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SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
This Prospectus describes a survivorship flexible premium adjustable variable
life insurance policy (the "Policy") offered by Massachusetts Mutual Life
Insurance Company ("MassMutual"). The Policy, for as long as it remains in
force, provides lifetime insurance protection on the two Insureds named in the
Policy, and pays a Death Benefit at the death of the last surviving Insured (the
"second death"). The minimum Initial Face Amount which may be purchased is
$500,000 currently. The Policy is designed to provide flexibility of premium
payments and Death Benefits by permitting the Owner, subject to certain
restrictions, to vary the frequency and amount of premium payments and to
increase or decrease the Death Benefit payable under the Policy. This
flexibility allows an Owner to provide for changing insurance needs under a
single insurance policy. A Policy also may be surrendered for its Net Surrender
Value.
The Owner may allocate Net Premiums and Account Value among the divisions (the
"Divisions") of the designated segment of MassMutual Variable Life Separate
Account I (the "Separate Account") and a Guaranteed Principal Account (the
"GPA"). The assets of each Division will be used to purchase, at net asset
value, shares of a designated investment fund. Currently, the available funds
include six funds of MML Series Investment Fund (the "MML Trust"), four funds of
Oppenheimer Variable Account Funds (the "Oppenheimer Trust"), one fund of the
Variable Insurance Products Fund II (VIP II managed by Fidelity Management &
Research Company), one fund of the T. Rowe Price Equity Series, Inc., and one
fund of American Century Variable Portfolios, Inc. The individual funds are as
follow.
<TABLE>
<CAPTION>
MML TRUST OPPENHEIMER TRUST VARIABLE INSURANCE PRODUCTS FUND II
- ------------------------ ---------------------------------- --------------------------------------
<S> <C> <C>
MML Equity Fund Oppenheimer Aggressive Growth Fund VIP II Contrafund Portfolio
MML Money Market Fund Oppenheimer Global Securities Fund
MML Managed Bond Fund Oppenheimer Growth Fund T. ROWE PRICE EQUITY SERIES, INC.
--------------------------------------
MML Blend Fund Oppenheimer Strategic Bond Fund T. Rowe Price Mid-Cap Growth Portfolio
MML Equity Index Fund
MML Small Cap Value Equity Fund AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
------------------------------------------
American Century VP Income & Growth
</TABLE>
The Owner bears the investment risk of any Account Value allocated to the
Separate Account. The Death Benefit may, and the Net Surrender Value will, vary
depending on the investment performance of the Divisions. While there is no
guaranteed minimum Net Surrender Value for funds invested in the Separate
Account, as long as a Policy is in force, the Policy's Death Benefit will never
be less than the Face Amount less any Policy Debt and any unpaid premiums.
Furthermore, the Policy will not terminate if the Policy Value is sufficient to
pay the Monthly Charges or if the Safety Test has been met during a Guarantee
Period.
All Policies are serviced through MassMutual's Administrative Office, located at
1295 State Street, Springfield, Massachusetts 011110001. The telephone number
is (413) 7888411.
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 FOR THE INDIVIDUAL INVESTMENT FUNDS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FURTHER REFERENCE.
THE PURPOSE OF THE POLICY WE ARE OFFERING IS TO PROVIDE INSURANCE PROTECTION.
WE DO NOT CLAIM THE POLICY IS IN ANY WAY SIMILAR TO OR COMPARABLE WITH A MUTUAL
FUND'S SYSTEMATIC INVESTMENT PLAN. REPLACING EXISTING INSURANCE WITH THE POLICY
DESCRIBED IN THIS PROSPECTUS MAY NOT BE TO YOUR ADVANTAGE.
EFFECTIVE JUNE 5, 1998
This Prospectus does not constitute an offer or solicitation to acquire any
interest or participation in the survivorship flexible premium adjustable
variable 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.
*Title may vary in some jurisdictions.
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TABLE OF CONTENTS
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I. INTRODUCTION................................................................... 3
II. DETAILED DESCRIPTION OF THE POLICY
Availability of the Policy..................................................... 4
Death Benefit.................................................................. 4
Premiums....................................................................... 5
Transfers...................................................................... 7
Policy Termination and Reinstatement........................................... 7
Charges and Deductions......................................................... 7
Deductions from Premiums....................................................... 8
Monthly Charges Against the Account Value...................................... 8
Daily Charges Against the Separate Account..................................... 9
Surrender Charges.............................................................. 9
Other Charges.................................................................. 10
Account Value and Net Surrender Value.......................................... 10
Policy Loan Privilege.......................................................... 10
Free Look Provision............................................................ 11
The Guaranteed Principal Account............................................... 11
When We Pay Proceeds........................................................... 12
Federal Income Tax Considerations.............................................. 12
Your Voting Rights............................................................. 14
Reservation of Rights.......................................................... 15
Additional Benefits You Can Get by Rider....................................... 15
Payment Options................................................................ 16
Beneficiary.................................................................... 16
Assignment..................................................................... 16
Limits on Our Right to Challenge the Policy.................................... 17
Error of Age or Sex............................................................ 17
Suicide........................................................................ 17
Sales and Other Agreements..................................................... 17
Compensation................................................................... 17
Bonding Arrangement............................................................ 18
Legal Proceedings.............................................................. 18
Experts........................................................................ 18
III. ADDITIONAL INFORMATION
MassMutual........................................................................ 18
Records and Reports............................................................... 19
The Separate Account.............................................................. 19
MML Trust and Oppenheimer Trust................................................... 19
Variable Insurance Products Fund II............................................... 20
T. Rowe Price Equity Series, Inc.................................................. 20
American Century Variable Portfolios, Inc......................................... 20
The Investment Advisers........................................................... 22
APPENDIX A
Definition of Terms............................................................... 23
APPENDIX B
Examples of Death Benefit Option Changes.......................................... 25
APPENDIX C
Rates of Return................................................................... 26
APPENDIX D
Illustration of Death Benefits, Net Surrender Values, and Accumulated Premiums.... 30
APPENDIX E
Directors of MassMutual........................................................... 43
Executive Vice Presidents......................................................... 44
APPENDIX F
Financial Statements.............................................................. FF-1
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I. INTRODUCTION
NOTE: PLEASE REFER TO APPENDIX A, GLOSSARY FOR DEFINITIONS OF THE TERMS
CONTAINED IN THIS PROSPECTUS.
You should consult Your Policy for further understanding of its term and
conditions and for any state-specific provisions and variances that may apply to
Your Policy.
The Policy is a life insurance contract providing a Death Benefit, an Account
Value, surrender rights, policy loan privileges, and other features
traditionally associated with life insurance. The Policy is a "survivorship"
policy because it provides life insurance on two insured lives and pays a death
benefit at the time of the second death.
The Policy is a "flexible premium" policy because there is no fixed schedule of
premium payments. Although the Owner may establish a schedule of premium
payments ("Planned Premium Payments"), failure to make a Planned Premium Payment
will not necessarily cause a Policy to terminate nor will making the Planned
Premium payments guarantee a Policy will remain in force. The flexibility of
premium payment timing and amount allows an Owner to match premium payments to
income flows or other financial decisions.
The Policy is "adjustable" because the Owner may choose to increase or decrease
the Death Benefit and to change the Death Benefit Option under the Policy. The
Policy is "variable" because the Death Benefit may, and the Net Surrender Value
will, vary in relation to the investment experience of the Divisions of the
Separate Account to which an Owner has allocated Net Premiums. Additionally,
the GPA's crediting interest rate may be adjusted periodically, although it will
not drop below 3%.
The following diagram summarizes the elements of this Policy, and how the Policy
works.
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HOW THE POLICY WORKS
-----------------------------------------
PREMIUM PAYMENT
-----------------------------------------
A Premium Expense Charge is deducted from
each Premium Payment
(graphic arrow to "Net Premium")
-----------------------------------------
NET PREMIUM
-----------------------------------------
Net Premium and Account Value are
allocated among the Divisions of the
Separate Account and the GPA
(graphic arrow to "Account Value")
<S> <C> <C>
- ---------------------------------------- ---------------------------------------- ----------------------------------------
INVESTMENT EARNINGS ACCOUNT VALUE ACCOUNT VALUE CHARGES
- ---------------------------------------- ---------------------------------------- ----------------------------------------
Investment earnings of the Divisions of Monthly deductions for administrative,
the Separate Account less fund insurance, and rider expenses are
investment management fees and separate The Account Value is allocated among the deducted each month
account fees are credited/ debited daily available investment options.
(graphic arrows to "Death Benefit", ----------------------------------------
Interest is credited on values in the "Account Value Charges", "Owner Access
Guaranteed Principal Account to Account Value" and "Policy Surrender") OWNER ACCESS TO ACCOUNT VALUE
----------------------------------------
(graphic arrow to "Account Value")
You may access Account Values through
loans and withdrawals
- ---------------------------------------- ----------------------------------------
DEATH BENEFIT POLICY SURRENDER
- ---------------------------------------- ----------------------------------------
A choice of 3 Death Benefit Options is In the first 10 years of coverage, if
available. The Option chosen may be coverage is surrendered, a surrender
changed at a later date charge will be deducted from the
surrender proceeds
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II. DETAILED DESCRIPTION OF THE POLICY
AVAILABILITY OF THE POLICY
Individuals wishing to purchase a Policy must send a completed application to
MassMutual's Administrative Office. Under our current rules, which can be
changed at our sole discretion, the minimum Initial Face Amount of a Policy is
$500,000. The Policy can be issued for two Insureds where the older Insured is
between the ages 18 and 90 inclusive, and the younger Insured is between the
ages 18 and 85 inclusive. Before issuing a Policy, MassMutual will require
satisfactory evidence of insurability, which usually will include a medical
examination.
The Policy is available to individuals who are purchasing a Policy in connection
with employee benefit plans that qualify for tax benefits under the Internal
Revenue Code (the "qualified market") and to other individuals (the
"nonqualified market").
UNISEX Policies issued in states requiring "unisex" policies (currently only
Montana) provide policy values that do not vary by the sexes of the Insureds.
In addition, Policies issued in conjunction with employee benefit plans provide
policy values that do not vary by sex. Thus, references in the Prospectus to
sex-distinct policy values are not applicable to Policies issued in Montana or
issued in conjunction with employee benefit plans. Illustrations showing the
effect of these unisex rates on premiums, Net Surrender Values and Death
Benefits are available from MassMutual on request.
DEATH BENEFIT
As long as the Policy remains in force, MassMutual will, upon due proof of the
deaths of both Insureds, pay the Death Benefit of the Policy to the named
Beneficiary. Although MassMutual normally will pay the Death Benefit within
seven days of receiving satisfactory proof of the Insureds' deaths, the Company
may delay payments under certain circumstances. All or part of the Death
Benefit can be paid in cash or under one or more of the payment options set
forth in the Policy.
MINIMUM DEATH BENEFIT. In order to qualify as life insurance pursuant to I.R.C.
Section 7702, the Policy has a Minimum Death Benefit. The Minimum Death Benefit
is determined using one of two allowable Death Benefit Compliance Tests. The
applicable Test is chosen at the time of application and cannot be changed after
the Policy is issued. Under one of the tests, the Cash Value Test, the Minimum
Death Benefit is equal to an applicable percentage of the Account Value. The
applicable percentage depends on the sexes (male, female, unisex), tobacco
classifications, and Attained Ages of both Insureds. Under the other test, the
Guideline Premium Test, the Minimum Death Benefit also is equal to an applicable
percentage of the Account Value, but the percentage varies only by the Attained
Age of the younger Insured. The applicable percentages are set forth in the
Policy.
The choice of the Guideline Premium Test or the Cash Value Test will depend on
how You intend to pay premiums. In general, if You intend to pay premiums in
early policy years only, the Cash Value Test may be more appropriate. If You
intend to pay level premiums over a long period of years, the Guideline Premium
Test may be more appropriate. It is important You see policy illustrations of
both approaches to determine how the policy works under each approach, and which
is best for You.
DEATH BENEFIT OPTIONS. The Death Benefit is the amount of the benefit provided
under the Death Benefit Option in effect on the date of the second death, less
any outstanding Policy Debt and less any unpaid premium needed to avoid
termination under the grace period provision. The Owner may choose one of three
Death Benefit Options: Option 1 (a level amount option) or Options 2 or 3
(variable amount options). The Death Benefit Option is chosen in the application
and subsequently may be changed subject to certain restrictions described in
CHANGES IN THE DEATH BENEFIT OPTION.
Options 1, 2 and 3 provide the following benefits.
. OPTION 1 - Under Option 1, the benefit provided is the greater of: (a) the
Face Amount on the date of the second death; and (b) the Minimum Death
Benefit on the date of the second death.
. OPTION 2 - Under Option 2, the benefit provided is the greater of: (a) the
Face Amount plus the Account Value on the date of the second death; and (b)
the Minimum Death Benefit on the date of the second death.
. OPTION 3 - Under Option 3, the benefit provided is the greater of: (a) the
Face Amount plus the premiums paid less any premiums refunded (See Premium
Limitations) under the Policy to the date of the second death; and (b) the
Minimum Death Benefit on the date of the second death.
The following examples illustrate how changes in the Account Value and the
amount of premiums paid may affect the Death Benefits under Options 1, 2, and 3.
Example I
Under Option 1, the Death Benefit will remain at the Face Amount, in this
example $1,000,000, unless the Minimum Death Benefit exceeds the Face Amount.
Assume the Owner has selected Option 1 with a Face Amount of $1,000,000. The
Account Value is $50,000. The Death Benefit in this case is $1,000,000. The
Minimum Death Benefit is $219,000. If the Account Value increases to $80,000,
the Minimum Death Benefit increases to $350,400, but the Death Benefit remains
at $1,000,000. If the Account Value decreases to $30,000, the Minimum
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Death Benefit decreases to $131,400 and the Death Benefit still remains at
$1,000,000.
Example II
Under Option 2, the Death Benefit will be the Face Amount plus the Account Value
unless the Minimum Death Benefit exceeds the sum of the Face Amount plus the
Account Value.
Assume the Owner has selected Option 2 with a Face Amount of $1,000,000. The
Account Value is $50,000, and the Minimum Death Benefit is $219,000. The Death
Benefit in this case is $1,050,000 (Face Amount plus Account Value). If the
Account Value increases to $80,000, the Minimum Death Benefit will increase to
$350,400, and the Death Benefit will increase to $1,080,000. If the Account
Value decreases to $30,000, the Minimum Death Benefit will decrease to $131,400,
and the Death Benefit will decrease to $1,030,000.
Example III
Under Option 3, the Death Benefit will be the Face Amount plus the premiums paid
under the Policy, less any premium refunds, unless the Minimum Death Benefit
exceeds the sum of the Face Amount plus the premiums paid.
Assume the Owner has selected Option 3 with a Face Amount of $1,000,000. The
Account Value is $50,000, the Minimum Death Benefit is $219,000 and premiums
paid under the Policy to-date total $40,000. The Death Benefit in this case is
$1,040,000. If an additional $30,000 of premium is paid into the Policy and the
Account Value increases to $80,000, the Minimum Death Benefit will increase to
$350,400, and the Death Benefit will increase to $1,070,000.
CHANGES IN DEATH BENEFIT OPTION. After the first Policy Year, the Owner may
change the Death Benefit Option. Any changes of Death Benefit Option may require
a written application and satisfactory evidence of insurability. The effective
date of any change will be the Monthly Charge Date that is on or precedes the
date MassMutual approves the change. A change in the Death Benefit Option will
not in and of itself result in an immediate change in the amount of a Policy's
Death Benefit. The Policy Face Amount will be increased or decreased to give the
same Death Benefit under the new Death Benefit Option.
A change in Death Benefit Option will not be allowed if it would result in a
Face Amount of less than $500,000 after the change, if the older insured is
older than Attained Age 85, or if only one of the Insureds is alive.
An increase or decrease in Face Amount resulting from a change in the Death
Benefit Option will affect the Monthly Charges, as they depend in part on the
Face Amount. The charge for certain additional benefits also may be affected.
The Surrender Charge, however, will not be affected by an increase or decrease
in Face Amount resulting from a change in the Death Benefit Option.
For examples of Death Benefit Option changes and their impacts on the contract,
see APPENDIX B.
CHANGES IN FACE AMOUNT. The Owner may request an increase or decrease in the
Face Amount subject to certain requirements. Any request for an increase or
decrease must be submitted in writing to MassMutual's Administrative Office. It
will become effective on the Monthly Charge Date that is on or precedes
MassMutual's acceptance of the request.
INCREASES IN FACE AMOUNT. For an increase in the Face Amount, MassMutual
requires a written application and satisfactory evidence of insurability. An
increase may not be less than $50,000, and no increase will be permitted after
the younger Insured reaches Attained Age 85, or the older Insured reaches
Attained Age 90.
An increase in Face Amount will affect the Monthly Charges. The Face Amount
Charge and the Insurance Charges will increase.
DECREASES IN FACE AMOUNT. Decreases in coverage are allowed after the first
Policy Year or one year after a Face Amount increase by written request. A
decrease will not be permitted if the Face Amount would fall below $500,000.
A decrease may result in the deduction of Surrender Charges from the Account
Value. (For a discussion of the Surrender Charges associated with a decrease,
see SURRENDER CHARGES.) Any Surrender Charges applicable to a decrease will be
deducted from the Division(s) of the Separate Account and from the GPA in
proportion to the non-loaned values in each.
A decrease will reduce the Face Amount in the following order: (a) the Face
Amount provided by the most recent increase; (b) the Face Amounts provided by
the next most recent increases successively; and finally (c) the Initial Face
Amount. As a result, a decrease in Face Amount will affect the Monthly Charges
deducted from the Account Value.
A decrease may result in the Policy becoming a "modified endowment contract".
(See POLICY PROCEEDS, PREMIUMS AND LOANS.)
PREMIUMS
Subject to certain limitations, the Owner has flexibility in determining the
frequency and amount of premium payments.
PREMIUM FLEXIBILITY. Unlike traditional insurance policies, this Policy frees
the Owner from required premium payments and a rigid premium schedule. Instead,
MassMutual requires an Owner to pay only a minimum initial premium at the time
of application or at any time before delivery of the Policy. After the first
premium has been paid, subject to certain limitations, premiums may be paid in
any amount and at any interval.
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The minimum initial premium depends on the planned frequency of premium
payments, and the Issue Ages, sexes, and rating classes of the Insureds, as well
as the initial Death Benefit Option and Initial Face Amount of the Policy.
PLANNED ANNUAL PREMIUM. When applying for a Policy, the Owner will select a
planned annual premium and payment frequency (annual, semiannual, quarterly, or
monthly check service). The planned premium at the payment frequency chosen is
shown on the schedule page of the Policy. MassMutual will send premium notices
for the planned premium according to the amount and frequency selected. The
Owner may change the amount and frequency of planned premiums at any time by
sending written notice to MassMutual's Administrative Office.
An Owner may elect to pay premiums by means of a pre-authorized check procedure.
Under this procedure, premium payments are deducted automatically on a monthly
basis from a designated bank account. An Owner does not receive a "bill" for
these payments.
There is no penalty if the planned premium is not paid, nor does payment of this
amount guarantee coverage for any period of time. Instead, the duration of the
Policy depends on maintaining a sufficient Policy Value, or meeting the Safety
Test (See POLICY TERMINATION section.). The Policy Value is equal to the
Account Value less any outstanding Policy Debt during the first three Policy
Years. It is equal to the Net Surrender Value in years four and later. Even if
planned premiums are paid, if the Safety Test is not met, the Policy terminates
when the Policy Value becomes insufficient to pay the Monthly Charges and the
grace period expires without sufficient payment.
PREMIUM LIMITATIONS. After the first premium is paid, the minimum premium
payment is $20. If the Cash Value Test has been chosen as the Death Benefit
Compliance Test, the maximum premium that may be paid in any Policy Year without
evidence of insurability is the greatest of (a) the premium that will not
increase the net amount at risk under the Policy; (b) twice the Policy's Target
Premium plus $100; and (c) the annual premium paid in the preceding Policy year.
If the Guideline Premium Test has been chosen, the maximum premium is equal to
the lesser of the maximum premium as determined above and the Guideline Premium
Test premium limitation. We have the right to refund any premium amount that
exceeds these limitations. Premium payments should be sent either to
MassMutual's Administrative Office or to the address indicated on the billing
notice.
ALLOCATION OF NET PREMIUM PAYMENTS. The Net Premium equals the premium paid
less the Premium Expense Charge. (See DEDUCTIONS FROM PREMIUMS.) At the time
of Application, the Owner indicates how Net Premiums are to be allocated among
the Divisions of the Separate Account and the GPA. The allocation percentages
must be in whole numbers and the sum of the allocation percentages must equal
100%.
The allocation percentages may be changed without charge at any time by
providing written notice to MassMutual's Administrative Office. The maximum
number of different Divisions that may be used during the life of the Policy is
16.
Any Initial Net Premium remitted with an application will be deposited and earn
interest at the rate set by MassMutual from the date We receive the premium in
good order, or from the Policy Date if later, to the date the Policy is issued.
Once the Policy has been issued, the Net Premium plus interest earnings, less
any Monthly Charges will be allocated either in accordance with the allocation
percentages in the Application, or to the Money Market Division of the Separate
Account on the next business day after the Issue Date. If under the Free Look
Provision, the Owner receives (i) any premium paid for this Policy plus (ii)
interest credited to this Policy under the Guaranteed Principal Account, plus or
minus (iii) an amount reflecting the investment experience of the investment
divisions of the Separate Account under this Policy to the date the Policy is
received by us, minus (iv) any amounts withdrawn and any Policy Debt, this
amount will be allocated to the GPA and the Divisions of the Separate Account
based on the allocation percentages in the Application. If under the Free Look
Provision, the Owner receives the total of all premiums paid for the Policy,
reduced by any amounts borrowed or withdrawn, this amount will be allocated to
the Money Market Division of the Separate Account.
