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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 Policyowner
may allocate the premium for his or her Policy among a Guaranteed Principal
Account ("GPA") and the thirteen Separate Account divisions of a designated
segment of MassMutual Variable Life Separate Account I (the "Separate Account")
after certain deductions have been made. (For details see Deductions From
Premiums on page 9.) At any one time, only eight divisions are available to a
Policyowner. The Separate Account divisions consist of four divisions (the
"MML Divisions") which invest in MML Series Investment Fund and nine divisions,
(the "Oppenheimer Divisions"), which invest in nine funds of 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 divisions of the
Separate Account (the "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 is sufficient Account Value available to pay applicable monthly
charges. (For details see Account Value Charges on page 9.)
The Divisions have distinct investment portfolios. The MML Equity Division
invests in shares of MML Equity Fund, which invests primarily in common stocks
and other equity securities. The MML 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 MML Managed
Bond Division invests in shares of MML Managed Bond Fund, which invests
primarily in publicly issued, readily marketable, fixed-income securities. The
MML Money Market Division invests in shares of MML Money Market Fund, which
invests primarily in short-term debt instruments. The Oppenheimer Global
Securities Division invests in shares of 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. The Oppenheimer Capital Appreciation Division invests in shares of
Oppenheimer Capital Appreciation Fund which invests primarily in securities of
growth-type companies. The Oppenheimer Growth Division invests in shares of
Oppenheimer Growth Fund which invests primarily in securities of well-known
companies. The Oppenheimer Growth & Income Division invests in shares of
Oppenheimer Growth & Income Fund which invests primarily in equity and debt
securities. The Oppenheimer Multiple Strategies Division invests in shares of
Oppenheimer Multiple Strategies Fund which invests primarily in common stocks
and other equity securities, bonds, other debt securities and "money market"
securities. The Oppenheimer High Income Division invests in shares of
Oppenheimer High Income Fund which invests primarily in lower-rated, high yield,
high risk income securities. The Oppenheimer Strategic Bond Division invests in
shares of Oppenheimer Strategic Bond Fund which invests primarily in: (i)
foreign government and corporate debt securities; (ii) U.S. government
securities; and (iii) lower-rated high yield, high-risk debt securities. The
Oppenheimer Bond Division invests in shares of Oppenheimer Bond Fund which
invests primarily in high yield fixed-income securities. The Oppenheimer Money
Division invests in shares of Oppenheimer Money Fund which invests primarily in
"money market" securities consistent with low capital risk and maintenance of
liquidity. (Collectively, these thirteen funds are referred to as the
"Funds.") The shares of the underlying Funds purchased by the Divisions are
held by MassMutual as custodian of the Separate Account. (For details regarding
the charges against the Separate Account, see Separate Account Charges on page
10.)
All Policies are serviced through MassMutual's Home Office which is located in
Springfield, Massachusetts. The mailing address is Massachusetts Mutual Life
Insurance Company, Springfield, Massachusetts 01111. The telephone number is
(413) 788-8411.
August 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 PROSPECTUSES OF MML SERIES
INVESTMENT FUND AND 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 Of Contents
Page
----
Definitions Of Terms..................................... 4
Basic Questions And Answers About Us
And Our Policy........................................ 6
What is MassMutual?.................................... 6
What variable life insurance policy are
We offering?.......................................... 6
Availability........................................... 6
Underwriting........................................... 6
What is the Account Value of the Policy?............... 6
What are the Divisions of the Separate
Account?.............................................. 6
What is the Guaranteed Principal
Account ("GPA")?...................................... 7
Is the level of the Death Benefit
guaranteed?........................................... 7
Is the Death Benefit subject to income
taxes?................................................ 7
Does the Policy have a Cash Surrender
Value?................................................ 7
What is a modified endowment contract?................. 7
Can this Policy become a modified
endowment contract?................................... 7
What about Premiums?................................... 7
When are Initial Premiums allocated to
the Guaranteed Principal Account or
the Separate Account?................................. 8
How can the Net Premium and the Account
Value of the Policy be allocated among
the Guaranteed Principal Account and
the Separate Account Divisions?....................... 8
How long will the Policy remain in
force?................................................ 8
Are there charges against the Policy?.................. 8
What is the loan privilege and how does
a loan affect the Policy's Death
Benefit and Cash Surrender Value?..................... 8
Are dividends paid on the Policy?...................... 8
Do I have a right to cancel?........................... 8
Can the Policy be exchanged for a fixed
benefit policy?....................................... 9
Charges Under The Policy................................. 9
Deductions from Premiums............................... 9
Sales Load............................................ 9
State Premium Tax Charge.............................. 9
Deferred Acquisition Cost ("DAC")
Tax Charge............................................ 9
Account Value Charges.................................. 9
Administrative Charge................................. 9
Charge for Cost of Insurance Protection............... 10
Underwriting Charge................................... 10
Separate Account Charges............................... 10
Charges for Mortality and Expense Risks............... 10
Charges for Federal Income Taxes...................... 10
The Separate Account..................................... 10
Investment of the Separate Account..................... 10
Rates of Return........................................ 13
General Provisions Of The Policy......................... 14
Premiums............................................... 14
Planned Policy Premiums................................ 14
Minimum Initial Policy Premium......................... 15
Minimum Case Premium................................... 15
Initial Case Premium Paid.............................. 15
Minimum and Maximum Premium Payments................... 15
Termination............................................ 15
Grace Period........................................... 15
Death Benefit Under The Policy........................... 15
Account Value And Cash Surrender Value................... 16
Account Value.......................................... 16
Automated Account Value Transfer....................... 16
Investment Return...................................... 16
Cash Surrender Value................................... 17
Withdrawals............................................ 17
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Page
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Policy Loan Privilege.................................. 17
Source of Loan....................................... 17
If Loans Exceed the Policy Account Value............. 17
Interest............................................. 17
Repayment............................................ 18
Interest on Loaned Value............................. 18
Effect of Loan....................................... 18
Free Look Provision.................................... 17
Exchange Privilege..................................... 18
Your Voting Rights..................................... 18
Our Rights............................................. 18
Directors And Executive Vice Presidents Of MassMutual.. 19
The Guaranteed Principal Account....................... 20
Federal Income Tax Considerations...................... 21
MassMutual - Tax Status.............................. 21
Policy Proceeds, Premiums, and Loans................. 21
Modified Endowment Contracts......................... 22
Diversification Standards............................ 22
Additional Provisions Of The Policy.................... 23
Paid-up Policy Date.................................. 23
Reinstatement Option................................. 23
Payment Options...................................... 23
Fixed Amount Payment Option.......................... 23
Fixed Time Payment Option............................ 23
Interest Payment Option.............................. 23
Lifetime Payment Option.............................. 23
Joint Lifetime Payment Option........................ 23
Joint Lifetime Payment Option with Reduced Payments.. 23
Withdrawal Rights under Payment Options.............. 23
Beneficiary.......................................... 23
Changing the Owner or Beneficiary.................... 24
Right to Substitute Insured.......................... 24
Assignment........................................... 24
Dividends............................................ 24
Limits on Our Right to Challenge the Policy.......... 24
Misstatement of Age or Sex........................... 24
Suicide.............................................. 24
When We Pay Proceeds................................. 24
Records And Reports.................................... 25
Sales And Other Agreements............................. 25
Commissions Schedule................................. 25
Bonding Arrangement.................................. 25
Legal Proceedings...................................... 25
Experts................................................ 25
Financial Statements................................... 25
Appendix A............................................. 44
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Definition Of Terms
Account Value: The sum of the Variable Account Value and the Fixed Account Value
of the Policy.
Automated Account Value Transfer: The automated transfer process which allows a
Policyowner to specify, subject to applicable transfer rules, a specific dollar
amount or a whole-number percentage of a Division's Account Value to be
transferred monthly from that Division to any other Division(s) and/or the
Guaranteed Principal Account.
Beneficiary: The person or persons that the Policyowner specifies 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.
Divisions: The subaccounts of the Separate Account, each of which invests in
shares of either the MML Trust or the Oppenheimer Trust.
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.
Guaranteed Principal Account ("GPA"): A fixed account to which a Policyowner
may allocate Net Premium or Account Value, which guarantees both the principal
and a minimum interest rate.
Home Office: The Home Office of Massachusetts Mutual Life Insurance Company,
located at 1295 State Street 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.
Paid-up Policy Date: The Policy Anniversary Date nearest the Insured's 100th
birthday.
Policy: The Flexible Premium Variable 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 on the Schedule Page of the Policy used as 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 made 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
successive twelve month period thereafter.
Policyowner: The corporation, partnership, trust, individual, or other entity
who owns the Policy.
Premium: 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
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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 MassMutual issues, 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 date on which the net asset value of the shares of the Funds
is determined. Generally, this will be any date on which the New York Stock
Exchange (or its successor) is open for trading.
Valuation Period: The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
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.
We or Us: Refers to MassMutual.
Withdrawal: A withdrawal of Account Value by the Policyowner.
You or Yours: Refers to the Policyowner.
5
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Basic Questions And Answers
About Us And Our Policy
What is MassMutual? Massachusetts Mutual Life Insurance Company
("MassMutual") is a mutual life insurance company chartered in 1851 under the
laws of Massachusetts. Its Home Office is located in Springfield,
Massachusetts. MassMutual is licensed to transact life, accident and health
business in all fifty states of the United States, the District of Columbia and
certain provinces of Canada. As of December 31, 1994, MassMutual had total
contingency reserves in excess of $1.9 billion and consolidated assets of $35.7
billion.
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 have executed a
definitive merger agreement. 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.
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 and Cash Surrender Value, as well as 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 Benefit may,
and Cash Surrender Value most likely will, vary to the extent that the Account
Value under the Policy is allocated to the Division(s). 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"),
the Policy and any amendments or riders added thereto.
Availability. The Policy is available on a "Case" or, state law permitting, on
an 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 an individual Insured
owns the Policy, he or she 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 through 85 (age
nearest birthday). The minimum 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 not older than 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 Divisions but also may benefit from any appreciation in value. For
details see Account Value on page 15.
What are the Divisions of the Separate Account? The Separate Account has
thirteen Divisions - the MML Equity Division, the MML Blend Division, the MML
Managed Bond Division, the MML Money Market Division, the Oppenheimer Global
Securities Division, the Oppenheimer Capital Appreciation Division, the
Oppenheimer Growth Division, the Oppenheimer Growth & Income Division, the
Oppenheimer Multiple Strategies Division, the Oppenheimer High Income Division,
the Oppenheimer Strategic Bond Division,the Oppenheimer Bond Division, and the
Oppenheimer Money Division. Each 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. For
details see The Separate Account on page 10.
The MML Equity Division invests in shares of MML Equity Fund. The MML Blend
Division invests in shares of MML Blend Fund. The MML Managed Bond Division
invests in shares of MML Managed Bond Fund. The MML Money Market Division
invests in shares of MML Money Market Fund. Oppenheimer Global Securities,
Capital Appreciation, Growth, Growth & Income, Multiple Strategies, High Income,
Strategic Bond, Bond and Money Divisions invest in shares of Oppenheimer Global
Securities Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund,
Oppenheimer Growth & Income Fund, Oppenheimer Multiple Strategies Fund,
Oppenheimer High Income Fund, Oppenheimer Strategic
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Bond Fund, Oppenheimer Bond Fund, Oppenheimer Money Fund, respectively.
MML Equity Fund, MML Blend Fund, MML Managed Bond Fund and MML Money Market 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 Oppenheimer Fund. (Effective January 5, 1996, OMC will be known as
OppenheimerFunds, Inc.) Oppenheimer Global Securities Fund, Oppenheimer
Capital Appreciation Fund, Oppenheimer Growth Fund, Oppenheimer Growth & Income
Fund, Oppenheimer Multiple Strategies Fund, Oppenheimer High Income Fund,
Oppenheimer Strategic Bond Fund, Oppenheimer Bond Fund, and Oppenheimer Money
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 Policyowner may allocate Net Premium or transfer Account
Value to the GPA. Amounts so allocated or transferred 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 3%. 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 on page 20.
Is the level of the Death Benefit guaranteed? There are two Death Benefit
options. 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. So long as the Policy remains in force, the Death Benefit
You have selected will be available. For details see Death Benefit Under The
Policy on page 15.
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 on page 21.
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 deducted from each Withdrawal. For details see Withdrawals. The
Cash Surrender Value of a Policy fluctuates with the investment performance of
the Divisions in which the Policy has Account Value, and with the interest rate
on the amount held in the 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. In
connection with certain Withdrawals of Account Value and loans on the Policy,
however, the Policyowner may be taxed on all or a part of the amount
distributed.
For details see Cash Surrender Value on page 16 and Federal Income Tax
Considerations - Policy Proceeds, Premiums and Loans on page 21.
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 a life insurance
policy can subject it to retesting for a new seven-year period. During an
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 Policyowner is
not 59-1/2. For details see Modified Endowment Contracts on page 22.
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 ("MEC"). This test
examines the Policy for MEC status at the time of issue. The Company has
further safeguards 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
on page 22.
