRIBUTION AGREEMENT
MML Investors Services, Inc. ("MMLISI"), a wholly-owned subsidiary of
MassMutual, serves as the principal underwriter of the contracts. MMLISI is
registered as a broker-dealer under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. The
Contracts are no longer offered for sale to the public. Contract owners may
continue, however, to make purchase payments under existing contracts.
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 MMLISI. MMLISI also receives
compensation for its activities as underwriter of the contracts.
6. CHARGES/DEDUCTIONS FOR ADMINISTRATIVE CHARGES, CONTINGENT DEFERRED SALES
CHARGES AND PREMIUM TAXES
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For The Year Ended Equity Market Bond Blend
December 31, 1998 Division Division Division Division
- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross contract payments $2,471,970 $ 177,304 $ 208,328 $5,230,590
Less deductions for administrative and sales expenses and
premium taxes under Variable Annuity Fund 4 Contracts 2,790 1,615 1,300 5,081
Less deductions for premium taxes under Flex-Annuity IV Contracts 2,459 159 194 5,213
---------- ---------- ---------- ----------
Net contract payments $2,466,721 $ 175,530 $ 206,834 $5,220,296
========== ========== ========== ==========
Administrative and contingent deferred sales
charges under Flex-Annuity IV Contracts $ 154,800 $ 15,832 $ 18,209 $ 337,671
========== ========== ========== ==========
<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>
Gross contract payments $3,011,071 $ 496,555 $ 266,245 $6,154,432
Less deductions for administrative and sales expenses and
premium taxes under Variable Annuity Fund 4 Contracts 7,601 1,498 1,072 5,762
Less deductions for premium taxes under Flex-Annuity IV Contracts 1,848 302 159 3,880
---------- ---------- ---------- ----------
Net contract payments $3,001,622 $ 494,755 $ 265,014 $6,144,790
========== ========== ========== ==========
Administrative and contingent deferred sales
charges under Flex-Annuity IV Contracts $ 169,948 $ 20,592 $ 22,076 $ 397,954
========== ========== ========== ==========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENTS
MML MML
MML Money Managed MML
For The Year Ended Equity Market Bond Blend
December 31, 1998 Division Division Division Division
- ----------------- ----------- ----------- ----------- -----------
Cost of purchases $14,778,688 $ 3,659,099 $ 2,775,331 $26,264,267
Proceeds from sales 24,773,656 4,414,628 4,132,147 37,999,438
F-7
<PAGE>
Notes To Financial Statements (Continued)
8. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
Variable Annuity Fund 4 Contracts
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
For The Year Ended December 31, 1998 Division Division Division Division
- ------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units purchased 2,737 6,988 3,319 10,065
Units withdrawn (133,465) (121,212) (65,222) (625,196)
Units transferred between divisions (24,366) 28,034 (24,385) 58,259
----------- ----------- ----------- -----------
Net decrease (155,094) (86,190) (86,288) (556,872)
Units, at beginning of the year 1,273,191 973,364 432,147 2,585,687
----------- ----------- ----------- -----------
Units, at end of the year 1,118,097 887,174 345,859 2,028,815
=========== =========== =========== ===========
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
For The Year Ended December 31, 1997 Division Division Division Division
- ------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units purchased 12,886 9,284 4,161 18,677
Units withdrawn (109,962) (255,951) (95,987) (501,192)
Units transferred between divisions (3,063) 62,543 (29,721) (3,475)
----------- ----------- ----------- -----------
Net decrease (100,139) (184,124) (121,547) (485,990)
Units, at beginning of the year 1,373,330 1,157,488 553,694 3,071,677
----------- ----------- ----------- -----------
Units, at end of the year 1,273,191 973,364 432,147 2,585,687
=========== =========== =========== ===========
</TABLE>
Flex-Annuity IV Contracts
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
For The Year Ended December 31, 1998 Division Division Division Division
- ------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units purchased 227,165 70,451 51,088 980,036
Units withdrawn (1,947,848) (974,158) (501,659) (6,071,251)
Units transferred between divisions 168,200 471,847 50,647 (593,683)
Units transferred to annuity reserves (19,393) -- -- --
----------- ----------- ----------- -----------
Net decrease (1,571,876) (431,860) (399,924) (5,684,898)
Units, at beginning of the year 12,873,716 4,264,075 3,129,633 48,121,541
----------- ----------- ----------- -----------
Units, at end of the year 11,301,840 3,832,215 2,729,709 42,436,643
=========== =========== =========== ===========
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
For The Year Ended December 31, 1997 Division Division Division Division
- ------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units purchased 329,886 219,786 72,450 1,364,806
Units withdrawn (1,945,969) (1,580,385) (474,106) (6,749,621)
Units transferred between divisions 175,415 1,009,628 (185,864) (688,140)
Units transferred to annuity reserves (2,848) -- -- (13,335)
----------- ----------- ----------- -----------
Net decrease (1,443,516) (350,971) (587,520) (6,086,290)
Units, at beginning of the year 14,317,232 4,615,046 3,717,153 54,207,831
----------- ----------- ----------- -----------
Units, at end of the year 12,873,716 4,264,075 3,129,633 48,121,541
=========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
Notes To Financial Statements (Continued)
9. CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 1
As discussed in Note 1, the financial statements only represent activity of
the Variable Annuity Fund 4 and Flex-Annuity IV (Qualified) segment of the
Massachusetts Mutual Variable Annuity Separate Account 1. The combined net
assets as of December 31, 1998 for Massachusetts Mutual Variable Annuity
Separate Account 1, which includes the segments pertaining to the Variable
Annuity Fund 4, Flex-Annuity IV (Qualified) and Flex Extra (Qualified) are
as follows:
<TABLE>
<CAPTION>
MML MML *Oppenheimer *Oppenheimer *Oppenheimer
MML Money Managed MML Capital Global Strategic
Equity Market Bond Blend Appreciation Securities Bond
Division Division Division Division Division Division Division
-------------- ----------- ------------ -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $1,960,599,721 $96,147,133 $150,710,305 $2,188,485,498 $385,729,266 $254,924,173 $80,170,327
Total liabilities 9,803,903 20,633 530,032 9,071,364 1,728,181 1,135,490 231,388
-------------- ----------- ------------ -------------- ------------ ------------ -----------
Net assets $1,950,795,818 $96,126,500 $150,180,273 $2,179,414,134 $384,001,085 $253,788,683 $79,938,939
============== =========== ============ ============== ============ ============ ===========
Net assets consist of:
Accumulation units - value $1,949,334,602 $96,038,348 $150,046,125 $2,176,973,482 $383,934,442 $253,758,932 $79,915,278
Annuity reserves 1,461,216 88,152 134,148 2,440,652 66,643 29,751 23,661
-------------- ----------- ------------ -------------- ------------ ------------ -----------
Net assets $1,950,795,818 $96,126,500 $150,180,273 $2,179,414,134 $384,001,085 $253,788,683 $79,938,939
============== =========== ============ ============== ============ ============ ===========
</TABLE>
*Offered on the Flex Extra Contracts only.
<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, 1998 and 1997,
and the related statutory statements of income and changes in policyholders'
contingency reserves, and of cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the Division of Insurance
of the Commonwealth of Massachusetts, 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, are presumed to be
material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements audited by us do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company as of December 31, 1998 and 1997,
or the results of its operations or its cash flows for each of the three years
in the period ended December 31, 1998.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Massachusetts Mutual Life Insurance
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, on the basis of accounting described in Note 1.