If the Initial Net Premium plus interest earnings, less any Monthly Charges is
allocated to the Money Market Division of the Separate Account, Subsequent Net
Premiums received during the Free Look Period also will be allocated to the
Money Market Division of the Separate Account at the price next determined after
receipt in good order at our Administrative Office, or at the address indicated
on the billing notice. At the end of the Free Look Period, the Money Market
account balance will be transferred to the GPA and the Separate Accounts in
accordance with the allocation percentages in the Application.
If the Initial Net Premium plus interest earnings, less any Monthly Charges is
allocated in accordance with the allocation percentages in the Application,
Subsequent Net Premiums will be deposited on the Valuation Date We receive the
Subsequent Net Premiums in good order at our Administrative Office, or at the
address indicated on the billing notice. Transfers from one Division to another
will be credited on the Valuation Date the Transfer Request is received in good
order.
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TRANSFERS
By written request, the Owner may transfer all or part of the Account Value of a
Division of the Separate Account to any other Division or to the GPA. Although
MassMutual currently imposes no limitation on the right of the Owner to make
transfers, we reserve the right to limit transfers to no more than one every 90
days in connection with compliance with Section 404(c) of ERISA. Any limitation
would not apply to a transfer of all funds in the Separate Account to the GPA or
to automated transfers made in connection with any program MassMutual has in
place.
Transfers of values from the GPA to the Separate Account are limited to one each
Policy Year. Any transfer from the GPA cannot exceed 25% of the Fixed Account
Value (less any Policy Debt) at the time of the transfer. If 25% of the Fixed
Account Value has been transferred from the GPA each year for three consecutive
Policy Years, and no value has been transferred into the GPA, nor premiums
allocated to the GPA, during this time, the remainder of the Fixed Account Value
(less any Policy Debt) may be transferred, in one transaction, out of the GPA in
the succeeding Policy Year.
Any transfer is effective on the Valuation Date at the price next determined
after receipt of the request in good order at our Administrative Office. There
are no charges for transfers.
POLICY TERMINATION AND REINSTATEMENT
POLICY TERMINATION. This Policy will not terminate for failure to pay premiums
since premium payments, other than the Initial Premium Payment, are not
specifically required. Rather, if in the first three Policy Years the Account
Value less any Policy Debt is not enough to cover the Monthly Charges on a
Monthly Charge Date, or if in subsequent Policy Years the Net Surrender Value is
not enough to cover the Monthly Charges on a Monthly Charge Date, the Policy
will enter a 61-day grace period unless the Safety Test has been met.
At the beginning of the grace period, MassMutual will mail a notice to the
Owner's last known address stating the amount of premium needed to cover the
shortfall. During the grace period, the Policy remains in force. If the
required premium is not paid within 61 days after the Monthly Charge Date (or,
if later, within 30 days after we mail the written notice), the Policy
terminates without value.
If the Account Value less Policy Debt in the first three Policy Years or the Net
Surrender Value in subsequent years is insufficient to pay the Monthly Charges
on a particular Monthly Charge Date and the Safety Test (as described below) has
been met on that date, the Monthly Charges for that Date will be reduced to an
amount equal to the Account Value less any Policy Debt.
The Safety Test can be met only during a Guarantee Period. There are two
Guarantee Periods. One Period is the lesser of 20 years or to the younger
Insured's age 90. The other is to the younger Insured's age 100. Each
Guarantee Period has a Guarantee premium associated with it. These premiums
vary depending on the issue ages, sexes, and issue classifications of the
Insureds and the Death Benefit Option in effect. The Guarantee premiums for
Your Policy are shown in the Policy. On any day during a Guarantee Period, the
Safety Test is met if the premiums paid less amounts withdrawn accumulated with
interest to that day, equal or exceed the Guarantee premium accumulated with
interest to that date. The effective annual rate of interest used to accumulate
these amounts is 3%. The Guarantee Period in effect is determined by the
Guarantee premium paid. The Guarantee Periods available and the Safety Test may
vary depending on the contract state of Your Policy. Consult Your Policy for
the Guarantee Periods available to You.
REINSTATEMENT. For a period of five years after a Policy terminates, the Owner
can request that We reinstate the Policy provided neither Insured has died since
the Policy termination. However, the Policy cannot be reinstated if it has been
surrendered for its Net Surrender Value. Please note a termination or
reinstatement may cause the Policy to become a modified endowment contract. (See
MODIFIED ENDOWMENT CONTRACTS.)
Before We will reinstate the Policy, We must receive the following:
(a) Evidence of insurability satisfactory to MassMutual;
(b) A premium payment sufficient to keep the policy in force for three months
following reinstatement;
(c) Where applicable, a signed acknowledgement the Policy has become a modified
endowment contract.
If We reinstate the Policy, the Face Amount for the reinstated Policy will be
the same as it would have been if the Policy had not terminated. The premium
payment will be allocated based on the allocation requested at the time of
reinstatement effective on the Monthly Charge Date on which the Policy is
reinstated. The Account Value at the time of reinstatement will be the net
amount of the premium paid at the time of reinstatement, less any Monthly
Charges taken at that time.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate MassMutual
for: (a) providing the insurance benefits under the Policy (including any
riders); (b) administering the Policy; (c) assuming certain risks in connection
with the Policy (including any riders); and (d) expenses incurred in selling and
distributing the Policy. Additionally, certain expenses are deducted from the
underlying funds. For more information about these expenses, see the individual
fund prospectuses. A summary of the product and separate account charges is as
follows.
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CURRENT RATE GUARANTEED RATE
- ---------------------------------------------------------------------------------------------------------------------------------
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Premium Expense Charge Coverage Years 1-10:13% of premium up to All Coverage Years: 13% of premium up to
Expense Premium; 3% of premium over Expense Expense Premium; 3% of premium over Expense
Premium Premium
Coverage Years 11+: 3% of all premium
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative Charge Policy Years 1-10: $12 per month per policy All Coverage Years: $12 per month per policy
Policy Years 11+: $6 per month per policy
- ---------------------------------------------------------------------------------------------------------------------------------
Face Amount Charge Coverage Years 1-10: $0.13 per month per Coverage Years 1-10: $0.13 per month per $1,000
$1,000 of Face Amount of Face Amount
Coverage Years 11+: $0.0 Coverage Years 11+: $0.0
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance Charges A per thousand rate multiplied by the amount at For standard risks, the guaranteed cost of
risk each month. The rate varies by the sexes, insurance rates are based on 1980 Commissioners
issue ages, and risk classifications of the Standard Ordinary (CSO) Mortality Tables.
Insureds, and the Year of Coverage.
- ---------------------------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk All Policy Years: 0.25% on an annual basis of All Policy Years: 0.90% on an annual basis of
Charge daily net asset value of the Separate Account daily net asset value of the Separate Account
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Rate Expense Charge Policy Years 1-10: 0.50% of loaned amount All Policy Years: 2.0% of loaned amount
Policy Years 11+: 0.25% of loaned amount
- ---------------------------------------------------------------------------------------------------------------------------------
Withdrawal Fee $25 $25
- ---------------------------------------------------------------------------------------------------------------------------------
Surrender Charges First coverage year: the lesser of 100% of the First coverage year: the lesser of 100% of the
Target Premium or $50 per thousand of Face Target Premium or $60 per thousand of Face
Amount. Amount.
Coverage years 2-10: the prior year Surrender Coverage years 2-10: the prior year Surrender
Charge reduced by 10% of the first year Charge reduced by 10% of the first year
Surrender Charge Surrender Charge
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEDUCTIONS FROM PREMIUMS
A Premium Expense Charge is deducted from each premium payment made prior to the
allocation of the payment to the Divisions of the Separate Account and the GPA.
The Premium Expense Charge distinguishes between premium payments up to the
Expense Premium, and premium payments over the Expense Premium. The Expense
Premium is based on the issue ages, sexes, and risk classifications of the
Insureds.
Premiums are allocated to the Initial Face Amount and any subsequent increases
based on the ratio of the Expense Premium for each segment to the total of the
Expense Premiums for all segments.
MONTHLY CHARGES AGAINST THE ACCOUNT VALUE
Charges will be deducted from the Account Value on each Monthly Charge Date. The
Monthly Charges consist of: (a) an Administrative Charge; (b) a Face Amount
Charge; (c) an Insurance Charge; and (d) a rider charge for any additional
benefits provided by rider. The Monthly Charges will be deducted from the
Division(s) of the Separate Account and the GPA in proportion to the non-loaned
values of the Policy in the Division(s) and the GPA.
ADMINISTRATIVE CHARGE AND FACE AMOUNT CHARGE. The monthly Administrative Charge
and Face Amount Charge reimburse MassMutual for expenses incurred in issuing and
administering the Policy, and for such activities as processing claims,
maintaining records and communicating with Owners.
INSURANCE CHARGES. The monthly Insurance Charge for a Policy is equal to the
"amount at risk" under the Policy, multiplied by the monthly Insurance Charge
rate for that Policy month. The amount at risk is determined on the first day of
each Policy month and is the amount by which the Death Benefit (discounted at
the monthly equivalent of 3% per year) exceeds the Account Value.
8
<PAGE>
Insurance rates will be based on the sexes, Issue Ages, and risk classes of the
Insureds, and the Year of Coverage. MassMutual currently places Insureds into
the following three standard rate classes: Select-Preferred Nontobacco,
Preferred Nontobacco, and Preferred Tobacco; as well as substandard rate classes
involving higher mortality risks. In an otherwise identical Policy, the monthly
insurance rate is higher for tobacco users than for those who do not use tobacco
and higher for Preferred Nontobacco Insureds than for Select-Preferred
Nontobacco Insureds.
RIDER CHARGE. The monthly rider charge will include charges for any additional
benefits provided by rider.
DAILY CHARGES AGAINST THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. MassMutual assesses a daily charge against
the net asset value of the Separate Account for mortality and expense risks.
This charge is not deducted from the assets in the GPA.
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 not all the money MassMutual collects from this charge is 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.
INVESTMENT MANAGEMENT FEE AND OTHER EXPENSES. Because the Divisions of the
Separate Account purchase shares of MML Trust, Oppenheimer Trust, (Fidelity)
Variable Insurance Products Fund II, T. Rowe Price Equity Series, Inc., or
American Century Variable Portfolios, Inc., the value of Accumulation Units of
the Divisions will reflect the investment management fee and other expenses
incurred by these entities. The following were the total fund operating expenses
expressed as a percentage of average net assets for the year ended December 31,
1997 for the Funds.
<TABLE>
<CAPTION>
Total
Fund
Management Other Operating
Fund Name Fees Expenses Expenses
- --------- -----------------------------------------
<S> <C> <C> <C>
MML Equity 0.35% 0.00% 0.35%
MML Money Market 0.48% 0.04% 0.52%
MML Managed Bond 0.44% 0.03% 0.46%
MML Blend 0.37% 0.00% 0.37%
MML Equity Index* 0.26% 0.11% 0.37%
Oppenheimer Growth 0.73% 0.02% 0.75%
Oppenheimer Aggressive Growth 0.71% 0.02% 0.73%
Oppenheimer Global Securities 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond 0.75% 0.08% 0.83%
VIP II Contrafund Portfolio 0.60% 0.11% 0.71%
T. Rowe Price Mid-Cap Growth
Portfolio 0.85% 0.00% 0.85%
American Century VP Income &
Growth 0.70% 0.00% 0.70%
</TABLE>
*If there had been no reimbursement of Other Expenses to the Fund, the Other
Expenses would have been 0.17%, increasing Total Fund Operating Expenses to
0.43%.
MML Small Cap Value Equity had not been established as of December 31, 1997. The
management fees, other expenses and total fund operating expenses for the 1998
calendar year are estimated to be 0.65%, 0.11% and 0.76%, respectively.
SURRENDER CHARGES
During the first 10 Years of Coverage for the Initial Face Amount and during the
first 10 Years of Coverage for any increase in Face Amount, MassMutual will
impose a Surrender Charge against the Account Value if the Owner surrenders the
Policy or decreases the Face Amount under the Policy. The Surrender Charge in
the first Year of Coverage is the lesser of 100% of the Target Premium or $50
per thousand of Face Amount. The Target Premium is used to determine the maximum
premium limitation, Surrender Charges and agent commissions. The Target Premium
is based on the issue ages, sexes, and risk classifications of the Insureds.
The Surrender Charge is decreased by 10% of the first year Surrender Charge in
each of the next nine years of coverage, and is zero in the eleventh year.
Surrender Charges are calculated separately for the Initial Face Amount and for
each increase in the Face Amount.
SURRENDER CHARGE UPON DECREASE IN SELECTED FACE AMOUNT. Elected decreases in
Face Amount--that is, decreases resulting from other than a Withdrawal or a
change in the Death Benefit Option--result in canceling all or a part of
previously issued Face Amount segments. A partial Surrender Charge is assessed
and deducted from the Account Value. The partial Surrender Charge is equal to
the
9
<PAGE>
Surrender Charge associated with each canceled Face Amount segment. If the
partial Surrender Charge for a decreased or canceled Face Amount segment would
be greater than the Account Value of the Policy, the partial Surrender Charge
for that decrease is set equal to the Account Value on the date of the
surrender.
The Surrender Charge after the decrease equals the Surrender Charge prior to the
decrease less the partial Surrender Charge taken.
OTHER CHARGES
WITHDRAWAL FEE. For each Withdrawal, a charge of $25 will be deducted from the
amount withdrawn.
LOAN INTEREST RATE EXPENSE CHARGE. This charge reimburses MassMutual for
expenses incurred in administering loans.
SPECIAL CIRCUMSTANCES
MassMutual may vary the charges and other terms of Flexible Premium Adjustable
Variable Life Policies where special circumstances result in sales or
administrative expenses or mortality risks that are different than those
normally associated with these Policies. These variations will be made only in
accordance with uniform rules we establish.
ACCOUNT VALUE AND NET SURRENDER VALUE
ACCOUNT VALUE. The Account Value of the Policy is the sum of all Net Premium
payments adjusted by periodic charges and credits and by Withdrawals. Following
the Free Look Period, this amount is allocated among the Separate Account
Divisions and the GPA according to the net premium allocation requested at the
time of Application. (See ALLOCATION OF NET PREMIUM PAYMENTS section for more
details.)
INVESTMENT RETURN. The investment return of a Policy is based on:
. The Account Value held for the Policy in each Division of the Separate
Account;
. The investment experience of each Division as measured by its actual net rate
of return; and
. The interest credited on Account Values held in the GPA.
The investment experience of a Division reflects increases and 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 assessed against
assets of the Division. The investment experience is determined each day 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 net investment
experience from the end of one Valuation Date to the end of the next Valuation
Date.
NET SURRENDER VALUE. The Policy may be fully surrendered for its Net Surrender
Value at any time while at least one Insured is living. The Net Surrender Value
is equal to the Account Value less any applicable Surrender Charges and less any
Policy Debt as of the date the Company receives the request to surrender in good
order. The surrender will be processed within seven days.
An Owner may surrender the Policy by sending a written request together with the
Policy to MassMutual's Administrative Office. The proceeds will be determined
as of the end of the Valuation Date on which the request for surrender is
received in good order.
WITHDRAWALS. After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw up to 75% of the Net Surrender Value. For each
Withdrawal, a fee of $25 is deducted from the amount withdrawn. The minimum
amount of a Withdrawal is $100 (before deducting the Withdrawal fee). We
reserve the right to prohibit Withdrawals that would result in a reduction of
the Face Amount to less than $500,000.
The Owner must state in the Withdrawal Request the account and/or Divisions from
which the withdrawal will be made. The amount can be stated as a dollar amount
or a percentage. The withdrawal will be effective on the date We receive the
written request in good order and will be processed within seven days. The
Withdrawal amount attributable to a Division of the Separate Account or to the
GPA may not exceed the non-loaned Account Value of the Division or GPA. If
Death Benefit Option 1 or 3 is in effect, MassMutual will reduce the Face Amount
by the amount of the Withdrawal unless satisfactory evidence of insurability is
provided. A Surrender Charge is not assessed for a Withdrawal.
POLICY LOAN PRIVILEGE
GENERAL. After the first Policy Year, the Owner may obtain a loan from the
Policy as long as the Account Value exceeds the total of any Surrender Charges.
The Policy must be assigned to MassMutual as collateral for the loan. The
maximum amount that can be borrowed at any time is 90% of the Policy's Account
Value less any Surrender Charge. This is reduced by any outstanding Policy
Debt, which includes accrued interest.
SOURCE OF LOAN. The Policy loan amount requested is taken from the Divisions of
the Separate Account and the GPA in proportion to the Account Value of each
Division and the GPA (excluding any outstanding loans) on the date of the loan.
Loaned amounts are taken from the Divisions by liquidating units and the
resulting dollar amounts are transferred to the loaned portion of the GPA. We
may delay
10
<PAGE>
the granting of any loan taken from the GPA for up to six months. We also may
delay the granting of any loan from the Divisions of the Separate Account during
any period that: (i) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); (ii) trading is restricted; (iii) the SEC
determines a state of emergency exists; or (iv) the Securities and Exchange
Commission permits MassMutual to delay payment for the protection of our Owners.
Whenever total Policy Debt (which includes accrued interest) equals or exceeds
the Account Value less Surrender Charges, MassMutual will send a notice to the
Owner. This notice will state the amount necessary to bring the Policy Debt
back within the limit. If we do not receive payment of that amount plus a
premium payment sufficient to keep the policy in force for three months, within
31 days after the date we mailed the notice, and if Policy Debt exceeds the
Account Value less any Surrender Charges at the end of those 31 days, the Policy
terminates without value.
LOAN INTEREST CHARGED. At the time of Application, the Owner may select a loan
interest rate of 5% or (in all jurisdictions except Arkansas) an adjustable loan
rate. Each year MassMutual will set the adjustable rate that will apply for the
next Policy Year. The maximum loan rate is based on the Monthly Average
Corporate yield on seasoned corporate bonds as published by Moody's Investors
Service, Inc., 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 4%, 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 on Policy loans 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.
REPAYMENT. All or part of any Policy Debt may be repaid at any time while at
least one of the Insureds is living and while the Policy is in force. Any loan
repayment made within 30 days of the policy Anniversary date pays policy loan
interest due. Any other loan repayment first will be allocated to the GPA until
the Owner has repaid all loan amounts that originated from the GPA. Additional
loan repayments will be allocated according to the premium allocation factors in
effect. Loan repayments must be clearly identified as such; otherwise they will
be considered premium payments.
Any outstanding Policy Debt will be deducted from the proceeds payable at the
second death or the surrender of the Policy.
INTEREST ON LOANED VALUE. Any loaned amount is held in the GPA and earns
interest at a rate determined by MassMutual, equal to the greater of 3% and the
Policy loan rate less the Loan Interest Rate Expense Charge. This Charge is 2%
on a guaranteed basis and 0.50% in Policy Years one through 10 and 0.25% in
Policy Years 11 and later on a current basis.
EFFECT OF LOAN. A Policy loan affects the Policy since the Death Benefit and
Net Surrender Value under a Policy are reduced by the amount of the loan.
Repayment of the loan increases the Death Benefit and Net Surrender Value under
the Policy by the amount of the repayment. Taking a Policy loan could have tax
consequences. (See POLICY PROCEEDS, PREMIUMS AND LOANS.)
As long as a loan is outstanding, a portion of the Policy Account Value equal to
the loan is held in the GPA. This amount is not affected by the Separate
Account investment performance. The Account Value may be impacted since 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 Division(s) of the Separate Account from which the
loan was taken.
FREE LOOK PROVISION
The Owner may cancel the Policy within 10 days. (This period may be longer is
some states.)
The Owner should mail or deliver the Policy and Policy delivery receipt either
to MassMutual's Administrative Office or to the agent who sold the Policy or to
one of our agency offices. If the Policy is canceled in this fashion, a refund
will be made to the Owner. The refund may be equal to the sum of: (i) any
premium paid for this Policy; plus (ii) interest credited to this Policy under
the Guaranteed Principal Account; plus or minus (iii) an amount reflecting the
investment experience of the investment divisions of the Separate Account under
this Policy to the date the Policy is received by us; minus (iv) any amounts
withdrawn and any Policy Debt. Or, the refund may be equal to the total of all
premiums paid for the Policy, reduced by any amounts borrowed or withdrawn.
Check Your contract to determine which refund is applicable under Your Policy.
THE GUARANTEED PRINCIPAL ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or all
of the Account Value in the Divisions of the Separate Account, to the Guaranteed
Principal Account ("GPA"). Because of exemptive and exclusionary provisions,
interests in MassMutual's General Account (which include interests in the
Guaranteed Principal
11
<PAGE>
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. 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.
Amounts allocated to the Guaranteed Principal Account become part of the General
Account of MassMutual, which consists of all assets owned by MassMutual other
than those in the Separate Account and other separate accounts of MassMutual.
Subject to applicable law, MassMutual has sole discretion over the investment of
the assets of its General Account.
MassMutual guarantees those amounts allocated to the GPA in excess of any Policy
Debt (which includes accrued interest) will accrue interest daily at an
effective annual rate at least equal to 3%. For amounts in the GPA equal to any
Policy Debt, the guaranteed minimum interest rate is an effective annual rate of
3% or, if greater, the Policy loan rate less the Loan Interest Rate Expense
Charge. This charge will not be greater than 2% per year. Such interest will be
paid regardless of the actual investment experience of the GPA. Although
MassMutual is not obligated to credit interest at a rate higher than the
guaranteed minimum, it may declare a higher rate applicable for such periods as
it deems appropriate.
WHEN WE PAY PROCEEDS
If the Policy has not terminated, payment of the Net Surrender Value is made
within seven days, and payment of loan proceeds, partial Withdrawals or the
Death Benefit are made within seven days after We receive all required documents
in a form satisfactory to us at our Administrative Office. But We can delay
payment of the Net Surrender Value or any Withdrawal from the Separate Account
or any loan proceeds attributable to the Separate Account during any period
when: (i) it is not reasonably practical to determine the amount because the New
York Stock Exchange is closed (other than customary week-end and holiday
closings); or (ii) trading is restricted by the SEC; or (iii) the SEC declares
an emergency exists; or (iv) the SEC, by order, permits us to delay payment in
order to protect our Owners.