What about Premiums? There are five concepts which are important to the
discussion of premiums for this Policy: the minimum initial Policy premium; the
minimum annual planned Policy premium; the planned Policy premium; the minimum
Case premium; and the Initial Case Premium Paid.
A minimum initial Policy premium is payable either at the time You submit Your
Application or at some time prior to the delivery of the Policy. The minimum
annual planned Policy premium is a level amount used in determining the sales
7
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load percentage breakpoint and varies by initial Selected Face Amount, issue
age, and sex. The planned Policy premium is elected on the Application and
becomes the basis for the Policy's premium billing. The amount of planned Policy
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 administration 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 on page 14.
When are Initial Premiums allocated to the Guaranteed Principal Account or the
Separate Account? The initial Net Premium (i.e., premium paid less the
deductions described in Deductions From Premiums) will be allocated to the MML
Money Market Division, which invests in the MML Money Market Fund (see Free Look
Provision on page 18). At the end of the Free Look Period, the Account Value
will be allocated to the GPA and/or Divisions 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 Divisions? When You apply for a Policy
You choose the percentages of Your premiums to be allocated to the Divisions
(maximum of eight at one time) and the GPA. A Policyowner may choose any
whole-number percentages as long as the total is 100%. The allocation of future
Net Premiums may be changed at any time without charge.
The Account Value of the Policy may be transferred between the GPA and/or the
Divisions by written request. Account Value may be transferred by dollar amount
or by whole-number percentage, subject to restrictions. Only eight Divisions
are available to a Policyowner at any one time. To allocate Net Premiums or to
transfer Account Value to a ninth Division, the Policyowner must transfer 100%
of the Account Value from one or more of the eight Divisions to which
allocations are currently made. For details, see The Separate Account.
Automated Account Value Transfer is also available. For details, see Automated
Account Value Transfer. For details see Account Value on page 16.
How long will the Policy remain in force? The Policy does not automatically
terminate for failure to pay planned Policy 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. For details
see Termination and Grace Period on page 15.
Are there charges against the Policy? Certain charges are made against the
Policy. Before allocation of any premium 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 the percentages vary
depending on the total Initial Case Premium Paid for all Policies in the Case
before installation on the administration on system. There are two additional
deductions from gross premiums: (i) for state premium taxes; and (ii) for
Deferred Acquisition Cost ("DAC") tax expense. Each premium, net of these
charges, is allocated to the GPA or the Divisions and becomes a part of the
Account Value. For details see Deductions From Premium on page 9.
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 an underwriting charge. The
underwriting 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 Divisions.
A daily charge calculated at a current annual rate of .30% of the value of the
assets of each Division is charged for mortality and expense risks. In no event
will this rate exceed .60%. 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 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 on page 9 and Federal Income Tax
Considerations on page 20.
What is the loan privilege and how does a loan affect the Policy's Death Benefit
and Cash Surrender Value? 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; (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.
(The maximum loan amount may be different if required by state law.) For
details see Policy Loan Privilege on page 17.
Are dividends paid on the Policy? The Policy is participating, therefore, it may
share in any dividends that MassMutual pays. 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 on
page 24.
Do I have a right to cancel? Under the Free Look Provision, the Policyowner has
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 You receive a Notice of Withdrawal Right; or
. 45 days after Part 1 of the Policy Application was signed.
8
<PAGE>
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 on
page 17.
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 written request for the transfer
signed by the Policyowner.
For details see Account Value on page 16 and Exchange Privilege on page 18.
Charges Under The Policy
Certain charges are deducted to compensate MassMutual 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 GPA or the selected
Divisions, a deduction as a percentage of premium is made for the sales load,
state premium taxes, and the DAC tax charge. The sales load percentage varies
depending on the total Initial Case Premium Paid for all Policies in the Case.
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 before installation
on the administration system. For Policies issued in a Case with an Initial
Case Premium Paid of less than $1,000,000, the sales load percentages will
decrease after the fifth Policy Year. For Policies issued in a Case with an
Initial Case Premium Paid of $1,000,000 or more, the sales load will not change
after the fifth Policy Year. Given the lower sales load associated with a
larger initial Case premium payment, it is in the best interest of the
Policyowner to pay the largest possible initial Case premium. Please note for
Policies issued in a Case with an Initial Case Premium Paid of less than
$1,000,000, that premiums are tracked on an annual cumulative basis for each
policy, and that the year 1 through 5 sales load percentages will be higher on
premium payments made below the specified minimum annual planned Policy premium.
<TABLE>
<CAPTION>
Sales Load
<S> <C> <C>
Initial Case Premium Paid Years 1-5 Years 6+
Less than $1,000,000
Less than or equal to the
Minimum Planned Policy
Premium 18.00% 6.00%
Greater than the Minimum
Planned Policy Premium 6.00% 6.00%
Greater than or equal to
$1,000,000 but less than
$2,500,000 7.00% 7.00%
Greater than or equal to
$2,500,000 but less than
$5,000,000 5.50% 5.50%
Greater than or equal to
$5,000,000 but less than
$10,000,000 4.00% 4.00%
Greater than or equal to
$10,000,000 3.25% 3.25%
</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. Various states apply premium taxes at various rates.
We currently deduct a percentage equal to the applicable state rate of each
premium to cover premium taxes assessed against MassMutual by the various
states. The applicable state rate will be either the Massachusetts rate or a
higher rate. The current state premium tax charge ranges from 2.0% to 3.5% of
each premium. This charge may increase or decrease to reflect either any
change in the tax or changes of residence. The Policyowner should notify
MassMutual of any change of residence. Any change in this charge would be
effective immediately. MassMutual does not expect to make a profit from this
charge.
Deferred Acquisition Cost ("DAC") Tax Charge. We deduct 1.0% of each premium
to cover a federal premium tax assessed against MassMutual. This charge is
reasonable in relation to MassMutual's federal income tax burden, under Internal
Revenue Code Section 848, resulting from the receipt of premiums.
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 an
underwriting 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.
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
9
<PAGE>
$63 annually, for each Policy. While this charge may increase or decrease, the
maximum monthly administrative charge is $9 per month. (The maximum charge may
be different if required by state law.) Such charges will not exceed the actual
cost for such services.
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
Insured's sex, attained age, 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. 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 class.
Underwriting Charge. A monthly underwriting charge is deducted from Policies
that are issued under a regular underwriting basis. The charge is based on the
amount of insurance underwritten before the Case is installed on the
administrative system. This charge is fixed for a set number of Policy Years
and is shown in the Other Information section of the Policy's Schedule Page.
SEPARATE ACCOUNT CHARGES
Charges for Mortality and Expense Risks. We charge the Divisions for the
mortality and expense risks We assume. We deduct a daily charge at a current
effective annual rate of 0.30% of the value of each Division's assets that come
from the Policy. While this charge may increase or decrease, the maximum charge
is 0.60% annually.
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 Divisions for federal income taxes attributable to them. We may make such a
charge eventually, however, in order to provide for the future federal income
tax liability of the 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 either 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. Such a segment has been established for the
Policy.
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 the Separate Account funds. 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 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 thirteen Divisions attributable to the Policy. Each Division
invests in shares of either MML Trust or Oppenheimer Trust. The Divisions of
the Separate Account are:
. The MML Equity Division - Amounts credited to this Division are invested in
shares of MML Equity Fund, or its successor.
. The MML Blend Division - Amounts credited to this Division are invested in
shares of MML Blend Fund, or its successor.
. The MML Managed Bond Fund - Amounts credited to this Division are invested
in shares of MML Managed Bond Fund, or its successor.
. The MML Money Market Division - Amounts credited to this Division are
invested in shares of MML Money Market Fund, or its successor.
. The Oppenheimer Global Securities Division - Amounts credited to this
Division are invested in shares of Oppenheimer Global Securities Fund, or
its successor.
. The Oppenheimer Capital Appreciation Division - Amounts credited to this
Division are invested in shares of Oppenheimer Capital Appreciation Fund,
or its successor.
. The Oppenheimer Growth Division - Amounts credited to this Division are
invested in shares of Oppenheimer Growth Fund, or its successor.
10
<PAGE>
. The Oppenheimer Growth & Income Division - Amounts credited to this
Division are invested in shares of Oppenheimer Growth & Income Fund, or its
successor.
. The Oppenheimer Multiple Strategies Division - Amounts credited to this
Division are invested in shares of Oppenheimer Multiple Strategies Fund, or
its successor.
. The Oppenheimer High Income Division - Amounts credited to this Division
are invested in shares of Oppenheimer High Income Fund, or its successor.
. The Oppenheimer Strategic Bond Division - Amounts credited to this Division
are invested in shares of Oppenheimer Strategic Bond Fund, or its
successor.
. The Oppenheimer Bond Division - Amounts credited to this Division are
invested in shares of Oppenheimer Bond Fund, or its successor.
. The Oppenheimer Money Division - Amounts credited to this Division are
invested in shares of Oppenheimer Money Fund, or its successor.
The shares of the underlying Fund purchased by each Division will be held by
MassMutual as custodian of the Separate Account.
Although there are currently thirteen Divisions available to a Policyowner, a
Policyowner may allocate Account Value to no more than eight Divisions at any
one time. To allocate Net Premium or to transfer Account Value to a ninth
Division which does not have Account Value allocated to it, a Policyowner must
transfer 100% of the Account Value from one or more of the eight "active"
Divisions to which allocations are currently made.
The MML Trust and the Oppenheimer Trust are open-end, diversified management
investment companies registered under the 1940 Act. 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 consists of nine
Oppenheimer Funds, each of which 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 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 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 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 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 (anticipated acquisitions, mergers or other
unusual developments) which are considered by OMC, in its capacity as investment
manager of the Funds, to have appreciation possibilities. The type of securities
in which this Fund invests will be primarily common stocks, as well as
securities having the investment characteristics of common stocks, such as
convertible preferred stock, convertible bonds and American Depository Receipts.
Current income is not an investment objective of the Oppenheimer Global
Securities Fund.
The investment objective of the Oppenheimer Capital Appreciation Fund is capital
appreciation. The type of securities in which this Fund invests will be
primarily common stocks, as well as securities having the investment
characteristics of common stocks, such as convertible preferred stock and
convertible bonds. 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 Growth Fund is to seek to achieve
capital appreciation by investing in securities of well-known established
companies (companies which have a history of earnings and dividends). The type
of securities in which this Fund invests will be primarily common stocks, as
well as securities having the investment characteristics of common stocks, such
as convertible preferred stock and convertible bonds.
The investment objective of the Oppenheimer Growth & Income Fund is to seek a
high total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. From time to time this Fund
may focus on small to medium capitalization common stocks, bonds and convertible
securities.
The investment objective of the Oppenheimer Multiple Strategies Fund is to seek
a total investment return (which includes current income and capital
appreciation in the value of its shares) from
11
<PAGE>
investments in common stocks and other equity securities, bonds and other debt
securities, and "money market" securities.
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. This Fund's investment policy is to assume
certain risks (described more fully in the attached prospectus for the
Oppenheimer Trust) 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, and unrated
securities.
The investment objective of the Oppenheimer Strategic Bond Fund is to seek a
high level of current income principally derived from interest income from
investments in high yield fixed-income securities and to seek to enhance such
income by writing covered call options on debt securities.
The investment objective of the Oppenheimer Bond Fund is to seek a high level of
current income from investment in high yield fixed-income securities rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's.
Secondarily, the Fund seeks capital growth when consistent with its primary
objective.
The investment objective of the Oppenheimer Money Fund is to maximize current
income from investments in "money market" securities consistent with low
capital risk and maintenance of liquidity.
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, N.A., with its home office located at 111 Wall Street, New York, NY
10005, acts as custodian for each of the MML Funds. The Bank of New York, with
its home office located at One Wall Street, New York, NY 10015, 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 Money Fund: 0.450% of the first $500 million of net assets, 0.425% of
the next $500 million, 0.400% of the next $500 million, and 0.375% of net assets
over $1.5 billion; (ii) for Capital Appreciation Fund, Growth Fund, Growth &
Income Fund, Multiple Strategies 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 (iii) for High Income Fund, Bond Fund, and Strategic Bond
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.
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.
OMC, located at Two World Trade Center, New York, NY 10048-0203, 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.
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
12
<PAGE>
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 Policyowners 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. Tables 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). Tables 3 and 4 show the Annualized One Year Total
Returns and the Effective Annual Rates of Return, 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 4 shows December 31 annualized figures for the MML Funds. Table 2 shows
figures for periods ended December 31, 1994, for the Oppenheimer Funds; Table 3
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 underwriting 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. 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.
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
20 15 10 5 1
Fund Years Years Years Years Year
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Equity 15.00% 14.88% 13.72% 9.49% 4.10%
Blend - 12.17* 12.46 9.31 2.48
Managed Bond - 10.32* 9.53 7.86 (3.76)
Money Market - 7.07* 6.17 4.82 3.84
</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.
