<PAGE>
SECURITIES AND EXCHANGE COMMISSION 33-79750
Washington, DC 20549
------------
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 3
Under
The Securities Act of 1933
--------------------------
MML BAY STATE LIFE INSURANCE COMPANY
------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 43-0581430
------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
63
---------------------------------
(Primary Standard Industrial Classification Code Number)
1295 State Street
Springfield, Massachusetts 01111
--------------------------------
(413)744-8441
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
Thomas J. Finnegan, Jr.
Vice President, Secretary and Associate General Counsel
MML Bay State Life Insurance Company
Springfield, MA 01111
(413)744-8891
(Name, address and telephone number of agent for service of process)
-------------------------------------------
Approximate date of commencement
of proposed sale to the public: May 1, 1997
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933
check the following box. [X]
2
<PAGE>
PROSPECTUS
May 1, 1997
MML Bay State Life Insurance Company
Fixed Account with Market Value Adjustment
Offered through OppenheimerFunds LifeTrust Variable Annuity
This prospectus (the "Prospectus") describes MML Bay State Life Insurance
Company's ("MML Bay State" or the "Company") Fixed Account (the "Fixed Account")
with Market Value Adjustment. The Fixed Account is available for use with the
OppenheimerFunds LifeTrust Variable Annuity Contract (the "Contract") issued by
MML Bay State. The Fixed Account constitutes an account to which a Contract
Owner may allocate purchase payments or Accumulated Value in accordance with the
Contract's transfer rules. (For a discussion of the transfer restrictions
applicable to the Contract, please consult the Contract prospectus). Since the
Fixed Account is available only through the Contract, an investor should
carefully review the discussion of the Contract contained in that prospectus.
The focus of this Prospectus is limited to the Fixed Account's operations and
features.
MML Bay State guarantees specified rates of interest for amounts allocated to
the Fixed Account for specified periods of time. The interest rate stipulated
for a particular period (the Guaranteed Rate) is an annual effective yield.
Additionally, although Guaranteed Rates will fluctuate, they will never go below
3%. MML Bay State's general account assets, including amounts allocated to the
Fixed Account, are available to meet the guarantees associated with the Fixed
Account. These assets are chargeable with liabilities arising out of other
businesses of the Company. Purchase payments and transfers of Accumulated Value
may be made among the Fixed Account and the Divisions of MML Bay State Variable
Annuity Separate Account 1 (the "Separate Account").
Amounts taken from the Fixed Account by partial or full redemption, received
from payment of a death benefit following the death of the Contract Owner who is
not the annuitant, and transfers made prior to an Expiration Date are subject to
a Market Value Adjustment. Therefore a Contract Owner may experience a negative
investment return.
The annuity benefits available under the Contract may be either fixed or
variable amounts or a combination of both. The Accumulated Value prior to
maturity and the amount of any variable annuity payments thereafter will vary
with the investment performance of the Divisions selected and the amounts
allocated to the Fixed Account.
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 PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE PROSPECTUSES OF MML BAY STATE'S
OPPENHEIMERFUNDS LIFETRUST VARIABLE ANNUITY, MML SERIES INVESTMENT FUND, AND
OPPENHEIMER VARIABLE ACCOUNT FUNDS.
MML Bay State Life Insurance Company
1295 State Street
Springfield, MA 01111
(413) 744-8441
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section
- -------
<S> <C>
Glossary .................................................................... 3
I. Company and Product Description ...................................... 4
MML Bay State ........................................................ 4
Product Description .................................................. 4
The Fixed Account and the Market Value Adjustment Feature ............ 4
Market Value Adjustment .............................................. 4
Accumulation Period of a Contract .................................... 5
Establishment of the Guaranteed Rate ................................. 6
The MVA's Applicability on Redemptions ............................... 6
II. Investments by MML Bay State ......................................... 6
III. Distribution of Contracts ............................................ 6
IV. Federal Taxation Discussion .......................................... 7
V. Accounting Practices ................................................. 7
VI. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................ 7
General .............................................................. 7
Results of Operations ................................................ 7
Statement of Financial Position ...................................... 10
Liquidity and Capital Resources ...................................... 10
Investments .......................................................... 10
VII. MML Bay State & MassMutal -- Description of the Business
VIII. Directors and Officers of MML Bay State .............................. 12
IX. Executive Compensation ............................................... 13
X. Experts, Legal Proceedings and Additional Available Information ...... 13
XI. Selected Historical Financial Data ................................... 14
Audited Statutory Financial Statements................................ 16
</TABLE>
2
<PAGE>
Glossary
As used in this Prospectus, the following terms mean:
Accumulated Amount: For each amount credited to a Segment of the Fixed Account
the Accumulated Amount on any date is the amount credited to the Segment
accumulated to that date at the Guaranteed Rate for that amount.
Accumulated Value: The value of a Contract on or prior to the Maturity Date
equal to the Variable Value plus the Fixed Value.
Accumulation Period: The period prior to the Maturity Date, during the lifetime
of the Annuitant and Owner.
Accumulation Unit: A unit of measurement used in determining the value of
amounts credited to a Contract in a Division of the Separate Account on or prior
to the Maturity Date.
Annuitant: The person on whose life the Contract is issued.
Beneficiary: The person(s) or entity(ies) designated by the Contract Owner to
receive a death benefit under the Contract, if any, upon the death of the
Contract Owner or the Annuitant.
Cash Redemption Value: The value of a Contract which a Contract Owner will
receive if the Contract is redeemed, equal to Accumulated Value less
Administrative Charges, Sales Charges, premium taxes, and a Market Value
Adjustment, if any such charges are applicable.
Contract: The OppenheimerFunds LifeTrust Variable Annuity Contract issued by MML
Bay State.
Contract Owner(s): The owner (and in some instances the owners) of a Contract.
Contract Owners may include the Annuitant, an employer, a trust, or any entity
specified in an employee benefit plan.
Division(s): A sub-account of the Separate Account, the assets of which consist
of shares of a specified Fund of either MML Series Investment Fund or
Oppenheimer Variable Account Funds.
Expiration Date: The Date on which the Guarantee Period for an Accumulated
Amount ends.
Fixed Account: An account which pays interest at a Guaranteed Rate. If such
amounts are withdrawn prior to the end of the Guarantee Period, a Market Value
Adjustment will be made. Assets attributable to the Fixed Account are not part
of the assets which are allocated to the Divisions of the Separate Account.
Fixed Value: On any date, the Fixed Value of the Contract is the sum of the
Accumulated Amounts credited to all Segments of the Fixed Account.
Funds: The separate series of shares of Oppenheimer Variable Account Funds and
MML Series Investment Fund, both of which are open-end, diversified management
investment companies, registered with the Securities and Exchange Commission, in
which the Divisions of the Separate Account invest.
Guarantee Period: The period for which interest accrues at the Guaranteed Rate
on an amount credited to a Segment. Guarantee Periods range in whole-year
periods from one to ten years.
Guaranteed Rate: The effective annual interest rate MML Bay State uses to accrue
interest on an amount credited to a Segment as of a certain date. Guarantee
Rates are level for the entire Guarantee Period and are fixed at the time an
amount is credited to the Segment.
Market Value Adjustment ("MVA"): An adjustment made to the amount that the
Contract Owner will receive if money is taken from an Accumulated Amount prior
to the Expiration Date of its Guarantee Period.
Maturity Date: The date designated by the Contract Owner as of which Variable
Monthly Income payments (or, if elected, Fixed Income payments or a payment in
one sum) will begin. This date may be no later than the Annuitant's 90th
birthday (unless an earlier date is required by law.)
Purchase Payment: An amount paid to MML Bay State by, or on behalf of, the
Annuitant.
Segment: All Guarantee Periods of a given length constitute a Segment. Segments
for all Guarantee Periods may not be available at one time.
Service Center: The office at which the administration of the Contract occurs.
Valuation Date: A valuation date is any date on which the net asset value of the
shares of the Funds is determined. Generally, this will be any date on which the
New York Stock Exchange (or its successor) is open for trading.
Valuation Period: The period of time from the end of one Valuation Date
to the end of the next Valuation Date.
Valuation Time: The time of the close of the New York Stock Exchange (or its
successor) (currently 4:00 p.m. New York time) on a Valuation Date. All actions
to be performed on a Valuation Date will be performed as of the Valuation Time.
Variable Monthly Income: A benefit providing for monthly payments that vary
with, and reflect the investment performance of, one or more Divisions of the
Separate Account.
Variable Value: On any date, the Variable Value of a Contract is the sum of the
values of the Accumulation Units credited to each Division of the Separate
Account. The value in each Division is equal to the Accumulation Unit Value
multiplied by the number of units in that Division You own.
You or Your refers to the Contract Owner.
3
<PAGE>
I. Company and
Product Description
MML Bay State
MML Bay State is a life insurance company and a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company ("MassMutual"), (the "Parent").
Organized in 1894 under the laws of the State of Missouri, the Company (formerly
known as Western Life Insurance Company of America) was purchased in 1981 by the
Parent. The Company is an issuer of variable life and variable annuity
contracts. The Company currently is licensed to sell variable life insurance in
all states except New York. The Company plans to obtain authority to sell
variable annuity contracts in all states except New York, and, as of March 15,
1997, it had obtained such authority in 44 states and the District of
Columbia.
