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September 14, 1995
Dear Large Case Variable Life Plus Policyowner:
The information below supplements Massachusetts Mutual Life Insurance Company's
Large Case Variable Life Plus Prospectus dated May 1, 1995. Please place this
supplement with your prospectus and retain it for future reference.
--------------------------------------------------------------------------------
LARGE CASE VARIABLE LIFE PLUS
Supplement dated September 14, 1995
to the Prospectus dated May 1, 1995
The following should be read in conjunction with the information under the
heading What is MassMutual? on page 5 of the Large Case Variable Life Plus
Prospectus:
As of September 13, 1995, the Boards of Directors of Massachusetts Mutual Life
Insurance Company and Connecticut Mutual Life Insurance Company had approved the
merger of Connecticut Mutual into MassMutual. The companies plan to execute a
definitive merger agreement in the near future. The merger is subject to
certain conditions, including member and regulatory approvals and is expected to
be completed as soon thereafter as possible. As a result of the merger,
MassMutual would become the nation's fifth largest mutual life insurance company
with estimated consolidated assets of $49 billion and estimated consolidated
contingency reserves of $2.5 billion. The companies believe that the merger of
MassMutual and Connecticut Mutual would be in the best interests of
policyholders because the combined enterprise will enjoy a strong capital
position, a diverse product portfolio and a competitive cost structure. The
merger will not affect any terms of contracts issued by MassMutual.
September 14, 1995
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MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE
This Prospectus describes a flexible premium variable whole life insurance
policy being offered by Massachusetts Mutual Life Insurance Company
("MassMutual"). The Policy provides lifetime insurance protection and has
flexibility with respect to premium payments, the amount of which payments is
based upon the table of Selected Face Amounts chosen in the application.
Policyowners have several investment alternatives. An individual Policyholder
may allocate the premium for his or her Policy among a Guaranteed Principal
Account ("GPA") and one or more of seven Separate Account divisions of a
designated segment of MassMutual Variable Life Separate Account I (the
"Separate Account") after certain deductions have been made. The Separate
Account divisions consist of four divisions, (the "MML Divisions"), which
invest in the MML Series Investment Fund and three divisions, (the "Oppenheimer
Divisions"), which invest in three funds of the Oppenheimer Variable Account
Funds.
The Death Benefit may, and Cash Surrender Value of a Policy most likely will,
vary up or down depending on the investment performance of the Separate Account
divisions. While there is no guaranteed minimum Cash Surrender Value for a
Policy invested in the Separate Account, a Policy's Death Benefit will never be
less than its Selected Face Amount. This amount can increase, decrease or
remain level each year based upon the Selected Face Amount and Death Benefit
Option chosen by the Policyowner, subject to certain rules established by
MassMutual. Furthermore, the Policy will not lapse provided there are
sufficient funds available to pay certain monthly charges.
The existing divisions of the Separate Account have distinct investment
portfolios. The Equity Division of the Separate Account invests in shares of
MML Equity Fund, which invests primarily in common stocks and other equity
securities. The Money Market Division invests in shares of MML Money Market
Fund, which invests primarily in short-term debt instruments. The Managed Bond
Division invests in shares of MML Managed Bond Fund, which invests primarily in
publicly issued, readily marketable, fixed-income securities. The Blend
Division invests in shares of MML Blend Fund, which invests in a portfolio that
may include common stocks and other equity-type securities, bonds and other debt
securities with maturities generally exceeding one year, and money market
instruments and other debt securities with maturities generally not exceeding
one year. The High Income Division invests in shares of the Oppenheimer High
Income Fund which invests primarily in high yield fixed-income securities.
Similarly, the Capital Appreciation Division invests in shares of the
Oppenheimer Capital Appreciation Fund which invests primarily in securities of
growth-type companies. The Global Securities Division invests in shares of the
Oppenheimer Global Securities Fund which invests primarily in securities of
foreign issuers, growth type companies, cyclical industries and other securities
which are believed will appreciate in value. (Collectively, these seven Funds
are referred to as the "Funds.")
All Policies are serviced through the Home Office. MassMutual's Home Office is
located in Springfield, Massachusetts. The mailing address is Massachusetts
Mutual Life Insurance Company, Springfield, Massachusetts 01111. The telephone
number is (413) 788-8411.
May 1, 1995
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE PROSPECTUS OF MML SERIES
INVESTMENT FUND, AND THE PROSPECTUS OF OPPENHEIMER VARIABLE ACCOUNT FUNDS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FURTHER REFERENCE.
THE PURPOSE OF THE POLICY WE ARE OFFERING IS TO PROVIDE INSURANCE PROTECTION FOR
A POLICY'S BENEFICIARY. WE DO NOT CLAIM THAT THE POLICY IS IN ANY WAY SIMILAR
TO OR COMPARABLE TO A MUTUAL FUND'S SYSTEMATIC INVESTMENT PLAN.
REPLACING EXISTING INSURANCE WITH THE POLICY DESCRIBED IN THIS PROSPECTUS MAY
NOT BE TO YOUR ADVANTAGE.
This Prospectus does not constitute an offer of, or solicitation of an offer to
acquire, any interest or participation in the flexible premium variable whole
life insurance policies offered by this Prospectus in any jurisdiction to anyone
to whom it is unlawful to make such an offer or solicitation in such
jurisdiction.
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<TABLE>
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TABLE OF CONTENTS
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DEFINITIONS OF TERMS...................................................................... 4
BASIC QUESTIONS AND ANSWERS ABOUT US AND OUR POLICY....................................... 5
What is MassMutual?...................................................................... 5
What variable life insurance policy are we offering?..................................... 5
Availability............................................................................. 5
Underwriting............................................................................. 5
What is the Account Value of the Policy?................................................. 5
What are the divisions of the Separate Account?.......................................... 5
What is the Guaranteed Principal Account?................................................ 5
Is the level of the Death Benefit guaranteed?............................................ 6
Is the Death Benefit subject to income taxes?............................................ 6
Does the Policy have a Cash Surrender Value?............................................. 6
What is a modified endowment contract?................................................... 6
Can this Policy become a modified endowment contract?.................................... 6
What about Premiums?..................................................................... 6
When are Premiums put into the Guaranteed Principal Account or the Separate Account?..... 6
How can the Net Premium and the Account Value of the Policy be allocated among the
Guaranteed Principal Account and the Separate Account divisions?........................ 6
How long will the Policy remain in force?................................................ 7
Are there charges against the Policy?.................................................... 7
What is the loan privilege and how does a loan affect the Policy's Death Benefit and Cash
Surrender Value?........................................................................ 7
Are there dividends?..................................................................... 7
Do I have a right to cancel?............................................................. 7
Can the Policy be exchanged for a fixed benefit policy?.................................. 7
CHARGES UNDER THE POLICY.................................................................. 7
Deductions from Premiums................................................................. 7
Sales Load.............................................................................. 8
State Premium Tax Charge................................................................ 8
Account Value Charges.................................................................... 8
Monthly Administrative Charge........................................................... 8
Charge for Cost of Insurance Protection................................................. 8
Face Amount Charge...................................................................... 9
Separate Account Charges................................................................. 9
Charges for Mortality and Expense Risks................................................. 9
Charges for Federal Income Taxes........................................................ 9
THE SEPARATE ACCOUNT...................................................................... 9
Investment of the Separate Account....................................................... 9
Rates of Return.......................................................................... 11
GENERAL PROVISIONS OF THE POLICY.......................................................... 12
Premiums................................................................................. 12
Planned Premiums......................................................................... 12
The Minimum Initial Premium.............................................................. 13
Minimum and Maximum Premium Payments..................................................... 13
Termination.............................................................................. 13
Grace Period............................................................................. 13
DEATH BENEFIT UNDER THE POLICY............................................................ 13
ACCOUNT VALUE AND CASH SURRENDER VALUE.................................................... 14
Account Value............................................................................ 14
Investment Return........................................................................ 14
Cash Surrender Value..................................................................... 14
Withdrawals.............................................................................. 14
</TABLE>
2
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<TABLE>
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POLICY LOAN PRIVILEGE..................................................................... 14
Source of Loan........................................................................... 15
If Loans Exceed the Policy Account Value................................................. 15
Interest................................................................................. 15
Repayment................................................................................ 15
Interest on Loaned Value................................................................. 15
Effect of Loan........................................................................... 15
FREE LOOK PROVISION....................................................................... 15
EXCHANGE PRIVILEGE........................................................................ 15
YOUR VOTING RIGHTS........................................................................ 15
OUR RIGHTS................................................................................ 16
DIRECTORS AND EXECUTIVE VICE PRESIDENTS OF MASSMUTUAL..................................... 16
THE GUARANTEED PRINCIPAL ACCOUNT.......................................................... 18
FEDERAL INCOME TAX CONSIDERATIONS......................................................... 18
MassMutual - Tax Status.................................................................. 18
Policy Proceeds, Premiums and Loans...................................................... 19
Modified Endowment Contracts............................................................. 19
Diversification Standards................................................................ 20
ADDITIONAL PROVISIONS OF THE POLICY....................................................... 20
Reinstatement Option..................................................................... 20
Payment Options.......................................................................... 20
Fixed Amount Payment Option.............................................................. 20
Fixed Time Payment Option................................................................ 20
Interest Payment Option.................................................................. 21
Lifetime Payment Option.................................................................. 21
Joint Lifetime Payment Option............................................................ 21
Joint Lifetime Payment Option with Reduced Payments...................................... 21
Withdrawal Rights under Payment Options.................................................. 21
Beneficiary.............................................................................. 21
Changing the Owner or Beneficiary........................................................ 21
Right to Substitute Insured.............................................................. 21
Assignment............................................................................... 21
Dividends................................................................................ 22
Limits on Our Right to Challenge the Policy.............................................. 22
Misstatement of Age or Sex............................................................... 22
Suicide.................................................................................. 22
When We Pay Proceeds..................................................................... 22
RECORDS AND REPORTS....................................................................... 22
SALES AND OTHER AGREEMENTS................................................................ 22
Commissions Schedule..................................................................... 22
Bonding Arrangement...................................................................... 23
LEGAL PROCEEDINGS......................................................................... 23
EXPERTS................................................................................... 23
FINANCIAL STATEMENTS...................................................................... 23
APPENDIX A................................................................................ 46
</TABLE>
3
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DEFINITION OF TERMS
ACCOUNT VALUE: The sum of the Variable Account Value and the Fixed Account Value
of the Policy.
BENEFICIARY: The person or persons specified by the Policyowner to receive
insurance proceeds after the Insured dies.
CASE: A group of Policies sold to individuals with a common employment or other
non-insurance motivated relationship. All Policies in a Case are aggregated for
purposes of determining the Policy Date or Issue Date, underwriting requirements
and sales load percentages.
CASH SURRENDER VALUE: The amount payable to a Policyowner upon surrender of the
Policy. It is equal to the Account Value less any Policy Debt.
DEATH BENEFIT: The amount payable to the named Beneficiary when the Insured
dies. A choice of Death Benefits is available under the Policy (referred to as
"Option 1" and "Option 2"). The Death Benefit equals the greater of the
Selected Face Amount (plus the Account Value, under Option 2), or the Minimum
Face Amount in effect on the date of death, less Policy Debt, plus unearned or
minus unpaid monthly deductions.
FIXED ACCOUNT VALUES: Account Values which are allocated to the GPA.
FREE LOOK PERIOD: The period during which a Policyowner may return the Policy.
It must be within 10 days of receipt of the Policy, or within 10 days after the
Policyowner receives the notice of a right to withdraw, or within 45 days after
the date of Part I of the application, whichever is latest (unless a different
period is mandated under applicable state law). Until the expiration of the
Free Look Period, amounts will be held in the MML Money Market Division of the
Separate Account.
HOME OFFICE: The Home Office of Massachusetts Mutual, which is located in
Springfield, Massachusetts.
INITIAL CASE PREMIUM PAID: The total dollar amount paid for all Policies in a
Case before the Case is installed on the administrative system.
INSURED: Person whose life this Policy insures.
ISSUE DATE: The date shown on the Schedule Page. It is the start date of the
suicide and contestability periods. It is also the date from which the Policy
is in force if the first premium has been paid.
MINIMUM FACE AMOUNT: An amount equal to Account Value times the Minimum Face
Amount percentage. This percentage depends upon the Insured's age, sex and
smoking classification.
MONTHLY CALCULATION DATE: The date on which the monthly deductions under the
Policy are deducted from the Account Value. The first Monthly Calculation Date
will be the Policy Date, and subsequent monthly deductions will be on the same
date of each succeeding calendar month.
NET PREMIUM: Premium paid less sales expense and premium tax charges.
POLICY: The flexible premium variable whole life insurance policy with table of
Selected Face Amounts offered by MassMutual that is described in this
Prospectus.
POLICY ANNIVERSARY: The anniversary of the Policy Date.
POLICY DATE: The date shown in the Policy which is the starting point for
determining Policy Anniversary Dates, Policy Years and Monthly Calculation
Dates.
POLICY DEBT: The amount of obligation from a Policyowner to MassMutual from
outstanding loans to the Policyowner under the Policy. This amount includes any
loan interest accrued to date.
POLICY YEAR: The twelve month period commencing with the Policy Date, and each
twelve month period thereafter.
POLICYOWNER: The firm, trust, entity or individual who owns the Policy.
PREMIUMS: The total dollar amount paid for the Policy.
PREMIUM TAX: The amount of premium tax, if any, charged by a state or other
governmental authority.
REGISTER DATE: The date the Company allocates the initial premium less certain
deductions to the Separate Account. It is the Valuation Date which is on, or
next follows the later of the date on which we receive a completed Part I of the
application for this Policy at our Home Office or the date we receive the first
premium payment for the Policy at our Home Office.
SELECTED FACE AMOUNT: The amount of insurance coverage chosen by the
Policyowner.
SEPARATE ACCOUNT: The segregated asset account called "Massachusetts Mutual
Variable Life Separate Account I" established by MassMutual under the laws of
Massachusetts and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Separate Account will
be used to receive and invest premiums for this Policy and for other variable
life insurance policies issued by MassMutual, and for each such policy there
will be a designated segment of the Separate Account.
SURRENDER: A surrender by the Policyowner of all rights under the Policy in
exchange for the entire Cash Surrender Value under the Policy.
VALUATION DATE: Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD: The period, consisting of one or more days, from one Valuation
Time to the next succeeding Valuation Time.
VALUATION TIME: The time the New York Stock Exchange (or its successor) closes
on a Valuation Date (currently 4:00 p.m. New York time). All actions which are
to be performed on a Valuation Date will be performed as of the Valuation Time.
VARIABLE ACCOUNT VALUES: Account Values which are allocated to any of the
divisions of the Separate Account.
WITHDRAWAL: A withdrawal of Account Value by the Policyowner.
4
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BASIC QUESTIONS AND ANSWERS
ABOUT US AND OUR POLICY
WHAT IS MASSMUTUAL? We are Massachusetts Mutual Life Insurance Company
("MassMutual"). MassMutual was organized under the laws of Massachusetts in
1851. We are currently licensed to transact life (including variable life),
accident, and health insurance business in all states.
MassMutual is a Massachusetts life insurance company that has its home office in
Springfield, Massachusetts. The company had total consolidated assets of $35.7
billion at the end of 1994.
WHAT VARIABLE LIFE INSURANCE POLICY ARE WE OFFERING? In this Prospectus we are
offering a Flexible Premium Variable Whole Life Insurance Policy With Table Of
Selected Face Amounts (the "Policy"). We issue this Policy to provide for a
Death Benefit, Cash Surrender Value, loan privileges and flexible premiums. It
is called "flexible" because the Policyowner may select the timing and amount
of premium payments. It is called "variable" because, unlike the fixed
benefits of a traditional whole life policy, the Death Benefits may, and Cash
Surrender Values most likely will, vary to the extent that the Account Value
under the Policy is allocated to the division(s) of the Separate Account.
Certain provisions of the Policy as described herein may be somewhat different
in any particular state because of specific state requirements.
The Policy is a legal contract between the Policyowner and MassMutual. The
entire contract consists of the application to the Policy (the "Application")
and the Policy.
AVAILABILITY. The Policy is available on a "Case" or, state law permitting,
individual basis. "Case basis" means that the Insureds share a common
employment or other institutional relationship and that all Policies in the Case
are aggregated for purposes of determining Issue Dates, Policy Dates,
underwriting requirements and sales load percentages. If the individual
Insureds are the owners, they may exercise all rights and privileges under the
Policy through their Employer or other sponsoring entity acting as Case
administrator. After termination of the employment or other relationship, an
individual who owns the Policy may exercise such rights and privileges directly
with MassMutual.
The minimum Selected Face Amount is $25,000 per life for ages 20-85. The
minimum initial Case premium is $250,000 of first year annualized premium. The
Insured may not be younger than age 20 nor older than age 85 as of the Policy
Date for Policies issued on a regular underwriting basis. For Policies
underwritten on a guaranteed issue underwriting basis or on a simplified issue
underwriting basis, the Insured may not be younger than age 20 nor older than
age 65 as of the Policy Date. Before issuing any Policy we will require
satisfactory evidence of insurability, except under a guaranteed issue
underwriting approach if the Insured is under age 65 as of the Policy Date.
UNDERWRITING. The Policies within a Case are underwritten on the same basis,
i.e. a regular underwriting, simplified issue underwriting, or guaranteed issue
underwriting approach is used for all Policies in a Case. Availability of a
regular underwriting approach is subject to state approval. Mortality charges
vary depending on the type of underwriting used.
WHAT IS THE ACCOUNT VALUE OF THE POLICY? The Account Value is determined by the
amount and frequency of premium payments, the investment experience of the
divisions chosen by the Policyowner (the Variable Account Value), the interest
earned on Account Value allocated to the GPA (the Fixed Account Value), and any
Withdrawals or charges imposed in connection with the Policy. The Policyowner
bears the investment risk of any depreciation in value of the underlying assets
of the Separate Account divisions but also may benefit from any appreciation in
value.
WHAT ARE THE DIVISIONS OF THE SEPARATE ACCOUNT? The Separate Account has seven
divisions - the Equity Division, the Money Market Division, the Managed Bond
Division, the Blend Division, the High Income Division, the Capital Appreciation
Division, and the Global Securities Division. Each Separate Account division
invests only in shares of a single investment company or a single series of an
investment company. The divisions are intended to provide money to pay benefits
under the policy but do not guarantee a minimum interest rate or guarantee
against asset depreciation.
The Equity Division invests in shares of MML Equity Fund. The Money Market
Division invests in shares of MML Money Market Fund. The Managed Bond Division
invests in shares of MML Managed Bond Fund. The Blend Division invests in
shares of MML Blend Fund. The High Income, Capital Appreciation and Global
Securities Divisions invest in shares of the Oppenheimer High Income Fund,
Oppenheimer Capital Appreciation Fund and Oppenheimer Global Securities Fund,
respectively.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend Fund
(the "MML Funds") are separate series of shares of MML Series Investment Fund
(the "MML Trust"), an open-end diversified management investment company.
MassMutual acts as investment manager for MML Money Market Fund, MML Managed
Bond Fund and the Bond and Money Market Sectors of MML Blend Fund. Pursuant to
an investment sub-advisory agreement, Concert Capital Management, Inc.
("Concert Capital"), a wholly-owned subsidiary of MassMutual serves as
investment sub-advisor to MML Equity Fund and the Equity Sector of MML Blend
Fund. Both MassMutual and Concert Capital are registered as investment advisors
under the Investment Advisors Act of 1940.
Oppenheimer Management Company ("OMC") supervises the investment operations of
the Oppenheimer Variable Account Funds (the "Oppenheimer Trust"), defines the
composition of each respective portfolio, and furnishes advice and
recommendations with respect to the investments, investment policies and
purchase and sale of securities, pursuant to an investment advisory agreement
with each Fund. The Oppenheimer High Income Fund, Oppenheimer Capital
Appreciation Fund and Oppenheimer Global Securities Fund (the "Oppenheimer
Funds") are part of the Oppenheimer Trust, an open-end diversified management
investment company, which is available to act as the investment vehicle for
separate accounts for variable insurance policies offered by insurance
companies. OMC is registered as an investment advisor under the Investment
Advisors Act of 1940.
WHAT IS THE GUARANTEED PRINCIPAL ACCOUNT ("GPA")? As an alternative to the
Separate Account, the
5
<PAGE>
Policyowner may allocate or transfer all or part of the funds to the GPA. Such
amounts become part of MassMutual's general account assets. The Policyowner is
not entitled to share in the investment experience of those assets. Rather,
MassMutual guarantees a rate of return on the allocated amount equal to (a) 4%,
or (b) the greater of (1) 4% and (2) the rate determined by the Treasury Bill
Index. The interest rate credited to the GPA account value will be affected by
the option selected. This rate must be selected at time of issue. Policies
issued prior to April, 1994, will be offered a one-time opportunity to change
the guaranteed rate of return from option (b) to option (a). Although MassMutual
is not obligated to credit interest at a rate higher than this minimum, it may
declare a higher rate applicable for such periods as it deems appropriate. For
details see THE GUARANTEED PRINCIPAL ACCOUNT.
IS THE LEVEL OF THE DEATH BENEFIT GUARANTEED? There are two Death Benefit
options. (Policies issued prior to May 1, 1991 will be amended upon request to
add the choice of Death Benefit Option 2.) So long as the Policy remains in
force, the Death Benefit you have selected will be available. The Death Benefit
equals the greater of the Policy's Selected Face Amount for the Policy Year of
death (plus the Account Value on the date of death if Death Benefit Option 2 is
elected) or the Minimum Face Amount in effect on the date of death of the
Insured. Death Benefit proceeds under either Option will be reduced by any
outstanding Policy Debt, plus or minus unearned or unpaid monthly deductions.
IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES? A Death Benefit paid under our
Policies is usually fully excludable from the gross income of the Beneficiary
for federal income tax purposes.
For details see FEDERAL INCOME TAX CONSIDERATIONS - POLICY PROCEEDS, PREMIUMS
AND LOANS.
DOES THE POLICY HAVE A CASH SURRENDER VALUE? The Policyowner may surrender the
Policy at any time and receive its Account Value less any Policy Debt. There is
no surrender charge. Withdrawals are allowed subject to certain restrictions
and are subject to a withdrawal charge of 2.0% of the Account Value not to
exceed $25.00 which is deducted from each withdrawal. For details see
WITHDRAWALS. The Cash Surrender Value of a Policy fluctuates with the investment
performance of the Separate Account divisions, in which the Policy has Account
Value, and with the interest rate on the amount held inthe GPA. It may increase
or decrease daily.
For federal income tax purposes, the Policyowner usually is not taxed on
increases in the Cash Surrender Value until the Policy is surrendered. However,
in connection with certain Withdrawals of Account Value and loans on the Policy,
the Policyowner may be taxed on all or a part of the amount distributed.
For details see CASH SURRENDER VALUE and FEDERAL INCOME TAX CONSIDERATIONS -
POLICY PROCEEDS, PREMIUMS AND LOANS.
WHAT IS A MODIFIED ENDOWMENT CONTRACT? A modified endowment contract (as defined
by the Internal Revenue Code) is a life insurance policy under which the
premiums paid during the first seven contract years exceed the cumulative
premiums payable under a policy providing for guaranteed benefits upon the
payment of seven level annual premiums. Certain changes to the policy can
subject it to retesting for a new seven-year period. During the insured's
lifetime, distributions from a modified endowment contract, including collateral
assignments, loans and withdrawals, are taxable to the extent of any income in
the contract and may also incur a penalty tax if the policy owner is not
59 1/2.
CAN THIS POLICY BECOME A MODIFIED ENDOWMENT CONTRACT? Since this Policy permits
flexible premium payments, it may become a modified endowment contract. The
Company has the systems capacity to test a Policy at issue to determine whether
it will be classified as a modified endowment contract. This at-issue test
examines the Policy for the first seven contract years, based on the Policy
application and the initial premium requested, and based on the assumption that
there were no increases in premium during the period. The Company has further
safe-guards in place to monitor whether a Policy may become a modified endowment
contract after issue.
For details see FEDERAL INCOME TAX CONSIDERATIONS - MODIFIED ENDOWMENT
CONTRACTS.
WHAT ABOUT PREMIUMS? There are two concepts which are important to the
discussion of premiums for this Policy: the minimum initial premium; and the
planned premium. These terms are used throughout this Prospectus.
A minimum initial premium is payable either at the time you submit your
Application or at some time prior to the delivery of the Policy. The planned
premium is elected on the Application and becomes the basis for the Policy's
premium billing. The amount and timing of planned premiums originally selected
in the Application may be changed at any time upon written request.
The minimum Case premium is $250,000 of first year annualized premium for all
Policies in a Case. The Initial Case Premium Paid is the amount of premium for
all Policies in a Case on deposit with MassMutual at the time the Policies are
installed on the administrative system. The Initial Case Premium Paid
determines sales load percentages for all Policies in that Case.
For details see GENERAL PROVISIONS OF THE POLICY - PREMIUMS.
WHEN ARE PREMIUMS PUT INTO THE GUARANTEED PRINCIPAL ACCOUNT OR THE SEPARATE
ACCOUNT? The initial Net Premium (i.e., premium paid less the deductions
described in ARE THERE CHARGES AGAINST THE POLICY?) will be allocated to the MML
Money Market Division, which invests in the MML Money Market Fund. At the end
of the Free Look Period, the Account Value will be allocated to the GPA and/or
the divisions of the designated segment of the Separate Account according to the
Policyowner's instructions in the application and subject to MassMutual's
allocation rules.
HOW CAN THE NET PREMIUM AND THE ACCOUNT VALUE OF THE POLICY BE ALLOCATED AMONG
THE GUARANTEED PRINCIPAL ACCOUNT AND THE SEPARATE ACCOUNT DIVISIONS? When you
apply for a Policy you choose the percentages of your premiums to be allocated
to the divisions of the Separate Account and the GPA. You may choose any whole
percentages as long as the total is 100%. The allocation of future net premiums
may be changed at any time without charge.
6
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The Account Value of the Policy may be transferred between the GPA or divisions
of the Separate Account by written request. The Account Value may be
transferred by dollar amount or by whole-number percentage, subject to
restrictions.
HOW LONG WILL THE POLICY REMAIN IN FORCE? The Policy does not automatically
terminate for failure to pay planned premiums. Payment of these amounts does
not guarantee the Policy will remain in force. The Policy terminates only when
the Account Value less any Policy Debt is insufficient to pay the monthly
deduction, and a grace period expires without sufficient payment.
ARE THERE CHARGES AGAINST THE POLICY? Certain charges are made against the
Policy. Before allocation to the Account Value, a percentage of each premium
paid is deducted for expenses related to the sale and distribution of the
Policies. These charges are called sales loads and vary depending on the total
Initial Case Premium Paid for all Policies in the Case at issue. First year
sales loads vary according to the cumulative amount of premiums paid under the
Policy in that year. Thereafter, sales loads are a level percentage of each
Premium paid. A deduction of 2.0% is also made for state premium taxes. Each
premium, net of these charges, is allocated to the GPA or the divisions of the
Separate Account and becomes a part of the Account Value.
For details see DEDUCTIONS FROM PREMIUM.
Certain monthly charges are deducted directly from the Policy's Account Value on
each Monthly Calculation Date. These monthly deductions are equal to the sum of
a mortality charge, an administrative charge, and a face amount charge. The
face amount charge is only applicable for Policies issued under a regular
underwriting approach.
Some deductions are made on a daily basis against the assets of the Separate
Account divisions. A daily charge calculated at an annual rate of .40% of the
value of the assets of each division ischarged for mortality and expense risks.
Similarly, tax assessments are calculated daily. Currently, we are not making
any charges for income taxes, but we may make charges in the future against the
Separate Account divisions for federal income taxes attributable to them.
Withdrawals of Account Value are permitted subject to certain restrictions. A
charge equal to the lesser of $25 or 2.0% of the amount withdrawn is imposed for
each Withdrawal.
For details see CHARGES UNDER THE POLICY and FEDERAL INCOME TAX CONSIDERATIONS.
WHAT IS THE LOAN PRIVILEGE AND HOW DOES A LOAN AFFECT THE POLICY'S DEATH BENEFIT
AND CASH SURRENDER VALUE? For Policies issued prior to May 1, 1991, while the
Policy is in force, a loan may be made on the Policy, provided that total Policy
Debt including the new loan does not exceed 90% of the Policy's Account Value.
For Policies issued on or after May 1, 1991, while the Policy is in force, a
loan may be made on the Policy, in a maximum amount equal to the Account Value
on the date the loan is to be made reduced by: (i) any outstanding Policy Debt;
and (ii) interest on the loan being made and on any outstanding Policy Debt to
the next Policy Anniversary Date; and (iii) an amount equal to the most recent
monthly charge for the Policy multiplied by the number of Monthly Calculation
Dates from the date the loan is made, up to and including the next Policy
Anniversary Date.
ARE THERE DIVIDENDS? The Policy is participating, therefore, it may share in any
dividends paid by MassMutual. Dividends are based on the Policy's contribution
to any divisible surplus of MassMutual. Any dividends will be payable on the
Policy Anniversary Date. MassMutual does not expect that any dividends will be
paid under the Policies. For details see DIVIDENDS.
DO I HAVE A RIGHT TO CANCEL? Under the Free Look Provision, you, the
Policyowner, have a limited right to return the Policy and receive a refund.
This right expires on the latest of the following:
. Ten days after you receive the Policy; or
. Ten days after we mail you a Notice of Withdrawal Right; or
. 45 days after Part 1 of the Policy Application was signed.
The Policy may be returned to our Home Office, to any of our agency offices, or
to the agent who sold you the Policy. For details see FREE LOOK PROVISION.
CAN THE POLICY BE EXCHANGED FOR A FIXED BENEFIT POLICY? You have the right to
transfer all of your Account Value into the GPA at any time after issue. The
transfer will take effect when we receive a suitable written request.
For details see EXCHANGE PRIVILEGE.
CHARGES UNDER THE POLICY
Certain charges are deducted to compensate for providing the insurance benefits
under the Policy, for administering the Policy, for assuming certain risks, and
for incurring certain expenses in distributing the Policy.
DEDUCTIONS FROM PREMIUMS
Prior to the allocation of the premium payment to the Account Value, a deduction
as a percentage of premium is made for the sales load and premium taxes. The
sales load percentage varies depending on the total Initial Case Premium Paid
for all Policies in the Case.
7
<PAGE>
SALES LOAD. The sales load component of the premium deduction is based on the
total Initial Case Premium Paid for all Policies in a Case; the sales load will
not change. Please note that premiums are tracked on a cumulative basis for
each policy, and that the year 1 sales load will be higher on premium payments
made below the specified policy minimum planned premium.
<TABLE>
<CAPTION>
For Policies issued on or after May 1, 1993:
INITIAL CASE PREMIUM
PAID
-----------------------------
BELOW $1,000,000
$1,000,000 & UP
-------------- -------------
<S> <C> <C>
YEAR 1:
Up to the Minimum
Planned Premium 22.0% 4.0%
Above the Minimum
Planned Premium 6.5% 3.0%
YEAR 2+
Up to the Minimum
Planned Premium 6.5% 3.0%
Above the Minimum
Planned Premium 6.5% 3.0%
</TABLE>
<TABLE>
<CAPTION>
For Policies issued on or after May 1, 1992:
EXPECTED AGGREGATE
ANNUAL PLANNED CASE
PREMIUM
-----------------------------
BELOW $1,000,000
$1,000,000 & UP
-------------- -------------
<S> <C> <C>
YEAR 1:
Up to the Minimum
Planned Premium 22.0% 4.0%
Above the Minimum
Planned Premium 6.5% 3.0%
YEAR 2+
Up to the Minimum
Planned Premium 6.5% 3.0%
Above the Minimum
Planned Premium 6.5% 3.0%
</TABLE>
<TABLE>
<CAPTION>
For Policies issued before May 1, 1992:
EXPECTED AGGREGATE
ANNUAL PLANNED CASE
PREMIUM
-----------------------------
BELOW $5,000,000
$5,000,000 & UP
-------------- -------------
<S> <C> <C>
YEAR 1:
Up to the Minimum
Planned Premium 22.0% 4.0%
Above the Minimum
Planned Premium 6.5% 3.0%
YEAR 2+
Up to the Minimum
Planned Premium 6.5% 3.0%
Above the Minimum
Planned Premium 6.5% 3.0%
</TABLE>
<TABLE>
<CAPTION>
For Policies issued before May 1, 1991:
EXPECTED AGGREGATE
ANNUAL PLANNED CASE
PREMIUM
-----------------------------
BELOW $5,000,000
$5,000,000 & UP
-------------- -------------
<S> <C> <C>
YEAR 1:
Up to the Minimum
Planned Premium 21.0% 3.0%
Above the Minimum
Planned Premium 5.5% 2.0%
YEAR 2+
Up to the Minimum
Planned Premium 5.5% 2.0%
Above the Minimum
Planned Premium 5.5% 2.0%
</TABLE>
The amount of the sales load in a Policy Year is not necessarily related to our
actual sales expenses for that particular year. To the extent that sales
expenses are not covered by the sales load, they will be recovered from
MassMutual surplus, including any amounts derived from the mortality and expense
risk charge or the cost of insurance charge. For a discussion of the
commissions paid under the Policy, see SALES AND OTHER AGREEMENTS - COMMISSION
SCHEDULE.
STATE PREMIUM TAX CHARGE. We deduct 2.0%, or the applicable state rate, if
greater (pending state approval), of each premium to cover premium taxes
assessed against MassMutual.
During 1994, the aggregate amount of such deductions from premiums was
$1,649,685 for sales loads and $249,729 for state premium tax charges.
ACCOUNT VALUE CHARGES
On each Monthly Calculation Date, a monthly administrative charge, a cost of
insurance charge (also referred to as the Mortality Charge in the Policy) and a
face amount charge (if applicable) are deducted from the Variable Account Value
and Fixed Account Value in proportion to the non-loaned Account Value in the
Separate Account and the GPA.
MONTHLY ADMINISTRATIVE CHARGE. A monthly charge is deducted to compensate
MassMutual for costs incurred in providing certain administrative services
including premium collection, recordkeeping, processing claims and communicating
with Policyowners. Currently, the charge is $5.25 per month, or $63 annually,
for each Policy. While this charge may increase or decrease, the maximum
monthly administrative charge is determined by the ratio of the Consumer Price
Index for September of the year preceding the date of the charge to the Consumer
Price Index for September, 1985, multiplied by $5. Such charges will not exceed
the actual cost for such services. In no event will the charge exceed $8 per
month. During 1994, the aggregate amount of such charges was $63,985.
CHARGE FOR COST OF INSURANCE PROTECTION. A charge for the cost of insurance
protection is deducted on each Monthly Calculation Date and is based on the age
and sex of the Insured,the Policy Year in which the deduction is made, the
smoker and rating class of the Policy and the type of underwriting used for the
Case. The charge varies monthly because it is determined by multiplying the
applicable cost of insurance rates by the amount at risk each Policy month.
8
<PAGE>
The maximum monthly cost of insurance charge for each $1,000 of insurance for
which a charge applies is shown in the Table of Maximum Monthly Mortality
Charges in the Policy. MassMutual may charge less than these maximum charges.
Any change in these charges will apply to all Policies in the same Case. During
1994, the aggregate amount of deductions for the charge for cost of insurance
protection was $1,514,170.
FACE AMOUNT CHARGE. A monthly face amount charge is deducted from Policies that
were issued under a regular underwriting approach. The charge is based on the
initial Selected Face Amount of the Policy, the issue age of the Insured, and
the Policy Year in which the deduction is made. This charge is fixed for a set
number of Policy Years and is shown in the Other Information section of the
Schedule Page. During 1994, the aggregate amount of deductions for the monthly
face amount charge was $17,816.
SEPARATE ACCOUNT CHARGES
CHARGES FOR MORTALITY AND EXPENSE RISKS. We charge the Separate Account
divisions for the mortality and expense risks we assume. We deduct a daily
charge at an effective annual rate of 0.40% of the value of each division's
assets that come from the Policy. The aggregate amount of such charges, which
are paid quarterly, against the Separate Account divisions in 1994 was $36,468.
The mortality risk we assume is that the group of lives insured under our
Policies may, on average, live for shorter periods of time than we estimated.
The expense risk we assume is that our costs of issuing and administering
Policies may be more than we estimated.
If all the money we collect from this charge is not needed to cover Death
Benefits and expenses, it will be our gain and will be used for any proper
purpose, including payment of sales commissions. Conversely, even if the money
we collect is insufficient, we will provide for all Death Benefits and expenses.
CHARGES FOR FEDERAL INCOME TAXES. We do not currently make any charge against
the Separate Account divisions for federal income taxes attributable to them.
However, we may make such a charge eventually in order to provide for the future
federal income tax liability of the Separate Account divisions. For more
information on charges for federal income taxes, see FEDERAL INCOME TAX
CONSIDERATIONS - MASSMUTUAL - TAX STATUS.