ANNUALIZED ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
MML MML
MML MML Managed Money
For the Equity Blend Bond Market
year ended Fund Fund Fund Fund
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1994 4.10% 2.48% (3.76)% 3.84%
1993 9.52% 9.70% 11.81% 2.75%
1992 10.48% 9.36% 7.31% 3.48%
1991 25.56% 24.00% 16.66% 6.01%
1990 (0.51)% 2.37% 8.38% 8.12%
1989 23.04% 19.96% 12.83% 9.16%
1988 16.68% 13.40% 7.13% 7.39%
1987 2.10% 3.12% 2.60% 6.49%
1986 20.15% 18.30% 14.46% 6.60%
1985 30.54% 24.88% 19.94% 8.03%
1984 5.40% 8.24%* 11.69% 10.39%
1983 22.85% - 7.26% 8.97%
1982 25.67% - 22.79%* 11.12%*
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).
13
<PAGE>
ANNUALIZED ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer
Oppenheimer Capital Oppenheimer Multiple Oppenheimer Strategic Oppenheimer Oppenheimer
For the Global Appreciation Growth Strategies High Income Bond Bond Money
year ended Securities Fund Fund Fund Fund Fund Fund Fund Fund
- ---------- ---------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 (5.72)% (7.59)% 0.97% (1.95)% (3.18)% (3.78)%* (1.94)% 4.20%
1993 70.32% 27.32% 7.25% 15.95% 26.34% 4.25%* 13.04% 3.12%
1992 (7.11)% 15.42% 14.53% 8.99% 17.92% 6.50% 3.76%
1991 3.39% 54.72% 25.54% 17.48% 33.91% 17.63% 5.97%
1990 0.40%* (16.82)% (8.21)% (1.91)% 4.65% 7.92% 7.80%
1989 27.57% 23.59% 15.76% 4.84% 13.32% 8.82%
1988 13.41% 22.09% 22.15% 15.58% 8.97% 7.31%
1987 14.34% 3.32% 3.97%* 8.07% 2.52% 6.33%
1986 (1.65)%* 17.76% 4.73%* 10.12% 5.68%
1985 9.50%* 18.82%* 7.25%*
</TABLE>
* The figures shown are from inception of the Oppenheimer Funds. The Oppenheimer
Money Fund, Oppenheimer Bond Fund and Oppenheimer Growth Fund commenced
operations on April 3, 1985. The Oppenheimer High Income Fund commenced
operations on April 30, 1986. The Oppenheimer Capital Appreciation Fund
commenced operations on August 15, 1986. The Oppenheimer Multiple Strategies
Fund commenced operations on February 9, 1987. The Oppenheimer Global
Securities Fund commenced operations on November 12, 1990. The Oppenheimer
Strategic Bond Fund commenced operations on May 3, 1993. Oppenheimer Growth &
Income Fund is not listed because it had not commenced operations as of
December 31, 1994.
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
Since 5 1
Fund Inception Years Year
- ---- --------- ----- ----
<S> <C> <C> <C>
Oppenheimer Global
Securities 11.15% - (5.72)%
Oppenheimer Capital
Appreciation 13.28 11.81% (7.59)
Oppenheimer Growth 11.44 7.40 0.97
Oppenheimer Multiple
Strategies 9.85 7.38 (1.95)
Oppenheimer High
Income 12.47 15.09 (3.18)
Oppenheimer Strategic
Bond 0.19 - (3.78)
Oppenheimer Bond 9.78 8.43 (1.94)
Oppenheimer Money 6.10 5.05 4.20
</TABLE>
Oppenheimer Growth & Income Fund is not listed because it had not commenced
operations on December 31, 1994.
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. A Policyowner 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. Five premium concepts are
very important under the Policy: the minimum annual planned Policy premium,
planned Policy premium, minimum initial Policy premium, minimum Case premium,
and Initial Case Premium Paid.
Planned Policy Premiums. The minimum annual planned Policy premium is determined
by the initial Selected Face Amount, issue age and sex classification of the
Policy. For a Policy in a Case with an Initial Case Premium Paid of less than
$1,000,000, the sales load percentage is greater in each of the first ten Policy
Years up to the minimum annual planned Policy premium.
Planned Policy premiums are elected in the Application and may be changed at any
time. Planned Policy premiums are the basis for the Policy's premium billing.
The planned Policy premium may be subject to minimum and maximum amounts
depending on 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 Policy 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 Policy
premiums are paid, the Policy terminates when the Account
14
<PAGE>
Value becomes insufficient to pay certain monthly charges and a grace period
expires without sufficient payment. For details see Termination.
The following table shows the minimum annual planned Policy 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.)
MINIMUM ANNUAL PLANNED POLICY PREMIUM
LEVEL $100,000 SELECTED FACE AMOUNT
(DEATH BENEFIT OPTION 1)
<TABLE>
<CAPTION>
Issue Age
--------------------------------------
Class Age 25 Age 40 Age 55
- ----- ------ ------ ------
<S> <C> <C> <C>
MALE $792 $1,590 $3,486
FEMALE $640 $1,259 $2,616
UNISEX $762 $1,521 $3,294
</TABLE>
Minimum Initial Policy Premium. A minimum initial Policy premium must be paid
along with an Application or at any time prior to the delivery of the Policy.
The amount of the minimum initial Policy premium is the amount which, after the
deductions for sales load, state premium tax, and DAC tax charge (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, a Policyowner may make unscheduled premium payments at any time and in
any amount.
Minimum Case Premium. The minimum Case premium is $250,000 of first year
annualized premium for all Policies in a Case.
Initial Case Premium Paid. The Initial Case Premium Paid is the amount of
premium for all Policies in a Case on deposit with MassMutual before the Case
is installed on the administrative system. The Initial Case Premium Paid
determines sales load percentages for all Policies in that Case.
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 $100.00. We have the right to
refund a premium paid in any year if it will increase the net amount at risk
under the Policy. 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. A Policyowner 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(ies) 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. 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 in the Table Of Minimum Face Amount Percentages in 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 six months after issue or a previous
increase 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. (No increase will be allowed after the Policy Anniversary Date
nearest the Insured's 85th birthday.)
15
<PAGE>
Example: The following example shows how the Death Benefit may vary as a result
of investment performance and Death Benefit Option in effect on the date of
death.
<TABLE>
<CAPTION>
Policy A Policy B
-------- --------
<S> <C> <C>
(a) Selected Face Amount: $100,000 $100,000
(b) Account Value on
Date of Death: $ 40,000 $ 50,000
(c) Minimum Face Amount
Percentage on
Date of Death: 240% 240%
(d) Minimum Face
Amount (b x c): $ 96,000 $120,000
Death Benefit if
Option #1 in effect
(greater of a and d): $100,000 $120,000
Death Benefit if
Option #2 in effect
(greater of (i) a + b
and (ii) d): $140,000 $150,000
</TABLE>
(Examples assume no additions to or deductions from 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 equal to the Variable
Account Value plus the Fixed Account Value. The Account Value of the Policy is
held in one or more Divisions 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 has received the Policy. Subject to the allocation rules described
in the Policy, the Account Value is then allocated among the Divisions and the
GPA in accordance with the Policyowner's instructions in the Application,
subject to applicable restrictions.
Transactions with respect to the Account Value are effected by the purchase and
sale of accumulation units. Purchases and sales are made at the unit value as
of the Valuation Time on the Valuation Date if the premium or transaction
request for such purchase or sale is received by Us before the Valuation Time.
Otherwise, purchases and sales will be made as of the next following Valuation
Date or a later date requested by the Policyowner. Unit values are determined
on each Valuation Date.
All or part of the Account Value may be transferred among Divisions by written
request. Transfers between Divisions may be by dollar amount or by
whole-number percentage. There is no limit on the number of transfers a
Policyowner may make. MassMutual currently does not intend to charge a fee for
transfers, 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 to
compensate MassMutual for the cost of processing transfers. MassMutual does
not expect to make a profit on this charge. Policyowners, however, 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
each of 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
(except as a result of a policy loan) 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. All transfers made on one Valuation Date are considered
one transfer.
Automated Account Value Transfer. Automated Account Value Transfer permits the
Policyowner to specify transfers of a specific dollar amount or a whole-number
percentage of a Division's Account Value to be transferred monthly from that
Division to any combination of Divisions and the GPA. A number of transfer
options are available. Automated Account Value Transfer transfers are not
available from more than one Division or from the GPA. This process is
considered one transfer per Policy Year.
The main objective of Automated Account Value Transfer is to shield the
Policyowner's investment from short term price fluctuations. Theoretically, a
lower than average cost per unit may or may not be achieved over the long term.
This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in
declining markets.
Automated Account Value Transfer can be started, changed or canceled at any
time. Transfers will only be made on a monthly basis on the Monthly
Calculation Date. The effective date of the first automated transfer will be
the first Monthly Calculation Date after the request is received by the Home
Office. If the request is received before the end of the Free Look Period, the
effective date of the first automated transfer will be coincident with the end
of this Period.
Transfers will occur automatically. The Policyowner will specify the specific
dollar amounts or whole-number percentages to be transferred and the Division
from which the transfers will be made, the Division(s) and/or GPA to which the
automated transfer is to be made and the length of time during which transfers
will continue.
If the value of the Division from which transfers are being made falls below
the total transfer amount, the remaining value in that Division will be
transferred on a pro-rata basis to all the designated Divisions and the GPA.
No more automated transfers will be processed.
Investment Return. The investment return of a Policy is based on:
. The Account Value held in each Division for that Policy;
. The investment experience of each Division as measured by its actual net
rate of return; and
16
<PAGE>
. The interest rate credited on Account Values held in the GPA.
The investment experience of a Division 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 a Policyowner 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 less an amount equal to
the following, whichever is applicable: if the Withdrawal is made before the
Policy Anniversary Date 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. 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(s)
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. A charge of 2.0% of the Withdrawal, not to exceed $25.00, is
deducted from each Withdrawal. The withdrawal charge is assessed for each
Withdrawal and is intended to compensate MassMutual for the cost of processing
the Withdrawals. MassMutual does not anticipate making a profit from this
charge. 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. Withdrawals may have tax consequences.
For details see FEDERAL INCOME TAX CONSIDERATIONS - Policy Proceeds, Premiums
and Loans.
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
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 up to including the next Policy Anniversary Date. The Policy
must be properly assigned as collateral for the loan. (The maximum loan amount
may be different if required by state law.)
Source of Loan. The loan amount requested is taken from the Divisions 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 an 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 payments.
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 and the GPA in
proportion to the non-loaned Account Value in each. The inclusion of unpaid
interest to outstanding Policy Debt may result in tax consequences upon
surrender or lapse of the
17
<PAGE>
Policy. For details see FEDERAL INCOME TAX CONSIDERATIONS - Policy Proceeds,
Premiums and Loans.
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 applicable Division(s). The
transfer is made in proportion to the non-loaned value in each Division 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
3% 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. If the Policy is
surrendered with outstanding Policy Debt, tax consequences may result. For
details see FEDERAL INCOME TAX CONSIDERATIONS - Policy Proceeds, Premiums and
Loans.
Free Look Provision
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 the Policyowner
receives a written notice of withdrawal right 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 Account Value (or all premiums paid where required by state
law), reduced by any amounts borrowed or withdrawn. During the Free Look
Period, the initial Net Premium will be allocated to the MML Money Market
Division, which invests in the MML Money Market Fund.
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 Trusts. 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, 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 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.
18
<PAGE>
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); 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
19
<PAGE>
(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 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 a minimum effective annual rate
equal to 3%. For amounts equal to any Policy loans, the guaranteed rate is the
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greater of: (a) 3%; and (b) the Policy loan rate less a MassMutual declared
charge for expenses and taxes. This charge cannot exceed 0.75%. 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 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 (which may include unpaid interest), 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 benefits 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 a Policyowner
consult with his or her 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 Code, interest on Policy
loans used for personal purposes, which otherwise meet the requirements of Code
Section 264, will no longer be tax deductible. 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 a tax advisor for
further guidance.
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If the Policy is owned by a business or corporation, the Code 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 makes no guarantee regarding the future tax treatment of any Policy.
Modified Endowment Contracts. Contrary to the rules described above, loans,
collateral assignments, 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 the Policy 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.
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, collateral assignments, 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 Trusts 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 a 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. Each Government agency or instrumentality, however, 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
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of the general diversification requirements, the Funds of the Trusts 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
Paid-up Policy Date. The Paid-up Policy Date is the Policy Anniversary Date
nearest the Insured's 100th birthday. On this Date and at all times
thereafter, the Selected Face Amount will equal the Account Value, and the
Death Benefit Option will be Death Benefit Option 1. As of this Date, the
charge for cost of insurance will be equal to $0 and premium payments will no
longer be accepted. The Policy does not lapse after the Paid-up Policy Date.
The payment of planned Policy premiums does not guarantee that the Policy will
continue in force to the Paid-up Policy Date.
Reinstatement Option. For a period of five (5) years after termination, a
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 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 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:
. Payments guaranteed for 10 years; and
. 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.
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. A Policyowner names the Beneficiary
when he or she or it applies 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.
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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 on or
next following, 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 (the "Transfer Date"):
. 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. 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.
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 or an
increase in the Selected Face Amount. 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 (or different period
if required by state law) from the Issue Date or an increase in the Selected
Face Amount 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 normally within 7
days after We receive any required documents at our Home Office. 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
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closed, except for normal weekend or holiday closings, or trading is
restricted; or
. the Securities and Exchange Commission (or its successor) determines that
an 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 (but not less than required
by state law). The minimum amount of such interest is $25.