PricewaterhouseCoopers LLP
Springfield, Massachusetts
February 25, 1999
FF-1
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION
December 31,
1998 1997
-------- --------
(In Millions)
Assets:
Bonds $ 25,215.8 $ 23,508.2
Common stocks 296.3 354.7
Mortgage loans 5,916.5 5,245.8
Real estate 1,739.8 1,697.7
Other investments 2,263.7 1,963.8
Policy loans 5,224.2 4,950.4
Cash and short-term investments 1,123.3 1,941.2
----------- -----------
41,779.6 39,661.8
Other assets 1,306.2 1,169.7
----------- -----------
43,085.8 40,831.5
Separate account assets 19,589.7 16,803.1
----------- -----------
$ 62,675.5 $ 57,634.6
=========== ===========
See notes to statutory financial statements.
FF-2
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION, Continued
December 31,
1998 1997
-------- --------
(In Millions)
Liabilities:
Policyholders' reserves and funds $ 35,277.0 $ 33,783.2
Policyholders' dividends 1,021.6 954.1
Policyholders' claims and other benefits 332.4 353.4
Federal income taxes 634.9 436.5
Asset valuation and other investment reserves 1,053.4 973.4
Other liabilities 1,578.9 1,457.9
----------- -----------
39,898.2 37,958.5
Separate account liabilities 19,588.5 16,802.8
----------- -----------
59,486.7 54,761.3
Policyholders' contingency reserves 3,188.8 2,873.3
----------- -----------
$ 62,675.5 $ 57,634.6
=========== ===========
See notes to statutory financial statements.
FF-3
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Revenue:
Premium income $ 7,482.2 $ 6,764.8 $ 6,328.6
Net investment income 2,956.8 2,870.2 2,834.4
Fees and other income 154.0 126.7 117.2
--------- --------- ---------
10,593.0 9,761.7 9,280.2
--------- --------- ---------
Benefits and expenses:
Policyholders' benefits and payments 5,873.9 6,583.8 6,048.2
Addition to policyholders' reserves and funds 2,299.6 826.8 945.2
Operating expenses 509.5 450.8 428.0
Commissions 299.3 315.3 335.5
State taxes, licenses and fees 88.1 81.5 96.4
Merger restructuring costs - - 66.1
--------- --------- ---------
9,070.4 8,258.2 7,919.4
--------- --------- ---------
Net gain before federal income taxes and dividends 1,522.6 1,503.5 1,360.8
Federal income taxes 199.3 284.4 276.7
--------- --------- ---------
Net gain from operations before dividends 1,323.3 1,219.1 1,084.1
Dividends to policyholders 982.9 919.5 859.9
--------- --------- ---------
Net gain from operations 340.4 299.6 224.2
Net realized capital gain (loss) 25.4 (42.5) 40.3
--------- --------- ---------
Net income $ 365.8 $ 257.1 $ 264.5
========= ========= =========
</TABLE>
See notes to statutory financial statements.
FF-4
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Policyholders' contingency reserves,
beginning of year $2,873.3 $2,638.6 $2,600.9
-------- -------- --------
Increases (decreases) due to:
Net income 365.8 257.1 264.5
Net unrealized capital gain (loss) 17.4 119.1 (1.7)
Change in asset valuation and other investment reserves (81.0) (76.0) (142.4)
Change in prior year policyholders' reserves 8.6 (55.4) (72.2)
Other 4.7 (10.1) (10.5)
-------- -------- --------
315.5 234.7 37.7
-------- -------- --------
Policyholders' contingency reserves,
end of year $3,188.8 $2,873.3 $2,638.6
======== ======== ========
</TABLE>
See notes to statutory financial statements.
FF-5
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Operating activities:
Net income $ 365.8 $ 257.1 $ 264.5
Addition to policyholders' reserves and funds,
net of transfers to separate accounts 1,472.8 421.3 426.7
Net realized capital (gain) loss (25.4) 42.5 (40.3)
Other changes 15.4 (108.1) (286.1)
--------- --------- ---------
Net cash provided by operating activities 1,828.6 612.8 364.8
--------- --------- ---------
Investing activities:
Loans and purchases of investments (15,981.2) (12,292.7) (10,171.5)
Sales or maturities of investments and receipts
from repayment of loans 13,334.7 12,545.7 8,539.3
--------- --------- ---------
Net cash provided by (used in) investing activities (2,646.5) 253.0 (1,632.2)
--------- --------- ---------
Increase (decrease) in cash and short-term investments (817.9) 865.8 (1,267.4)
Cash and short-term investments, beginning of year 1,941.2 1,075.4 2,342.8
--------- --------- ---------
Cash and short-term investments, end of year $ 1,123.3 $ 1,941.2 $ 1,075.4
========= ========= =========
</TABLE>
See notes to statutory financial statements.
FF-6
<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 either directly or through its subsidiaries, 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, 1996 in conformity with the 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. In 1996, merger-related expenses totaling
$66.1 million were recorded in the Statutory Statement of Income. 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 charge to
policyholders' contingency reserves.
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.
1. SUMMARY OF ACCOUNTING PRACTICES
The accompanying statutory financial statements, have been prepared in
conformity with the statutory accounting practices of the NAIC and the
accounting practices prescribed or permitted by the Division of Insurance of
the Commonwealth of Massachusetts and are different in some respects from
financial statements prepared in accordance with generally accepted
accounting principles ("GAAP"). 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, morbidity 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 requires they be reported 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
income and changes in reserves, whereas under GAAP, these payments would be
recorded as deposits to policyholders' account balances.
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification"). Codification provides a comprehensive guide of
statutory accounting principles for use by insurers in all states and is
expected to become effective no later than January 1, 2001. The effect of
adopting Codification shall be reported as an adjustment to policyholders'
contingency reserves on the effective date. The Company is currently
reviewing the impact of Codification; however, since the Division of
Insurance of the Commonwealth of Massachusetts has not approved
Codification, the ultimate impact cannot be determined at this time.
FF-7
<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.
Certain 1997 and 1996 amounts have been reclassified to conform with the
current year presentation.
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
NAIC. 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 net of unamortized premium or
discount. The Company discontinues the accrual of interest on mortgage loans
which are delinquent more than 90 days or when collection is uncertain. Real
estate is valued at cost less accumulated depreciation, impairment
allowances and mortgage encumbrances. Encumbrances totaled $63.5 million in
1998 and $14.2 million in 1997. 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 ("AVR") and an Interest Maintenance Reserve ("IMR"). The
AVR 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 IMR
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 and interest related hedging activities. 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 $189.1 million
in 1998, $95.4 million in 1997 and $73.1 million in 1996 were charged to the
IMR. Amortization of the IMR into net investment income amounted to $40.3
million in 1998, $31.0 million in 1997, and $26.9 million in 1996.
Realized capital gains and losses, less taxes, not includible in the IMR,
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 contractholders. Assets consist
principally of marketable securities reported at fair value. Premiums,
benefits and expenses of the separate
FF-8
<PAGE>
Notes To Statutory Financial Statements (Continued)
accounts are reported in the Statutory Statement of Income. The Company
receives administrative and investment advisory fees from these accounts.
Net transfers to separate accounts of $821.3 million, $355.7 million and
$636.5 million in 1998, 1997 and 1996, respectively, are included in the
addition of policyholders' reserves and funds.
C. Non-admitted Assets
Assets designated as "non-admitted" (principally certain furniture,
equipment and other receivables) are excluded from the Statutory Statement
of Financial Position by an adjustment to policyholders' contingency
reserves.
D. Policyholders' Reserves and Funds
Policyholders' reserves for life insurance 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 6.75
percent.
Reserves for individual annuities, guaranteed investment contracts and
deposit administration and immediate participation guarantee contracts 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 $7,734.6 million and $8,077.9
million at December 31, 1998 and 1997, respectively with a fair value of
$7,940.6 million and $8,250.0 million at December 31, 1998 and 1997,
respectively, as determined by discounted cash flow projections.