THE SEPARATE ACCOUNT
The Separate Account was established on July 13, 1988 as a separate investment
account of MassMutual by MassMutual's Board of Directors in accordance with the
provisions of Section 132G of Chapter 175 of the Massachusetts General Laws.
The Separate Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. Registration does not involve supervision
of the management or investment practices or policies of the Separate Account or
of MassMutual. Under Massachusetts law, however, both MassMutual and the
Separate Account are subject to regulation by the Division of Insurance of the
Commonwealth of Massachusetts. Designated segments of the Separate Account will
be used to receive and invest premiums for other variable life insurance
policies issued by MassMutual.
Although the assets of the Separate Account are assets of MassMutual, that
portion of the Separate Account assets equal to the reserves and other
liabilities of the Separate Account attributable to the Policies may not be used
to satisfy any obligations that may arise out of any other business we may
conduct. They may, however, become subject to liabilities arising from other
variable life insurance policies which are funded by the Separate Account. In
addition, we may from time to time at our discretion transfer to our general
account those assets which exceed the reserves and other liabilities of the
Separate Account. Such transfers will not adversely affect the Separate
Account.
Income, realized gains or losses and unrealized gains or losses from each
division of the Separate Account are credited to or charged against that
division without regard to any of our other income, gains or losses.
MassMutual may accumulate in the Separate Account the charge for expense and
mortality risks, monthly charges assessed against the Policy and investment
results applicable to those assets that are in excess of net assets supporting
the Policies.
INVESTMENT OF THE SEPARATE ACCOUNT. The designated segment of the Separate
Account has seven divisions attributable to the Policy. The particular
divisions invest in shares of either MML Trust or Oppenheimer Trust. The
divisions of the Separate Account are:
. THE EQUITY DIVISION - Amounts credited to this division are invested
in shares of MML Equity Fund, or its successor.
. THE MONEY MARKET DIVISION - Amounts credited to this division are
invested in shares of MML Money Market Fund, or its successor.
. THE MANAGED BOND FUND - Amounts credited to this division are invested
in shares of MML Managed Bond Fund, or its successor.
. THE BLEND DIVISION - Amounts credited to this division are invested in
shares of MML Blend Fund, or its successor.
. THE HIGH INCOME DIVISION - Amounts credited to this division are
invested in shares of Oppenheimer High Income Fund, or its successor.
. THE CAPITAL APPRECIATION DIVISION - Amounts credited to this division
are invested in shares of Oppenheimer Capital Appreciation Fund, or
its successor.
. THE GLOBAL SECURITIES DIVISION - Amounts credited to this division are
invested in shares of Oppenheimer Global Securities Fund, or its
successor.
The shares of the underlying Fund purchased by each division of the Separate
Account will be held by MassMutual as custodian of the Separate Account.
The MML Trust and the Oppenheimer Trust are no-load open-end, diversified
management investment companies registered under the Investment Company Act of
1940, as amended. The MML Trust consists of the four MML Funds described above,
each of which has its own investment objectives and policies. Similarly, the
Oppenheimer Trust
9
<PAGE>
includes the three Oppenheimer Funds, each of which also has its own investment
objectives and policies. MassMutual established the MML Trust for the purpose of
providing vehicles for the investment of assets held in various separate
investment accounts, including the Separate Account, established by MassMutual
or by life insurance companies which are subsidiaries of MassMutual. OMC
established the Oppenheimer Trust for the purpose of providing investment
vehicles for investment only by variable life insurance contracts and variable
annuities contracts. Shares of the MML Funds are not offered to the general
public, but solely to separate investment accounts established by MassMutual and
life insurance company subsidiaries of MassMutual.
The primary investment objective of MML Equity Fund is to achieve a superior
total rate of return over an extended period of time from both capital
appreciation and current income. A secondary investment objective is the
preservation of capital when business and economic conditions indicate that
investing for defensive purposes is appropriate. The assets of this Fund are
normally expected to be invested primarily in common stocks and other equity-
type securities.
The investment objectives of MML Money Market Fund are to achieve high current
income, the preservation of capital, and liquidity. These objectives are of
equal importance. The assets of this Fund will be invested in short-term debt
instruments, including but not limited to commercial paper, certificates of
deposit, bankers' acceptances, and obligations of the United States government,
its agencies and instrumentalities.
The investment objective of MML Managed Bond Fund is to achieve as high a total
rate of return on an annual basis as is considered consistent with the
preservation of capital values. The assets of this Fund will be invested
primarily in publicly issued, readily marketable, fixed income securities of
such maturities as MassMutual deems appropriate from time to time in light of
market conditions and prospects.
The investment objective of MML Blend Fund is to achieve as high a level of
total rate of return over an extended period of time as is considered consistent
with prudent investment risk and the preservation of capital values. This Fund
may invest in a portfolio that may include common stocks and other equity-type
securities, bonds and other debt securities with maturities generally exceeding
one year, and money market instruments and other debt securities with maturities
generally not exceeding one year.
The investment objective of the Oppenheimer High Income Fund is to earn a high
level of current income by investing primarily in a diversified portfolio of
high yield, fixed-income securities, including long-term debt obligations,
preferred stock issues believed by OMC, in its capacity as investment manager of
the Fund, not to involve undue risk.
The investment objective of the Oppenheimer Capital Appreciation Fund is capital
appreciation. In seeking this objective the Fund will emphasize investments in
securities of "growth-type" companies. Such companies are believed to have
relatively favorable long-term prospects for an increased demand for the
particular company's products or services.
The investment objective of the Oppenheimer Global Securities Fund is to seek
long term capital appreciation through investing a substantial portion of its
invested assets in securities of foreign issuers, growth-type companies and
special investment opportunities which are considered by OMC, in its capacity as
investment manager of the Funds, to have appreciation possibilities. Current
income is not an investment objective of the Oppenheimer Global Securities Fund.
The Separate Account purchases and redeems shares of the Funds at their net
asset value which is determined at the time of the receipt of the purchase order
or redemption request without the imposition of any sales or redemption charge.
Citibank, with its home office located in New York, NY, acts as custodian for
each of the MML Funds. The Bank of New York, with its home office located in
New York, NY, acts as custodian for each of the Oppenheimer Funds.
MassMutual serves as investment manager of each of the MML Funds pursuant to
Investment Management Agreements, each of which provides for the MML Fund to pay
MassMutual a quarterly fee at the annual rate of .50% of the first $100,000,000
of the MML Fund's average daily net asset value, .45% of the next $200,000,000,
.40% of the next $200,000,000 and .35% of any excess over $500,000,000. Concert
Capital provides investment sub-advisory functions for MML Equity Fund and the
Equity Sector of MML Blend Fund.
The monthly management fee payable to OMC in its capacity as investment advisor
to the Oppenheimer Funds is computed separately on the net assets of each Fund
as of the close of business each day. The management fee rates are as follows:
(i) for Capital Appreciation Fund and Global Securities Fund: 0.75% of the first
$200 million of net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of net assets over $800
million; and (ii) for High Income Fund: 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
over $1 billion.
During 1994, MassMutual earned investment management fees of $3,191,449 from MML
Equity Fund, $412,832 from MML Money Market Fund, $620,816 from MML Managed Bond
Fund and $5,476,633 from MML Blend Fund. MassMutual has agreed to bear the
expenses of each of the MML Funds (other than the management fee, interest,
taxes, brokerage commissions and extraordinary expenses) in excess of .11%
of average daily net asset value through April 30, 1996.
Additional and more detailed information concerning the MML Funds and the
Oppenheimer Funds, including information about the other expenses of such Funds,
may be found in the accompanying Prospectuses for both the MML Trust and the
Oppenheimer Trust.
MassMutual is also the investment advisor to MassMutual Corporate Investors and
MassMutual Participation Investors, closed-end investment companies; certain
wholly-owned subsidiaries of MassMutual; and various employee benefit plans.
MassMutual is the investment sub-advisor to Oppenheimer Investment Grade Bond
Fund and Oppenheimer Value Stock Fund, open end management investment companies.
MassMutual also serves as the collateral co-manager for MassMutual Carlson CBO,
N.V.
10
<PAGE>
OMC has operated as an investment advisor since April 30, 1959. It and its
affiliates currently advise U.S. investment companies with assets aggregating
over $29.6 billion as of December 31, 1994, and having more than 2.5 million
shareholder accounts. OMC is owned by Oppenheimer Acquisition Corp., a holding
company owned in part by senior management of OMC, and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance company
which also advises pension plans and investment companies.
The assets of certain variable annuity separate accounts for which MassMutual or
an affiliate is the depositor are invested in shares of the MML Funds. Because
these separate accounts are invested in the same underlying MML Funds it is
possible that material conflicts could arise between owners of the Policies and
owners of the variable annuity contracts. Possible conflicts could arise if:
(i) state insurance regulators should disapprove or require changes in
investment policies, investment advisors or principal underwriters or if
MassMutual should be permitted to act contrary to actions approved by holders of
the Policies under rules of the Securities and Exchange Commission; (ii) adverse
tax treatment of the Policies or the variable annuity contracts would result
from utilizing the same underlying MML Funds; (iii) different investment
strategies would be more suitable for the variable annuity contracts than for
the Policies; or (iv) state insurance laws or regulations or other applicable
laws would prohibit the funding of both the Separate Account and other
investment accounts by the same MML Funds. The Board of Trustees of the MML
Trust will follow monitoring procedures which have been developed to determine
whether material conflicts have arisen. Such Board will have a majority of
Trustees who are not interested persons of the MML Trust or MassMutual and
determinations whether or not a material conflict exists will be made by a
majority of such disinterested Trustees. If a material irreconcilable conflict
exists, MassMutual will take such action at its own expense as may be required
to cause the Separate Account to be invested solely in shares of mutual funds
which offer their shares exclusively to variable life insurance separate
accounts unless, in certain cases, the holders of both the Policies and the
variable annuity contracts vote not to effect such segregation.
The Oppenheimer Trust was established for use as an investment vehicle by
variable contract separate accounts such as the Separate Account. Accordingly,
it is possible that a material irreconcilable conflict may develop between the
interests of contract owners and other separate accounts investing in the
Oppenheimer Trust. The Board of Trustees of the Oppenheimer Trust (the
"Trustees") will monitor the Oppenheimer Funds for the existence of any such
conflicts. If it is determined that a conflict exists, the Trustees will notify
MassMutual, and appropriate action will be taken to eliminate such
irreconcilable conflicts. Such steps may include: (i) withdrawing the assets
allocable to some or all of the separate accounts from the particular
Oppenheimer Fund and reinvesting such assets in a different investment medium,
including (but not limited to) another Oppenheimer Fund; (ii) submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners; and (iii) establishing a new registered management
investment company or managed separate account.
RATES OF RETURN. Table 1 and 2 show the Effective Annual Rates of Return and
Annualized One Year Total Returns, respectively, of the MML Funds based on the
actual investment performance (after deduction of investment management fees and
direct operation expenses). Table 3 and 4 show the Effective Annual Rates of
Return and the Annualized One Year Total Returns, respectively, of the
Oppenheimer Funds based on the actual investment performance (after deduction of
investment management fees and direct operation expenses).
Table 1 shows figures for periods ended December 31, 1994, for the MML Funds;
Table 2 shows December 31 annualized figures for the MML Funds. Table 3 shows
figures for periods ended December 31, 1994, for the Oppenheimer Funds; Table 4
shows December 31 annualized figures for the Oppenheimer Funds. These rates of
return do not reflect the mortality and expense risk charges assessed against
the Separate Account. Also, they do not reflect deduction from premiums or
administrative, cost of insurance and face amount charges assessed against the
Account Value of the Policies. See CHARGES UNDER THE POLICY - DEDUCTIONS FROM
PREMIUMS and ACCOUNT VALUE CHARGES. Therefore, these rates are not illustrative
of how actual investment performance will affect the benefits under the Policy
(see, however, ACCOUNT VALUE AND CASH SURRENDER VALUE - INVESTMENT RETURN). The
rates of return shown are not necessarily indicative of future performance.
However, they may be considered in assessing the competence and performance of
MassMutual and Concert Capital as the MML Funds' investment advisor and OMC as
the Oppenheimer Fund's investment advisor.
11
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1994
<S> <C> <C> <C> <C> <C>
20 15 10 5 1
FUND YEARS YEARS YEARS YEARS YEAR
Equity 15.00% 14.88% 13.72% 9.49% 4.10%
Money Market - 7.07* 6.17 4.82 3.84
Managed Bond - 10.32* 9.53 7.86 (3.76)
Blend - 12.17* 12.46 9.31 2.48
</TABLE>
* The figures shown are from inception of the MML Funds. The MML Money Market
and MML Managed Bond Funds commenced operations on December 16, 1981. The MML
Blend Fund commenced operations on February 3, 1984.
<TABLE>
<CAPTION>
ANNUALIZED ONE YEAR TOTAL RETURNS
MML
FOR THE MML MML MONEY MANAGED MML
YEAR ENDED EQUITY MARKET BOND BLEND
<S> <C> <C> <C> <C>
1994 4.10% 3.84% (3.76)% 2.48%
1993 9.52% 2.75% 11.81% 9.70%
1992 10.48% 3.48% 7.31% 9.36%
1991 25.56% 6.01% 16.66% 24.00%
1990 (0.51)% 8.12% 8.38% 2.37%
1989 23.04 % 9.16% 12.83% 19.96%
1988 16.68 % 7.39% 7.13% 13.40%
1987 2.10 % 6.49% 2.60% 3.12%
1986 20.15 % 6.60% 14.46% 18.30%
1985 30.54 % 8.03% 19.94% 24.88%
1984 5.40 % 10.39% 11.69% 8.24%*
1983 22.85 % 8.97% 7.26% -
1982 25.67 % 11.12%* 22.79%* -
1981 6.67 % - - -
1980 27.62 % - - -
1979 19.54 % - - -
1978 3.71 % - - -
1977 (0.52)% - - -
1976 24.77 % - - -
1975 32.85 % - - -
1974 (17.61)%* - - -
</TABLE>
* The figures shown are from inception of the MML Funds. The MML Money Market
and MML Managed Bond Funds commenced operations on December 16, 1981. The MML
Blend Fund commenced operations on February 3, 1984. The MML Equity Fund
commenced operations on September 15, 1971 (performance information prior to
1974 is not available).
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
SINCE 5 1
FUND INCEPTION YEARS YEAR
<S> <C> <C> <C>
Oppenheimer High
Income 12.48% 15.11% (3.18)%
Oppenheimer Capital
Appreciation 13.29 11.81 (7.59)
Oppenheimer Global
Securities 11.15 - (5.72)
</TABLE>
ANNUALIZED ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
FOR THE OPPENHEIMER CAPITAL GLOBAL
YEAR ENDED HIGH INCOME APPRECIATION SECURITIES
<S> <C> <C> <C>
1994 (3.18)% (7.59)% (5.72)%
1993 26.34% 27.32% 70.32%
1992 17.92% 15.42% (7.11)%
1991 33.91% 54.72% 3.39%
1990 4.65% (16.82)% 0.40%*
1989 4.84% 27.57%
1988 15.58% 13.41%
1987 8.07% 14.34%
1986 4.73%* (1.65)%*
</TABLE>
* The figures shown are from inception of the Oppenheimer Funds. The Oppenheimer
High Income Fund commenced operations on April 30, 1986. The Oppenheimer
Capital Appreciation Fund commenced operations on August 15, 1986. The
Oppenheimer Global Securities Fund commenced operations on November 12, 1990.
GENERAL PROVISIONS OF THE POLICY
This section of the Prospectus describes the general provisions of the Policy,
and is subject to the terms of the Policy. You may review a copy of the Policy
upon request.
PREMIUMS. The Policyowner selects a premium payment schedule in the Application
and is not bound by an inflexible premium schedule. Two premium concepts are
very important under the Policy: the planned premium and minimum initial
premium.
PLANNED PREMIUMS. Planned premiums are elected at the time of application and
may be changed at any time. Planned premiums are the basis for the Policy's
premium billing. The planned premium may be subject to minimum and maximum
amounts which depend upon the Selected Face Amount of the Policy, the Insured's
age, sex and smoking class and the amount of the initial premium paid.
There is no penalty if the planned premium is not paid, nor does payment of this
amount guarantee coverage for any period of time. Instead, the duration of the
Policy depends upon the Policy's Account Value. Even if planned premiums are
paid, the Policy terminates when the Account Value becomes insufficient to pay
certain monthly charges and a grace period expires without sufficient payment.
For details see TERMINATION.
12
<PAGE>
The following table shows the minimum annual planned premium (also referred to
as the "cut-off" premium) at certain ages for a Policy with a Selected Face
Amount of $100,000 in all years, under Death Benefit Option 1 (see DEATH
BENEFITS UNDER THE POLICY).
<TABLE>
<CAPTION>
MINIMUM ANNUAL PLANNED PREMIUM
LEVEL $100,000 SELECTED FACE AMOUNT
(DEATH BENEFIT OPTION 1)
ISSUE AGE
-----------------------------------
CLASS AGE 25 AGE 40 AGE 55
<S> <C> <C> <C>
MALE
Nonsmoker...... $293 $ 652 $1,663
Smoker......... $488 $1,099 $2,842
FEMALE
Nonsmoker...... $229 $ 511 $1,231
Smoker......... $368 $ 853 $2,028
UNISEX
Nonsmoker...... $284 $ 632 $1,601
Smoker......... $471 $1,065 $2,727
</TABLE>
THE MINIMUM INITIAL PREMIUM. A minimum initial premium must be paid along with
your Application or at any time prior to the delivery of the Policy. The amount
of the minimum initial premium is the amount which, after the deductions for
sales load and premium tax (see DEDUCTIONS FROM PREMIUMS), is sufficient
(disregarding investment performance) to pay twelve times the first Monthly
Deduction (see ACCOUNT VALUE CHARGES). Thereafter, subject to the minimum and
maximum premium limitations described below, you may make unscheduled premium
payments at any time and in any amount.
MINIMUM AND MAXIMUM PREMIUM PAYMENTS. While the Policy is in force, premiums
may be paid at any time before the death of the Insured subject to certain
restrictions. The minimum premium payment is $10.00. The maximum premium which
may be paid in any year without evidence of insurability is: (a) the largest
premium which will not increase the net amount at risk under the Policy; or (b)
the greater of (i) the largest premium which will not increase the net amount at
risk under the Policy; or (ii) twice the Policy's minimum planned premium for
the Selected Face Amount in that year. Option (a) will be applicable when state
approval is received. Premium payments should be sent to our Home Office or to
the address indicated for payment on the notice.
TERMINATION. This Policy does not terminate for failure to pay premiums since
payments, other than the initial premium, are not specifically required.
Rather, if on a Monthly Calculation Date, the Account Value less any Policy Debt
is insufficient to cover the total monthly deduction, the Policy enters a 61-day
grace period.
GRACE PERIOD. We allow 61 days to pay any premium necessary to cover the
overdue monthly deduction. You will receive a notice from us which sets forth
this amount. During the grace period, the Policy remains in force. If the
payment is not made by the later of the 61 days or 30 days after we have mailed
the written notice, the Policy terminates without value.
DEATH BENEFIT UNDER THE POLICY
The Death Benefit is the amount payable to the named Beneficiary when the
Insured dies. Upon receiving due proof of death, we pay the Beneficiary the
Death Benefit amount determined as of the date the Insured dies. All or part of
the benefit can be paid in cash or applied under one or more of our payment
options as described under ADDITIONAL PROVISIONS OF THE POLICY - PAYMENT
OPTIONS.
In the Application, the applicant may select a Selected Face Amount for each
Policy Year. Under Death Benefit Option 1, the Death Benefit is the greater of
the Selected Face Amount in effect on the date of death or the Minimum Face
Amount in effect on the date of death, with possible additions or deductions.
Under Death Benefit Option 2, the Death Benefit is the greater of the sum of the
Selected Face Amount in effect on the date of death plus the Account value on
the date of death, or the Minimum Face Amount in effect on the date of death,
with possible additions or deductions. (Policies issued prior to May 1, 1991
will be amended upon request to add the choice of Death Benefit Option 2.) The
Minimum Face Amount is equal to Account Value times the Minimum Face Amount
percentage. The percentages depend upon the Insured's age, sex and smoking
classification. The percentages are set forth on page 4 of the Policy. Added
to the greater of the Selected Face Amount or Minimum Face Amount is that part
of any monthly deduction applicable for the period beyond the date of death. Any
Policy Debt outstanding on the date of death and any monthly charges unpaid as
of the date of death are deducted from the Death Benefit. If the Insured dies
after the first Policy Year, we will also include a pro rata share of any
dividend allocated to the Policy for the year death occurs. We pay interest on
the Death Benefit from the date of death to the date the Death Benefit is paid
or a payment option becomes effective. The interest rate equals the rate
determined under the Interest Payment Option as described in ADDITIONAL
PROVISIONS OF THE POLICY - PAYMENT OPTIONS.
The Selected Face Amount may be increased after issue upon request by the
Policyowner, subject to receipt by MassMutual of adequate evidence of
insurability. Additionally, any increase in the Selected Face Amount will be
effective on the Monthly Calculation Date which is on, or next follows, the
later of: (i) the date 15 days after a written request for such change has been
received and approved by us; or (ii) the requested effective date of the change.
Any increase must be for at least $5,000. Under Death Benefit Option 1, the
Death Benefit is unaffected by investment experience unless the Death Benefit is
based on the Minimum Face Amount. Under Option 2, the Death Benefit may be
increased or decreased by investment experience.
Example: The following examples show how the Death Benefit varies as a result of
investment performance:
<TABLE>
<CAPTION>
POLICY A POLICY B
----------------------------------------------
<S> <C> <C>
Selected Face Amount $100,000 $100,000
Account Value on Date
of Death $ 50,000 $ 40,000
Minimum Face Amount
Percentage on Date
of Death 240% 240%
</TABLE>
13
<PAGE>
OPTION 1. For Policy A, the Death Benefit will equal $120,000 which is the
greater of the $100,000 Selected Face Amount or the Account Value times the
Minimum Face Amount percentage. For Policy B, the Death Benefit would equal the
$100,000 Selected Face Amount.
OPTION 2. For Policy A, the Death Benefit will equal $150,000, which is the
$100,000 Selected Face Amount plus the $50,000 Account Value (the Account Value
times the Minimum Face Amount percentage is $120,000). For Policy B, the Death
Benefit would equal $140,000, which again is the Selected Face Amount plus the
Account Value (the Account Value times the Minimum Face Amount percentage is
$96,000). (Examples assume no additions or deductions to the Selected Face
Amount or Minimum Face Amount are applicable.)
ACCOUNT VALUE AND CASH SURRENDER VALUE
ACCOUNT VALUE. The Account Value of the Policy is the sum of all premium
payments adjusted by periodic charges and credits. It is the amount provided
for investment in the Separate Account and the GPA. The Account Value of the
Policy is held in one or more divisions of the Separate Account and the GPA.
Initially, this value equals the net amount of the first premium paid under the
Policy. This amount is allocated to the MML Money Market Division until the
later of: (1) the expiration of the Free Look Period or (2) receipt by
MassMutual of notice that the Owner received the Policy. Subject to the
allocation rules in the Policy, the Account Value is then allocated among the
Separate Account divisions and the GPA in accordance with the Policyowner's
instructions in the application.
All or part of the Account Value may be transferred among divisions by written
request. Transfers between divisions of the Separate Account may be by dollar
amount or by whole-number percentage. There is no limit on the number of
transfers a Policyowner may make, however, MassMutual reserves the right to
charge a fee not to exceed $10 per transfer if there are more than six transfers
in a Policy Year. However, Policyowners may transfer all funds in the Separate
Account to the GPA at any time regardless of the number of transfers previously
made.
Transfers from the GPA to the Separate Account may be made only once during each
Policy Year. Each such transfer may not exceed 25% of the Account Value in the
GPA (excluding Policy Debt) at the time of the transfer. However, if in the
previous three policy years, 25% of the account value in the GPA has been
transferred and there have been no premium payments or transfers to the GPA,
100% of the account value in the GPA (excluding policy loans) may be transferred
to the Separate Account. The Account Value in the GPA equal to any Policy Debt
cannot be transferred to the Separate Account. Any transfer is effective as of
the Valuation Date and all transfers made on one Valuation Date are considered
one transfer.
INVESTMENT RETURN. The investment return of a Policy is based on:
. The Account Value held in each division of the Separate Account for
that Policy,
. The investment experience of each division as measured by its actual
net rate of return, and
. The interest rate credited on Account Values held in the GPA.
The investment experience of a division of the Separate Account reflects
increases or decreases in the net asset value of the shares of the underlying
Fund, any dividend or capital gains distributions declared by the Fund, and any
charges against the assets of the division. This investment experience is
determined each day on which the net asset value of the underlying Fund is
determined-that is, on each Valuation Date. The actual net rate of return for a
division measures the investment experience from the end of one Valuation Date
to the end of the next Valuation Date.
CASH SURRENDER VALUE. The Policy may be surrendered for its Cash Surrender
Value at any time while the Insured is living. Unless a later effective date is
selected, surrender is effective on the date we receive the Policy and a written
request in proper form at our Home Office. The Policy and a written request for
surrender are deemed received on the date on which they are received by mail at
MassMutual's Home Office. If, however, the date on which they are received is
not a Valuation Date, or if they are received other than through the mail after
a Valuation Time, they are deemed received on the next Valuation Date. The Cash
Surrender Value is the Account Value less any outstanding Policy Debt.
WITHDRAWALS. Subject to certain conditions, after the Policy has been in force
for six months you can make a Withdrawal from the Policy on any Monthly
Calculation Date by sending a written request to our Home Office. The minimum
amount of a Withdrawal is $100 (before deducting the withdrawal charge); the
maximum amount is the Cash Surrender Value. The Account Value remaining after a
Withdrawal must be at least equal to the following, whichever is applicable: if
the Withdrawal is made before the Policy Anniversary nearest the Insured's 65th
birthday, twelve multiplied by the most recent Account Value Charges for the
Policy; if on or after such date, sixty multiplied by the most recent Account
Value Charges. (Policies issued prior to May 1, 1991 will be amended on request
to substitute this minimum Account Value limit for the Table of Amounts issued
with the Policy.) The amount of the Withdrawal is deducted from the Policy's
Account Value at the end of the Valuation Period applicable to the Monthly
Calculation Date on which the Withdrawal is made. The Policyowner must specify
the GPA or the division (or divisions) from which the Withdrawal is to be made.
The Withdrawal amount attributable to a division or the GPA may not exceed the
non-loaned Account Value of that division or GPA. 2.0% of the Withdrawal, not
to exceed $25.00, is deducted from each Withdrawal. The Account Value will
automatically be reduced by the amount of the Withdrawal. The Selected Face
Amount of the Policy will be reduced as needed to prevent an increase in the
amount at risk, unless satisfactory evidence of insurability is provided to
MassMutual.
POLICY LOAN PRIVILEGE
The Policy provides a loan privilege. Loans can be made on the Policy at any
time while the Insured is living. The maximum loan is an amount equal to the
Account Value at the time of the loan less any outstanding Policy Debt before
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<PAGE>
the new loan, interest on the loan being made and on any outstanding Policy Debt
to the next Policy Anniversary Date and an amount equal to the most recent
monthly charge for the Policy multiplied by the number of Monthly Calculation
Dates remaining until the next Policy Anniversary Date. The Policy must be
properly assigned as collateral for the loan.
SOURCE OF LOAN. The loan amount requested is taken from the divisions of the
designated segment of the Separate Account and the GPA in proportion to the non-
loaned Account Value of each on the date of the loan. Shares taken from the
divisions are liquidated and the resulting dollar amounts are transferred to the
GPA. We may delay the granting of any loan attributable to the GPA for up to
six months. We may also delay the granting of any loan attributable to the
Separate Account during any period that the New York Stock Exchange (or its
successor) is closed except for normal weekend and holiday closings, or trading
is restricted, or the Securities and Exchange Commission (or its successor)
determines that a state of emergency exists, or the Securities and Exchange
Commission (or its successor) permits us to delay payment for the protection of
our policy owners.
IF LOANS EXCEED THE POLICY ACCOUNT VALUE. Policy Debt (which includes accrued
interest) must not equal or exceed the Account Value under the Policy. If this
limit is reached, we may terminate the Policy. To terminate for this reason we
will notify the Policyowner in writing. This notice states the amount necessary
to bring the Policy Debt back within the limit. If we do not receive a payment
within 31 days after the date we mailed the notice, the Policy terminates
without value at the end of those 31 days.
Termination of a policy under these circumstances could cause the Policyowner to
recognize gross income in the amount of any excess of the Policy Debt over the
sum of the Policyowner's previously unrecovered premium contributions.
INTEREST. On the Application, the Policyowner may select a loan interest rate
of 6% per year or, where permitted, an adjustable loan rate. When an adjustable
rate is selected, MassMutual sets the rate each year that will apply for the
next Policy Year. The maximum rate is based on the monthly average of the
composite yield on seasoned corporate bonds as published by Moody's Investors
Service or, if it is no longer published, a substantially similar average. The
maximum rate is the published monthly average for the calendar month ending two
months before the Policy Year begins, or 5%, whichever is higher. If the
maximum limit is not at least 1/2% higher than the rate in effect for the
previous year, we will not increase the rate. If the maximum limit is at least
1/2% lower than the rate in effect for the previous year, we will decrease
the rate.
Interest accrues daily and becomes part of the Policy Debt as it accrues. It is
due on each Policy Anniversary. If not paid when due, the interest will be
added to the loan and, as part of the loan, will bear interest at the same rate.
Any interest capitalized on a Policy Anniversary will be treated the same as a
new loan and will be taken from the divisions of the designated segment of the
Separate Account and the GPA in proportion to the non-loaned Account Value in
each.
REPAYMENT. All or part of any Policy Debt may be repaid at any time while the
Insured is living and while the Policy is in force. Any repayment results in
the transfer of values equal to the repayment from the loaned portion of the GPA
to the non-loaned portion of the GPA and the divisions of the designated segment
of the Separate Account. The transfer is made in proportion to the non-loaned
value in each investment account at the time of repayment. If the loan is not
repaid, we deduct the amount due from any amount payable from a full surrender
or upon the death of the Insured.
INTEREST ON LOANED VALUE. The amount equal to any outstanding Policy loans is
held in the GPA and is credited with interest at a rate which is the greater of
4% and the Policy loan rate less a MassMutual declared charge (maximum 0.75%)
for expenses and taxes.
EFFECT OF LOAN. A Policy loan affects the Policy since the Death Benefit and
Cash Surrender Value under a Policy are reduced by the amount of the loan.
Repayment of the loan increases the Death Benefit and Cash Surrender Value under
the Policy by the amount of the repayment.
As long as a loan is outstanding, a portion of the Policy's Account Value equal
to the loan is held in the GPA. This amount is not affected by the Separate
Account's investment performance. The Account Value is also affected because
the portion of the Account Value equal to the Policy loan is credited with an
interest rate declared by MassMutual rather than a rate of return reflecting the
investment performance of the Separate Account.
FREE LOOK PROVISIONS
The Policyowner may cancel the Policy within 10 days (or longer if required by
state law) after the Policyowner receives it, or 10 days after MassMutual mails
or delivers a written notice of withdrawal right to the Policyowner or within 45
days after signing Part 1 of the application, whichever is latest. The
Policyowner should mail or deliver the Policy and Policy delivery receipt either
to MassMutual or to the agent who sold the Policy or to one of our agency
offices. If the Policy is cancelled in this fashion, a refund will be made to
the Policyowner. The refund equals the total of all premiums paid for the
Policy (or the Account Value where approved by state law), reduced by any
amounts borrowed or withdrawn.
EXCHANGE PRIVILEGE
The Policyowner may transfer the entire Account Value held in the Separate
Account to the GPA at any time. The transfer will take effect when we receive a
written request.
YOUR VOTING RIGHTS
As long as the Separate Account continues to operate as a unit investment trust
under the Investment Company Act of 1940, as amended, the Policyowner is
entitled to give instructions as to how shares of the Funds held in the Separate
Account (or other securities held in lieu of such shares) deemed attributable to
the Policy shall be voted at meetings of shareholders of the Funds or the Trust.
Those persons entitled to give voting instructions are determined as of the
record date for the meeting.
The number of shares of the Funds held in the Separate Account deemed
attributable to the Policy during the lifetime of the Insured are determined by
dividing the Policy's Account Value held in each division of the designated
15
<PAGE>
segment of the Separate Account, if any, by $100. Fractional votes are counted.
Policyowners receive proxy material and a form with which such instructions may
be given. Shares of the Funds held by the Separate Account as to which no
effective instructions have been received are voted for or against any
proposition in the same proportion as the shares as to which instructions have
been received.
OUR RIGHTS
We reserve the right to take certain actions in connection with our operations
and the operations of the Separate Account. These actions will be taken in
accordance with applicable laws (including obtaining any required approval of
the Securities and Exchange Commission). If necessary, we will seek approval by
Policyowners.
Specifically, we reserve the right to:
. Create new segments of the Separate Account;
. Create new Separate Accounts;
. Combine any two or more Separate Accounts;
. Make available additional divisions of the Separate Account investing
in additional investment companies;
. Invest the assets of the Separate Account in securities other than
shares of the Funds as a substitute for such shares already purchased
or as the securities to be purchased in the future;
. Operate the Separate Account as a management investment company under
the Investment Company Act of 1940, as amended, or in any other form
permitted by law; and
. Deregister the Separate Account under the Investment Company Act of
1940, as amended, in the event such registration is no longer
required.
MassMutual also reserves the right to change the name of the Separate Account.
We have reserved all rights to the name MassMutual and Massachusetts Mutual Life
Insurance Company or any part of it. We may allow the Separate Account and
other entities to use our name or part of it, but we may also withdraw this
right.
DIRECTORS AND EXECUTIVE VICE PRESIDENTS OF MASSMUTUAL
DIRECTORS:
ROGER G. ACKERMAN
President and Chief Operating Officer (since 1990), Corning Incorporated, a
manufacturer of specialty materials, communication equipment and consumer
products; Group President, Corning Incorporated (1987 - 1990); Director, Pittson
Company; Director, Dow Corning Corporation; Member of the Executive Committee,
National Association of Manufacturers.
JACK F. BENNETT
Retired (since 1989), Senior Vice President of Exxon Corporation, producer of
petroleum products; Director, Phillips Electronics N.V.; Dean Witter Mutual
Funds; Tandem Computers, Inc; and Discount Corporation of New York (1983 -
1991).
WILLIAM J. CLARK
Chairman of the Board (since 1987); Chairman of the Board and Chief Executive
Officer of the Company (1987 - 1988), President and Chief Executive Officer
(1980 - 1987); President (1974 - 1980), MassMutual.
ANTHONY DOWNS
Senior Fellow, The Brookings Institution (since 1977); Member of the Boards of
Directors, Pittway Corporation, Bedford Property Investors, Inc., General Growth
Properties, Inc., NAACP Legal and Education Defense Fund, Inc., National Housing
Partnerships Foundation; Trustee, Urban Institute, and Urban Land Institute.
JAMES L. DUNLAP
Senior Vice President, Texaco, Inc. (since 1987); President, Texaco U.S.A. (1987
- 1994).
RICHARD N. FRANK
Chief Executive Officer, Lawry's Restaurants, Inc. (since 1957); Chairman of the
Board, Lawry's Restaurants, Inc. (since 1992); Trustee of PIC Growth Fund and
PIC Balanced Pinnacle, two mutual funds managed by Provident Investment Counsel.
CHARLES K. GIFFORD
President, Bank of Boston Corporation (since 1989); President, First National
Bank of Boston (since 1989). Member of the Board of Directors, Boston Edison
Company.
WILLIAM N. GRIGGS
Managing Director, Griggs & Santow, Inc. (since 1983); Director, T/SF
Communications, a diversified publishing and communications company.
JAMES G. HARLOW, JR.
Chairman of the Board (since 1982) and President (since 1973), Oklahoma Gas and
Electric Company; Member of the Boards of Directors, Fleming Companies, an
Oklahoma-based wholesale food distribution company, and Associated Electric &
Gas Insurance Services Limited.
BARBARA B. HAUPTFUHRER
Director, Vanguard Group of Investment Companies; Raytheon Company; Alco
Standard Corp.; The Great Atlantic and Pacific Tea Company; and Knight-Ridder,
Inc.
SHELDON B. LUBAR
Chairman (since 1977), Lubar & Co., Incorporated, Milwaukee, Wisconsin
investment management and venture capital company; Chairman and Director,
Christiana Companies, Inc.; Director, Firstar Corporation, Briggs & Stratton
Corporation, MGIC Investment Corporation, Prideco, Inc., Ameritech, Inc.,
Schwitzer, Inc. (1989 - 1994); Square D Company (1986 -1991);
16
<PAGE>
Milwaukee Insurance Group, Inc. (1986 - 1991); Marshall Erdman and Associates,
Inc.; Grey Wolf Drilling Co.; SLX Energy, Inc.; Firstar Bank; President (1987 -
1991), Lubar Management, Inc.