We may delay paying any Net Surrender Value, any Withdrawal, or any loan
proceeds based on the GPA for up to six months from the date the request is
received at our Administrative 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. We
may investigate death claims arising beyond 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 of a Net Surrender or Withdrawal is delayed for 30 days or more, We
add interest to the date of payment at the same rate it is paid under the
interest payment option. Interest is paid on the Death Benefit from the date of
death to the date of payment.
FEDERAL INCOME TAX CONSIDERATIONS
POLICY PROCEEDS, PREMIUMS AND LOANS. MassMutual believes 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 excludible
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 that is equal to the total
consideration paid for the Policy may be excluded from gross income. The Owner
is not deemed to be in constructive receipt of the cash values, including
increments thereon, under the Policy until a full surrender or partial
Withdrawal is made (unless the Policy is a "modified endowment contract," as
discussed below).
Decreases in 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 Owner may be
taxed on all or a part of the amount distributed. Where the provisions of Code
Section 7702(f) do not cause a taxable event, a Withdrawal is taxable only to
the extent it exceeds the Owner's unrecovered premiums. 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.
MassMutual suggests You consult with your tax adviser in advance of a proposed
decrease in Face Amount or Withdrawal as to the portion, if any, which would be
subject to federal income tax.
A change of the Owner or the Insured(s) 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 an Owner, and that no part of any loan
under a Policy will constitute income to the Owner unless the Policy has become
a "modified endowment contract." If the Policy is a modified endowment contract
under Code Section 7702A,
12
<PAGE>
loans will be fully taxable to the extent of any income in the Policy and could
be subject to an additional 10 percent tax. In general, income in the policy is
defined as the excess of the Account Value (both loaned and unloaned) over
previously unrecovered premiums paid. See the discussion on modified endowment
contracts below. Under the "personal" interest limitation provisions of the Tax
Reform Act of 1986, interest on Policy loans used for personal purposes, which
otherwise meet the requirements of Code Section 264, will no longer be tax-
deductible. However, other rules may apply to allow all or part of the interest
expense as a deduction if the loan proceeds are used for "trade or business" or
"investment" purposes. See your tax adviser for further guidance.
If the Policy is owned by a business or corporation, the 1986 Act may impose
additional restrictions. The Act limits the interest deduction available for
loans against a business-owned Policy. It imposes an indirect tax on the 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 also could apply to a portion of the amount by
which Death Benefits received exceed the Policy's date-of-death Net Surrender
Value.
Federal estate and gift and state and local estate and other tax consequences of
ownership or receipt of Policy proceeds depend on the circumstances of each
Owner or Beneficiary.
MassMutual cannot make any guarantee regarding the future tax treatment of any
Policy. For complete information on the impact of changes with respect to the
Policy and federal and state tax considerations, a qualified tax adviser should
be consulted.
The ultimate effect of federal income taxes on values under this Policy and on
the economic benefit to the Owner or Beneficiary depends on MassMutual's tax
status and on 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 Policy, 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 law considerations, You should consult a qualified tax adviser.
No attempt is made herein to consider any applicable state or other tax laws.
CHARGES FOR FEDERAL TAXES. MassMutual currently does not make any charge
against the Separate Account for federal income taxes. We may make such a
charge eventually in order to provide for the future federal income tax
liability of the Separate Account.
Upon a full surrender of a Policy for its Net Surrender Value, the Owner may
recognize ordinary income for federal income tax purposes. Ordinary income is
computed to be the amount by which the Account Value, unreduced by any
outstanding Policy Debt but less any Surrender Charges assessed, exceeds the
premiums paid but not previously recovered and any other consideration paid for
the 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 that may be subject to taxation 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 than death benefits payable under other
life insurance contracts.
A Policy is a modified endowment contract if it satisfies the definition of life
insurance 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 guaranteed benefits upon the payment
of seven level annual premiums. Also, a Policy that would otherwise satisfy the
7-pay test will 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 originally had 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 classification change is effective retroactively to
the Policy 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 re-tested 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 benefit attributable to the payment
of premiums necessary to fund the lowest level of death benefit payable during
the first seven contract years, or which is attributable to the crediting of
interest with respect to such premiums.
Since the Policy provides for flexible premium payments, the Company has
instituted procedures to monitor 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.
13
<PAGE>
If any amount is taxable as a distribution of income under a modified endowment
contract, it also will be subject to a 10% penalty tax. Limited exceptions from
the additional penalty tax are available for individual Owners. The penalty tax
will not apply to distributions: (i) made on or after the date the taxpayer
attains age 59 1/2; or (ii) attributable to the taxpayer becoming disabled; or
(iii) part of a series of substantially equal periodic payments (made at least
annually) made for the life or life expectancy of the taxpayer. For complete
information about modified endowment contract status, a qualified tax adviser
should be consulted.
Once a Policy fails the 7-pay test, loans and distributions occurring in the
year of failure and thereafter become subject to the rules for modified
endowment contracts. In addition, a recapture provision applies to loans and
distributions received in anticipation of failing the 7-pay test. Any
distribution or loan made within two years prior to failing the 7-pay test is
considered to have been made in anticipation of the failure.
Under certain circumstances, a loan, collateral assignment, 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 Owner by an insurer and its affiliates within the same calendar year.
Therefore, loans, collateral assignments, and distributions from any one such
Policy are taxable to the extent of the income accumulated in all the Policies
required to be aggregated.
QUALIFIED PLANS. The Policy may be used in conjunction with certain tax-
qualified employee benefit plans. Since the rules governing such use are
complex, a purchaser should not use the Policy in conjunction with any such
qualified plan until a competent tax adviser has been consulted. The Policy may
not be used in conjunction with an Individual Retirement Account (IRA).
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 Fund'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 a Fund as an asset of
the Separate Account. All securities of the same issuer are treated as a single
investment. However, each government agency or instrumentality is treated as a
separate issuer.
With respect to variable life insurance contracts, the general diversification
requirements are modified if any of the assets of the Separate Account are
direct obligations of the United States Treasury. In this case, there is no
limit on the investment that may be made in United States Treasury securities,
and for purposes of determining whether assets other than United States Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the Separate Account's
investment in United States Treasury securities. Notwithstanding this
modification of the general diversification requirements, the Funds of the
Trusts will be structured to comply with the general diversification standards
because they serve as an investment vehicle for certain variable annuity
contracts that 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 Owners 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,
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 Owner from being considered the
owner of the assets of the Separate Account.
MassMutual intends to comply with the Final Regulations to assure the Policy
continues to qualify as life insurance for federal income tax purposes.
YOUR VOTING RIGHTS
As long as the Separate Account continues to operate as a unit investment trust
under the Investment Company Act of 1940, the Owner is entitled to give
MassMutual 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 of 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 lifetimes of the Insureds is determined by
dividing the Policy's Account Value held in each Division of the Separate
Account, if any, by $100. Fractional votes are counted.
Owners receive proxy material and a form on which Owner instructions may be
given. Shares of the Funds held by the Separate Account for which no effective
Owner instructions have been received are voted for or against any proposition
in the same proportion as the shares for which instructions have been received.
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RESERVATION OF 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
Owners.
Specifically, we reserve the right to:
. Create new Divisions of the Separate Account;
. Create new Separate Accounts;
. Combine any two or more Separate Accounts;
. Make available additional Divisions of the Separate Account investing in
additional investment companies;
. Invest the assets of the Separate Account in securities other than shares of
the Funds as a substitute for such shares already purchased or as the
securities to be purchased in the future;
. Operate the Separate Account as a management investment company under the
Investment Company Act of 1940 or in any other form permitted by law;
. De-register the Separate Account under the Investment Company Act of 1940 in
the event such registration is no longer required;
. Substitute one or more Funds for other funds with similar investment
objectives; and
. Delete Funds.
MassMutual also reserves the right to change the name of the Separate Account.
We have reserved all rights to the name MassMutual 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 also may withdraw this right.
ADDITIONAL BENEFITS YOU CAN GET BY RIDER
At the Owner's request, the Policy can include additional benefits We approve
based on our standards and limits for issuing insurance and classifying risks.
An additional benefit is provided by rider and is subject to the terms of both
the rider and the Policy. The cost of any rider is deducted as part of the
Monthly Charges. Subject to state availability, the following riders are
available.
POLICY SPLIT OPTION RIDER. This rider allows the Owner, while both Insureds are
living, to exchange the Policy for two new policies, one on the life of each
Insured, without evidence of insurability. Each new policy may be a fixed
premium permanent life policy or a flexible premium adjustable life policy.
This right will be available for the six-month period beginning on:
. The date six months after the effective date of a final decree of divorce,
issued by a court of competent jurisdiction, ending the Insureds' marriage to
each other, if the decree first becomes effective at least one year after the
Policy Issue Date, and remains in effect during the entire six-month period
after it first becomes effective.
. The date either Section 2056 of the Internal Revenue Code (I.R.C.) is
nullified or amended to eliminate or reduce by at least 50% the Insureds'
federal estate tax marital deduction; or the maximum federal estate tax rate
given in I.R.C. Section 2001 is reduced to half the rate in effect on the
Policy Issue Date of this Policy.
. If this Policy Owner is a corporation or partnership, the effective date the
corporation or partnership dissolves.
The new policies must meet the policy requirements in effect at the time of the
exchange. The face amount of each new policy will be one-half the face Amount
of this Policy at the time of the split. The policy date of each new policy will
be the date of exchange. The issue age of each Insured will be the age of each
Insured on the birthday nearest the policy date. This rider may be attached to
the Policy at the time of issue as long as the younger Insured is younger than
age 80, and the insurance risk class of neither Insured is uninsurable
There is a one-time charge for this Rider at the time of attachment. It is
equal to eight percent of the first year premium.
ESTATE PROTECTION RIDER. This rider may be attached to the Policy at the time of
issue. It provides an additional Death Benefit during the first four Policy
Years if both Insureds die during this period. The Owner selects the Face
Amount of the rider subject to a minimum of $25,000 and a maximum of 125% of the
Policy's Initial Face Amount.
A monthly charge equal to the policy Insurance Charge multiplied by the Face
Amount of the rider divided by $1,000 will be deducted from the Account Value
while the rider is in force.
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<PAGE>
PAYMENT OPTIONS
The Policy proceeds (the Death Benefit or the Net Surrender Value) can be paid
in cash, or if elected, all or part of these proceeds can be placed under one or
more of the following payment options. The minimum amount that can be applied
under a payment option is $2,000. If the periodic payment under any option is
less than $20, we reserve the right to make payments at less-frequent intervals.
None of these benefits depends on the performance of the Separate Account or the
GPA. For additional information concerning these options, see the Policy. The
following payment options are currently available.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Installments for a Specified Period Equal monthly payments will be 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 monthly income rates We are using when the first payment is due.
- ------------------------------------------------------------------------------------------------------------------------------
Life Income Equal monthly payments will be based on the life of a named person. Payments will
continue for the lifetime of that person. Income with or without a minimum payment
period may be elected.
- ------------------------------------------------------------------------------------------------------------------------------
Interest We will hold any amount applied under this option. Interest on the amount will be
paid at an effective annual rate determined by us. This rate will not be less than
3%.
- ------------------------------------------------------------------------------------------------------------------------------
Installments of Specified Amount Each payment will be made for an agreed fixed amount. The total amount paid during
the first year must be at least 6% of the total amount applied. Interest will be
credited each month on the unpaid balance and added to it. This interest will be an
effective annual rate determined by us, but not less than 3%. Payments continue
until the balance we hold is reduced to an amount less than the agreed fixed amount.
The last payment will be for the balance only.
- ------------------------------------------------------------------------------------------------------------------------------
Life Income with Payments Guaranteed Equal monthly payments will be based on the life of a named person. Payments will
for Amount Applied be made until the total amount paid equals the amount applied, and as long
thereafter as the named person lives.
- ------------------------------------------------------------------------------------------------------------------------------
Joint Lifetime Income with Reduced Monthly payments will be based on the lives of two named persons. Payments at the
Payments to Survivor initial level will continue while both are living, or for 10 years if longer. When
one dies (but not before the 10 years has elapsed), payments are reduced by
one-third and will continue at that level for the lifetime of the other. After the
10 years has elapsed, payments stop when both named persons have died.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WITHDRAWAL RIGHTS UNDER PAYMENT OPTIONS. If provided in the payment option
election, all or part of the unpaid balance under the Fixed Amount or Interest
Payment Option may be withdrawn or applied under any other option. No part of
the payments under the Fixed Time Payment Option or payments that are based on a
named person's life may be withdrawn.
BENEFICIARY
A Beneficiary is any person named on our records to receive insurance proceeds
at the second death. The Beneficiary is named in the application for the Policy.
There may be different classes of beneficiaries, such as primary and secondary.
These classes set the order of payment. There may be more than one Beneficiary
in a class.
Any Beneficiary may be named an Irrevocable Beneficiary. An Irrevocable
Beneficiary is one whose consent is needed to change that Beneficiary. The
consent of any Irrevocable Beneficiary is needed to exercise any Policy right
except the right to change the frequency of Planned Premiums and Reinstate the
Policy after termination.
The Owner may change the Beneficiary during either Insured's lifetime by writing
to our Administrative Office. Generally, the change will take effect as of the
date of the request. If no Beneficiary is living at the second death, unless
provided otherwise, the Death Benefit is paid to the Owner or, if deceased, to
the Owner's estate.
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. For any
assignment to be binding on MassMutual, however, We must receive a signed copy
of it at our Administrative Office. We are not responsible for the validity of
any assignment.
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LIMITS ON OUR RIGHT TO CHALLENGE THE POLICY
Except for any policy change or reinstatement requiring evidence of
insurability, we cannot contest the validity of the policy:
. with respect to any material misrepresentation in the application regarding
the insurability of Insured No. 1, once the policy has been in force during
the lifetime of Insured No. 1 for two years after the Issue Date; or
. with respect to any material misrepresentation in the application regarding
the insurability of Insured No. 2, once the policy has been in force during
the lifetime of Insured No. 2 for two years after the its Issue Date.
For any policy change or reinstatement requiring evidence of insurability, We
cannot contest the validity of the change or reinstatement with respect to each
Insured after the change has been in effect for two years during the lifetime of
that Insured.
ERROR OF AGE OR SEX
If either Insured`s age or sex is misstated in the Policy application, the Death
Benefit payable under the Policy will be adjusted based on what the Policy would
provide according to the most recent Monthly Charge for the correct date of
birth and correct sex.
SUICIDE
Suicide within two years of the Policy Date is not covered by the Policy. If
either Insured dies by suicide, while sane or insane, within two years from the
Issue Date or Reinstatement Date, the Policy will terminate. We will refund the
amount of all premiums paid, less any Withdrawals and Policy Debt. If either
Insured, while sane or insane, dies by suicide within two years after the
effective date of any increase in the Face Amount, the increase will terminate
and We will refund the Monthly Charges for that increase. However, if a refund
was payable as the result of suicide during the first two years following the
Issue Date or the Reinstatement Date of the Policy, there is no additional
refund for any Face Amount increase.
SALES AND OTHER AGREEMENTS
MML Distributors, LLC ("MML Distributors"), 1414 Main Street, Springfield, MA
01144-1013, is the principal underwriter of the Policy pursuant to an
Underwriting and Servicing Agreement to which MML Distributors, MassMutual and
the Separate Account are parties. MML Investors Services, Inc. ("MMLISI"), also
located at 1414 Main Street, Springfield, MA 01144-1013, serves as the co-
underwriter of the Policy. Both MML Distributors and MMLISI are registered with
the Securities and Exchange Commission (the "SEC") as broker-dealers under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. (the "NASD").
MML Distributors may enter into selling agreements with other broker-dealers
that are registered with the SEC and are members of the NASD ("selling
brokers"). MassMutual sells the Policy through agents who are licensed by state
insurance officials to sell the Policy. These agents also are registered
representatives of selling brokers or of MMLISI. The Policy is offered in all
states where MassMutual is authorized to sell variable life insurance.
The Company also may contract with independent third party broker-dealers who
may act as wholesalers by assisting the Company in finding Broker-dealers to
offer and sell the Policies. These parties also may provide training, marketing
and other sales related functions for the Company and other broker-dealers and
may provide certain administrative services to the Company in connection with
the Policies. The Company may pay such parties compensation based on premium
payments for the Policies purchased through broker-dealers selected by the
wholesaler. In addition, some sales personnel may receive various types of non-
cash compensation as special sales incentives, including trips and educational
and/or business seminars.
When an application for the Policy is completed, it is submitted to MassMutual.
MassMutual performs suitability and insurance underwriting and determines
whether to accept or reject the application for the Policy and the Insureds'
risk classifications. If the application is not accepted, MassMutual will refund
any premium paid.
Pursuant to the Underwriting and Servicing Agreement, both MML Distributors and
MMLISI will receive compensation for their activities as underwriters of the
Policy.
MML Distributors does business under different variations of its name; including
the name MML Distributors, L.L.C. in the states of Illinois, Michigan, Oklahoma,
South Dakota and Washington; and the name MML Distributors, Limited Liability
Company in the states of Maine, Ohio and West Virginia.
COMPENSATION
Writing agents will receive commissions based on a commission schedule and
rules. Some commissions are paid as a percentage of the premium paid in each
Policy Year. These commissions distinguish between premiums up to the Target
Premium and premiums paid in excess of the Target Premium. The Target Premium is
based on the issue ages, sexes, and risk classifications of the Insureds.
Commissions also are paid as a percentage of the average monthly Account Value
in each Policy Year. The maximum commission percentages are as follow.
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PREMIUM-BASED COMMISSIONS
<TABLE>
- ------------------------------------------------------------
<S> <C>
COVERAGE YEAR 1 50% of premium paid up to the
Target Premium
3% of premium paid over the Target
Premium
COVERAGE YEARS 2-5 5% of premium paid up to the Target
Premium
3% of premium paid over the Target
Premium
COVERAGE YEARS 6-10 3% of all premium paid
COVERAGE YEARS 11 AND 1% of all premium paid
BEYOND
- -------------------------------------------------------------
</TABLE>
ASSET-BASED COMMISSIONS
<TABLE>
- -------------------------------------------------------------
<S> <C>
POLICY YEARS 2 AND 0.15% of the average monthly
BEYOND Account Value in each Policy Year
- -------------------------------------------------------------
</TABLE>
Agents under financing agreements with a general agent of MassMutual may be
compensated differently. Agents who meet certain productivity and persistency
standards in selling MassMutual policies are eligible for additional
compensation. General agents and district managers who are registered
representatives of MMLISI also may receive commission overrides, allowances and
other compensation.
While the compensation payable to broker-dealers for sales of Policies may vary
with the sales agreement and level of production, they generally are expected to
be comparable to the aggregate compensation paid to Company agents and general
agents.
BONDING ARRANGEMENT
An insurance company blanket bond is maintained providing $50,000,000 coverage
for officers and employees of MassMutual and C.M. Life (subject to a $350,000
deductible) and $50,000,000 for MassMutual`s general agents and agents (also
subject to a $350,000 deductible).
LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings that would have a
material impact on the Policy.
EXPERTS
The audited financial statements of MassMutual included in this Prospectus have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Coopers & Lybrand's report on the statutory financial statements of MassMutual
includes explanatory paragraphs relating to the use of statutory accounting
practices rather than generally accepted accounting principles.
Actuarial matters in the Prospectus have been examined by Craig Waddington, FSA,
MAAA. An opinion on actuarial matters is filed as an exhibit to the
registration statements We filed with the SEC.
III. ADDITIONAL INFORMATION
MASSMUTUAL
MassMutual is a mutual life insurance company chartered in 1851 under the laws
of Massachusetts. Its Home Office is located in Springfield, Massachusetts.
MassMutual is licensed to transact life, accident, and health business in all
fifty states of the United States, the District of Columbia, Puerto Rico, and
certain provinces of Canada. As of December 31, 1997, MassMutual had total
assets under management of $152.5 billion and unconsolidated MassMutual assets
in excess of $57.5 billion.
MASSMUTUAL'S TAX STATUS. MassMutual is taxed as a life insurance company under
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). The Segment and
the Separate Account are not separate entities from MassMutual and its
operations form a part of MassMutual.
Investment income and realized capital gains on the assets of the Segment are
reinvested and taken into account in determining Account Value. The investment
income and realized capital gains are applied automatically to increase book
reserves associated with the Policy. Under existing federal income tax law, the
Segment's investment income, including net capital gains, is not taxed to
MassMutual to the extent it is applied to increase reserves associated with the
Policy. The reserve items taken into account at the close of the taxable year
for purposes of determining net increases and net decreases must be adjusted for
tax purposes by subtracting any amount attributable to appreciation in the value
of assets and by adding any amount attributable to depreciation. MassMutual's
basis in the Policy's share of the assets underlying the Segment will be
adjusted for appreciation or depreciation, to the extent the reserves are
adjusted. Thus, corporate-level capital gains and losses, and the tax effect
thereof, are eliminated.
Due to MassMutual's current tax status, no charge is made to the Segment for
MassMutual's federal income taxes that may be attributable to the Segment.
Periodically, MassMutual reviews the question of a charge to the Segment for
MassMutual's federal income taxes. A charge may be made for any federal income
taxes incurred by MassMutual and attributable to the Segment. 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.
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Under current laws, MassMutual may incur state or local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, MassMutual
reserves the right to charge the Separate Account for taxes, if any,
attributable to the Separate Account.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account and the GPA are
maintained by MassMutual. Each year within the 30 days following the Policy
Anniversary, MassMutual will mail You a report showing the Account Value at the
beginning of the previous Policy Year, all premiums paid since that time, all
additions to and deductions from the Account Value during the year, and the
Account Value, Death Benefit, Net Surrender Value and Policy Debt as of the last
Policy Anniversary. This report contains any additional information required by
any applicable law or regulation.