Disability income 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
which increased policyholders' contingency reserves by $8.6 million in 1998
and decreased policyholders' contingency reserves by $55.4 million and $72.2
million in 1997 and 1996, respectively.
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. Disability
income 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.
FF-9
<PAGE>
Notes To Statutory Financial Statements (Continued)
G. Cash and Short-term Investments
For purposes of the Statutory Statement of Cash Flows, the Company considers
all highly liquid investments purchased with a maturity of twelve months or
less to be short-term investments.
H. 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.
2. SURPLUS NOTES
The Company issued surplus notes of $100.0 million at 7.50 percent and $250.0
million at 7.625 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 1998, 1997 and 1996.
The proceeds of the notes, less a $24.4 million reserve in 1998, and a $28.3
million reserve in 1997 for contingencies associated with the issuance of the
notes, are recorded as a component of the Company's policyholders'
contingency reserves as permitted by the Division of Insurance. These surplus
note reserves are included in asset valuation and other investment reserves
on the Statutory Statement of Financial Position.
3. BENEFIT PLANS
The Company provides multiple benefit plans to employees, agents and retirees
including retirement plans and life and health benefits.
Retirement Plans
The Company has two non-contributory defined benefit plans covering
substantially all of its employees. One plan includes active employees and
retirees previously employed by Connecticut Mutual Life Insurance Company
which merged with MassMutual in 1996; the other plan includes all other
eligible employees and retirees. 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 $216.0 million and $157.4 million at December 31, 1998 and 1997,
respectively. 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, 1998, and 1997. The assets of the plans are invested in the
Company's general account and separate accounts.
FF-10
<PAGE>
Notes To Statutory Financial Statements (Continued)
The Company also has defined contribution plans for employees and agents. The
Company funds the plans by matching employee contributions, subject to
statutory limits. Company contributions and any earnings on them are vested
based on years of vesting service using a graduated vesting schedule in 20
percent increments over a five-year period.
Life and Health
Life and health insurance benefits are provided to employees and agents
through group insurance contracts. Substantially all of the Company's
employees and agents may become eligible for continuation of certain of these
benefits if they retire as active employees or agents of 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 initial
transition obligation of $137.9 million is being amortized over twenty years
through 2012. During 1998, the Company transferred the administration of the
retiree life and health plan benefit obligations and supporting assets to an
unconsolidated subsidiary.
The status of the defined benefit plans as of December 31 is as follows:
Retirement Life and Health
1998 1997 1998 1997
---- ---- ---- ----
(In Millions)
Accumulated benefit obligation
at December 31 $ 822.8 $ 663.1 $ 185.6 $ 145.9
Fair value of plan assets
at December 31 1,160.2 1,154.2 21.0 21.7
--------- --------- -------- --------
Funded status $ 337.4 $ 491.1 $ (164.6) $ (124.2)
========= ========= ======== ========
The following rates were used in determining the actuarial present value of the
accumulated benefit obligations.
<TABLE>
<CAPTION>
Retirement Life and Health
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.25% 6.75% 7.25%
Increase in future compensation
levels 4.00-5.00% 4.00-5.00% 5.00% 5.00-5.50%
Long-term rate of return on assets 9.00-10.00% 9.00-10.00% 6.75% 6.75%
Assumed increases in medical cost
Rates in the first year - - 7.00% 6.25-9.50%
declining to - - 4.25% 4.75-5.00%
within - - 5 years 5 years
</TABLE>
A one percent increase in the annual assumed inflation rate in medical cost
rates would increase the 1998 accumulated postretirement benefit liability and
benefit expense by $9.2 million and $1.1 million, respectively. A one percent
decrease in the annual assumed inflation rate in medical costs rates would
decrease the 1998 accumulated postretirement benefit liability and benefit
expense by $8.5 million and $1.0 million, respectively.
FF-11
<PAGE>
Notes To Statutory Financial Statements (Continued)
The expense charged to operations for all employee benefit plans is $32.1
million in 1998, $23.9 million in 1997 and $38.1 million in 1996. 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.
4. RELATED PARTY TRANSACTIONS
The company has management and service contracts or cost sharing arrangements
with various subsidiaries and affiliates whereby the Company, for a fee, will
furnish a subsidiary or affiliate, as required, operating facilities, human
resources, computer software development and managerial services. Fees earned
under the terms of the contracts or arrangements were $205.0 million and
$137.3 million for 1998 and 1997, respectively.
The Company has reinsurance agreements with its subsidiaries, C.M. Life
Insurance Company and MML Bay State Life Insurance Company, including stop-
loss and modified coinsurance agreements on life insurance products. Total
premiums assumed on these agreements were $38.4 million in 1998, $40.9
million in 1997 and $44.1 million in 1996.
5. FEDERAL INCOME TAXES
Provision for federal income taxes is based upon the Company's 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 miscellaneous temporary differences, such as
reserves, acquisition costs and restructuring costs and of permanent
differences such as the equity tax, resulted in effective tax rates which
differ from the statutory tax rate.
The Company plans to file its 1998 federal income tax return on a
consolidated basis with its eligible life affiliates and non-life affiliates.
C.M. Life Insurance Company, which is not an eligible life affiliate, files a
separate return. The Company and its eligible life insurance 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 affiliates with losses shall be compensated for the
use of their losses and credits by other affiliates.
The Internal Revenue Service has completed examining the Company's income tax
returns through the year 1992 for Massachusetts Mutual and 1995 for
Connecticut Mutual, and is currently examining Massachusetts Mutual for the
years 1993 and 1994. The Company believes adjustments which may result from
such examinations will not materially affect its financial position.
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for
1998 or 1997. The Company records the estimated effects of anticipated
revisions in the Statutory Statement of Income.
Federal tax payments were $152.4 million in 1998, $353.4 million in 1997 and
$330.7 million in 1996.
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.
FF-12
<PAGE>
Notes To Statutory Financial Statements (Continued)
A. Bonds
The carrying value and estimated fair value of bonds are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 4,945.3 $ 473.0 $ 20.4 $ 5,397.9
and obligations of U. S.
government corporations
and agencies
Debt securities issued by 41.2 1.5 1.3 41.4
foreign governments
Mortgage-backed securities 3,734.4 188.0 13.9 3,908.5
State and local governments 360.5 33.2 7.9 385.8
Corporate debt securities 14,133.3 845.3 118.4 14,860.2
Utilities 885.8 102.6 0.3 988.1
Affiliates 1,115.3 0.6 0.9 1,115.0
----------- ---------- -------- -----------
TOTAL $ 25,215.8 $ 1,644.2 $ 163.1 $ 26,696.9
=========== ========== ======== ===========
<CAPTION>
December 31, 1997
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
---------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
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 83.5 4.4 3.0 84.9
foreign governments
Mortgage-backed securities 3,008.7 187.9 9.0 3,187.6
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 $ 23,508.2 $ 1,554.8 $ 73.0 $ 24,990.0
=========== ========== ======== ===========
</TABLE>
FF-13
<PAGE>
Notes To Statutory Financial Statements (Continued)
The carrying value and estimated fair value of bonds at December 31, 1998 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 $ 556.5 $ 560.7
Due after one year through five years 4,150.6 4,270.5
Due after five years through ten years 8,622.8 9,045.0
Due after ten years 5,319.5 5,999.6
--------- ---------
18,649.4 19,875.8
Mortgage-backed securities, including
securities guaranteed by the U.S.