WILLIAM B. MARX, JR.
Executive Vice President and Chief Executive Officer, Multimedia Products Group
of AT&T (since 1994); Chief Executive Officer, Network Systems Group of AT&T
(1993 -1994); Group Executive and President, Network Systems Group of AT&T (1989
- 1993).
DONALD F. MCCULLOUGH
Chairman Emeritus, Collins & Aikman Corp., a manufacturer of textile products
(retired since 1988); Member of the Boards of Directors, Bankers Trust Company,
Bankers Trust New York Corp., and Melville Corporation.
BARBARA SCOTT PREISKEL
An attorney-at-law (since 1983); Director, American Stores Company, Textron,
Inc., General Electric Company and The Washington Post Company.
THOMAS B. WHEELER
President and Chief Executive Officer (since 1988), President (1987 - 1988),
Director (since 1987), MassMutual; Chairman of the Board, Oppenheimer
Acquisition Corp.; Chairman and Director, Concert Capital Management, Inc.;
Chairman, MML Pension Insurance Company; Member of the Boards of Directors, Bank
of Boston Corporation, The First National Bank of Boston, and Textron, Inc.;
Member of the Executive Committee, Massachusetts Capital Resource Company.
ALFRED M. ZEIEN
Chairman and Chief Executive Officer (since 1991); President, Chief Operating
Officer and Director (1991); Vice Chairman and Director (1981 - 1991), The
Gillette Company; Trustee, University Hospital of Boston; Director, Polaroid
Corporation, Bank of Boston Corporation, Repligen Corporation and Raytheon
Company.
EXECUTIVE VICE PRESIDENTS (OTHER THAN DIRECTORS):
LAWRENCE V. BURKETT, JR.
Executive Vice President and General Counsel (since 1993), Senior Vice President
and Deputy General Counsel (1992 -1993), Senior Vice President and Associate
General Counsel (1988 - 1992), MassMutual; Member of the Boards of Directors,
Sargasso Mutual Insurance Company, Ltd.; Cornerstone Real Estate Advisers, Inc.;
MML Pension Insurance Company; MML Reinsurance (Bermuda) Ltd.; MassMutual
Holding Company; MassMutual Holding Company Two, Inc.; MassMutual Holding
Company Two MSC, Inc.; MassMutual of Ireland, Ltd.
JOHN B. DAVIES
Executive Vice President (since 1994), Associate Executive Vice President
(1994); General Agent (1982 - 1993), MassMutual; Member of the Boards of
Directors, Cornerstone Real Estate Advisers, Inc., MML Investors Services, Inc.,
MML Insurance Agency, Inc. and MML Insurance Agency of Ohio, Inc.; Life
Underwriter Training Counsel.
DANIEL J. FITZGERALD
Executive Vice President (since 1994); Senior Vice President (1991 - 1994); Vice
President and Controller (1986 - 1991), MassMutual; Member of the Boards of
Directors, Concert Capital Management, Inc.; Cornerstone Real Estate Services,
Inc.; MML Investors Services, Inc.; MML Real Estate Corporation; MML Realty
Management Corporation; MassMutual of Ireland, Inc.; Director (since 1994),
President (1987 - 1993), Chief Executive Officer (1991 - 1993), MML Bay State
Life Insurance Company; Director (since 1994), President (1987 - 1990), Chief
Executive Officer (1991 - 1993), MML Pension Insurance Company; Director (since
1993), Vice President (since 1994), MassMutual Holding Company; Director and
Vice President (since 1994), MassMutual Holding Company Two, Inc.; Director and
Vice President (since 1994), MassMutual Holding Company Two MSC, Inc.
LAWRENCE L. GRYPP
Executive Vice President (since 1991), Senior Vice President (1990 - 1991),
General Agent (1980 - 1990), MassMutual; Member of the Boards of Directors,
Concert Capital Management, Inc., Oppenheimer Acquisition Corporation, MML
Insurance Agency, Inc. (1991 - 1993); Chairman (since 1991), MML Investors
Services, Inc.
JAMES E. MILLER
Executive Vice President (since 1987), Senior Vice President (1985 - 1986),
MassMutual; Vice President and Treasurer, Dental Learning Systems, New York, New
York; Director, Benefit Panel Services, Inc., National Capital Preferred
Provider Organization, Inc.; The Ethix Corporation; and Sloan's Lake Management
Corp.; President, Chief Executive Officer and Director (since 1994), MML Pension
Insurance Company; Chairman (since 1994), Director (since 1990), MassMutual
of Ireland, Ltd.
JOHN M. NAUGHTON
Executive Vice President (since 1984), Senior Vice President (1981 - 1984),
MassMutual; Chairman (since 1995) and Trustee (since 1990), Springfield
Institution for Savings; Trustee, University of Massachusetts; Member of the
Boards of Directors, Colebrook Group, Oppenheimer Acquisition Corp., Concert
Capital Management, Inc., Association of Private Pension and Welfare Plans;
Trustee (since 1994), MassMutual Institutional Funds.
JOHN J. PAJAK
Executive Vice President (since 1987); Member of the Boards of Directors, MML
Pension Insurance Company, MassMutual Holding Company, Inc., MassMutual Holding
Company Two, Inc., MassMutual Holding Company Two MSC, Inc.
GARY E. WENDLANDT
Executive Vice President (since 1992), Chief Investment Officer (since 1993),
Senior Vice President (1983 - 1992), MassMutual; Director, Oppenheimer
Acquisition Corp., Merrill Lynch Derivative Products, Inc.; MassMutual Corporate
Value Partners, Ltd; MassMutual Corporate
17
<PAGE>
Value, Ltd; Director (since 1992), President and Chief Executive Officer (since
1994), Vice Chairman (1983 - 1991), Concert Capital Management, Inc.; Chairman
and Chief Executive Officer (since 1994), Cornerstone Real Estate Advisers,
Inc.; Chairman (since 1994), Director (since 1993), MML Real Estate Corporation;
Chairman (since 1994), Director (since 1993), MML Realty Management Corporation;
Vice Chairman and Trustee (since 1993), President (1988 - 1993), MML Series
Investment Fund; Chairman and Chief Executive Officer (since 1994), President
(since 1993), Director (since 1991), MassMutual Holding Company; Chairman and
President (since 1994), MassMutual Holding Company Two, Inc.; Chairman and
President (since 1994), MassMutual Holding Company Two MSC, Inc.; Chairman and
Chief Executive Officer (since 1994), MassMutual Institutional Funds; President
and Trustee (since 1988), MassMutual Participation Investors; Supervisory
Director (since 1991) MassMutual/Carlson CBO.
THE GUARANTEED PRINCIPAL ACCOUNT
Because of the exemptive and exclusionary provisions, interests in MassMutual's
general account (which include interests in the Guaranteed Principal Account)
are not registered under the Securities Act of 1933 and the general account is
not registered as an investment company under the Investment Company Act of
1940, as amended. Accordingly, neither the general account nor any interests
therein are subject to the provisions of these Acts, and MassMutual has been
advised that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in the Prospectus relating to the general account.
Disclosures regarding the general account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
A Policyowner may allocate or transfer all or part of the Net Premium to the
GPA, and such amounts shall become part of MassMutual's general account assets.
The allocation or transfer of amounts to the GPA does not entitle a Policyowner
to share in the investment experience of those assets. Instead, MassMutual
guarantees that those amounts allocated to the GPA which are in excess of any
Policy loans will accrue interest daily at an effective annual rate equal to (a)
4%, or (b) the greater of (1) 4% and (2) the rate determined by the Treasury
Bill Index less any tax charge which reflects the Policy's share of our federal
income tax liability. The interest rate credited to the GPA account value will
be affected by the option selected. This rate is selected at time of issue.
Policies issued prior to April, 1994, will be offered a one-time opportunity to
change the guaranteed rate from option (b) to option (a). For amounts equal to
any Policy loans, the guaranteed rate is the greater of (a) 4% and (b) the
Policy loan rate less a MassMutual declared charge for expenses and taxes. This
charge cannot exceed 2% (or 0.75% in some states). Although MassMutual is not
obligated to credit interest at a rate higher than this minimum, it may declare
a higher rate applicable for such periods as it deems appropriate. Upon
request, MassMutual will inform Policyowners of the then applicable rate. Since
MassMutual takes into account the need to provide for its expenses and
guarantees, the crediting rate declared by MassMutual shall be net of charges it
imposes against the earnings of the GPA.
FEDERAL INCOME TAX CONSIDERATIONS
The ultimate effect of federal income taxes on values under this Policy and upon
the economic benefit to the Policyowner or Beneficiary depends on MassMutual's
tax status and upon the tax status of the individual concerned. The discussion
contained herein is general in nature and is not an exhaustive discussion of all
tax questions that might arise under the Policies, and is not intended as tax
advice. Moreover, no representation is made as to the likelihood of
continuation of current federal income tax laws and Treasury Regulations or of
the current interpretations of the Internal Revenue Service. MassMutual reserves
the right to make changes in the Policy to assure that it continues to qualify
as life insurance for tax purposes. For complete information on federal and
state tax considerations, a qualified tax advisor should be consulted. No
attempt is made to consider any applicable state or other tax laws.
MASSMUTUAL - TAX STATUS. MassMutual is taxed as a life insurance company under
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). The Separate
Account is not a separate entity from MassMutual and its operations form a part
of MassMutual.
Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining Account Values. The
investment income and realized capital gains are automatically applied to
increase book reserves associated with the Policies. Under existing federal
income tax law, the Separate Account's investment income, including net capital
gains, is not taxed to MassMutual to the extent applied to increase reserves
associated with the Policies. The reserve items taken into account at the close
of the taxable year for purposes of determining net increases or net decreases
must be adjusted for tax purposes by subtracting any amount attributable to
appreciation in the value of assets or by adding any amount attributable to
depreciation. MassMutual's basis in the assets underlying the Separate Account's
Policies will be adjusted for appreciation or depreciation, to the extent the
reserves are adjusted. Thus, corporate level gains and losses, and the tax
effect thereof, are eliminated.
Due to MassMutual's current tax status, no charge is made to the Separate
Account for MassMutual's federal income taxes that may be attributable to the
Separate Account. Periodically, MassMutual reviews the question of a charge to
the Separate Account for MassMutual's federal income taxes. A charge may be
made for any federal income taxes incurred by MassMutual that are attributable
to the Separate Account. Depending on the method of calculating interest on
Policy values allocated to the Guaranteed Principal Account (see preceding
section), a charge may be imposed for the Policy's share of MassMutual's federal
income taxes attributable to that account.
Under current state laws, MassMutual may incur state and local taxes (in
addition to premium taxes). At present, these taxes are not significant. If
there is a material change in state or local tax laws, MassMutual reserves the
right to charge the
18
<PAGE>
Separate Account for such taxes, if any, attributable to the Separate Account.
POLICY PROCEEDS, PREMIUMS AND LOANS. MassMutual believes that the Policy meets
the statutory definition of life insurance under Code Section 7702 and hence
receives the same tax treatment as that accorded to fixed benefit life
insurance. Thus, the Death Benefit under the Policy is generally excludable from
the gross income of the Beneficiary under Section 101(a)(1) of the Code. As an
exception to this general rule, where a Policy has been transferred for value,
only the portion of the Death Benefit which is equal to the total consideration
paid for the Policy may be excluded from gross income. The Policyowner is not
deemed to be in constructive receipt of the cash values, including increments
thereon, under the Policy until a full surrender or Withdrawal is made.
Upon a full surrender of a Policy for its Cash Surrender Value the Policyowner
may recognize ordinary income for federal tax purposes. Ordinary income is
computed to be the amount by which the Account Value, unreduced by any
outstanding Policy Debt, exceeds the premiums paid but not previously recovered
and any other consideration paid for the Policy.
Decreases in Selected Face Amount and Withdrawals may be taxable depending on
the circumstances. Code Section 7702(f)(7) provides that where a reduction of
future benefit occurs during the first 15 years after a Policy is issued and
where there is a cash distribution associated with that reduction, the
Policyowner may be taxed on all or part of the amount distributed. After 15
years, such cash distributions are not subject to federal income tax, except to
the extent they exceed the total amount of premiums paid but not previously
recovered. Where the provisions of Code Section 7702(f) do not apply, a
Withdrawal is taxable only to the extent that it exceeds the Policyowner's as
yet unrecovered premium contributions. MassMutual suggests that you consult with
your tax adviser in advance of a proposed decrease in Selected Face Amount or
Withdrawal as to the portion, if any, which would be subject to federal income
tax.
A change of Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances.
MassMutual also believes that under current law any loan received under the
Policy will be treated as Policy Debt of a Policyowner, and that no part of any
loan under a Policy will constitute income to the Policyowner. Under the
"personal" interest limitation provisions of the Tax Reform Act of 1986,
interest on Policy loans used for personal purposes, which otherwise meet the
requirements of Code Section 264, will no longer be tax deductible. However,
other rules may apply to allow all or part of the interest expense as a
deduction if the loan proceeds are used for "trade or business" or
"investment" purposes. See your tax advisor for further guidance.
If the Policy is owned by a business or corporation, the 1986 Act may impose
additional restrictions. The Act limits the interest deduction available for
loans against a business-owned Policy. It imposes an indirect tax upon the
inside build-up of gain in corporate-owned life insurance policies by way of the
corporate alternative minimum tax, for those corporations subject to the
alternative minimum tax. The corporate alternative minimum tax could also apply
to a portion of the amount by which Death Benefits received exceed the Policy's
date of death cash value.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary.
For complete information on the impact of changes with respect to the Policy and
federal and state tax considerations, a qualified tax advisor should be
consulted.
MassMutual cannot make any guarantee regarding the future tax treatment of any
Policy.
MODIFIED ENDOWMENT CONTRACTS. Contrary to the rules described above, loans and
other amounts distributed under a "modified endowment contract" are taxable to
the extent of any accumulated income in the Policy. In general, the amount
which may be subject to tax is the excess of the Account Value (both loaned and
unloaned) over the previously unrecovered premiums paid. Death benefits paid
under a modified endowment contract, however, are not taxed any differently from
death benefits payable under other life insurance contracts.
A Policy is a modified endowment contract if it satisfies the definition of life
insurance set out in the Internal Revenue Code, but fails the additional "7-pay
test." A Policy fails this test if the accumulated amount paid under the
contract at any time during the first seven contract years exceeds the total
premiums that would have been payable under a policy providing for guaranteed
benefits upon the payment of seven level annual premiums. A Policy which would
otherwise satisfy the 7-pay test will still be taxed as a modified endowment
contract if it is received in exchange for a modified endowment contract.
Certain changes will require a Policy to be retested to determine whether it has
become a modified endowment contract. For example, a reduction in death
benefits during the first seven contract years will cause the Policy to be
retested as if it had originally been issued with the reduced death benefit. If
the premiums actually paid into the Policy exceed the limits under the 7-pay
test for a policy with the reduced death benefit, the Policy will become a
modified endowment contract. This change is effective retroactively to the
contract year in which the actual premiums paid exceed the new 7-pay limits.
In addition, a "material change" occurring at any time while the Policy is in
force will require the policy to be retested to determine whether it continues
to meet the 7-pay test. A material change starts a new 7-pay test period. The
term "material change" includes many increases in death benefits. A material
change does not include an increase in death benefits which is attributable to
the payment of premiums necessary to fund the lowest level of death benefits
payable during the first seven contract years, or which is attributable to the
crediting of interest or dividends with respect to such premiums.
Since the Policy provides for flexible premium payments, we will carefully
monitor to determine whether increases in death benefits or additional premium
payments cause either the start of a new seven-year test period or the taxation
of distributions and loans. All additional premium payments will be considered.
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<PAGE>
If any amount is taxable as a distribution of income under a modified endowment
contract, it will also be subject to a 10% penalty tax. Limited exceptions from
the additional penalty tax are available for individual Policyowners. The
penalty tax will not apply to distributions: (i) that are made on or after the
date the taxpayer attains age 59 1/2; or (ii) that are attributable to the
taxpayer's becoming disabled; or (iii) that are part of a series of
substantially equal periodic payments (made not less frequently than annually)
made for the life or life expectancy of the taxpayer. For complete information
with respect to modified endowment contract status, particularly where a Policy
is owned by other than an individual Insured, a qualified tax advisor should be
consulted.
Once a Policy fails the 7-pay test, loans and distributions occurring in the
year of failure and thereafter become subject to the rules for modified
endowment contracts. In addition, a recapture provision applies to loans and
distributions received in anticipation of failing the 7-pay test. Any
distribution or loan made within two years prior to failing the 7-pay test is
considered to have been made in anticipation of the failure.
Under certain circumstances, a loan or other distribution under a modified
endowment contract may be taxable even though it exceeds the amount of income
accumulated in the Policy. For purposes of determining the amount of income
received from a modified endowment contract, the law requires the aggregation of
all modified endowment contracts issued to the same Policyowner by an insurer
and its affiliates within the same calendar year. Therefore, loans and
distributions from any one such Policy are taxable to the extent of the income
accumulated in all the contracts required to be aggregated.
DIVERSIFICATION STANDARDS. To comply with final regulations under Code Section
817(h) ("Final Regulations"), each Fund of the Trust is required to diversify
its investments. The Final Regulations generally require that on the last day
of each quarter of a calendar year no more than 55% of the value of the Trust's
assets is represented by any one investment, no more than 70% is represented by
any two investments, no more than 80% is represented by any three investments,
and no more than 90% is represented by any four investments. A "look-through"
rule applies to treat a pro-rata portion of each asset of the Trust as an asset
of the Separate Account. All securities of the same issuer are treated as a
single investment. However, each Government agency or instrumentality is treated
as a separate issuer.
With respect to variable life insurance contracts, the general diversification
requirements are modified if any of the assets of the Separate Account are
direct obligations of the United States Treasury. In this case, there is no
limit on the investment that may be made in United States Treasury Securities,
and for purposes of determining whether assets other than United States Treasury
Securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the Separate Account's
investment in United States Treasury Securities. Notwithstanding this
modification of the general diversification requirements, the Funds of the Trust
will be structured to comply with the general diversification standards because
they serve as an investment vehicle for certain variable annuity contracts which
must comply with the general standards.
In connection with the issuance of the temporary regulations prior to the Final
Regulations, the Treasury announced that such temporary regulations did not
provide guidance concerning the extent to which Policyowners may direct their
investments to particular divisions of a separate account. Regulations in this
regard were not issued in connection with the Final Regulations, however. It is
not clear, at this time, what future regulations might provide. It is possible
that if future regulations are issued, the Policy may need to be modified to
comply with such regulations. For these reasons, MassMutual reserves the right
to modify the Policy, as necessary, to prevent the Policyowner from being
considered the owner of the assets of the Separate Account.
MassMutual intends to comply with the Final Regulations to assure that the
Policy continues to qualify as life insurance for federal income tax purposes.
ADDITIONAL PROVISIONS OF THE POLICY
REINSTATEMENT OPTION. For a period of five (5) years after termination, you, as
Policyowner, can request that we reinstate the Policy during the Insured's
lifetime. We will not reinstate the Policy if it has been returned for its Cash
Surrender Value. Note that a termination or reinstatement may cause the Policy
to become a modified endowment contract.
Before we will reinstate the Policy, we must receive the following:
. A premium payment equal to the amount necessary to produce an Account
Value equal to 3 times the total monthly deduction for the Policy on
the Monthly Calculation Date on or next following the date of
reinstatement;
. Evidence of insurability satisfactory to us; and
. Where necessary, a signed acknowledgement that the Policy has become a
modified endowment contract.
If we do reinstate the Policy, the Selected Face Amounts for the reinstated
Policy will be the same as it would have been if the Policy had not terminated.
PAYMENT OPTIONS. All or part of the Death Benefit or Cash Surrender Value may
be taken in cash or as a series of level payments. Proceeds applied will no
longer be affected by the investment experience of the Separate Account
divisions or the GPA.
To receive payments, the proceeds to be applied must be at least $2,000. If the
payments under any option are less than $20 each, we reserve the right to make
payments at less frequent intervals. Payment options are as described below.
FIXED AMOUNT PAYMENT OPTION. Each monthly payment is for an agreed fixed amount
not less than $10 for each $1,000 applied under the option. Interest of at
least 3% per year is credited each month on the unpaid balance and added to it.
Payments continue until the amount we hold runs out.
FIXED TIME PAYMENT OPTION. Equal monthly payments are made for any period
selected, up to 30 years. The amount of each payment depends on the total
amount applied, the
20
<PAGE>
period selected and the interest rate we credit to the unpaid balance. This
interest rate will not be less than 3% per year.
INTEREST PAYMENT OPTION. We hold amounts applied under this option and pay
interest on the unpaid balance of at least 3% per year.
LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life of a
named person. Payments continue for the lifetime of that person. Three
variations are available:
. Payments for life only;
. Payments guaranteed for five, ten or twenty years; or
. Payments guaranteed for the amount applied.
JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the lives of
two named persons. While both named persons are living, one payment is made
each month. When one of the named persons dies, the same payment continues for
the lifetime of the other. Two variations are available:
. Payment for two lives only. No specific number of payments is
guaranteed. Under this option there may be one payment if the two
named persons die prior to the second payments.
. Payments guaranteed for 10 years.
JOINT LIFETIME PAYMENT OPTION WITH REDUCED PAYMENTS. Monthly payments are based
on the lives of two named persons. While both named persons are living, one
payment will be made each month. When one dies, payments are reduced by one-
third and will continue for the lifetime of the other.
WITHDRAWAL RIGHTS UNDER PAYMENT OPTIONS. If provided in the payment option
election, all or part of the unpaid balance may be withdrawn or applied under
any other option. Payments which are based on a named person's life may not be
withdrawn.
BENEFICIARY. A Beneficiary is any person named on our records to receive
insurance proceeds after the Insured dies. You name the Beneficiary when you
apply for the Policy. There may be different classes of beneficiaries, such as
primary and secondary. These classes set the order of payment. There may be
more than one Beneficiary in a class.
Any Beneficiary may be named an irrevocable beneficiary. An irrevocable
beneficiary is one whose consent is needed to change that Beneficiary. The
consent of any irrevocable beneficiary is needed to exercise any Policy right
except the right to:
. Change the frequency of premium payments.
. Change the premium payment plan.
. Reinstate the Policy after termination.
If no Beneficiary is living when the Insured dies, unless provided otherwise the
Death Benefit is paid to the Owner or, if deceased, the Owner's estate.
CHANGING THE OWNER OR BENEFICIARY. The Owner or any Beneficiary may be changed
during the Insured's lifetime by writing to our Home Office. The change takes
effect as of the date of the request, even if the Insured dies before we receive
it. Each change is subject to any payment we made or other action by MassMutual
prior to receipt of the request.
RIGHT TO SUBSTITUTE INSURED. Upon written application to MassMutual, the Policy
may be transferred to the life of a substitute Insured. The transfer becomes
effective upon the Transfer Date, which is the Policy Anniversary which is on,
or next follows, the latter of the date we approve the application for transfer;
and the date any required cost associated with the transfer is paid, subject to
the following conditions:
. This Policy must be in force on the Transfer Date.
. A written application for the transfer and payment of any required
cost to transfer must be approved by us at our Home Office.
. Evidence of insurability of the substitute Insured, satisfactory to
us, is required.
. The substitute Insured must not have been under 20 years of age on the
birthday nearest the Policy Date of this Policy.
. The substitute Insured must not be over 65 years of age on the
birthday nearest the Transfer Date.
. The Owner of this Policy after it has been transferred must have an
insurable interest in the life of the substitute Insured.
The Selected Face Amount for the substitute Insured will be determined as for a
new Insured. The Account Value immediately after transfer will be equal to: (i)
the Account Value immediately before the transfer, plus (ii) any net premium
necessary to make the cash surrender value, immediately before the monthly
charges are deducted on the Transfer Date, at least 12 times the monthly
charges, minus (iii) any amount which must be refunded (so that the amount at
risk is not greater than the Selected Face Amount), minus (iv) the monthly
charges on the Transfer Date. Future charges against the Policy will be based
on the life of the substitute Insured.
The costs to transfer are an administrative fee of $75, plus any premium
necessary to effect the transfer, plus any excess Policy Debt not repaid prior
to transfer. Excess Policy Debt is the amount by which Policy Debt exceeds the
maximum loan available after transfer. Any such excess must be repaid on or
before the Transfer Date.
The incontestability and suicide periods begin to run anew from the Transfer
Date. Any assignments existing on the Transfer Date will continue to apply.
The Internal Revenue Service has ruled that a substitution of Insureds is an
exchange of contracts which does not qualify for the tax deferral available
under Code Section 1035. Therefore upon a substitution of Insureds, the
Policyowner must include in current gross income all the previously unrecognized
gain in the Policy.
ASSIGNMENT. The Policy may be assigned as collateral for a loan or other
obligation, subject to any outstanding Policy Debt. But for any assignment to be
binding on us, we must receive a signed copy of it at our Home Office. We are
not responsible for the validity of any assignment.
Any amounts due to an assignee of the Policy which is assigned will be paid in
one sum.
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<PAGE>
DIVIDENDS. Each year MassMutual determines the divisible surplus, or the money
available to pay dividends. Each Policy may receive a dividend based upon its
contribution to this divisible surplus. MassMutual does not expect that any
dividends will be paid under the Policies.
Any dividend will be payable on the Policy Anniversary Date.
If the Insured dies after the first Policy Year, the Death Benefit includes a
pro rata share of any dividend allocated to the Policy for the year death
occurs.
LIMITS ON OUR RIGHT TO CHALLENGE THE POLICY. We must bring any legal action to
contest the validity of a Policy within two years from its Issue Date. After
that we cannot contest its validity, except for failure to pay premiums.
MISSTATEMENT OF AGE OR SEX. If the Insured's date of birth or sex as given in
the application is not correct, an adjustment will be made. If the adjustment
is made when the Insured dies, the Death Benefit will reflect the amount
provided by the most recent mortality charge according to the correct age and
sex. If the adjustment is made before the Insured dies, then future monthly
deductions will be based on the correct age and sex.
SUICIDE. If the Insured commits suicide within two years from the Issue Date
and while the Policy is in force, we pay a limited Death Benefit in one sum to
the Beneficiary. The limited Death Benefit is the amount of premiums paid for
the Policy, less any Policy Debt or amounts withdrawn.
WHEN WE PAY PROCEEDS. If the Policy has not terminated, payment of the Cash
Surrender Value, loan proceeds or the Death Benefit are made within 7 days after
we receive any required documents at our Home Office. But we can delay payment
of the Cash Surrender Value or any Withdrawal from the Separate Account, loan
proceeds attributable to the Separate Account, or the Death Benefit during any
period that:
. It is not reasonably practicable to determine the amount because the
New York Stock Exchange (or its successor) is closed, except for
normal weekend or holiday closings, or trading is restricted; or
. the Securities and Exchange Commission (or its successor) determines
that a state of emergency exists; or
. the Securities and Exchange Commission (or its successor) permits us
to delay payment for the protection of our policy owners.
We may delay paying any Cash Surrender Value or loan proceeds based on the GPA
for up to 6 months from the date the request was received at our Home Office.
We can delay payment of the entire Death Benefit if payment is contested. We
investigate all death claims arising within the two-year contestable period.
Upon receiving the information from a completed investigation, we generally make
a determination within five days as to whether the claim should be authorized
for payment. Payments are made promptly after authorization. If payment is
delayed for 10 working days or more from the effective date of surrender or
Withdrawal, we add interest at the same rate as is paid under the Interest
Payment Option for the same period of time. The minimum amount of such interest
is $25.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account and the GPA are
maintained by MassMutual. Each year within 30 days after the Policy
Anniversary, we will mail you a report showing the Account Value at the
beginning of the previous Policy Year, all premiums paid since that time, all
additions to and deductions from Account Value during the year, and the Account
Value, Death Benefit, Cash Surrender Value and Policy Debt as of the latest
Policy Anniversary. This report contains any additional information required by
any applicable law or regulation.
SALES AND OTHER AGREEMENTS
MML Investors Services, Inc., 1 Financial Plaza, 1350 Main Street, Springfield,
MA 01103-1686 ("MMLISI") acts as the principal underwriter of the Policies
pursuant to a Servicing Agreement to which MMLISI, MassMutual, and the Separate
Account are parties. MMLISI is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. MMLISI may enter
into selling agreements with other broker-dealers which are registered with the
Securities and Exchange Commission and are members of the National Association
of Securities Dealers, Inc. ("selling brokers").
We sell the Policies through agents who are licensed by state insurance
officials to sell the Policies. These agents are also registered
representatives of MMLISI or of selling brokers.
When an Application for one of the Policies is completed, it is submitted to us.
We or the selling broker perform suitability review and, in some cases, we
perform insurance underwriting. We determine whether to accept or reject the
application for the Policy and the Insured's risk classification. If the
application is not accepted, we will refund any premium that has been paid.
Under the Servicing Agreement among MMLISI, MassMutual, and the Separate
Account, MMLISI receives compensation for its activities as principal
underwriter of the Policies. Compensation paid to MMLISI in 1994 under the
Agreement was $205,992. Commissions are paid through MMLISI to agents and
selling brokers for selling the Policies. During 1994, such payments amounted
to $355,828.
COMMISSIONS SCHEDULE. Agents or selling brokers receive commissions as a
percentage of the premium payable in each Policy Year. This percentage is set
based on the total annual planned premium for all Policies in a Case as shown in
the applications. It is not affected by subsequent changes under the Case. The
maximum commission percentage for the first Policy Year is 10% of the premiums
paid in the first Policy Year up to the Policy's minimum annual planned premium,
plus 2.35% of any additional premiums paid. The maximum commission percentage
in each future Policy Year is 3.8% of all premiums paid in that year.
Agents may receive commissions at lower rates on Policies sold to replace
existing insurance issued by MassMutual or any of its subsidiaries.
Agents under financing agreement with a general agent of MassMutual may be
compensated differently.
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<PAGE>
Agents who meet certain productivity and persistency standards in selling
MassMutual policies are eligible for added compensation.
General agents receive commissions based on different schedules.
BONDING ARRANGEMENT. An insurance company blanket bond is maintained providing
$15,000,000 coverage for officers and employees of MassMutual (subject to a
$500,000 deductible) and $5,000,000 coverage for MassMutual's general agents and
agents (also subject to a $500,000 deductible).
LEGAL PROCEEDINGS
We are currently not involved in any material legal proceedings.
EXPERTS
The financial statements of MassMutual and the Large Case Variable Plus segment
of Massachusetts Mutual Variable Life Separate Account I as found in this
Prospectus have been included herein in reliance upon the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Actuarial matters in this Prospectus have been examined by C. Dale Games,
F.S.A., Second Vice President for MassMutual. His opinion on actuarial matters
is filed as an exhibit to the registration statements we filed with the SEC.