THE SEPARATE ACCOUNT
The Separate Account was established on February 2, 1995, as a separate
investment account of MassMutual by MassMutual's Board of Directors in
accordance with the laws of the State of Massachusetts. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940, and
meets the definition of a "separate account" in that statute. Registration does
not involve supervision of the management or investment practices of either the
Separate Account or of MassMutual. A separate segment for the Policies (the
"Segment") was established on November 12, 1997 and has since been divided into
13 Divisions. Each Division invests in a corresponding series of shares of a
designated Fund of either MML Trust, Oppenheimer Trust, Variable Insurance
Products Fund II (managed by Fidelity Management & Research Company), T. Rowe
Price Equity Series, Inc., or American Century Variable Portfolios, Inc.
MassMutual may establish additional divisions within the Separate Account in the
future, which may invest in other investment funds, including those of MML
Trust, Oppenheimer Trust, (Fidelity) Variable Insurance Products Fund II, T.
Rowe Price Equity Series, Inc., or American Century Variable Portfolios, Inc.,
or in any other investment fund MassMutual deems to be appropriate.
MassMutual owns the assets in the Separate Account and is required to maintain
sufficient assets in the Separate Account to meet anticipated obligations of the
Policies funded by the Separate Account. The income, gains, or losses, realized
or unrealized, of the Separate Account are credited to or charged against the
assets held in the Separate Account without regard to the other income, gains,
or losses of MassMutual. Assets in the Separate Account attributable to the
reserves and other liabilities under the Policies are not chargeable with
liabilities arising from any other business conducted by MassMutual. MassMutual
may transfer to its General Account; however, any assets that exceed anticipated
obligations of the Separate Account. All obligations arising under the Policy
are general corporate obligations of MassMutual. MassMutual may accumulate in
the Separate Account proceeds from various Policy charges and investment results
applicable to those assets.
Some of the Funds offered are substantially identical to or are "clones" of
mutual funds offered in the retail marketplace. These "clone funds have the same
investment objectives, policies, and portfolio managers as the retail funds and
usually were formed after the retail funds. For example, the Variable Product
insurance Funds' Contrafund is a clone of Fidelity's Contrafund; American
Century Variable Portfolios' Income and Growth Portfolio is a clone of the
American Century Income & Growth Fund and the T. Rowe Price Equity Series' Mid-
Cap Growth Portfolio is a clone of the T. Rowe Price Mid-Cap Growth Fund. While
the clone funds generally have identical investment objectives, policies and
portfolio managers, they are separate and distinct from the retail funds. In
fact, the performance of the clone funds may be dramatically different from the
performance of the retail funds due to differences in the funds' sizes, dates
shares of stock are purchased and sold, cash flows and expenses. Thus, while
the performance of the retail funds may be informative, you should remember that
such performance is not the performance of the funds that support the Policy and
is not an indication of future performance of such funds.
MML TRUST AND OPPENHEIMER TRUST
The MML Trust is a no-load, open-end, management investment company registered
under the Investment Company Act of 1940. The Oppenheimer Trust is an open-end,
diversified, management investment company registered under the Investment
Company Act of 1940.
Both the MML Trust and the Oppenheimer Trust provide an investment vehicle for
the separate investment accounts of variable life and variable annuity contracts
offered by companies such as MassMutual. Shares of the MML Trust and the
Oppenheimer Trust are not offered to the general public.
The assets of certain variable annuity separate accounts for which MassMutual or
an affiliate is the depositor are invested in shares of the MML Trust's and
Oppenheimer Trust's Funds. Because these separate accounts are invested in the
same underlying Funds, it is possible material irreconcilable conflicts could
arise between Policy Owners and owners of the variable annuity contracts.
Possible conflicts could arise if: (i) state insurance regulators should
disapprove or require changes in investment policies, investment advisers or
principal underwriters or if 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 funds; (iii)
19
<PAGE>
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 Funds. The Board of Trustees of each
Trust will follow monitoring procedures that have been developed to determine
whether material conflicts have arisen. If it is determined a conflict exists,
the Trustees will notify MassMutual and OppenheimerFunds and appropriate action
will be taken to eliminate such irreconcilable conflicts.
MassMutual purchases the shares of each Fund for the corresponding Division at
net asset value. All dividends and capital gain distributions received from a
Fund are automatically reinvested in that Fund at net asset value, unless
MassMutual, on behalf of the Separate Account, elects otherwise. Shares of the
MML Trust and the Oppenheimer Trust will be redeemed by MassMutual at their net
asset values to the extent necessary to make payments under the Policies.
VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Product Fund II ("Fidelity VIP II"), managed by Fidelity
Management & Research Company ("FMR"), is an open-end, diversified management
investment company organized as a Massachusetts business trust on March 21, 1988
and is registered with the SEC under the 1940 Act. One of its investment
portfolios, the VIP II Contrafund Portfolio, is available under this Policy.
T. ROWE PRICE EQUITY SERIES, INC.
The T. Rowe Price Equity Series, Inc. (the "Corporation") was incorporated in
Maryland in 1994, and is a diversified, open-end investment company, or mutual
fund. Currently, the corporation consists of four series, each representing a
separate class of shares having different objectives and investment policies.
One of the series, the Mid-Cap Growth Portfolio, is available under this Policy.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is part of American Century
Investments, a family of funds that includes nearly 70 no-load mutual funds
covering a variety of investment opportunities. American Century Variable
Portfolios offers its shares only to insurance companies to fund the benefits of
variable annuity or variable life insurance contracts. One of the funds, VP
Income and Growth, is offered under this Policy.
Following is a chart illustrating the risk profiles of the investment options
available, and a summary of the investment objectives of each fund. Please note
there can be no assurance any fund will achieve its objectives. More detailed
information concerning these investment objectives is contained in the
accompanying prospectuses, including information on the risks associated with
the investments, the investment techniques of each of the funds, and the
deduction of expenses applicable to each of the funds.
INVESTMENT PREFERENCE CHART
- --------------------------------------------------------------------------------
Oppenheimer Global Securities Fund
VIP II Contrafund Portfolio
Oppenheimer Aggressive Growth Fund
MML Small Cap Value Equity Fund
T. Rowe Price Mid-Cap Growth Portfolio
Oppenheimer Growth Fund
MML Equity Index Fund
American Century VP Income & Growth
MML Equity Fund
MML Blend Fund
Oppenheimer Strategic Bond Fund
MML Managed Bond Fund
MML Money Market Fund
Guaranteed Principal Account
- --------------------------------------------------------------------------------
Conservative Less Conservative Moderate Aggressive More Aggressive
CONSERVATIVE: Investment goal is preservation of principal, while incurring
little or no risk.
LESS CONSERVATIVE: Investment goal is primarily preservation of principal, with
some desire for growth.
MODERATE: Investment goal is growth, while seeking some preservation of
principal.
AGGRESSIVE: Investment goal is growth, with more tolerance for risk.
MORE AGGRESSIVE: Investment goal is significant growth over the long-term, with
short-term fluctuations in value expected.
20
<PAGE>
MML MONEY MARKET FUND
MML Money Market Fund seeks to achieve high current income, while preserving
capital, and liquidity. This Fund invests 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. An investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government and its net asset value is not guaranteed to
remain stable at $1.00 per share.
MML MANAGED BOND FUND
MML Managed Bond Fund seeks to achieve as high a total rate of return on an
annual basis as is considered consistent with the preservation of capital. This
Fund invests primarily in investment grade, publicly-traded, readily marketable,
fixed income securities of such maturities as MassMutual deems appropriate from
time to time in light of market conditions and prospects.
OPPENHEIMER STRATEGIC BOND FUND
Oppenheimer 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.
Current income is not an objective
MML BLEND FUND
MML Blend Fund seeks 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. This 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 generally not exceeding one year.
Sub-advisor to the equity sector of the Fund is David L. Babson & Company, Inc.
MML EQUITY FUND
MML Equity Fund seeks to achieve a superior total rate of return over an
extended period of time from both capital appreciation and current income. A
secondary objective is the preservation of capital when business and economic
conditions indicate investing for defensive purposes is appropriate. The assets
of this Fund are expected to be invested primarily in equity-type securities.
Sub-advisor to the Fund is David L. Babson & Company, Inc.
AMERICAN CENTURY VP INCOME & GROWTH
American Century VP Income & Growth seeks long-term growth of capital as well as
current income. The Fund pursues a total return and dividend yield that exceed
those of the S&P 500 by investing in stocks of companies with strong dividend
growth potential.
MML EQUITY INDEX FUND
MML Equity Index Fund seeks to provide investment results that correspond to the
price and yield performance of the publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index. ("Standard & Poor's 500" and "S&P 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use. The Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's or the McGraw-Hill Companies,
Inc.)
OPPENHEIMER GROWTH FUND
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in
securities of well-known established companies.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
The Mid-Cap Growth Portfolio seeks to provide long-term capital appreciation by
investing primarily in common stocks of medium-sized (mid-cap) growth companies.
The Fund focuses on companies with higher earnings growth potential that are no
longer considered new or emerging, but may still be in the dynamic phase of
their life cycles.
MML SMALL CAP VALUE EQUITY FUND
This Fund seeks to earn a high rate of return over an extended period. The Fund
invests primarily in stocks of smaller capitalization companies with some unique
product, market position, or operating characteristic which, in the portfolio
manager's opinion distinguishes them and will result in above-average returns.
OPPENHEIMER AGGRESSIVE GROWTH FUND
Oppenheimer Aggressive Growth Fund seeks to achieve capital appreciation by
investing in "growth-type" companies. Prior to May 1, 1998, this Fund was named
Oppenheimer Capital Appreciation Fund.
VIP II CONTRAFUND PORTFOLIO
This Fund seeks capital appreciation by investing in the securities of companies
whose value FMR believes is not fully recognized by the public. This Fund may
be appropriate for policyowners who are willing to ride out stock market
fluctuations in pursuit of potentially high long-term returns. The Fund is
designed for those who are looking for an investment approach that follows a
contrarian philosophy.
21
<PAGE>
OPPENHEIMER GLOBAL SECURITIES FUND
Oppenheimer Global Securities Fund seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which are
considered to have appreciation possibilities, but which may be considered to be
speculative.
THE INVESTMENT ADVISERS
MassMutual serves as investment manager of each of the MML Funds pursuant to
investment management agreements. Concert Capital Management, Inc. ("Concert")
served as the investment sub-adviser to MML Equity Fund and the Equity Sector of
the MML Blend Fund from 1993-1996. Concert merged with and into David L. Babson
& Company, Inc. ("Babson") effective December 31, 1996. Both Concert and Babson
are wholly-owned subsidiaries of Babson Acquisition Corporation, which is a
controlled subsidiary of MassMutual. Effective January 1, 1997, Babson became
the investment sub-adviser to MML Equity Fund and the Equity Sector of the MML
Blend Fund. Both MassMutual and Babson are registered investment advisers under
the Investment Advisers Act of 1940.
MassMutual entered into a sub-advisory agreement with Mellon Equity whereby
Mellon Equity manages the investment and reinvestment of the assets of the MML
Equity Index Fund.
OppenheimerFunds, Inc. ("OFI") is an investment adviser organized under the laws
of Colorado as a corporation; it was originally organized in 1959. It (including
a subsidiary) currently has assets aggregating over $62 billion as of December
31, 1997, with over three million shareholder accounts. OFI is owned by
Oppenheimer Acquisition Corporation, a holding company owned in part by senior
management of OFI and ultimately controlled by MassMutual. OFI serves as
investment adviser to the Oppenheimer Trust. OFI is registered as an investment
adviser under the Investment Advisers Act of 1940. OFI serves as Investment
Adviser to the Oppenheimer Funds.
Citibank N.A., with its home office located at 111 Wall Street, New York, NY,
10005, acts as custodian for the MML Trust. Bank of New York, with its home
office at One Wall Street, New York, NY 10015, acts as custodian for the
Oppenheimer Trust.
MassMutual is also the investment adviser 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-adviser to Oppenheimer Investment Grade Bond
Fund and Oppenheimer Value Stock Fund, open-end management investment companies.
Fidelity Management & Research Company ("FMR") is the investment adviser to the
VIP II Contrafund Portfolio. FMR is the management arm of Fidelity
Investments(R) which was established in 1946. Fidelity Investments(R) has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. FMR
handles the VIP II Contrafund business affairs and, with the assistance of
affiliates, chooses the Fund's investments. Fidelity Management & Research
(U.K.) Inc, in London, England, and Fidelity Management & Research (Far East)
Inc, serve as sub-advisers for the VIP II Contrafund Portfolio.
T. Rowe Price Associates, Inc. ("T. Rowe Price") is the investment adviser to
the T. Rowe Price Mid-Cap Growth Portfolio. T. Rowe Price was founded in 1937.
The T. Rowe Price Equity Series, Inc. (the "Corporation") was incorporated in
Maryland in 1994, and is a diversified, open-end investment company. The
Corporation is governed by a Board of Directors that meets regularly to review
the Fund's investments, performance, expenses, and other business affairs. The
policy of the Corporation is that a majority of Board members will be
independent of T. Rowe Price.
American Century Investment Management, Inc. is the investment adviser to the
American Century VP Income & Growth Fund. Under the laws of the state of
Maryland, the Board of Directors is responsible for managing the business and
affairs of the Fund. Acting pursuant to an investment management agreement
entered into with the fund, American Century Investment Management, Inc. serves
as the manager of the Fund. Its principal place of business is American Century
Tower, 4500 Main Street, Kansas City, Missouri. The manager has been providing
investment advisory services to investment companies and institutional investors
since it was founded in 1958.
22
<PAGE>
APPENDIX A
DEFINITION OF TERMS
ACCOUNT VALUE: The sum of the Variable Account Value and the Fixed Account Value
of the Policy.
ADMINISTRATIVE OFFICE: MassMutual's Administrative Office is located at 1295
State Street, Springfield, Massachusetts 01111-0001.
ATTAINED AGE: The Issue Age of an Insured plus the number of completed Policy
Years.
BENEFICIARY(IES): The person or persons specified by the Owner to receive some
or all of the Death Benefit at the second death.
DEATH BENEFIT: The amount paid following receipt of due proof of the death of
both Insureds. The amount is equal to the benefit provided by the Death Benefit
Option in effect on the date of the second death less any Policy Debt
outstanding and any unpaid premium.
DEATH BENEFIT OPTION: The Policy offers three Death Benefit Options for
determination of the amount of the Death Benefit. The Death Benefit Option is
elected at the time of application and, subject to certain requirements, may be
changed at a later date.
EXPENSE PREMIUM: The level of premium payment used to determine the Premium
Expense Charges. The Expense Premium is based on the Issue Ages, sexes, and
risk classifications of the Insureds in effect at the time of any premium
payment.
FIXED ACCOUNT VALUE: The current Account Value that is allocated to the
Guaranteed Principal Account.
FREE LOOK PERIOD: The Period during which an Owner may return the Policy for
cancellation and refund.
GUARANTEED PRINCIPAL ACCOUNT ("GPA"): Part of our General Account, the GPA is a
fixed account to and from which the Owner may make allocations and transfers.
INITIAL FACE AMOUNT: The amount of insurance coverage issued under the Policy.
Subject to certain limitations, the Owner may change the Face Amount after
issue.
INITIAL NET PREMIUM: The premium received before or at delivery of the Policy,
reduced by the Premium Expense Charge.
INSUREDS: The two persons whose lives this Policy insures.
ISSUE AGE: The age of an Insured at his or her birthday nearest the Policy Date.
ISSUE DATE: The date on which the suicide and contestability periods begin.
MINIMUM DEATH BENEFIT: The Death Benefit determined in accordance with the
applicable Death Benefit Compliance Test. The applicable Test is either the
Cash Value Test or the Guideline Premium Test, as chosen at the time of
application.
MONTHLY CHARGE DATE: The monthly date on which the Monthly Charges for the
Policy are deducted from the Account Value. The first Monthly Charge Date is
the Policy Date, and subsequent Monthly Charge Dates are on the same day of each
succeeding calendar month.
MONTHLY CHARGES: The charges assessed against the Policy Account Value on each
Monthly Charge Date.
NET PREMIUM: The premium payment less the Premium Expense Charge we deduct.
NET SURRENDER VALUE: The amount payable to an Owner upon surrender of the
Policy. It is equal to the Account Value less any surrender charges that apply
and less any Policy Debt.
OWNER: The person or entity that owns the Policy.
POLICY: The survivorship flexible premium adjustable variable life insurance
policy offered by MassMutual and described in this Prospectus.
POLICY ANNIVERSARY DATE: An anniversary of the Policy Date.
POLICY DATE: The date shown on the Policy that is the starting point for
determining Policy Anniversary Dates, Policy Years, and Monthly Charge Dates.
POLICY DEBT: All outstanding Policy loans plus accrued loan interest.
POLICY VALUE: The Account Value less any outstanding Policy Debt during the
first three Policy Years. It is equal to the Net Surrender Value in years four
and later.
POLICY YEAR: A twelve-month period commencing with the Policy Date or a Policy
Anniversary Date.
SAFETY TEST: On any day during the Guarantee Periods as shown on the Policy
Specifications page of Your Policy, the Safety Test is met if the result of
premiums paid less amounts withdrawn, accumulated with interest to that day,
equals or exceeds the Guarantee Period premium
23
<PAGE>
requirement as shown on the Policy Specification page of Your Policy accumulated
with interest to that date.
SECOND DEATH: The death of the surviving Insured.
SEPARATE ACCOUNT: The Policies' designated segment of the "MassMutual Variable
Life Separate Account I" established by MassMutual under the laws of
Massachusetts and registered as a unit investment trust with the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940, as amended
("1940 Act"). The Separate Account is used to receive and invest Net Premiums
for this Policy.
SUBSEQUENT NET PREMIUM: Any premium received after the Policy is delivered,
reduced by the Premium Expense Charge.
TARGET PREMIUM: The level of premium payments used to determine commission
payments and surrender charges. The Target Premium is based on the Issue Ages,
sexes, and risk classifications of the Insureds.
VALUATION DATE: A date on which the net asset value of the shares of each
Division of the Separate Account 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, consisting of one or more days, from one Valuation
Date to the next succeeding Valuation Date.
VALUATION TIME: The time of the close of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on a Valuation Date. All actions that are to be
performed on a Valuation Date will be performed as of the Valuation Time.
VARIABLE ACCOUNT VALUE: The total of the values of the Accumulation Units
credited to the Policy in each Division of the Separate Account multiplied by
the Owner's number of units in that Division.
WE: Refers to MassMutual.
YEAR OF COVERAGE: For the Initial Face Amount, each Policy Year is a Year of
Coverage. For any increase in the Face Amount, each Year of Coverage is
measured from the effective date of the increase.
YOU: Refers to the Owner.
24
<PAGE>
APPENDIX B
EXAMPLES OF DEATH BENEFIT OPTION CHANGES
Example I - Change from Option 2 to Option 1
For a change from Option 2 to Option 1, the Face Amount is increased by the
amount of the Account Value on the effective date of the change. For example, if
the Policy has a Face Amount of $500,000 and an Account Value of $25,000, the
Death Benefit under Option 2 is equal to the Face Amount plus the Account Value,
or $525,000. If the Owner changes from Option 2 to Option 1, the Death Benefit
under Option 1 is equal to the Policy Face Amount. Since the Death Benefit under
a Policy does not change as the result of a Death Benefit Option change, the
Face Amount will be increased from $500,000 under Option 2 to $525,000 under
Option 1.
Example II - Change from Option 3 to Option 1
For a change from Option 3 to Option 1, the Face Amount is increased by the
amount of the premiums paid to the effective date of the change. For example, if
a Policy has a Face Amount of $500,000, and premium payments of $12,000 have
been made to-date, the Policy Death Benefit under Option 3 is equal to the Face
Amount plus the premiums paid, or $512,000. If the Owner changes from Option 3
to Option 1, the Death Benefit under Option 1 is equal to the Policy Face
Amount. Since the Death Benefit under a Policy does not change as the result of
a Death Benefit Option change, the Face Amount will be increased from $500,000
under Option 3 to $512,000 under Option 1.
Example III- Change from Option 1 to Option 2
For a change from Option 1 to Option 2, the Face Amount will be decreased by the
amount of the Account Value on the effective date of the change. For example, if
the Policy has a Face Amount of $700,000 and an Account Value of $25,000, under
Option 1 the Death Benefit is equal to the Face Amount, or $700,000. If the
Owner changes from Option 1 to Option 2, the Death Benefit under Option 2 is
equal to the Face Amount plus the Account Value. Since the Death Benefit does
not change as the result of a Death Benefit Option change, the Face Amount will
be decreased by $25,000 to $675,000, and the Death Benefit under Option 2 after
the change will remain $700,000.
Example IV - Change from Option 1 to Option 3
For a change from Option 1 to Option 3, the Face Amount will be decreased by the
amount of the premiums paid to the effective date of the change. For example, if
the Policy has a Face Amount of $700,000 and premiums paid to-date are $30,000,
the Death Benefit under Option 1 is equal to the Face Amount, or $700,000. If
the Owner changes from Option 1 to Option 3, the Death Benefit under Option 3 is
equal to the Face Amount plus the premiums paid to-date. Since the Death Benefit
under a Policy does not change as the result of a Death Benefit Option change,
the Face Amount will be decreased from $700,000 under Option 1 to $670,000 under
Option 3.