Records And Reports
MassMutual maintains all records and accounts relating to the Separate Account
and the GPA. Each year within 30 days after the Policy Anniversary, We will
mail to the Policyowner 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., 1414 Main Street, Springfield, MA 01144-1013
("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.
Commissions Schedule. Agents or selling brokers receive commissions as a
percentage of the premium paid. This percentage is based on the Initial Case
Premium Paid for all Policies in a Case. It is not affected by subsequent
changes under the Case. For a Case with an Initial Case Premium Paid of less
than $1,000,000, the maximum commission percentage for Policy Years 1-5 is 15%
of premiums paid up to the minimum annual planned Policy premium, plus 3% of
any excess premiums paid. The maximum commission percentage in each future
Policy Year is 3% of all premiums paid in that year. For a Case with an Initial
Case Premium Paid of greater than or equal to $1,000,000, the maximum
commission percentage is 5% of premiums paid.
Agents may receive commissions at lower rates on Policies sold to replace
existing insurance issued by MassMutual or any of its subsidiaries.
Bonding Arrangement. An insurance company blanket bond is maintained providing
$20,000,000 coverage for officers and employees of MassMutual (subject to a
$350,000 deductible) and $15,000,000 coverage for MassMutual's general agents
and agents (also subject to a $350,000 deductible).
Legal Proceedings
We are currently not involved in any material legal proceedings that adversely
impact the Policy.
Experts
The financial statements of MassMutual 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, FSA,
MAAA, 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 included herein should be considered
only as bearing upon the ability of MassMutual to meet its obligations under
the Policy.
No financial statements are included for the Separate Account because, as of
the date of this Prospectus, the Divisions of the Separate Account offered by
this Prospectus had not commenced operations and therefore had no assets or
liabilities.
25
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
(Derived
from audited
financial
(Unaudited) statements)
March 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Assets:
Bonds........................................ $18,329.7 $17,684.4
Common stocks................................ 182.5 197.0
Mortgage loans............................... 2,880.1 2,979.6
Real Estate.................................. 1,345.0 1,345.8
Other investments............................ 719.0 741.5
Policy loans................................. 2,741.6 2,700.8
Cash and short-term investments.............. 1,144.1 2,189.6
Investment and insurance amounts receivable.. 693.2 751.8
Separate account assets...................... 7,044.2 6,507.7
Other assets................................. 109.1 75.9
--------- ---------
Total assets................................. $35,188.5 $35,174.1
========= =========
Liabilities:
Policyholders' reserves and funds............ $24,131.2 $24,156.3
Policyholders' dividends..................... 549.8 540.2
Policy claims and other benefits............. 382.2 363.9
Federal income taxes......................... 255.6 229.9
Asset valuation reserve...................... 348.8 347.5
Investment reserves.......................... 113.4 130.8
Separate account reserves and liabilities.... 7,042.7 6,506.7
Other liabilities............................ 353.9 969.5
--------- ---------
Total liabilities............................ $33,177.6 $33,244.8
--------- ---------
Policyholders' contingency reserves.......... 2,010.9 1,929.3
--------- ---------
Total liabilities and policyholders'
contingency reserves........................ $35,188.5 $35,174.1
========= =========
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In Millions)
Three months ended
March 31,
1995 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenue:
Premium income........................................ $1,029.7 $1,150.4
Net investment and other income....................... 552.0 549.6
-------- --------
Total revenue......................................... 1,581.7 1,700.0
-------- --------
Disposition of revenue:
Policy benefits and payments.......................... 1,046.5 1,093.2
Addition to policyholders' reserves................... 159.0 228.4
Operating expenses.................................... 73.8 80.5
Commissions........................................... 59.6 60.4
Taxes, licenses and fees.............................. 17.4 17.4
-------- --------
Total disposition of revenue.......................... 1,356.3 1,479.9
-------- --------
Net gain before dividends and federal income taxes.... 225.4 220.1
Dividends to policyholders............................ 132.8 129.4
-------- --------
Net gain from operations before federal income taxes.. 92.6 90.7
Federal income taxes.................................. 43.0 34.1
-------- --------
Net gain from operations.............................. 49.6 56.6
Net realized capital loss............................. (10.6) (17.8)
-------- --------
Net income............................................ $ 39.0 $ 38.8
======== ========
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF CHANGES IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
(In Millions)
Three months ended
March 31,
1995 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Policyholders' contingency reserves
beginning of the period............................. $1,929.3 $1,817.6
-------- --------
Increases (decrease) due to:
Net income......................................... 39.0 38.8
Surplus notes...................................... 0.0 100.0
Net unrealized capital gain........................ 22.7 8.4
Change in asset valuation and investment reserves.. 16.1 (48.8)
Other.............................................. 3.9 (4.8)
-------- --------
Net increase..................................... 81.7 93.6
-------- --------
Policyholders' contingency reserves, end of
the period.......................................... $2,011.0 $1,911.2
======== ========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In Millions)
Three months ended
March 31,
1995 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Operating activities:
Net income............................................ $ 39.0 $ 38.8
Additions to policyholders' reserves and funds........ (6.8) 68.8
Net realized capital loss............................. 10.6 17.7
Other changes....................................... 115.4 (60.4)
--------- ---------
Net cash used in operating activities................. 158.2 64.9
--------- ---------
Investing activities:
Loans and purchases of investments.................... (1,911.9) (1,042.2)
Sales or maturities of investments and receipt
from repayments of loans............................. 708.2 1,086.9
--------- ---------
Net cash (used in) provided by investing activities... (1,203.7) 44.7
--------- ---------
Financing activity:
Surplus notes......................................... 0.0 100.0
--------- ---------
(Decrease) increase in cash and short-term investments.. (1,044.5) 209.6
Cash and short-term investments, beginning of
the period........................................... 2,189.6 2,209.2
--------- ---------
Cash and short-term investments, end of the period...... $ 1,144.1 $ 2,418.8
========= =========
</TABLE>
29
<PAGE>
Notes To Interim Financial Statements
1. Basis of Presentation
The accompanying interim financial statements of Massachusetts Mutual Life
Insurance Company (the "Company") have been prepared on the basis of
accounting practices prescribed or permitted by the Division of Insurance
of the Commonwealth of Massachusetts and in conformity with the practices
of the National Association of Insurance Commissioners which are currently
considered generally accepted accounting principles for mutual life
insurance companies and their life insurance subsidiaries. In April, 1993,
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, regarding the applicability of generally
accepted accounting principles to mutual life insurance companies. This
interpretation requires mutual life insurance companies to modify their
financial statements 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
valuation and the related tax effects are determined and recorded will
change. The effects of modifications to existing accounting practices
which may be necessary have not been defined by the American Institute of
Certified Public Accountants nor determined by the Company.
The accompanying interim financial statements reflect, in the opinion of
the Company's management, all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the interim financial
position and results of operations. Such statements should be read in
conjunction with the annual financial statements.
2. Asset Valuation Reserve
In compliance with regulatory requirements, the Company maintains the
Asset Valuation Reserve. The balances as of March 31, 1995 and 1994,
reflect the year-to-date activity and a pro rata share of the annual
contribution or amortization, respectively. The Asset Valuation Reserve
and other investment reserves stabilize the policyholders' contingency
reserves against fluctuations in the value of stocks, as well as declines
in the value of bonds, mortgage loans and real estate investments. These
other investment reserves for both periods are established each quarter
based on the Company's best estimate at those dates and realized losses
are taken after a complete analysis is performed during the fourth
quarter.
3. Surplus Notes
The Company issued surplus notes of $100 million in February, 1994. 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").
4. Investments
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, was recorded as an increase to policyholders'
contingency reserves at December 31, 1994.
5. Policyholders' Dividends
In October, the Board of Directors annually approve dividends to be paid
in the following year. The dividend liability recorded as of March 31,
1995 and 1994 is based on the dividend scales approved for those years in
October 1994 and 1993, respectively, and reflects the dividends to be
credited for the subsequent twelve months. In the fourth quarter of each
year, the dividend liability is adjusted to reflect the dividend scale
approved in October of that year.
30
<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, except for Note 12
as to which the date is June 16, 1995.
31
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
1994 1993
--------- ---------
<S> <C> <C>
(In Millions)
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.
32
<PAGE>
Massachusetts Mutual Life Insurance Company
STATEMENT OF INCOME
<TABLE>
<CAPTION>
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.
33
<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
34
<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.
35
<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
36
<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.
37
<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.
38
<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.
39
<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.............................. 7,570.7 165.9 294.6 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
<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.
40
<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.
41
<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>
<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.
42
<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
12. Subsequent event
On June 16, 1995, the Company and Connecticut Mutual Life Insurance Company
announced the commencement of a feasibility study to determine whether a
merger of the two companies could be mutually beneficial to the companies
and their policyholders. A decision as to whether to proceed will be made
later in 1995.
43
<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 45 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 46 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 47 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 48 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 49 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 50 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, 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 .30% on an annual
basis, of the net asset value of the Fund shares held by the Separate
Account.
4. MML Trust and Oppenheimer Trust level expenses of .71% on an annual
basis, of the net asset value of the MML Trust and Oppenheimer Trust
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 $9.00 per month.
2. Cost of Insurance Charge, based on the 1980 CSO Mortality Table.
3. Mortality and Expense Risk Charge, which is equal to .60% on an annual
basis, of the net asset value of the Fund shares held by the Separate
Account.
4. MML Trust and Oppenheimer Trust level expenses of .75% on an annual basis,
of the net asset value of the MML Trust and Oppenheimer Trust shares held
by the Separate Account. (The Oppenheimer Trust does not have a guaranteed
maximum for other expenses so this figure 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 -1.004%, 4.935%, and 10.875%, respectively, and on a guaranteed basis would
be -1.339%, 4.581%, and 10.501%, 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.
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 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.
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.
44
<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 $1,000,000 Initial Case Premium Paid
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 $ 947 $ 1,008 $ 1,068
2 2,583 100,000 100,000 100,000 1,884 2,064 2,251
3 3,972 100,000 100,000 100,000 2,807 3,168 3,559
4 5,431 100,000 100,000 100,000 3,720 4,325 5,007
5 6,963 100,000 100,000 100,000 4,618 5,535 6,608
6 8,571 100,000 100,000 100,000 5,504 6,801 8,380
7 10,260 100,000 100,000 100,000 6,372 8,120 10,337
8 12,033 100,000 100,000 100,000 7,220 9,495 12,497
9 13,895 100,000 100,000 100,000 8,049 10,927 14,882
10 15,850 100,000 100,000 100,000 8,860 12,420 17,519
15 27,192 100,000 100,000 100,000 12,571 20,857 35,520
20 41,668 100,000 100,000 153,555 15,594 31,156 65,066
25 60,142 100,000 100,000 230,042 17,704 43,767 112,765
30 (Age 65) 83,720 100,000 106,110 338,317 18,433 59,280 189,004
35 113,812 100,000 123,033 489,350 17,003 77,869 309,715
40 152,219 100,000 142,550 713,658 11,968 99,685 499,062
45 201,237 0 162,781 1,033,256 0 124,260 788,745
50 263,797 0 184,896 1,496,457 0 150,322 1,216,632
</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.
45
<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 $1,000,000 Initial Case Premium Paid
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 $ 792 $ 848 $ 903
2 2,583 100,000 100,000 100,000 1,568 1,727 1,894
3 3,972 100,000 100,000 100,000 2,323 2,638 2,980
4 5,431 100,000 100,000 100,000 3,059 3,581 4,170
5 6,963 100,000 100,000 100,000 3,772 4,555 5,474
6 8,571 100,000 100,000 100,000 4,464 5,561 6,903
7 10,260 100,000 100,000 100,000 5,130 6,599 8,468
8 12,033 100,000 100,000 100,000 5,773 7,669 10,184
9 13,895 100,000 100,000 100,000 6,389 8,772 12,066
10 15,850 100,000 100,000 100,000 6,980 9,910 14,133
15 27,192 100,000 100,000 100,000 9,469 16,099 27,960
20 41,668 100,000 100,000 118,619 10,958 23,088 50,262
25 60,142 100,000 100,000 172,953 10,802 30,597 84,781
30 (Age 65) 83,720 100,000 100,000 244,844 7,916 38,191 136,785
35 113,812 0 100,000 336,752 0 44,914 213,134
40 152,219 0 100,000 460,674 0 48,989 322,149
45 201,237 0 100,000 618,604 0 45,596 472,216
50 263,797 0 100,000 828,371 0 19,653 673,472
</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.