FINANCIAL STATEMENTS
The financial statements of MassMutual and the Large Case Variable Life Plus
segment of the Separate Account included herein should be considered only as
bearing upon the ability of MassMutual to meet its obligations under the Policy.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND POLICYOWNERS OF
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
We have audited the statement of assets and liabilities of the MML Equity
Division, MML Money Market Division, MML Managed Bond Division, MML Blend
Division, Oppenheimer High Income Division, Oppenheimer Capital Appreciation
Division and Oppenheimer Global Securities Division of the Large Case Variable
Life Plus segment of Massachusetts Mutual Variable Life Separate Account I as of
December 31, 1994, and the related statements of operations and changes in net
assets of MML Equity Division, MML Money Market Division, MML Managed Bond
Division and MML Blend Division for the year and each of the two years then
ended, respectively, and the related statements of operations and changes in net
assets of Oppenheimer High Income Division, Oppenheimer Capital Appreciation
Division and Oppenheimer Global Securities Division for the period January 3,
1994 (date of commencement of operations) to December 31, 1994. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
verification of investments owned as of December 31, 1994, by examination of the
records of MML Series Investment Fund and by confirmation with Oppenheimer
Variable Account Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the MML Equity Division, MML
Money Market Division, MML Managed Bond Division, MML Blend Division,
Oppenheimer High Income Division, Oppenheimer Capital Appreciation Division and
Oppenheimer Global Securities Division of the Large Case Variable Life Plus
segment of Massachusetts Mutual Variable Life Separate Account I at December 31,
1994, the results of operations and the changes in net assets of the MML Equity
Division, MML Money Market Division, MML Managed Bond Division and MML Blend
Division for the year and each of the two years then ended, respectively, and
the results of its operations and the changes in net assets of the Oppenheimer
High Income Division, Oppenheimer Capital Appreciation Division and Oppenheimer
Global Securities Division for the period January 3, 1994 (date of commencement
of operations) to December 31, 1994, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 6, 1995
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<PAGE>
MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I --
LARGE CASE VARIABLE LIFE PLUS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MML MML
MML MONEY MANAGED MML
EQUITY MARKET BOND BLEND
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C>
ASSETS
Investments --
Number of shares (Note 2).......... 164,835 2,849,351 102,607 142,371
========== ========== =========== ==========
Identified cost (Note 6)........... $3,412,323 $2,849,351 $ 1,196,479 $2,630,367
========== ========== =========== ==========
Value (Note 3A).................... $3,382,426 $2,849,351 $ 1,143,174 $2,515,990
Dividends receivable................ 137,011 10,541 20,194 79,879
---------- ---------- ----------- ----------
TOTAL ASSETS....................... 3,519,437 2,859,892 1,163,368 2,595,869
LIABILITIES
Payable to Massachusetts
Mutual Life Insurance Company...... 77 57 25 52
---------- ---------- ----------- ----------
NET ASSETS.......................... $3,519,360 $2,859,835 $ 1,163,343 $2,595,817
========== ========== =========== ==========
NET ASSETS:
For variable life insurance
policies........................... $3,508,859 $2,847,651 $ 1,153,769 $2,585,463
Retained in Variable Life
Separate Account I by
Massachusetts Mutual Life
Insurance Company.................. 10,501 12,184 9,574 10,354
---------- ---------- ----------- ----------
NET ASSETS........................ $3,519,360 $2,859,835 $ 1,163,343 $2,595,817
========== ========== =========== ==========
Accumulation units
Number of units:
Policyowners...................... 2,234,687 2,337,148 802,087 1,670,873
Massachusetts Mutual Life
Insurance Company................. 6,687 10,000 6,656 6,692
---------- ---------- ----------- ----------
Total units (Note 8).............. 2,241,374 2,347,148 808,743 1,677,565
========== ========== =========== ==========
NET ASSET VALUE PER ACCUMULATION UNIT
December 31, 1994.................. $ 1.57 $ 1.22 $ 1.44 $ 1.55
December 31, 1993.................. 1.51 1.18 1.50 1.52
December 31, 1992.................. 1.39 1.15 1.35 1.39
December 31, 1991.................. 1.26 1.12 1.26 1.27
December 31, 1990.................. 1.01 1.06 1.08 1.03
<CAPTION>
OPPENHEIMER OPPENHEIMER OPPENHEIMER
HIGH CAPITAL GLOBAL
INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C>
ASSETS
Investments --
Number of shares (Note 2).......... 53,902 22,659 106,922
========== ======== ==========
Identified cost (Note 6)........... $ 568,795 $582,451 $1,675,958 $12,915,724
========== ======== ========== ===========
Value (Note 3A).................... $ 527,698 $587,995 $1,613,451 $12,620,085
Dividends receivable................ -- -- -- 247,625
TOTAL ASSETS....................... 527,698 587,995 1,613,451 12,867,710
---------- -------- ---------- -----------
LIABILITIES
Payable to Massachusetts
Mutual Life Insurance Company...... 23 13 34 281
---------- -------- ---------- ------------
NET ASSETS.......................... $ 527,675 $587,982 $ 1,613,417 $ 12,867,429
========== ======== ========== ============
NET ASSETS:
For variable life insurance
policies........................... $ 522,858 $583,305 $1,608,768 $ 12,810,673
Retained in Variable Life
Separate Account I by
Massachusetts Mutual Life
Insurance Company.................. 4,817 4,677 4,649 56,756
---------- -------- ---------- ------------
NET ASSETS........................ $ 527,675 $587,982 $ 1,613,417 $ 12,867,429
========== ======== ========== ============
Accumulation units
Number of units:
Policyowners...................... 542,686 623,560 1,730,252
Massachusetts Mutual Life
Insurance Company................. 5,000 5,000 5,000
---------- -------- ----------
Total units (Note 8).............. 547,686 628,560 1,735,252
========== ======== ==========
NET ASSET VALUE PER ACCUMULATION UNIT
December 31, 1994.................. $ 0.96 $0.94 $0.93
December 31, 1993.................. -- -- --
December 31, 1992.................. -- -- --
December 31, 1991.................. -- -- --
December 31, 1990.................. -- -- --
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I --
LARGE CASE VARIABLE LIFE PLUS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND *FOR THE PERIOD JANUARY 3, 1994
(DATE OF COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
<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).................. $ 137,061 $75,616 $ 52,202 $148,732
EXPENSES
Mortality and expense risk fee
(Note 4)............................ 9,519 8,051 2,603 9,749
---------- ------- -------- --------
NET INVESTMENT INCOME (LOSS)
(Note 3C)........................... 127,542 67,565 49,599 138,983
---------- ------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments (Notes 3 and 6)......... 13,299 -- (26,513) (7,105)
Net change in unrealized
appreciation/depreciation
of investments...................... (33,212) -- (31,354) (79,937)
---------- ------- -------- --------
NET GAIN (LOSS) ON INVESTMENTS...... (19,913) -- (57,867) (87,042)
---------- ------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS..................... $ 107,629 $67,565 $ (8,268) $ 51,941
========== ======= ======== ========
<CAPTION>
*OPPENHEIMER *OPPENHEIMER *OPPENHEIMER
HIGH CAPITAL GLOBAL
INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Note 3B).................. $ 32,899 $ 1,338 $ 88 $ 447,936
EXPENSES
Mortality and expense risk fee
(Note 4)............................ 1,285 1,295 3,966 36,468
-------- ---------- -------- ---------
NET INVESTMENT INCOME (LOSS)
(Note 3C)........................... 31,614 43 (3,878) 411,468
-------- ---------- -------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments (Notes 3 and 6)......... (210) (2,744) 91 (23,182)
Net change in unrealized
appreciation/depreciation
of investments...................... (41,097) 5,544 (62,507) (242,563)
-------- ---------- -------- ---------
NET GAIN (LOSS) ON INVESTMENTS...... (41,307) 2,800 (62,416) (265,745)
-------- ---------- -------- ---------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS..................... $ (9,693) $ 2,843 $(66,294) $ 145,723
======== ========== ======== =========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I --
LARGE CASE VARIABLE LIFE PLUS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND *FOR THE PERIOD JANUARY 3, 1994
(DATE OF COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------
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).............. $ 127,542 $ 67,565 $ 49,599 $ 138,983
Net realized gain (loss)
on investments............................ 13,299 -- (26,513) (7,105)
Net change in unrealized
appreciation/depreciation
of investments............................ (33,212) -- (31,354) (79,937)
---------- ----------- ---------- -----------
Net increase (decrease) in
net assets resulting from
operations............................... 107,629 67,565 (8,268) 51,941
---------- ----------- ---------- -----------
Capital transactions: (Note 8)
Transfer of net premium................... 363,491 8,964,251 83,569 408,847
Transfer from (to)
Massachusetts Mutual Life
Insurance Company......................... (5,000) -- (5,000) (5,000)
Transfer to Guaranteed
Principal Account......................... -- (44,939) (3,097) --
Transfer of surrender
values................................... (75,143) (9,814) (23,586) (155,277)
Transfer due to policy
loan, net of repayment................... (360) (2) (19) (3,284)
Transfer due to reimbursement
(payment) of accumulation
unit value fluctuation................... (1,256) 20,218 (632) 35
Transfer due to charges for
administrative and
insurance costs.......................... (153,405) (241,539) (53,219) (210,861)
Divisional transfers...................... 2,769,233 (5,994,402) 730,763 377,442
---------- ----------- ---------- -----------
Net increase in net
assets resulting from
capital transactions..................... 2,897,560 2,693,773 728,779 411,902
---------- ----------- ---------- -----------
TOTAL INCREASE............................ 3,005,189 2,761,338 720,511 463,843
NET ASSETS, AT BEGINNING OF
THE YEAR/PERIOD........................... 514,171 98,497 442,832 2,131,974
---------- ----------- ---------- -----------
NET ASSETS, AT END OF THE YEAR............ $3,519,360 $ 2,859,835 $1,163,343 $ 2,595,817
========== =========== ========== ===========
<CAPTION>
1994
-------------------------------------------------------------
*OPPENHEIMER *OPPENHEIMER *OPPENHEIMER
HIGH CAPITAL GLOBAL
INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss).............. $ 31,614 $ 43 $ (3,878) $ 411,468
Net realized gain (loss)
on investments............................ (210) (2,744) 91 (23,182)
Net change in unrealized
appreciation/depreciation
of investments............................ (41,097) 5,544 (62,507) (242,563)
---------- -------- ---------- -----------
Net increase (decrease) in
net assets resulting from
operations............................... (9,693) 2,843 (66,294) 145,723
---------- -------- ---------- -----------
Capital transactions: (Note 8)
Transfer of net premium................... 461,428 153,123 157,345 10,592,054
Transfer from (to)
Massachusetts Mutual Life
Insurance Company......................... 5,000 5,000 5,000 --
Transfer to Guaranteed
Principal Account......................... -- -- -- (48,036)
Transfer of surrender
values................................... -- -- -- (263,820)
Transfer due to policy
loan, net of repayment................... -- -- -- (3,665)
Transfer due to reimbursement
(payment) of accumulation
unit value fluctuation................... 421 (666) 36 18,156
Transfer due to charges for
administrative and
insurance costs.......................... (16,908) (26,206) (58,319) (760,457)
Divisional transfers...................... 87,427 453,888 1,575,649 --
---------- -------- ---------- -----------
Net increase in net
assets resulting from
capital transactions..................... 537,368 585,139 1,679,711 9,534,232
---------- -------- ---------- -----------
TOTAL INCREASE............................ 527,675 587,982 1,613,417 9,679,955
NET ASSETS, AT BEGINNING OF
THE YEAR/PERIOD........................... -- -- -- 3,187,474
---------- -------- ---------- -----------
NET ASSETS, AT END OF THE YEAR............ $ 527,675 $587,982 $1,613,417 $12,867,429
========== ======== ========== ===========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I --
LARGE CASE VARIABLE LIFE PLUS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993
--------------------------------------------------------------------------
MML MML
MML MONEY MANAGED MML
EQUITY MARKET BOND BLEND
DIVISION DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
Operations:
Net investment income................................. $ 27,728 $ 5,023 $ 28,165 $ 120,118 $ 181,034
Net realized gain
on investments........................................ 12,127 -- 4,275 54,257 70,659
Net change in unrealized
appreciation/depreciation
of investments........................................ (7,037) -- (21,918) (46,491) (75,446)
----------- ---------- ----------- ----------- -----------
Net increase in net
assets resulting from operations...................... 32,818 5,023 10,522 127,884 176,247
----------- ---------- ----------- ----------- -----------
Capital transactions: (Note 8)
Transfer of net premium............................... 179,507 266,587 71,471 1,581,685 2,099,250
Transfer to Guaranteed
Principal Account..................................... -- (99,711) -- -- (99,711)
Transfer of surrender values.......................... (31,065) (2,657) (6,477) (46,778) (86,977)
Transfer due to policy loan,
net of repayment...................................... (6,258) (2) (327) (982) (7,569)
Transfer due to reimbursement
(payment) of accumulation
unit value fluctuation................................ (3) (915) (2,972) (6,557) (10,447)
Transfer due to charges for
administrative and insurance costs.................... (53,579) (54,137) (39,061) (189,671) (336,448)
Divisional transfers.................................. 173,534 (602,720) 350,479 78,707 --
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from capital
transactions.......................................... 262,136 (493,555) 373,113 1,416,404 1,558,098
----------- ---------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE)............................. 294,954 (488,532) 383,635 1,544,288 1,734,345
NET ASSETS, AT BEGINNING OF THE YEAR................... 219,217 587,029 59,197 587,686 1,453,129
----------- ---------- ----------- ----------- -----------
NET ASSETS, AT END OF THE YEAR......................... $ 514,171 $ 98,497 $ 442,832 $ 2,131,974 $ 3,187,474
=========== ========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I --
LARGE CASE VARIABLE LIFE PLUS
NOTES TO FINANCIAL STATEMENTS
1. History
Massachusetts Mutual Variable Life Separate Account I ("Separate Account
I") is a separate investment account established on July 13, 1988 by
Massachusetts Mutual Life Insurance Company ("MassMutual") in accordance
with the provisions of Section 132G of Chapter 175 of the Massachusetts
General Laws.
MassMutual maintains two segments within Separate Account I. The initial
segment ("Variable Life Plus Separate Account") is used exclusively for
MassMutual's flexible premium variable whole life insurance policy.
On March 30, 1990, MassMutual designated another segment ("Large Case
Variable Life Plus Separate Account") within Separate Account I to be used
exclusively for MassMutual's flexible premium variable whole life insurance
policy with table of selected face amounts.
Large Case Variable Life Plus Separate Account operates as a unit investment
trust pursuant to the Investment Company Act of 1940 and the rules
promulgated thereunder. MassMutual paid $40,000 to Large Case Variable Life
Plus Separate Account on March 30, 1990 to provide initial capital: 12,146
shares were purchased in the four series of shares of the management
investment company described in Note 2 supporting the divisions of Large Case
Variable Life Plus Separate Account. On January 3, 1994, MassMutual removed
$15,000 of the initial capital from three of the four series of shares of the
management investment company supporting the divisions of Large Case Variable
Life Plus Separate Account.
On January 3, 1994, MassMutual paid $15,000 to provide the initial capital
for Large Case Variable Life Plus Separate Account's three new divisions: 918
shares were purchased in the management investment company described in Note
2 supporting the three new divisions of Large Case Variable Life Plus
Separate Account.
2. Investment of Large Case Variable Life Plus
Separate Account's Assets
Large Case Variable Life Plus Separate Account maintains seven divisions. The
MML Equity Division invests in shares of MML Equity Fund, the MML Money
Market Division invests in shares of MML Money Market Fund, the MML Managed
Bond Division invests in shares of MML Managed Bond Fund and the MML Blend
Division invests in shares of MML Blend Fund. The Oppenheimer High Income
Division invests in shares of Oppenheimer High Income Fund, the Oppenheimer
Capital Appreciation Division invests in shares of Oppenheimer Capital
Appreciation Fund, and the Oppenheimer Global Securities Division invests in
shares of Oppenheimer Global Securities Fund.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML Blend
Fund are the four series of MML Series Investment Fund (the "MML Trust").
The MML Trust is a no-load, open-end diversified management investment
company for which MassMutual acts as investment manager. Concert Capital
Management, Inc. ("Concert Capital"), a wholly-owned subsidiary of
MassMutual, serves as investment sub-advisor to the MML Equity Fund and the
Equity Sector of the MML Blend Fund.
Oppenheimer High Income Fund, Oppenheimer Capital Appreciation Fund and
Oppenheimer Global Securities Fund (the "Oppenheimer Funds") are part of
the Oppenheimer Variable Account Funds (the "Oppenheimer Trust"). The
Oppenheimer Trust is an open-end, diversified management investment company,
which is available to act as the investment vehicle for separate accounts for
variable insurance policies.
In addition to the seven divisions of Large Case Variable Life Plus Separate
Account, a policyowner may also allocate funds to the Guaranteed Principal
Account, which is part of MassMutual's general account. Because of exemptive
and exclusionary provisions, interests in MassMutual's general account (which
include interests in the Guaranteed Principal Account) are not registered
under the Securities Act of 1933 and the general account is not registered as
an investment company under the Investment Company Act of 1940.
3. Significant Accounting Policies
The following is a summary of significant accounting policies followed
consistently by Large Case Variable Life Plus Separate Account in the
preparation of the financial statements in conformity with generally accepted
accounting principles.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
A. INVESTMENT VALUATION
The investments in MML Trust and the Oppenheimer Trust are each stated at
market value which is the net asset value of each of the respective
underlying funds.
B. ACCOUNTING FOR INVESTMENTS
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date.
Identified cost is the basis followed in determining the cost of investments
sold for financial statement purposes.
C. FEDERAL INCOME TAXES
MassMutual is taxed under federal law as a life insurance company under the
provisions of the 1986 Internal Revenue Code, as amended. Large Case Variable
Life Plus Separate Account is part of MassMutual's total operation and is not
taxed separately. Large Case Variable Life Plus Separate Account 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 of Large Case Variable Life Plus Separate
Account credited to the policies. Accordingly, MassMutual does not intend to
make any charge to Large Case Variable Life Plus Separate Account's divisions
to provide for company income taxes. 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 Large Case Variable Life Plus Separate
Account.
D. POLICY LOAN
When a policy loan is made, Large Case Variable Life Plus Separate Account
transfers the amount of the loan to MassMutual, thereby decreasing both the
assets and the reserves of Large Case Variable Life Plus Separate Account by
an equal amount. The interest rate charged on any loan is 6% per year, or
where permitted, the policyowner may select an adjustable loan rate at the
time of application. Loan repayments result in the transfer of values equal
to the repayment from the loaned portion of the Guaranteed Principal Account
to the non-loaned portion of the Guaranteed Principal Account and the
divisions of Large Case Variable Life Plus Separate Account.
The policyowner earns interest at a rate which is the greater of 4% or the
policy loan rate less a MassMutual declared charge (maximum 2%) for expenses
and taxes.
4. Charges
MassMutual charges the Large Case Variable Life Plus Separate Account
divisions for the mortality and expense risks it assumes. The charge is made
daily at an effective annual rate of 0.40% of the value of each division's
net assets.
MassMutual makes certain deductions from the annual premium before amounts
are allocated to the Large Case Variable Life Plus Separate Account and the
Guaranteed Principal Account. The deductions are for sales charges and state
premium taxes. No additional deductions are taken when money is transferred
from the Guaranteed Principal Account to the Large Case Variable Life Plus
Separate Account. MassMutual also makes certain charges for the cost of
insurance and administrative costs.
5. Sales Agreements
MML Investors Services, Inc. ("MMLISI"), a wholly-owned subsidiary of
MassMutual, acts as principal underwriter (as defined in the Investment
Company Act of 1940, as amended) of the policies pursuant to an agreement
among MMLISI, MassMutual and Separate Account I. Registered representatives
of MMLISI, authorized as variable life insurance agents under applicable
state insurance laws, sell the policies.
Under the sales agreement among MMLISI, MassMutual and Separate Account I,
agents receive commissions and service fees from MMLISI for selling and
servicing the policies. MassMutual reimburses MMLISI for such compensation
and for other expenses incurred in marketing and selling the policies.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Purchases and Sales of Investments
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994 AND *FOR THE PERIOD JANUARY 3, 1994
(DATE OF COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1994
----------------------------------------------------------------------------------------------------
MML MML *OPPENHEIMER *OPPENHEIMER *OPPENHEIMER
MML MONEY MANAGED MML HIGH CAPITAL GLOBAL
EQUITY MARKET BOND BLEND INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of purchases........... $ 3,125,689 $12,801,659 $1,177,288 $1,064,777 $1,019,157 $ 606,909 $ 1,731,401 $21,526,880
Proceeds from sales......... 208,203 10,050,578 403,708 508,917 450,152 21,714 55,534 11,698,806
Average monthly value
of securities.............. 2,338,156 2,022,308 670,948 2,419,601 356,835 352,413 1,074,168
</TABLE>
7. Net Investment Return
The following table shows the Net Investment Return for each division in Large
Case Variable Life Plus Separate Account:
<TABLE>
<CAPTION>
MML MML *OPPENHEIMER *OPPENHEIMER *OPPENHEIMER
MML MONEY MANAGED MML HIGH CAPITAL GLOBAL
EQUITY MARKET BOND BLEND INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1994 and
*For the Period
January 3, 1994 (Date of
Commencement of
Operations)
Through December 31, 1994.... 4.58% 3.33% (1.23)% 2.14% (2.72)% 0.81% (6.17)%
For the Year Ended
December 31, 1993............ 8.28% 2.33% 4.07% 8.54% -- -- --
For the Year Ended
December 31, 1992............ 9.74% 2.72% 6.76% 8.73% -- -- --
For the Year Ended
December 31, 1991............ 15.42% 6.04% 16.82% 16.05% -- -- --
For the Period March 30,
1990 (Date of Commencement
of Operations)
Through December 31, 1990.... 0.87% 5.66% 8.22% 3.11% -- -- --
</TABLE>
The net investment return for each division of Large Case Variable Life Plus
Separate Account is computed using the net increase in net assets resulting from
operations as compared to the average monthly net assets.
8. Net Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994 AND MML MML *OPPENHEIMER *OPPENHEIMER *OPPENHEIME
*FOR THE PERIOD JANUARY 3, 1994 MML MONEY MANAGED MML HIGH CAPITAL GLOBAL
(DATE OF COMMENCEMENT OF EQUITY MARKET BOND BLEND INCOME APPRECIATION SECURITIES
OPERATIONS) DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
THROUGH DECEMBER 31, 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased............ 234,587 7,556,179 58,066 268,058 475,497 170,688 164,153
Units withdrawn and
transferred to
Guaranteed Principal
Account.................. (151,689) (257,120) (58,196) (245,582) (17,215) (28,652) (59,292)
Units transferred between
divisions................. 1,818,935 (5,035,521) 513,807 248,837 89,404 486,524 1,630,391
--------- ---------- ------- --------- ------- ------- ---------
Net increase............... 1,901,833 2,263,538 513,677 271,313 547,686 628,560 1,735,252
Units, at beginning of the
year/period............... 339,541 83,610 295,066 1,406,252 -- -- --
--------- ---------- ------- --------- ------- ------- ---------
Units, at end of the year.. 2,241,374 2,347,148 808,743 1,677,565 547,686 628,560 1,735,252
========= ========== ======= ========= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
MML MML
MML MONEY MANAGED MML
FOR THE YEAR ENDED EQUITY MARKET BOND BLEND
DECEMBER 31, 1993 DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C>
Units purchased............. 122,802 230,216 48,491 1,080,535
Units withdrawn and
transferred to
Guaranteed Principal
Account................... (62,105) (135,002) (31,289) (161,707)
Units transferred between
divisions................. 120,929 (521,576) 233,935 63,874
------- ------- ------- ---------
Net increase (decrease)..... 181,626 (426,362) 251,137 982,702
Units, at beginning of the
year........................ 157,915 509,972 43,929 423,550
------- ------- ------- ---------
Units, at end of the year... 339,541 83,610 295,066 1,406,252
======= ======= ======= =========
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Consolidated Massachusetts Mutual Variable Life
Separate Account I
As discussed in Note 1, the financial statements only represent activity of
MassMutual's Large Case Variable Life Plus Separate Account. The combined net
assets as of December 31, 1994 for Massachusetts Mutual Variable Life Separate
Account I, which includes both the segment pertaining to the flexible premium
variable whole life insurance policies with table of selected face amounts and
the segment pertaining to the flexible premium variable whole life insurance
policies, are as follows:
<TABLE>
<CAPTION>
MML MML *OPPENHEIMER *OPPENHEIMER *OPPENHEIMER
MML MONEY MANAGED MML HIGH CAPITAL GLOBAL
EQUITY MARKET BOND BLEND INCOME APPRECIATION SECURITIES
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets................ $ 9,255,798 $2,932,169 $ 1,390,463 $ 5,008,576 $527,698 $587,995 $ 1,613,451 $21,316,150
Total Liabilities........... 13,810 131 530 2,016 23 13 34 16,557
----------- ---------- ----------- ----------- -------- -------- ----------- -----------
Net Assets.................. $ 9,241,988 $2,932,038 $ 1,389,933 $ 5,006,560 $527,675 $587,982 $ 1,613,417 $21,299,593
=========== ========== =========== =========== ======== ======== =========== ===========
Net Assets:
For variable life insurance
policies................... $ 9,198,906 $2,897,267 $ 1,353,698 $ 4,964,949 $522,858 $583,305 $ 1,608,768 $21,129,751
Retained in Variable Life
Separate Account I by
Massachusetts Mutual
Life Insurance Company..... 43,082 34,771 36,235 41,611 4,817 4,677 4,649 169,842
----------- ---------- ----------- ----------- -------- -------- ----------- -----------
Net Assets................. $ 9,241,988 $2,932,038 $ 1,389,933 $ 5,006,560 $527,675 $587,982 $ 1,613,417 $21,299,593
=========== ========== =========== =========== ======== ======== =========== ===========
</TABLE>
* Offered only by the Large Case Variable Life Plus Separate Account.
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND POLICYHOLDERS OF
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
We have audited the accompanying statement of financial position of
Massachusetts Mutual Life Insurance Company as of December 31, 1994 and 1993,
and the related statements of income, changes in policyholders' contingency
reserves, and cash flows for the years ended December 31, 1994, 1993 and 1992.
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Massachusetts Mutual Life
Insurance Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years ended December 31, 1994, 1993 and
1992 in conformity with generally accepted accounting principles.
Springfield, Massachusetts
February 6, 1995
33
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
(IN MILLIONS)
<S> <C> <C>
ASSETS:
Bonds............................................. $ 17,684.4 $ 16,950.7
Common stocks..................................... 197.0 142.8
Mortgage loans.................................... 2,979.6 3,732.4
Real estate:
Investment....................................... 1,283.6 1,218.7
Other............................................ 62.2 78.4
Other investments................................. 741.5 596.6
Policy loans...................................... 2,700.8 2,532.8
Cash and short-term investments................... 2,189.6 2,209.2
Investment and insurance amounts receivable....... 751.8 927.2
Separate account assets........................... 6,507.7 5,891.5
Other assets...................................... 75.9 34.0
---------- ----------
TOTAL ASSETS...................................... $ 35,174.1 $ 34,314.3
---------- ----------
LIABILITIES:
Policyholders' reserves and funds................. $ 24,156.3 $ 23,661.0
Policyholders' dividends.......................... 540.2 537.1
Policy claims and other benefits.................. 363.9 555.5
Federal income taxes.............................. 229.9 208.1
Asset valuation reserve........................... 347.5 301.0
Investment reserves............................... 130.8 130.9
Separate account reserves and liabilities......... 6,506.7 5,890.1
Amounts due on investments purchased and other
liabilities..................................... 969.5 1,213.0
---------- ----------
TOTAL LIABILITIES................................. 33,244.8 32,496.7
Policyholders' contingency reserves............... 1,929.3 1,817.6
---------- ----------
TOTAL LIABILITIES AND
POLICYHOLDERS' CONTINGENCY RESERVES............. $ 35,174.1 $ 34,314.3
========== ==========
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31,
1994 1993 1992
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE:
Premium income.............................................. $ 4,522.3 $ 4,784.4 $ 4,776.0
Net investment and other income............................. 2,179.1 2,252.6 2,231.2
---------- --------- ---------
TOTAL REVENUE............................................... 6,701.4 7,037.0 7,007.2
---------- --------- ---------
DISPOSITION OF REVENUE:
Policy benefits and payments................................ 4,169.4 4,017.9 4,329.3
Addition to policyholders' reserves and funds............... 927.8 1,421.5 1,195.5
Operating expenses.......................................... 375.5 360.5 382.6
Commissions................................................. 261.6 253.2 248.1
State taxes, licenses and fees.............................. 75.1 82.3 74.0
---------- --------- ---------
TOTAL DISPOSITION OF REVENUE................................ 5,809.4 6,135.4 6,229.5
---------- --------- ---------
Net gain before dividends and federal income taxes.......... 892.0 901.6 777.7
Dividends to policyholders.................................. 523.5 526.9 486.6
---------- --------- ---------
Net gain from operations before federal income taxes........ 368.5 374.7 291.1
Federal income taxes........................................ 144.7 164.4 100.9
---------- --------- ---------
NET GAIN FROM OPERATIONS.................................... 223.8 210.3 190.2
NET REALIZED CAPITAL LOSS................................... (135.1) (76.7) (80.4)
---------- --------- ---------
NET INCOME.................................................. $ 88.7 $ 133.6 $ 109.8
========== ========= =========
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
(IN MILLIONS)
<S> <C> <C> <C>
Policyholders' contingency reserves, beginning of year............................ $ 1,817.6 $ 1,524.3 $ 1,359.3
---------- ---------- ----------
Increases (decreases) due to:
Net income....................................................................... 88.7 133.6 109.8
Net unrealized capital gain...................................................... 22.7 22.2 12.6
Surplus notes.................................................................... 100.0 250.0 0.0
Change in asset valuation and investment reserves................................ (46.4) (110.5) (20.0)
Change in valuation bases of policyholders' reserves............................. (45.3) 0.0 32.6
Change in non-admitted assets.................................................... (57.1) (2.8) 24.1
Change in accounting for mortgage backed securities.............................. 44.5 0.0 0.0
Other............................................................................ 4.6 0.8 5.9
---------- ---------- ----------
Net increase.................................................................... 111.7 293.3 165.0
---------- ---------- ----------
Policyholders' contingency reserves, end of year.................................. $ 1,929.3 $ 1,817.6 $ 1,524.3
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................................... $ 88.7 $ 133.6 $ 109.8
Addition to policyholders' reserves and funds,
net of transfers to separate accounts......................................... 303.7 652.3 239.0
Net realized capital loss...................................................... 135.1 76.7 80.4
Other changes.................................................................. (29.3) (97.5) (136.9)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... 498.2 765.1 292.3
---------- ---------- ----------
INVESTING ACTIVITIES:
Loans and purchases of investments............................................. 6,667.8 6,668.1 10,152.9
Sales or maturities of investments and receipts
from repayment of loans....................................................... 6,050.0 5,671.3 10,101.3
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES.......................................... 617.8 996.8 51.6
---------- ---------- ----------
FINANCING ACTIVITIES:
Issuance of surplus notes...................................................... 100.0 250.0 0.0
Repayments of long-term debt................................................... 0.0 (100.0) 0.0
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................................... 100.0 150.0 0.0
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS........................................................ (19.6) (81.7) 240.7
Cash and short-term investments, beginning of year.............................. 2,209.2 2,290.9 2,050.2
---------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR.................................... $ 2,189.6 $ 2,209.2 $ 2,290.9
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING PRACTICES
The accompanying financial statements of Massachusetts Mutual Life Insurance
Company, except as to form, have been prepared in conformity with the
practices of the National Association of Insurance Commissioners and the
accounting practices prescribed or permitted by the Division of Insurance of
the Commonwealth of Massachusetts ("the Division of Insurance") which are
currently considered generally accepted accounting principles for mutual life
insurance companies and their life insurance subsidiaries.
The Financial Accounting Standards Board, which has no role in establishing
regulatory accounting practices, issued Interpretation 40, Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises, and Statement of Financial Accounting Standards No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts. The American
Institute of Certified Public Accountants, which also has no role in
establishing regulatory accounting practices, issued Statement of Position 95-
1, Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises. These pronouncements will require mutual life insurance
companies to modify their financial statements in order to continue to be in
accordance with generally accepted accounting principles, effective for 1996
financial statements. The manner in which policy reserves, new business
acquisition costs, asset valuations and the related tax effects are recorded
will change. Management has not determined the impact of such changes on the
Company's Statements of Financial Position or Income.
The following is a description of the Company's current principal accounting
policies and practices.
A. INVESTMENTS
Bonds and stocks are valued in accordance with rules established by the
National Association of Insurance Commissioners. Generally, bonds are valued
at amortized cost, preferred stocks in good standing at cost, and common
stocks, except for unconsolidated subsidiaries, at fair value. Premium and
discount on bonds are amortized into investment income over the stated lives
of the securities through December 31, 1994.
As promulgated by the National Association of Insurance Commissioners, the
Company adopted the retrospective method of accounting for amortization of
premium and discount on mortgage backed securities as of December 31, 1994.
Prepayment assumptions for mortgage backed securities were obtained from a
prepayment model, which factors in mortgage type, seasoning, coupon, current
interest rate and the economic environment. The effect of this change, $44.5
million, is recorded as an increase to policyholders' contingency reserves.
Mortgage loans are valued at principal less unamortized discount. Real estate
is valued at cost less accumulated depreciation, impairments and mortgage
encumbrances. Encumbrances totaled $14.8 million in 1994 and $15.7 million in
1993. 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, joint ventures and other forms of
partnerships are included in other investments on the Statement of Financial
Position and are accounted for using the equity method.
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves, as prescribed and permitted by the
Division of Insurance, stabilize the policyholders' contingency reserves
against fluctuations in the value of stocks, as well as declines in the value
of bonds, mortgage loans and real estate investments.
The Interest Maintenance Reserve captures after-tax realized capital gains and
losses which result from changes in the overall level of interest rates for
all types of fixed income investments, as well as other financial instruments,
including financial futures, U.S. Treasury purchase commitments, options,
interest rate swaps, interest rate caps and interest rate floors. These
interest rate related gains and losses are amortized into income over the
remaining life of the investment sold or over the remaining life of the
underlying asset. Net realized after-tax capital losses of $155.6 million in
1994 and net realized after-tax capital gains of $152.6 million in 1993 and
$82.5 million in 1992 were charged to the Interest Maintenance Reserve. The
gains credited for certain government securities were limited by regulation to
75 percent of the gains realized in 1993 and 50 percent of the gains realized
in 1992. The remaining portion of the realized capital gains and losses on
other financial
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
instruments relating to income earned during the year is fully recognized.
Amortization of the Interest Maintenance Reserve into net income amounted to
$45.0 million in 1994, $66.6 million in 1993 and $27.4 million in 1992. In
1993, the Interest Maintenance Reserve resulted in a net gain deferral which was
included in other liabilities on the Statement of Financial Position. In 1994,
the Interest Maintenance Reserve resulted in a net loss deferral. In accordance
with the practices of the National Association of Insurance Commissioners, the
1994 balance was recorded as a reduction of policyholders' contingency reserves.
Realized capital gains and losses, less taxes, not includable in the Interest
Maintenance Reserve, are recognized in net income. Realized capital gains and
losses are determined using the specific identification method. Unrealized
capital gains and losses are included in policyholders' contingency reserves.
B. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of pension, variable annuity and
variable life insurance contract holders. Assets consist principally of
marketable securities reported at fair value. Premiums, benefits and expenses
of the separate accounts are reported in the Statement of Income. The Company
receives administrative and investment advisory fees from these accounts.
C. NON-ADMITTED ASSETS
Assets designated as "non-admitted" (principally certain fixed assets,
receivables and Interest Maintenance Reserve, when in a net loss deferral
position) are excluded from the Statement of Financial Position by an adjustment
to policyholders' contingency reserves. In accordance with provisions permitted
by the Commonwealth of Massachusetts, the Company elected to admit electronic
data processing equipment totalling $20.0 million in 1992.
D. POLICYHOLDERS' RESERVES AND FUNDS
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience and
the 1941, 1958 and 1980 Commissioners' Standard Ordinary mortality tables with
assumed interest rates ranging from 2.5 to 6.0 percent.
Reserves for individual annuities, guaranteed investment contracts and deposit
administration and immediate participation guarantee funds are based on accepted
actuarial methods principally at interest rates ranging from 2.25 to 11.25
percent. Reserves for policies and contracts considered investment contracts
have a carrying value of $10,001.8 million (fair value of $9,672.3 million as
determined by discounted cash flow projections). Accident and health policy
reserves are generally calculated using the two-year preliminary term, net level
premium and fixed net premium methods and various morbidity tables.
During 1994, the Company changed its valuation basis for certain contracts. The
effect on the beginning of the year reserves, $45.3 million, was recorded as a
decrease to policyholders' contingency reserves. The effect of changes in
valuation bases for previously established policyholders' reserves, approved by
the Division of Insurance were included as adjustments to policyholders'
contingency reserves as of January 1, 1992.
E. PREMIUM AND RELATED EXPENSE RECOGNITION
Life premium revenue is recognized annually on the anniversary date of the
policy. Annuity premium is recognized when received. Accident and health
premiums are recognized as revenue when due. Commissions and other costs
related to issuance of new policies, maintenance and settlement costs are
charged to current operations.
F. POLICYHOLDERS' DIVIDENDS
The Board of Directors annually approves dividends to be paid in the following
year. These dividends are allocated to reflect the relative contribution of each
group of policies to policyholders' contingency reserves and consider investment
and mortality experience, expenses and federal income tax charges.
G. CASH AND SHORT-TERM INVESTMENTS
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid short-term investments purchased with a maturity of twelve months or less
to be cash equivalents.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. POLICYHOLDERS' CONTINGENCY RESERVES
Policyholders' contingency reserves represent surplus of the Company as reported
to regulatory authorities and are intended to protect policyholders against
possible adverse experience.
A. SURPLUS NOTES
The Company issued surplus notes of $100.0 million at 7 1/2 percent and $250.0
million at 7 5/8 percent in 1994 and 1993, respectively. These notes are
unsecured and subordinate to all present and future indebtedness of the Company,
policy claims and prior claims against the Company as provided by the
Massachusetts General Laws. Issuance was approved by the Commissioner of
Insurance of the Commonwealth of Massachusetts ("the Commissioner").
All payments of interest and principal are subject to the prior approval of the
Commissioner. Sinking fund payments are due as follows: $62.5 million in 2021,
$87.5 million in 2022, $150.0 million in 2023 and $50.0 million in 2024.
Interest on the notes issued in 1994 is scheduled to be paid on March 1 and
September 1 of each year, beginning on September 1, 1994, to holders of record
on the preceding February 15 or August 15, respectively. Interest on the notes
issued in 1993 is scheduled to be paid on May 15 and November 15 of each year,
beginning on May 15, 1994, to holders of record on the preceding May 1 or
November 1, respectively. In accordance with regulations of the National
Association of Insurance Commissioners, interest expense is not recorded until
approval for payment is received from the Commissioner. In 1994, interest of
$22.8 million was approved and paid.
The proceeds of the notes, less a $35 million reserve in 1994 and a $25 million
reserve in 1993 for contingencies associated with the issuance of the notes, are
recorded as a component of the Company's policyholders' contingency reserves as
approved by the Commissioner. These reserves, as permitted by the Division of
Insurance, are included in investment reserves on the Statement of Financial
Position.
B. OTHER POLICYHOLDERS' CONTINGENCY RESERVES
As required by regulatory authorities, contingency reserves established to
protect group life and annuity policyholders are $36.3 million in 1994 and $34.7
million in 1993.
3. EMPLOYEE BENEFIT PLANS
A. PENSION
The Company has a non-contributory defined benefit plan covering substantially
all of its employees. Benefits are based on the employees' years of service,
compensation during the last five years of employment and estimated social
security retirement benefits. The Company accounts for this plan following
Financial Accounting Standards Board Statement No. 87, Employers' Accounting for
Pensions. Accordingly, as permitted by the Division of Insurance, the Company
has recognized a pension asset of $25.3 million and $31.0 million in 1994 and
1993, 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, 1994, 1993 and 1992. The assets of the Plan are invested in the Company's
general account and separate accounts.
The benefit status of the defined benefit plan as of December 31 is as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated benefit obligation $271.1 $261.9
Projected benefit obligation 321.1 316.0
Plan assets at fair value 421.7 430.5
</TABLE>
The discount rate used in determining the actuarial present value of both the
accumulated and projected benefit obligation was 8.0 percent and 7.5 percent at
December 31, 1994 and 1993, respectively. The increase in future compensation
levels used was 5.0 percent. The long-term rate of return on assets is
projected to be 10.0 percent.
The Company also has defined contribution plans for employees and agents. The
expense charged to operations for all pension plans is $10.8 million in 1994, as
compared to $5.5 million in 1993 and $6.9 million in 1992.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
B. LIFE AND HEALTH
Certain life and health insurance benefits are provided to retired employees and
agents through group insurance contracts. Substantially all of the Company's
employees may become eligible for these benefits if they reach retirement age
while working for the Company. In 1993, the Company adopted the National
Association of Insurance Commissioners' accounting standard for postretirement
benefit costs, requiring these benefits to be accounted for using the accrual
method for employees and agents eligible to retire and current retirees. The
discount rate used to determine the accumulated postretirement benefit liability
was 8.0 percent in 1994 and 7.5 percent in 1993. The assumed increases in
medical cost rates were 8.0 percent for the first year, declining to 5.0 percent
within 6 years at December 31, 1994 and 13.0 percent for the first year,
declining to 6.0 percent within 7 years at December 31, 1993. The net unfunded
accumulated benefit obligation for these benefits was $97.2 million and $87.5
million at January 1, 1994 and 1993, respectively. The initial transition
obligation of $100.4 million is being amortized over twenty years through 2012.
At December 31, 1994, the net unfunded accumulated benefit obligation was $66.8
million for employees and agents eligible to retire or currently retired and
$24.0 million for participants not eligible to retire. A Retired Lives Reserve
Trust was funded to pay life insurance premiums for certain retired employees.
Trust assets available for benefits were $12.9 million in 1994.
The expense for 1994 and 1993 under the new standard was $12.2 million and $15.8
million, respectively. In 1992, $4.3 million of retiree life and health
benefits were charged to income when paid. A one percent increase in the annual
assumed increase in medical cost rates would increase the 1994 accumulated
postretirement benefit liability and benefit expense by $4.9 million and $0.7
million, respectively.