The Company also offers certain variable universal life insurance policies that
provide a policyholder the ability to select and change premium levels, amounts
of death benefits, and account value investment options. Premiums in excess of
specified sales charges are credited to the account value of the policies
allocated either to a fixed account backed by the general investment account of
the Company, or to one or more of the available divisions of the contracts'
separate account.
The Company's Home Office is located in Jefferson City, Missouri, and its
principal administrative office is located at 1295 State Street, Springfield,
Massachusetts. MassMutual currently plans to redomesticate MML Bay State from
the State of Missouri to the State of Connecticut. MassMutual believes that the
proposed redomestication will not adversely effect policy owners. The Company
will notify contract owners that the redomestication has occurred by sending
contract owners an endorsement to their contract reflecting the
redomestication.
Product Description
The investment option described in this Prospectus is a Fixed Account with
Market Value Adjustment ("MVA") available in conjunction with the Contract. As
is also discussed in the Contract prospectus, the Contract provides for the
accumulation of values prior to maturity and for the distribution of annuity
benefits thereafter. Additionally, a death benefit is also available under the
Contract. The earnings on deposits allocated to the Fixed Account will have an
impact on the Contract's Accumulated Value, its Maturity Value, its Cash
Redemption Value and the death benefit. The Company believes that it has
adequate resources to meet its obligations with regard to the Fixed Account and
the Contract. The Company currently has an agreement with Vantage Computers
Systems, Inc., to provide most of the administrative services for the Contract
through the operation of the Service Center. The Contract is described in
greater detail in the prospectus for OppenheimerFunds LifeTrust Variable
Annuity. Investors should review that prospectus in conjunction with this
prospectus before deciding whether to invest in the Contract or allocate sums to
the Fixed Account. The Fixed Account is not available in all states.
The Fixed Account and the Market Value Adjustment Feature
The Fixed Account is available during the Accumulation Period of the Contract.
(See, Accumulation Pay-in Period of the Contract prospectus.) The Fixed Account
offers different Guarantee Periods, which provide the option of earning interest
at various Guaranteed Rates on all or a portion of Your Accumulated Value.
Please note that amounts credited to a Guarantee Period at different times may
have different Guaranteed Rates, Current Rates, and Expiration Dates since MML
Bay State changes the Current and Guaranteed Rates periodically.
You may allocate purchase payments or transfer all or a portion of Your
Accumulated Value to the Fixed Account. Amounts credited to the Fixed Account
will earn interest at the Guaranteed Rate applicable for the Guarantee Period
selected on the date the amounts are credited. The applicable Guaranteed Rate
does not change during the Guarantee Period. The Guaranteed Rate may never be
less than 3%. Allocations to a Guarantee Period (or Segment) must be for at
least $1,000. The Accumulated Value of the Fixed Account is not guaranteed
against the claims of the Company's creditors.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods that differ from those available when Your Contract was
issued. We also reserve the right, at any time, to stop accepting purchase
payments, transfers, or renewals for a particular Guarantee Period. Guarantee
Periods may be available in periods of one to ten years. Since the specific
Guarantee Periods available may change periodically, please contact the Service
Center to determine the Guarantee Periods currently being offered.
Market Value Adjustment
Any withdrawal of Your Accumulated Amount will be subject to a Market Value
Adjustment ("MVA") unless the effective date of the withdrawal is within 30 days
prior to the end of a Guarantee Period. If the allocated amount remains in the
Fixed Account until the applicable Expiration Date, its value will be equal to
the amount originally allocated multiplied, on a annually compounded basis, by
its Guaranteed Rate. For this purpose, redemptions, transfers, death benefits
based on a Contract Owner's death (where the Contract Owner and the Annuitant
are different), and maturity amounts are treated as withdrawals.
An MVA will not be applied upon the payment of a Death Benefit following the
death of the Annuitant. The MVA will be applied to the amount being withdrawn,
after the deduction of any applicable Administrative Charge and before the
deduction of any applicable Sales Charge. The MVA can be positive or negative.
The amount being withdrawn after application of the MVA can therefore be greater
than or less than the amount withdrawn before the application of the MVA.
The MVA will reflect the relationship between the Current Rate (as defined
below) for the Accumulated Amount being withdrawn and the Guaranteed Rate. It
also reflects the time remaining in the applicable Guarantee Period. Generally,
if the Guaranteed Rate is lower than the applicable Current Rate, then the
application of the MVA will result in a lower payment
4
<PAGE>
upon withdrawal. Similarly, if the Guaranteed Rate is higher than the applicable
Current Rate, the application of the MVA will result in a higher payment upon
withdrawal.
The Market Value Adjustment which is applied to the amount being withdrawn is
determined by using the following formula:
[ / n / ]
[ (1 + i) ---/ ]
MVA = Amount X [ -------- /365/ - 1 ]
[ (1 + j) / / ]
where,
Amount is the amount being withdrawn from a given accumulated amount less any
applicable administrative charges.
i is the Guaranteed Rate being credited to the Accumulated Amount subject to the
MVA; and
j, the "Current Rate," is the Guaranteed Rate, available as of the effective
date of the application of the MVA, for current allocations to the Segment with
a Guarantee Period equal to the time remaining to the Expiration Date for the
amount being withdrawn rounded to the next higher number of complete years; and
n, is the number of days remaining in the Guarantee Period of the amount subject
to the MVA.
In the determination of "j," if the Company currently does not offer
the applicable Segment, we will determine "j" above by interpolation or
extrapolation of the Guaranteed Rate for the Guarantee Periods then available.
EXAMPLES
The following examples illustrate how the MVA operates on amounts held in a
particular Segment:
Example 1
$1,000 is applied on May 10, 1994, into a Segment with a 5 year Guarantee
period. The Guaranteed Rate for amounts applied to this Segment on May 10, 1994,
is 6%. If the $1,000 is left in that Segment until May 10, 1999, it will
accumulate at a 6% effective annual rate of interest for the full 5 years to
$1,338.23.
If, however, the full amount is taken from the Segment as of May 10, 1998:
(1) The Guaranteed Rate applied on May 10, 1998 to amounts credited to a
1-year Segment is 4%; and
(2) The accumulated amount prior to the application of the MVA as of May
10, 1998 equals:
$1,000 x 1.064 = $1,262.48
(3) The number of days remaining = 365 (n = 365);
(4) The MVA equals $24.28, and is calculated according to the following
formula:
[ 365 ]
[(1.06) --- ]
$24.28 = $1,262.48 X [ ---- 365 - 1 ]
[(1.04) ]
The market value for the purposes of surrender on May 10, 1998, of the amount
credited to the 5-year segment on May 10, 1994, is therefore equal to $1,286.76
($1,262.48 + $24.28).
Example 2
$1,000 is applied to a 7-year Segment on May 10, 1992, with a Guaranteed Rate of
5% and will accumulate to $1,407.10 if left in the Segment until May 10, 1999.
If, however, the full amount is taken from the Segment as of May 10, 1995:
(1) The Guaranteed Rate applied on May 10, 1995 to amounts credited to a
4-year Segment is 10%; and
(2) The accumulated amount prior to the application of
MVA as of May 10, 1995 equals:
$1,000 x 1.053 = $1,157.63
(3) The period of time from May 10, 1995 to the end of the Guarantee
Period is 4 years or 1460 days
(n = 1460);
(4) The MVA equals $-196.56, and is calculated according to the following
formula:
[ /1460/ ]
[(1.05) /----/ ]
$ - 196.56 = $1,157.63 X [ ---- / 365/ - 1 ]
[(1.10) / / ]
The market value for purposes of surrender on May 10, 1995, of the amount
credited to the 7-year Segment on May 10, 1992, is therefore equal to $961.07
($1,157.63 - $196.56 = $961.07).
THE EXAMPLES SET FORTH ABOVE ARE HYPOTHETICAL AND ARE NOT INDICATIVE OF FUTURE
OR PAST PERFORMANCE.
Accumulation Period of a Contract
Variable annuities are designed to permit a Contract Owner to accumulate values
over a period of time. Generally, a Contract Owner will use such Accumulated
Values for long term needs such as retirement planning. Accordingly, in many
instances, amounts allocated to the Fixed Account will be subject to several
Guarantee Periods over the life of the Contract.
The end of a Guarantee Period for a specific amount credited to a Segment is
called its Expiration Date. At least 45 days, but not more than 75 days, before
the Expiration Date for an Accumulation Amount, we will inform You of the
Guaranteed Rates being offered and the Guarantee Periods available as of the
date of such notice. The Guaranteed Rates on the date of a renewal may be more
or less than the rates quoted in such notice.
5
<PAGE>
The Guarantee Period normally "renews", and in the absence of instructions on
the Expiration Date, we begin crediting interest for a new Guarantee Period
lasting the same amount of time as the one just ended. The Accumulated Amount
then earns interest at the new Guaranteed Rate applicable at the time of
renewal. You may choose different Guarantee Periods from among those we are then
offering, or You may transfer all or a portion of the Accumulated Amount to the
Separate Account.
If Your Accumulated Amount's Segment is no longer available for new amounts
credited, or You choose a different Segment that is no longer available, we will
try to reach You so that You may make another choice.
If a choice is not made at this point, the Segment with the next shorter
Guarantee Period available will be used and if not available, the Segment with
the next longer Period will be used.
Establishment of the Guaranteed Rate
MML Bay State will make the final determination concerning future Guarantee
Rates for future deposits, transfers or renewals. Although we cannot predict
future Guarantee Rates, such Guarantee Rates will never be less than three
percent (3%) per annum.