Government 6,566.4 6,821.1
--------- ---------
TOTAL $25,215.8 $26,696.9
========= =========
Proceeds from sales of investments in bonds were $11,663.4 million during
1998, $11,427.8 million during 1997 and $6,390.7 million during 1996. Gross
capital gains of $331.8 million in 1998, $200.7 million in 1997 and $188.8
million in 1996 and gross capital losses of $47.3 million in 1998, $68.8
million in 1997 and $255.5 million in 1996 were realized on those sales,
portions of which were included in the IMR. The estimated fair value of non-
publicly traded bonds is determined by the Company using a pricing matrix and
quoted market prices for publicly traded bonds.
B. Stocks
Common stocks, except for unconsolidated subsidiaries, had a cost of $238.4
million in 1998 and $250.3 million in 1997.
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, was $6,178.8 million and $5,039.1 million at December 31,
1998 and 1997, respectively.
The Company had restructured loans with book values of $126.6 million, and
$202.3 million at December 31, 1998 and 1997, respectively. These loans
typically have been modified to defer a portion of the contractual interest
payments to future periods. Interest deferred to future periods totaled $0.1
million in 1998, $5.1 million in 1997 and $2.2 million in 1996. At December
31, 1998, scheduled commercial mortgage loan maturities were as follows:
1999 - $341.0 million; 2000 - $333.0 million; 2001 - $305.2 million; 2002 -
$210.6 million; 2003 - $299.0 million; and $3,106.4 million thereafter.
D. Policy Loans
Policy loans are recorded at cost as it is not practicable to determine the
fair value since they do not have a stated maturity.
E. Other
Preferred stocks in good standing had fair values of $116.0 million in 1998
and $145.5 million in 1997, using a pricing matrix for non-publicly traded
stocks and quoted market prices for publicly traded stocks.
FF-14
<PAGE>
Notes To Statutory Financial Statements (Continued)
The carrying value of investments which were non-income producing for the
preceding twelve months was $13.2 million and $5.7 million at December 31,
1998 and 1997, respectively.
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 financial instruments, described below, which are not
recorded in the financial statements, unless otherwise noted, are based upon
market prices or prices obtained from brokers. The Company does not hold or
issue these financial instruments for trading purposes.
The notional amounts described do not represent amounts exchanged by the
parties and, thus, are not a measure of the exposure of the Company. The
amounts exchanged are calculated on the basis of the notional amounts and the
other terms of the instruments, which relate to interest rates, exchange
rates, security prices or financial or other indexes.
The Company 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. Gains and losses realized on the termination of contracts
are deferred and amortized through the IMR over the remaining life of the
associated contract. IMR amortization is included in net investment income on
the Statutory Statement of Income. Net amounts receivable and payable are
accrued as adjustments to investment income and included in other assets on
the Statutory Statement of Financial Position. At December 31, 1998 and 1997,
the Company had swaps with notional amounts of $4,382.0 million and $3,220.2
million, respectively. The fair values of these instruments were $84.1
million at December 31, 1998 and $20.9 million at December 31, 1997.
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 amortized into investment income over the life
of the contract on a straight-line basis. Unamortized costs 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 deferred and amortized through the IMR over the remaining life of the
option contract. At December 31, 1998 and 1997, the Company had option
contracts with notional amounts of $12,704.4 million and $5,388.2 million,
respectively. The Company's credit risk exposure was limited to the
unamortized costs of $92.5 million and $59.0 million, which had fair values
of $161.9 million and $99.6 million at December 31, 1998 and 1997,
respectively.
Interest rate cap agreements grant the purchaser the right to receive the
excess of a referenced interest rate over a stated 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 stated 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
investment 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 investment income and included in the Statutory Statement
of Financial Position as other assets. Gains and losses on these contracts,
including any unamortized cost, are recognized upon termination and are
deferred and amortized through the IMR over the remaining life of the
associated cap or floor agreement. At December 31, 1998 and 1997, the company
had agreements with notional amounts of $4,337.9 million and $3,348.6
million, respectively. The Company's credit risk exposure on these agreements
is limited to the unamortized costs of $22.7 million and $18.2 million at
December 31, 1998 and 1997, respectively. The fair values of these
instruments were $43.9 million and $23.4 million at December 31, 1998 and
1997, respectively.
FF-15
<PAGE>
Notes To Statutory Financial Statements (Continued)
The Company enters into forward U.S. Treasury, and Government National
Mortgage Association ("GNMA") and Federal National Home Mortgage Association
("FNMA") 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 IMR over the remaining life of the asset. At December
31, 1998 and 1997, the Company had U. S. Treasury, GNMA and FNMA purchase
commitments which will settle during the following year with contractual
amounts of $603.4 million and $1,100.7 million, respectively. The fair values
of these commitments were $604.1 million and $1,117.6 million, including net
unrealized gains of $0.7 million and $16.9 million at December 31, 1998 and
1997, respectively.
The Company utilizes other agreements to reduce exposures to various risks.
Notional amounts relating to these agreements totaled $384.2 million and
$385.6 million at December 31, 1998 and 1997, respectively. The fair values
of these instruments resulted in an unrealized gain of $7.2 million at
December 31, 1998 and an unrealized loss of $6.8 million at December 31,
1997.
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 $272.5 million and $146.7 million at
December 31, 1998 and 1997, respectively. The Company monitors exposure to
ensure counterparties are credit worthy and concentration of exposure is
minimized. Additionally, collateral positions have been obtained with
counterparties when considered prudent.
8. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
MassMutual has two primary insurance subsidiaries, C.M. Life, which primarily
writes variable annuities and universal life insurance, and MML Bay State,
which primarily writes variable life and annuity business. MassMutual's
wholly-owned non-insurance subsidiary MassMutual Holding Company, Inc.
("MMHC") owns subsidiaries which include retail and institutional asset
management, registered broker dealer and international life and annuity
operations.
MassMutual accounts for the value of its investments in subsidiaries at their
underlying net equity. Operating results for such subsidiaries are reflected
as net unrealized capital gains in the Statement of Changes in Policyholders'
Contingency Reserves. Net investment income is recorded by MassMutual to the
extent that dividends are declared by the subsidiaries. The Company holds
debt issued by MMHC and its subsidiaries of $1,111.3 million and $792.4
million at December 31, 1998 and 1997, respectively.
Below is summarized financial information for the unconsolidated subsidiaries
as of December 31 and for the year then ended:
1998 1997
-------- --------
(In Millions)
Domestic Life Insurance Subsidiaries:
Total revenue $ 1,151.4 $ 1,086.9
Net income (loss) $ (3.2) $ 1.1
Assets $ 4,741.4 $ 3,766.8
Other Subsidiaries:
Total revenue $ 1,137.4 $ 967.2
Net income $ 73.6 $ 75.4
Assets $ 2,839.5 $ 2,018.8
FF-16
<PAGE>
Notes To Statutory Financial Statements (Continued)
9. REINSURANCE
The Company has reinsurance agreements with other insurance companies in the
normal course of business. In addition, the Company cedes the remainder of
its group life and health business to UniCARE. 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. Total premiums ceded were $183.9 million in 1998, $294.6 million
in 1997 and $793.5 million in 1996.
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.
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. SUBSIDIARIES AND AFFILIATED COMPANIES
A summary of ownership and relationship of the Company and its subsidiaries
and affiliated companies as of December 31, 1998 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
-----------------------------------------------------------
CM Assurance Company
CM Benefit Insurance Company
C.M. Life Insurance Company
MassMutual Holding Company
MassMutual of Ireland, Limited
MML Bay State Life Insurance Company
MML Distributors, LLC
MassMutual Mortgage Finance, LLC
Subsidiaries of MassMutual Holding Company
------------------------------------------
GR Phelps & Co., Inc.