46
<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 $1,000,000 Initial Case Premium Paid
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 $ 967 $ 1,028 $ 1,089
2 2,583 100,000 100,000 100,000 1,923 2,105 2,294
3 3,972 100,000 100,000 100,000 2,864 3,230 3,626
4 5,431 100,000 100,000 100,000 3,791 4,406 5,098
5 6,963 100,000 100,000 100,000 4,703 5,634 6,724
6 8,571 100,000 100,000 100,000 5,600 6,918 8,522
7 10,260 100,000 100,000 100,000 6,482 8,258 10,509
8 12,033 100,000 100,000 100,000 7,345 9,655 12,704
9 13,895 100,000 100,000 100,000 8,193 11,115 15,131
10 15,850 100,000 100,000 100,000 9,024 12,639 17,817
15 27,192 100,000 100,000 112,565 12,900 21,321 36,195
20 41,668 100,000 100,000 177,328 16,317 32,152 66,415
25 60,142 100,000 105,060 265,940 19,141 45,678 115,626
30 (Age 65) 83,720 100,000 124,080 388,916 21,209 62,352 195,435
35 113,812 100,000 143,940 564,592 22,279 82,724 324,478
40 152,219 100,000 164,323 813,750 21,716 107,401 531,863
45 201,237 100,000 187,670 1,181,868 16,852 135,993 856,426
50 263,797 100,000 210,882 1,698,427 834 167,367 1,347,958
</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
Female, Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and $1,000,000 Initial Case Premium Paid
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 $ 814 $ 870 $ 926
2 2,583 100,000 100,000 100,000 1,610 1,772 1,941
3 3,972 100,000 100,000 100,000 2,385 2,706 3,054
4 5,431 100,000 100,000 100,000 3,140 3,672 4,273
5 6,963 100,000 100,000 100,000 3,873 4,671 5,609
6 8,571 100,000 100,000 100,000 4,583 5,703 7,073
7 10,260 100,000 100,000 100,000 5,268 6,768 8,676
8 12,033 100,000 100,000 100,000 5,929 7,867 10,436
9 13,895 100,000 100,000 100,000 6,565 9,002 12,367
10 15,850 100,000 100,000 100,000 7,179 10,175 14,491
15 27,192 100,000 100,000 100,000 9,871 16,667 28,799
20 41,668 100,000 100,000 138,296 11,795 24,277 51,796
25 60,142 100,000 100,000 201,424 12,719 33,168 87,576
30 (Age 65) 83,720 100,000 100,000 284,307 12,264 43,611 142,868
35 113,812 100,000 100,000 393,719 9,027 55,554 226,275
40 152,219 100,000 106,060 535,903 826 69,320 350,263
45 201,237 0 115,014 725,968 0 83,344 526,064
50 263,797 0 122,013 968,088 0 96,836 768,324
</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
Unisex (85% Male), Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and $1,000,000 Initial Case Premium Paid
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 $ 950 $ 1,011 $ 1,071
2 2,583 100,000 100,000 100,000 1,890 2,070 2,257
3 3,972 100,000 100,000 100,000 2,816 3,177 3,569
4 5,431 100,000 100,000 100,000 3,730 4,337 5,020
5 6,963 100,000 100,000 100,000 4,631 5,550 6,626
6 8,571 100,000 100,000 100,000 5,518 6,818 8,402
7 10,260 100,000 100,000 100,000 6,388 8,141 10,363
8 12,033 100,000 100,000 100,000 7,239 9,519 12,528
9 13,895 100,000 100,000 100,000 8,071 10,955 14,920
10 15,850 100,000 100,000 100,000 8,884 12,453 17,564
15 27,192 100,000 100,000 100,813 12,620 20,926 35,623
20 41,668 100,000 100,000 157,905 15,703 31,306 65,250
25 60,142 100,000 100,000 236,381 17,921 44,058 113,101
30 (Age 65) 83,720 100,000 108,753 345,205 18,856 59,755 189,673
35 113,812 100,000 126,426 500,876 17,817 78,525 311,103
40 152,219 100,000 145,847 727,627 13,504 100,584 501,811
45 201,237 100,000 166,792 1,055,427 1,564 125,407 793,554
50 263,797 0 188,090 1,518,049 0 151,686 1,224,233
</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
Unisex (85% Male), Issue Age 35, Nonsmoker
$100,000 Selected Face Amount All Years
$1,200 Annual Premium and $1,000,000 Initial Case Premium Paid
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 $ 797 $ 853 $ 908
2 2,583 100,000 100,000 100,000 1,576 1,737 1,904
3 3,972 100,000 100,000 100,000 2,337 2,653 2,996
4 5,431 100,000 100,000 100,000 3,076 3,600 4,192
5 6,963 100,000 100,000 100,000 3,793 4,579 5,502
6 8,571 100,000 100,000 100,000 4,488 5,590 6,938
7 10,260 100,000 100,000 100,000 5,158 6,633 8,511
8 12,033 100,000 100,000 100,000 5,805 7,710 10,237
9 13,895 100,000 100,000 100,000 6,426 8,820 12,129
10 15,850 100,000 100,000 100,000 7,021 9,965 14,208
15 27,192 100,000 100,000 100,000 9,551 16,216 28,134
20 41,668 100,000 100,000 122,432 11,129 23,332 50,592
25 60,142 100,000 100,000 178,368 11,194 31,126 85,343
30 (Age 65) 83,720 100,000 100,000 251,033 8,822 39,326 137,930
35 113,812 100,000 100,000 346,933 1,869 47,225 215,486
40 152,219 0 100,000 474,080 0 53,772 326,951
45 201,237 0 100,000 639,949 0 56,179 481,165
50 263,797 0 100,000 854,526 0 47,195 689,134
</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>
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>
<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.............. $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>
<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.................. $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>
<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............ $ 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
net realized gains........... (.003) - (.015) - - - - - - -
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total distributions........... (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.
<TABLE>
<CAPTION>
EQUITY FUND
<S> <C>
1 Yr 4.10%
5 Yr 9.49%
10 Yr 13.72%
</TABLE>
<TABLE>
<CAPTION>
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>
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.
<TABLE>
<CAPTION>
MONEY MARKET FUND
MML Money Lipper Taxable
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>
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>
<TABLE>
<CAPTION>
MANAGED BOND FUND
<S> <C>
1 Yr -3.76%
5 Yr 7.86%
10 Yr 9.53%
</TABLE>
<TABLE>
<CAPTION>
MML Managed Lehman Brothers
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>
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.
<TABLE>
<CAPTION>
BLEND FUND
<S> <C>
1 Yr 2.48%
5 Yr 9.31%
10 Yr 12.46%
</TABLE>
<TABLE>
<CAPTION>
Lipper
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>
7
<PAGE>
III. GENERAL INFORMATION
MML Trust is a no-load, diversified, open-end management investment company,
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
8
<PAGE>
Tier 1 and Tier 2 Securities if so determined by the Board 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.
9
<PAGE>
D. MML BLEND FUND
THE INVESTMENT OBJECTIVE OF MML BLEND FUND ("BLEND") 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 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.
10
<PAGE>
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 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.
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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 direction 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.
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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
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.
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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 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
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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 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
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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 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 fig-
16
<PAGE>
ures. 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, MassMutual 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>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, CO 80231
1-800-525-7048
Prospectus dated August 2, 1995
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end
investment company consisting of nine separate funds (collectively, the
"Funds"):
OPPENHEIMER MONEY FUND ("Money Fund") seeks the maximum current income from
investments in "money market" securities consistent with low capital risk and
the maintenance of liquidity. Its shares are neither insured nor guaranteed by
the U.S. government, and there is no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
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 BOND FUND ("Bond Fund") primarily seeks a high level of current
income from investment in high yield fixed-income securities rated "Baa" or
better by Moody's or "BBB" or better by Standard & Poor's. Secondarily, this
Fund seeks capital growth when consistent with its primary objective.
OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks to
achieve capital appreciation by investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND ("Growth Fund") seeks to achieve capital appreciation by
investing in securities of well-known established companies.
OPPENHEIMER MULTIPLE STRATEGIES FUND ("Multiple Strategies Fund") seeks a total
investment return (which includes current income and capital appreciation in the
value of its shares) from investments in common stocks and other equity
securities, bonds and other debt securities, and "money market" securities.
OPPENHEIMER GROWTH & INCOME FUND ("Growth & Income Fund") seeks a high total
return (which includes growth in the value of its shares as well as current
income) from equity and debt securities. From time to time this Fund may focus
on small to medium capitalization common stocks, bonds and convertible
securities.
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.
OPPENHEIMER STRATEGIC BOND FUND ("Strategic Bond Fund") seeks a high level of
current income principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities. The Fund
intends to invest principally in: (i) foreign government and corporate debt
securities, (ii) U.S. Government securities, and (iii) lower-rated high yield
domestic debt securities, 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.
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.
1
<PAGE>
Contents
<TABLE>
<CAPTION>
<S> <C>
About the Funds
Overview of the Funds........................... 3
Financial Highlights............................ 4
Investment Objectives and Policies.............. 12
How the Funds are Managed....................... 20
Performance of the Funds........................ 21
About Your Account
How to Buy Shares............................... 27
How to Sell Shares.............................. 27
Dividends, Capital Gains and Taxes.............. 27
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 Money Fund's investment
objective is to seek current income from investments in "money market"
securities consistent with low capital risk and the maintenance of liquidity.
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 Bond Fund's
investment objective is to seek a high level of current income from investment
in high yield fixed-income securities rate "baa" or better by Moody's or "BBB"
or better by Standard & Poor's. As a secondary investment objective, the Bond
Fund seeks capital growth when consistent with its primary objective. The
Capital Appreciation Fund's investment objective is to achieve capital
appreciation by investing in "growth-type" companies. The Growth Fund's
investment objective is to seek to achieve capital appreciation by investing in
securities of well-known established companies. The Multiple Strategies Fund's
investment objective is to seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investment in common stocks and other equity securities, bonds and other debt
securities, and "money market" securities. The Growth & Income Fund's
investment objective is to seek a total return (which includes growth in the
value of its shares) as well as current income from equity and debt securities.
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. The
Strategic Bond Fund's investment objective is to seek a high level of current
income principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities.
What Do the Funds Invest In? To seek their respective investment objectives,
the Funds invest as follows. Money Fund primarily invests in money market
securities. 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." Bond Fund primarily invests
in high yield fixed-income securities rated "Baa" or better by Moody's or "BBB"
or better by Standard & Poor's. Capital Appreciation Fund primarily invests in
"growth-type" companies. Growth Fund primarily invests in securities of
well-known established companies. Multiple Strategies Fund primarily invests in
common stocks and other equity securities, bonds and other debt securities, and
money market securities. Growth & Income Fund is a new fund that will primarily
invest in equity and debt securities and focus from time to time on small to
medium capitalization companies. Global Securities Fund primarily invests in
securities of foreign issuers, "growth-type" companies, cyclical industries and
special situations. Strategic Bond Fund primarily invests in foreign government
and corporate debt securities, U.S. Government securities, and lower-rated high
yield domestic and foreign debt securities, commonly know as "junk bonds."
These investments are more fully explained for each Fund in "Investment
Objectives and Policies," starting on page 12.
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. Effective January 5, 1996 the
name of Oppenheimer Management Corporation will be changed to OppenheimerFunds,
Inc. All references in this Prospectus to the Manager are revised accordingly.
Each Fund's portfolio manager is primarily responsible for the selection of
securities of that Fund. The portfolio managers are as follows: for Money Fund,
Arthur Zimmer; for High Income Fund, Bond Fund, Multiple Strategies Fund and
Strategic Bond Fund, David Negri (joined by Richard Rubinstein for Multiple
Strategies Fund and by Arthur Steinmetz for Strategic Bond Fund); for Capital
Appreciation Fund, Paul LaRocco; for Growth Fund, Jane Putnam; for Global
Securities Fund, William Wilby; and for Growth & Income Fund, Robert C. Doll,
Jr., Bruce Bartlett and Diane L. Sobin. 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 20 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. In comparing levels of risk among the equity and equity-income
funds, Growth Fund is most conservative, followed by Multiple Strategies Fund,
Growth & Income Fund, Capital Appreciation Fund and 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. In comparing levels of risk among the fixed-
income funds, Bond Fund is most conservative, followed by Strategic Bond Fund
and High Income Fund. Money Fund is the most conservative of all nine Funds in
that Money Fund intends to maintain a stable net asset value, although there is
no assurance that it will be able to do so.
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? Money Fund, High Income Fund, Bond Fund and
Strategic Bond Fund measure their performance by quoting their yields. All of
the Funds with the exception of Money Fund 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 but two of
the Funds can also be compared to broad market indices, which we have done
starting on page 23. 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
[except Growth & Income Fund, which did not commence operations until after
December 31, 1994]. 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 Money Fund
- -----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985/1/
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment
operations - net investment
income and net realized gain
on investments .04 .03 .04 .06 .08 .09 .07 .06 .06 .05
Dividends and distributions
to shareholders (.04) (.03) (.04) (.06) (.08) (.09) (.07) (.06) (.06) (.05)
-----------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=====================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $89,671 $61,221 $58,266 $58,709 $89,143 $68,440 $69,468 $42,538 $28,218 $2,506
Average net assets
(in thousands) $90,264 $57,654 $61,317 $75,747 $82,966 $67,586 $60,241 $35,138 $12,914 $2,080
Number of shares outstanding
at end of year (in thousands) 89,695 61,221 58,266 58,703 89,141 68,439 69,468 42,538 28,218 2,506
Ratios to average net assets:
Net investment income 4.18% 3.12% 3.76% 5.97% 7.80% 8.82% 7.31% 6.33% 5.68% 7.25%/2/
Expenses .43% .43% .50% .49% .51% .53% .55% .59% .75% .75%/2/
</TABLE>
1. For the period from April 3, 1985 (commencement of operations) to
December 31, 1985.