The MVA's Applicability on Redemptions
An MVA will apply if a partial or full redemption of the Contract is made prior
to an Expiration Date. Where a redemption occurs, the Accumulated Value of the
Contract will be reduced by the amount surrendered from the Fixed Account prior
to any MVA.
The Cash Redemption Value may also be subject to Contingent Deferred
Sales Charges ("Sales Charges") under the Contract pursuant to the schedule set
forth below:
<TABLE>
<CAPTION>
Year Since Payment Sales Charge Assessed
<S> <C>
1st 7%
2nd 6%
3rd 5%
4th 4%
5th 3%
6th 2%
7th 1%
</TABLE>
We make this adjustment for Sales Charges since we make no deduction for Sales
Charges when a purchase payment is received. The amount of Sales Charges is
computed based on the date the particular payment is received into the Contract.
Purchase Payments redeemed after year 7 are not subject to Sales Charges.
Amounts in the Fixed Account, however, continue to be subject to a Market Value
Adjustment. For more information concerning the application of Sales Charges,
please consult the Contract prospectus.
Please note that other charges are also imposed against the Contract including
mortality and expense risk and administrative charges. For a more detailed
explanation of applicable charges, please see the "Charges and Deductions"
section of the Contract Prospectus.
II. Investments by MML Bay State
Assets of MML Bay State must be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments.
Proceeds from the Fixed Account will be deposited in a non-unitized segment of
MML Bay State's general account organized as a separate account for accounting
purposes. Proceeds will be used to fund MML Bay State's obligations under the
Contract and amounts not required to fund such obligations may accrue to MML Bay
State as profit. Obligations under the Contract are also met through the
operation of the Divisions to which a Contract Owner has allocated Accumulated
Value. All assets of MML Bay State would be available to meet the guarantees
under the Contracts.
In establishing Guaranteed Rates, MML Bay State intends to take into account the
yields available on the instruments in which it intends to invest the proceeds
from the Contracts. MML Bay State's investment strategy with respect to the
proceeds attributable to allocations made to the Fixed Account will generally be
to invest in investment-grade debt instruments having durations tending to match
the applicable Guarantee Periods.
III. Distribution of Contracts
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), 1414 Main
Street, Springfield, MA 01144-1013, a wholly-owned subsidiary of MassMutual,
became the principal underwriter of the Contracts. Prior to May 1, 1996, MML
Investors Services ("MMLISI") also located at 1414 Main Street, Springfield, MA
01144-1013, served as the principal underwriter of the contracts. Both MML
Distributors and MMLISI are registered as broker-dealers under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. (the "NASD"). The maximum commission a broker-dealer will receive
for selling a Contract is 6.25%.
MML Distributors may enter into selling agreements with other broker-dealers
which are registered with the Securities and Exchange Commission and are members
of the NASD ("selling brokers"). The Contracts are sold through agents who are
licensed by state insurance officials to sell the policies. These agents are
also registered representatives of selling brokers or MMLISI. Contracts with the
Fixed Account are offered in states where MML Bay State has received authority
to write modified guarantee annuity business and the Fixed Account and the
Contracts have been approved.
Additionally, Contracts are offered through Oppenheimer's distribution network,
Oppenheimer Funds Distributor, Inc.
6
<PAGE>
("OFDI"). OFDI, MML Bay State Variable Annuity Separate Account 1, MML Bay State
and MML Distributors have entered into an agreement pursuant to which OFDI has
agreed to promote sales of the product through wholesale distribution
arrangements with broker-dealers. Registered representatives of the particular
broker-dealer, who are also properly licensed to sell MML Bay State products may
make such sales.
From time to time, OFDI may enter into special arrangements with broker-dealers
which may provide for the payment of higher compensation to such broker-dealer
in connection with the sale of Contracts. Prospective purchasers of the
Contracts will be informed of such arrangements prior to the completion of the
sale of the Contracts.
IV. Federal Taxation Discussion
Please see Federal Tax Status section of the Contract prospectus for a
discussion of the tax status of the Contract.
V. Accounting Practices
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted by
the State of Missouri ("statutory accounting practices"), which practices, prior
to 1996, were considered to be in conformity with generally accepted accounting
principles ("GAAP"). In 1993, the Financial Accounting Standards Board ("FASB")
issued interpretations No. 40 ("Fin. 40"),"Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises", which
clarified that stock life insurance subsidiaries of a mutual life company
issuing financial statements described as prepared in conformity with GAAP after
1995 are required to apply all applicable GAAP pronouncements in preparing those
financial statements. In January 1995, the FASB issued Statement No. 120 ("SFAS
120"), "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts," which
among other things, extended the applicability of certain FASB statements to
stock life insurance subsidiaries of a mutual life company and deferred the
effective date of Fin. 40 to financial statements issued or reissued after 1996.
Accordingly, the financial statements presented herein are no longer considered
to be in conformity with 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 in connection with
acquiring new business, are charged to current operations as incurred, whereas
under GAAP these expenses would 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 would value bonds at fair value and (d) deferred
income taxes are not provided for book-tax timing differences whereas GAAP would
record deferred income taxes.
VI. Management's Discussion and Analysis of Financial Condition and Results of
Operations
GENERAL
The Company's and its Parent's main priority has been to balance financial
strength, policyholder value and growth with emphasis on financial strength.
With regard to profitability, management believes that net gain from operations,
rather than net income, is the most relevant measure of operating results for
the Company. Net gain from operations represents the excess of income derived
from the Company's business over the costs of business operations (after
deducting taxes). Net income is net gain from operations adjusted by any
realized capital gains or losses (net of taxes). Management's investment
philosophy and practice do not emphasize capital gains as a recurring source of
income or capital and the Company does not manage its investment portfolio to
realize gains for non-economic purposes.
RESULTS OF OPERATIONS
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
The net gain from operations of $2,036 thousand in 1996 compares favorably to
the $4,575 thousand loss for 1995. This gain was primarily due to an increase in
premium income of 375.8% while benefits, commissions and operating expenses
increased only 97.6%. Also, 1995 includes a one time fee of $6,200 thousand paid
to MassMutual for the termination of a reinsurance agreement.
Premium income increased to $441,212 thousand in 1996 from $92,733 thousand in
1995. The growth was primarily the result of Corporate owned life policy sales
which increased $234,138 thousand. Corporate owned life policy sales represent a
small number of very large cases sold to corporate clients. Additionally, sales
of individual variable life and annuities increased by 141.4%.
The following table sets forth premium, sales and other information for the
Company's products:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Premium Income:
Variable Life $ 109,176 $ 57,874
Annuities 86,047 23,008
Corporate Owned Life 245,989 11,851
-------------- ------------
Total $ 441,212 $ 92,733
============== ============
Life Insurance Sales - Face Amount:
Variable Life $ 3,408,851 $1,989,275
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Corporate Owned Life 4,584,609 6,631
------------ ----------
Total $ 7,993,460 $1,995,906
============ ==========
Life Insurance In Force Face Amount:
Variable Life $ 9,686,129 $6,553,122
Corporate Owned Life 4,979,198 383,725
------------ ----------
Total 14,665,327 6,936,847
Less reinsurance ceded 1,604,851 1,088,642
------------ ----------
$13,060,476 $5,848,205
============ ==========
<CAPTION>
Number of Policies/Certificates In Force:
(In Whole Units)
<S> <C> <C>
Variable Life 50,703 36,227
Annuities 2,373 610
Corporate Owned Life 6,395 733
------------ ----------
Total 59,471 37,570
============ ==========
<CAPTION>
<S> <C> <C>
Average Face Value of a New
Policy Sold: (In Whole Dollars)
Variable Life $ 207,768 $ 192,685
Corporate Owned Life $ 809,144 $ 947,241
</TABLE>
Net investment and other income increased 95.8%, or $4,125 thousand in 1996
compared to 1995 primarily due to $4,123 thousand of fees paid by MassMutual for
the conversion of non-variable life contracts to variable life contracts. Net
investment income decreased slightly, primarily due to higher investment
expenses. The components of net investment income are set forth below.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Gross investment income:
Bonds $3,117 $3,229
Policy loans 509 309
Cash and short-term investments 461 104
------------ ----------
Total gross investment income 4,087 3,642
Less investment expenses 626 107
------------ ----------
Net investment income $3,461 $3,535
============ ==========
</TABLE>
Policy benefits and payments for 1996 increased $5,344 thousand, or 93.9% from
1995. This increase was due principally to a $5,010 thousand increase in
surrenders of variable life policies.
Addition to policyholders' reserves and funds increased by $296,552 thousand or
442.8% to $363,526 thousand in 1996 from $66,974 thousand in 1995. The increase
is primarily due to strong growth in premiums which results in offsetting
increases in policyholders' reserves and transfers to separate accounts.
Operating expenses, which includes administrative services provided by the
Parent, increased by $12,809 thousand, or 114.1%, compared to 1995. The increase
is primarily due to salaries and agency costs associated with the acquisition of
new business.
Commissions increased by $13,061 thousand, or 86.7%, in 1996 compared to 1995,
resulting from higher sales of individual life insurance and renewal commissions
paid on life and annuity business in force. The percentage increase in
commissions was lower than the percent increase in premiums due to a reduced
commission structure for the annuity and corporate owned life policies.