Example V - Change from Option 2 to Option 3, or from Option 3 to Option 2
For a change from Option 2 to Option 3 or from Option 3 to Option 2, the Face
Amount is changed (increased or decreased) by the difference between the Account
Value and the premiums paid less any premium refunds. For example, if the Policy
has a Face Amount of $1,000,000, and an Account Value of $70,000, and Premiums
paid of $25,000, the Death Benefit under Option 2 is equal to the Account Value
plus the Face Amount, or $1,070,000. If the Owner changes from Option 2 to
Option 3, the Death Benefit under Option 3 is equal to the Face Amount plus the
premiums paid less any premium refunds. Since the Death Benefit under a Policy
does not immediately change as the result of a Death Benefit Option change, the
Face Amount will be increased by the difference between the Account Value and
the premiums paid, or $45,000, to $1,045,000 under Option 3, maintaining a Death
Benefit of $1,070,000.
A similar type of change would be made for a change from Option 3 to Option 2.
25
<PAGE>
APPENDIX C
RATES OF RETURN
From time to time, the Company may report different types of historical
performance for the Divisions of the Separate Account available under the
Policy. The Company may report the average annual total returns of the funds
over various time periods. Such returns will reflect an annual reduction for
investment management fees and fund expenses, but not deductions at the Separate
Account or Policy level for Mortality and Expense Risk Charges and Policy
expenses, which, if included, would reduce performance.
On request of an applicant, the Company will accompany the returns of the funds
with at least one of the following: (i) returns, for the same periods as shown
for the Funds, which include deductions under the Separate Account for the
Mortality and Expense Risk Charge in addition to the deduction of investment
management fees and Fund expenses, but not other charges under the Policy; or
(ii) an illustration of Account Values and Net Surrender Values as of the
performance reporting date for hypothetical Insureds of given ages, sexes, risk
classifications, premium levels and Initial Face Amounts. The illustration will
be based either on actual historic fund performance or on a hypothetical
investment return between 0% and 12% as requested by the applicant. The Net
Surrender Value figures will assume all fund charges, the Mortality and Expense
Risk Charge, and all other Policy charges are deducted. The Account Value
figures will assume all charges except the Surrender Charge are deducted.
We also may distribute sales literature comparing the percentage change in the
net asset values of the funds or in the Accumulation Unit Values for any of the
Divisions of the Separate Account to established market indices, such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. We also
may make comparisons to the percentage change in values of other mutual funds
with investment objectives similar to those of the Divisions of the Separate
Account being compared.
Tables 1 and 2 show the Effective Annual Rates of Return and One Year Total
Returns, respectively, of the funds based on the actual investment performance
(after deduction of investment management fees and direct operating expenses)
underlying each Division of the Separate Account. Table 1 shows figures for
periods ended December 31, 1997, while Table 2 shows December 31 one year total
returns for each year shown. These rates do not reflect the Mortality and
Expense Risk Charges assessed against the Separate Account. Tables 1 and 2 do
not reflect deductions from premiums or Monthly Charges assessed against the
Account Value of the Policies, nor do they reflect the Policy's Surrender
Charges. (For a discussion of these charges, please see CHARGES AND DEDUCTIONS.)
Therefore, these rates are not illustrative of how actual investment performance
will affect the benefits under the Policy (see, however, ILLUSTRATION OF DEATH
BENEFITS, NET SURRENDER VALUES, AND ACCUMULATED PREMIUMS, APPENDIX D). The rates
of return shown are not necessarily indicative of future performance. These
rates of return may be considered, however, in assessing the competence and
performance of the investment advisers.
26
<PAGE>
TABLE 1
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
FUND INCEPTION 15 YEARS 10 YEARS 5 YEARS 1 YEAR
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MML Equity 14.78% 16.19% 16.44% 18.25% 28.59%
MML Blend 13.67% --- 13.68% 13.81% 20.89%
MML Managed Bond 10.37% 9.73% 9.08% 7.79% 9.91%
MML Money Market 6.73% 6.44% 5.63% 4.47% 5.18%
MML Equity Index 21.93% --- --- --- ---
Oppenheimer Global Securities 12.26% --- --- 18.81% 22.42%
Oppenheimer Aggressive Growth 15.31% --- 16.23% 15.92% 11.67%
Oppenheimer Growth 15.43% --- 16.67% 18.61% 26.68%
Oppenheimer Strategic Bond 7.64% --- --- --- 8.71%
VIP II Contrafund Portfolio 28.11% --- --- --- 24.41%
Mid-Cap Growth Portfolio 18.80% --- --- --- 18.80%
VP Income & Growth 7.8% --- --- --- 7.8%*
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
Dates of inception:
MML Equity Fund-9/15/71 MML Blend Fund-2/3/84
MML Managed Bond Fund-12/16/81 MML Small Cap Value Equity Fund-6/1/98
MML Money Market Fund-11/12/90 MML Equity Index Fund-4/30/97
Oppenheimer Global
Securities Fund-11/12/90 Oppenheimer Aggressive Growth Fund-8/15/86
Oppenheimer Growth Fund-4/3/85 Oppenheimer Strategic Bond Fund-5/3/93
VIP II Contrafund Portfolio-1/3/95 Mid-Cap Growth Portfolio-12/31/96
VP Income & Growth-10/30/97
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on September
15, 1997. Because it has such a short period of performance history, it is not
included in this Table. For the performance history of a substantially similar
fund, the American Century Income & Growth Fund, turn to the Section in the
attached American Century Variable Portfolios prospectus entitled "Investment
Performance of Similar Fund."
27
<PAGE>
TABLE 2
ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
YEAR MML MONEY MML EQUITY OPPENHEIMER
ENDED MML EQUITY MARKET MML BOND MML BLEND INDEX FUND GROWTH
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 28.59% 5.18% 9.91% 20.89% 21.93%* 26.68%
1996 20.25% 5.01% 3.25% 13.95% --- 25.20%
1995 31.13% 5.58% 19.14% 23.28% --- 36.65%
1994 4.10% 3.84% (3.76%) 2.48% --- 0.98%
1993 9.52% 2.75% 11.81% 9.70% --- 7.25%
1992 10.48% 3.48% 7.31% 9.36% --- 14.53%
1991 25.56% 6.01% 16.66% 24.00% --- 25.54%
1990 (0.51%) 8.12% 8.38% 2.37% --- (8.21%)
1989 23.04% 9.16% 12.83% 19.96% --- 23.59%
1988 16.68% 7.39% 7.13% 13.40% --- 22.09%
1987 2.10% 6.49% 2.60% 3.12% --- 3.32%
1986 20.15% 6.60% 14.46% 18.30% --- 17.76%
1985 30.54% 8.03% 19.94% 24.88% --- 9.50%*
1984 5.40% 10.39% 11.69% 8.24%* --- ---
1983 22.85% 8.97% 7.26% --- --- ---
1982 25.67% 11.12%* 22.79%* --- --- ---
1981 6.67% --- --- --- --- ---
1980 27.62% --- --- --- --- ---
1979 19.54% --- --- --- --- ---
1978 3.71% --- --- --- --- ---
1977 (0.52%) --- --- --- --- ---
1976 24.77% --- --- --- --- ---
1975 32.85% --- --- --- --- ---
1974 (17.61%)* --- --- --- --- ---
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
Dates of inception:
MML Equity Fund-9/15/71 MML Blend Fund-2/3/84
MML Managed Bond Fund-12/16/81 MML Small Cap Value Equity Fund-6/1/98
MML Money Market Fund-11/12/90 MML Equity Index Fund-4/30/97
Oppenheimer Global
Securities Fund-11/12/90 Oppenheimer Aggressive Growth Fund-8/15/86
Oppenheimer Growth Fund-4/3/85 Oppenheimer Strategic Bond Fund-5/3/93
VIP II Contrafund Portfolio-1/3/95 Mid-Cap Growth Portfolio-12/31/96
VP Income & Growth-10/30/97
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on September
15, 1997. Because it has such a short period of performance history, it is not
included in this Table. For the performance history of a substantially similar
fund, the American Century Income & Growth Fund, turn to the Section in the
attached American Century Variable Portfolios prospectus entitled "Investment
Performance of Similar Fund."
28
<PAGE>
TABLE 2 (continued)
ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER OPPENHEIMER VIP II MID CAP
YEAR OPPENHEIMER AGGRESSIVE GLOBAL CONTRAFUND GROWTH VP INCOME &
ENDED STRATEGIC BOND GROWTH SECURITIES PORTFOLIO PORTFOLIO GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 8.71% 11.67% 22.42% 24.14% 18.80%* 7.8%*
1996 12.07% 20.16% 17.80% 21.22% -- ---
1995 15.33% 32.52% 2.24% 39.72%* -- ---
1994 (5.85%) (7.50%) (5.72%) --- -- ---
1993 4.25%* 27.32% 70.32% --- -- ---
1992 --- 15.42% (7.11%) --- -- ---
1991 --- 54.72% 3.39% --- -- ---
1990 --- (16.32%) 0.40%* --- -- ---
1989 --- 27.39% --- --- -- ---
1988 --- 13.41% --- --- -- ---
1987 --- 14.34% --- --- -- ---
1986 --- (1.65%)* --- --- -- ---
1985 --- --- --- --- -- ---
1984 --- --- --- --- -- ---
1983 --- --- --- --- -- ---
1982 --- --- --- --- -- ---
1981 --- --- --- --- -- ---
1980 --- --- --- --- -- ---
1979 --- --- --- --- -- ---
1978 --- --- --- --- -- ---
1977 --- --- --- --- -- ---
1976 --- --- --- --- -- ---
1975 --- --- --- --- -- ---
1974 --- --- --- --- -- ---
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
Dates of inception:
MML Equity Fund-9/15/71 MML Blend Fund-2/3/84
MML Managed Bond Fund-12/16/81 MML Small Cap Value Equity Fund-6/1/98
MML Money Market Fund-11/12/90 MML Equity Index Fund-4/30/97
Oppenheimer Global
Securities Fund-11/12/90 Oppenheimer Aggressive Growth Fund-8/15/86
Oppenheimer Growth Fund-4/3/85 Oppenheimer Strategic Bond Fund-5/3/93
VIP II Contrafund Portfolio-1/3/95 Mid-Cap Growth Portfolio-12/31/96
VP Income & Growth-10/30/97
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on September
15, 1997. Because it has such a short period of performance history, it is not
included in this Table. For the performance history of a substantially similar
fund, the American Century Income & Growth Fund, turn to the Section in the
attached American Century Variable Portfolios prospectus entitled "Investment
Performance of Similar Fund."
29
<PAGE>
APPENDIX D
ILLUSTRATION OF DEATH BENEFITS, NET SURRENDER VALUES, AND ACCUMULATED
PREMIUMS
The following tables illustrate the way in which a Policy operates. They show
how the Death Benefit and Net 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 premium payments of $5,000 for a combination of a
Select-Preferred Male age 35 and a Select-Preferred Female age 35. Select-
Preferred is C.M. Life's best risk classification. Separate tables are shown for
the current and guaranteed schedules of charges. These tables will assist in the
comparison of Death Benefits and Net Surrender Values for the Policy with those
of other variable life policies.
The Death Benefits and Net 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 and below that average in individual Policy Years.
They also would differ if any Policy loan were made during the period of time
illustrated. They also would be different depending on the allocation of
investment value to each Division. They would be different depending on the
allocation of investment value to each Division if the rates of return for all
funds averaged 0%, 6%, and 12% but varied above or below that average for
particular funds.
The Death Benefits and Net Surrender Values shown in Tables 1, 2, 3, 7, 8, and 9
reflect the following current charges :
. Administrative Charges of $12 per month per Policy in Policy Years 1-10, and
$6 per month in Policy Years 11 and beyond.
. Face Amount Charges of $0.13 per month per $1,000 of Face Amount in Coverage
Years 1-10.
. Insurance Charges based on the current rates being charged by the Company for
Select-Preferred, fully underwritten risks.
. Mortality and Expense Risk Charges of 0.25% on an annual basis of the daily
net asset value of the Separate Account in all Policy Years.
. Fund level expenses of 0.66% on an annual basis of the net asset value of the
Separate Account. These expenses represent the unweighted average of all fund
expenses.
The Death Benefits and Net Surrender Values shown in Tables 4, 5, 6, 10, 11, and
12 reflect the following guaranteed maximum charges as well as the current fund
level expenses.
. Administrative Charges equal to $12 per month per policy in all years.
. Face Amount Charge of $0.13 per month per $1,000 of Face Amount in Coverage
Years 1-10.
. Insurance Charges based on the 1980 CSO Mortality Table.
. Mortality and Expense Risk Charges equal to 0.90% on an annual basis of the
daily net asset value of the Separate Account in all years.
Net Surrender Values shown in the Tables reflect the deduction of Surrender
Charges in the first 10 Policy Years. The Surrender Charge in the first year is
the Target Premium or $60 per $1,000 of Face Amount if less. In each of Years
two through 10, the Surrender Charge is equal to the Surrender Charge in the
prior year reduced by 10% of the Surrender Charge in the first year.
Taking the current Mortality and Expense Risk Charge and the fund level expenses
into account, the gross rates of 0%, 6%, and 12% are -0.90%, 5.05%, and 11.00%
respectively on a net basis.
30
<PAGE>
TABLE 1
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
Death Benefit Option 1 $1 million Initial Face Amount
Current Schedule of Charges Guideline Premium Test
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $ 10,763 1,000,000 1,000,000 1,000,000 1,098 1,672 2,272
3 $ 16,551 1,000,000 1,000,000 1,000,000 4,117 5,233 6,448
4 $ 22,628 1,000,000 1,000,000 1,000,000 7,111 8,949 11,030
5 $ 29,010 1,000,000 1,000,000 1,000,000 10,079 12,827 16,063
6 $ 35,710 1,000,000 1,000,000 1,000,000 13,023 16,875 21,597
7 $ 42,746 1,000,000 1,000,000 1,000,000 15,943 21,103 27,689
8 $ 50,133 1,000,000 1,000,000 1,000,000 18,839 25,520 34,398
9 $ 57,889 1,000,000 1,000,000 1,000,000 21,713 30,137 41,795
10 $ 66,034 1,000,000 1,000,000 1,000,000 24,565 34,964 49,955
15 $ 113,287 1,000,000 1,000,000 1,000,000 47,041 72,936 117,818
20 $ 173,596 1,000,000 1,000,000 1,000,000 67,921 120,751 231,208
25 $ 250,567 1,000,000 1,000,000 1,000,000 87,446 181,480 421,897
30 $ 348,804 1,000,000 1,000,000 1,000,000 104,923 258,061 742,722
35 $ 474,182 1,000,000 1,000,000 1,488,162 117,923 352,929 1,282,898
40 $ 634,199 1,000,000 1,000,000 2,344,415 122,301 468,925 2,191,042
45 $ 838,426 1,000,000 1,000,000 3,903,636 106,516 607,964 3,717,748
50 $1,099,077 1,000,000 1,000,000 6,583,023 42,319 774,682 6,269,546
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,563 18,799
6 15,303 19,155 23,877
7 17,767 22,927 29,513
8 20,207 26,888 35,766
9 22,625 31,049 42,707
10 25,021 35,420 50,411
15 47,041 72,936 117,818
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
31
<PAGE>
TABLE 2
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
Death Benefit Option 2 $1 million Initial Face Amount
Current Schedule of Charges Guideline Premium Test
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,002,614 1,002,818 1,003,023 0 0 0
2 $ 10,763 1,005,202 1,005,776 1,006,376 1,098 1,672 2,272
3 $ 16,551 1,007,765 1,008,881 1,010,096 4,117 5,233 6,448
4 $ 22,628 1,010,303 1,012,141 1,014,222 7,111 8,949 11,030
5 $ 29,010 1,012,815 1,015,562 1,018,799 10,079 12,826 16,063
6 $ 35,710 1,015,302 1,019,154 1,023,877 13,022 16,874 21,597
7 $ 42,746 1,017,766 1,022,926 1,029,512 15,942 21,102 27,688
8 $ 50,133 1,020,206 1,026,886 1,035,764 18,838 25,518 34,396
9 $ 57,889 1,022,623 1,031,046 1,042,704 21,711 30,134 41,792
10 $ 66,034 1,025,020 1,035,417 1,050,407 24,564 34,961 49,951
15 $ 113,287 1,047,033 1,072,923 1,117,796 47,033 72,923 117,796
20 $ 173,596 1,067,894 1,120,697 1,231,096 67,894 120,697 231,096
25 $ 250,567 1,087,354 1,181,269 1,421,369 87,354 181,269 421,369
30 $ 348,804 1,104,619 1,257,242 1,740,226 104,619 257,242 740,226
35 $ 474,182 1,116,898 1,349,627 2,271,987 116,898 349,627 1,271,987
40 $ 634,199 1,119,382 1,457,284 3,155,976 119,382 457,284 2,155,976
45 $ 838,426 1,099,202 1,569,369 4,616,406 99,202 569,369 3,616,406
50 $1,099,077 1,028,232 1,653,814 7,010,620 28,232 653,814 6,010,620
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,877
7 17,766 22,926 29,512
8 20,206 26,886 35,764
9 22,623 31,046 42,704
10 25,020 35,417 50,407
15 47,033 72,923 117,796
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
32
<PAGE>
TABLE 3
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
Death Benefit Option 3 $1 million Initial Face Amount
Current Schedule of Charges Guideline Premium Test
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $ 10,763 1,010,000 1,010,000 1,010,000 1,098 1,672 2,272
3 $ 16,551 1,015,000 1,015,000 1,015,000 4,117 5,233 6,448
4 $ 22,628 1,020,000 1,020,000 1,020,000 7,111 8,949 11,030
5 $ 29,010 1,025,000 1,025,000 1,025,000 10,079 12,826 16,063
6 $ 35,710 1,030,000 1,030,000 1,030,000 13,022 16,874 21,596
7 $ 42,746 1,035,000 1,035,000 1,035,000 15,942 21,102 27,687
8 $ 50,133 1,040,000 1,040,000 1,040,000 18,837 25,517 34,395
9 $ 57,889 1,045,000 1,045,000 1,045,000 21,710 30,133 41,791
10 $ 66,034 1,050,000 1,050,000 1,050,000 24,562 34,959 49,950
15 $ 113,287 1,075,000 1,075,000 1,075,000 47,028 72,920 117,798
20 $ 173,596 1,100,000 1,100,000 1,100,000 67,879 120,696 231,135
25 $ 250,567 1,125,000 1,125,000 1,125,000 87,311 181,304 421,653
30 $ 348,804 1,150,000 1,150,000 1,150,000 104,488 257,489 741,919
35 $ 474,182 1,175,000 1,175,000 1,661,088 116,438 350,982 1,281,110
40 $ 634,199 1,200,000 1,200,000 2,541,196 117,836 462,961 2,188,034
45 $ 838,426 1,225,000 1,225,000 4,123,323 93,639 590,437 3,712,689
50 $1,099,077 1,250,000 1,250,000 6,824,112 6,117 724,199 6,261,059
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,876
7 17,766 22,926 29,511
8 20,205 26,885 35,763
9 22,622 31,045 42,703
10 25,018 35,415 50,406
15 47,028 72,920 117,798
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
33
<PAGE>
TABLE 4
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 1 Guideline Premium Test
Guaranteed Schedule of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $ 10,763 1,000,000 1,000,000 1,000,000 1,094 1,667 2,267
3 $ 16,551 1,000,000 1,000,000 1,000,000 4,104 5,220 6,433
4 $ 22,628 1,000,000 1,000,000 1,000,000 7,085 8,921 11,000
5 $ 29,010 1,000,000 1,000,000 1,000,000 10,034 12,777 16,009
6 $ 35,710 1,000,000 1,000,000 1,000,000 12,950 16,794 21,507
7 $ 42,746 1,000,000 1,000,000 1,000,000 15,830 20,976 27,546
8 $ 50,133 1,000,000 1,000,000 1,000,000 18,672 25,330 34,182
9 $ 57,889 1,000,000 1,000,000 1,000,000 21,474 29,862 41,478
10 $ 66,034 1,000,000 1,000,000 1,000,000 24,233 34,578 49,505
15 $ 113,287 1,000,000 1,000,000 1,000,000 43,057 68,145 112,045
20 $ 173,596 1,000,000 1,000,000 1,000,000 59,163 108,940 215,068
25 $ 250,567 1,000,000 1,000,000 1,000,000 71,223 157,695 385,795
30 $ 348,804 1,000,000 1,000,000 1,000,000 75,337 212,986 670,288
35 $ 474,182 1,000,000 1,000,000 1,333,819 61,036 267,787 1,149,844
40 $ 634,199 1,000,000 1,000,000 2,087,564 4,646 305,034 1,950,995
45 $ 838,426 0 1,000,000 3,452,613 0 274,501 3,288,203