2. Annualized.
4
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<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 period (in thousands) 9,779 8,443 4,189 2,905 2,427 2,760 2,746 2,382 1,478
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 3, 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Bond Fund
---------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985/1/
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $11.65 $10.99 $11.15 $10.33 $10.49 $10.15 $10.19 $11.15 $11.27 $10.00
Income (loss) from investment
operations:
Net investment income .76 .65 .87 .95 .97 .98 .94 .97 .97 .86
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions (.98) .76 (.17) .80 (.18) .32 (.05) (.71) .09 .99
---------------------------------------------------------------------------------------------
Total income (loss) from
investment operations (.22) 1.41 .70 1.75 .79 1.30 .89 .26 1.06 1.85
---------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.62) (.75) (.86) (.93) (.95) (.96) (.93) (1.17) (1.03) (.58)
Distributions from net realized
gain on investments and foreign
currency transactions (.03) - - - - - - (.05) (.15) -
---------------------------------------------------------------------------------------------
Total dividends and
distributions to shareholders (.65) (.75) (.86) (.93) (.95) (.96) (.93) (1.22) (1.18) (.58)
---------------------------------------------------------------------------------------------
Net asset value, end of period $10.78 $11.65 $10.99 $11.15 $10.33 $10.49 $10.15 $10.19 $11.15 $11.27
=============================================================================================
TOTAL RETURN, AT NET ASSET
VALUE/2/ (1.94)% 13.04% 6.50% 17.63% 7.92% 13.32% 8.97% 2.53% 10.12% 18.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $135,067 $111,846 $63,354 $32,762 $16,576 $13,422 $ 9,989 $10,415 $7,377 $2,725
Average net assets (in thousands) $121,884 $ 87,215 $45,687 $22,169 $15,088 $11,167 $11,028 $ 8,748 $4,647 $1,614
Number of shares outstanding at
end of period (in thousands) 12,527 9,602 5,766 2,939 1,604 1,280 984 1,022 662 242
Ratios to average net assets:
Net investment income 7.30% 7.20% 7.81% 8.73% 9.30% 9.34% 9.08% 9.17% 8.71% 10.52%/3/
Expenses .57% .46% .56% .64% .61% .64% .70% .75% .75% .75%/3/
Portfolio turnover rate/4/ 35.1% 36.3% 41.3% 7.6% 7.4% 5.4% 36.3% 5.9% 27.7% 101.3%
</TABLE>
1. For the period from April 3, 1985 (commencement of operations) to December
31, 1985.
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>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Capital Appreciation Fund
---------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986/2/ 1986/1/
---------------------------------------------------------------------------------------------
<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 rate/5/ 96.5% 122.8% 78.9% 122.3% 222.0% 130.5% 128.7% 138.7% 100.1% 464.8%
</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.
7
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Growth Fund
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985/1/
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value,
beginning of period $17.70 $16.96 $15.17 $12.54 $16.38 $13.64 $11.21 $12.53 $10.95 $10.00
Income (loss) from investment
operations:
Net investment income .22 .46 .16 .30 .56 .66 .29 .20 .13 .16
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (.05) .74 1.99 2.82 (1.79) 2.50 2.19 .24 1.76 .79
-------------------------------------------------------------------------------------------
Total income from investment
operations .17 1.20 2.15 3.12 (1.23) 3.16 2.48 .44 1.89 .95
-------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.15) (.14) (.36) (.49) (.62) (.35) - (.34) (.15) -
Distributions from net
realized gain on investments
and foreign currency
transactions (.04) (.32) - - (1.99) (.07) (.05) (1.42) (.16) -
-------------------------------------------------------------------------------------------
Total dividends and
distributions to
shareholders (.19) (.46) (.36) (.49) (2.61) (.42) (.05) (1.76) (.31) -
-------------------------------------------------------------------------------------------
Net asset value,
end of period $17.68 $17.70 $16.96 $15.17 $12.54 $16.38 $13.64 $11.21 $12.53 $10.95
===========================================================================================
TOTAL RETURN, AT NET ASSET
VALUE/2/ .97% 7.25% 14.53% 25.54% (8.21)% 23.59% 22.09% 3.32% 17.76% 9.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $63,283 $56,701 $36,494 $22,032 $15,895 $19,301 $17,746 $14,692 $8,287 $820
Average net assets
(in thousands) $59,953 $46,389 $25,750 $18,810 $17,235 $18,596 $15,585 $15,121 $3,744 $388
Number of shares outstanding
at end of period
(in thousands) 3,580 3,203 2,152 1,453 1,267 1,179 1,301 1,311 661 75
Ratios to average net assets:
Net investment income 1.38% 1.13% 1.36% 2.82% 4.09% 3.72% 2.39% 1.56% 2.62% 4.25%/3/
Expenses .58% .50% .61% .70% .71% .70% .70% .75% .75% .75%/3/
Portfolio turnover rate/4/ 53.8% 12.6% 48.7% 133.9% 267.9% 148.0% 132.5% 191.0% 100.9% 132.9%
</TABLE>
1. For the period from April 3, 1985 (commencement of operations) to
December 31, 1985.
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.
8
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Multiple Strategies Fund
-----------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987/1/
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $13.88 $12.47 $11.96 $10.90 $12.30 $11.58 $10.04 $10.00
Income (loss) from investment operations:
Net investment income .63 .55 .55 .69 .73 .73 .66 .44
Net realized and unrealized gain (loss) on
investments, options written and foreign
currency transactions (.90) 1.41 .50 1.15 (.97) 1.04 1.53 .07
-----------------------------------------------------------------------------
Total income (loss) from investment operations (.27) 1.96 1.05 1.84 (.24) 1.77 2.19 .51
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.60) (.55) (.54) (.78) (.70) (.68) (.65) (.43)
Distributions from net realized gain on
investments, options written and foreign
currency transactions (.10) - - - (.46) (.37) - (.04)
-----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.70) (.55) (.54) (.78) (1.16) (1.05) (.65) (.47)
-----------------------------------------------------------------------------
Net asset value, end of period $12.91 $13.88 $12.47 $11.96 $10.90 $12.30 $11.58 $10.04
=============================================================================
TOTAL RETURN, AT NET ASSET VALUE/2/ (1.95)% 15.95% 8.99% 17.48% (1.91)% 15.76% 22.15% 3.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $292,067 $250,290 $159,464 $124,634 $118,888 $121,286 $78,386 $53,291
Average net assets (in thousands) $279,949 $199,954 $139,011 $117,000 $123,231 $101,057 $64,298 $34,256
Number of shares outstanding at end of period
(in thousands) 22,620 18,026 12,792 10,421 10,908 9,860 6,766 5,306
Ratios to average net assets:
Net investment income 4.90% 4.44% 4.63% 5.95% 6.53% 6.36% 6.18% 6.12%/3/
Expenses .56% .48% .55% .54% .55% .57% .58% .65%/3/
Portfolio turnover rate/4/ 31.4% 32.4% 57.8% 80.3% 99.2% 66.9% 110.0% 46.9%
</TABLE>
1. For the period from February 9, 1987 (commencement of operations) to
December 31, 1987.
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.
9
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Global Securities Fund
--------------------------------------------------
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.
10
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer Strategic Bond Fund
--------------------------------
1994 1993/1/
--------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $5.12 $5.00
Income (loss) from investment operations:
Net investment income .35 .10
Net realized and unrealized gain (loss) on investments, options
written and foreign currency transactions (.54) .11
--------------------------------
Total income (loss) from investment operations (.19) .21
--------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.32) (.09)
Distributions from net realized gain on investments,
options written and foreign currency transactions - -
Distributions in excess of net realized gain on investments (.01) -
--------------------------------
Total dividends and distributions to shareholders (.33) (.09)
--------------------------------
Net asset value, end of period $4.60 $5.12
================================
TOTAL RETURN, AT NET ASSET VALUE/2/ (3.78)% 4.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $20,320 $9,887
Average net assets (in thousands) $15,389 $4,259
Number of shares outstanding at end of period (in thousands) 4,418 1,930
Ratios to average net assets:
Net investment income 8.36% 5.67%/3/
Expenses .87% .96%/3/
Portfolio turnover rate/4/ 136.6% 10.9%
</TABLE>
1. For the period from May 3, 1993 (commencement of operations) to December
31, 1993.
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.
11
<PAGE>
Investment Objectives and Policies
Investment Objective and Policies - Money Fund. The objective of Money Fund is
to seek the maximum current income from investments in "money market"
securities consistent with low capital risk and the maintenance of liquidity.
The Securities and Exchange Commission Rule 2a-7 ("Rule 2a-7") under the
Investment Company Act of 1940 (the "Investment Company Act") places
restrictions on a money market fund's investments. Under Rule 2a-7, Money Fund
may purchase only "Eligible Securities," as defined below, that the Trust's
Board of Trustees has determined have minimal credit risk. An "Eligible
Security" is (a) a security that has received a rating in one of the two
highest short-term rating categories by any two "nationally-recognized
statistical rating organizations" as defined in Rule 2a-7 ("Rating
Organizations"), or, if only one Rating Organization has rated that security,
by that Rating Organization, or (b) an unrated security that is judged by the
Trust's investment adviser, Oppenheimer Management Corporation (the "Manager")
to be of comparable quality to investments that are "Eligible Securities" rated
by Rating Organizations. Rule 2a-7 permits Money Fund to purchase "First Tier
Securities," which are Eligible Securities rated in the highest category for
short-term debt obligations by at least two Rating Organizations, or, if only
one Rating Organization has rated a particular security, by that Rating
Organization, or comparable unrated securities. Under Rule 2a-7, Money Fund may
invest only up to 5% of its assets in "Second Tier Securities," which are
Eligible Securities that are not "First Tier Securities." In addition to the
overall 5% limit on Second Tier Securities, Money Fund may not invest (i) more
than 5% of its total assets in the securities of any one issuer (other than the
U.S. Government, its agencies or instrumentalities) or (ii) more than 1% of its
total assets or $1 million (whichever is greater) in Second Tier Securities of
any one issuer. The Trust's Board must approve or ratify the purchase of
Eligible Securities that are unrated or are rated by only one Rating
Organization. Additionally, under Rule 2a-7, Money Fund must maintain a
dollar-weighted average portfolio maturity of no more than 90 days, and the
maturity of any single portfolio investment may not exceed 397 days. The
Trust's Board has adopted procedures under Rule 2a-7 pursuant to which the
Board has delegated to the Manager the responsibility of conforming Money
Fund's investments with the requirements of Rule 2a-7 and those Procedures.
Ratings at the time of purchase will determine whether securities may be
acquired under the above restrictions. The rating restrictions described in this
Prospectus do not apply to banks in which the Trust's cash is kept. Subsequent
downgrades in ratings may require reassessment of the credit risk presented by a
security and may require its sale. See "Investment Objective and Policies -
Money Fund" in the Statement of Additional Information for further details.
The Trust intends to exercise due care in the selection of portfolio
securities. However, a risk may exist that the issuers of Money Fund's
portfolio securities may not be able to meet their duties and obligations on
interest or principal payments at the time called for by the instrument. There
is also the risk that because of a redemption demand greater than anticipated
by management, some of Money Fund's portfolio may have to be liquidated prior
to maturity at prices less than the original cost or maturity value. Any of
these risks, if encountered, could cause a reduction in the net asset value of
Money Fund's shares.
The types of instruments that will form the major part of Money Fund's
investments are certificates of deposit, bankers' acceptances, commercial
paper, U.S. Treasury bills, securities of U.S. government agencies or
instrumentalities and other debt instruments (including bonds) issued by
corporations, including variable and floating rate instruments, and variable
rate master demand notes. Some of such instruments may be supported by letters
of credit or may be subject to repurchase transactions (described below).
Except as described below, Money Fund will purchase certificates of deposit or
bankers' acceptances only if issued or guaranteed by a domestic bank subject to
regulation by the U.S. Government or by a foreign bank having total assets at
least equal to U.S. $1 billion. Money Fund may invest in certificates of
deposit of up to $100,000 of a domestic bank if such certificates of deposit
are fully insured as to principal by the Federal Deposit Insurance Corporation.
For purposes of this section, the term "bank" includes commercial banks,
savings banks, and savings and loan associations and the term "foreign bank"
includes foreign branches of U.S. banks (issuers of "Eurodollar" instruments),
U.S. branches and agencies of foreign banks (issuers of "Yankee dollar"
instruments) and foreign branches of foreign banks. Money Fund also may
purchase obligations issued by other entities if they are: (i) guaranteed as to
principal and interest by a bank or corporation whose certificates
or commercial paper may otherwise be purchased by Money Fund, or (ii) subject
to repurchase agreements (explained below), if the collateral for the agreement
complies with Rule 2a-7. In addition, the Fund may also invest in other types
of securities described above in accordance with the requirements of the rule.