Federal income taxes increased to $11,829 thousand in 1996 compared to $633
thousand in 1995, primarily due to higher book gains and the tax on policy
acquisition costs inherent in a period of substantial sales growth.
Net realized capital losses were $58 thousand for 1996 and $43 thousand for
1995, after the transfer to Interest Maintenance Reserve ("IMR"). The IMR
captures after-tax realized capital gains and losses due to changes in interest
rates for all types of fixed income investments. Net realized capital losses
were comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Bonds $(33) $ 448
Federal and state taxes 59 241
---- -------
Net realized capital gain (loss) before
transfer to IMR (92) 207
(Gain) loss transferred to IMR 34 (250)
----- ------
Net realized capital loss $(58) $ (43)
===== =======
</TABLE>
Gross capital gains in 1996 were $33 thousand. The net capital losses after
transfer to the IMR are credit related.
As a result of the foregoing factors, net income was $1,978 thousand in 1996,
compared to a net loss of $4,618 thousand in 1995.
RESULTS OF OPERATIONS
Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
The net loss from operations of $4,575 thousand in 1995 compares unfavorably to
the $1,605 thousand gain for 1994. This loss was primarily due to the September
30, 1995 termination of the Company's coinsurance agreement with MassMutual.
Under the terms of the canceled agreement, MassMutual had assumed 80% to 100% of
specific plans of insurance. A one-time fee of $6,200 thousand was paid to
MassMutual for which the Company reacquires the right to retain the underwriting
results for these policies. The Company continues to cede specific plans of
insurance on a yearly renewal term basis with MassMutual.
Premium income increased to $92,733 thousand in 1995 from $54,481 thousand in
1994. The 70.2% growth was primarily the result of an annuity product introduced
in late 1994 that recorded increased sales of $22,977 thousand. Additionally,
sales of individual variable life and corporate owned life policies increased by
28.1%. Corporate owned life policy sales represent a small number of very large
cases sold to corporate clients.
8
<PAGE>
The following table sets forth premium, sales and other information for the
Company's products:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Premium Income:
Variable Life $ 57,874 $ 47,994
Annuities 23,008 31
Corporate Owned Life 11,851 6,456
------------ -----------
Total $ 92,733 $ 54,481
============ ============
Life Insurance Sales - Face Amount:
Variable Life $1,989,275 $1,705,108
Corporate Owned Life 6,631 18,112
----------- -----------
Total $1,995,906 $1,723,220
========== ==========
Life Insurance In force Face Amount:
Variable Life $6,553,122 $4,757,377
Corporate Owned Life 383,725 366,526
---------- ----------
Total 6,936,847 5,123,903
Less reinsurance ceded 1,088,642 2,965,198
---------- ----------
Net amount $5,848,205 $2,158,705
========== ==========
Number of Policies In Force: (in Whole Units)
Variable Life 36,227 27,409
Annuities 610 2
Corporate Owned Life 733 737
---------- ----------
Total 37,570 28,148
========== ==========
Average Size of a New Policy Sold: (In Whole Dollars)
Variable Life $ 192,685 $ 183,168
Corporate Owned Life $ 947,241 $ 646,857
</TABLE>
Net investment and other income increased 21.9%, or $774 thousand in 1995
compared to 1994. This resulted from a 19.5% increase in the average balance of
invested assets and an increase in investment yields on the general investment
account's portfolio. The components of net investment income are set forth
below.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Gross investment income:
Bonds $3,229 $2,235
Policy loans 309 229
Cash and short-term investments 104 66
------ ------
Total gross investment income 3,642 2,530
Less investment expenses (107) (96)
------ ------
Net investment income $3,535 $2,434
====== ======
</TABLE>
The expense allowance on reinsurance ceded to the Parent represents a
reimbursement for policy acquisition costs from the Parent, partially offset by
the ceding of policy charges to the Parent under the coinsurance agreement.
Policy charges include charges to policy values for the cost of mortality and
other administrative charges. The expense allowance on reinsurance ceded
increased $394 thousand in 1995, which reflects a $3,184 thousand decrease in
the ceding of policy charges partially offset by a $2,790 thousand decrease in
reimbursed policy acquisition costs. These decreases were caused by the
termination of the coinsurance agreement late in 1995.
Policy benefits and payments for 1995 increased $2,751 thousand, from 1994. This
increase was due principally to an $1,849 thousand increase in death benefits
and an $843 thousand increase in surrenders on variable life policies.
Addition to policyholders' reserves and funds increased by $36,552 thousand or
120.1% to $66,974 thousand in 1995 from $30,422 thousand in 1994. The increase
was primarily due to increases in variable life premiums and the introduction of
the new variable annuity product partially offset by the increase in policy
benefits and payments described above.
Operating expenses, which includes administrative services provided by the
Parent, decreased by $738 thousand, or 6.2%, compared to 1994. This decrease is
primarily attributable to a reduction in fees paid to the Parent.
Commissions increased by $4,325 thousand, or 40.2% in 1995 compared to 1994,
resulting from the increases in individual life insurance and annuity business
and corresponding increases in first year commissions. The increase in
commissions was lower than the increase in premiums due to a reduced commission
structure for the annuity policies.
Federal income taxes increased to $633 thousand in 1995 compared to a $935
thousand tax benefit for 1994. The increase in federal income tax was primarily
due to the tax on policy acquisition costs inherent in a period of substantial
sales growth. The tax benefit in 1994 resulted from the ceding of the surrender
charge offset, resulting from the use of the commissioners' reserve valuation
method for establishing reserves.
Net realized capital losses were $43 thousand for 1995 and $24 thousand for
1994, after the transfer to Interest Maintenance Reserve("IMR"). The IMR
captures after-tax realized capital gains and losses due to changes in interest
rates for all types of fixed income investments. Net realized capital losses
were comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Bonds $448 $ (7)
Federal and state taxes (241) (24)
------ -----
Net realized capital gain (loss)
before transfer to IMR 207 (31)
(Gain) loss transferred to IMR (250) 7
------ -----
Net realized capital loss $ (43) $(24)
====== =====
</TABLE>
Gross capital gains in 1995 of $535 thousand were the result of bond sales in a
decreasing interest rate environment. The net capital losses after transfer to
the IMR are credit related. In 1994, net realized capital losses from the sales
of bonds consisted of gross capital losses of $52 thousand offset by $45
thousand in gross capital gains.
9
<PAGE>
As a result of the foregoing factors, a net loss of $4,618 thousand was incurred
in 1995, compared to net income of $1,581 thousand in 1994.
STATEMENT OF FINANCIAL POSITION
Assets
Total assets rose from $343,993 thousand at December 31, 1995 to $826,240
thousand at December 31, 1996, an increase of 140.2%. Asset growth was
concentrated in the Company's separate investment accounts.
General account assets increased from $78,805 thousand at December 31, 1995 to
$119,571 thousand at December 31, 1996 due primarily to increased receivables
from separate accounts which represent separate account assets in excess of
statutory benefit reserves.
Policy loans increased by 54.9% to $9,983 thousand in 1996 primarily due to
loans on individual variable life products.
Separate account assets increased by 266.5% to $706,669 thousand at December 31,
1996 due to increased sales of individual variable life, corporate owned life
and annuity policies, where the policyholders primarily invest in the Company's
separate investment accounts, and to increases in market values in the equity
and fixed income markets. The total number of individual life policies issued in
1996 was 16,407, up from 10,324 in 1995. More than 1,700 annuity policies were
issued in 1996, up from 612 policies issued in 1995.
Liabilities
Total liabilities increased by $454,926 thousand, or 154.9%, to $748,577
thousand at December 31, 1996 due to increased individual variable life, annuity
and corporate owned life sales. Of the $454,926 thousand increase, $440,837
thousand was in the Company's separate investment account reserves and
liabilities. The $7,438 thousand increase in policyholders' reserves and funds
was primarily due to increases in variable life reserves.
Shareholder's Equity
Shareholder's equity was $77,662 thousand at December 31, 1996, an increase of
$27,319 thousand, or 54.3%, from December 31, 1995. This increase was composed
of (i) 1996 net income of $1,978 thousand, (ii) a capital contribution of
$25,500 thousand from MassMutual, (iii) a decrease of $75 thousand due to the
increase in the asset valuation reserve ("AVR") and (iv) a decrease of $83
thousand due to an increase in non-admitted assets.
LIQUIDITY AND CAPITAL RESOURCES
In years of increasing sales, the Company's operating activities result in a net
use of cash. In 1996, $11,754 thousand of net cash was used in operations,
primarily due to acquisition costs in excess of first year revenues.
The Company has structured its investment portfolio to ensure a strong liquidity
position in order to permit timely payment of policy and contract benefits and
future acquisition costs without requiring an untimely sale of assets. The
Company manages its liquidity position by matching its exposure to cash demands
with adequate sources of cash and other liquid assets.
The Company's liquid assets include substantial Treasury holdings and short-term
money market investments. Cash and short-term investments totaled $7,014
thousand at December 31, 1996. The market value of other highly liquid
securities, including NAIC Category 1 and 2 publicly traded bonds, exceeded
$44,900 thousand at December 31, 1996.
The liquidity position of the Company is proactively managed on an ongoing basis
to meet cash needs while minimizing adverse impacts on investment returns. The
Company also employs quantitative asset/liability cash flow management
techniques to optimize and control the investment return and liquidity for the
portfolio.