50 $1,099,077 0 1,000,000 5,746,045 0 36,578 5,472,424
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,868 10,081
4 10,277 12,113 14,192
5 12,770 15,513 18,745
6 15,230 19,074 23,787
7 17,654 22,800 29,370
8 20,040 26,698 35,550
9 22,386 30,774 42,390
10 24,689 35,034 49,961
15 43,057 68,145 112,045
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
34
<PAGE>
TABLE 5
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 2 Guideline Premium Test
Guaranteed Schedule of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,002,613 1,002,817 1,003,022 0 0 0
2 $ 10,763 1,005,198 1,005,771 1,006,371 1,094 1,667 2,267
3 $ 16,551 1,007,752 1,008,867 1,010,081 4,104 5,219 6,433
4 $ 22,628 1,010,277 1,012,113 1,014,191 7,085 8,921 10,999
5 $ 29,010 1,012,769 1,015,512 1,018,744 10,033 12,776 16,008
6 $ 35,710 1,015,228 1,019,072 1,023,785 12,948 16,792 21,505
7 $ 42,746 1,017,651 1,022,797 1,029,366 15,827 20,973 27,542
8 $ 50,133 1,020,036 1,026,692 1,035,542 18,668 25,324 34,174
9 $ 57,889 1,022,380 1,030,765 1,042,378 21,468 29,853 41,466
10 $ 66,034 1,024,680 1,035,020 1,049,941 24,224 34,564 49,485
15 $ 113,287 1,043,009 1,068,063 1,111,900 43,009 68,063 111,900
20 $ 173,596 1,058,973 1,108,560 1,214,270 58,973 108,560 214,270
25 $ 250,567 1,070,614 1,156,237 1,382,035 70,614 156,237 382,035
30 $ 348,804 1,073,654 1,208,026 1,654,229 73,654 208,026 654,229
35 $ 474,182 1,056,996 1,251,961 2,087,433 56,996 251,961 1,087,433
40 $ 634,199 0 1,259,056 2,761,611 0 259,056 1,761,611
45 $ 838,426 0 1,155,504 3,769,693 0 155,504 2,769,693
50 $1,099,077 0 0 5,226,634 0 0 4,226,634
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,277 12,113 14,191
5 12,769 15,512 18,744
6 15,228 19,072 23,785
7 17,651 22,797 29,366
8 20,036 26,692 35,542
9 22,380 30,765 42,378
10 24,680 35,020 49,941
15 43,009 68,063 111,900
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
35
<PAGE>
TABLE 6
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 3 Guideline Premium Test
Guaranteed Schedule of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $ 10,763 1,010,000 1,010,000 1,010,000 1,094 1,667 2,267
3 $ 16,551 1,015,000 1,015,000 1,015,000 4,104 5,219 6,433
4 $ 22,628 1,020,000 1,020,000 1,020,000 7,084 8,920 10,999
5 $ 29,010 1,025,000 1,025,000 1,025,000 10,032 12,775 16,007
6 $ 35,710 1,030,000 1,030,000 1,030,000 12,947 16,791 21,504
7 $ 42,746 1,035,000 1,035,000 1,035,000 15,825 20,971 27,540
8 $ 50,133 1,040,000 1,040,000 1,040,000 18,664 25,321 34,172
9 $ 57,889 1,045,000 1,045,000 1,045,000 21,462 29,849 41,463
10 $ 66,034 1,050,000 1,050,000 1,050,000 24,216 34,558 49,482
15 $ 113,287 1,075,000 1,075,000 1,075,000 42,970 68,041 111,917
20 $ 173,596 1,100,000 1,100,000 1,100,000 58,839 108,533 214,545
25 $ 250,567 1,125,000 1,125,000 1,125,000 70,182 156,343 383,968
30 $ 348,804 1,150,000 1,150,000 1,150,000 72,281 208,909 664,529
35 $ 474,182 1,175,000 1,175,000 1,492,666 52,268 255,851 1,135,919
40 $ 634,199 0 1,200,000 2,262,659 0 271,046 1,927,718
45 $ 838,426 0 1,225,000 3,636,784 0 175,021 3,249,318
50 $1,099,077 0 0 5,928,452 0 0 5,408,050
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
--------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,276 12,112 14,191
5 12,768 15,511 18,743
6 15,227 19,071 23,784
7 17,649 22,795 29,364
8 20,032 26,689 35,540
9 22,374 30,761 42,375
10 24,672 35,014 49,938
15 42,970 68,041 111,917
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
36
<PAGE>
TABLE 7
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 1 Cash Value Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $ 10,763 1,000,000 1,000,000 1,000,000 1,098 1,672 2,272
3 $ 16,551 1,000,000 1,000,000 1,000,000 4,117 5,233 6,448
4 $ 22,628 1,000,000 1,000,000 1,000,000 7,111 8,949 11,030
5 $ 29,010 1,000,000 1,000,000 1,000,000 10,079 12,827 16,063
6 $ 35,710 1,000,000 1,000,000 1,000,000 13,023 16,875 21,597
7 $ 42,746 1,000,000 1,000,000 1,000,000 15,943 21,103 27,689
8 $ 50,133 1,000,000 1,000,000 1,000,000 18,839 25,520 34,398
9 $ 57,889 1,000,000 1,000,000 1,000,000 21,713 30,137 41,795
10 $ 66,034 1,000,000 1,000,000 1,000,000 24,565 34,964 49,955
15 $ 113,287 1,000,000 1,000,000 1,000,000 47,041 72,936 117,818
20 $ 173,596 1,000,000 1,000,000 1,000,000 67,921 120,751 231,208
25 $ 250,567 1,000,000 1,000,000 1,101,124 87,446 181,480 421,886
30 $ 348,804 1,000,000 1,000,000 1,617,043 104,923 258,061 741,763
35 $ 474,182 1,000,000 1,000,000 2,346,049 117,923 352,929 1,275,026
40 $ 634,199 1,000,000 1,000,000 3,410,508 122,301 468,925 2,158,549
45 $ 838,426 1,000,000 1,000,000 5,013,034 106,516 607,964 3,606,499
50 $1,099,077 1,000,000 1,000,000 7,491,052 42,319 774,682 5,945,279
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
-------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,563 18,799
6 15,303 19,155 23,877
7 17,767 22,927 29,513
8 20,207 26,888 35,766
9 22,625 31,049 42,707
10 25,021 35,420 50,411
15 47,041 72,936 117,818
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
37
<PAGE>
TABLE 8
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 2 Cash Value Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,002,614 1,002,818 1,003,023 0 0 0
2 $ 10,763 1,005,202 1,005,776 1,006,376 1,098 1,672 2,272
3 $ 16,551 1,007,765 1,008,881 1,010,096 4,117 5,233 6,448
4 $ 22,628 1,010,303 1,012,141 1,014,222 7,111 8,949 11,030
5 $ 29,010 1,012,815 1,015,562 1,018,799 10,079 12,826 16,063
6 $ 35,710 1,015,302 1,019,154 1,023,877 13,022 16,874 21,597
7 $ 42,746 1,017,766 1,022,926 1,029,512 15,942 21,102 27,688
8 $ 50,133 1,020,206 1,026,886 1,035,764 18,838 25,518 34,396
9 $ 57,889 1,022,623 1,031,046 1,042,704 21,711 30,134 41,792
10 $ 66,034 1,025,020 1,035,417 1,050,407 24,564 34,961 49,951
15 $ 113,287 1,047,033 1,072,923 1,117,796 47,033 72,923 117,796
20 $ 173,596 1,067,894 1,120,697 1,231,096 67,894 120,697 231,096
25 $ 250,567 1,087,354 1,181,269 1,421,369 87,354 181,269 421,369
30 $ 348,804 1,104,619 1,257,242 1,740,226 104,619 257,242 740,226
35 $ 474,182 1,116,898 1,349,627 2,340,382 116,898 349,627 1,271,947
40 $ 634,199 1,119,382 1,457,284 3,402,394 119,382 457,284 2,153,414
45 $ 838,426 1,099,202 1,569,369 5,001,214 99,202 569,369 3,597,996
50 $1,099,077 1,028,232 1,653,814 7,473,486 28,232 653,814 5,931,338
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,877
7 17,766 22,926 29,512
8 20,206 26,886 35,764
9 22,623 31,046 42,704
10 25,020 35,417 50,407
15 47,033 72,923 117,796
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
38
<PAGE>
TABLE 9
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
Death Benefit Option 3 $1 million Initial Face Amount
Current Schedule of Charges Cash Value Test
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $ 10,763 1,010,000 1,010,000 1,010,000 1,098 1,672 2,272
3 $ 16,551 1,015,000 1,015,000 1,015,000 4,117 5,233 6,448
4 $ 22,628 1,020,000 1,020,000 1,020,000 7,111 8,949 11,030
5 $ 29,010 1,025,000 1,025,000 1,025,000 10,079 12,826 16,063
6 $ 35,710 1,030,000 1,030,000 1,030,000 13,022 16,874 21,596
7 $ 42,746 1,035,000 1,035,000 1,035,000 15,942 21,102 27,687
8 $ 50,133 1,040,000 1,040,000 1,040,000 18,837 25,517 34,395
9 $ 57,889 1,045,000 1,045,000 1,045,000 21,710 30,133 41,791
10 $ 66,034 1,050,000 1,050,000 1,050,000 24,562 34,959 49,950
15 $ 113,287 1,075,000 1,075,000 1,075,000 47,028 72,920 117,798
20 $ 173,596 1,100,000 1,100,000 1,100,000 67,879 120,696 231,135
25 $ 250,567 1,125,000 1,125,000 1,225,514 87,311 181,304 421,653
30 $ 348,804 1,150,000 1,150,000 1,766,171 104,488 257,489 741,363
35 $ 474,182 1,175,000 1,175,000 2,519,817 116,438 350,982 1,274,357
40 $ 634,199 1,200,000 1,200,000 3,608,745 117,836 462,961 2,157,433
45 $ 838,426 1,225,000 1,225,000 5,235,465 93,639 590,437 3,604,651
50 $1,099,077 1,250,000 1,250,000 7,737,235 6,117 724,199 5,942,250
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
--------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,876
7 17,766 22,926 29,511
8 20,205 26,885 35,763
9 22,622 31,045 42,703
10 25,018 35,415 50,406
15 47,028 72,920 117,798
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
39
<PAGE>
TABLE 10
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 1 Cash Value test
Guaranteed Schedule of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $ 10,763 1,000,000 1,000,000 1,000,000 1,094 1,667 2,267
3 $ 16,551 1,000,000 1,000,000 1,000,000 4,104 5,220 6,433
4 $ 22,628 1,000,000 1,000,000 1,000,000 7,085 8,921 11,000
5 $ 29,010 1,000,000 1,000,000 1,000,000 10,034 12,777 16,009
6 $ 35,710 1,000,000 1,000,000 1,000,000 12,950 16,794 21,507
7 $ 42,746 1,000,000 1,000,000 1,000,000 15,830 20,976 27,546
8 $ 50,133 1,000,000 1,000,000 1,000,000 18,672 25,330 34,182
9 $ 57,889 1,000,000 1,000,000 1,000,000 21,474 29,862 41,478
10 $ 66,034 1,000,000 1,000,000 1,000,000 24,233 34,578 49,505
15 $ 113,287 1,000,000 1,000,000 1,000,000 43,057 68,145 112,045
20 $ 173,596 1,000,000 1,000,000 1,000,000 59,163 108,940 215,068
25 $ 250,567 1,000,000 1,000,000 1,006,926 71,223 157,695 385,795
30 $ 348,804 1,000,000 1,000,000 1,452,688 75,337 212,986 666,371
35 $ 474,182 1,000,000 1,000,000 2,051,751 61,036 267,787 1,115,082
40 $ 634,199 1,000,000 1,000,000 2,862,586 4,646 305,034 1,811,763
45 $ 838,426 0 1,000,000 3,952,379 0 274,501 2,843,438
50 $1,099,077 0 1,000,000 5,439,487 0 36,578 4,317,053
=====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,868 10,081
4 10,277 12,113 14,192
5 12,770 15,513 18,745
6 15,230 19,074 23,787
7 17,654 22,800 29,370
8 20,040 26,698 35,550
9 22,386 30,774 42,390
10 24,689 35,034 49,961
15 43,057 68,145 112,045
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
40
<PAGE>
TABLE 11
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
Death Benefit Option 2 $1 million Initial Face Amount
Guaranteed Schedule of Mortality and Expense Charges Cash Value Test
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,002,613 1,002,817 1,003,022 0 0 0
2 $ 10,763 1,005,198 1,005,771 1,006,371 1,094 1,667 2,267
3 $ 16,551 1,007,752 1,008,867 1,010,081 4,104 5,219 6,433
4 $ 22,628 1,010,277 1,012,113 1,014,191 7,085 8,921 10,999
5 $ 29,010 1,012,769 1,015,512 1,018,744 10,033 12,776 16,008
6 $ 35,710 1,015,228 1,019,072 1,023,785 12,948 16,792 21,505
7 $ 42,746 1,017,651 1,022,797 1,029,366 15,827 20,973 27,542
8 $ 50,133 1,020,036 1,026,692 1,035,542 18,668 25,324 34,174
9 $ 57,889 1,022,380 1,030,765 1,042,378 21,468 29,853 41,466
10 $ 66,034 1,024,680 1,035,020 1,049,941 24,224 34,564 49,485
15 $ 113,287 1,043,009 1,068,063 1,111,900 43,009 68,063 111,900
20 $ 173,596 1,058,973 1,108,560 1,214,270 58,973 108,560 214,270
25 $ 250,567 1,070,614 1,156,237 1,382,035 70,614 156,237 382,035
30 $ 348,804 1,073,654 1,208,026 1,654,229 73,654 208,026 654,229
35 $ 474,182 1,056,996 1,251,961 2,087,433 56,996 251,961 1,087,433
40 $ 634,199 0 1,259,056 2,783,281 0 259,056 1,761,570
45 $ 838,426 0 1,155,504 3,842,382 0 155,504 2,764,304
50 $1,099,077 0 0 5,288,984 0 0 4,197,606
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,277 12,113 14,191
5 12,769 15,512 18,744
6 15,228 19,072 23,785
7 17,651 22,797 29,366
8 20,036 26,692 35,542
9 22,380 30,765 42,378
10 24,680 35,020 49,941
15 43,009 68,063 111,900
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
41
<PAGE>
TABLE 12
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
Male and Female Each Issue Age 35, Select-Preferred
<TABLE>
<CAPTION>
$5,000 Annual Premium
$1 million Initial Face Amount
Death Benefit Option 3 Cash Value Test
Guaranteed Schedule of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
====================================================================================================================
Premiums
End of Accumulated
Policy at 5% Interest
Year Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $ 10,763 1,010,000 1,010,000 1,010,000 1,094 1,667 2,267
3 $ 16,551 1,015,000 1,015,000 1,015,000 4,104 5,219 6,433
4 $ 22,628 1,020,000 1,020,000 1,020,000 7,084 8,920 10,999
5 $ 29,010 1,025,000 1,025,000 1,025,000 10,032 12,775 16,007
6 $ 35,710 1,030,000 1,030,000 1,030,000 12,947 16,791 21,504
7 $ 42,746 1,035,000 1,035,000 1,035,000 15,825 20,971 27,540
8 $ 50,133 1,040,000 1,040,000 1,040,000 18,664 25,321 34,172
9 $ 57,889 1,045,000 1,045,000 1,045,000 21,462 29,849 41,463
10 $ 66,034 1,050,000 1,050,000 1,050,000 24,216 34,558 49,482
15 $ 113,287 1,075,000 1,075,000 1,075,000 42,970 68,041 111,917
20 $ 173,596 1,100,000 1,100,000 1,100,000 58,839 108,533 214,545
25 $ 250,567 1,125,000 1,125,000 1,127,155 70,182 156,343 383,968
30 $ 348,804 1,150,000 1,150,000 1,595,121 72,281 208,909 662,900
35 $ 474,182 1,175,000 1,175,000 2,216,335 52,268 255,851 1,109,421
40 $ 634,199 0 1,200,000 3,048,280 0 271,046 1,802,709
45 $ 838,426 0 1,225,000 4,157,819 0 175,021 2,829,366
50 $1,099,077 0 0 5,662,736 0 0 4,295,822
====================================================================================================================
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
<TABLE>
<CAPTION>
===============================================================
End of
Policy Year 0% 6% 12%
---------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,276 12,112 14,191
5 12,768 15,511 18,743
6 15,227 19,071 23,784
7 17,649 22,795 29,364
8 20,032 26,689 35,540
9 22,374 30,761 42,375
10 24,672 35,014 49,938
15 42,970 68,041 111,917
===============================================================
</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 the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
42
<PAGE>
APPENDIX E
DIRECTORS OF MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
ROGER G. ACKERMAN, DIRECTOR
Chairman and Chief Executive Officer, since 1996, President and Chief Operating
Officer, 1990-1996, Corning, Inc., One Riverfront Plaza, HQE 2, Corning, NY
14831.
JAMES R. BIRLE, DIRECTOR
Chairman, since 1997, and Founder, since 1994, President, 1994-1997, Resolute
Partners, LLC; General Partner, Blackstone Group, 1988-1994, 2 Soundview Drive,
Greenwich CT 06836.
GENE CHAO, DIRECTOR
Chairman, President and CEO, Computer Projections, Inc., since 1991, 733 SW
Vista Avenue, Portland, OR 97205-1203.
PATRICIA DIAZ DENNIS, DIRECTOR
Senior Vice President and Assistant General Counsel, SBC Communications Inc.,
since 1995; Special Counsel, Sullivan & Cromwell, 1993-1995; Assistant Secretary
of State for Human Rights and Humanitarian Affairs, U.S. Department of State,
1992-1993, 175 East Houston, Room 4-A-70, San Antonio, TX 78205
ANTHONY DOWNS, DIRECTOR
Senior Fellow, The Brookings Institution, since 1977, 1775 Massachusetts Ave.,
N.W., Washington DC 20036-2188.
JAMES L. DUNLAP, DIRECTOR
President and Chief Operating Officer, United Meridian Corporation, since 1996;
Senior Vice President, Texaco, Inc. 1987-1996, 1201 Louisiana, Suite 1400,
Houston, TX 77002-5603.
WILLIAM B. ELLIS, DIRECTOR
Senior Fellow, Yale University School of Forestry and Environmental Studies,
since 1995; Chairman and Chief Executive Officer, Northeast Utilities, 1983-
1995, 31 Pound Foolish Lane, Glastonbury, CT 06033.
ROBERT M. FUREK, DIRECTOR
Chairman, State Board of Trustees for the Hartford School System, since 1997;
President and Chief Executive Officer, Heublein, Inc., 1987-1996, 1 State
Street, Suite 2310, Hartford, CT 06103.
CHARLES K. GIFFORD, DIRECTOR
Chairman and Chief Executive Officer since 1995, and President 1989-1995,
BankBoston, N.A. and Chairman, since 1998, and Chief Executive Officer, since
1985, BankBoston Corporation, 100 Federal Street, Boston, MA 02110.
WILLIAM N. GRIGGS, DIRECTOR
Managing Director, Griggs & Santow, Inc., since 1983, 75 Wall Street, 20th
Floor, New York, NY 10005.
GEORGE B. HARVEY, DIRECTOR
Retired Chairman, President and CEO, Pitney Bowes, since 1996, One Landmark
Square, Suite 1905, 19th Floor, Stamford, CT 06901.
BARBARA B. HAUPTFUHRER, DIRECTOR
Director of various corporations, since 1972, 1700 Old Welsh Road, Huntington
Valley, PA 19006.
SHELDON B. LUBAR, DIRECTOR
Chairman, Lubar & Co. Incorporated, since 1977, 700 North Water Street, Suite
1200, Milwaukee, WI 53202.
43
<PAGE>
WILLIAM B. MARX, JR., DIRECTOR
Retired Senior Executive Vice President, Lucent Technologies, since 1996;
Executive Vice President and CEO Multimedia Products Group, AT&T, 1994-1996;
Executive Vice President and CEO, Network Systems Group, 1993-1994; Group
Executive and President, AT&T Network Systems, 1989-1993. 5 Peacock Lane,
Village of Golf, FL 33436-5299.
JOHN F. MAYPOLE, DIRECTOR
Managing Partner, Peach State Real Estate Holding Company, since 1984, 55 Sandy
Hook Road - North, Sarasota, FL 34242.
JOHN J. PAJAK, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER
President and Chief Operating Officer, since 1996; Vice Chairman and Chief
Administrative Officer, 1996; Executive Vice President, 1987-1996, MassMutual,
1295 State Street, Springfield, MA 01111.
THOMAS B. WHEELER, DIRECTOR, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Chairman and Chief Executive Officer, since 1996; President and Chief Executive
Officer, 1988-1996, MassMutual, 1295 State Street, Springfield, MA 01111.
ALFRED M. ZEIEN, DIRECTOR
Chairman and Chief Executive Officer, The Gillette Company, since 1991,
Prudential Tower, Boston, MA 02199.
EXECUTIVE VICE PRESIDENTS
LAWRENCE V. BURKETT, JR.
Executive Vice President and General Counsel, since 1993, Senior Vice President
and Deputy General Counsel, 1992-1993, MassMutual, 1295 State Street,
Springfield, MA 01111.
PETER J. DABOUL
Executive Vice President and Chief Information Officer, since 1997, Senior Vice
President 1990-1997, MassMutual, 1295 State Street, Springfield, MA 01111.
JOHN B. DAVIES
Executive Vice President, since 1994; Associate Executive Vice President, 1994,
General Agent, 1982-1993, MassMutual, 1295 State Street, Springfield, MA 01111.
DANIEL J. FITZGERALD
Executive Vice President, since 1994, Corporate Financial Operations, 1994-1997;
Senior Vice President, 1991-1994, MassMutual, 1295 State Street, Springfield, MA
01111.
JAMES E. MILLER
Executive Vice President since 1997 and 1987-1996, MassMutual, Senior Vice
President, UniCare Life and Health Insurance Company, 1996-1997, 1295 State
Street, Springfield, MA 01111.
JOHN V. MURPHY
Executive Vice President, MassMutual, since 1997; Executive Vice President and
Chief Operating Officer, David L. Babson & Co., Inc., 1995-1997; Chief Operating
Officer, Concert Capital Management, Inc., 1993-1995, Senior Vice President and
Chief Financial Officer, Liberty Financial Companies, 1977-1993, 1295 State
Street, Springfield, MA 01111.
GARY E. WENDLANDT
Executive Vice President and Chief Investment Officer, since 1993; Executive
Vice President, 1992-1993; MassMutual, 1295 State Street, Springfield, MA 01111.
JOSEPH M. ZUBRETSKY
Executive Vice President and Chief Financial Officer, since 1997, MassMutual,
Chief Financial Officer, 1996, HealthSource, Coopers & Lybrand, 1990-1996, 1295
State Street, Springfield, MA 01111.