For further information, see "Foreign Securities" and "Other Investment
Restrictions" below. See Appendix A below and "Investment Objectives and
Policies" in the Statement of Additional Information for further information on
the investments which Money Fund may make. See Appendix B below for a
description of the rating categories of the Rating Organizations.
Investment Objectives and Policies - High Income Fund, Bond Fund and
Strategic Bond Fund.
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.
12
<PAGE>
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.
Bond Fund. Bond Fund's primary objective is to earn a high level of current
income by investing primarily in a diversified portfolio of high yield
fixed-income securities. As a secondary objective, Bond Fund seeks capital
growth when consistent with its primary objective. As a matter of
non-fundamental policy, Bond Fund will, under normal market conditions, invest
at least 65% of its total assets in bonds. Bond Fund will invest only in
securities rated "Baa" or better by Moody's or "BBB" or better by Standard &
Poor's. However, Bond Fund is not obligated to dispose of securities if the
rating is reduced, and therefore will from time to time hold securities rated
lower than "Baa" by Moody's or "BBB" by Standard & Poor's.
Strategic Bond Fund. The investment objective of Strategic Bond Fund is to
seek a high level of current income principally derived from interest on debt
securities and to enhance such income by writing covered call options on debt
securities. Although the premiums received by Strategic Bond Fund from writing
covered calls are a form of capital gain, the Fund generally will not make
investments in securities with the objective of seeking capital appreciation.
The Fund intends to invest principally in: (i) lower-rated high yield domestic
debt securities; (ii) U.S. Government securities, and (iii) foreign government
and corporate debt securities. Under normal circumstances, the Fund's assets
will be invested in each of these three sectors. However, Strategic Bond Fund
may from time to time invest up to 100% of its total assets in any one sector
if, in the judgment of the Manager, the Fund has the opportunity of seeking a
high level of current income without undue risk to principal. Accordingly, the
Fund's investments should be considered speculative. Distributable income will
fluctuate as the Fund assets are shifted among the three sectors.
. High Yield Securities. The higher yields and high income sought by Strategic
Bond Fund are generally obtainable from securities in the lower rating
categories of the established rating services, commonly known as "junk bonds."
Such securities are rated "Baa" or lower by Moody's or "BBB" or lower by
Standard & Poor's. Strategic Bond Fund 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. Risks of
high yield, high risk securities are discussed under "Risk Factors" below.
Strategic Bond Fund's portfolio at December 31, 1994, contained securities in
the following rating categories as rated by Standard & Poor's (the percentages
relate to the weighted average of the bonds in each rating category as a
percentage of that Fund's total assets): AAA, 22.53%; AA, 2.41%; BBB, .41%;
BB, 5.32%; B, 20.57%; CCC, 3.17%; D, .62%; unrated, 17.76%. 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. Strategic Bond Fund is not obligated to dispose
of securities whose issuers subsequently are in default or if the rating of
such securities is reduced. Appendix - B of this Prospectus describes these
rating categories. Strategic Bond Fund may also invest in unrated securities
which, in the opinion of the Manager, offer yields and risks comparable to
those of securities which are rated.
. International Securities. The Fund may invest in foreign government and
foreign corporate debt securities (which may be denominated in U.S. dollars
or in non-U.S. currencies) 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. These investments may include (i) U.S.
dollar-denominated debt obligations known as "Brady Bonds," which are issued
for the exchange of existing commercial bank loans to foreign entities for
new obligations that are generally collateralized by zero coupon Treasury
securities having the same maturity, (ii) debt obligations such as bonds
(including sinking fund and callable bonds), (iii) debentures and notes
(including variable rate and floating rate instruments), and (iv) preferred
stocks and zero coupon securities. Further information about investments in
foreign securities is set forth below under "Other Investment Techniques and
Strategies - Foreign Securities."
. U.S. Government Securities. U.S. Government Securities are debt obligations
issued by or guaranteed by the United States Government or one of its
agencies or instrumentalities. Although U.S. Government Securities are
considered among
13
<PAGE>
the most creditworthy of fixed-income investments and their
yields are generally lower than the yields available from corporate debt
securities, the values of U.S. Government Securities (and of fixed-income
securities generally) will vary inversely to changes in prevailing interest
rates. To compensate for the lower yields available on U.S. Government
securities, Strategic Bond Fund will attempt to augment these yields by
writing covered call options against them. See "Hedging," below. Certain of
these obligations, including U.S. Treasury notes and bonds, and
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Maes"), are supported by the full faith and credit of
the United States. Certain other U.S. Government Securities, issued or
guaranteed by Federal agencies or government-sponsored enterprises, are not
supported by the full faith and credit of the United States. These latter
securities may include obligations supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and obligations supported by the
credit of the instrumentality, such as Federal National Mortgage Association
bonds ("Fannie Maes"). U.S. Government Securities in which the Fund may
invest include zero coupon U.S. Treasury securities, mortgage-backed
securities and money market instruments.
Zero coupon Treasury securities are: (i) U.S. Treasury notes and bonds which
have been stripped of their unmatured interest coupons and receipts; or (ii)
certificates representing interests in such stripped debt obligations or
coupons. Because a zero coupon security pays no interest to its holder during
its life or for a substantial period of time, it usually trades at a deep
discount from its face or par value and will be subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Because the
Fund accrues taxable income from these securities without receiving cash, the
Fund may be required to sell portfolio securities in order to pay cash
dividends or to meet redemptions. The Fund may invest up to 50% of its total
assets at the time of purchase in zero coupon securities issued by either
corporations or the U.S. Treasury.
. Domestic Securities. The Fund's investments in domestic securities may
include preferred stocks, participation interests and zero coupon securities.
Domestic investments include fixed-income securities and dividend-paying
common stocks issued by domestic corporations in any industry which may be
denominated in U.S. dollars or non-U.S. currencies.
The Fund's investments may include securities which represent participation
interests in loans made to corporations (see "Participation Interests," below)
and in pools of residential mortgage loans which may be guaranteed by agencies
or instrumentalities of the U.S. Government (e.g. Ginnie Maes, Freddie Macs and
Fannie Maes), including collateralized mortgage-backed obligations ("CMOs"), or
which may not be guaranteed. Such securities differ from conventional debt
securities which provide for periodic payment of interest in fixed amounts
(usually semi-annually) with principal payments at maturity or specified call
dates. Mortgage-backed securities provide monthly payments which are, in
effect, a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at lower rates than the original
investment, thus reducing the yield of the Fund. CMOs in which the Fund may
invest are securities issued by a U.S. Government instrumentality or private
corporation that are collateralized by a portfolio of mortgages or
mortgage-backed securities which may or may not be guaranteed by the U.S.
Government. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed securities.
Mortgage-backed securities may be less effective than debt obligations of
similar maturity at maintaining yields during periods of declining interest
rates.
The Fund may also invest in CMOs that are "stripped." That means that the
security is divided into two parts, one of which receives some or all of the
principal payments (and is known as a "P/O") and the other which or all of the
interest (and is known as an "I/O"). P/Os and I/Os are generally referred to as
"derivative investments," discussed further below.
The yield to maturity on the class that receives only interest is extremely
sensitive to the rate of payment of the principal on the underlying mortgages.
Principal prepayments increase that sensitivity. Stripped securities that pay
"interest only" are therefore subject to greater price volatility when interest
rates change, and they have the additional risk that if the underlying
mortgages are prepaid, the Fund will lose the anticipated cash flow from the
interest on the prepaid mortgages. That risk is increased when general interest
rates fall, and in times of rapidly falling interest rates, the Fund might
receive back less than its investment.
The value of "principal only" securities generally increases as interest
rates decline and prepayment rates rise. The price of these securities is
typically more volatile than that of coupon-bearing bonds of the same maturity.
Stripped securities are generally purchased and sold by institutional
investors through investment banking firms. At present, established trading
markets have not yet developed for these securities. Therefore, some stripped
securities may be deemed "illiquid." If the Fund holds illiquid stripped
securities, the amount it can hold will be subject to the Fund's investment
policy limiting investments in illiquid securities to 15% of the Fund's assets.
The Fund may also enter into "forward roll" transactions with
mortgage-backed securities. The Fund sells mortgage-backed securities it holds
to banks or other buyers and simultaneously agrees to repurchase a similar
security from that party at a later date at an agreed-upon price. Forward rolls
are considered to be a borrowing. The Fund is required to place liquid assets
in a segregated account with its custodian bank in an amount equal to its
obligation under the forward roll. The main risk of this investment strategy is
risk of default by the counterparty.
The Fund may also invest in asset-backed securities, which are securities
that represent fractional undivided interests in pools of consumer loans and
trade receivables, similar in structure to the mortgage-backed securities in
which the Fund may invest, described above. Payments of principal and interest
are passed through to holders of asset-backed securities and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety bond, limited
14
<PAGE>
guarantee by another entity or having a priority to certain of the borrower's
other securities. The degree of credit enhancement varies, and generally
applies to only a fraction of the asset-backed security's par value until
exhausted.
Risk Factors. The securities in which High Income Fund and Strategic Bond
Fund principally invest 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. These Funds are
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, Growth Fund,
Multiple Strategies Fund, Growth & Income 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.
Growth Fund. In seeking its objective of capital appreciation, Growth Fund
will emphasize investments in securities of well-known and established
companies. Such securities generally have a history of earnings and dividends
and are issued by seasoned companies (having an operating history of at least
five years, including predecessors). Current income is a secondary
consideration in the selection of Growth Fund's portfolio securities.
Multiple Strategies Fund. The objective of Multiple Strategies Fund is to
seek a high total investment return, which includes current income as well as
capital appreciation in the value of its shares. In seeking that objective,
Multiple Strategies Fund may invest in equity securities (including common
stocks, preferred stocks, convertible securities and warrants), debt securities
(including bonds, participation interests, asset-backed securities,
private-label mortgage-backed securities and CMOs, zero coupon securities and
U.S. government obligations, described above under "Investment Objectives and
Policies - High Income Fund, Bond Fund and Strategic Bond Fund" and under
"Participation Interests" below) and cash and cash equivalents (identified
above as the types of instruments in which the Money Fund may invest).
The composition of Multiple Strategies Fund's portfolio among the different
types of permitted investments will vary from time to time based upon the
Manager's evaluation of economic and market trends and perceived relative total
anticipated return from such types of securities. Accordingly, there is neither
a minimum nor a maximum percentage of Multiple Strategies Fund's assets that
may, at any given time, be invested in any of the types of investments
identified above. In the event future economic or financial conditions
adversely affect equity securities, it is expected that Multiple Strategies
Fund would assume a defensive position by investing in debt securities (with an
emphasis on securities maturing in one year or less from the date of purchase),
or cash and cash equivalents.
Growth & Income Fund. The objective of Growth & Income Fund is to seek a
high total return, which includes growth in the value of its shares as well as
current income from equity and debt securities. In seeking that objective,
Growth & Income Fund may invest in equity and debt securities. Its equity
investments will include common stocks, preferred stocks, convertible
securities and warrants. Its debt securities will include bonds, participation
interests, asset-backed securities, private-label mortgage-backed securities
and CMOs, zero coupon securities and U.S. government obligations. From time to
time Growth & Income Fund may focus on small to medium capitalization issuers,
the securities of which may be subject to greater price volatility than those
of larger capitalized issuers.
The composition of Growth & Income Fund's portfolio among equity and
fixed-income investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and perceived relative total
anticipated return from such types of investments. Accordingly, there is
neither a minimum nor a maximum percentage of Growth & Income Fund's assets
that may, at any given time, be invested in either type of investment. In the
event future economic or financial conditions adversely affect equity
securities, it is expected that Growth & Income Fund would assume a defensive
position by investing in debt securities (with an emphasis on securities
maturing in one year or less from the date of purchase).
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
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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 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, Strategic Bond Fund, Growth Fund, Multiple Strategies Fund, Growth &
Income 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. Growth Fund may borrow only up to 5% of
the value of its total assets and 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, Strategic Bond
Fund, Multiple Strategies Fund, Growth & Income 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. Money Fund, Capital Appreciation
Fund, Multiple Strategies Fund, Growth & Income Fund, Growth Fund, Global
Securities Fund and Strategic Bond 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. It is not currently intended that
investments in securities of companies (including predecessors) that have
operated less than three years will exceed 5% of the net assets of either
Growth Fund or Multiple Strategies Fund. Money Fund, Capital Appreciation Fund,
Growth & Income Fund, Global Securities Fund and Strategic Bond Fund are not
subject to this restriction.
Participation Interests. Strategic Bond Fund, Global Securities Fund, High
Income Fund and Multiple Strategies Fund and Growth & 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
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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,
Multiple Strategies Fund, Growth & Income Fund or Strategic Bond 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. Multiple Strategies Fund will invest no more than 35% of its total
assets in foreign securities or in government securities of any foreign country
or in obligations of foreign banks. Global Securities Fund, Growth & Income
Fund and Strategic Bond Fund have 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 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 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, Global Securities and Strategic Bond Funds]; 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
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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 (other than Money Fund) 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, Bond Fund, Multiple Strategies Fund,
Growth & Income Fund and Strategic Bond 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 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, Capital Appreciation Fund, Growth Fund,
Multiple Strategies Fund, Growth & Income Fund and Strategic Bond Fund may buy
and sell futures contracts that relate to broadly-based stock indices (these
are referred to as Stock Index Futures). The latter three Funds and Global
Securities Fund, Bond 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 (other than Money Fund) 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. Strategic Bond Fund, High Income Fund and Bond 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. Each of these Funds
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may not enter into swaps with respect to more than 50% of its total assets.