INVESTMENTS
As directed by the policyholders, the majority of the Company's assets are
policyholders' investments in the Company's separate investment accounts
("SIA"). The assets in the SIA are recorded at market value, and all investment
risks are passed on to the policyholders. The following discussion focuses on
the general investment account portfolio, which does not include the Company's
SIA assets.
At December 31, 1996, the Company had $61,932 thousand of invested assets in its
general investment account. The portfolio of invested assets is managed to
support the liabilities of the business in light of yield, liquidity and
diversification considerations.
The following table sets forth the Company's invested assets in the general
investment account and gross investment yield thereon as of the dates
indicated:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---- ---- ----
Carrying % of Carrying % of Carrying % of
Value Total Yield Value Total Yield Value Total Yield
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Bonds $44,930 72.5% 7.5% $41,261 85.6% 7.1% $52,337 91.5% 5.7%
Policy loans 9,988 16.1 6.4 6,445 13.4 6.1 3,918 6.8 7.2
Cash and short-
term investments 7,014 11.4 13.1 490 1.0 15.6 950 1.7 9.5
------- ------ ----- ------- ------ ----- ------- ------ ----
Total investments $61,932 100.0% 7.7% $48,196 100.0% 7.2% $57,205 100.0% 5.9%
======= ====== ===== ======= ====== ===== ======= ====== ====
</TABLE>
10
<PAGE>
The yield on total investments before expenses was 7.7%, 7.2% and 5.9% for the
years ended December 31, 1996, 1995 and 1994, respectively. The increase in the
portfolio yield is primarily due to the investment allocation among industry
categories. If investment expenses were deducted, net yields would be 6.5%, 6.9%
and 5.7%, respectively. The yield on each investment category before federal
income taxes is calculated as: (a) gross investment income divided by (b) the
average carrying value, which does not include investment reserves.
The Company carries its investments in accordance with methods and values
prescribed by the NAIC and adopted by state insurance authorities. Generally,
bonds are valued at amortized cost. 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.
Bonds
The following table provides certain information regarding the maturity
distribution of bonds (excluding short-term securities):
<TABLE>
<CAPTION>
Bond Maturities
December 31,
1996 1995
---- ----
Carrying % of Carrying % of
Value Total Value Total
------- ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $6,384 14.2% $ 2,065 5.0%
Due after one year
through five years 13,044 29.0 9,638 23.4
Due after five years
through ten years 12,930 28.8 7,141 17.3
Due after ten years 1,510 3.4 7,000 17.0
Mortgage-backed
securities (1) 11,062 24.6 15,417 37.3
------- ------ ------- ------
$44,930 100.0% $41,261 100.0%
======= ====== ======= ======
</TABLE>
(1) Including securities guaranteed by the U.S. Government.
The maturities of portfolio bonds are considered by the Company to be
sufficiently diversified and are carefully monitored and managed in light of the
Company's liquidity needs.
Bonds and short-term investments consist of $48,895 thousand of publicly traded
and $2,882 thousand of privately placed debt securities. Substantially all of
the publicly traded and privately placed bonds held by the Company are evaluated
by the NAIC's Securities Valuation Office ("SVO"), which assigns securities to
one of six NAIC investment credit categories, with Category 1 securities being
the highest quality and Category 6 securities being the lowest quality.
Categories 1 and 2 are investment grade, Category 3 is medium quality and
Categories 4, 5 and 6 are non-investment grade. The remainder of the securities
which have not as yet received NAIC ratings are rated under an internal system
which the Company believes to be equivalent to that used by the SVO. At December
31, 1996 and 1995, the portfolio was 100% invested in NAIC Categories 1 and
2.
The following table sets forth by industry category the carrying value and the
percentage breakdown of the bond portfolio, including short-term securities, as
of December 31, 1996:
<TABLE>
<CAPTION>
Bond Portfolio By Industry
December 31, 1996
-----------------
(In Thousands)
Carrying % of
Industry Category Value (1) Total
- ----------------- --------- -----
<S> <C> <C>
Collateralized (2) $20,576 39.7%
Finance 7,473 14.4
U.S. Government 4,972 9.6
Retail 1,073 2.1
Media 1,041 2.0
Other Services 4,997 9.7
Health Care 6,847 13.2
Transportation 3,251 6.3
Aerospace 510 1.0
Natural Resources 537 1.0
Others 500 1.0
------- -----
Total $51,777 100.0%
======= =====
</TABLE>
(1) Includes short-term securities.
(2) These bonds are collateralized by mortgages backed by FNMA or FHLMC and
include collateralized mortgage obligations and $2,882 thousand in
privately placed bonds.
The estimated fair value of bonds is based upon quoted market prices for
actively traded securities. The Company subscribes to commercial pricing
services that provide estimated fair values of fixed income securities that are
not actively traded.
The tables below set forth the carrying value, gross unrealized gains and
losses, net unrealized gain (loss) and estimated fair value of the bond
portfolio (excluding short-term securities) at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Gross Gross Net Estimated
Carrying Unrealized Unrealized Unrealized Fair
Value Gains Losses Gain (Loss) Value
------ ----- ------ ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
U. S. Treasury Securities
and Obligations of U. S.
Government Corporations
and Agencies $ 7,768 $ 79 $ 41 $ 38 $ 7,806
Mortgage-backed securities 8,266 42 65 (23) 8,243
Industrial securities 28,896 294 146 148 29,044
------- ---- ---- ---- -------
$44,930 $415 $252 $163 $45,093
======= ==== ==== ==== =======
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Gross Gross Net Estimated
Carrying Unrealized Unrealized Unrealized Fair
Value Gains Losses Gain (Loss) Value
----- ----- ------ ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
U. S. Treasury Securities
and Obligations of U. S.
Government Corporations
and Agencies $ 7,929 $108 $ 1 $107 $ 8,036
Mortgage-backed securities 11,980 114 36 78 12,058
Industrial securities 21,352 684 1 683 22,035
------- ---- --- ---- -------
$41,261 $906 $38 $868 $42,129
======= ==== === ==== =======
</TABLE>
Portfolio Surveillance and Under-performing Investments
Bonds
The Company reviews all bonds on a regular basis utilizing the following
criteria: (i) material declines in revenues or margins, (ii) significant
uncertainty regarding the issuer's industry, (iii) debt service coverage or cash
flow ratios that fall below industry-specific thresholds, (iv) violation of
financial covenants, (v) trading of public securities at a substantial discount
due to specific credit concerns and (vi) other subjective factors that relate to
the issuer. The bond portfolio is actively reviewed to estimate the likelihood
and amount of financial defaults or write-downs in the portfolio and to make
timely decisions as to the potential sale or renegotiation of terms of specific
investments.
As defined by the NAIC, under-performing bonds are those whose deferral of
interest and/or principal payments are deemed to be caused by the inability of
the obligor to make such payments as called for in the bond contract. At
December 31, 1996 and 1995 there were no under-performing bonds.
Write-downs and Allowances
In the case of bonds, the net realizable value is determined in accordance with
principles established by the SVO using criteria such as the net worth and
capital structure of the borrower, the value of the collateral, the presence of
additional credit support and the Company's evaluation of the borrower's ability
to compete in a relevant market.
Investment Reserves
In compliance with regulatory requirements, the Company maintains an asset
valuation reserve ("AVR"). The AVR stabilizes shareholder's equity (surplus)
against non-interest rate related fluctuations in the value of stocks, bonds,
mortgage loans and real estate investments.
The following table presents the change in AVR for the years 1996 and 1995:
ASSET VALUATION RESERVES
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Balance at Beginning of the Year $154 $107
Reserve contributions (1) 75 47
---- ----
Balance at End of the Year $229 $154
==== ====
</TABLE>
(1) Amounts represent contributions calculated on a statutory formula.
Represents the net impact on shareholder's equity for investment gains and
losses not related to changes in interest rates. The net change in
reserves is recorded as a charge to shareholder's equity.
VII. MML Bay State & MassMutual - Description of the Business
MML Bay State is a life insurance company and a wholly-owned subsidiary of
MassMutual. Organized in 1894 under the laws of the state of Missouri, the
Company (formerly known as Western Life Insurance Company of America) was
purchased in 1981 by the Parent. Its name was changed in March 1982. The
Company is an issuer of variable life and variable annuity contracts. The
Company currently is licensed to sell variable life insurance in all states
except New York and in the District of Columbia. The Company plans to obtain
authority to sell variable annuity contracts in all states except New York, and,
as of March 1, 1997, it had obtained such authority in 44 states and the
District of Columbia.
Currently, aside from the Contract, the Company offers certain variable
universal life insurance policies. These products provide a policyholder,
within guidelines established by the terms of the policy, the ability to select
and change premium levels, amount of death benefits, and account value
investment options. Premiums in excess of specified sales charges are credited
to the account value of the policies allocated either to a fixed account backed
by the general investment account of the Company, or to one or more of the
available divisions of the policies' separate accounts.
The Company's Home Office is located in Jefferson City, Missouri. The Company's
principal administrative office is located at 1295 State Street, Springfield,
Massachusetts. The Company believes that it has adequate space, equipment and
resources to meet its obligations with regard to the Fixed Account and the
Contract. The Company currently has an agreement with Vantage Computers Systems,
Inc., to provide most of the administrative services for the Contract through
the operation of the Service Center.