44
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Policyholders of
Massachusetts Mutual Life Insurance Company
We have audited the accompanying statutory statements of financial position of
Massachusetts Mutual Life Insurance Company as of December 31, 1997 and 1996,
and the related statutory statements of income, changes in policyholders'
contingency reserves, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the statutory
financial statements of Connecticut Mutual Life Insurance Company ("Connecticut
Mutual") for the year ended December 31, 1995, which statements reflect total
revenue and net gain from operations constituting 26% and 22% of the related
Company totals after restatement for the merger of the two companies. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Connecticut
Mutual, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As described more fully in Note 1, these financial statements were prepared in
conformity with statutory accounting practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted by
the Division of Insurance of the Commonwealth of Massachusetts and, for the
pre-merger balances of Connecticut Mutual, the Department of Insurance of the
State of Connecticut (collectively "statutory accounting practices"), which
practices differ from generally accepted accounting principles. The effects on
the financial statements of the variances between the statutory basis of
accounting and generally accepted accounting principles, although not reasonably
determinable at this time, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Massachusetts Mutual Life Insurance Company at December 31, 1997 and 1996, or
the results of its operations or its cash flows for each of the three years in
the period ended December 31, 1997.
In our opinion, based upon our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Massachusetts Mutual Life Insurance Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, on the
statutory basis of accounting described in Note 1.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 6, 1998
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION
December 31,
1997 1996
---- ----
(In Millions)
Assets:
Bonds............................................. $23,890.3 $24,299.3
Common stocks..................................... 354.7 336.6
Mortgage loans.................................... 4,863.7 4,852.8
Real estate....................................... 1,697.7 1,840.9
Other investments................................. 1,963.8 1,425.6
Policy loans...................................... 4,950.4 4,752.3
Cash and short-term investments................... 1,941.2 1,075.4
--------- ---------
39,661.8 38,582.9
Investment and insurance amounts receivable....... 1,064.9 1,102.4
Other assets...................................... 104.8 97.9
--------- ---------
40,831.5 39,783.2
Separate account assets........................... 16,803.1 13,563.5
--------- ---------
$57,634.6 $53,346.7
========= =========
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION, Continued
December 31,
1997 1996
---- ----
(In Millions)
Liabilities:
Policyholders' reserves and funds................. $33,783.2 $33,341.5
Policyholders' dividends.......................... 954.1 885.3
Policyholders' claims and other benefits.......... 353.4 373.8
Federal income taxes.............................. 436.5 440.7
Asset valuation reserve........................... 840.6 689.2
Investment reserves............................... 132.8 208.4
Amounts due on investments puchased and
other liabilities................................ 1,457.9 1,206.1
--------- ---------
37,958.5 37,145.0
Separate account reserves and liabilities......... 16,802.8 13,563.1
--------- ---------
54,761.3 50,708.1
Policyholders' contingency reserves............... 2,873.3 2,638.6
--------- ---------
$57,634.6 $53,346.7
========= =========
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Revenue:
Premium income............................................ $6,764.8 $6,328.6 $5,727.7
Net investment and other income........................... 2,904.4 2,861.1 2,898.4
-------- -------- --------
9,669.2 9,189.7 8,626.1
-------- -------- --------
Benefits and expenses:
Policy benefits and payments.............................. 6,597.3 6,048.2 5,152.2
Addition to policyholder's reserves and funds............. 720.8 854.7 1,205.4
Commissions and operating expenses........................ 766.1 763.5 833.7
State taxes, licenses and fees............................ 81.5 96.4 89.4
Merger restructuring costs................................ - 66.1 44.0
-------- -------- --------
8,165.7 7,828.9 7,324.7
-------- -------- --------
Net gain before federal income taxes and dividends........ 1,503.5 1,360.8 1,301.4
Federal income taxes...................................... 284.4 276.7 206.2
-------- -------- --------
Net gain from operations before dividends................. 1,219.1 1,084.1 1,095.2
Dividends to policyholders................................ 919.5 859.9 819.0
-------- -------- --------
Net gain from operations.................................. 299.6 224.2 276.2
Net realized capital gain (loss).......................... (42.5) 40.3 (85.8)
-------- -------- --------
Net income................................................ $ 257.1 $ 264.5 $ 190.4
======== ======== ========
</TABLE>
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Policyholder's contingency reserves, beginning of year.... $2,638.6 $2,600.9 $2,569.1
-------- -------- --------
Increases (decreases) due to:
Net income............................................... 257.1 264.5 190.4
Net unrealized capital gain (loss)....................... 119.1 (1.7) 88.7
Merger restructuring costs, net of fax................... - - (45.4)
Change in asset valuation and investment reserves........ (76.0) (142.4) (75.6)
Change in prior year policyholders' reserves............. (55.4) (72.2) (108.2)
Change in non-admitted assets and other.................. (10.1) (10.5) (18.1)
-------- -------- --------
234.7 37.7 31.8
-------- -------- --------
Policyholders' contingency reserves, end of year.......... $2,873.3 $2,638.6 $2,600.9
======== ======== ========
</TABLE>
See notes to statutory financial statements.
<PAGE>
Massachusetts Mutual Life Insurance Company
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Operating acitivites:
Net income............................................... $ 257.1 $ 264.5 $ 190.4
Addition to policyholders' reserves and funds,
net of transfers to separate accounts................... 421.3 426.7 575.8
Net realized capital (gain) loss......................... 42.5 (40.3) 85.8
Other changes............................................ (58.1) (232.8) (25.2)
--------- --------- ---------
Net cash provided by operating activities................ 662.8 418.1 826.8
--------- --------- ---------
Investing activities:
Purchases of investments and loans....................... (12,292.7) (10,171.5) (10,364.2)
Sales or maturities of investments and receipts
from repayment of loans................................. 12,545.7 8,539.3 9,671.1
--------- --------- ---------
Net cash provided by (used in) investing activities...... 253.0 (1,632.2) (693.1)
--------- --------- ---------
Financing activities:
Repayments of long-term debt............................. (50.0) (53.3) (46.4)
--------- --------- ---------
Net cash used by financing activities.................... (50.0) (53.3) (46.4)
--------- --------- ---------
Increase (decrease) in cash and short-term investments... 865.8 (1,267.4) 87.3
Cash and short-term investments, beginning of year....... 1,075.4 2,342.8 2,255.5
--------- --------- ---------
Cash and short-term investments, end of year............. $ 1,941.2 $ 1,075.4 $ 2,342.8
========= ========= =========
</TABLE>
See Notes to Statutory Financial Statements.
<PAGE>
Notes To Statutory Financial Statements
Massachusetts Mutual Life Insurance Company ("the Company") is a mutual life
insurance company and as such has no shareholders. The Company's primary
business is individual life insurance, annuity and disability income products
distributed primarily through career agents. The Company also provides a wide
range of pension products and services, as well as investment services to
individuals, corporations and institutions in all 50 states and the District of
Columbia.
On March 1, 1996, the operations of the former Connecticut Mutual Life Insurance
Company ("Connecticut Mutual") were merged into the Company. This merger was
accounted for under the pooling of interests method of accounting. For the
purposes of this presentation, these financial statements reflect historical
amounts giving retroactive effect as if the merger had occurred on January 1,
1995 in conformity with the practices of the National Association of Insurance
Commissioners and the accounting practices prescribed or permitted by the
Division of Insurance of the Commonwealth of Massachusetts. In 1996,
merger-related expenses totaling $66.1 million were recorded in the Statutory
Statement of Income. In 1995, merger-related expenses incurred by Massachusetts
Mutual (the Company prior to the merger) of $44.0 million, were recorded in the
Statutory Statement of Income and the expenses incurred by Connecticut Mutual of
$45.4 million, net of tax, were recorded as a component of changes in
policyholders' contingency reserves, as permitted by each company's regulatory
authority. On the merger date, policyholders' reserves attributable to
disability income contracts were strengthened by $75.0 million, investment
reserves for real estate were increased by $49.8 million and net prepaid pension
assets were increased by $10.4 million with all adjustments reflected as a
change to policyholders' contingency reserves. The separate results of each
company prior to the merger for the year ended December 31, 1995, were as
follows: (a) revenue was $6,443.8 million for Massachusetts Mutual and $2,182.3
million for Connecticut Mutual; (b) net income was $160.7 million for
Massachusetts Mutual and $29.6 million for Connecticut Mutual and (c)
policyholders' contingency reserves increased by $143.7 million for
Massachusetts Mutual and decreased by $112.0 million for Connecticut Mutual.
On March 31, 1996, the Company sold MassMutual Holding Company Two, Inc., a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company (formerly the MML Pension Insurance Company; currently doing business as
"UniCARE"), which comprised the Company's group life and health business, to
WellPoint Health Networks, Inc. The Company received total consideration of
$402.2 million ($340.0 million in cash and $62.2 million in notes receivable)
and recognized a before tax gain of $187.9 million. The Company, pursuant to a
1994 reinsurance agreement, cedes its group life, accident and health business
to UniCARE. The Company's investment in MassMutual Holding Company Two, Inc.
amounted to $187.8 million at December 31, 1995; its gain from operations
included a $41.0 million dividend received from MIRUS in 1995. Additionally,
this investment produced an unrealized gain of $13.9 million in 1995.
1. SUMMARY OF ACCOUNTING PRACTICES
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the statutory accounting practices of the National
Association of Insurance Commissioners ("NAIC") and the accounting practices
prescribed or permitted by the Division of Insurance of the Commonwealth of
Massachusetts and, for the pre-merger balances of Connecticut Mutual, the
Department of Insurance of the State of Connecticut (collectively "statutory
accounting practices"), which practices were at one time also considered to be
in conformity with generally accepted accounting principles ("GAAP").
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs directly related to
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity, interest and withdrawals; (c) bonds are generally carried at
amortized cost whereas GAAP generally requests they be valued at fair value; (d)
deferred income taxes are not provided for book-tax timing differences as would
be required by GAAP, and (e) payments received for universal and variable life
products, variable annuities and investment related products are reported as
premium revenue, whereas under GAAP, these payments would be recorded as
deposits to policyholders' account balances.
The NAIC is currently engaged in an extensive project ("Codification") to codify
statutory accounting principles with a goal of providing a comprehensive guide
of statutory accounting principles for use by insurers in all states. This
comprehensive guide, which has not been approved by the NAIC or any state
insurance department, includes seventy-two Statements of Statutory Accounting
Principles ("SSAPs") and is expected to be effective no earlier than January 1,
1999. The effect of adopting these SSAPs shall be reported as an adjustment to
surplus on the effective date. Management is currently reviewing the impact of
Codification. However, since the SSAPs have not been finalized, the ultimate
impact cannot be determined at this time.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosures of contingent assets and liabilities at the date of the
financial statements. Management must also make estimates and assumptions that
affect the amounts of revenues and expenses during the reporting period. Future
events, including changes in the levels of mortality, morbidity, interest rates
and asset valuations, could cause actual results to differ from the estimates
used in these financial statements.
The following is a description of the Company's principal accounting policies
and practices.
A. Investments
Bonds and stocks are valued in accordance with rules established by the National
Association of Insurance Commissioners. Generally, bonds are valued at amortized
cost, preferred stocks in good standing at cost, and common stocks, except for
unconsolidated subsidiaries, at fair value.
Mortgage loans are valued at unpaid principal less unamortized discount. Real
estate is valued at cost less accumulated depreciation, impairment allowances
and mortgage encumbrances. Encumbrances totaled $14.2 million in 1997 and $27.3
million in 1996. Depreciation on investment real estate is calculated using the
straight-line and constant yield methods.
Policy loans are carried at the outstanding loan balance less amounts unsecured
by the cash surrender value of the policy.
Short-term investments are stated at amortized cost, which approximates fair
value.
Investments in unconsolidated subsidiaries and affiliates, joint ventures and
other forms of partnerships are included in other investments on the Statutory
Statement of Financial Position and are accounted for using the equity method.
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves stabilize the policyholders' contingency
reserves against fluctuations in the value of stocks, as well as declines in the
value of bonds, mortgage loans and real estate investments.
The Interest Maintenance Reserve captures after-tax realized capital gains and
losses which result from changes in the overall level of interest rates for all
types of fixed income investments, as well as other financial instruments,
including financial futures, U.S. Treasury purchase commitments, options,
interest rate swaps, interest rate caps and interest rate floors. These interest
rate related gains and losses are amortized into income using the grouped method
over the remaining life of the investment sold or over the remaining life of the
underlying asset. Net realized after tax capital gains of $95.4 million in 1997,
$73.1 million in 1996, and net realized after tax capital losses of $130.7
million in 1995 were charged to the Interest Maintenance Reserve. Amortization
of the Interest Maintenance Reserve into net investment income amounted to $31.0
million in 1997, $26.9 million in 1996, and $5.0 million in 1995.
Realized capital gains and losses, less taxes, not includable in the Interest
Maintenance Reserve, are recognized in net income. Realized capital gains and
losses are determined using the specific identification method. Unrealized
capital gains and losses are included in policyholders' contingency reserves.
B. Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of pension, variable annuity and
variable life insurance contract holders. Assets consist principally of
marketable securities reported at fair value. Premiums, benefits and expenses of
the separate accounts are reported in the Statutory Statement of Income. The
Company receives administrative and investment advisory fees from these
accounts.
C. Non-admitted Assets
Assets designated as "non-admitted" (principally certain fixed assets,
receivables and Interest Maintenance Reserve, when in a net loss deferral
position) are excluded from the Statutory Statement of Financial Position by an
adjustment to policyholders' contingency reserves.
<PAGE>
Notes To Statutory Financial Statements (Continued)
D. Policyholders' Reserves and Funds
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience and
the 1941, 1958 and 1980 Commissioners' Standard Ordinary mortality tables with
assumed interest rates ranging from 2.5 to 6.0 percent.
Reserves for individual annuities, guaranteed investment contracts and deposit
administration and immediate participation guarantee funds are based on accepted
actuarial methods principally at interest rates ranging from 2.25 to 11.25
percent. Reserves for policies and contracts considered investment contracts
have a carrying value of $8,077.9 million and $9,073.8 million at December 31,
1997 and 1996, respectively (fair value of $8,250.0 million and $9,324.6 million
at December 31, 1997 and 1996, respectively as determined by discounted cash
flow projections). Accident and health policy reserves are generally calculated
using the two-year preliminary term, net level premium and fixed net premium
methods and various morbidity tables.
The Company made certain changes in the valuation of policyholders' reserves of
$55.4 million in 1997 and $72.2 million in 1996. The effects of these changes
were recorded as a decrease to policyholders' contingency reserves.
E. Premium and Related Expense Recognition
Life insurance premium revenue is recognized annually on the anniversary date of
the policy. Annuity premium is recognized when received. Accident and health
premiums are recognized as revenue when due. Commissions and other costs related
to issuance of new policies, maintenance and settlement costs are charged to
current operations when incurred.
F. Policyholders' Dividends
The Board of Directors annually approves dividends to be paid in the following
year. These dividends are allocated to reflect the relative contribution of each
group of policies to policyholders' contingency reserves and consider investment
and mortality experience, expenses and federal income tax charges. The liability
for policyholders' dividends is equal to the estimated amount of dividends to be
paid in the following calendar year.
G. Cash and Short-term Investments
For purposes of the Statutory Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of twelve months or less to
be cash and short-term investments.
2. POLICYHOLDERS' CONTINGENCY RESERVES
Policyholders' contingency reserves represent surplus of the Company as reported
to regulatory authorities and are intended to protect policyholders against
possible adverse experience.
The Company issued surplus notes of $100.0 million at 7 1/2 percent and $250.0
million at 7 5/8 percent in 1994 and 1993, respectively. These notes are
unsecured and subordinate to all present and future indebtedness of the Company,
policy claims and prior claims against the Company as provided by the
Massachusetts General Laws. Issuance was approved by the Commissioner of
Insurance of the Commonwealth of Massachusetts ("the Commissioner").
All payments of interest and principal are subject to the prior approval of the
Commissioner. Sinking fund payments are due as follows: $62.5 million in 2021,
$87.5 million in 2022, $150.0 million in 2023 and $50.0 million in 2024.
Interest on the notes issued in 1994 is scheduled to be paid on March 1 and
September 1 of each year, to holders of record on the preceding February 15 or
August 15, respectively. Interest on the notes issued in 1993 is scheduled to be
paid on May 15 and November 15 of each year, to holders of record on the
preceding May 1 or November 1, respectively. Interest expense is not recorded
until approval for payment is received from the Commissioner. Interest of $26.6
million was approved and paid in 1997, 1996 and 1995.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The proceeds of the notes, less a $28.3 million reserve in 1997, and a $32.2
million reserve in 1996 for contingencies associated with the issuance of the
notes, are recorded as a component of the Company's policyholders' contingency
reserves as approved by the Commissioner. These reserves, as permitted by the
Division of Insurance, are included in investment reserves on the Statutory
Statement of Financial Position.
3. EMPLOYEE BENEFIT PLANS
The Company's employee benefit plans include plans in place for the employees of
Massachusetts Mutual and Connecticut Mutual prior to the merger. Employees
previously covered by the Connecticut Mutual pension plans will continue
coverage under these plans. All other employees, including employees hired after
the merger date, will be covered by the Massachusetts Mutual benefit plans.
A. Pension
The Company has two non-contributory defined benefit plans covering
substantially all of its employees. One plan includes employees previously
employed by Connecticut Mutual; the other includes all other eligible employees.
Benefits are based on the employees' years of service, compensation during the
last five years of employment and estimated social security retirement benefits.
The Company accounts for these plans following Financial Accounting Standards
Board Statement No. 87, "Employers' Accounting for Pensions." Accordingly, as
permitted by the Massachusetts Division of Insurance, the Company has recognized
a pension asset of $157.4 million and $97.2 million at December 31, 1997 and
1996, respectively. On the merger date, the accounting for Connecticut Mutual
pension plans was conformed to the Company's policy of recording pension plan
assets and liabilities, resulting in a $10.4 million increase in policyholders'
contingency reserves. Company policy is to fund pension costs in accordance with
the requirements of the Employee Retirement Income Security Act of 1974 and,
based on such requirements, no funding was required for the years ended December
31, 1997, 1996 and 1995. The assets of the plans are invested in the Company's
general account and separate accounts.
The benefit status of the defined benefit plans as of December 31 is as follows:
1997 1996
---- ----
(In Millions)
Accumulated benefit obligation $ 663.1 $ 611.5
Vested benefit obligation 653.8 606.5
Projected benefit obligation 713.9 665.5
Plan assets at fair value 1,154.2 1,201.7
The following assumptions were used in determining the actuarial present value
of both the accumulated and projected benefit obligations.
MassMutual Connecticut Mutual
Plan Plan
---- ----
Discount rate - 1997 7.25% 7.25%
Discount rate - 1996 7.75 7.75
Increase in future compensation levels 4.00 5.00
Long-term rate of return on assets 10.00 9.00
In 1997, there was a significant reduction in plan participants in the
Connecticut Mutual Plan which resulted in recognition of a pension plan
curtailment gain of $10.7 million.
As a result of the sale of Mirus Life Insurance Company, there was a significant
reduction in plan participants which resulted in recognition of a pension plan
curtailment gain of $15.3 million in 1996.
The Company also has defined contribution plans for employees and agents. The
expense credited to operations for all pension plans is $38.9 million in 1997,
$32.7 million in 1996 and $10.9 million in 1995.
<PAGE>
Notes To Statutory Financial Statements (Continued)
B. Life and Health
Certain life and health insurance benefits are provided to retired employees and
agents through group insurance contracts. Substantially all of the Company's
employees may become eligible for these benefits if they reach retirement age
while working for the Company. The Company adopted the National Association of
Insurance Commissioners' accounting standard for post-retirement life and health
benefit costs, requiring these benefits to be accounted for using the accrual
method for employees and agents eligible to retire and current retirees.
The following assumptions were used in determining the accumulated
postretirement benefit liability.
MassMutual Connecticut Mutual
Plan Plan
---- ----
Discount - 1997 7.25% 7.25%
Discount - 1996 7.75 7.75
Assumed increases in medical cost
rates in the first year 6.25 - 6.75 9.50
declining to 4.75 5.00
within 5 years 5 years
The initial transition obligation of $137.9 million is being amortized over
twenty years through 2012. At December 31, 1997 and 1996, the net unfunded
accumulated benefit obligation was $124.2 million and $124.1 million,
respectively, for employees and agents eligible to retire or currently retired
and $34.7 million and $33.8 million, respectively, for participants not eligible
to retire. A Retired Lives Reserve Trust was funded to pay life insurance
premiums for certain retired employees. Trust assets available for benefits were
$21.7 million and $23.0 million at December 31, 1997 and 1996, respectively.
As a result of the sale of Mirus Life Insurance Company, there was a significant
reduction in plan participants which resulted in recognition of a life and
health plan curtailment loss of $13.9 million in 1996.
The expense for 1997, 1996 and 1995 was $16.5 million, $17.6 million, and $22.9
million, respectively. A one percent increase in the annual assumed increase in
medical cost rates would increase the 1997 accumulated postretirement benefit
liability and benefit expense by $10.9 million and $1.4 million, respectively.
4. RELATED PARTY TRANSACTIONS
Pursuant to two 1994 reinsurance agreements with Mirus Life Insurance Company
(Mirus) whereby the Company assumed all of the single premium immediate annuity
business written by Mirus and ceded all of its group life, accident and health
business to Mirus. A gain from operations of this business was reflected in 1995
as a $41.0 million dividend received from Mirus, which was recorded as net
investment income on the Statutory Statement of Income. As previously discussed,
on March 31, 1996, the Company sold MassMutual Holding Company Two, Inc. a
wholly-owned subsidiary, and its subsidiaries, including Mirus Life Insurance
Company to WellPoint Health Networks, Inc.
The Company has a modified coinsurance quota-share reinsurance agreement with a
wholly-owned subsidiary, C.M. Life Insurance Company, whereby the Company
assumes 75% of the premiums on certain universal life policies issued by C.M.
Life. The Company pays a stipulated expense allowance, death and surrender
benefits, and a modified coinsurance adjustment. Reserves for payment of future
benefits are retained by C.M. Life.
5. FEDERAL INCOME TAXES
Provision for federal income taxes is based upon the Company's best estimate of
its current tax liability. No deferred tax effect is recognized for temporary
differences that may exist between financial reporting and taxable income.