4. RELATED PARTY TRANSACTIONS
At the end of 1994, the Company executed two reinsurance agreements with its
subsidiary, MML Pension Insurance Company ("MML Pension"). In the first of
these contracts, the Company assumed all of the single premium immediate annuity
business written by MML Pension through either an assumption provision or a
coinsurance provision. The second contract ceded the Company's group life,
accident and health business to MML Pension. Additionally, a reinsurance
agreement previously in place, ceding all of the Company's single premium
annuity business, was terminated. These contracts were concurrently executed at
the end of business on December 31, 1994 and were accounted for as a bulk
reinsurance transaction. Accordingly, assets were transferred at fair value and
liabilities were transferred at statutory carrying value. These transfers did
not impact the Summary of Operations of either company. The net effect of these
transactions decreased the Company's assets and liabilities by $174.6 million in
1994.
5. FEDERAL INCOME TAXES
Provision for unpaid federal income taxes is based upon the Company's best
estimate of its tax liability. The Internal Revenue Service has completed
examining the Company's income tax returns through the year 1989, and is
currently examining the years 1990 through 1992. The Company believes any
adjustments resulting from such examinations will not materially affect its
financial statements.
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for 1993
and 1994. The Company records the estimated effects of anticipated revisions in
the Statement of Income.
The Company intends to file its 1994 federal income tax return on a consolidated
basis with its life and non-life affiliates. The Company and its life and non-
life affiliates are subject to a written tax allocation agreement which
allocates tax liability in a manner permitted under Treasury regulations and
provides that loss members shall be compensated for the use of their losses and
credits by other members.
No deferred tax effect is recognized for temporary differences that may exist
between financial reporting and taxable income. The Company made federal tax
payments of $13.3 million in 1994, $206.6 million in 1993 and $119.3 million in
1992. At December 31, 1994 and 1993, the Company established a liability for
federal income taxes of $229.9 and $208.1 million, respectively.
6. INVESTMENTS
The Company maintains a diversified investment portfolio. Investment policies
limit concentration in any asset class, geographic region, industry group,
economic characteristic, investment quality or individual investment.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
A. BONDS
The carrying value and estimated fair value of bonds are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 5,511.2 $ 147.3 $ 253.3 $ 5,405.2
Debt Securities issued by Foreign Governments 35.0 1.7 2.2 34.5
Mortgage-backed securities 3,410.5 55.6 176.7 3,289.4
State and local governments 124.1 4.9 5.3 123.7
Industrial securities 7,570.7 685.9 294.6 7,442.0
Utilities 908.5 68.9 17.8 959.6
Affiliates 124.4 9.7 8.6 125.5
--------- --------- --------- ---------
TOTAL $17,684.4 $ 454.0 $ 758.5 $17,379.9
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 6,496.4 $ 537.4 $ 55.3 $ 6,978.5
Debt Securities issued by Foreign Governments 91.9 11.4 0.0 103.3
Mortgage-backed securities 1,911.2 138.6 0.7 2,049.1
State and local governments 53.9 4.1 1.1 56.9
Industrial securities 7,386.4 683.1 107.2 7,962.3
Utilities 938.9 168.4 3.1 1,104.2
Affiliates 72.0 17.7 1.7 88.0
--------- --------- --------- ---------
TOTAL $16,950.7 $ 1,560.7 $ 169.1 $18,342.3
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1994 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
(IN MILLIONS)
<S> <C> <C>
Due in one year or less $ 2,477.6 $ 2,467.8
Due after one year through five years 3,167.3 3,140.9
Due after five years through ten years 3,320.5 3,274.4
Due after ten years 2,636.3 2,518.7
--------- ---------
11,601.7 11,401.8
Mortgage-backed securities, including securities guaranteed
by the U.S. Government 6,082.7 5,978.1
--------- ---------
TOTAL $17,684.4 $17,379.9
</TABLE>
Proceeds from sales of investments in bonds were $4,880.2 million during 1994,
$4,136.6 million during 1993 and $9,026.4 million during 1992. Gross capital
gains of $78.9 million in 1994, $271.1 million in 1993 and $231.1 million in
1992 and gross capital losses of $189.3 million in 1994, $88.3 million in 1993
and $92.9 million in 1992 were realized on those sales, a portion of which were
included in the Interest Maintenance Reserve. The estimated fair value of non-
publicly traded bonds is determined by the Company using a pricing matrix.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
B. STOCKS
Preferred stocks in good standing had fair values of $136.3 million in 1994,
$121.1 million in 1993, using a pricing matrix for non-publicly traded stocks
and quoted market prices for publicly traded stocks. Common stocks, except for
unconsolidated subsidiaries, had a cost of $181.1 million in 1994, $122.6
million in 1993.
C. MORTGAGES
The fair value of mortgage loans, as determined from a pricing matrix for
performing loans and the estimated underlying real estate value for non-
performing loans, approximated carrying value less valuation reserves held.
The Company acts as mortgage servicing agent and guarantor for $91.3 million of
mortgage loans sold in 1985. As guarantor, the Company is obligated to advance
unpaid principal and interest on any delinquent loans and to repurchase mortgage
loans under certain circumstances including mortgagor default.
D. OTHER
The carrying value of investments which were non-income producing for the
preceding twelve months was $82.9 million and $96.1 million at December 31, 1994
and 1993, respectively. The Company had restructured loans with book values of
$371.0 million and $437.1 million at December 31, 1994 and 1993, respectively.
The Company made voluntary contributions to the Asset Valuation Reserve of $52.7
million in 1994, $51.5 million in 1993 and $38.4 million in 1992 for these
restructured loans.
The loans typically have been modified to defer a portion of the contracted
interest payments to future periods. Interest deferred to future periods
totaled $2.2 million in 1994, $3.0 million in 1993 and $4.8 million in 1992.
It is not practicable to determine the fair value of policy loans as they do not
have a stated maturity.
7. PORTFOLIO RISK MANAGEMENT
The Company manages its investment risks to reduce interest rate and duration
imbalances determined in asset/liability analyses. The fair values of these
instruments, which are not recorded in the financial statements, are based upon
market prices or prices obtained from brokers. The Company does not hold or
issue financial instruments for trading purposes.
The notional amounts described do not represent amounts exchanged by the parties
and, thus, are not a measure of the exposure of the Company. The amounts
exchanged are calculated on the basis of the notional amounts and the other
terms of the instruments, which relate to interest rates, exchange rates,
security prices or financial or other indexes.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to financial instruments. This exposure is limited to
contracts with a positive fair value. The amounts at risk in a net gain
position were $88.4 million and $120.1 million at December 31, 1994 and 1993,
respectively. The Company monitors exposure to ensure counterparties are credit
worthy and concentration of exposure is minimized.
The Company enters into financial futures contracts for the purpose of managing
interest rate exposure. The Company's futures contracts are exchange traded
with minimal credit risk. Margin requirements are met with the deposit of
securities. Futures contracts are generally settled with offsetting
transactions. Gains and losses on financial futures contracts are recorded when
the contract is closed and amortized through the Interest Maintenance Reserve
over the remaining life of the underlying asset. As of December 31, 1994, the
Company had entered into financial futures contracts with contractual amounts of
$558.9 million and a fair value of $559.1 million.
The Company enters into 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 exchange, at specified
intervals, the difference between fixed and floating interest rates calculated
by reference to an agreed-upon notional principal amount. Net amounts
receivable and payable are accrued as adjustments to interest income and
included in investment and insurance amounts receivable on the Statement of
Financial Position. At December 31, 1994 and 1993, the Company had swaps with
notional amounts of $2,799.1 million and $1,910.1 million, respectively. The
fair values of these instruments were $49.6 million and $9.9 million at December
31, 1994 and 1993, respectively.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Options grant the purchaser the right to buy or sell a security at a stated
price within a stated period. The Company's option contracts have terms of up
to two years. The amounts paid for options purchased are included in other
investments on the Statement of Financial Position. Gains and losses on these
contracts are recorded at the expiration or termination date and are amortized
through the Interest Maintenance Reserve over the remaining life of the
underlying asset. At December 31, 1994 and 1993, the Company had option
contracts with notional amounts of $2,187.5 million and $2,647.5 million,
respectively. The Company's exposure was limited to the unamortized costs of
$24.4 million and $30.0 million, which had fair values of $10.4 million and
$73.3 million at December 31, 1994 and 1993, respectively.
Interest rate cap agreements grant the purchaser the right to receive the excess
of a referenced interest rate over a given rate. Interest rate floor agreements
grant the purchaser the right to receive the excess of a given rate over a
referenced interest rate. Amounts paid for interest rate caps and floors are
amortized into interest income over the life of the asset on a straight-line
basis. Unamortized costs are included in other investments on the Statement of
Financial Position. Amounts receivable and payable are accrued as adjustments
to interest income and included in the Statement of Financial Position as
investment and insurance amounts receivable. Gains and losses on these
contracts, including any unamortized cost, are recognized upon termination and
are amortized through the Interest Maintenance Reserve over the remaining life
of the associated cap or floor agreement. The company has agreements with
notional amounts of $2,617.0 million and $1,712.0 million at December 31, 1994
and 1993, respectively. The Company's exposure on these agreements is limited
to the unamortized costs of $12.1 million and $10.1 million at December 31, 1994
and 1993, respectively. The fair values of these instruments were $6.0 million
and $29.0 million at December 31, 1994 and 1993, respectively.
The Company enters into asset swap agreements to reduce exposures, such as
currency risk and prepayment risk, built into certain assets acquired. Cross-
currency interest rate swaps allow investment in foreign currencies, increasing
access to additional investment opportunities, while limiting foreign exchange
risk. Notional amounts relating to asset and currency swaps totalled $220.0
million and $249.8 million at December 31, 1994 and 1993, respectively. The
fair values of these instruments were an unrecognized gain of $2.8 million at
December 31, 1994 and an unrecognized loss of $14.9 million at December 31,
1993.
The Company enters into forward U.S. Treasury commitments for the purpose of
managing interest rate exposure. The Company generally does not take delivery
on forward commitments. These commitments are instead settled with offsetting
transactions. Gains and losses on forward commitments are recorded when the
commitment is closed and amortized through the Interest Maintenance Reserve over
the remaining life of the asset. At December 31, 1994 and 1993, the Company had
U. S. Treasury purchase commitments which will settle during the following year
with contractual amounts of $1,000.0 million and $1,161.8 million and fair
values of $989.2 million and $1,159.1 million, respectively.
8. LIQUIDITY
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1994 are illustrated below:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Total policyholders' reserves and funds and separate
account liabilities $30,933.9
Not subject to discretionary withdrawal (6,462.2)
Policy loans (2,700.8)
---------
Subject to discretionary withdrawal $21,770.9
---------
Total invested assets, including separate
investment accounts $34,346.4
Policy loans and other invested assets (8,983.7)
---------
Readily marketable investments $25,362.7
---------
</TABLE>
9. Commitments 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 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
10. RECLASSIFICATION
Certain 1993 and 1992 balances have been reclassified to conform to current year
presentation.
11. SUBSIDIARY AND AFFILIATED COMPANIES
Summary of ownership and relationship of the Company and its subsidiaries and
affiliated companies as of December 31, 1994 is illustrated below. The Company
provides management or advisory services to these companies.
Subsidiaries
MML Bay State Life Insurance Company
MassMutual Holding Company
MassMutual Holding Company Two, Inc.
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
Oppenheimer Investment Grade Bond Fund
Subsidiaries of MassMutual Holding Company
Concert Capital Management, Inc.
Cornerstone Real Estate Advisors, Inc.
MML Investors Services, Inc.
MML Real Estate Corporation
MML Realty Management Corporation
Oppenheimer Acquisition Corporation
MML Reinsurance (Bermuda) Ltd.
MassMutual/Carlson CBO N.V.
MassMutual Corporate Value Limited
Subsidiaries of MassMutual Corporate Value Limited
MassMutual Corporate Value Partners Limited
Subsidiaries of MassMutual Holding Company Two, Inc.
MassMutual Holding Company Two MSC, Inc.
Subsidiaries of MassMutual Holding Company Two MSC, Inc.
MML Pension Insurance Company
MassMutual of Ireland, Limited
Sloan's Lake Management Corporation
Affiliates
MassMutual Corporate Investors
MassMutual Participation Investors
44
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS (OPTION 1),
CASH SURRENDER VALUES AND ACCUMULATED
PREMIUMS
The following tables illustrate the way in which a Policy operates. They show
how the Death Benefit Option 1 and cash surrender value could vary over an
extended period of time, assuming the Funds experience hypothetical gross rates
of investment return (i.e., investment income and capital gains and losses,
realized or unrealized), equivalent to constant gross annual rates of 0%, 6% and
12%. The tables are based on annual premiums of $1,200 for a male, female and
unisex nonsmoker age 35 and an Initial Case Premium Paid of $ 1,000,000.
Separate tables are shown for the current simplified issue and guaranteed
schedule of charges. These tables will assist in the comparison of death
benefits and cash surrender values for the Policy with those under other
variable life policies which may be issued by MassMutual or other companies.
1. The illustration on page 47 is for a Policy issued to a male nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a current simplified issue schedule of charges.
2. The illustration on page 48 is for a Policy issued to a male nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a guaranteed schedule of charges.
3. The illustration on page 49 is for a Policy issued to a female nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a current simplified issue schedule of charges.
4. The illustration on page 50 is for a Policy issued to a female nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a guaranteed schedule of charges.
5. The illustration on page 51 is for a Policy issued to a unisex nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a current simplified issue schedule of charges.
6. The illustration on page 52 is for a Policy issued to a unisex nonsmoker age
35 for a Selected Face Amount of $100,000. The premium payment is $1,200 using
a guaranteed schedule of charges.
The death benefits and cash surrender values for a Policy would be different
from the amount shown if the rates of return averaged 0%, 6% and 12% over a
period of years but varied above and below that average in individual Policy
Years. They would also differ if any Policy loan were made during the period of
time illustrated. They would also be different depending upon the allocation of
investment value to each division of the Separate Account, if the rates of
return for all the Funds averaged 0%, 6% or 12% but varied above or below that
average for particular Funds.
The death benefits and cash surrender values shown in illustrations 1, 3 and 5
reflect the following current charges:
1. Administrative Charge, equal to a monthly $5.25 per Policy charge for
nonqualified policies.
2. Cost of Insurance Charge, based on the current simplified issue rates being
charged by the Company.
3. Mortality and Expense Risk Charge, which is equal to .40% on an annual
basis, of the net asset value of the Fund shares held by the Separate Account.
4. Unweighted average Fund level expenses of .64% on an annual basis, of the
net asset value of the Fund shares held by the Separate Account.
The death benefits and cash surrender values shown in illustrations 2, 4 and 6
reflect these guaranteed maximum charges:
1. Administrative Charge, equal to $8.00 per month.
2. Cost of Insurance Charge, based on the 1980 CSO Mortality Table.
3. Mortality and Expense Risk Charge, which is equal to .40% on an annual
basis, of the net asset value of the Fund shares held by the Separate Account.
4. Unweighted average Fund level expenses of .72% on an annual basis, of the
net asset value of the Fund shares held by the Separate Account. (The
Oppenheimer Trust does not have a guarantee maximum for other expenses so this
unweighted average reflects current expenses.)
Cash surrender values shown in the tables reflect the deduction of the
applicable sales loads and premium taxes for a Case with an Initial Case Premium
Paid of $1,000,000. Taking into account the Mortality and Expense Risk Charge
and the Fund level expenses, the effect is that for gross annual rates of return
of 0%, 6% and 12%, the actual net annual rate of return on a current basis would
be -1.034%, 4.904% and 10.842%, respectively, and on a guaranteed basis would be
-1.113%, 4.820% and 10.754%, respectively.
MassMutual has agreed to bear expenses of the MML Trust (other than the
management fee, interest, taxes, brokerage commissions and extraordinary
expenses) in excess of .11% of average daily net asset value of each MML Fund
through April 30, 1996. During 1994 no expenses were required to be reimbursed
pursuant to this undertaking.
Currently no charge is made against the Separate Account for federal income
taxes but MassMutual reserves the right to charge the Separate Account for
federal income taxes attributable to the Separate Account if such taxes are
imposed in the future.
The second column of each table shows the amounts which would accumulate if an
amount equal to the annual premium were invested to earn interest after taxes,
of 5% per year, compounded annually.
The tables are based on the assumptions that the Policyowner has requested a
level Selected Face Amount, that no Policy loans, or additional premium payments
have been made, and no transaction charges have been incurred, and that the
entire Account Value under the Policy is allocated to the Funds.
46
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Male Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Current Simplified Issue Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
------------------------------------ ----------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ------------------------------------ ----------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- -------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $ 100,000 $ 1,002 $ 1,065 $ 1,129
2 2,583 100,000 100,000 100,000 1,996 2,186 2,384
3 3,972 100,000 100,000 100,000 2,978 3,359 3,772
4 5,431 100,000 100,000 100,000 3,946 4,587 5,308
5 6,963 100,000 100,000 100,000 4,901 5,872 7,008
6 8,571 100,000 100,000 100,000 5,842 7,215 8,888
7 10,260 100,000 100,000 100,000 6,764 8,616 10,963
8 12,033 100,000 100,000 100,000 7,666 10,076 13,255
9 13,895 100,000 100,000 100,000 8,548 11,597 15,786
10 15,850 100,000 100,000 100,000 9,411 13,183 18,583
15 27,192 100,000 100,000 103,999 13,375 22,157 37,681
20 41,668 100,000 100,000 162,639 16,643 33,142 68,915
25 60,142 100,000 100,000 243,302 18,997 46,647 119,266
30 (Age 65) 83,720 100,000 113,123 357,331 19,987 63,197 199,626
35 113,812 100,000 130,922 516,165 18,865 82,862 326,686
40 152,219 100,000 151,448 751,788 14,239 105,908 525,726
45 201,237 100,000 172,702 1,087,123 1,540 131,833 829,865
50 263,797 0 195,933 1,572,745 0 159,295 1,278,654
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
47
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Male, Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Guaranteed Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
------------------------------------ ----------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ------------------------------------ ----------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- -------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $100,000 $ 861 $ 920 $ 979
2 2,583 100,000 100,000 100,000 1,711 1,883 2,063
3 3,972 100,000 100,000 100,000 2,543 2,884 3,254
4 5,431 100,000 100,000 100,000 3,355 3,923 4,563
5 6,963 100,000 100,000 100,000 4,146 5,000 6,003
6 8,571 100,000 100,000 100,000 4,917 6,118 7,585
7 10,260 100,000 100,000 100,000 5,663 7,275 9,325
8 12,033 100,000 100,000 100,000 6,387 8,473 11,240
9 13,895 100,000 100,000 100,000 7,084 9,714 13,346
10 15,850 100,000 100,000 100,000 7,757 10,998 15,667
15 27,192 100,000 100,000 100,000 10,672 18,098 31,375
20 41,668 100,000 100,000 134,330 12,609 26,379 56,919
25 60,142 100,000 100,000 197,287 12,935 35,756 96,709
30 (Age 65) 83,720 100,000 100,000 281,712 10,588 46,164 157,381
35 113,812 100,000 100,000 391,162 3,225 57,471 247,571
40 152,219 0 100,116 540,570 0 70,011 378,021
45 201,237 0 109,240 733,690 0 83,389 560,069
50 263,797 0 118,154 993,514 0 96,060 807,735
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
48
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Female, Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Current Simplified Issue Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
----------------------------- -------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ---------------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- -------- -------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $ 100,000 $ 1,023 $ 1,087 $ 1,151
2 2,583 100,000 100,000 100,000 2,036 2,229 2,429
3 3,972 100,000 100,000 100,000 3,035 3,422 3,840
4 5,431 100,000 100,000 100,000 4,018 4,669 5,401
5 6,963 100,000 100,000 100,000 4,987 5,972 7,125
6 8,571 100,000 100,000 100,000 5,939 7,333 9,030
7 10,260 100,000 100,000 100,000 6,874 8,755 11,136
8 12,033 100,000 100,000 100,000 7,791 10,237 13,463
9 13,895 100,000 100,000 100,000 8,692 11,785 16,035
10 15,850 100,000 100,000 100,000 9,575 13,403 18,882
15 27,192 100,000 100,000 119,229 13,703 22,618 38,337
20 41,668 100,000 100,000 187,555 17,358 34,124 70,245
25 60,142 100,000 111,465 280,894 20,414 48,463 122,128
30(Age 65) 83,720 100,000 131,440 410,235 22,714 66,050 206,148
35 113,812 100,000 152,263 594,743 24,029 87,507 341,806
40 152,219 100,000 173,596 856,059 23,749 113,462 559,516
45 201,237 100,000 198,018 1,241,696 19,302 143,491 899,780
50 263,797 100,000 222,264 1,782,249 4,098 176,400 1,414,483
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
49
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Female, Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Guaranteed Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
----------------------------- ----------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- ------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $ 100,000 $ 884 $ 944 $ 1,003
2 2,583 100,000 100,000 100,000 1,754 1,929 2,111
3 3,972 100,000 100,000 100,000 2,605 2,953 3,329
4 5,431 100,000 100,000 100,000 3,437 4,016 4,668
5 6,963 100,000 100,000 100,000 4,248 5,118 6,140
6 8,571 100,000 100,000 100,000 5,037 6,262 7,758
7 10,260 100,000 100,000 100,000 5,802 7,446 9,537
8 12,033 100,000 100,000 100,000 6,544 8,673 11,495
9 13,895 100,000 100,000 100,000 7,263 9,946 13,652
10 15,850 100,000 100,000 100,000 7,959 11,267 16,031
15 27,192 100,000 100,000 100,216 11,076 18,671 32,224
20 41,668 100,000 100,000 155,778 13,448 27,569 58,344
25 60,142 100,000 100,000 228,649 14,843 38,289 99,413
30 (Age 65) 83,720 100,000 102,218 325,619 14,892 51,366 163,628
35 113,812 100,000 115,736 455,314 12,233 66,515 261,675
40 152,219 100,000 127,606 626,123 4,756 83,403 409,231
45 201,237 0 139,030 857,318 0 100,746 621,245
50 263,797 0 148,335 1,156,044 0 117,726 917,495
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
50
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Unisex (85% Male), Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Current Simplified Issue Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
----------------------------- --------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ----------------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- -------- -------- ---------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $ 100,000 $ 1,005 $ 1,068 $ 1,132
2 2,583 100,000 100,000 100,000 2,002 2,193 2,391
3 3,972 100,000 100,000 100,000 2,986 3,369 3,782
4 5,431 100,000 100,000 100,000 3,957 4,600 5,322
5 6,963 100,000 100,000 100,000 4,914 5,887 7,025
6 8,571 100,000 100,000 100,000 5,856 7,233 8,909
7 10,260 100,000 100,000 100,000 6,780 8,637 10,989
8 12,033 100,000 100,000 100,000 7,685 10,100 13,286
9 13,895 100,000 100,000 100,000 8,570 11,625 15,823
10 15,850 100,000 100,000 100,000 9,436 13,216 18,628
15 27,192 100,000 100,000 106,920 13,424 22,226 37,781
20 41,668 100,000 100,000 167,207 16,751 33,290 69,094
25 60,142 100,000 100,000 249,950 19,211 46,931 119,593
30(Age 65) 83,720 100,000 115,772 364,526 20,402 63,611 200,289
35 113,812 100,000 134,351 528,206 19,661 83,448 328,078
40 152,219 100,000 154,754 766,330 15,738 106,727 528,504
45 201,237 100,000 176,740 1,110,190 4,435 132,887 834,730
50 263,797 0 199,081 1,595,043 0 160,549 1,286,325
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
51
<PAGE>
FLEXIBLE PREMIUM VARIABLE WHOLE LIFE INSURANCE POLICY
WITH TABLE OF SELECTED FACE AMOUNTS
Unisex (85% Male), Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and Initial Case Premium Paid of $1,000,000
Using Guaranteed Schedule Of Charges
<TABLE>
<CAPTION>
DEATH BENEFIT (OPTION 1) CASH SURRENDER VALUE
----------------------------- ------------------------------
PREMIUMS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ACCUMULATED ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY AT 5% INTEREST ----------------------------- ------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12%
------ -------------- --------- --------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,260 $100,000 $100,000 $ 100,000 $ 866 $ 925 $ 985
2 2,583 100,000 100,000 100,000 1,720 1,893 2,073
3 3,972 100,000 100,000 100,000 2,556 2,899 3,270
4 5,431 100,000 100,000 100,000 3,372 3,942 4,586
5 6,963 100,000 100,000 100,000 4,167 5,025 6,031
6 8,571 100,000 100,000 100,000 4,941 6,147 7,621
7 10,260 100,000 100,000 100,000 5,691 7,309 9,368
8 12,033 100,000 100,000 100,000 6,419 8,515 11,293
9 13,895 100,000 100,000 100,000 7,121 9,762 13,410
10 15,850 100,000 100,000 100,000 7,799 11,054 15,743
15 27,192 100,000 100,000 100,000 10,754 18,215 31,550
20 41,668 100,000 100,000 138,481 12,781 26,623 57,223
25 60,142 100,000 100,000 203,241 13,325 36,277 97,244
30 (Age 65) 83,720 100,000 100,000 288,533 11,485 47,256 158,535
35 113,812 100,000 100,000 402,585 5,174 59,615 250,053
40 152,219 0 106,826 555,754 0 73,673 383,279
45 201,237 0 116,799 758,261 0 87,818 570,121
50 263,797 0 125,618 1,023,859 0 101,305 825,693
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH BENEFITS AND CASH
SURRENDER VALUES FOR A POLICY WOULD BE DIFFERENT FROM THE AMOUNTS SHOWN IF THE
RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE
OR BELOW THAT AVERAGE IN INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT,
DEPENDING ON THE ALLOCATION OF INVESTMENT VALUE TO EACH DIVISION OF THE SEPARATE
ACCOUNT, IF THE RATES OF RETURN OVER ALL DIVISIONS AVERAGED 0%, 6% OR 12% BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL DIVISIONS. THEY WOULD ALSO
DIFFER IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE
MADE BY MASSMUTUAL OR THE TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
52
<PAGE>
PROSPECTUS
DATED MAY 1, 1995
MML SERIES INVESTMENT FUND
1295 STATE STREET
SPRINGFIELD, MASSACHUSETTS
(413) 788-8411
MML Series Investment Fund (the "MML Trust") is a no-load, diversified, open-end
management investment company having four separate series of shares (the
"Funds"), each of which has different investment objectives and is designed to
meet different investment needs.
THE FUNDS
MML EQUITY FUND - The investment objectives are primarily to achieve a superior
total rate of return over an extended period of time from both capital
appreciation and current income and secondarily, depending upon business and
economic conditions, to preserve capital. The Fund invests primarily in equity-
type securities.
MML MONEY MARKET FUND - The investment objectives are to achieve high current
income, the preservation of capital, and liquidity. The Fund invests in short-
term debt instruments, including commercial paper, certificates of deposit,
bankers' acceptances, and obligations of the United States, its agencies and
instrumentalities. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
MML MANAGED BOND FUND - The investment objective is to achieve as high a total
rate of return on an annual basis as is considered consistent with the
preservation of capital. The Fund invests primarily in investment grade,
publicly-traded, fixed income securities.
MML BLEND FUND - The investment objective is to achieve as high a level of total
rate of return over an extended period of time as is considered consistent with
prudent investment risk and the preservation of capital. The Fund invests in a
portfolio of common stocks and other equity-type securities, bonds and other
debt securities with maturities generally exceeding one year, and money market
instruments and other debt securities with maturities not exceeding one year.
For further information about each Fund's investment objectives and policies,
see "THE FUNDS" on page 8. There is no assurance that the investment objectives
of the Funds will be realized.
This Prospectus sets forth concisely the information about MML Trust and the
Funds that a prospective investor ought to know before investing. Certain
additional information about MML Trust and the Funds is contained in a Statement
of Additional Information dated May 1, 1995, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. This
additional information is available upon request and without charge. To obtain
such information, please contact the Secretary, MML Series Investment Fund, 1295
State Street, Springfield, Massachusetts 01111.
This Prospectus should be retained for future reference for information about
MML Trust and the Funds.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
FINANCIAL HIGHLIGHTS.............................................. 2
MANAGEMENT DISCUSSION............................................. 5
GENERAL INFORMATION............................................... 8
THE FUNDS......................................................... 8
INVESTMENT PRACTICES OF THE FUNDS AND RELATED RISKS............... 10
INVESTMENT RESTRICTIONS........................................... 13
INVESTMENT MANAGERS............................................... 13
CAPITAL SHARES.................................................... 14
NET ASSET VALUE................................................... 15
SALE AND REDEMPTION OF SHARES..................................... 15
TAX STATUS........................................................ 15
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS......................... 16
INVESTMENT PERFORMANCE............................................ 16
MANAGEMENT OF MML TRUST........................................... 16
</TABLE>
I. FINANCIAL HIGHLIGHTS
The information in the following tables has been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report on the financial statements of the
Funds is included in MML Trust's Annual Report and in its Statement of
Additional Information. Further information about the performance of the Funds
is contained in the Annual Report which may be obtained from MML Trust's
Secretary without charge.
MML EQUITY FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
1994 1993* 1992 1991 1990 1989 1988 1987 1986 1985
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year.............. $20.510 $19.862 $18.735 $15.659 $16.764 $14.929 $13.828 $15.591 $13.832 $11.749
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income........... .594 .524 .543 .563 .636 .694 .646 .525 .495 .551
Net realized and
unrealized gain (loss)
on investments................. .248 1.365 1.420 3.440 (.722) 2.746 1.660 (.066) 2.174 2.792
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations..................... .842 1.889 1.963 4.003 (.086) 3.440 2.306 .459 2.669 3.343
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income.............. (.594) (.524) (.543) (.562) (.665) (.711) (.639) (.988) (.412) (.738)
Distribution from net
realized gains................. (.238) (.717) (.288) (.365) (.354) (.894) (.566) (1.234) (.498) (.522)
Distribution in excess of
net realized gains............. - - (.005) - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............. (.832) (1.241) (.836) (.927) (1.019) (1.605) (1.205) (2.222) (.910) (1.260)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value:
End of year.................... $20.520 $20.510 $19.862 $18.735 $15.659 $16.764 $14.929 $13.828 $15.591 $13.832
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return.................... 4.10% 9.52% 10.48% 25.56% (.51)% 23.04% 16.68% 2.10% 20.15% 30.54%
Net assets (in millions):
End of year.................... $ 820.8 $ 663.1 $ 490.6 $ 355.0 $ 235.4 $ 226.4 $ 172.8 $ 150.4 $ 141.5 $ 104.7
Ratio of expenses to
average net assets............. .43% .44% .46% .48% .49% .50% .50% .51% .52% .55%
Ratio of net investment
income to average net assets... 3.04% 3.23% 3.09% 3.43% 4.09% 4.30% 4.05% 3.44% 3.54% 4.49%
Portfolio turnover rate......... 9.99% 11.28% 9.07% 9.37% 13.50% 15.71% 15.97% 15.73% 14.73% 20.83%
</TABLE>
*As of January 1. 1993. Concert Capital Management. Inc. became the
Investment Sub-Adviser. See Investment Managers. page 13 for further
information.
2
<PAGE>
MML MONEY MARKET FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year........................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income..................... .038 .027 .034 .059 .078 .088 .072 .063 .064 .078
Total from investment operations.......... .038 .027 .034 .059 .078 .088 .072 .063 .064 .078
Less distributions:
Dividends from net investment income...... (.038) (.027) (.034) (.059) (.078) (.088) (.072) (.063) (.064) (.078)
Total distributions....................... (.038) (.027) (.034) (.059) (.078) (.088) (.072) (.063) (.064) (.078)
Net asset value:
End of year.............................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Total return.............................. 3.84% 2.75% 3.48% 6.01% 8.12% 9.16% 7.39% 6.49% 6.60% 8.03%
Net assets (in millions):
End of year.............................. $ 91.8 $ 73.7 $ 84.6 $ 94.4 $114.6 $ 70.2 $ 66.4 $ 52.3 $ 33.5 $ 36.4
Ratio of expenses to
average net assets....................... .55% .54% .53% .52% .54% .54% .55% .57% .57% .59%
Ratio of net investment
income to average net assets............. 3.81% 2.71% 3.42% 5.91% 7.80% 8.79% 7.20% 6.35% 6.44% 7.76%
</TABLE>
MML MANAGED BOND FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year............. $12.405 $12.041 $12.219 $11.318 $11.354 $10.919 $11.052 $12.541 $11.978 $ 11.160
Income from investment
operations:
Net investment income.......... .792 .785 .870 .903 .943 .918 .906 .969 1.061 1.227
Net realized and unrealized
gain (loss) on investments
and forward commitments....... (1.264) .618 .001 .916 (.036) .454 (.133) (.673) .597 .851
Total from
investment operations......... (.472) 1.403 .871 1.819 .907 1.372 .773 .296 1.658 2.078
Less distributions:
Dividends from net
investment income............. (.792) (.784) (.869) (.902) (.943) (.918) (.906) (1.229) (1.095) (1.260)
Distribution from net
realized gains................ - (.255) (.158) (.016) - (.019) - (.556) - -
Distribution in excess
of net realized gains......... - - (.022) - - - - - - -
Total distributions............ (.792) (1.039) (1.049) (.918) (.943) (.937) (.906) (1.785) (1.095) (1.260)
Net asset value:
End of year................... $11.141 $12.405 $12.041 $12.219 $11.318 $11.354 $10.919 $11.052 $12.541 $ 11.978
Total return................... (3.76%) 11.81% 7.31% 16.66% 8.38% 12.83% 7.13% 2.60% 14.46% 19.94%
Net assets (in millions):
End of year................... $ 121.2 $ 129.1 $ 88.2 $ 67.0 $ 43.1 $ 40.0 $ 31.3 $ 26.2 $ 30.4 $ 24.7
Ratio of expenses to
average net assets............ .52% .54% .56% .57% .57% .59% .61% .60% .60% .62%*
Ratio of net investment
income to average net assets.. 6.69% 6.37% 7.28% 7.96% 8.40% 8.35% 8.25% 8.24% 8.87% 10.73%*
Portfolio turnover rate........ 32.77% 58.81% 39.51% 61.85% 69.93% 64.77% 74.92% 55.60% 203.76% 154.48%
</TABLE>
*Computed after giving effect to the expense reduction in management fee by
MassMutual. Without this reduction, (a) the ratio of expenses to average net
assets would have been .65% for the year ended December 31, 1985, and (b) the
ratio of net investment income to average net assets would have been 10.70% for
the year ended December 31, 1985.
3
<PAGE>
MML BLEND FUND
Selected per share data for each series share outstanding throughout each year
ended December 31:
<TABLE>
1994 1993* 1992 1991 1990 1989 1988 1987 1986 1985
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year........... $18.305 $17.846 $17.307 $14.839 $15.428 $13.876 $13.095 $13.774 $12.244 $10.392
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Income from investment
operations:
Net investment income........ .707 .655 .707 .736 .792 .823 .734 .624 .540 .608
Net realized and
unrealized gain (loss)
on investments and
forward commitments......... (.271) 1.057 .880 2.771 (.445) 1.921 1.000 (.148) 1.653 1.887
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Total from investment
operations................. .436 1.712 1.587 3.507 .347 2.744 1.734 .476 2.193 2.495
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Less distributions:
Dividends from net
investment income........... (.707) (.655) (.707) (.736) (.811) (.835) (.728) (.747) (.560) (.613)
Distribution from net
realized gains.............. (.359) (.598) (.326) (.303) (.125) (.357) (.225) (.408) (.103) (.030)
Distribution in excess of
realized gains
Total distributions.......... (.003) - (.015) - - - - - - -
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
(1.069) (1.253) (1.048) (1.039) (.936) (1.192) (.953) (1.155) (.663) (.643)
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Net asset value:
End of year................ $17.672 $18.305 $17.846 $17.307 $14.839 $15.428 $13.876 $13.095 $13.774 $12.244
------- ------- ------- ------- ------- ------- -------- ------- ------- -------
Total return................. 2.48% 9.70% 9.36% 24.00% 2.37% 19.96% 13.40% 3.12% 18.30% 24.88%
Net assets (in millions):
End of year................. $1,444.3 $1,296.5 $1,013.3 $ 797.0 $574.2 $524.3 $401.2 $346.1 $236.2 $91.6
Ratio of expenses to
average net assets.......... .39% .40% .41% .42% .44% .45% .46% .48% .51% .57%
Ratio of net investment
income to average net
assets..................... 3.93% 3.60% 4.07% 4.54% 5.37% 5.57% 5.29% 4.77% 4.81% 6.29%
Portfolio turnover rate...... 26.59% 20.20% 25.43% 26.92% 24.55% 22.39% 25.70% 36.56% 58.75% 31.06%
</TABLE>
*As of January 1, 1993, Concert Capital Management, Inc. became the Investment
Sub-Adviser. See Investment Managers page 13 for further information.
Total return information shown in the Financial Highlights tables does
not reflect expenses that apply at the separate account level or to related
insurance products. Inclusion of these charges would reduce the total return
figures for all periods shown.