Functionally the Company is part of the Parent's operations, and as a result, a
discussion of the Parent's business and the Company's position within the
Parent's operations is useful for an understanding of the Company's business.
MassMutual currently plans to redomesticate MML Bay State from the State of
Missouri to the State of Connecticut. MassMutual believes that the proposed
redomestication will not adversely effect policy owners.
VIII. Directors And Officers
Of MML Bay State
Directors:
Paul D. Adornato, Director and Senior Vice President-Operations
Director (since 1987) and Senior Vice President-Operations, MML Bay State,
since 1996; Senior Vice President, MassMutual, since 1986. Age 58.
Lawrence V. Burkett, Jr., Director, President and Chief Executive Officer
Director, President and Chief Executive Officer, MML Bay State, since 1996;
Executive Vice President and General Counsel, MassMutual, since 1993; Senior
Vice President and Deputy General Counsel, 1992-1993. Age 51.
12
<PAGE>
John B. Davies, Director
Director, MML Bay State, since 1996; Executive Vice President, MassMutual,
since 1994; Associate Executive Vice President, 1994-1994; General Agent,
1982-1993. Age 47.
Anne Melissa Dowling, Director and Senior Vice President-Large Corporate
Marketing Director and Senior Vice President-Large Corporate Marketing, MML
Bay State, since 1996; Senior Vice President, MassMutual, since 1996; Chief
Investment Officer, Connecticut Mutual Life Insurance Company, 1994-1996;
Senior Vice President-International, Travelers Insurance Co., 1987-1993. Age
38.
Thomas J. Finnegan, Jr., Director and Secretary
Director, since 1997, Secretary, MML Bay State, since 1990; Vice President,
Secretary and Associate General Counsel, MassMutual, since 1984. Age 61.
Daniel J. Fitzgerald, Director
Director, MML Bay State, since 1994; Executive Vice President, Corporate
Financial Operations, MassMutual, since 1994; Senior Vice President,
1991-1994. Age 48.
Maureen R. Ford, Director and Senior Vice President-Annuity Marketing
Director and Senior Vice President-Annuity Marketing, MML Bay State, since
1996; Senior Vice President, MassMutual, since 1996; Marketing Officer,
Connecticut Mutual Life Insurance Company, 1989-1996. Age 41.
Isadore Jermyn, Director and Senior Vice President and Actuary
Director (since 1990) and Senior Vice President and Actuary, MML Bay State,
since 1996; Senior Vice President and Actuary, MassMutual, since 1995; Vice
President and Actuary, 1980-1995. Age 46.
Stuart H. Reese, Director and Senior Vice President-Investments
Director (since 1994) and Senior Vice President-Investments, MML Bay State,
since 1996; Senior Vice President, MassMutual, since 1993; Investment
Manager, Aetna Life and Casualty and Affiliates, 1979-1993. Age 41.
PRINCIPAL OFFICERS (other than those who are also Directors):
Ann Iseley
Treasurer, MML Bay State, since 1996; Vice President and Treasurer,
MassMutual, since 1996; Chief Financial and Operations Officer, Connecticut
Mutual Financial Services, 1994-1996; Controller, The Mack Company,
1993-1994; Vice President-Finance, Mutual of New York, 1988-1993. Age 40.
IX. Executive Compensation
All of the executive officers of MML Bay State also serve as officers of
Massachusetts Mutual Life Insurance Company and receive no compensation directly
from MML Bay State. Allocations have been made as to such officer's time devoted
to duties as executive officers of the Company and its subsidiaries. No officer
or Director of MML Bay State received allocated compensation in excess of
$100,000.
No shares of MML Bay State are owned by any executive officer or director. MML
Bay State is a wholly-owned subsidiary of Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfield, MA 01111.
X. Experts, Legal Proceedings and Additional Available Information
Experts
The audited statutory statement of financial position of MML Bay State as of
December 31, 1996 and 1995 and the related statutory statements of operations,
changes in shareholder's equity and cash flows for each of the years in the
three year period ended December 31, 1996 included in this prospectus have been
so included 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.
Legal Proceedings
The Company is a defendant in actions arising out of its insurance and
investment operations and is from time to time involved as a party in various
governmental and administrative proceedings. The Company does not believe that
any liability which may result from these actions is likely to have a material
adverse effect on the financial position of the Company.
The life insurance industry in recent years has faced increasing exposure to
litigation in which multimillion dollar jury awards of punitive and compensatory
damages have occurred. While the Company cannot predict the outcome of pending
or future litigation with certainty, it does not believe that pending litigation
will have a material impact on the Company's financial position, results of
operations or liquidity.
Additional Available Information
The Company files registration statements, reports and informational statements
with the SEC under the Securities Act of 1933. These filings contain information
not contained in this Prospectus. Such registration statements, reports,
information statements and other information can be reviewed and copied at the
public reference facilities maintained by the Securities and Exchange
Commission, at Room 1024, 450 Fifth Street, N.W., Washington, C.C. 20549 or at
the Commission's New York and Chicago regional offices located at the following
addresses: Northeast Regional Office, 7 World
13
<PAGE>
Trade Center, Suite 1300, New York, New York, 10046; and Midwest Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC
also maintains a Web site that contains these filings. The SEC's Internet
address is http://www.sec.gov.
XI. Selected Historical
Financial Data
The following summary financial information has been derived from the statutory
financial statements of the Company, which have been audited by Coopers &
Lybrand L.L.P., independent accountants. The results for past accounting periods
are not necessarily indicative of the results to be expected for any future
accounting period.
The information presented below should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the audited statutory financial statements and other information
included elsewhere in this prospectus.
MML Bay State Life Insurance Company
Selected Statutory Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Premium income $441,212 $ 92,733 $ 54,481 $ 43,469 $ 33,473
Net investment and other income 8,431 4,306 3,533 2,899 2,657
Expense allowance on reinsurance ceded -- 526 132 3,776 2,944
--------- ----------- ---------- ----------- ----------
Total revenue 449,643 97,565 58,146 50,144 39,074
--------- --------- --------- ---------- ----------
Benefits and expenses:
Policy benefits and payments 11,035 5,691 2,940 2,179 1,191
Addition to policyholders' reserves and funds 363,526 66,974 30,422 27,192 21,815
Expenses, commissions and state taxes 61,217 28,842 24,114 18,825 10,597
--------- ----------- ---------- ----------- ----------
Total benefits and expenses 435,778 101,507 57,476 48,196 33,603
--------- -------- --------- ---------- ----------
Net gain (loss) from operations before federal
income taxes 13,865 (3,942) 670 1,948 5,471
Federal income taxes (benefit) 11,829 633 (935) 1,283 2,352
--------- ----------- ---------- ----------- ----------
Net gain from operations 2,036 (4,575) 1,605 665 3,119
Net realized capital gain (loss) (58) (43) (24) (19) 346
--------- ----------- ---------- ----------- ----------
Net income (loss) $ 1,978 $ (4,618) $ 1,581 $ 646 $ 3,465
========= =========== ========== =========== ==========
Balance Sheet Data (at period end):
Assets:
General account $ 119,571 $ 78,805 $ 79,638 $ 47,352 $ 44,363
Separate account 706,669 265,188 151,058 112,748 74,209
-------- -------- -------- -------- --------
Total Assets $ 826,240 $ 343,993 $ 230,696 $ 160,100 $118,572
======== ======== ======== ======== ========
Liabilities:
Policyholders' reserves and funds $ 26,534 $ 19,096 $ 11,827 $ 9,546 $ 7,570
Payable to parent 2,930 3,165 4,368 0 0
Asset valuation reserve 229 154 107 64 34
Separate account reserves and liabilities 703,670 262,834 149,093 110,951 72,418
Other liabilities 15,214 8,401 9,338 6,142 5,775
-------- -------- -------- -------- --------
Total liabilities 748,577 293,650 174,733 126,703 85,797
Total shareholder's equity (1)(2) 77,663 50,343 55,963 33,397 32,775
-------- -------- -------- -------- --------
Total liabilities and shareholder's equity $ 826,240 $ 343,993 $ 230,696 $ 160,100 $118,572
======== ======== ======== ======== ========
Total Adjusted Capital Data (at period end) (3):
Total surplus (shareholder's equity) $ 77,663 $ 50,343 $ 55,963 $ 33,397 $ 32,775
Asset Valuation reserve 229 154 107 64 34
-------- -------- -------- -------- --------
Total adjusted capital $ 77,892 $ 50,497 $ 56,070 $ 33,461 $ 32,809
========= ========= ========= ========= =========
</TABLE>
(1) In 1994, the Company received a surplus contribution of $25 million and
recorded a prior year adjustment of $4 million through the Statement of
Changes in Shareholder's Equity. See notes to financial statements.
(2) In 1996, the Company received a surplus contribution of $25.5 million.
(3) Defined by the NAIC as surplus plus Asset Valuation Reserve.
14
<PAGE>
Report Of Independent Accountants
To the Board of Directors of
MML Bay State Life Insurance Company
We have audited the accompanying statutory financial statements and financial
statement schedules of MML Bay State Life Insurance Company, listed in Item XI
of this Form S-1. These statutory financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these statutory financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using statutory accounting practices of the National
Association of Insurance Commissioners and the accounting practices prescribed
or permitted by the Department of Insurance of the State of Missouri, 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
determinable at this time, are presumed to be material.