MassMutual Holding Trust I
MassMutual Holding Trust II
MassMutual Holding MSC, Inc.
MassMutual International, Inc.
MML Investor Services, Inc.
FF-17
<PAGE>
Notes To Statutory Financial Statements (Continued)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Capital Corporation - 99.4%
Charter Oak Capital Management, Inc. - 80.0%
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation - 85.8%
Oppenheimer Acquisition Corporation - 89.36%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc.
CM International, Inc.
CM Property Management, Inc.
HYP Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
MassMutual Benefits Management, Inc.
Subsidiaries of MassMutual International, Inc.
----------------------------------------------
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 (Luxembourg) S.A.
MassMutual Holding MSC, Inc.
----------------------------
MassMutual Corporate Value Limited - 40.93%
9048 - 5434 Quebec, Inc.
1279342 Ontario Limited
Affiliates of Massachusetts Mutual Life Insurance Company
---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
FF-18
<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, 1998
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the years ended December 31,
1998, and 1997 Notes to Financial Statements
The Depositor
-------------
Report of Independent Accountants
Statutory Statement of Financial Position as of December 31, 1998 and
1997 Statutory Statement of Income for the years ended December 31,
1998, 1997 and 1996 Statutory Statement of Changes in Policyholders'
Contingency Reserves for the years ended December 31, 1998, 1997 and
1996
Statutory Statement of Cash Flows for the years ended December 31,
1998, 1997 and 1996 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 Registrant's Post-Effective
Amendment No. 17 to Registration Statement File No.2-75413,
filed and effective May 1, 1998.
Exhibit 2 None
Exhibit 3 (i) Copy of Distribution Agreement between the Registrant
and MML Investors Services, Inc., incorporated by reference
to Post Effective Amendment No. 17, to Registration
Statement File No.2-75412.
(ii) None
Exhibit 4 (i) Form of Flexible Purchase Payment Multi-Fund Variable
Annuity Contract, incorporated by reference to Post
Effective Amendment No. 17 to Registration Statement File
No.2-75412.
3
<PAGE>
Exhibit 5 Form of Application used with the Flexible Purchase
Payment Multi-Fund Variable Annuity Contract in Exhibit
4 above, incorporated by reference to Post Effective
Amendment No.17, to Registration Statement File
No. 2-75412.
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 None
Exhibit 9 Opinion of and Consent of Counsel.*
Exhibit 10 (i) Consent of Independent Accountants,
PricewaterhouseCoopers LLP.*
(ii) Powers of Attorney, incorporated by reference to
Initial Registration Statement No. 333-22557, filed on
January 28, 1997.
(iii) Powers of Attorney for Robert J. O'Connell and
Thomas B. Wheeler, incorporated by reference to
Pre-Effective Amendment No. 1 to Registration Statement
File No. 333-65887, filed on Form S-2 on January 28,
1999.
(ii) Powers of Attorney for Roger G. Ackerman,
incorporated by reference to Registration Statement File
No. 333-45039, filed on June 4, 1998.
Exhibit 11 None
Exhibit 12 None
Exhibit 13 Form of Schedule of Computation of Performance,
incorporated by reference to Registrant's Post Effective
Amendment No.16 to File No. 2-75413.
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.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Name, Position, Business Address Principal Occupation(s) During Past Five Years
- ---------------------------------------------------------------------------------------------
<S> <C>
Roger G. Ackerman, Director Corning, Inc.
One Riverfront Plaza, HQE 2 Chairman and Chief Executive Officer (since 1996)
Corning, NY 14831 President and Chief Operating Officer (1990-1996)
- ---------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
James R. Birle, Director Resolute Partners, LLC
2 Soundview Drive Chairman (since 1997), Founder (1994)
Greenwich, CT 06836 President (1994-1997)
Blackstone Group
General Partner (1988-1994)
- --------------------------------------------------------------------------------
Gene Chao, Director Computer Projections, Inc.
733 SW Vista Avenue Chairman, President and CEO (since 1991)
Portland, OR 97205
- --------------------------------------------------------------------------------
Patricia Diaz Dennis, Director SBC Communications Inc.
175 East Houston, Room 5-A-70 Senior Vice President - Regulatory and
San Antonio, TX 78205 Public Affairs (since 1998)
Senior Vice President and Assistant
General Counsel (1995-1998)
Sullivan & Cromwell
Special Counsel (1993-1995)
U.S. Department of State
Asst. Sec . of State for Human Rights and
Human. Affrs. (1992-1993)
- --------------------------------------------------------------------------------
Anthony Downs, Director The Brookings Institution
1775 Massachusetts Ave., N.W. Senior Fellow (since 1977)
Washington, DC 20036-2188
- --------------------------------------------------------------------------------
James L. Dunlap, Director Ocean Energy, Inc.
1201 Louisiana, Suite 1400 Vice Chairman (since 1998)
Houston, TX 77002-5603 United Meridian Corporation
President and Chief Operating Officer
(1996-1998)
Texaco, Inc. Senior Vice
President (1987-1996)
- --------------------------------------------------------------------------------
William B. Ellis, Director Yale University School of Forestry and
31 Pound Foolish Lane Environmental Studies Senior Fellow
Glastonbury, CT 06033 (since 1995)
Northeast Utilities Chairman of the Board
(1993-1995) and Chief Executive Officer
(1983-1993)
- --------------------------------------------------------------------------------
Robert M. Furek, Director Resolute Partners LLC
1 State Street, Suite 2310 Partner (since 1997)
Hartford, CT 06103 State Board of Trustees for the Hartford
School System Chairman(since 1997)
Heublein, Inc.
President and Chief Executive Officer
(1987-1996)
- --------------------------------------------------------------------------------
Charles K. Gifford, Director BankBoston, N.A.
100 Federal Street Chairman and Chief Executive Officer
Boston, MA 02110 (since 1996) President (1989-1996)
BankBoston Corporation
Chairman (since 1998) and Chief Executive
Officer (since 1995)
President (1989-1996)
- --------------------------------------------------------------------------------
William N. Griggs, Director Griggs & Santow, Inc.
75 Wall Street, 20th Floor Managing Director (since 1983)
NewYork, NY 10005
- --------------------------------------------------------------------------------
George B. Harvey, Director Pitney Bowes
One Landmark Square, Suite 1905 Chairman, President and CEO (1983-1996)
Stamford, CT 06901
- --------------------------------------------------------------------------------
Barbara B. Hauptfuhrer, Director Director of various corporations (since
1700 Old Welsh Road 1972)
Huntingdon Valley, PA 19006
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Sheldon B. Lubar, Director Lubar & Co. Incorporated
700 North Water Street, Suite 1200 Chairman (since 1977)
Milwaukee, WI 53202
- --------------------------------------------------------------------------------
William B. Marx, Jr., Director Lucent Technologies
5 Peacock Lane Senior Executive Vice President
Village of Golf, FL 33436-5299 (1996-1996)
AT&T Multimedia Products Group
Executive Vice President and CEO
(1994-1996)
AT&T Network Systems Group
Executive Vice President and CEO
(1993-1994)
Group Executive and President
(1989-1993)
- --------------------------------------------------------------------------------
John F. Maypole, Director Peach State Real Estate Holding
55 Sandy Hook Road - North Company Managing Partner (since
Sarasota, FL 34242 1984)
- --------------------------------------------------------------------------------
Robert J. O'Connell, Director, President MassMutual
and Chief Executive Officer President and Chief Executive
1295 State Street Officer (since 1999)
Springfield, MA 01111 American International Group, Inc.