4
<PAGE>
II. MANAGEMENT DISCUSSION
A. ECONOMIC AND INVESTMENT ENVIRONMENT
The U.S. economy turned in a strong economic performance during 1994 with real
Gross Domestic Product growth in the 3.5 to 4 percent range. The force behind
the expansion continued to be the consumer, whose confidence rose early during
the year and remained high throughout the period. This performance is
especially impressive given that the growth occurred against a background of
sharply rising interest rates and a Federal Reserve Board ("Fed") determined
to keep the economy from overheating. The Fed moved strongly during 1994,
raising the discount rate 3 times and the Fed funds' target 6 times. Reflecting
this tightening, yields on three month Treasury bills climbed more than 2.5
percent during the year.
One of the most notable economic statistics for 1994 was the growth in nonfarm
payrolls. Approximately $3.5 million new additions were made to nonfarm
payrolls throughout the year. This figure clearly benefited the consumer
causing personal incomes to rise at a pace around 6 percent. Another strong
point for the U.S. economy last year was the price picture which remained calm
as the Consumer Price Index moved up at roughly a 2.7 percent pace. Housing
starts remained high during 1994, despite an almost 2 percent increase in
mortgage rates. Other bright spots last year included business investment, auto
and truck sales, consumer durables and productivity in the manufacturing sector.
A notable drag on the economy was the performance of the trade deficit which
widened during the year. Our strong economy, combined with slower than expected
recoveries in other parts of the world, caused our net imports to rise. Another
drag on the economy, as noted above, was the 1994 performance of interest rates.
Three month Treasury bills climbed by more than 2.5 percent, while 30 year
Treasury bonds rose by more than 1.5 percent. Price increases were also evident
last year with base commodities climbing at double digit rates. Another concern
with regard to pricing is the level of capacity utilization (a measure of
producer output), which is at levels where price increases have historically
developed.
B. INVESTMENT OUTLOOK
In response to the Fed's tightening, interest rates moved significantly higher
during 1994, resulting in poorly performing bond markets. As an example, the
total return of the Lehman Government/Corporate index was a negative 3.5 percent
for 1994. Despite increasing corporate profits, the stock markets were hampered
by the sharp increase in rates. As a result, the 1994 total return for the
Standard & Poor's 500 index was only 1.3 percent.
During the first quarter of 1995, the bond market will likely be impacted by the
actions of the Federal Reserve. It seems reasonable to assume that the Fed will
continue to increase rates in early-mid 1995. This should cause economic growth
to moderate over the second half, which would be more beneficial to bonds. The
stock market will take its cue from the interaction of interest rate moves and
corporate profits.
C. MML EQUITY
The Standard & Poor's 500 Stock Index closed out 1994 with the third consecutive
year of very low volatility. However, the narrow trading range for the S & P
500 masked considerable volatility within the market. This internal volatility,
although possibly detrimental to investment performance, is not totally
unwelcome because it creates opportunities for value-oriented investors.
In the second half of 1994, we repurchased two portfolio companies previously
sold a few years ago, and implemented three new equity positions. In an effort
to increase the portfolio's exposure to the health care area, Schering-Plough, a
pharmaceutical and personal care products company, was repurchased after being
sold in 1990. Roadway Services, a diversified transportation company, was
repurchased at an attractive price after being sold off in 1992 at a substantial
gain. New companies to the portfolio included Honeywell, a leading factor in
commercial avionic systems and industrial process controls, Kerr-McGee, a medium
sized integrated energy company, and Pepsico, the leading producer of salty
snacks in the U. S. and the number two producer of soft drink concentrates in
the world.
5
<PAGE>
Three stocks were eliminated from the portfolio during the period. Gerber
Products was sold at a substantial gain subsequent to a tender offer; Crane
Company, a relatively small holding in the fund, was sold at a more modest
profit, and Lehman Brothers Holdings was sold. Fourteen positions were reduced
in size during the fourth quarter, while 16 were increased through additional
purchases. For the full year, eleven new stocks were added to the portfolio
while ten were eliminated.
[GRAPHIC APPEARS HERE]
D. MML MONEY MARKET
The Fed aggressively tightened monetary policy throughout 1994 as it strived to
maintain economic expansion at a sustainable pace. During 1994 the Fed raised
the Federal funds target rate on six occasions between February and November for
an increase of 250 basis points to 5.50 percent. Additionally, the Fed
increased the discount rate three times for a total of 175 basis points to 4.75
percent.
As anticipation of the Fed's actions continued to convey uncertainty to the
market, the portfolio's average life fluctuated in the range of 32 to 52 days.
The Fund ended the year with an average life of 36 days as the portfolio was
continually monitored and adjusted to optimize return. Appropriately, given the
higher interest rate environment, the portfolio's seven-day yield increased
nearly 240 basis points to end the year at 5.31 percent.
[GRAPHIC APPEARS HERE]
E. MML MANAGED BOND
This past calendar year was one of the worst in the bond market's history.
Negative returns were posted across almost the entire maturity spectrum and
across almost all market sectors. Only short maturities posted positive returns
for the year. Short-term rates responded dramatically to the Fed's actions as
they increased between 261 and 350 basis points. Intermediate-term Treasuries
rose approximately 250 basis points. The long-end of the market, thirty-year
bonds, reacted modestly in comparison by rising only 153 basis points. The
Treasury yield curve flattened dramatically during the year as short-term
interest rates rose more than long rates. The bulk of the flattening of the
curve occurred beyond the two year area.
The Managed Bond Fund has remained relatively consistent in its sector
allocations over the course of the year. Early in the first quarter, we
increased our position in the corporate sector, however by year-end we moved
this position back slightly. The reduction in our corporate holdings was made as
spreads declined to historically low levels. During the later part of the third
quarter and the first part of the fourth quarter, additional purchases of asset-
backed securities were made. Our mortgage position, however, was relatively
unchanged over the year. The remaining holdings are invested in Treasuries,
U.S. government agencies, and money market instruments.
6
<PAGE>
[GRAPHIC APPEARS HERE]
F. MML BLEND
The Blend Fund combines the profiles of the MML Equity, Bond, and Money Market
Funds into a single portfolio. The specific allocation of stocks, bonds, and
money market issues is based upon the interrelation of current economic and
financial conditions and the values available in the stock and bond markets. As
these relationships change, the exposure to each capital market is gradually
adjusted within the designated ranges. On December 31, 1994, 53 percent of the
Fund was invested in common stocks, 19 percent in marketable bonds, and 28
percent in short-term securities.
[GRAPHIC APPEARS HERE]
7
<PAGE>
III. GENERAL INFORMATION
MML Trust is a no-load, diversified, open-end management investment company,
having four separate series of shares. Each Fund has its own investment
objectives and policies. MML Trust was organized as a business trust under the
laws of The Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated December 19, 1984, as most recently amended on or
about April 16, 1993. MML Trust was established by Massachusetts Mutual Life
Insurance Company ("MassMutual") for the purpose of providing a vehicle for the
investment of assets of various separate investment accounts established by
MassMutual and its life insurance company subsidiaries, including MML Bay State
Life Insurance Company ("MML Bay State").
Shares of the Funds are offered solely to separate investment accounts
established by MassMutual and any life insurance company subsidiary.
MassMutual is responsible for providing all investment advisory, management, and
administrative services needed by the Funds pursuant to investment management
agreements. MassMutual has entered into investment sub-advisory agreements with
Concert Capital Management, Inc. ("Concert"), a second tier, wholly-owned
subsidiary of MassMutual. These agreements provide that Concert will manage the
equity investments of MML Equity Fund ("MML Equity") and the Equity Sector (the
"Equity Sector") of MML Blend Fund ("MML Blend"). Both MassMutual and Concert
are registered with the Securities and Exchange Commission (the "SEC") as
investment advisers (MassMutual and Concert referred to hereafter as
"Advisers"). For further information, see "Investment Managers" p.13.
IV. THE FUNDS
The investment objectives of each Fund discussed below are fundamental policies
and may not be changed without the vote of a majority of that Fund's outstanding
voting shares (as used in this Prospectus, a majority of the outstanding voting
shares of any Fund means the lesser of (1) 67% of that Fund's outstanding shares
present at a meeting of the shareholders if more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of that Fund's
outstanding shares). There is no assurance that the investment objectives of the
Funds will be realized. The success of these objectives depends to a great
extent upon managements' ability to assess changes in business and economic
conditions. For further information about investment policies and techniques,
see "Investment Practices of the Fund and Related Risks," at page 10.
A. MML EQUITY FUND
THE PRIMARY INVESTMENT OBJECTIVE OF MML EQUITY FUND ("MML EQUITY") IS TO
ACHIEVE A SUPERIOR TOTAL RATE OF RETURN OVER AN EXTENDED PERIOD OF TIME FROM
BOTH CAPITAL APPRECIATION AND CURRENT INCOME.
A secondary investment objective is the preservation of capital when business
and economic conditions indicate that investing for defensive purposes is
appropriate. Occasional investments may be made with the objective of short-term
appreciation when in the judgment of Concert general economic conditions dictate
that they may benefit MML Equity and are consistent with sound investment
procedure.
Normally, the assets of MML Equity will be invested primarily in common stocks
and other equity-type securities such as preferred stocks, securities
convertible into common stocks and warrants. Investments are made in securities
of companies which, in the opinion of Concert Capital, are of high quality,
offer above-average dividend growth potential and are attractively valued in the
marketplace. Investment quality and dividend growth potential are evaluated
using fundamental analysis emphasizing each issuer's historical financial
performance, balance sheet strength, management capability and competitive
position. Various valuation parameters are examined to determine the
attractiveness of individual securities. On average, the Fund's portfolio
securities will have price/earnings ratios and price/book value ratios below
those of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Stock Index"). Consideration is also given to securities of companies whose
current prices do not adequately reflect, in the opinion of Concert Capital, the
ongoing business value of the enterprise. These investments may be maintained in
both rising and declining markets. Concert intends to engage in the active
management of MML Equity's portfolio. The portfolio of the Fund is managed by
David B. Salerno, Managing Director of the Value Equity Group of Concert
Capital. He has been associated with MassMutual since 1975 and with Concert
Capital since January 1, 1993.
B. MML MONEY MARKET FUND
THE INVESTMENT OBJECTIVES OF MML MONEY MARKET FUND ("MML MONEY MARKET") ARE TO
ACHIEVE HIGH CURRENT INCOME, THE PRESERVATION OF CAPITAL, AND LIQUIDITY. THESE
OBJECTIVES ARE OF EQUAL IMPORTANCE.
MML Money Market will invest only in short-term (i.e., 397 days or less
remaining to maturity) debt instruments, including but not limited to commercial
paper; certificates of deposit; bankers' acceptances; short-term corporate
obligations; obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the government of the United States, its agencies or
instrumentalities ("U.S. Government securities"); and certain repurchase
agreements with respect to any of the securities listed above (which underlying
securities must be of the highest quality at the time the repurchase agreement
is entered into but which securities may have maturities of more than one year).
MML Money Market's dollar-weighted average portfolio maturity will be maintained
at 90 days or less.
MML Money Market's non-fundamental investment policy is that, at the time it
acquires a security, it will invest 100% of its net assets in Tier 1 Securities,
but it retains the right to invest no more than 5% of its net assets in Tier 2
Securities. A Tier 1 Security is one that is rated in the highest rating
category by at least one nationally recognized statistical rating organization
("NRSRO") such as Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). MML Money Market will invest no more than 5% of its
total assets in Tier 2 Securities. A Tier 2 Security is one that is rated in the
second highest rating category by at least one NRSRO. Securities which are
unrated may also qualify as Tier 1 and Tier 2 Securities if so determined by the
Board
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of Trustees of MML Trust (the "Board of Trustees"). For a description of S&P and
Moody's ratings, see the Statement of Additional Information.
Certificates of deposit and bankers' acceptances will be limited to obligations
of banks having deposits of at least $1,000,000,000 as of their most recently
published financial statements. The obligations of U.S. banks in which MML Money
Market may invest include Eurodollar obligations of their foreign branches. In
the case of foreign banks, the $1,000,000,000 deposit requirement will be
computed using exchange rates in effect at the time of their most recently
published financial statements.
Obligations of foreign issuers, including foreign branches of U.S. banks, will
not be acquired if MML Money Market's investment in such obligations would
exceed in the aggregate 25% of its net assets. Foreign obligations may be
affected by foreign governmental action, including imposition of currency
controls, interest limitations, withholding taxes, seizure of assets or the
declaration of a moratorium or restriction on payments of principal or interest.
Foreign branches of U.S. banks and foreign banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards, as domestic banks.
MML Money Market will make portfolio investments primarily in anticipation of or
in response to changing economic and money market conditions and trends. Trading
activity is expected to be relatively low. However, it is anticipated that from
time to time, MML Money Market will take advantage of temporary disparities in
the yield relationships among the different segments of the money market or
among particular instruments within the same segment of the market to make
purchases and sales when MassMutual deems that such transactions will improve
the yield or the quality of the portfolio.
The high quality debt instruments in which MML Money Market invests may not
offer as high a yield as may be achieved from lower quality instruments having
less safety. While MML Money Market invests exclusively in First and Second Tier
Securities, investment in MML Money Market is not without risk. If MML Money
Market disposes of an obligation prior to maturity, it may realize a loss or
gain. An increase in interest rates will generally reduce the value of portfolio
investments. In addition, investments are subject to the ability of the issuer
to make payment at maturity. MML Money Market will reassess whether a particular
security presents minimal credit risks in certain circumstances. For example, if
a security ceases to be a Second Tier Security, MML Money Market would dispose
of any such security as soon as practical.
C. MML MANAGED BOND FUND
THE INVESTMENT OBJECTIVE OF MML MANAGED BOND FUND ("MML MANAGED BOND") IS TO
ACHIEVE AS HIGH A TOTAL RATE OF RETURN ON AN ANNUAL BASIS AS IS CONSIDERED
CONSISTENT WITH THE PRESERVATION OF CAPITAL.
Normally, the assets of MML Managed Bond will be invested primarily in
investment grade, publicly-traded, fixed income securities of such maturities as
MassMutual deems appropriate from time to time in light of market conditions and
prospects. Except when invested for defensive purposes, at least 80% of total
invested assets at market value at the time of a purchase will consist of U.S.
Government securities and investment grade quality debt securities which have
been rated in the top four rating categories by S&P (AAA, AA, A or BBB) or
Moody's (Aaa, Aa, A or Baa) or, if unrated, which are judged by MassMutual to be
of equivalent quality to securities so rated. While debt securities rated BBB or
Baa are investment grade securities, they have speculative characteristics and
are subject to greater credit risk, and may be subject to greater market risk,
than higher-rated investment grade securities.
The remaining 20% of MML Managed Bond's total invested assets may be invested in
lower quality debt instruments and preferred stocks. Lower quality debt
instruments generally provide higher yields but are generally subject to greater
market fluctuations and risk of loss of income and principal than higher quality
debt securities. MassMutual seeks to reduce these risks through diversification,
credit analysis and attention to current developments and trends in both the
economy and the financial markets. During 1994, no debt securities were acquired
by MML Managed Bond which were not rated at least BBB/-/ by S&P or Baa/3/ by
Moody's.
In implementing the policies set forth in the preceding two paragraphs, MML
Managed Bond may also invest in the following:
(1) obligations (payable in U.S. dollars) issued or guaranteed as to principal
and interest by the Government of Canada, a Province of Canada, or any
instrumentality or political subdivision thereof, provided that no such
investment will be made if it would result in more than 25% of MML Managed
Bond's net assets being invested in such securities;
(2) publicly-traded debt securities issued or guaranteed by a national or state
bank holding company (as defined in the Federal Bank Holding Company Act, as
amended) having a rating within the three highest grades as determined by
Moody's (Aaa, Aa, or A) or S&P (AAA, AA, or A), and certificates of deposit of
such banks; and
(3) securities of foreign issuers, provided however, MML Managed Bond may invest
not more than 10% of its net assets in such securities, except as provided in
(1) above.
If MML Managed Bond disposes of an obligation prior to maturity, it may realize
a loss or a gain. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. In addition, investments are
subject to the ability of the issuer to make payment at maturity.
Normally, the Fund's duration will range from four to seven years. Portfolio
changes will be accomplished primarily through the reinvestment of cash flows
and selective trading.
The portfolio of the Fund is managed by Mary E. Wilson, Vice President and
Managing Director of MassMutual, with which she has been associated since 1982.
As such, she oversees all public fixed income trading for MassMutual and its
related subsidiaries and affiliates.
D. MML BLEND FUND
THE INVESTMENT OBJECTIVE OF MML BLEND FUND ("MML BLEND") IS TO ACHIEVE AS HIGH
A LEVEL OF TOTAL RATE OF RETURN
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OVER AN EXTENDED PERIOD OF TIME AS IS CONSIDERED CONSISTENT WITH PRUDENT
INVESTMENT RISK AND THE PRESERVATION OF CAPITAL.
The Advisers will adjust the mix of investments among its three market sectors
to capitalize on perceived variations in return potential produced by the
interaction of changing financial market and economic conditions. The Advisers
expects that such adjustments will normally be made in a gradual manner over a
period of time. No investment will be made that would result in more than 90% of
MML Blend's net assets being invested in the Equity Sector or in more than 50%
of MML Blend's net assets being invested in the Bond Sector. Up to 100% of MML
Blend's net assets may be invested in the Money Market Sector. No minimum
percentage has been established for any of the sectors.
In addition to MML Blend's investment objective, each of its market sectors has
a specific investment objective. Within the Equity Sector, MML Blend will
attempt to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Within the Bond Sector,
MML Blend will attempt to achieve as high a total rate of return on an annual
basis as is considered consistent with the preservation of capital. Within the
Money Market Sector, MML Blend will attempt to achieve high current income, the
preservation of capital, and liquidity. The portfolio of the Fund is managed by
committee.
In seeking a high rate of return from dividends, interest income and capital
appreciation as well as in seeking to preserve capital, Advisers intend to
engage in the active management of MML Blend's portfolio. (See "Portfolio
Management" on page 12).
The portfolio of MML Blend will be invested in the following three market
sectors:
1. EQUITY SECTOR
The Equity Sector generally invests in equity-type securities in a substantially
similar manner as described in the discussion of MML Equity Fund on page 8.
2. BOND SECTOR
The Bond Sector generally invests in the types of bonds and other debt
securities described in the discussion of MML Managed Bond on page 9 with
maturities usually exceeding one year. The Bond Sector may also invest in debt
securities not described above, including lower quality securities and non-rated
securities acquired directly from issuers in direct placement transactions,
provided no such transaction shall cause such debt securities to exceed 10% of
MML Blend's total assets. Lower quality debt instruments generally provide
higher yields but are generally subject to greater market fluctuations and risk
of loss of income and principal than higher quality debt securities. During
1994, no debt securities were acquired by MML Blend which were not rated at
least BBB by S&P or Baa by Moody's.
3. MONEY MARKET SECTOR
The Money Market Sector invests in money market instruments and other debt
securities with maturities generally not exceeding one year, including:
(a) U.S. Treasury Bills and other U.S. Government securities;
(b) obligations (payable in U.S. dollars) issued or guaranteed as to principal
and interest by the Government of Canada, a Province of Canada, or any
instrumentality or political subdivision thereof, provided such obligations do
not exceed 25% of MML Blend Fund's total assets;
(c) obligations payable in U.S. dollars (including certificates of deposit, time
deposits or bankers' acceptances) of U.S. or Canadian chartered banks having
total deposits in excess of $1,000,000,000, U.S. branches of foreign banks where
said foreign banks have total deposits in excess of $1,000,000,000, U.S. savings
and loan associations having total deposits in excess of $1,000,000,000, and
Eurodollar certificates of deposit issued by foreign branches of U.S. banks
where said U.S. banks have total deposits in excess of $1,000,000,000;
Obligations of foreign banks and of foreign branches of U.S. banks may be
affected by foreign governmental action, including imposition of currency
controls, interest limitations, withholding taxes, seizure of assets or the
declaration of a moratorium or restriction on payments of principal or interest.
Foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks;
(d) commercial paper, including variable amount master notes, having a rating at
the time of purchase within the two highest grades as determined by Moody's (P-1
or P-2) or S&P (A-1 or A-2), or commercial paper or notes issued by companies
with an unsecured debt issue outstanding having a rating at the time of purchase
within the three highest grades as determined by Moody's (Aaa, Aa or A) or S&P
(AAA, AA or A) and U.S. dollar denominated foreign commercial paper;
(e) publicly-traded bonds, debentures and notes having a rating within the four
highest grades as determined by Moody's (Aaa, Aa, A or Baa) or S&P (AAA, AA, A
or BBB);
(f) repurchase agreements on any of the securities listed in paragraphs (a)
through (e) above, and
(g) securities of foreign issuers; provided, however, MML Blend may invest not
more than 10% of its net assets in such securities except as provided in (b) and
(c) above.
While debt securities rated BBB or Baa are investment grade securities, they
have speculative characteristics and are subject to greater credit risk, and may
be subject to greater market risk, than higher-rated investment grade
securities.
V. INVESTMENT PRACTICES
OF THE FUNDS AND
RELATED RISKS
In managing their portfolios of investments, the Funds, pursuant to policies
adopted by the Board of Trustees or where considered appropriate by Advisers,
may engage in various investment-related practices. The Funds' significant
investment practices, which are pursuant to non-fundamental policies and
therefore may be changed by the Board of Trustees without consent of
shareholders, regarding these investment
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transactions and practices are discussed below. For further information see the
Statement of Additional Information.
A. DERIVATIVES TRANSACTIONS
Each Fund is authorized to engage in transactions involving derivatives, as more
fully described in the Statement of Additional Information. For example, the
Funds may enter into financial futures transactions, write and purchase call and
put options, including call options on securities and futures, enter into
forward contracts and swap agreements, and other similar instruments
(collectively referred to as "Derivatives").
The Funds may use Derivatives to attempt to: (a) protect against possible
declines in the market value of a Fund's portfolio resulting from downward
trends in the debt securities markets generally due to increasing interest
rates, (b) protect a Fund's unrealized gains or limit unrealized losses in the
value of its securities, (c) to establish a position in the debt securities
markets as a temporary substitute for purchasing or selling particular debt
securities, (d) to manage the effective maturity or duration of fixed-income
securities in a Fund's portfolio, or (e) to manage its exposure to changing
security prices (collectively, "Derivatives Transactions"). Most, if not all, of
the hedging activity will involve the portfolios of MML Managed Bond and the
Bond Sector of MML Blend as MML Trust has no present intent to enter into
derivatives transactions with regard to MML Money Market, MML Equity, or the
Equity or Money Market Sectors of MML Blend. The Funds will not use Derivatives
for speculative purposes.
1. DERIVATIVES
Some of the Derivatives a Fund may use in Derivatives Transactions are described
below.
a. FINANCIAL FUTURES: Each Fund may enter into exchange-traded futures contracts
for the purchase or sale of debt obligations in order to hedge against
anticipated changes in interest rates. The purpose of hedging in debt
obligations is to establish with more certainty than would otherwise be possible
the effective rate of return on portfolio securities. A futures contract on debt
obligations is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of obligations having a standardized face value and rate of return. However,
positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
gain or a loss.
b. CALL AND PUT OPTIONS: Each Fund may write covered call options which are
traded on a national securities exchange with respect to securities in its
portfolio, provided that at all times it will have in its portfolio the
securities which it may be obligated to deliver if the option is exercised or
securities currently convertible into those securities. Each Fund may write call
options on securities in its portfolio in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option.
Each Fund may write covered put options. Put options are "covered" by a Fund,
for example, when it has established a segregated account of cash, short-term
money market instruments or high quality debt securities that can be liquidated
quickly to satisfy any obligation of the Fund to purchase the underlying
security. Each Fund may also write straddles (combinations of calls and puts on
the same underlying security). The writing of straddles generates additional
premium income but may present greater risk.
c. FORWARD CONTRACTS: Each Fund may purchase or sell securities on a "when
issued" or delayed delivery or on a forward commitment basis ("forward
contracts"). When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment for the securities can take place a
month or more after the commitment date. The securities so purchased or sold are
subject to market fluctuations, and no interest accrues to the purchaser during
this period. At the time of delivery, the securities may be worth more or less
than the purchase or sale price.
If a Fund enters into a forward contract, it will establish a segregated account
consisting of cash or high-grade obligations having a current market value equal
to or greater than the aggregate amount of that Fund's commitment under forward
contracts (that is, the purchase price of the underlying security on the
delivery date). While the Funds may also enter into forward contracts with the
initial intention of acquiring securities for its portfolio, they may dispose of
a commitment prior to settlement if Advisers deems it appropriate to do so. The
Funds may realize short-term gains or losses upon the sale of forward contracts.
As an alternative to maintaining all or part of the segregated account, a Fund
could buy call or put options to "cover" the forward contracts.
d. INTEREST RATE SWAP AGREEMENTS: Each Fund may enter into interest rate swap
agreements and related products, such as interest rate caps and floors, in an
attempt to preserve a return or spread on a particular investment or portion of
its portfolio, or, to protect against any increase in the price of securities a
Fund might consider purchasing at a later date. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of floating rate payments for fixed rate
payments.
e. CURRENCY TRANSACTIONS: The Bond Fund and the Bond Sector of MML Blend may
invest in foreign securities that are not denominated in U.S. dollars only if
the Fund contemporaneously enters into a foreign currency transaction to hedge
the currency risk associated with the particular foreign security.
f. OTHER INSTRUMENTS: Each Fund may use other Derivatives and enter into other
Derivatives transactions that are, or become, appropriate in the context of each
Fund's investment objectives and policies - and in a manner and to the extent
permitted by law and authorized by the Board of Trustees.
2. DERIVATIVES - RISK FACTORS
There can be no assurance that the use of Derivatives by any of the Funds will
assist it in achieving its investment objectives. Risks inherent in the use of
Derivatives include: (1) the risk that interest rates and securities prices will
not move in the direc-
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tion anticipated; (2) imperfect correlation between the prices of futures,
options, and forward contracts and the prices of the securities being hedged;
(3) the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; (5) futures
contracts and options can be highly volatile; (6) the writing of call options
could result in increases in the Funds' portfolio turnover rate, especially
during periods when market prices of the underlying securities appreciate; (7)
the possible need to defer closing out certain hedged positions to avoid adverse
tax consequences; (8) the risk that a Fund will not be able to effect closing
purchase transactions as to call options it has written at any particular time
or at any acceptable price; (9) forward contracts involve a risk of a loss if
the value of the security to be purchased declines prior to the settlement date,
which is in addition to the risk of decline of the Funds' other assets, and (10)
the inability of counterparties to perform.
3. DERIVATIVES - LIMITATIONS
MML Trust has imposed certain specific limitations on its use of derivatives.
For example: (1) a Fund would not enter into a futures contract if, as a result,
more than 5% of the Fund's total assets would be committed to initial margin
deposits on such contracts; (2) a Fund will not purchase a put or call option on
securities or investment related instruments if as a result more than 5% of its
total assets would be attributable to premiums paid for such options; (3) a Fund
would not write a covered call or put option if as a result more than 20% of the
Fund's total assets would be in one or more segregated accounts covering call
and put options; and (4) a Fund would not enter into a forward contract if as a
result more than 25% of the Fund's total assets would be in one or more
segregated accounts covering forward contracts.
B. PORTFOLIO MANAGEMENT
Advisers intend to use trading as a means of managing the portfolios of the
Funds in seeking to achieve their investment objectives. Advisers, on behalf of
the Funds, will engage in trading when they believe that the trade, net of
transaction costs, will improve interest income or capital appreciation
potential, or will lessen capital loss potential.
Whether the goals discussed above will be achieved through trading depends on
Advisers' ability to evaluate particular securities and anticipate relevant
market factors, including interest rate trends and variations from such trends.
Such trading places a premium on Advisers' ability to obtain relevant
information, evaluate it properly and take advantage of their evaluations by
completing transactions on a favorable basis. If Advisers' evaluations and
expectations prove to be incorrect, a Fund's income or capital appreciation may
be reduced and its capital losses may be increased. Portfolio trading involves
transaction costs, but, as explained above, will be engaged in when Advisers
believe that the result of the trading, net of transaction costs, will benefit
the Funds.
C. RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in illiquid securities up to 15% (10% in the case of MML
Money Market) of each Fund's net assets. Each Fund currently expects to invest,
if anything, no more than 10% of its net assets in such securities. This policy
does not limit purchases of securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933 that
are determined to be liquid by the Board of Trustees or by Advisers pursuant to
Board approved guidelines. Such guidelines take into account trading activity
for such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in particular Rule 144A
securities, a Fund's holdings of those securities may be illiquid. There may be
undesirable delays in selling these securities at prices representing fair
value.
D. REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
MML Money Market, MML Managed Bond and MML Blend may engage in repurchase
agreements and MML Blend may engage in reverse repurchase agreements. A
repurchase agreement is a contract pursuant to which a Fund agrees to purchase a
security and simultaneously agrees to resell it at an agreed-upon price at a
stated time, thereby determining the yield during the Fund's holding period. A
reverse repurchase agreement is a contract pursuant to which a Fund agrees to
sell a security and simultaneously agrees to repurchase it at an agreed-upon
price at a stated time. For a more detailed description of repurchase agreements
and reverse repurchase agreements, see the Statement of Additional Information.
E. SECURITIES LENDING
MML Managed Bond and MML Blend may make loans of portfolio securities of not
more than 10% of their respective total assets taken at current value, thereby
realizing additional income. Although lending portfolio securities may involve
the risk of delay in recovery of the securities loaned or possible loss of
rights in the collateral should the borrower fail financially, loans will be
made only to borrowers deemed by MassMutual to be of good standing.
F. FEDERAL TAXES
The extent to which the Funds may enter into Derivatives transactions and engage
in portfolio trading may be limited by the Internal Revenue Code's requirements
for qualification for regulated investment companies. It is each Fund's
intention to qualify as such. See "Certain Tax and Accounting Information" in
the Statement of Additional Information.
G. CASH POSITIONS
Each Fund, other than MML Money Market, may hold cash or cash equivalents to
provide for liquidity (e.g. expenses and anticipated redemption payments) and so
that an orderly investment program may be carried out in accordance with the
12
<PAGE>
Fund's investment policies. To provide liquidity or for temporary defensive
purposes, each Fund may invest any portion of its assets in investment grade
debt securities and MML Equity may also invest in non-convertible preferred
stocks.
VI. INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions, and
exceptions to such restrictions, that apply to each Fund which may not be
changed without a vote of a majority of the outstanding shares of such Fund.
(For a description of additional investment restrictions, reference should be
made to the Statement of Additional Information.)
A. INVESTMENT RESTRICTIONS
Each Fund will not:
(1) Pledge or mortgage assets taken at market to an extent greater than 15% of
the total assets of the Fund taken at cost;
(2) Borrow money, except from banks as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of making investments), and except
to the extent that each Fund engages in financial futures transactions (as
described on page 11) and in reverse repurchase agreements (as described on page
12), provided (a) that the aggregate amount of all such borrowings at the time
of borrowing does not exceed 10% of the total assets of the Fund taken at cost,
and (b) that immediately after the borrowing, and at all times thereafter, there
will be an asset coverage of at least 300% for all of the Fund's borrowings
(including all obligations under financial futures contracts on debt
obligations); and
(3) Concentrate its investments in any one industry, as determined by the Board
of Trustees, and in this connection it will not acquire securities of companies
in any one industry if, immediately after giving effect to any such acquisition,
more than 25% of the value of the total assets of the Fund would be invested in
such industry, with the following exceptions:
(a) In the case of MML Money Market there is no limitation in respect of
certificates of deposit and bankers' acceptances (see "The Funds - MML Money
Market Fund" on pages 8-9).
(b) MML Money Market, MML Managed Bond and the Bond Sector of MML Blend
each may invest up to 40% of the value of their respective total assets in
each of the electric utility and telephone industries. However, it currently
is MassMutual's intent not to invest more than 25% of any one of these funds
total assets in either the electric utility or telephone industries.
B. EXCEPTIONS
(1) Notwithstanding any of the above investment restrictions or those set forth
in the Statement of Additional Information, and in addition to the authority
each Fund had as of April 30, 1993, each Fund may engage in derivatives
transactions, techniques, and practices using futures, options, swap agreements,
and similar instruments, to the extent and in a manner permitted by law.
(2) Notwithstanding any of the above investment restrictions or those set forth
in the Statement of Additional Information, each Fund may invest in any security
or investment related instrument, or engage in any investment related
transaction or practice, such as newly developed debt securities or hedging
programs, provided that the Board of Trustees has determined that to do so is
consistent with the Fund's investment objectives and policies, has adopted
reasonable guidelines for use by the Fund's Advisers and provided further that
at the time of entering into such investment or transaction such investments or
instruments account for no more than 10% of the Fund's total assets.
VII. INVESTMENT MANAGERS
MassMutual serves as investment manager of each Fund pursuant to a separate
investment management agreement executed by MassMutual and each Fund. Under the
agreements, which are substantially identical, MassMutual is authorized to
engage in portfolio transactions on behalf of the Funds, subject to such general
or specific instructions as may be given by the Board of Trustees. MassMutual
also acts as the transfer agent and the dividend paying agent.
The investment management agreements between MassMutual and the Funds provide
that MassMutual will perform all administrative functions relating to the Funds
and will bear all expenses of the Funds except (1) taxes and corporate fees
payable to government agencies, (2) brokerage commissions (which may be higher
than other brokers charge if paid to a broker which provides brokerage and
research services to Advisers or for use in providing investment advice and
management to the Funds and other accounts over which Advisers exercise
investment discretion) and other capital items payable in connection with the
purchase or sale of Fund investments, (3) interest on account of any borrowings
by the Funds, (4) fees and expenses of Trustees of MML Trust who are not
interested persons, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), of the Advisers or MML Trust, and (5) fees of the Funds'
independent certified public accountants.
For providing the services described above, MassMutual is paid a quarterly fee
at the annual rate of .50% of the first $100,000,000 of the average daily net
asset value of each Fund, .45% of the next $200,000,000, .40% of the next
$200,000,000 and .35% of any excess over $500,000,000. MassMutual has agreed to
bear expenses of each Fund (other than the management fee, interest, taxes,
brokerage commissions and extraordinary expenses) in excess of .11% of average
daily net asset value through April 30, 1996. In 1994 MML Equity, MML Money
Market, MML Managed Bond, and MML Blend paid fees to MassMutual amounting to
.41%, .50%, .49% and .38%, respectively, of their average daily net assets
during the year.
The investment management agreement between MassMutual and each Fund
automatically terminates: (1) unless its continuance is specifically approved at
least annually by the affirmative vote of a majority of the Board of Trustees,
which affirmative vote shall include a majority of the members of the Board who
are not interested persons (as defined in the 1940 Act) of MassMutual or of MML
Trust, or (2) upon its assignment. Under the terms of each investment management
agreement, each Fund recognizes MassMutual's control of the initials "MML" and
each Fund agrees that its right to use these initials
13
<PAGE>
is non-exclusive and can be terminated by MassMutual at any time. Under each
agreement, MassMutual's liability regarding its investment management
obligations and duties is limited to situations involving its willful
misfeasance, bad faith, gross negligence or reckless disregard of such
obligations and duties.
MassMutual is a mutual life insurance company organized in 1851 under the laws
of The Commonwealth of Massachusetts. MassMutual is licensed to transact a life,
accident and health insurance business in all states of the United States, the
District of Columbia and certain Provinces of Canada. At December 31, 1994
MassMutual had total assets of approximately $35.2 billion, including
approximately $17.7 billion in debt securities, $3.0 billion in mortgage loans,
$197.0 million in common stocks (excluding investments in subsidiaries), $1.3
billion in real estate and $2.4 billion in other investments. The persons who
are responsible for the management of the bond and money market portfolios of
MassMutual are also responsible for managing investments of the Funds.
As of January 1, 1993, MassMutual transferred its equity investment advisory
operations to Concert. All of the senior investment professionals of
MassMutual's Equity Management Department transferred to and became employees of
Concert. MassMutual indirectly owns 100% of Concert's voting stock and a
majority of Concert's Directors are officers and employees of MassMutual.
Concert manages institutional investment advisory accounts pursuant to written
contracts. As of December 31, 1994, Concert had $4.4 billion of assets under
management.
Pursuant to two investment sub-advisory agreements with MassMutual, Concert
manages the investment of the assets of MML Equity and the Equity Sector of MML
Blend and MassMutual pays Concert a quarterly fee equal to an annual rate of
.13% of the average daily net asset value. The agreements provide that they
automatically terminate upon the termination of the respective investment
management agreements between MassMutual and MML Equity and MML Blend. Concert
also serves as the investment sub-adviser to Oppenheimer Value Stock Fund which
had net assets of $104 million as of December 31, 1994.