Accordingly, the reporting of equity tax (essentially a reduction in the
deduction for policyholder dividends) and miscellaneous temporary differences,
such as reserves, acquisition costs and restructuring costs, resulted in
effective tax rates which differ from the statutory tax rate.
The Internal Revenue Service has completed examining the Company's income tax
returns through the year 1992 for Massachusetts Mutual and 1991 for Connecticut
Mutual, and is currently examining Massachusetts Mutual for the years 1993 and
1994, and Connecticut Mutual for the years 1992 through 1995. The Company
believes any adjustments resulting from such examinations will not materially
affect its financial statements.
<PAGE>
Notes to Statutory Financial Statements (Continued)
Components of the formula authorized by the Internal Revenue Service for
determining deductible policyholder dividends have not been finalized for 1997
or 1996. The Company records the estimated effects of anticipated revisions in
the Statutory Statement of Income.
The Company plans to file its 1997 federal income tax return on a consolidated
basis with its life and non-life affiliates with the exception of C.M. Life
Insurance Company. The Company and its eligible life and non-life affiliates
are subject to a written tax allocation agreement, which allocates the group's
consolidated tax liability for payment purposes. Generally, the agreement
provides that members with losses shall be compensated for the use of their
losses and credits by other members.
The Company made federal tax payments of $353.4 million in 1997, $330.7 million
in 1996 and $147.3 million in 1995.
6. INVESTMENTS
The Company maintains a diversified investment portfolio. Investment policies
limit concentration in any asset class, geographic region, industry group,
economic characteristic, investment quality or individual investment. In the
normal course of business, the Company enters into commitments to purchase
privately placed bonds and to issue mortgage loans.
A. Bonds
The carrying value and estimated fair value of bonds are as follows:
December 31, 1997
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(In Millions)
U.S. Treasury securities $ 6,241.0 $ 470.5 $10.3 $ 6,701.2
and obligations of U.S.
government corporations
and agencies
Debt securities issued by
foreign governments 83.5 4.4 3.0 84.9
Mortgage-backed securities 3,390.8 187.9 9.0 3,569.7
State and local governments 361.9 23.9 .6 385.2
Corporate debt securities 12,148.9 765.2 46.9 12,867.2
Utilities 871.8 100.1 2.2 969.7
Affiliates 792.4 2.8 1.0 794.2
--------- -------- ----- ---------
TOTAL $23,890.3 $1,554.8 $73.0 $25,372.1
========= ======== ===== =========
December 31, 1996
-----------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(In Millions)
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 8,042.6 $ 344.0 $ 56.3 $ 8,330.3
Debt securities issued by 95.2 10.2 .5 104.9
foreign governments
Mortgage-backed securities 3,014.0 119.0 43.3 3,089.6
State and local governments 173.2 13.1 2.1 184.2
Corporate debt securities 11,675.2 528.0 133.3 12,069.9
Utilities 975.0 87.0 18.5 1,043.5
Affiliates 324.1 4.3 3.5 324.9
--------- -------- ------ ---------
TOTAL $24,299.3 $1,105.6 $257.5 $25,147.3
========= ======== ====== =========
<PAGE>
Notes To Statutory Financial Statements (Continued)
The carrying value and estimated fair value of bonds at December 31, 1997 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Estimated
Carrying Fair
Value Value
----- -----
(In Millions)
Due in one year or less $ 519.7 $ 523.0
Due after one year through five years 3,972.1 4,104.6
Due after five years through ten years 7,423.3 7,838.1
Due after ten years 5,254.9 5,888.1
--------- ---------
17,170.0 18,353.8
Mortgage-backed securities, including
securities guaranteed by the U.S.
Government 6,720.3 7,018.3
--------- ---------
TOTAL $23,890.3 $25,372.1
========= =========
Proceeds from sales of investments in bonds were $11,427.8 million during 1997,
$6,390.7 million during 1996 and $8,068.8 million during 1995. Gross capital
gains of $200.7 million in 1997, $188.8 million in 1996 and $255.5 million in
1995 and gross capital losses of $68.8 million in 1997, $255.5 million in 1996
and $67.1 million in 1995 were realized on those sales, portions of which were
included in the Interest Maintenance Reserve. The estimated fair value of
non-publicly traded bonds is determined by the Company using a pricing matrix.
B. Stocks
Preferred stocks in good standing had fair values of $145.5 million in 1997 and
$150.8 million in 1996, using a pricing matrix for non-publicly traded stocks
and quoted market prices for publicly traded stocks. Common stocks, except for
unconsolidated subsidiaries, had a cost of $250.3 million in 1997 and $249.2
million in 1996.
C. Mortgages
The fair value of mortgage loans, as determined from a pricing matrix for
performing loans and the estimated underlying real estate value for
non-performing loans, approximated carrying value.
The Company had restructured loans with book values of $202.3 million, and
$383.5 million at December 31, 1997 and 1996, respectively. These loans
typically have been modified to defer a portion of the contracted interest
payments to future periods. Interest deferred to future periods totaled $5.1
million in 1997, $2.2 million in 1996 and $2.5 million in 1995.
D. Other
The carrying value of investments which were non-income producing for the
preceding twelve months was $5.7 million and $23.1 million at December 31, 1997
and 1996, respectively. The Company made voluntary contributions to the Asset
Valuation Reserve of $6.8 million 1996. No additional voluntary contribution to
the Asset Valuation Reserve was made in 1997.
It is not practicable to determine the fair value of policy loans as they do not
have a stated maturity.
7. PORTFOLIO RISK MANAGEMENT
The Company manages its investment risks, primarily to reduce interest rate and
duration imbalances determined in asset/liability analyses. The fair values of
these instruments, described below, which are not recorded in the financial
statements, are based upon market prices or prices obtained from brokers. The
Company does not hold or issue these financial instruments for trading purposes.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The notional amounts described do not represent amounts exchanged by the parties
and, thus, are not a measure of the exposure of the Company. The amounts
exchanged are calculated on the basis of the notional amounts and the other
terms of the instruments, which relate to interest rates, exchange rates,
security prices or financial or other indexes.
The Company enters into financial futures contracts for the purpose of managing
interest rate exposure. Margin requirements are met with the deposit of
securities. Futures contracts are generally settled with offsetting
transactions. Gains and losses on financial futures contracts are recorded when
the contract is closed and amortized through the Interest Maintenance Reserve
over the remaining life of the underlying asset. As of December 31, 1997 and
1996, the Company did not have any open financial futures contracts.
The Company utilizes interest rate swap agreements, options, and purchased caps
and floors to reduce interest rate exposures arising from mismatches between
assets and liabilities and to modify portfolio profiles to manage other risks
identified. Under interest rate swaps, the Company agrees to an exchange, at
specified intervals, between streams of variable rate and fixed rate interest
payments calculated by reference to an agreed-upon notional principal amount.
Net amounts receivable and payable are accrued as adjustments to interest income
and included in investment and insurance amounts receivable on the Statutory
Statement of Financial Position. Gains and losses realized on the termination of
contracts are amortized through the Interest Maintenance Reserve over the
remaining life of the associated contract. At December 31, 1997 and 1996, the
Company had swaps with notional amounts of $3,220.2 million and $2,090.3
million, respectively. The fair values of these instruments were $20.9 million
at December 31, 1997 and $14.8 million at December 31, 1996.
Options grant the purchaser the right to buy or sell a security or enter into a
derivative transaction at a stated price within a stated period. The Company's
option contracts have terms of up to fifteen years. The amounts paid for options
purchased are included in other investments on the Statutory Statement of
Financial Position. Gains and losses on these contracts are recorded at the
expiration or termination date and are amortized through the Interest
Maintenance Reserve over the remaining life of the option contract. At December
31, 1997 and 1996, the Company had option contracts with notional amounts of
$5,388.2 million and $1,928.4 million, respectively. The Company's credit risk
exposure was limited to the unamortized costs of $59.0 million and $18.1
million, which had fair values of $99.6 million and $19.2 million at December
31, 1997 and 1996, respectively.
Interest rate cap agreements grant the purchaser the right to receive the excess
of a referenced interest rate over a given rate calculated by reference to an
agreed upon notional amount. Interest rate floor agreements grant the purchaser
the right to receive the excess of a given rate over a referenced interest rate
calculated by reference to an agreed upon notional amount. Amounts paid for
interest rate caps and floors are amortized into interest income over the life
of the asset on a straight-line basis. Unamortized costs are included in other
investments on the Statutory Statement of Financial Position. Amounts receivable
and payable are accrued as adjustments to interest income and included in the
Statutory Statement of Financial Position as investment and insurance amounts
receivable. Gains and losses on these contracts, including any unamortized cost,
are recognized upon termination and are amortized through the Interest
Maintenance Reserve over the remaining life of the associated cap or floor
agreement. At December 31, 1997 and 1996, the company had agreements with
notional amounts of $3,348.6 million and $3,859.6 million, respectively. The
Company's credit risk exposure on these agreements is limited to the unamortized
costs of $18.2 million and $22.0 million at December 31, 1997 and 1996,
respectively. The fair values of these instruments were $23.4 million and $15.2
million at December 31, 1997 and 1996, respectively.
The Company utilizes asset swap agreements to reduce exposures, such as currency
risk and prepayment risk, built into certain assets acquired. Cross-currency
interest rate swaps allow investment in foreign currencies, increasing access to
additional investment opportunities, while limiting foreign exchange risk. The
net cash flows from asset and currency swaps are recognized as adjustments to
the underlying assets' interest income. Gains and losses realized on the
termination of these contracts adjusts the bases of the underlying asset.
Notional amounts relating to asset and currency swaps totaled $225.6 million and
$364.7 million at December 31, 1997 and 1996, respectively. The fair values of
these instruments were an unrecognized loss of $1.7 million at December 31, 1997
and an unrecognized gain of $7.8 million at December 31, 1996.
<PAGE>
Notes To Statutory Financial Statements (Continued)
Equity swap agreements are utilized to hedge exposure to market risk on public
and private equity positions held in the Company's investment portfolio. Under
equity swaps, the Company agrees to an exchange, at points in time specified in
each contract, between streams of variable or fixed rate interest payments and
the change in an underlying index, equity or basket of equities. The change in
the underlying item is calculated by reference to the level of such item
specified in the agreement. Net amounts receivable and payable are accrued as
adjustments to interest income and included in investment and insurance amounts
receivable on the Statutory Statement of Financial Position. Changes in the
value of these contracts are recorded as realized gains and losses in the
Statutory Statement of Income when contracts are closed. At December 31, 1997
and 1996, the Company had equity swap contracts with notional amounts of $160.0
million and $149.2 million, respectively. The fair values of these instruments
were an unrealized loss of $5.1 million at December 31, 1997 and an unrealized
gain of $11.9 million at December 31, 1996.
The Company enters into forward U.S. Treasury commitments for the purpose of
managing interest rate exposure. The Company generally does not take delivery on
forward commitments. These commitments are instead settled with offsetting
transactions. Gains and losses on forward commitments are recorded when the
commitment is closed and amortized through the Interest Maintenance Reserve over
the remaining life of the asset. At December 31, 1997 and 1996, the Company had
U. S. Treasury purchase commitments which will settle during the following year
with contractual amounts of $1,100.7 million and $1,639.4 million with fair
values of $1,117.6 million and $1,627.4 million, respectively including net
unrealized gains of $16.9 million at December 31, 1997 and net unrealized losses
of $12.0 million at December 31, 1996.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to derivative financial instruments. This exposure is limited
to contracts with a positive fair value. The amounts at risk in a net gain
position were $146.7 million and $53.9 million at December 31, 1997 and 1996,
respectively. The Company monitors exposure to ensure counterparties are credit
worthy and concentration of exposure is minimized. Additionally, contingent
collateral positions have been obtained with counterparties when considered
prudent.
8. REINSURANCE
The Company cedes all of its group life and health business to UniCARE and has
other reinsurance agreements with other insurance companies in the normal course
of business. Premiums, benefits to policyholders and provisions for future
benefits are stated net of reinsurance. The Company remains liable to the
insured for the payment of benefits if the reinsurer cannot meet its obligations
under the reinsurance agreements. Premiums ceded were $294.6 million in 1997,
$793.5 million in 1996 and $904.1 million in 1995.
9. LIQUIDITY
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1997 are illustrated below:
(In Millions)
Total policyholders' reserves and funds and
separate account liabilities $50,804.2
Not subject to discretionary withdrawal (5,283.7)
Policy loans (4,950.4)
---------
Subject to discretionary withdrawal $40,570.1
=========
Total invested assets, including separate $56,464.7
Policy loans and other invested assets (14,823.3)
---------
Marketable investments $41,641.4
=========
10. BUSINESS RISKS AND CONTINGENCIES
The Company is subject to insurance guaranty fund laws in the states in which it
does business. These laws assess insurance companies amounts to be used to pay
benefits to policyholders and claimants of insolvent insurance companies. Many
states allow these assessments to be credited against future premium taxes. The
Company believes such assessments in excess of amounts accrued will not
materially affect its financial position, results of operations or liquidity. In
1997 and 1996, the Company elected not to admit $21.4 million and $15.3 million,
respectively, of guaranty fund premium tax offset receivables relating to prior
assessments.
<PAGE>
Notes To Statutory Financial Statements (Continued)
The Company is involved in litigation arising in and out of the normal course of
its business. Management intends to defend these actions vigorously. While the
outcome of litigation cannot be foreseen with certainty, it is the opinion of
management, after consultation with legal counsel, that the ultimate resolution
of these matters will not materially affect its financial position, results of
operations or liquidity.
11. RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.
12. SUBSIDIARIES AND AFFILIATED COMPANIES
A summary of ownership and relationship of the Company and its subsidiaries and
affiliated companies as of December 31, 1997 is illustrated below. The Company
provides management or advisory services to these companies. Subsidiaries are
wholly-owned, except as noted.
Parent
- ------
Massachusetts Mutual Life Insurance Company
Subsidiaries of Massachusetts Mutual Life Insurance Company
- -----------------------------------------------------------
C.M. Assurance Company
C.M. Benefit Insurance Company
C.M. Life Insurance Company
MassMutual Holding Company
MassMutual Holding Company Two, Inc. (Sold in March 1996)
MassMutual of Ireland, Limited
MML Bay State Life Insurance Company
MML Distributors, LLC
Subsidiaries of MassMutual Holding Company
------------------------------------------
GR Phelps, Inc.
MassMutual Holding Trust I
MassMutual Holding Trust II
MassMutual Holding MSC, Inc.
MassMutual International, Inc.
MassMutual Reinsurance Bermuda (Sold in December 1996)
MML Investor Services, Inc.
State House One (Liquidated in December 1996)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation -- 98.5%
Charter Oak Capital Management, Inc. -- 80.0%
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation -- 84.8%
Oppenheimer Acquisition Corporation -- 88.55%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc. -- (Liquidated in December 1997)
CM International, Inc.
CM Property Management, Inc. -- (Liquidated in December 1997)
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
<PAGE>
Notes To Statutory Financial Statements (Continued)
Subsidiaries of MassMutual International
----------------------------------------
Compensa de Seguros de Vida S.A. -- 33.5%
MassLife Seguros de Vida (Argentina) S. A.
MassMutual International (Bermuda) Ltd.
Mass Seguros de Vida (Chile) S. A. -- 33.5%
MassMutual International (Luxemburg) S. A.
MassMutual Holding MSC, Incorporated
MassMutual/Carlson CBO N. V. -- 100%
MassMutual Corporate Value Limited -- 46%
9048 -- 5434 Quebec, Inc.
Affiliates of Massachusetts Mutual Life Insurance Company
- ---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF FINANCIAL POSITION
(Unaudited)
March 31, December 31,
1998 1997
---------- ----------
(In Millions)
Assets:
Bonds $24,417.1 $23,890.3
Common stocks 349.3 354.7
Mortgage loans 4,967.1 4,863.7
Real estate 1,749.9 1,697.7
Other investments 2,166.4 1,963.8
Policy loans 5,003.8 4,950.4
Cash and short-term investments 1,847.3 1,941.2
--------- ---------
Total invested assets 40,500.9 39,661.8
Investment and insurance amounts receivable 1,043.6 1,064.9
Other assets 109.6 104.8
--------- ---------
41,654.1 40,831.5
Separate account assets 18,467.1 16,803.1
--------- ---------
$60,121.2 $57,634.6
========= =========
See notes to statutory financial statements.
1
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF FINANCIAL POSITION, continued
(Unaudited)
March 31, December 31,
1998 1997
---------- ----------
(In Millions)
Liabilities:
Policyholders' reserves and funds $33,858.6 $33,783.2
Policyholders' dividends 960.0 954.1
Policyholders' claims and other benefits 363.2 353.4
Federal income taxes 577.0 436.5
Asset valuation reserve 890.6 840.6
Investment reserves 135.6 132.8
Amounts due on investments purchased and
other liabilities 1,866.6 1,457.9
--------- ---------
38,651.6 37,958.5
Separate account reserves and liabilities 18,466.5 16,802.8
--------- ---------
57,118.1 54,761.3
Policyholders' contingency reserves 3,003.1 2,873.3
--------- ---------
$60,121.2 $57,634.6
========= =========
See notes to statutory financial statements.
2
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF INCOME
(Unaudited)
March 31, March 31,
1998 1997
---- ----
(In Millions)
Revenue:
Premium income $ 1,769.3 $ 1,625.2
Net investment 730.9 701.8
Fees and other income 6.1 8.6
--------- ---------
2,506.3 2,335.6
--------- ---------
Benefits and expenses:
Policy benefits and payments 1,630.9 1,584.0
Addition to policyholders' reserves and funds 287.1 187.0
Commissions 68.0 84.8
Operating expenses 105.1 80.1
State taxes, licenses and fees 30.4 19.0
--------- ---------
2,121.5 1,954.9
--------- ---------
Net gain before federal income taxes and dividends 384.8 380.7
Federal income taxes 49.7 85.0
--------- ---------
Net gain from operations before dividends 335.1 295.7
Dividends to policyholders 226.0 212.3
--------- ---------
Net gain from operations 109.1 83.4
Net realized capital gain (loss) 1.5 (16.9)
--------- ---------
Net income $ 110.6 $ 66.5
========= =========
See notes to statutory financial statements.
3
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF CHANGES
IN POLICYHOLDERS' CONTINGENCY RESERVES
(Unaudited)
Three months ended
March 31,
1998 1997
---- ----
(In Millions)
Policyholders' contingency reserves, beginning
of year $2,873.3 $2,638.6
-------- --------
Increases (decreases) due to:
Net income 110.6 66.5
Net unrealized capital gain 75.8 2.2
Change in asset valuation and investment reserves (52.8) (10.3)
Change in prior year policyholders' reserves 0.5 0.4
Change in non-admitted assets and other (4.3) (6.0)
-------- --------
Policyholders' contingency reserves, end of period $3,003.1 $2,691.4
======== ========
See notes to statutory financial statements.
4
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the Periods Ending
March 31,
1998 1997
-------- --------
(In Millions)
Operating activities:
<S> <C> <C>
Net income $ 110.6 $ 66.5
Addition to policyholders' reserves and funds,
net of transfers to separate accounts 85.2 34.1
Net realized capital (gain) loss (1.5) 16.9
Change in federal income taxes payable 140.5 4.9
Other changes 30.8 (10.4)
---------- ----------
Net cash provided by operating activities 365.6 112.0
---------- ----------
Investing activities:
Purchases of investments and loans (4,380.7) (4,062.9)
Sales or maturities of investments and receipts
from repayment of loans 3,921.2 4,069.5
---------- ----------
Net cash provided by (used in) investing activities (459.5) 6.6
---------- ----------
Increase (decrease) in cash and short-term investments (93.9) 118.6
Cash and short-term investments, beginning of year 1,941.2 1,075.4
---------- ----------
Cash and short-term investments, end of year $ 1,847.3 $ 1,194.0
========== ==========
</TABLE>
See notes to statutory financial statements.
5
<PAGE>
NOTES TO STATUTORY FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim statutory financial statements of Massachusetts
Mutual Life Insurance Company (the "Company"), except as to form, have been
prepared in conformity with the statutory accounting practices of the
National Association of Insurance Commissioners and the accounting practices
prescribed or permitted by the Division of Insurance of the Commonwealth of
Massachusetts ("Division of Insurance").
The accompanying statutory financial statements are different in some
respects from GAAP financial statements. The more significant differences are
as follows: (a) acquisition costs, such as commissions and other costs
directly related to acquiring new business, are charged to current operations
as incurred, whereas GAAP would require these expenses to be capitalized and
recognized over the life of the policies; (b) policy reserves are based upon
statutory mortality and interest requirements without consideration of
withdrawals, whereas GAAP reserves would be based upon reasonably
conservative estimates of mortality, morbidity, interest and withdrawals; (c)
bonds are generally carried at amortized cost whereas GAAP generally requires
they be valued at fair value; (d) deferred income taxes are not provided for
book-tax timing differences as would be required by GAAP; and (e) payments
received for universal and variable life products, variable annuities and
investment related products are reported as premium revenue, whereas under
GAAP, these payments would be recorded as deposits to policyholders' account
balances.
The 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 balance as of March 31, 1998 reflects the year-to-date
activity and a pro rata share of the annual contribution or amortization. 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. 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, 1998 and
December 31, 1997 is based on the dividend scales approved for those periods
in October 1997 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.
4. New Accounting Pronouncements
The NAIC is currently engaged in an extensive project to codify statutory
accounting ("Codification") principles with a goal of providing a
comprehensive guide of statutory accounting principles for use by insurers in
all states. This comprehensive guide, which has been approved by the NAIC,
but must be adopted by the Division of Insurance before the Company must
comply with its provisions, includes seventy two Statements of Statutory
Accounting Principles ("SSAPs"). At this time, it is uncertain when or if the
Division of Insurance will adopt Codification, however, if adopted the
effective date is expected to be no earlier than January 1, 1999. Management
is currently reviewing the impact of Codification.
6