In our report dated February 23, 1996, we expressed our opinion that the 1995
and 1994 financial statements, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of the MML
Bay State Life Insurance Company as of December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles
("GAAP"). As described in Note 2 to the financial statements, financial
statements of stock life insurance subsidiaries of mutual life insurance
enterprises issued or reissued after 1996, and prepared in accordance with
statutory accounting principles, are no longer considered to be presentations in
conformity with GAAP. Accordingly, our present opinion on the 1995 and 1994
statutory financial statements as presented herein is different from that
expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of MML Bay State Life Insurance Company at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MML Bay State Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, on
the statutory basis of accounting described in Note 2. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
Springfield, Massachusetts Coopers & Lybrand, L.L.P.
February 7, 1997
15
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Assets:
Bonds.................................................. $ 44,929.6 $ 41,260.6
Policy loans........................................... 9,988.3 6,444.9
Cash and short-term investments........................ 7,013.9 490.5
Investment and insurance amounts receivable............ 2,277.8 1,268.0
Transfer due from separate account..................... 50,186.8 29,015.6
Federal income tax receivable.......................... 1,139.4 215.5
Other assets........................................... 4,034.9 109.8
Separate account assets................................ 706,668.9 265,188.5
---------- ----------
$826,239.6 $343,993.4
========== ==========
Liabilities:
Policyholders' reserves and funds...................... $ 26,533.5 $ 19,095.9
Policy claims and other benefits....................... 1,074.1 1,507.6
Payable to parent...................................... 2,929.9 3,165.2
Accrued insurance expenses and taxes................... 6,905.3 4,693.5
Asset valuation reserve................................ 228.8 153.8
Other liabilities...................................... 7,235.6 2,200.7
Separate account reserves and liabilities.............. 703,670.1 262,833.9
---------- ----------
748,577.3 293,650.6
---------- ----------
Shareholder's equity:
Common stock, $200 par value
25,000 shares authorized
12,501 shares issued and outstanding.................. 2,500.2 2,000.2
Paid-in capital and contributed surplus................ 71,736.9 46,736.9
Surplus................................................ 3,425.2 1,605.7
---------- ----------
77,662.3 50,342.8
---------- ----------
$826,239.6 $343,993.4
========== ==========
</TABLE>
See notes to statutory financial statements.
16
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Income:
Premium income.......................................................... $441,212.1 $ 92,732.8 $ 54,481.4
Net investment and other income......................................... 8,430.6 4,305.8 3,531.8
Expense allowance on reinsurance ceded.................................. 0.0 526.5 132.4
---------- ---------- ----------
449,642.7 97,565.1 58,145.6
---------- ---------- ----------
Benefits and expenses:
Policy benefits and payments............................................ 11,035.0 5,691.0 2,939.9
Addition to policyholders' reserves, funds and separate accounts........ 363,526.2 66,974.4 30,422.1
Operating expenses...................................................... 24,032.2 11,222.9 11,960.6
Commissions............................................................. 28,133.3 15,072.4 10,747.5
State taxes, licenses and fees.......................................... 9,051.1 2,546.8 1,405.1
---------- ---------- ----------
435,777.8 101,507.5 57,475.2
---------- ---------- ----------
Net gain (loss) from operations before federal income taxes............. 13,864.9 (3,942.4) 670.4
Federal income taxes (benefit).......................................... 11,829.0 632.8 (934.8)
----------- ---------- ----------
Net gain (loss ) from operations........................................ 2,035.9 (4,575.2) 1,605.2
Net realized capital loss............................................... (58.1) (42.8) (24.4)
----------- ---------- ----------
Net income (loss)....................................................... $ 1,977.8 $ (4,618.0) $ 1,580.8
=========== ========== ==========
</TABLE>
See notes to statutory financial statements.
17
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Shareholder's equity, beginning of year........................ $ 50,342.8 $ 55,963.0 $ 33,396.9
---------- ---------- ----------
Increases (decrease) due to:
Net income (loss)............................................ 1,977.8 (4,618.0) 1,580.8
Additions to asset valuation reserve......................... (75.0) (47.0) (43.3)
Change in separate account surplus........................... 35.0 344.2 108.6
Surplus contribution......................................... 25,500.0 0.0 25,000.0
Prior year adjustment........................................ 0.0 (1,299.4) (4,101.5)
Change in accounting for mortgage backed securities.......... 0.0 0.0 21.5
Change in non-admitted assets and other...................... (118.3) 0.0 0.0
---------- ---------- ----------
27,319.5 (5,620.2) 22,566.1
---------- ---------- ----------
Shareholder's equity, end of year.............................. $ 77,662.3 $ 50,342.8 $ 55,963.0
========== ========== ==========
</TABLE>
See notes to statutory financial statements.
18
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
STATUTORY STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................................... $ 1,977.8 $ (4,618.0) $ 1,580.8
Additions to policyholders' reserves, funds,
and net of transfers to separate accounts.......................... 7,004.1 8,610.8 2,064.6
Net realized capital loss........................................... 58.1 42.8 24.4
Change in receivable from separate accounts......................... (21,171.1) (7,907.6) (6,456.2)
Change in receivable (payable) to parent............................ (235.4) (1,203.0) 5,145.0
Change in federal taxes receivable (payable)........................ (923.9) (1,018.7) (910.3)
Other changes....................................................... 1,536.8 (2,543.9) (1,178.9)
--------- ---------- ---------
Net cash provided by (used in) operating activities................. (11,753.6) (8,637.6) 269.4
--------- ---------- ---------
Investing activities:
Purchases of investments and loans.................................. (35,959.1) (28,440.1) (43,275.8)
Sales or maturities of investments and receipts
from repayments of loans............................................ 28,736.1 36,618.2 18,455.4
--------- ---------- ---------
Net cash provided by (used in) investing activities................. (7,223.0) 8,178.1 (24,820.4)
--------- ---------- ---------
Financing activities:
Capital and Surplus contribution.................................... 25,500.0 0.0 25,000.0
--------- ---------- ---------
Net cash provided by financing activities........................... 25,500.0 0.0 25,000.0
--------- ---------- ---------
Increase (decrease) in cash and short-term investments............... 6,523.4 (459.5) 449.0
Cash and short-term investments, beginning of year................... 490.5 950.0 501.0
--------- ---------- ---------
Cash and short-term investments, end of year......................... $ 7,013.9 $ 490.5 $ 950.0
========= ========== =========
</TABLE>
See notes to statutory financial statements.
19
<PAGE>
Notes To Statutory Financial Statements
1. OPERATIONS
MML Bay State Life Insurance Company ("the Company") is a wholly-owned
subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual"). The
Company's insurance operation consists primarily of flexible and limited premium
variable whole life insurance and variable annuities distributed through career
agents. On March 1, 1996, the operations of Connecticut Mutual Life Insurance
Company were merged into MassMutual.
2. SUMMARY OF ACCOUNTING PRACTICES
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted by
the State of Missouri ("statutory accounting practices"), which practices were
also considered to be in conformity with generally accepted accounting
principles ("GAAP"). In 1993, the Financial Accounting Standards Board ("FASB")
issued interpretations No. 40 ("Fin. 40"), "Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises", which
clarified that mutual life insurance companies issuing financial statements
described as prepared in conformity with GAAP after 1995 are required to apply
all applicable GAAP pronouncements in preparing those financial statements. In
January 1995, the FASB issued Statement No. 120 ("SFAS 120"), Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," which among other things,
extended the applicability of certain FASB statements to mutual life insurance
companies and deferred the effective date of Fin. 40 to financial statements
issued or reissued after 1996. As required by generally accepted auditing
standards, the opinion expressed by our independent accountants on the 1995 and
1994 financial statements is different from that expressed in their previous
report.
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 in connection with
acquiring new business, are charged to current operations as incurred, whereas
under GAAP these expenses would 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 would value bonds at fair value and (d) deferred
income taxes are not provided for book-tax timing differences whereas GAAP would
record deferred income taxes.
The preparation of statutory 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 statutory 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 the statutory financial statements.
The following is a description of the Company's current principal accounting
policies and practices.
a. Investments
Bonds are valued in accordance with rules established by the National
Association of Insurance Commissioners. Generally, bonds are valued at amortized
cost.
As promulgated by the National Association of Insurance Commissioners, the
Company adopted the retrospective method of accounting for amortization of
premium and discount on mortgage backed securities as of December 31, 1994. This
method considers prepayment assumptions for mortgage backed securities, which
were obtained from a prepayment model, that factors in mortgage type, seasoning,
coupon, current interest rate and the economic environment. The effect of this
change, $21.5 thousand, was recorded as of December 31, 1994 as an increase to
shareholders' equity on the Statutory Statement of Financial Position and had no
material effect for 1996 and 1995 net income. Through December 31, 1994, premium
and discount on bonds were amortized into investment income over the stated
lives of the securities.
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.
20
<PAGE>
Notes To Statutory Financial Statements (Continued)
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves as prescribed by the regulatory
authorities, stabilize the shareholders' equity against declines in the value of
bonds. 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 and amortizes these capital
gains and losses 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 losses of $33.7 thousand in 1996 and net realized
after tax capital gains of $250.2 thousand in 1995 and net realized after tax
capital losses of $7.0 thousand in 1994 were charged to the Interest Maintenance
Reserve. Amortization of the Interest Maintenance Reserve into net investment
income amounted to $85.8 thousand in 1996, $42.1 thousand in 1995 and $86.9
thousand in 1994. The Interest Maintenance Reserve is included in other
liabilities on the statutory Statement of Financial Position.