Securities held by the Funds are also frequently held by Advisers in their
investment accounts and by other investment companies for which Advisers act as
investment advisers. If the same security is purchased or sold for any Fund and
such investment account or companies at the same time, such purchases or sales
normally will be combined, to the extent practicable, and will be allocated as
nearly as practicable on a pro rata basis in proportion to the amounts to be
purchased or sold for each. In determining the amounts to be purchased or sold,
the main factors to be considered will be the investment objectives of the
respective portfolios, the relative size of portfolio holdings of the same or
comparable security, availability of cash for investment by the various
portfolios and the size of their respective investment commitments. It is
believed that the ability of the Funds to participate in larger volume
transactions will, in most cases, produce better execution for the Funds. In
some cases, however, this procedure could have a detrimental effect on the price
and amount of a security available to a Fund or the price at which a security
may be sold. It is the opinion of MML Trust's management that, such execution
advantage and the desirability of retaining Advisers as investment managers of
the Funds outweigh the disadvantages, if any, which might result from this
procedure.
VIII. CAPITAL SHARES
MML Trust is a "series" company which is authorized to issue shares in separate
series of the same class. Shares of four series have been authorized,
constituting the interests in the four Funds described in this Prospectus. Under
MML Trust's Declaration of Trust, however, the Board of Trustees is authorized
to create new shares in addition to the Funds without the necessity of a vote of
shareholders of MML Trust. MML Trust may issue an unlimited number of shares of
the same class, in one or more series as MML Trustees may authorize, with or
without par value as MML Trustees may prescribe. Each share of a particular
series represents an equal proportionate interest in that series with each other
share of the same series, none having priority or preference over another. Each
series shall be preferred over all other series in respect of the assets
allocated to that series. Each share of a particular series is entitled to a pro
rata share of any distributions declared by that series and, in the event of
liquidation, a pro rata share of the net assets of that series remaining after
satisfaction of outstanding liabilities. When issued, shares are fully paid and
nonassessable and have no preemptive, conversion or subscription rights.
MML Trust is not required to hold annual meetings of shareholders. Special
meetings may be called for purposes such as electing MML Trustees, voting on
management agreements, and with respect to such additional matters relating to
MML Trust as may be required by MML Trust's Declaration of Trust and the 1940
Act. Shareholders holding 10% of the shares of MML Trust may call a meeting to
be held to consider removal of MML Trustees. On any matter submitted to
shareholders, shares of each Fund entitle their holder to one vote per share
(with proportionate voting for fractional shares), irrespective of the relative
net asset values of the Funds' shares. On any matters submitted to a vote of
shareholders, all shares of MML Trust then entitled to vote shall be voted by
individual Fund, except that (i) when required by the 1940 Act, shares shall be
voted in the aggregate and not by individual Fund, and (ii) when MML Trustees
have determined that any matter affects only the interests of one or more Funds,
then only shareholders of such Fund or Funds shall be entitled to vote thereon.
Shareholder inquiries should be made by contacting the Secretary, MML Series
Investment Fund, 1295 State Street, Springfield, Massachusetts 01111.
The assets of certain variable annuity and variable life insurance separate
accounts for which MassMutual or an affiliate is the depositor are invested in
shares of the Funds. Because these separate accounts are invested in the same
underlying Funds it is possible that material conflicts could arise between
owners of the variable life insurance contracts and owners of the variable
annuity contracts. Possible conflicts could arise if (i) state insurance
regulators should disapprove or require changes in investment policies,
investment advisers or principal underwriters or if the depositor should be
permitted to act contrary to actions approved by holders of the variable life or
variable annuity contracts under rules of the Securities and Exchange
Commission, (ii) adverse tax treatment of the variable life or variable annuity
contracts would result from utilizing the same underlying Funds, (iii) different
investment strategies would be more suitable for the variable annuity contracts
14
<PAGE>
than the variable life contracts, or (iv) state insurance laws or regulations or
other applicable laws would prohibit the funding of both variable life and
variable annuity separate accounts by the same Funds.
The Board of Trustees will follow monitoring procedures which have been
developed to determine whether material conflicts have arisen and what action,
if any, should be taken in the event of such conflicts. If a material
irreconcilable conflict should arise between owners of the variable life
insurance contracts and owners of the variable annuity contracts, one or the
other group of owners may have to terminate its participation in the Funds. More
information regarding possible conflicts between variable annuity and variable
life insurance contracts is contained in the prospectuses for those contracts.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of MML Trust. However, MML Trust's
Declaration of Trust disclaims liability of the shareholders, MML Trustees, or
officers of MML Trust for acts or obligations of MML Trust, which are binding
only on the assets and property of MML Trust, and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by MML Trust or MML Trustees. MML Trust's Declaration of Trust provides
for indemnification out of MML Trust property for all loss and expense of any
shareholder held personally liable for the obligations of MML Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and MML Trust itself would be unable to meet its
obligations.
IX. NET ASSET VALUE
The net asset value of each Fund's shares is determined once daily as of the
normal close of trading on the New York Stock Exchange (presently 4:00 p.m.) on
each day on which the Exchange is open for trading.
A. MML MONEY MARKET FUND
It is the intention of MML Money Market to maintain a per share net asset value
of $1.00, although this cannot be assured. Since the net income of MML Money
Market is declared as a dividend each time it is determined, the net asset value
per share of MML Money Market remains at $1.00 per share immediately after each
determination and dividend declaration. Any increase in the value of a
shareholder's investment in MML Money Market representing the reinvestment of
dividend income is reflected by an increase in the number of shares of MML Money
Market in the shareholder's account, which increase is recorded promptly after
the end of each calendar month. MML Money Market's portfolio instruments are
valued on the basis of amortized cost.
B. OTHER FUNDS
Generally, the other Funds value portfolio securities on the basis of market
value. For example, equity securities, including those traded on national
securities exchanges, the NASDAQ national market system, or over-the-counter
securities not so listed, are valued by one or more pricing services, as
authorized by the Board of Trustees. Normally, the values are based upon the
last reported sale price of the security. Long-term bonds are valued on the
basis of valuations furnished by a pricing service, authorized by the Board of
Trustees, which determines valuations taking into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. Debt obligations with less than one year but more than sixty days
to maturity are valued on the basis of their market value, and debt obligations
having a maturity of sixty days or less are generally valued at amortized cost
when the Board of Trustees believes that amortized cost approximates market
value. If acquired, preferred stocks will be valued on the basis of their market
value if market quotations are readily available. Futures contracts are valued
based on market prices unless such prices do not reflect the fair value of the
contract, in which case they will be valued by or under the direction of the
Board of Trustees. In all other cases, assets (including restricted securities)
will be valued at fair value as determined in good faith by the Board of
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the Board of Trustees.
X. SALE AND REDEMPTION
OF SHARES
The shares of each Fund are sold at their net asset value (which in the case of
MML Money Market is expected to remain at $1.00) as next computed after receipt
of the purchase order, without the deduction of any selling commission or "sales
load."
Each Fund redeems its shares at their net asset value (which in the case of MML
Money Market is expected to remain at $1.00) as next computed after receipt of
the request for redemption. The redemption price for shares of MML Equity, MML
Managed Bond and MML Blend may be more or less than the shareholder's cost. No
fee is charged on redemption.
Redemption payments will be made within seven days after receipt of the written
request therefore by MML Trust, except that the right of redemption may be
suspended or payments postponed when permitted by applicable law and
regulations.
XI. TAX STATUS
It is the policy of each Fund to comply, and in 1994 each Fund did comply, with
the provisions of the Internal Revenue Code applicable to regulated investment
companies. As a result, none of the Funds will be subject to federal income tax
on any net income or any capital gains to the extent they are distributed or are
deemed to have been distributed to shareholders.
Regulations issued under Internal Revenue Code Section 817(h) require each of
the Funds to be adequately diversified in order for a variable annuity and
variable life contract funded by MML Trust to receive favorable tax treatment as
an annuity or life insurance contract. Among other requirements, the regulations
limit each Fund's investment in a single issuer to 55% of its assets; while this
requirement applies to U.S. Government securities, each government agency or
instrumentality is treated for this purpose as a separate issuer. The Funds
intend
15
<PAGE>
to comply with these diversification requirements. For further information, see
the Statement of Additional Information.
Tax consequences to investors in the separate investment accounts which are
invested in the Funds are described in the prospectuses for such accounts.
XII. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds intend to declare capital gain and ordinary income dividends and to
distribute such dividends in a manner designed to avoid a 4% excise tax on
undistributed regulated investment company income, imposed by the Tax Reform Act
of 1986. The declaration and distribution policies specific to each Fund are
outlined below.
A. MML EQUITY FUND
Distributions, if any, are declared and paid annually. Distributions may be
taken either in cash or in additional shares of MML Equity at net asset value on
the day after the record date for the distribution, at the option of the
shareholder.
B. MML MONEY MARKET FUND
The net income of MML Money Market, as defined below, is determined as of the
normal close of trading on the New York Stock Exchange on each day on which the
Exchange is open, and all the net income so determined is declared as a dividend
to shareholders of record as of that time. Dividends are distributed promptly
after the end of each calendar month in additional shares of MML Money Market at
the then current net asset value, or in cash, at the option of the shareholder.
For this purpose the net income of MML Money Market (from the time of the
immediately preceding determination thereof) consists of all interest income
accrued on its portfolio, plus realized gains or minus realized losses, and less
all expenses and liabilities chargeable against income. Interest income includes
discount earned (including both original issue and market discount) on paper
purchased at a discount, less amortization of premium, accrued ratably to the
date of maturity. Expenses, including the compensation payable to MassMutual,
are accrued each day.
Should MML Money Market incur or anticipate any unusual expense, or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Board of Trustees would at that time
consider whether to adhere to the present dividend policy described above or to
revise it in the light of the then prevailing circumstances. For example, if MML
Money Market's net asset value per share were reduced, or were anticipated to be
reduced, below $1.00, the Board of Trustees might suspend further dividend
payments until the net asset value returned to $1.00. Thus, such expenses or
losses or depreciation might result in an investor receiving no dividends for
the period during which he held his shares and in his receiving upon redemption
a price per share lower than that which he paid.
C. MML MANAGED BOND AND MML BLEND FUNDS
Dividends out of net investment income are declared and paid quarterly. Capital
gains declarations and distributions of net capital gains, if any, for the year
are made annually. Distributions may be taken either in cash or in additional
shares of the applicable Fund at net asset value on the day after the record
date for the distribution, at the option of the shareholder.
XIII. INVESTMENT PERFORMANCE
Each of the Funds may from time to time advertise certain investment performance
figures. These figures are based on historical earnings and are not intended to
indicate future performance.
MML Money Market may quote its yield and its effective yield. The yield of MML
Money Market refers to the income generated by the Fund over a seven-day period
(which period will be stated in the advertisement). This income is then assumed
to be earned each week over a 52-week period. The effective yield is calculated
similarly, but the income earned by an investment in the Fund is assumed to be
reinvested.
MML Managed Bond, MML Blend and MML Equity may also quote yield. The yield for
each of these Funds refers to the net investment income earned by the Fund over
a 30-day period (which period will be stated in the advertisement). This income
is then assumed to be earned for a full year and to be reinvested each month for
six months. The resulting semi-annual yield is doubled.
Each of the Funds may advertise its total return and its holding period return
for various periods of time. Total return is calculated by determining, over a
period of time, which will be stated in the advertisement, the average annual
compounded rate of return that an investment in the Fund earned over that
period, assuming reinvestment of all distributions. Holding period return refers
to the percentage change in the value of an investment in a Fund over a period
of time (which period will be stated in the advertisement), assuming
reinvestment of all distributions. Total return and holding period return differ
from yield in that the return figures include capital changes in an investment
while yield measures the rate of net income generated by a Fund. Total return
differs from holding period return principally in that total return is an
average annual figure while holding period return is an aggregate figure for the
entire period.
These investment performance figures may be of limited use for comparative
purposes because they do not reflect charges imposed by the separate investment
accounts invested in the Funds which, if included, would decrease the
performance figures. For more information about the investment performance of
the Funds, see the Statement of Additional Information.
XIV. MANAGEMENT OF
MML TRUST
The affairs of MML Trust are generally supervised by its Board of Trustees and
officers. As stated previously, Mass-
16
<PAGE>
Mutual acts as investment manager of each of the Funds and Concert is the sub-
adviser to MML Equity and the Equity Sector of MML Blend. In those capacities,
MassMutual and Concert are part of the management of MML Trust. For more
information concerning the management of MML Trust, reference should be made to
the Statement of Additional Information.
The name MML Series Investment Fund is the designation of Trustees under a
Declaration of Trust dated December 19, 1984, as amended from time to time. The
obligations of MML Trust are not personally binding upon, nor shall resort be
had to the property of, any of the Trustees, shareholders, officers, employees
or agents of MML Trust, but MML Trust's property only shall be bound.
17
<PAGE>
MML SERIES INVESTMENT FUND
1295 State Street
Springfield, Massachusetts 01111
--------------------
INVESTMENT MANAGER
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
1295 State Street
Springfield, Massachusetts 01111
INVESTMENT SUB-ADVISOR
CONCERT CAPITAL MANAGEMENT, INC.
125 High Street
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
2300 BayBank Tower
Springfield, Massachusetts 01101
CUSTODIAN
CITIBANK N.A.
111 Wall Street
New York, New York 10005
--------------------
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. No person is authorized to make any
representations in connection with this offering other than those contained in
this Prospectus.
<PAGE>
Investors are advised to read and retain this Prospectus for future reference.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, CO 80231
1-800-525-7048
Prospectus dated May 1, 1995
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end
investment company consisting of nine separate funds, three of which
(collectively, the "Funds") are as follows:
OPPENHEIMER HIGH INCOME FUND ("High Income Fund") seeks a high level of current
income from investment in high yield fixed-income securities. High Income Fund's
investments include unrated securities or high risk securities in the lower
rating categories, commonly known as "junk bonds," which are subject to a
greater risk of loss of principal and nonpayment of interest than higher-rated
securities. These securities may be considered to be speculative.
OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks to
achieve capital appreciation by investing in "growth-type" companies.
OPPENHEIMER GLOBAL SECURITIES FUND ("Global Securities Fund") seeks long-term
capital appreciation by investing a substantial portion of assets in securities
of foreign issuers, "growth-type" companies, cyclical industries and special
situations which are considered to have appreciation possibilities. Current
income is not an objective. These securities may be considered to be
speculative.
THIS PROSPECTUS MAY BE USED TO OFFER OR SELL SHARES OF ONLY THOSE FUNDS LISTED
ABOVE.
Shares of the Funds are sold only to provide benefits under variable life
insurance policies and variable annuity contracts (collectively, the
"Accounts"). The Accounts invest in shares of one or more of the Funds in
accordance with allocation instructions received from Account owners. Such
allocation rights are further described in the accompanying Account Prospectus.
Shares are redeemed to the extent necessary to provide benefits under an
Account.
This Prospectus explains concisely what you should know before investing in the
Trust and the Funds. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the Funds in the
May 1, 1995 Statement of Additional Information. For a free copy, call
Oppenheimer Shareholder Services, the Funds' Transfer Agent, at 1-800-525-7048,
or write to the Transfer Agent at the address on the back cover. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
ABOUT THE FUNDS
<S> <C>
Overview of the Funds...................................... 3
Financial Highlights....................................... 4
Investment Objectives and Policies......................... 7
Other Investment Restrictions.............................. 11
How the Funds are Managed.................................. 12
Performance of the Funds................................... 13
ABOUT YOUR ACCOUNT
How to Buy Shares.......................................... 16
How to Sell Shares......................................... 16
Dividends, Capital Gains and Taxes......................... 16
Appendix A: Description of Terms........................... A-1
Appendix B: Description of Securities Ratings.............. B-1
</TABLE>
2
<PAGE>
OVERVIEW OF THE FUNDS
Some of the important facts about the Funds are summarized below, with
references to the section of this Prospectus where more complete information can
be found. You should carefully read the entire Prospectus before making a
decision about investing. Keep the Prospectus for reference after you invest.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The HIGH INCOME FUND'S investment
objective is to seek a high level of current income from investment in high
yield fixed-income securities. The CAPITAL APPRECIATION FUND'S investment
objective is to achieve capital appreciation by investing in "growth-type"
companies. The GLOBAL SECURITIES FUND'S investment objective is to seek long-
term capital appreciation by investing a substantial portion of assets in
securities of foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation possibilities.
WHAT DO THE FUNDS INVEST IN? To seek their respective investment objectives, the
Funds invest as follows. HIGH INCOME FUND primarily invests in high yield fixed-
income securities, including unrated securities or high risk securities in the
lower rating categories, commonly known as "junk bonds." CAPITAL APPRECIATION
FUND primarily invests in "growth-type" companies. GLOBAL SECURITIES FUND
primarily invests in securities of foreign issuers, "growth-type" companies,
cyclical industries and special situations. These investments are more fully
explained for each Fund in "Investment Objectives and Policies," starting on
page 7.
WHO MANAGES THE FUNDS? The Funds' investment adviser is Oppenheimer Management
Corporation, which (including a subsidiary) advises investment company
portfolios having over $29 billion in assets. Each Fund's portfolio manager is
primarily responsible for the selection of securities of that Fund. The
portfolio managers are as follows: for HIGH INCOME FUND, David Negri; for
CAPITAL APPRECIATION FUND, Paul LaRocco; and for GLOBAL SECURITIES FUND, George
Evans. The Manager is paid an advisory fee by each Fund, based on its assets.
The Trust's Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio manager. Please refer to "How The Funds Are Managed,"
starting on page 12 for more information about the Manager and its fees.
HOW RISKY ARE THE FUNDS? While different types of investments have risks that
differ in type and magnitude, all investments carry risk to some degree. Changes
in overall market movements or interest rates, or factors affecting a particular
industry or issuer, can affect the value of the Funds' investments and their
price per share. Equity investments are generally subject to a number of risks
including the risk that values will fluctuate as a result of changing
expectations for the economy and individual issuers. For both equity and income
investments, foreign investments are subject to the risk of adverse currency
fluctuation and additional risks and expenses in comparison to domestic
investments. Therefore, in comparing levels of risk among the equity income
funds, Capital Appreciation Fund is less risky than Global Securities Fund.
Fixed-income investments are generally subject to the risk that values will
fluctuate with inflation, with lower-rated fixed-income investments being
subject to a greater risk that the issuer will default in its interest or
principal payment obligations.
HOW CAN I BUY OR SELL SHARES? Shares of each Fund are offered only for purchase
by Accounts as an investment medium for variable life insurance policies and
variable annuity contracts. Account owners should refer to the accompanying
Account Prospectus on how to buy or sell shares of the Funds.
HOW HAVE THE FUNDS PERFORMED? High Income Fund measures its performance by
quoting its yields. All of the Funds may measure their performance by quoting
average annual total return and cumulative total return, which measure
historical performance. Those returns can be compared to the returns (over
similar periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The performance of all the Funds
can also be compared to broad market indices, which we have done starting on
page 14. Please remember that past performance does not guarantee future
results.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table on the following pages presents selected financial information,
including per share data and expense ratios and other data about all the Funds.
The information is based on each such Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Funds independent
auditors, whose report on the Funds' financial statements for the fiscal year
ended December 31, 1994, is included in the Statement of Additional Information.
<TABLE>
<CAPTION>
OPPENHEIMER HIGH INCOME FUND
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986/(1)/
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
DATA:
Net asset value,
beginning of period $11.02 $9.74 $9.40 $7.90 $8.59 $9.30 $9.14 $10.04 $10.00
Income (loss) from
investment
operations:
Net investment
income .94 .82 1.19 1.28 1.21 1.09 1.12 1.30 .72
Net realized and
unrealized gain
(loss) on
investments, options
written and foreign
currency
transactions (1.27) 1.65 .43 1.30 (.82) (.65) .23 (.51) (24)
-------- ------- ------- ------- ------- ------- ------ ------- ------
Total income (loss)
from investment
operations (.33) 2.47 1.62 2.58 .39 .44 1.35 .79 .48
-------- ------- ------- ------- ------- ------- ------ ------- ------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.66) (1.19) (1.28) (1.08) (1.08) (1.08) (1.07) (1.55) (.44)
Distributions from
net realized gain on
investments, options
written and foreign
currency transactions (.24) - - - - (.07) (.12) (.14) -
-------- ------- ------- ------- ------- ------- ------ ------- ------
Total dividends and
distributions to
shareholders (.90) (1.19) (1.28) (1.08) (1.08 ) (1.15) (1.19) (1.69) (.44)
-------- ------- ------- ------- ------- ------- ------ ------- ------
Net asset value, end
of period $ 9.79 $11.02 $ 9.74 $ 9.40 $ 7.90 $ 8.59 $ 9.30 $ 9.14 $10.04
======== ======= ======= ======= ======= ======= ======= ======== ======
TOTAL RETURN, AT NET
ASSET VALUE/(2)/ (3.18)% 26.34% 17.92% 33.91% 4.65% 4.84% 15.58% 8.07% 4.73%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $95,698 $93,011 $40,817 $27,308 $19,172 $23,698 $25,551 $21,768 $14,833
Average net assets
(in thousands) $101,096 $67,000 $36,861 $23,663 $21,493 $26,040 $24,530 $20,637 $ 8,036
Number of shares
outstanding at end of 9,779 8,443 4,189 2,905 2,427 2,760 2,746 2,382 1,478
period (in thousands)
Ratios to average net
assets:
Net investment income 9.15% 10.50% 12.08% 14.26% 14.32% 11.52% 11.94% 13.13% 11.18%/(3)/
Expenses .67% .68% .73% .75% .75% .75% .75% .75% .75%/(3)/
Portfolio turnover
rate/(4)/ 110.1% 135.7% 144.2% 108.0% 95.1% 78.7% 57.9% 42.1% 18.3%
</TABLE>
1. For the period from April 30, 1986 (commencement of operations) to December
31, 1986.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
4
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
OPPENHEIMER CAPITAL APPRECIATION FUND
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1994 1993 1992 1991 1990 1989 1988 1987 1986/(2)/ 1986/(1)/
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $31.64 $26.04 $23.24 $15.24 $20.40 $16.31 $14.39 $13.12 $16.21 $13.71
Income (loss) from investment
operations:
Net investment income .10 .05 .06 .08 .32 .50 .33 .21 .12 .09
Net realized and
unrealized gain (loss) on
investments and options
written (2.22) 6.71 3.43 8.18 (3.54) 3.93 1.60 1.67 (1.24) 3.40
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations (2.12) 6.76 3.49 8.26 (3.22) 4.43 1.93 1.88 (1.12) 3.49
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.04) (.06) (.14) (.26) (.53) (.34) - (.34) (.21) (.20)
Distributions from net
realized gain on
investments and options
written (3.53) (1.10) (.55) - (1.41) - (.01) (.27) (1.76) (.79)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions to
shareholders (3.57) (1.16) (.69) (.26) (1.94) (.34) (.01) (.61) (1.97) (.99)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period $25.95 $31.64 $26.04 $23.24 $15.24 $20.40 $16.31 $14.39 $13.12 $16.21
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN, AT NET ASSET
VALUE/(3)/ (7.59)% 27.32% 15.42% 54.72% (16.82)% 27.57% 13.41% 14.34% (1.65)% N/A
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $185,774 $136,885 $83,335 $49,371 $23,295 $27,523 $13,667 $9,692 $4,549 $3,852
Average net assets
(in thousands) $153,832 $98,228 $56,371 $34,887 $24,774 $21,307 $13,239 $8,598 $3,099 $2,292
Number of shares
outstanding at end of
period
(in thousands) 7,158 4,326 3,201 2,125 1,528 1,349 838 674 347 238
Ratios to average net assets:
Net investment income .50% .23% .30% .81% 1.93% 3.27% 2.13% 1.68% 2.36%/(4)/ 2.27%
Expenses .57% .47% .54% .63% .71% .68% .73% .75% 1.01%/(4)/ 2.17%
Portfolio turnover 96.5% 122.8% 78.9% 122.3% 222.0% 130.5% 128.7% 138.7% 100.1% 464.8%
rate/(5)/
</TABLE>
1. For the year ended June 30, 1986. Operating results were achieved by
Centennial Capital Appreciation Fund, a separate investment company acquired
by OCAP on August 14, 1986.
2. For the six months ended December 31, 1986. Operating results prior to August
15, 1986 were achieved by Centennial Capital Appreciation Fund, a separate
investment company acquired by OCAP on August 14, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
5
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
OPPENHEIMER GLOBAL SECURITIES FUND
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1994 1993 1992 1991 1990/(1)/
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
DATA:
Net asset value,
beginning of period $16.30 $ 9.57 $10.38 $10.04 $10.00
Income (loss) from
investment operations:
Net investment income .04 (.02) .07 .04 -
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions (.96) 6.75 (.80) .30 .04
--------- --------- ---------- --------- --------
Total income (loss)
from investment
operations (.92) 6.73 (.73) .34 .04
--------- --------- ---------- --------- --------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.04) - (.04) - -
Distributions from net
realized gain on
investments and
foreign currency
transactions (.25) - (.04) - -
--------- --------- ---------- --------- --------
Total dividends and
distributions to
shareholders (.29) - (.08) - -
--------- --------- ---------- --------- --------
Net asset value, end of
period $15.09 $16.30 $ 9.57 $10.38 $10.04
========= ========= ========== ========= ========
TOTAL RETURN, AT NET
ASSET VALUE/(2)/ (5.72)% 70.32% (7.11)% 3.39% .40%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $297,842 $96,425 $13,537 $7,339 $ 432
Average net assets (in
thousands) $214,545 $31,696 $11,181 $3,990 $ 263
Number of shares
outstanding at end of
period (in thousands) 19,743 5,917 1,415 707 43
Ratios to average net
assets:
Net investment income .54% .72% 1.04% .75% .08%/(3)/
Expenses .91% .92% 1.06% 1.32% 6.84%/(3)/
Portfolio turnover rate/(4)/ 70.4% 65.1% 34.1% 29.5% 0.0%
</TABLE>
1. For the period from November 12, 1990 (commencement of operations) to
December 31, 1990.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES - HIGH INCOME FUND.
The objective of High Income Fund is to earn a high level of current income by
investing primarily in a diversified portfolio of high yield, fixed-income
securities (long-term debt and preferred stock issues, including convertible
securities) believed by the Manager not to involve undue risk. The Fund may also
acquire participation interests in loans that are made to corporations (see
"Participation Interests," below). High Income Fund's investment policy is to
assume certain risks (discussed below) in seeking high yield, which is
ordinarily associated with high risk securities, commonly known as "junk bonds,"
in the lower rating categories of the established securities ratings services
(i.e., securities rated "Baa" or lower by Moody's Investor Service, Inc.
("Moody's") or "BBB" or lower by Standard & Poor's Corporation
("Standard & Poor's")), and unrated securities. The investments in which High
Income Fund will invest principally will be in the lower rating categories; it
may invest in securities rated as low as "C" by Moody's or "D" by Standard &
Poor's. Such ratings indicate that the obligations are speculative in a high
degree and may be in default. Appendix B of this Prospectus describes these
rating categories.
High Income Fund is not obligated to dispose of securities whose issuers
subsequently are in default or if the rating is subsequently downgraded. High
Income Fund may invest, without limit, in unrated securities if such securities
offer, in the opinion of the Manager, yields and risks comparable to rated
securities. Risks of high yield securities are discussed under "Risk Factors"
below. High Income Fund's portfolio at December 31, 1994 contained domestic and
foreign corporate bonds in the following rating categories as rated by Standard
& Poor's (the percentages relate to the weighted average value of the bonds in
each rating category as a percentage of that Fund's total assets): AAA, 1.70%;
AA, 2.10%; A, 3.06%; BBB, 1.06%; BB, 5.93%; B, 37.14%; CCC, 5.53%; CC, 1.04%; D,
1.69%; and unrated, 18.02%. If a bond was not rated by Standard & Poor's but was
rated by Moody's, it is included in the comparable category. The Manager will
not rely principally on the ratings assigned by rating services. The Manager's
analysis may include consideration of the financial strength of the issuer,
including its historic and current financial condition, the trading activity in
its securities, present and anticipated cash flow, estimated current value of
assets in relation to historical cost, the issuer's experience and managerial
expertise, responsiveness to changes in interest rates and business conditions,
debt maturity schedules, current and future borrowing requirements, and any
change in the financial condition of the issuer and the issuer's continuing
ability to meet its future obligations. The Manager also may consider
anticipated changes in business conditions, levels of interest rates of bonds as
contrasted with levels of cash dividends, industry and regional prospects, the
availability of new investment opportunities and the general economic,
legislative and monetary outlook for specific industries, the nation and the
world.
RISK FACTORS. The securities in which High Income Fund principally invests are
considered speculative and involve greater risk than lower yielding, higher
rated fixed-income securities, while providing higher yields than such
securities. Lower rated securities may be less liquid, and significant losses
could be experienced if a substantial number of other holders of such securities
decide to sell at the same time. Other risks may involve the default of the
issuer or price changes in the issuer's securities due to changes in the
issuer's financial strength or economic conditions. Issuers of lower rated or
unrated securities are generally not as financially secure or creditworthy as
issuers of higher-rated securities. This Fund is not obligated to dispose of
securities when issuers are in default or if the rating of the security is
reduced. These risks are discussed in more detail in the Statement of Additional
Information.
INVESTMENT OBJECTIVES AND POLICIES -CAPITAL APPRECIATION FUND AND GLOBAL
SECURITIES FUND.
CAPITAL APPRECIATION FUND. In seeking its objective of capital appreciation,
Capital Appreciation Fund will emphasize investments in securities of "growth-
type" companies. Such companies are believed to have relatively favorable long-
term prospects for increasing demand for their goods or services, or to be
developing new products, services or markets, and normally retain a relatively
larger portion of their earnings for research, development and investment in
capital assets. "Growth-type" companies may also include companies developing
applications for recent scientific advances. Capital Appreciation Fund may also
invest in cyclical industries and in "special situations" that the Manager
believes present opportunities for capital growth. Special situations are
anticipated acquisitions, mergers or other unusual developments which, in the
opinion of the Manager, will increase the value of an issuer's securities,
regardless of general business conditions or market movements. An additional
risk is present in this type of investment since the price of the security may
be expected to decline if the anticipated development fails to occur.
GLOBAL SECURITIES FUND. The objective of Global Securities Fund is to seek long-
term capital appreciation. Current income is not an objective. In seeking its
objective, the Fund will invest a substantial portion of its invested assets in
securities of foreign issuers, "growth-type" companies (those which, in the
opinion of the Manager, have relatively favorable long-term prospects for
increasing demand or which develop new products and retain a significant part
of earnings for research and development), cyclical industries (e.g. base
metals, paper and chemicals) and special investment situations which are
considered to have appreciation possibilities (e.g., private placements of
start-up companies). The Fund may invest without limit in "foreign securities"
(as defined below in "Other Investment Techniques and Strategies - Foreign
Securities") and thus the relative amount of such investments will change from
time to time. It is currently anticipated that Global Securities Fund may invest
as much as 80% or more of its total assets in foreign securities. Under normal
market conditions, the Fund will invest its total assets in securities of
issuers traded in markets of at least three countries (which may include the
United States). See "Other Investment Techniques and Strategies - Foreign
Securities," below, for further discussion as to the possible rewards and risks
of investing in foreign
7
<PAGE>
securities and as to additional diversification requirements for the Fund's
foreign investments.
CAN THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Funds have
investment objectives, described above, as well as investment policies each
follows to try to achieve its objectives. Additionally, the Funds use certain
investment techniques and strategies in carrying out those investment policies.
The Funds' investment policies and techniques are not "fundamental" unless this
Prospectus or the Statement of Additional Information says that a particular
policy is "fundamental." Each Fund's investment objectives are fundamental
policies.
The Trust's Board of Trustees may change non-fundamental policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is explained
in the Statement of Additional Information).
OTHER INVESTMENT TECHNIQUES AND STRATEGIES. Some of the Funds can also use the
investment techniques and strategies described below. These techniques involve
certain risks. The Statement of Additional Information contains more information
about these practices, including limitations on their use that are designed to
reduce some of the risks.
SPECIAL RISKS - BORROWING FOR LEVERAGE. From time to time, Capital Appreciation
Fund and Global Securities Fund may borrow money from banks to buy securities.
These Funds will borrow only if they can do so without putting up assets as
security for a loan. This is a speculative investment method known as
"leverage." This investing technique may subject the Fund to greater risks and
costs than funds that do not borrow. These risks may include the possibility
that a Fund's net asset value per share will fluctuate more than funds that
don't borrow, since a Fund pays interest on borrowings and interest expense
affects a Fund's share price and yield. Global Securities Fund may borrow up to
10% of the value of its total assets. Global Securities Fund will not borrow, if
as a result of such borrowing more than 25% of its total assets would consist of
investments in when-issued or delayed delivery securities or borrowed funds.
Borrowing for Leverage is subject to regulatory limits described in more detail
in "Borrowing" in the Statement of Additional Information.
Pursuant to an undertaking by Capital Appreciation Fund and Global Securities
Fund, borrowing by each such Fund is limited to 25% of the value of its net
assets, which is further limited to 10% if the borrowing is for a purpose other
than to facilitate redemptions. Neither percentage limitation is a fundamental
policy.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES. Capital Appreciation Fund and Global
Securities Fund may each invest in securities of small, unseasoned companies.
These are companies that have been in operation for less than three years,
counting the operations of any predecessors. Securities of these companies may
have limited liquidity (which means that the Fund may have difficulty selling
them at an acceptable price when it wants to) and the prices of these securities
may be volatile.
PARTICIPATION INTERESTS. Global Securities Fund and High Income Fund may acquire
participation interests in U.S. dollar-denominated loans that are made to U.S.
or foreign companies (the "borrower"). They may be interests in, or assignments
of, the loan, and are acquired from the banks or brokers that have made the loan
or are members of the lending syndicate. No more than 5% of a Fund's net assets
can be invested in participation interests of the same borrower. The Manager has
set certain creditworthiness standards for issuers of loan participations, and
monitors their creditworthiness. The value of loan participation interests
primarily depends upon the creditworthiness of the borrower, and its ability to
pay interest and principal. Borrowers may have difficulty making payments. If a
borrower fails to make scheduled interest or principal payments, the Fund could
experience a decline in the net asset value of its shares. Some borrowers may
have senior securities rated as low as "C" by Moody's or "D" by Standard &
Poor's, but may be deemed acceptable credit risks. Participation interests are
subject to each Fund's limitations on investments in illiquid securities. See
"Illiquid and Restricted Securities" below.
FOREIGN SECURITIES. Each Fund may purchase "foreign securities" that is,
securities of companies organized under the laws of countries other than the
United States that are traded on foreign securities exchanges or in the foreign
over-the-counter markets. Securities of foreign issuers that are represented by
American Depository Receipts ("ADRs"), or that are listed on a U.S. securities
exchange or are traded in the United States over-the-counter markets are not
considered "foreign securities" for this purpose because they are not subject to
many of the special considerations and risks (discussed below and in the
Statement of Additional Information) that apply to foreign securities traded and
held abroad. If a Fund's securities are held abroad, the countries in which such
securities may be held and the sub-custodians holding them must be approved by
the Fund's Board of Trustees under applicable SEC rules. Each Fund may also
invest in debt obligations issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, subject to the investment policies described above. Foreign
securities which the Funds may purchase may be denominated in U.S. dollars or in
non-U.S. currencies. The Funds may convert U.S. dollars into foreign currency,
but only to effect securities transactions and not to hold such currency as an
investment, other than in hedging transactions (see "Hedging" below).
It is currently intended that each Fund (other than Global Securities Fund) will
invest no more than 25% of its total assets in foreign securities or in
government securities of any foreign country or in obligations of foreign banks.
Global Securities Fund has no restrictions on the amount of their assets that
may be invested in foreign securities. Investments in securities of issuers in
non-industrialized countries generally involve more risk and may be considered
highly speculative.
The Funds have undertaken to comply with the foreign country diversification
guidelines of Section 10506 of the California Insurance Code, as follows:
Whenever a Fund's investment in foreign securities exceeds 25% of its net
assets, it will invest its assets in securities of issuers located in a minimum
of two different foreign countries; this minimum is increased to three
8
<PAGE>
foreign countries if foreign investments comprise 40% or more of a Fund's net
assets, to four if 60% or more and to five if 80% or more. In addition, no such
Fund will have more than 20% of its net assets invested in securities of issuers
located in any one foreign country; that limit is increased to 35% for
Australia, Canada, France, Japan, the United Kingdom or Germany.