Also, each 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. The Funds 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 (other than Money Fund) can invest in a
number of different kinds of "derivative investments." Such 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 (other than Money Fund) 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 such 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 (other than Money Fund) 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, Growth Fund, Multiple Strategies Fund, Growth & Income Fund
and Global Securities Fund and to a lesser extent, higher transaction costs for
Money Fund, Bond Fund, Strategic Bond Fund and High Income Fund. The "Financial
Highlights," above show the portfolio turnover for the past fiscal years for
each Fund except Growth & Income 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 (except Money 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
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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 [Money Fund, Bond Fund and High Income Fund, only]; therefore
these Funds 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; however, there is no limitation as to
concentration of investments by Money Fund in obligations issued by domestic
banks, foreign branches of domestic banks (if guaranteed by the domestic
parent), savings and loan associations or in obligations issued by the federal
government and its agencies and instrumentalities; 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 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. Money Fund has separately undertaken to exclude savings
and loan associations from the exception to the concentration limitation set
forth under investment restriction (4), above. 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.
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 - Money Fund, Bond Fund and Growth Fund, all
organized in 1984, High Income Fund, Capital Appreciation Fund and Multiple
Strategies Fund, all organized in 1986, Global Securities Fund, organized in
1990, Strategic Bond Fund, organized in 1993 and Growth & Income Fund, which is
expected to commence operations in 1995.
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, Bond Fund,
Multiple Strategies Fund and Strategic Bond Fund is David P. Negri, joined by
Richard H. Rubinstein for Multiple Strategies Fund and by Arthur P. Steinmetz
for Strategic Bond Fund. They are the persons principally responsible for the
day-to-day management of those Funds since July 1989, January 1990, July 1989
(April 1991 for Mr. Rubinstein) and May 1993, respectively. During the past
five years, Messrs. Steinmetz and Negri have also served as officers of other
OppenheimerFunds. During the past five years, Mr. Rubinstein has served as an
officer of other OppenheimerFunds and was formerly Vice President and Portfolio
Manager/Security Analyst for Oppenheimer Capital Corp., an investment adviser.
The Portfolio Manager of Global Securities Fund is William Wilby. He is a
Senior Vice President of the Manager and, as of December 4, 1995, is the person
principally responsible for the day-to-day management of that Fund's portfolio.
During the past five years, Mr. Wilby has also served as an officer and
portfolio manager for other Oppenheimer funds, prior to which he was an
international investment strategist at Brown Brother Harriman & Co., and a
Managing Director and Portfolio Manager at AIG Global Investors. The Portfolio
Manager of the Money Fund is Arthur Zimmer. Since October 1990, he has been the
person principally responsible for the day-to-day management of that Fund's
portfolio. During the past five years, he has also served as an officer of
other OppenheimerFunds and formerly served as Vice President of Hanifen Imhoff
Management Company (mutual fund investment adviser). The Portfolio Manager of
Growth Fund is Jane Putnam. She has been the person principally responsible for
the day-to-day management of that Fund's portfolio since May 1994. During the
past five years, Ms. Putnam has also served as an Associate Portfolio Manager
20
<PAGE>
for other OppenheimerFunds and formerly served as a portfolio manager and
equity research analyst for Chemical Bank. 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. The Portfolio Managers of
Growth & Income Fund are Robert C. Doll, Jr., Bruce Bartlett and Diane L.
Sobin. They will be the persons principally responsible for the day-to-day
management of that Fund after its inception in July, 1995. Each of the Growth &
Income Fund Portfolio Managers are officers of other OppenheimerFunds. Mr. Doll
is an Executive Vice President and Director of Equity Investment of the
Manager. During the past five years, Mr. Bartlett, a Vice President of the
Manager, was previously a Vice President and Senior Portfolio Manager with
First of America Investment Corporation. During the past five years, Ms. Sobin,
a Vice President of the Manager, was previously a Vice President and Senior
Portfolio Manager with Dean Witter InterCapital, Inc. Messrs. Negri, Zimmer and
Rubinstein are Vice Presidents of the Manager, Messrs. Steinmetz and Wilby are
Senior Vice Presidents of the Manager, and Ms. Putnam and Mr. LaRocco are
Assistant Vice Presidents 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 as follows: (i) for Money Fund: 0.450% of the first
$500 million of net assets, 0.425% of the next $500 million, 0.400% of the next
$500 million, and 0.375% of net assets over $1.5 billion; (ii) for Capital
Appreciation Fund, Growth Fund, Multiple Strategies Fund, Growth & Income 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 (iii) for
High Income Fund, Bond Fund and Strategic Bond 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>
Money Fund .45% .50%
High Income Fund .75% .81%
Bond Fund .75% .81%
Capital Appreciation Fun .75% .80%
Growth Fund .75% .81%
Multiple Strategies Fund .74% .79%
Global Securities Fund .75% .95%
Strategic Bond Fund .75% .93%
Growth & Income Fund(2) .75% .93%
</TABLE>
- --------------------
(1) This table does not reflect expenses that apply at the separate account
level or to related insurance products.
(2) Because Growth & Income Fund is a new fund and has not completed a full
fiscal year, the expenses shown above are based on amounts estimated to be
payable in the current fiscal year, assuming that Growth & Income Fund will
have average net assets of $15 million at the end of the current fiscal year.
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 company issuing the Account at the address or
telephone number shown in the accompanying Account Prospectus.
Performance of the Funds
Explanation of Performance Terminology. Money Fund uses the terms "yield" to
illustrate its performance. High Income Fund, Bond Fund and Strategic Bond Fund
use the terms "yield," "total return," and "average annual total return" to
illustrate performance. All the Funds, except Money Fund, 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
21
<PAGE>
performance will vary over time, depending on market
conditions, the composition of the portfolio and expenses.
Yields. Money Fund's "yield" is the income generated by an investment in
that Fund over a seven-day period, which is then "annualized." In annualizing,
the amount of income generated by the investment during that seven days is
assumed to be generated each week over a 52-week period, and is shown as a
percentage of the investment. The compounded "effective yield" is calculated
similarly, but the annualized income earned by an investment in Money Fund is
assumed to be reinvested. The compounded effective yield will therefore be
slightly higher than the yield because of the effect of the assumed
reinvestment.
Yield for High Income Fund, Strategic Bond Fund or Bond 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 these Funds.
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, except Money
Fund and Growth & Income Fund (which commenced operations after that date) 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 Bond Fund, intermediate and long-term U.S. government
bonds were emphasized. 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 Growth Fund, consumer and industrial company stocks were emphasized,
including financial, technology and health care issues. Multiples Strategies
Fund's equity portfolio emphasized technology, health care and industrial
issues; its fixed income portfolio emphasized commodity-based industries,
telecommunications and media issues. 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. For Strategic Bond Fund, corporate bonds in U.S.
companies that derive a large percentage of their earnings from Europe were
emphasized, foreign fixed-income securities were emphasized in Latin American,
Asian and Eastern European countries, and U.S. government securities of a
longer term were emphasized.
Comparing each Fund's Performance to the Market. The charts below show the
performance of hypothetical $10,000 investments in each Fund (except for Money
Fund and Growth & Income 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. Bond Fund's performance is
compared to the performance of the Lehman Brothers Corporate Bond Index, which
is an unmanaged index of publicly-issued non-convertible investment grade
corporate debt of U.S. issuers, widely recognized as a measure of the U.S.
fixed-rate corporate bond market. The performance of Capital Appreciation Fund
and Growth 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. Multiple Strategies
Fund's performance is compared to the S&P 500 Index and the Lehman Brothers
Aggregate Bond Index, a broad-based, unmanaged index of U.S. corporate bond
issues, U.S. government securities and mortgage-backed securities, widely
recognized as a measure of the performance of the domestic debt 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. Strategic Bond Fund's performance is compared to the
Lehman Brothers Aggregate Bond Index and the Salomon Brothers World Government
Bond Index. The Salomon Brothers World Government Bond Index is an unmanaged
index of fixed-rate bonds having a maturity of one year or more, and is widely
recognized as a benchmark of fixed income performance on a world-wide basis.
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.
22
<PAGE>
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
<S> <C> <C>
-3.18% 15.09% 12.47%
</TABLE>
(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 gains distributions.
Past performance is not predictive of future performance. Graphs are not
drawn to same scale.
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
<S> <C> <C>
-1.94% 8.43% 9.78%
</TABLE>
(a) The inception date of the Fund was 4/3/85. 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.
23
<PAGE>
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
<S> <C> <C>
-7.59% 11.81% 13.28%
</TABLE>
(1) The inception date of the Fund was 8/15/86. 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.
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
<S> <C> <C>
0.97% 7.40% 11.44%
</TABLE>
(1) The inception date of the Fund was 4/3/85. 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.
24
<PAGE>
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year 5 years Life of Fund
<S> <C> <C>
-1.95% 7.38% 9.85%
</TABLE>
(1) The inception date of the Fund was 2/9/87. 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.
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year Life of Fund
<S> <C>
-5.72% 11.15%
</TABLE>
(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.
25
<PAGE>
Average Annual Total Return at 12/31/94/(1)/
<TABLE>
<CAPTION>
1 year Life of Fund
<S> <C>
-3.78% 0.19%
</TABLE>
(1) The inception date of the Fund was 5/3/93. 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.
26
<PAGE>
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). Shares of Growth & Income Fund will not be offered prior to July 1,
1995.
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. Under Rule
2a-7, the amortized cost method is used to value Money Fund's net asset value
per share, which is expected to remain fixed at $1.00 per share except under
extraordinary circumstances; see "About Your Account - How to Buy Shares -
Money Fund Net Asset Valuation" in the Statement of Additional Information for
further information. There can be no assurance that Money Fund's net asset
value will not vary. Further details are in "About Your Account - How to Buy
Shares - Money Fund Net Asset Valuation" in the Statement of Additional
Information.
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
(other than shares of the Money Fund) will fluctuate accordingly. Therefore,
the redemption value may be more or less than the investor's cost.
Dividends, Capital Gains And Taxes
Dividends of the Money Fund. The Trust intends to declare Money Fund's
dividends from its net investment income on each day the New York Stock
Exchange is open for business. Such dividends will be payable on shares held of
record at the time of the previous determination of net asset value. Daily
dividends accrued since the prior dividend payment will be paid to shareholders
monthly as of a date selected by the Board of Trustees. Money Fund's net income
for dividend purposes consists of all interest income accrued on portfolio
assets, less all expenses of that Fund for such period. Accrued market discount
is included in interest income; amortized market premium is treated as an
expense. Although distributions from net realized gains on securities, if any,
will be paid at least once each year, and may be made more frequently, Money
Fund does not expect to realize long-term capital gains, and therefore does not
contemplate payment of any capital gains distribution. Distributions from net
realized gains will not be distributed unless Money Fund's capital loss carry
forwards, if any, have been used or have expired. Money Fund seeks to maintain
a net asset value of $1.00 per share for purchases and redemptions. To effect
this policy, under certain circumstances the Money Fund may withhold dividends
or make distributions from capital or capital gains (see "Dividends, Capital
Gains and Taxes" in the Statement of Additional Information).
Dividends and Distributions of High Income Fund, Bond Fund, Strategic Bond
Fund, Growth & Income Fund and Multiple Strategies Fund. The Trust intends to
declare High Income Fund, Bond Fund, Strategic Bond Fund, Growth & Income Fund
and Multiple Strategies Fund dividends quarterly, payable in March, June,
September and December.
Dividends and Distributions of Capital Appreciation Fund, Growth Fund and
Global Securities Fund. The Trust intends to declare Capital Appreciation Fund,
Growth Fund and Global Securities Fund dividends on an annual basis.
Capital Gains. Any Fund (other than Money 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.
27
<PAGE>
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
<PAGE>
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
B-1
<PAGE>
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.
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
B-2
<PAGE>
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-3
<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>
[LOGO OF MASS MUTUAL]
January 9, 1996
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, NW
Room 1004
Washington, DC 20549
Re: Massachusetts Mutual Variable Life Separate Account I
File No. 33-87904
-----------------------------------------------------
Ladies and Gentlemen:
Pursuant to Rule 497(b) of the Securities Act of 1933, I have enclosed for
filing the definitive prospectus to be used in connection with the subject
variable life insurance product. The prospectus is being submitted in
electronic format pursuant to Rule 101(a)(i) of Regulation S-T.
Should you have any questions or if you require any additional information,
please do not hesitate to call me at (413) 744-8441.
Sincerely,
/s/ James M. Rodolakis
James M. Rodolakis
Attorney
Enclosure
Massachusetts Mutual Life Insurance Company Springfield, MA 01111-0001
413-788-8411