Senior Vice President (1991-1998)
AIG Life Companies
President and Chief Executive
Officer (1991-1998)
- --------------------------------------------------------------------------------
Thomas B. Wheeler, Director and MassMutual
Chairman of the Board Chairman of the Board (since 1996)
1295 State Street President (1988-1996) and Chief
Springfield, MA 01111 Executive Officer (1988-1999)
- --------------------------------------------------------------------------------
Alfred M. Zeien, Director The Gillette Company
Prudential Tower Chairman and Chief Executive
Boston, MA 02199 Officer (since 1991)
- --------------------------------------------------------------------------------
Executive Vice Presidents:
- --------------------------------------------------------------------------------
Lawrence V. Burkett, Jr. MassMutual
1295 State Street Executive Vice President and
Springfield, MA 01111 General Counsel (since 1993)
Senior Vice President and
Deputy General Counsel (1992-1993)
- --------------------------------------------------------------------------------
Peter J. Daboul MassMutual
1295 State Street Executive Vice President and Chief
Springfield, MA 01111 Information Officer (since 1997)
Senior Vice President (1990-1997)
- --------------------------------------------------------------------------------
John B. Davies MassMutual
1295 State Street Executive Vice President (since
Springfield, MA 01111 1994) Associate Executive Vice
President (1994-1994) General Agent
(1982-1993)
- --------------------------------------------------------------------------------
Daniel J. Fitzgerald MassMutual
1295 State Street Executive Vice President (since
Springfield, MA 01111 1994) Corporate Financial
Operations (1994-1997)
Senior Vice President (1991-1994)
- --------------------------------------------------------------------------------
James E. Miller MassMutual
1295 State Street Executive Vice President (since
Springfield, MA 01111 1997 and 1987-1996)
UniCare Life & Health Senior Vice
President (1996-1997)
- --------------------------------------------------------------------------------
John V. Murphy MassMutual
1295 State Street Executive Vice President (since
Springfield, MA 01111 1997)
David L. Babson & Co., Inc.
Executive Vice President and Chief
0perating Officer (1995-1997)
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Concert Capital Management, Inc.
Chief Operating Officer (1993-1995)
Liberty Financial Companies
Senior Vice President and Chief
Financial Officer (1977-1993)
- --------------------------------------------------------------------------------
Joseph M. Zubretsky MassMutual
1295 State Street Executive Vice President and Chief
Springfield, MA 01111 Financial Officer (since 1997)
HealthSource Chief Financial
Officer (1996-1996) Coopers &
Lybrand Partner (1990-1996)
- --------------------------------------------------------------------------------
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, controlled by
MassMutual through the director or indirect ownership of such
entities' stock.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
CORPORATE ORGANIZATION
A. DIRECT SUBSIDIARIES OF MASSMUTUAL
MassMutual is the sole owner of each subsidiary unless otherwise
indicated.
1. CM Assurance Company, a Connecticut corporation which operates as a
life and health insurance company. This subsidiary is inactive.
2. CM Benefit Insurance Company, a Connecticut corporation which operates
as a life and health insurance company. This subsidiary is inactive.
3. C.M. Life Insurance Company, a Connecticut corporation which operates
as a life and health insurance company.
4. MML Bay State Life Insurance Company, a Connecticut corporation which
operates as a life and health insurance company.
5. MML Distributors, LLC, a Connecticut limited liability company which
operates as a securities broker-dealer. (MassMutual - 99%; G.R. Phelps
& Co., Inc. - 1%)
7
<PAGE>
6. MassMutual of Ireland, Limited, a corporation organized in the Republic
of Ireland which formerly operated to provide claims service to holders
of MassMutual group life and accident and health insurance contracts.
This subsidiary is inactive and will be dissolved in the near future.
7. MassMutual Holding Company, a Delaware corporation which operates as a
holding company for certain MassMutual entities.
8. MassMutual Mortgage Finance, LLC, a Delaware limited liability company
which makes, acquires, holds and sells mortgage loans.
B. MASSMUTUAL HOLDING COMPANY GROUP
MassMutual Holding Company is the sole owner of each subsidiary or
affiliate unless otherwise indicated.
1. G.R. Phelps & Co, Inc., a Connecticut corporation which formerly
operated as a securities broker-dealer. This subsidiary is inactive and
expected to be dissolved.
2. MML Investors Services, Inc., a Massachusetts corporation which
operates as a securities broker-dealer. (MassMutual Holding Company -
86%; G.R. Phelps & Co., Inc. - 14%)
3. MassMutual Holding MSC, Inc., a Massachusetts corporation which
operates as a holding company for MassMutual positions in investment
entities organized outside of the United States. This subsidiary
qualifies as a "Massachusetts Security Corporation" under Chapter 63 of
the Massachusetts General Laws.
4. MassMutual Holding Trust I, a Massachusetts business trust which
operates as a holding company for separately-staffed MassMutual
investment subsidiaries.
5. MassMutual Holding Trust II, a Massachusetts business trust which
operates as a holding company for non-staffed MassMutual investment
subsidiaries.
6. MassMutual International, Inc., a Delaware corporation which operates
as a holding company for those entities constituting MassMutual's
international insurance operations.
C. MML INVESTORS SERVICES, INC. GROUP
Set forth below are the direct and indirect subsidiaries of MML
Investors Services, Inc. The parent is the sole owner of each
subsidiary unless otherwise indicated.
Direct Subsidiaries of MML Investors Services, Inc.
- ---------------------------------------------------
1. MML Insurance Agency, Inc., a Massachusetts corporation which operates
as an insurance broker.
2. MML Securities Corporation, a Massachusetts corporation which operates
as a "Massachusetts Security Corporation" under Section 63 of the
Massachusetts General Laws.
Direct Subsidiaries of MML Insurance Agency, Inc.
- -------------------------------------------------
1. DISA Insurance Services of America, Inc., an Alabama corporation which
operates as an insurance broker.
2. Diversified Insurance Services of America, Inc., a Hawaii corporation
which operates as an insurance broker.
8
<PAGE>
3. MML Insurance Agency of Mississippi, P.C., a Mississippi corporation
which operates as an insurance broker.
4. MML Insurance Agency of Nevada, Inc., a Nevada corporation which
operates as an insurance broker.
5. MML Insurance Agency of Ohio, Inc. an Ohio corporation which operates
as an insurance broker. (Controlled by MML Insurance Agency, Inc.
through a voting trust agreement.)
6. MML Insurance Agency of Texas, Inc., a Texas corporation which operates
as an insurance broker. (Controlled by MML Insurance Agency, Inc.
through an irrevocable proxy arrangement.)
D. MASSMUTUAL HOLDING MSC, INC. GROUP
MassMutual Holding MSC, Inc. is the sole owner of each subsidiary or
affiliate unless otherwise indicated.
1. MassMutual Corporate Value Limited, a Cayman Islands corporation which
holds a 90% ownership interest in MassMutual Corporate Value Partners
Limited, another Cayman Islands corporation operating as a high-yield
bond fund. (MassMutual Holding MSC, Inc. - 46%)
2. 9048-5434 Quebec, Inc., a Canadian corporation which operates as the
owner of Hotel du Parc in Montreal, Quebec, Canada.
3. 1279342 Ontario Limited, a Canadian corporation which operates as the
owner of Deerhurst Resort in Huntsville, Ontario, Canada.
E. MASSMUTUAL HOLDING TRUST I GROUP
Set forth below are the direct and indirect subsidiaries and affiliates
of MassMutual Holding Trust I. The parent is the sole owner of each
subsidiary unless otherwise indicated.
Direct Subsidiaries of MassMutual Holding Trust I
- -------------------------------------------------
1. Antares Capital Corporation, a Delaware corporation which operates as a
finance company. (MassMutual Holding Trust 1-99%)
2. Charter Oak Capital Management, Inc., a Delaware corporation which
operates as a manager of institutional investment portfolios.