The percentage of each Fund's assets that will be allocated to foreign
securities will vary depending on the relative yields of foreign and U.S.
securities, the economies of foreign countries, the condition of their financial
markets, the interest rate climate of such countries, and the relationship of
such countries' currencies to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data. Subsequent foreign currency
losses may result in a Fund having previously distributed more income in a
particular period than was available from investment income, which could result
in a return of capital to shareholders. Each such Fund's portfolio of foreign
securities may include those of a number of foreign countries or, depending upon
market conditions and subject to the above diversification requirements those of
a single country. In summary, foreign securities markets may be less liquid and
more volatile than the markets in the U.S. Risks of foreign securities investing
may include foreign withholding taxation, changes in currency rates or currency
blockage, currency exchange costs, difficulty in obtaining and enforcing
judgments against foreign issuers, relatively greater brokerage and custodial
costs, risk of expropriation or nationalization of assets, less publicly
available information, and differences between domestic and foreign legal,
auditing, brokerage and economic standards. See "Investment Objectives and
Policies - Foreign Securities" in the Statement of Additional Information for
further details.
WARRANTS AND RIGHTS. Warrants basically are options to purchase stock at set
prices that are valid for a limited period of time. Rights are options to
purchase securities, normally granted to current holders by the issuer. Each of
the Funds (except Money Fund) may invest up to 5% of its total assets in
warrants and rights. That 5% does not apply to warrants and rights that have
been acquired as part of units with other securities or that were attached to
other securities. No more than 2% of each such Fund's total assets may be
invested in warrants that are not listed on either the New York or American
Stock Exchanges. For further details about these investments, see Warrants and
Rights in the Statement of Additional Information.
REPURCHASE AGREEMENTS. Each Fund may acquire securities that are subject to
repurchase agreements to generate income while providing liquidity. In a
repurchase transaction, the Fund buys a security and simultaneously sells it to
the vendor for delivery at a future date. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on the
delivery date, the Fund may incur costs in disposing of the collateral and may
experience losses if there is any delay in its ability to do so. No Fund will
enter into a repurchase agreement that causes more than 15% of its net assets
(10% of net assets for Money Fund) to be subject to repurchase agreements having
a maturity beyond seven days. There is no limit on the amount of a Fund's net
assets that may be subject to repurchase agreements of seven days or less.
ILLIQUID AND RESTRICTED SECURITIES. Under the policies and procedures
established by the Board of Trustees, the Manager determines the liquidity of a
Fund's investments. Investments may be illiquid because of the absence
of a trading market, making it difficult to value them or dispose of them
promptly at an acceptable price. A restricted security is one that has a
contractual restriction on resale or cannot be sold publicly until it is
registered under the Securities Act of 1933. No Fund will invest more than 15%
of its net assets in illiquid or restricted securities; no Fund presently
intends to invest more than 10% of its net assets in illiquid or restricted
securities. This policy applies to participation interests, bank time deposits,
master demand notes and repurchase transactions maturing in more than seven
days, over-the-counter ("OTC") options held by any Fund and that portion of
assets used to cover such OTC options [High Income Fund and Global Securities
Fund]; it does not apply to certain restricted securities that are eligible for
resale to qualified institutional purchasers.
LOANS OF PORTFOLIO SECURITIES. To attempt to increase its income, each Fund may
lend its portfolio securities to brokers, dealers and other financial
institutions. These loans are limited to 25% of the Fund's net assets and are
subject to other conditions described in the Statement of Additional
Information. The Funds presently do not intend to lend portfolio securities, but
if any Fund does, the value of securities loaned is not expected to exceed 5% of
the value of that Fund's total assets.
"WHEN-ISSUED" OR DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase
securities on a when-issued basis and may purchase or sell securities on a
delayed delivery basis. These terms refer to securities that have been created
and for which a market exists, but which are not available for immediate
delivery. There may be a risk of loss to a Fund if the value of the security
changes prior to the settlement date.
HEDGING. As described below, the Funds may purchase and sell certain kinds of
futures contracts, put and call options, forward contracts, and options on
futures and broadly-based stock or bond indices, or enter into interest rate
swap agreements. These are all referred to as hedging instruments. The Funds do
not use hedging instruments for speculative purposes, and have limits on the use
of them, described below. The hedging instruments the Funds may use are
described below and in greater detail in "Other Investment Techniques and
Strategies" in the Statement of Additional Information.
The Funds may buy and sell options, futures and forward contracts for a number
of purposes. They may do so to try to manage their exposure to the possibility
that the prices of their portfolio securities may decline, or to establish a
position in the securities market as a temporary substitute for purchasing
individual securities. High Income Fund may do so to try to manage their
exposure to changing interest rates. Some of these strategies, such as selling
futures, buying puts and writing covered calls, hedge the Funds' portfolio
against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend to
increase the Funds' exposure to the securities market. Forward contracts are
used to try to manage foreign
9
<PAGE>
currency risks on Funds' foreign investments. Foreign currency options are used
to try to protect against declines in the dollar value of foreign securities the
Funds own, or to protect against an increase in the dollar cost of buying
foreign securities. Writing covered call options may also provide income to the
Funds for liquidity purposes or to raise cash to distribute to shareholders.
Futures. Global Securities Fund and Capital Appreciation Fund may buy and sell
futures contracts that relate to broadly-based stock indices (these are referred
to as Stock Index Futures). Global Securities Fund and High Income Fund may buy
and sell futures contracts that relate to interest rates (these are referred to
as Interest Rate Futures). These types of Futures are described in "Hedging" in
the Statement of Additional Information.
Put and Call Options. The Funds may buy and sell certain kinds of put options
(puts) and call options (calls).
The Funds may buy calls only on securities, broadly-based stock and bond
indices, foreign currencies and Futures that the Fund is permitted to buy and
sell (as explained above) or to terminate their obligation on a call that the
Fund previously wrote. The Funds may write (that is, sell) covered call options
on up to 100% of each Fund's assets. When a Fund writes a call, it receives cash
(called a premium). The call gives the buyer the ability to buy the investment
on which the call was written from that Fund at the call price during the period
in which the call may be exercised. If the value of the investment does not rise
above the call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Funds may purchase put options. Buying a put on an investment gives that
Fund the right to sell the investment at a set price to a seller of a put on
that investment. The Funds can buy only those puts that relate to (1) securities
(whether or not that Fund owns such securities), (2) Futures that the Fund is
permitted to buy and sell (as explained above), (3) broadly-based stock or bond
indices or (4) foreign currencies. A Fund can buy a put on a Future whether or
not that Fund owns the particular Future in its portfolio. A Fund may not sell a
put other than a put that it previously purchased.
The Funds may buy and sell puts and calls only if certain conditions are met:
(1) calls the Funds buy or sell must be listed on a securities or commodities
exchange, or quoted on the Automated Quotation System of the National
Association of Securities Dealers, Inc. ("NASDAQ"); (2) in the case of puts and
calls on foreign currency, they must be traded on a securities or commodities
exchange, or in the over-the-counter market, or quoted by recognized dealers in
those options; (3) none of the Funds will write puts if, as a result, more than
50% of its net assets would be required to be segregated liquid assets; (4) each
call the Funds write must be covered while it is outstanding: that means a Fund
must own the investment on which the call was written or it must own other
securities that are acceptable for the escrow arrangements required for calls;
(5) a Fund may write calls on Futures contracts it owns, but these calls must be
"covered" by securities or other liquid assets the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised; (6) a call or put
option may not be purchased if the value of all of a Fund's put and call options
would exceed 5% of that Fund's total assets.
If a call written by a Fund is exercised, the Fund forgoes any possible profit
from an increase in the market price of the underlying security over the
exercise price less the commissions paid on the sale. In addition, the Fund
could experience capital losses which might cause previously distributed short-
term capital gains to be recharacterized as non-taxable return of capital to
shareholders.
Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Funds use them to "lock-in" the U.S. dollar price of a security
denominated in a foreign currency that a Fund has bought or sold, or to protect
against losses from changes in the relative values of the U.S. dollar and a
foreign currency. Such Funds may also use "cross hedging," where a Fund hedges
against changes in currencies other than the currency in which a security it
holds is denominated.
Interest Rate Swaps. High Income Fund can also enter into interest rate swap
transactions. In an interest rate swap, a Fund and another party exchange their
right to receive or their obligation to pay interest on a security. For example,
they may swap a right to receive floating rate payments for fixed rate payments.
A Fund enters into swaps only on securities it owns. High Income Fund may not
enter into swaps with respect to more than 50% of its total assets. Also, High
Income Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily, as
needed.
Hedging instruments can be volatile investments and may involve special risks.
The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than what is required for normal
portfolio management. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, hedging strategies may reduce that
Fund's return. A Fund could also experience losses if the prices of its futures
and options positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market for the future or
option.
Options trading involves the payment of premiums and has special tax effects on
the Funds. There are also special risks in particular hedging strategies. If a
covered call written by a Fund is exercised on a security that has increased in
value, that Fund will be required to sell the security at the call price and
will not be able to realize any profit if the security has increased in value
above the call price. The use of forward contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. To limit its exposure in foreign currency exchange
contracts, each Fund limits its exposure to the amount of its assets denominated
in the foreign currency. Interest rate swaps are subject to credit risks (if the
other party fails to meet its obligations) and also to interest rate risks. High
Income Fund could be obligated to pay more under their swap agreements they
receive under them, as a result of interest rate changes. These risks are
described in greater detail in the Statement of Additional Information.
DERIVATIVE INVESTMENTS. Each Fund can invest in a number of different kinds of
"derivative investments." The
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Funds may use some types of derivatives for hedging purposes, and may invest in
others because they offer the potential for increased income and principal
value. In general, a "derivative investment" is a specially-designed investment
whose performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest sense,
derivative investments include exchange-traded options and futures contracts
(please refer to "Hedging").
One risk of investing in derivative investments is that the company issuing the
instrument might not pay the amount due on the maturity of the instrument. There
is also the risk that the underlying investment or security might not perform
the way the Manager expected it to perform. The performance of derivative
investments may also be influenced by interest rate changes in the U.S. and
abroad. All of these risks can mean that a Fund will realize less income than
expected from its investments, or that it can lose part of the value of its
investments, which will affect that Fund's share price. Certain derivative
investments held by the Funds may trade in the over-the-counter markets and may
be illiquid. If that is the case, the Funds' investment in them will be limited,
as discussed in "Illiquid and Restricted Securities."
Another type of derivative the Funds may invest in is an "index-linked" note. On
the maturity of this type of debt security, payment is made based on the
performance of an underlying index, rather than based on a set principal amount
for a typical note. Another derivative investment the Funds may invest in are
currency-indexed securities. These are typically short-term or intermediate-term
debt securities. Their value at maturity or the interest rates at which they pay
income are determined by the change in value of the U.S. dollar against one or
more foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This variety of index security offers the potential for greater
income but at a greater risk of loss.
Other derivative investments the Funds may invest in include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or is
payable in an amount based on the price of the issuer's common stock at the time
of maturity. In either case there is a risk that the amount payable at maturity
will be less than the principal amount of the debt (because the price of the
issuer's common stock is not as high as was expected).
PORTFOLIO TURNOVER. A change in the securities held by the Fund is known as
"portfolio turnover." The Funds may engage frequently in short-term trading to
try to achieve their objectives. High turnover and short-term trading involve
correspondingly greater commission expenses and transaction costs for Capital
Appreciation Fund and Global Securities Fund and to a lesser extent, higher
transaction costs for High Income Fund. The "Financial Highlights," above show
the portfolio turnover for the past fiscal years for each Fund which is not
expected to exceed a portfolio turnover rate of 200% in the current fiscal year.
If any Fund derives 30% or more of its gross income from the sale of securities
held less than three months, it may fail to qualify under the tax laws as a
regulated investment company (see "Dividends, Capital Gains and Taxes," below).
SHORT SALES AGAINST-THE-BOX. In a short sale, the seller does not own the
security that is sold, but normally borrows the security to fulfill its delivery
obligation. The seller later buys the security to repay the loan, in the
expectation that the price of the security will be lower when the purchase is
made, resulting in a gain. The Funds may not sell securities short except that
each Fund may sell securities short in collateralized transactions referred to
as "short sales against-the-box." No more than 15% of any Fund's net assets will
be held as collateral for such short sales at any one time.
OTHER INVESTMENT RESTRICTIONS
Each of the Funds has certain investment restrictions which, together with its
investment objective, are fundamental policies. Under some of those
restrictions, each Fund cannot: (1) with respect to 75% of its total assets,
invest in securities (except those of the U.S. Government or its agencies or
instrumentalities) of any issuer if immediately thereafter, either (a) more than
5% of that Fund's total assets would be invested in securities of that issuer,
or (b) that Fund would then own more than 10% of that issuer's voting securities
or 10% in principal amount of the outstanding debt securities of that issuer
(the latter limitation on debt securities does not apply to Strategic Bond
Fund); (2) lend money except in connection with the acquisition of debt
securities which a Fund's investment policies and restrictions permit it to
purchase; the Funds may also make loans of portfolio securities (see "Loans of
Portfolio Securities"); (3) pledge, mortgage or hypothecate any assets to secure
a debt; the escrow arrangements which are involved in options trading are not
considered to involve such a mortgage, hypothecation or pledge; (4) concentrate
investments in any particular industry, other than securities of the U.S.
Government or its agencies or instrumentalities [High Income Fund only];
therefore this Fund will not purchase the securities of issuers primarily
engaged in the same industry if more than 25% of the total value of that Fund's
assets would (in the absence of special circumstances) consist of securities of
companies in a single industry; and (5) deviate from the percentage requirements
and other restrictions listed under "Warrants and Rights," and the first
paragraph under "Special Risks-Borrowing for Leverage." None of the percentage
limitations and restrictions described above and in the Statement of Additional
Information for the Funds with respect to writing covered calls, hedging, short
sales and derivatives is a fundamental policy.
All of the percentage restrictions described above and elsewhere in this
Prospectus, other than those described under "Other Investment Techniques and
Strategies-Special Risks-Borrowing for Leverage," apply only at the time a Fund
purchases a security. A Fund need not dispose of a security merely because the
size of the Fund's assets has changed or the security has increased in value
relative to the size of the Fund. There are other fundamental policies discussed
in the Statement of Additional Information. The Trustees of the Trust are
required to monitor events to identify any irreconcilable conflicts which may
arise between the variable life insurance policies and variable annuity
contracts that invest in the Funds. Should any conflict arise which ultimately
requires that any substantial amount of assets be withdrawn from any Fund, its
operating expenses could increase.
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HOW THE FUNDS ARE MANAGED
ORGANIZATION AND HISTORY. The Trust was organized in 1984 as a Massachusetts
business trust. The Trust is an open-end, diversified management investment
company, with an unlimited number of authorized shares of beneficial interest.
It consists of nine separate Funds. As noted above, this Prospectus describes
the following three Funds: High Income Fund and Capital Appreciation Fund, both
organized in 1986 and Global Securities Fund, organized in 1990.
The Trust is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Funds' activities, review
performance, and review the actions of the Manager. "Trustees and Officers of
the Trust" in the Statement of Additional Information names the Trustees and
provides more information about them and the officers of the Trust. Although the
Trust is not required by law to hold annual meetings, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Trust's Declaration of Trust.
THE MANAGER AND ITS AFFILIATES. The Funds are managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Funds' investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees, under
Investment Advisory Agreements for each Fund which state the Manager's
responsibilities. The Agreements set forth the fees paid by each Fund to the
Manager and describe the expenses that each Fund is responsible to pay to
conduct its business.
The Manager has operated as an investment adviser since 1959. The Manager
(including a subsidiary) currently manages investment companies, including other
OppenheimerFunds, with assets of more than $29 billion as of December 31, 1994,
and with more than 2.4 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company that is owned in part by senior
officers of the Manager and controlled by Massachusetts Mutual Life Insurance
Company, a mutual life insurance company.
PORTFOLIO MANAGERS. The Portfolio Manager of High Income Fund is David P.
Negri. He is the person principally responsible for the day-to-day management of
this Fund since July 1989. During the past five years, Mr. Negri has also served
as an officer of other OppenheimerFunds. The Portfolio Manager of Global
Securities Fund is George Evans. He has been the person principally responsible
for the day-to-day management of that Fund since February, 1991. During the past
five years, he has also served as an Associate Portfolio Manager for other
OppenheimerFunds and formerly served as an international equities portfolio
manager/analyst with Brown Brothers Harriman & Co. The Portfolio Manager of
Capital Appreciation Fund is Paul LaRocco. He has been the person principally
responsible for the day-to-day management of that Fund's portfolio since January
1994. During the past five years, he has also served as an Associate Portfolio
Manager for other OppenheimerFunds and formerly served as a securities analyst
with Columbus Circle Investors, prior to which he was an investment analyst for
Chicago Title & Trust Co. Messrs. Negri and Evans are Vice Presidents of the
Manager. Mr. LaRocco is an Assistant Vice President of the Manager. Each of the
Portfolio Managers named above are also Vice Presidents of the Trust.
FEES AND EXPENSES. The monthly management fee payable to the Manager is computed
separately on the net assets of each Fund as of the close of business each day.
The management fee rates that became effective September 1, 1994 are as follows:
(i) for Capital Appreciation Fund and Global Securities Fund: 0.75% of the first
$200 million of net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of net assets over $800
million and (ii) for High Income Fund: 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
over $1 billion. The management fee rates in effect prior to September 1, 1994
are contained in note 8 to the Funds' financial statements included in the
Statement of Additional Information.
During the fiscal year ended December 31, 1994, the management fee (computed on
an annualized basis as a percentage of the net assets of all the Funds as of the
close of business each day) and the total operating expenses as a percentage of
average net assets of each Fund, when restated to reflect the current management
fee rates described above and the current limitation on expenses described in
the Statement of Additional Information, were as follows:
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OPERATING
FEES EXPENSES(1)
<S> <C> <C>
High Income Fund .75% .81%
Capital Appreciation Fund .75% .80%
Global Securities Fund .75% .95%
--------------------
</TABLE>
(1) This table does not reflect expenses that apply at the separate account
level or to related insurance products.
The Funds pay expenses related to their daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those
expenses are paid out of the Funds' assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the investment advisory agreement is contained in the
Statement of Additional Information.
There is also information about the Funds' brokerage policies and practices in
"Brokerage Policies of the Funds" in the Statement of Additional Information.
That section discusses how brokers and dealers are selected for the Funds'
portfolio transactions. When deciding which brokers to use, the Manager is
permitted by the investment advisory agreements to consider whether brokers have
sold shares of the Funds or any other funds for which the Manager serves as
investment adviser.
SHAREHOLDER INQUIRIES. Inquiries by policyowners for Account information are to
be directed to the insurance
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company issuing the Account at the address or telephone number shown in the
accompanying Account Prospectus.
PERFORMANCE OF THE FUNDS
EXPLANATION OF PERFORMANCE TERMINOLOGY. High Income Fund uses the terms "yield,"
"total return," and "average annual total return" to illustrate performance. All
the Funds use the terms average annual total return and total return to
illustrate their performance. This performance information may be useful to help
you see how well your investment has done and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the Funds' total returns and yields represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but more
detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Funds' performance. Each
Fund's investment performance will vary over time, depending on market
conditions, the composition of the portfolio and expenses.
YIELDS. Yield for High Income Fund will be computed in a standardized manner for
mutual funds, by dividing that Fund's net investment income per share earned
during a 30-day base period by the maximum offering price (equal to the net
asset value) per share on the last day of the period. This yield calculation is
compounded on a semi-annual basis, and multiplied by 2 to provide an annualized
yield. The Statement of Additional Information describes a dividend yield and a
distribution return that may also be quoted for this Fund.
TOTAL RETURNS. There are different types of total returns used to measure
each Fund's performance. Total return is the change in value of a hypothetical
investment in the Fund over a given period, assuming that all dividends and
capital gains distributions are reinvested in additional shares. The cumulative
total return measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return over the
entire period. However, average annual total returns do not show the Funds'
actual year-by-year performance.
HOW HAVE THE FUNDS PERFORMED? Below is a discussion by the Manager of the Funds'
performance during their last fiscal year ended December 31, 1994, followed by a
graphical comparison of each Fund's performance to an appropriate broad-based
market index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the Funds' fiscal year ended
December 31, 1994, the Manager emphasized the following investment strategies
and techniques. For HIGH INCOME FUND, bonds issued by U.S. companies that derive
a large percentage of their earnings from Europe were emphasized, together with
bonds positioned to benefit from rising commodity prices, notably those issued
by companies in the chemicals, industrial metals and forest product sectors. For
CAPITAL APPRECIATION FUND, stocks of well-managed, innovative companies in
sectors with high potential were emphasized, including technology, health care
and consumer cyclicals, such as specialty retailing. For GLOBAL SECURITIES FUND,
emerging markets such as Latin America were emphasized, including stocks with
strong earnings potential driven by corporate restructurings and the
privatization of state-owned industries.
COMPARING EACH FUND'S PERFORMANCE TO THE MARKET. The charts below show the
performance of hypothetical $10,000 investments in each Fund held until December
31, 1994. Performance information does not reflect charges that apply to
separate accounts investing in the Funds and is not restated to reflect the
increased management fee rates that took effect September 1, 1994. If these
charges and expenses were taken into account, performance would be lower.
High Income Fund's performance is compared to the performance of the Salomon
Brothers High Yield Market Index which is an unmanaged index of below-investment
grade (but rated at least BB+/Ba1 by Standard & Poor's or Moody's) U.S.
corporate debt obligations, widely-recognized as a measure of the performance of
the high-yield corporate bond market. The performance of Capital Appreciation
Fund is compared to the performance of the S&P 500 Index, a broad-based index of
equity securities widely regarded as a general measurement of the performance of
the U.S. equity securities market. Global Securities Fund's performance is
compared to the Morgan Stanley World Index, an unmanaged index of issuers listed
on the stock exchanges of 20 foreign countries and the U.S., and is widely
recognized as a measure of global stock market performance. Index performance
reflects the reinvestment of dividends but does not consider the effect of
capital gains or transaction costs, and none of the data below shows the effect
of taxes. Also, a Fund's performance reflects the effect of that Fund's business
and operating expenses. While index comparisons may be useful to provide a
benchmark for a Fund's performance, it must be noted that the Fund's investments
are not limited to the securities in the one index. Moreover, the index
performance data does not reflect any assessment of the risk of the investments
included in the index.
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ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
Shares of each Fund are offered only for purchase by Accounts as an investment
medium for variable life insurance policies and variable annuity contracts, as
described in the accompanying Account Prospectus. The sale of shares will be
suspended during any period when the determination of net asset value is
suspended and may be suspended by the Board of Trustees whenever the Board
judges it in that Fund's best interest to do so. Shares of each Fund are offered
at their respective offering price, which (as used in this Prospectus and the
Statement of Additional Information) is net asset value (without sales charge).
All purchase orders are processed at the offering price next determined after
receipt by the Trust of a purchase order in proper form. The offering price (and
net asset value) is determined as of the close of The New York Stock Exchange,
which is normally 4:00 P.M., New York time, but may be earlier on some days. Net
asset value per share of each Fund is determined by dividing the value of that
Fund's net assets by the number of its shares outstanding. The Board of Trustees
has established procedures for valuing each Fund's securities. In general, those
valuations are based on market value.
HOW TO SELL SHARES
Payment for shares tendered by an Account for redemption is made ordinarily in
cash and forwarded within seven days after receipt by the Trust's transfer
agent, Oppenheimer Shareholder Services (the "Transfer Agent"), of redemption
instructions in proper form, except under unusual circumstances as determined by
the Securities and Exchange Commission. The Trust understands that payment to
the Account owner will be made in accordance with the terms of the accompanying
Account Prospectus. The redemption price will be the net asset value next
determined after the receipt by the Transfer Agent of a request in proper form.
The market value of the securities in the portfolio of the Funds is subject to
daily fluctuations and the net asset value of the Funds' shares will fluctuate
accordingly. Therefore, the redemption value may be more or less than the
investor's cost.
DIVIDENDS, CAPITAL GAINS AND TAXES
DIVIDENDS AND DISTRIBUTIONS OF HIGH INCOME FUND.
The Trust intends to declare High Income Fund dividends quarterly, payable in
March, June, September and December.
DIVIDENDS AND DISTRIBUTIONS OF CAPITAL APPRECIATION FUND AND GLOBAL SECURITIES
FUND. The Trust intends to declare Capital Appreciation Fund and Global
Securities Fund dividends on an annual basis.
CAPITAL GAINS. Any Fund may make a supplemental distribution annually in
December out of any net short-term or long-term capital gains derived from the
sale of securities, premiums from expired calls written by the Fund, and net
profits from hedging transactions. Each such Fund may also make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. All dividends and capital gains distributions paid on shares of any
of the Funds are automatically reinvested in additional shares of that Fund at
net asset value determined on the distribution date. There are no fixed dividend
rates and there can be no assurance as to payment of any dividends or the
realization of any capital gains.
TAX TREATMENT TO THE ACCOUNT AS SHAREHOLDER. Dividends paid by each Fund from
its ordinary income and distributions of each Fund's net realized short-term or
long-term capital gains are includable in gross income of the Accounts holding
such shares. The tax treatment of such dividends and distributions depends on
the tax status of that Account.
TAX STATUS OF THE FUNDS. If the Funds qualify as "regulated investment
companies" under the Internal Revenue Code, the Trust will not be liable for
Federal income taxes on amounts paid as dividends and distributions from any of
the Funds. The Funds did qualify during their last fiscal year and the Trust
intends that they will qualify in current and future years. However, the Code
contains a number of complex tests relating to qualification which any Fund
might not meet in any particular year (see, e.g., "Other Investment Techniques
and Strategies -Portfolio Turnover"). If any Fund does not so qualify, it would
be treated for tax purposes as an ordinary corporation and would receive no tax
deduction for payments made to shareholders of that Fund. The above discussion
relates solely to Federal tax laws. This discussion is not exhaustive and a
qualified tax adviser should be consulted.
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APPENDIX A -
DESCRIPTION OF TERMS
Some of the terms used in the Prospectus and the Statement of Additional
Information are described below:
BANK OBLIGATIONS include CERTIFICATES OF DEPOSIT which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually 14 days to one year) at
a stated interest rate. BANKERS' ACCEPTANCES are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer; these instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. TIME DEPOSITS
are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. BANK NOTES are short-term direct
credit obligations of the issuing bank or bank holding company.
COMMERCIAL PAPER consists of short-term (usually 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. VARIABLE RATE MASTER DEMAND NOTES are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangement between the holder and the borrower. The holder has the
right to increase the amount under the note at any time up to the face amount,
or to decrease the amount borrowed, and the borrower may repay up to the face
amount of the note without penalty.
CORPORATE OBLIGATIONS are bonds and notes issued by corporations and other
business organizations, including business trusts, in order to finance their
long-term credit needs.
LETTERS OF CREDIT are obligations by the issuer (a bank or other person) to
honor drafts or other demands for payment upon compliance with specified
conditions.
SECURITIES ISSUED OR GUARANTEED BY THE UNITED STATES GOVERNMENT OR ITS AGENCIES
OR INSTRUMENTALITIES include issues of the United States Treasury, such as
bills, certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress. Such
agencies and instrumentalities include, but are not limited to, Bank for
Cooperatives, Federal Financing Bank, Federal Home Loan Bank, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Issues of the United States
Treasury are direct obligations of the United States Government. Issues of
agencies or instrumentalities are (i) guaranteed by the United States Treasury,
or (ii) supported by the issuing agency's or instrumentality's right to borrow
from the United States Treasury, or (iii) supported by the issuing agency's or
instrumentality's own credit.
A-1
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APPENDIX B - DESCRIPTION OF SECURITIES RATINGS
This is a description of (i) the two highest rating categories for Short Term
Debt and Long Term Debt by the Rating Organizations referred to under
"Investment Objectives and Policies - Money Fund", and (ii) additional rating
categories that apply principally to investments by High Income Fund, Strategic
Bond Fund and Bond Fund. The rating descriptions are based on information
supplied by the Rating Organizations to subscribers.
SHORT TERM DEBT RATINGS.
Moody's Investors Service, Inc. ("Moody's"): The following rating designations
for commercial paper (defined by Moody's as promissory obligations not having
original maturity in excess of nine months), are judged by Moody's to be
investment grade, and indicate the relative repayment capacity of rated issuers:
PRIME-1: Superior capacity for repayment. Capacity will normally be evidenced by
the following characteristics: (a) leveling market positions in well-established
industries; (b) high rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (d) broad margins in earning coverage of fixed financial charges and
high internal cash generation; and (e) well established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Strong capacity for repayment. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation ("S&P"): The following ratings by S&P for
commercial paper (defined by S&P as debt having an original maturity of no more
than 365 days) assess the likelihood of payment:
A-1: Strong capacity for timely payment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2: Satisfactory capacity for timely payment. However, the relative degree of
safety is not as high as for issues designated "A-1".
Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following short-term
ratings to debt obligations that are payable on demand or have original
maturities of generally up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes:
F-1+: Exceptionally strong credit quality; the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality; assurance of timely payment is only slightly
less in degree than issues rated "F-1+".
F-2: Good credit quality; satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned "F-1+" or "F-1"
ratings.
Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for commercial
paper (defined by Duff & Phelps as obligations with maturities, when issued, of
under one year), asset-backed commercial paper, and certificates of deposit (the
ratings cover all obligations of the institution with maturities, when issued,
of under one year, including bankers' acceptance and letters of credit):
DUFF 1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings, including
commercial paper (with maturities up to 12 months), are as follows:
A1+: Obligations supported by the highest capacity for timely repayment.
A1: Obligations supported by a very strong capacity for timely repayment.
A2: Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic, or
financial conditions.
Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply to
commercial paper, certificates of deposit, unsecured notes, and other securities
having a maturity of one year or less.
TBW-1: The highest category; indicates the degree of safety regarding timely
repayment of principal and interest is very strong.
TBW-2: The second highest rating category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
LONG TERM DEBT RATINGS.
These rating categories apply principally to investments by High Income Fund,
Strategic Bond Fund and Bond Fund. For Money Fund only, the two highest rating
categories of each Rating Organization are relevant for securities purchased
with a remaining maturity of 397 days or less, or for rating issuers of short-
term obligations.
Moody's: Bonds (including municipal bonds) are rated as follows:
AAA: Judged to be the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
positions of such issues.
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Aa: Judged to be of high quality by all standards. Together with the "Aaa"
group, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A: Possess many favorable investment attributes and are to be considered as
upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Considered medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well.
Ba: Judged to have speculative elements; their future cannot be considered well-
assured. Often the protection of interest and principal payments may be very
moderate and not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Of poor standing and may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Represent obligations which are speculative in a high degree and are often
in default or have other marked shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's: Bonds are rated as follows:
AAA: The highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and differ from "AAA"
rated issues only in small degree.
A: Have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to adverse effects of change in circumstances and
economic conditions.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this capacity than for bonds in the "A"
category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligation. "BB" indicates the lowest degree of speculation
and "CC" the highest degree. While such bonds will likely have some equality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds rated "D"
are in default and payment of interest and/or repayment of principal is in
arrears.
Fitch:
AAA: Considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA: Considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Plus (+) and minus (-) signs are used
in the "AA" category to indicate the relative position of a credit within that
category.
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+".
Duff & Phelps:
AAA: The highest credit quality. The risk factors are negligible, being only
slightly more than the risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Plus (+) and
minus (-) signs are used in the "AA" category to indicate the relative position
of a credit within that category.
IBCA: Long-term obligations (with maturities of more than 12 months) are rated
as follows:
AAA: The lowest expectation for investment risk. Capacity for timely repayment
of principal and interest is substantial such that adverse changes in business,
economic, or financial conditions are unlikely to increase investment risks
significantly.
AA: A very low expectation for investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic, or
financial conditions may increase investment risk albeit not very significantly.
A plus (+) or minus (-) sign may be appended to a long term rating to denote
relative status within a rating category.
TBW: TBW issues the following ratings for companies. These ratings assess the
likelihood of receiving payment of principal and interest on a timely basis and
incorporate TBW's opinion as to the vulnerability of the company to adverse
developments, which may impact the market's perception of the company, thereby
affecting the marketability of its securities.
A: Possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its natural
money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B: The company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, it not quite as
favorable as for companies in the highest rating category.
B-19
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
--------------------
INVESTMENT ADVISER
OPPENHEIMER MANAGEMENT CORPORATION
Two World Trade Center
New York, New York 10048-0203
TRANSFER AGENT
OPPENHEIMER SHAREHOLDER SERVICES
P.O. Box 5270
Denver, Colorado 80217
CUSTODIAN OF PORTFOLIO SECURITIES
THE BANK OF NEW YORK
One Wall Street
New York, New York 10015
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
1560 Broadway
Denver, Colorado 80202
LEGAL COUNSEL
MYER, SWANSON, ADAMS & WOLF, P.C.
1600 Broadway
Denver, Colorado 80202
--------------------
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representations must not be relied upon as having
been authorized by the Fund, Oppenheimer Management Corporation or any
affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such an offer in such state.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS PROSPECTUS
FOR
LARGE CASE VARIABLE LIFE PLUS
Graphic Appendix List
---------------------
Page 14 - Top of Page
(Graph comparing total return of High Income Fund shares to performance of
Salomon Brothers High Yield Market Index)
Average Annual Total Return at 12/31/94/(1)/
1 year 5 years Life of Fund
-3.18% 15.09% 12.47%
(1) The inception date of the Fund was 4/30/86. The average annual total returns
and the ending account value in the graph reflect reinvestment of all dividends
and capital grains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Page 14 - Bottom of Page
(Graph comparing total return of Capital Appreciation Fund shares to performance
of S&P 500 Index)
Average Annual Total Return at 12/31/94/(1)/
1 year 5 years Life of Fund
-7.59% 11.81% 13.28%
(1) The inception date of the Fund was 8/15/86. The average annual total returns
and the ending accounting value in the graph reflect reinvestment of all
dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
<PAGE>
PAGE 15 - TOP OF PAGE
(Graph comparing total return of Global Securities Fund shares to performance of
Morgan Stanley World Index)
Average Annual Total Return at 12/31/94/(1)/
1 year Life of Fund
-5.72% 11.15%
(1) The inception date of the Fund was 11/12/90. The average annual total
returns and the ending account value in the graph reflect reinvestment of all
dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
2
<PAGE>
MML Series
Page 6
Top of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Equity Fund and the Standard &
Poor's 500 Index. In the upper left portion of the graph is a table listing
the average annual total returns for the MML Equity Fund for the 1, 5, and
10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr 4.10%
5 Yr 9.49%
10 Yr 13.72%
</TABLE>
<TABLE>
<CAPTION>
Plot points for graph: MML Equity S & P 500
<S> <C> <C>
1/1/85 10,000 10,000
1985 13,049 13,177
1986 15,678 15,639
1987 16,007 16,460
1988 18,677 19,192
1989 22,981 25,278
1990 22,863 24,476
1991 28,707 31,934
1992 31,715 34,367
1993 34,733 37,828
1994 36,159 38,324
</TABLE>
Page 6
Bottom of page: a table listing the average annual total returns for the
MML Money Market Fund and the Lipper Taxable Money Market Fund Average for
the 1, 5, and 10 year time periods.
<TABLE>
<CAPTION>
MML Money Lipper Taxable
Plot points for table: Market Money Mkt.
<S> <C> <C>
1 Yr 3.84% 3.65%
5 Yr 4.82% 4.59%
10 Yr 6.17% 5.89%
</TABLE>
<PAGE>
MML Series
Page 7
Top of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Managed Bond Fund and the Lehman
Brothers Government/Corporate Bond Index. In the upper left portion of the
graph is a table listing the average annual total returns for the MML
Managed Bond Fund for the 1, 5, and 10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr -3.76%
5 Yr 7.86%
10 Yr 9.53%
</TABLE>
<TABLE>
<CAPTION>
MML Managed Lehman Brothers
Plot points for graph: Bond G/C Bond
<S> <C> <C>
1/1/85 10,000 10,000
1985 11,994 12,134
1986 13,729 14,022
1987 14,086 14,346
1988 15,090 15,431
1989 17,026 17,631
1990 18,452 19,091
1991 21,526 22,170
1992 23,099 23,848
1993 25,827 26,486
1994 24,855 25,556
</TABLE>
Page 7
Bottom of page: a line graph reflecting the growth of a hypothetical
investment of $10,000 invested in the MML Blend Fund and the Lipper
Balanced Fund Index. In the upper left portion of the graph is a table
listing the average annual total returns for the MML Blend Fund for the 1,
5, and 10 year time periods.
<TABLE>
<CAPTION>
Plot points for table:
<S> <C>
1 Yr 2.48%
5 Yr 9.31%
10 Yr 12.46%
</TABLE>
<TABLE>
<CAPTION>
Lipper
Plot points for graph: MML Blend Balanced
<S> <C> <C>
1/1/85 10,000 10,000
1985 12,488 12,983
1986 14,774 15,376
1987 15,234 16,010
1988 17,276 17,800
1989 20,725 21,306
1990 21,216 21,446
1991 26,309 26,985
1992 28,772 28,942
1993 31,561 32,329
1994 32,343 31,523
</TABLE>