(MassMutual Holding Trust I - 80%)
3. Cornerstone Real Estate Advisers, Inc., a Massachusetts corporation
which operates as an investment adviser.
4. DLB Acquisition Corporation, a Delaware corporation which operates as a
holding company for the David L. Babson companies (MassMutual Holding
Trust I - 85%).
5. Oppenheimer Acquisition Corp., a Delaware corporation which operates as
a holding company for the Oppenheimer companies (MassMutual Holding
Trust I - 89%).
Direct Subsidiary of DLB Acquisition Corporation
- ------------------------------------------------
David L. Babson and Company Incorporated, a Massachusetts corporation which
operates as an investment adviser.
9
<PAGE>
Direct Affiliates of David L. Babson and Company Incorporated
- -------------------------------------------------------------
l. Babson Securities Corporation, a Massachusetts corporation which
operates as a securities broker-dealer.
2. Babson-Stewart Ivory International, a Massachusetts general partnership
which operates as an investment adviser. (David L. Babson and Company
Incorporated - 50%).
3. Potomac Babson Incorporated, a Massachusetts corporation which operates
as an investment adviser (David L. Babson and Company Incorporated -
60%).
Direct Subsidiary of Oppenheimer Acquisition Corp.
- --------------------------------------------------
OppenheimerFunds, Inc., a Colorado corporation which operates as the investment
adviser to the Oppenheimer Funds.
Direct Subsidiaries of OppenheimerFunds, Inc.
- ---------------------------------------------
l. Centennial Asset Management Corporation, a Delaware corporation which
operates as investment adviser and general distributor of the
Centennial Funds.
2. HarbourView Asset Management Corporation, a New York corporation which
operates as an investment adviser.
3. OppenheimerFunds Distributor, Inc., a New York corporation which
operates as a securities broker-dealer.
4. Oppenheimer Partnership Holdings, Inc., a Delaware corporation which
operates as a holding company.
5. Oppenheimer Real Asset Management, Inc., a Delaware corporation which
is the sub-adviser to a mutual fund investing in the commodities
markets.
6. Shareholder Financial Services, Inc., a Colorado corporation which
operates as a transfer agent for mutual funds.
7. Shareholder Services, Inc., a Colorado corporation which operates as a
transfer agent for various Oppenheimer and MassMutual funds.
Direct Subsidiary of Centennial Asset Management Corporation
- ------------------------------------------------------------
Centennial Capital Corporation, a Delaware corporation which formerly sponsored
a unit investment trust.
Direct Affiliate of Cornerstone Real Estate Advisers, Inc.
- ----------------------------------------------------------
Cornerstone Office Management, LLC, a Delaware limited liability company which
serves as the general partner of Cornerstone Suburban Office, L.P. (Cornerstone
Real Estate Advisers, Inc. - 50%; MML Realty Management Corporation - 50%).
F. MASSMUTUAL HOLDING TRUST II GROUP
MassMutual Holding Trust II is the sole owner of each subsidiary.
10
<PAGE>
l. CM Advantage, Inc., a Connecticut corporation which serves as a general
partner of real estate limited partnerships. The subsidiary is largely
inactive and will be dissolved in the near future.
2. CM International, a Delaware corporation which is the issuer of
collateralized mortgage obligation securities.
3. CM Property Management, Inc., a Connecticut corporation which serves as
the general partner of Westheimer 335 Suites Limited Partnership. The
partnership holds a ground lease with respect to hotel property in
Houston, Texas.
4. HYP Management, Inc., a Delaware corporation which operates as the "LLC
Manager" of MassMutual High Yield Partners II LLC, a high yield bond
fund.
5. MassMutual Benefits Management, Inc., a Delaware corporation which
supports MassMutual with benefit plan administration and planning
services.
6. MMHC Investment, Inc., a Delaware corporation which is a passive
investor in MassMutual/Darby CBO IM, Inc., MassMutual/Darby CBO LLC,
MassMutual High Yield Partners II LLC, and other MassMutual
investments.
7. MML Realty Management Corporation, a Massachusetts corporation which
formerly operated as a manager of properties owned by MassMutual.
8. Urban Properties, Inc., a Delaware corporation which serves as a
general partner of real estate limited partnerships and as a real
estate holding company.
Direct Affiliate of MMHC Investment, Inc.
- -----------------------------------------
MassMutual/Darby CBO IM Inc., a Delaware corporation which operates as the "LLC
Manager" of MassMutual/Darby CBO LLC, a collateralized bond obligation fund.
(MMHC Investment, Inc. - 50%)
Direct Affiliate of MML Realty Management Corporation
- -----------------------------------------------------
Cornerstone Office Management, LLC, a Delaware limited liability company which
serves as the general partner of Cornerstone Suburban Office, L.P. (MML Realty
Management Corporation - 50%; Cornerstone Real Estate Advisers, Inc. - 50%).
G. MASSMUTUAL INTERNATIONAL, INC. GROUP
Set forth below are the direct or indirect subsidiaries and affiliates
of MassMutual International4 Inc. The parent is the sole owner of each
subsidiary or affiliate unless otherwise indicated.
Direct Affiliates of MassMutual International, Inc.
- ---------------------------------------------------
l. MassMutual Internacional (Argentina) S.A., a corporation organized in
the Argentine Republic which operates as a holding company. (MassMutual
International, Inc. -99%; MassMutual Holding Company - 1%)
2. MassMutual Internacional (Chile) S.A., a corporation organized in the
Republic of Chile which operates as a holding company. (MassMutual
International, Inc. - 99%; MassMutual Holding Company - 1%)
11
<PAGE>
3. MassMutual International (Bermuda) Ltd., a corporation organized in
Bermuda which operates as a life insurance company.
4. MassMutual International (Luxembourg) S.A., a corporation organized in
the Grand Duchy of Luxembourg which operates as a life insurance
company. (MassMutual International, Inc. - 99%; MassMutual Holding
Company - 1%)
5. MassLife Seguros de Vida, S.A., a corporation organized in the
Argentine Republic which operates as a life insurance company.
(MassMutual International, Inc. - 99.9%)
Direct Subsidiaries of MassMutual Internacional (Argentina) S.A.
- ----------------------------------------------------------------
MassMutual Services S.A., a corporation organized in the Argentine Republic
which operates as a service company. (MassMutual Internacional (Argentina) S.A.
- - 99%; MassMutual International, Inc. - 1%)
Direct Affiliate of MassMutual Internacional (Chile) S.A.
- ---------------------------------------------------------
l. Mass Seguros de Vida S.A., a corporation organized in the Republic of
Chile which operates as a life insurance company. (MassMutual
Internacional (Chile) S.A. - 33.5%)
2. Origen Inversiones S.A., a corporation organized in the Republic of
Chile which operates as a holding company. (MassMutual Internacional
(Chile) S.A. - 33.5%)
Direct Subsidiary of Origen Inversiones S.A.
- --------------------------------------------
Compania de Seguros Vida Corp S.A., corporation organized in the Republic of
Chile which operates as an insurance company. (Origen Inversiones S.A. - 99%)
H. REGISTERED INVESTMENT COMPANY AFFILIATES
Each of the following entities is a registered investment company
sponsored by MassMutual or one of its affiliates.
l. DLB Fund Group, a Massachusetts business trust which operates as an
open-end investment company advised by David L. Babson and Company
Incorporated. MassMutual owns at least 25% of each series of shares
issued by the fund.
2. MML Series Investment Fund, a Massachusetts business trust which
operates as an open-end investment company. All shares issued by the
trust are owned by MassMutual and certain of its affiliates.
3. MassMutual Corporate Investors, a Massachusetts business trust which
operates as a closed-end investment company. MassMutual serves as
investment adviser to the trust.
4. MassMutual Institutional Funds, a Massachusetts business trust which
operates as an open-end investment company. All shares issued by the
trust are owned by MassMutual.
5. MassMutual Participation Investors, a Massachusetts business trust
which operates as a closed-end investment company. MassMutual serves as
investment adviser to the trust.
6. Oppenheimer Series Fund, Inc., a Maryland corporation which operates as
an open-end investment company. MassMutual and affiliates own a
majority of certain series of shares issued by the fund.
12
<PAGE>
7. Panorama Series Fund, Inc., a Maryland corporation which operates as an
open-end investment company. All shares issued by the fund are owned by
MassMutual and certain affiliates.
Item 27. Number of Contract Owners
As of February 26, 1999, 923 Separate Account 2 Contracts were
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.
Item 29. Principal Underwriters
(a) MML Distributors, LLC, a controlled 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 for
the contracts. The following people are officers and
member representatives of the principal underwritier.
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
Life Insurance Co. 01111-0001
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
13
<PAGE>
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
Marilyn A. Sponzo Chief Legal Officer One Monarch Place
Assistant Secretary 1414 Main Street
Springfield, MA
01144-1013
Robert Rosenthal Compliance Officer One Monarch Place
1414 Main Street
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
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
14
<PAGE>
<TABLE>
<S> <C>
Ronald E. Thomson One Monarch Place
Vice President, Treasurer 1414 Main Street
Springfield, MA 01144-1013
Ann F. Lomeli 1295 State Street
Secretary/Clerk Springfield, MA 01111
John E. Forrest One Monarch Place
Vice President 1414 Main Street
National Sales Director Springfield, MA 01144-1013
Marilyn A. Sponzo One Monarch Place
Assistant Secretary 1414 Main Street
Springfield, MA 01144-1013
James Furlong One Monarch Place
Chief Operations Officer 1414 Main Street
Springfield, MA 01144-1013
James T. Bagley One Monarch Place
Controller 1414 Main Street
Springfield, MA 01144-1013
David Deonarine One Monarch Place
Sr. Registered Options Principal 1414 Main Street
Compliance Registered Options Principal 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
Retirement Services Regional Supervisor (East/Central) Springfield, MA 01111
Peter J. Zummo 1295 State Street
Retirement Services Regional Supervisor(South/West) Springfield, MA 01111
Bruce Lukowiak 6263 North Scottsdale Rd., Suite 222
Regional Supervisor (West) Scottsdale, AZ 85250
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
Robert J. O'Connell 1295 State Street
Chairman of the Board of Directors Springfield, MA 01144
Susan Alfano 1295 State Street
Director Springfield, MA 01111
Lawrence V. Burkett, Jr. 1295 State Street
Director Springfield, MA 01111
John B. Davies 1295 State Street
Director Springfield, MA 01111
Anne Melissa Dowling 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
</TABLE>
15
<PAGE>
Burvin E. Pugh, Jr. 1295 State Street
Director Springfield, MA 01111
(c) See the section captioned "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.
(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 purchase
individual 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.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Massachusetts Mutual Variable Annuity Separate Account 2, certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
No.18 pursuant to Rule 485(b) under the Securities Act of 1933 and has caused
this Post-Effective Amendment No. 18 to Registration Statement No.2-75413 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 22nd day of
April, 1999.
MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 2
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY (Depositor)
By: /s/ Robert J. O'Connell*
----------------------------------------
Robert J. O'Connell, President and Chief Executive Officer
Massachusetts Mutual Life Insurance Company
/s/ Richard M. Howe On April 22, 1999, as Attorney-in-Fact pursuant to
- -------------------- powers of attorney incorporated by reference.
*Richard M. Howe
As required by the Securities Act of 1933, this Post-Effective
Amendment No.18 to Registration Statement No.2-75413 has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert J. O'Connell* President and Chief Executive April 22, 1999
- ------------------------ Officer
Robert J. O'Connell
/s/ Joseph M. Zubretsky* Executive Vice President, April 22, 1999
- ------------------------
Joseph M. Zubretsky Chief Financial Officer &
Chief Accounting Officer
/s/ Roger G. Ackerman* Director April 22, 1999
- ----------------------
Roger G. Ackerman
/s/ James R. Birle* Director April 22, 1999
- -------------------
James R. Birle
/s/ Gene Chao* Director April 22, 1999
- --------------
Gene Chao, Ph.D.
/s/ Patricia Diaz Dennis* Director April 22, 1999
- -------------------------
Patricia Diaz Dennis
s/ Anthony Downs* Director April 22, 1999
- -----------------
Anthony Downs
/s/ James L. Dunlap* Director April 22, 1999
- --------------------
James L. Dunlap
/s/ William B. Ellis* Director April 22, 1999
- ---------------------
William B. Ellis, Ph.D.
17
<PAGE>
/s/ Robert M. Furek* Director April 22, 1999
- --------------------
Robert M. Furek
/s/ Charles K. Gifford* Director April 22, 1999
- -----------------------
Charles K. Gifford
/s/ William N. Griggs* Director April 22, 1999
- ----------------------
William N. Griggs
/s/ George B. Harvey* Director April 22, 1999
- ---------------------
George B. Harvey
/s/ Barbara B. Hauptfuhrer* Director April 22, 1999
- ---------------------------
Barbara B. Hauptfuhrer
/s/ Sheldon B. Lubar* Director April 22, 1999
- ---------------------
Sheldon B. Lubar
/s/ William B. Marx, Jr.* Director April 22, 1999
- -------------------------
William B. Marx, Jr.
/s/ John F. Maypole* Director April 22, 1999
- --------------------
John F. Maypole
/s/ Thomas B. Wheeler* Director April 22, 1999
- ----------------------
Thomas B. Wheeler
/s/ Alfred M. Zeien* Director April 22, 1999
- --------------------
Alfred M. Zeien
/s/ Richard M. Howe On April 22, 1999, as Attorney-in-Fact pursuant to
- ------------------- powers of attorney.
*Richard M. Howe
18
<PAGE>
REPRESENTATION BY REGISTRANT'S COUNSEL
As counsel to the Registrant, I, James M. Rodolakis, have reviewed this Post-
Effective Amendment No. 18 to Registration Statement No.2-75413, 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
19
<PAGE>
EXHIBIT LIST
Exhibit 9 Opinion of and Consent of Counsel
Exhibit 10(i) Consent of Independent Accountants, PricewaterhouseCoopers, LLP.
20
<PAGE>
Exhibit 9
OPINION OF AND CONSENT OF COUNSEL
April, 1999
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Re: Post-Effective Amendment No.18 to Registration Statement
No.2-75413 filed on Form N-4
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No.18 to Registration Statement No.2-75413 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 2 issues the Contract.
As an 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:
l. 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 2 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
21
<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.18 to the
Registration Statement of Massachusetts Mutual Variable Annuity Separate Account
2 - Flex-Annuity IV segment (Non-Qualified) on Form N-4 (Registration
No.2-75413), of our reports dated February 25, 1999, on our audits of
Massachusetts Mutual Variable Annuity Separate Account 2- Flex-Annuity IV
segment (Non-Qualified) and Massachusetts Mutual Variable Annuity Separate
Account 1 - Variable Annuity Fund 4 and Flex-Annuity IV segment (Qualified), and
of our report dated February 25, 1999, 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 "Experts" in the Statement of
Additional Information.
PricewaterhouseCoopers, LLP
Springfield, Massachusetts
April 27, 1999
22