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 shareholders' equity.
b. Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of variable life insurance
policyholders. Assets, consisting of holdings in an open-end series investment
fund affiliated with MassMutual, bonds, common stocks, and short-term
investments, are reported at fair value. Transfer due from separate account
represents the separate account assets in excess of statutory benefit reserves.
Premiums, benefits and expenses of the separate accounts are reported on the
Statutory Statement of Income. The Company receives compensation for providing
administrative services to the separate account and for assuming mortality and
expense risks in connection with the policies. The Company had $2,998.8 thousand
and $2,354.6 thousand of its assets invested in the separate account as of
December 31, 1996 and 1995, respectively.
The net transfers to separate accounts of $356,088.6 thousand, $59,792.6
thousand and $28,141.7 thousand in 1996, 1995 and 1994, respectively, are
included in addition to policyholders' reserves, funds and separate
accounts.
c. Policyholders' Reserves
Policyholders' reserves for life contracts were developed using accepted
actuarial methods computed principally on the net level premium method and the
Commissioners' Reserve Valuation Method using the 1958 and 1980 Commissioners'
Standard Ordinary mortality tables with assumed interest rates ranging from 3.5
to 5.5 percent. Reserves for individual annuities are based on accepted
actuarial methods, principally at interest rates ranging from 5.5 to 6.0
percent.
During 1994, actuarial guidelines requiring additional reserves for immediate
payment of claims became effective. While the Company's aggregate reserves were
sufficient, the reserves for certain products were not recorded. The effect of
correctly recording these reserves was $1,299.4 thousand at December 31, 1994
and was recorded as an adjustment to shareholders' equity during 1995.
d. Premium and Related Expense Recognition
Premium revenue is recognized annually on the anniversary date of the policy.
Commissions and other costs related to issuance of new policies, maintenance and
settlement costs, are charged to current operations.
e. Cash and Short-Term Investments
For purposes of the Statutory Statement of Cash Flows, the Company considers all
highly liquid short-term investments purchased with a maturity of twelve months
or less to be cash and short-term investments.
3 STOCKHOLDER'S EQUITY
The Board of Directors of MassMutual has authorized the contribution of funds to
the Company sufficient to meet the capital requirements of all states in which
the Company is licensed to do business. Substantially all of the statutory
stockholder's equity is subject to dividend restrictions relating to various
state regulations which limit the payment of dividends without prior approval.
Under these regulations, $3,425.2 thousand of stockholder's equity is available
for distribution to shareholders in 1997 without prior regulatory approval.
21
<PAGE>
Notes To Statutory Financial Statements (Continued)
4. RELATED PARTY TRANSACTIONS
Investment and administrative services are provided to the Company pursuant to a
management services agreement with MassMutual. Service fees are accrued based
upon estimated costs and are billed the following period, when actual costs are
available. Fees incurred under the terms of this agreement were $16,429.2
thousand, $6,588.1 thousand and $7,762.9 thousand in 1996, 1995 and 1994,
respectively.
The Company had reinsurance agreements with MassMutual in which MassMutual
assumed specific plans of insurance on a coinsurance basis and on a yearly
renewal term basis. The coinsurance agreement was terminated in 1995. A
termination fee of $6,200.0 thousand was recorded as an expense and paid to
MassMutual for the rights to retain future fees and charges on the reinsurance
business. While the agreement was in effect, the Company ceded premiums
amounting to $29,597.0 thousand and $26,115.1 thousand in 1995 and 1994,
respectively. Additionally, the Company ceded administrative and insurance
charges of $4,310.3 thousand in 1995 and $4,208.3 thousand in 1994 for policies
issued in those years. The Company received $4,836.8 thousand and $8,434.7
thousand and 1995 and 1994, respectively, as commissions and an expense
allowance. Reserves on all business ceded amounted to $8,027.9 thousand in 1995,
immediately preceding the termination, which reduced policyholders' reserves and
funds. The Company's separate accounts retained the assets applicable to
variable life reserves of the policies reinsured under the agreement with
MassMutual. Premium income and the expense allowance on reinsurance ceded differ
from annual statement presentation.
A provision in the Company's coinsurance agreement with MassMutual required
surrender charge offsets to be included in the ceding provisions of the
reinsurance contract with MassMutual. This surrender charge offset, inherent in
the reserve calculations of the separate account liabilities, is considered
funds which would be due to the general account of MassMutual if the life
policies were surrendered. During 1993, this provision was incorrectly excluded
from amounts recorded for the contract. The effect of correctly recording this
provision was $4,101.5 thousand at December 31, 1993 and was recorded as an
adjustment to shareholders' equity during 1994. The effects of this adjustment
in 1994 were included in the expense allowance on reinsurance ceded and all
related tax benefits were recorded in 1995 and 1994 on the Statutory Statement
of Income in accordance with the accounting practices of the National
Association of Insurance Commissioners.
During 1996 and 1994, MassMutual contributed additional paid in capital of
$25,000.0 thousand cash to the Company.
5. FEDERAL INCOME TAXES
The provision for federal income taxes is based upon the Company's best estimate
of its tax liability. No deferred tax effect is recognized for temporary
differences that may exist between financial reporting and taxable income.
Accordingly, the federal tax provision, using the most current information
available, and adjusting for miscellaneous temporary differences, primarily
reserves and acquisition costs, resulted in an effective tax rate which is other
than the statutory tax rate.
The Internal Revenue Service is currently examining the Company's income tax
returns through the year 1992. Federal income tax returns for the years 1995,
1994 and 1993 are open to examination by the Internal Revenue Service. The
Company believes any adjustments resulting from such examinations will not
materially affect its statutory financial statements.
The Company plans to file its 1996 federal income tax return on a consolidated
basis with MassMutual and MassMutual's other life and non-life affiliates. The
Company and its life and non-life affiliates are subject to a written tax
allocation agreement which allocates tax liability in a manner permitted under
Treasury regulations. Generally, the agreement provides that loss members shall
be compensated for the use of their losses and credits by other members.
The Company made federal tax payments of $12,811.7 thousand and $1,892.0
thousand in 1996 and 1995, respectively. No federal tax payments were made
during 1994.
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.
22
<PAGE>
Notes To Statutory Financial Statements (Continued)
a. Bonds
The carrying value and estimated fair value of bonds are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 7,767.8 $ 79.5 $ 41.1 $ 7,806.2
Mortgage-backed securities 8,265.9 42.1 64.6 8,243.4
Industrial securities 28,895.9 293.6 146.1 29,043.4
--------- --------- --------- ---------
TOTAL $44,929.6 $ 415.2 $ 251.8 $45,093.0
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 7,929.3 $ 107.8 $ 1.0 $ 8,036.1
Mortgage-backed securities 11,979.4 114.9 35.9 12,058.4
Industrial securities 21,351.9 684.2 1.7 22,034.4
--------- --------- --------- ---------
TOTAL $41,260.6 $ 906.9 $ 38.6 $42,128.9
========= ========= ========= =========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1996 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
-------- ---------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 6,383.8 $ 6,423.7
Due after one year through five years 13,043.8 13,203.9
Due after five years through ten years 12,929.9 12,865.2
Due after ten years 1,510.1 1,503.1
--------- ---------
33,867.6 33,995.9
Mortgage-backed securities, including securities guaranteed
by the U.S. Government 11,062.0 11,097.1
--------- ---------
TOTAL $44,929.6 $45,093.0
========= =========
</TABLE>
Proceeds from sales and maturities of investments in bonds were $28,736.1
thousand during 1996, $36,584.5 thousand during 1995 and $17,742.4 thousand
during 1994. Gross capital gains of $33.2 thousand in 1996, $535.0 thousand in
1995 and $44.5 thousand in 1994 and gross capital losses of $65.2 thousand in
1996, $87.0 thousand in 1995 and $52.3 thousand in 1994 were realized on those
sales, a portion of which were included in the Interest Maintenance Reserve. The
estimated fair value of non-publicly traded bonds is determined by the Company
using a pricing matrix.
b. Other
It is not practicable to determine the fair value of policy loans which do not
have a stated maturity.
23
<PAGE>
Notes To Statutory Financial Statements (Continued)
7. LIQUIDITY
The withdrawal characteristics of the policyholders' reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1996 are illustrated below:
<TABLE>
(In Thousands)
<S> <C> <C>
Total policyholders' reserves and funds and separate account liabilities $730,203.6
Not subject to discretionary withdrawal (143.3)
Policy loans (9,988.3)
----------
Subject to discretionary withdrawal $720,072.0
==========
Total invested assets, including separate investment accounts $768,600.7
Policy loans and other invested assets (9,988.3)
----------
Readily marketable investments $758,612.4
==========
</TABLE>
8. BUSINESS RISKS AND CONTINGENCIES
Approximately 52% of the Company's premium revenue is derived from two
customers.
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 premiums. The
Company believes such assessments in excess of amounts accrued will not
materially affect its financial position, results of operations or liquidity. In
1996, the Company elected not to admit $83.3 thousand of guaranty fund premium
tax offset receivables relating to prior assessments.
The Company is involved in litigation arising out of the normal course of its
business. Management intends to defend these actions vigorously. While the
outcome of litigation cannot be foreseen with certainty, it is the opinion of
management, after consultation with legal counsel, that the ultimate resolution
of these matters will not materially affect its financial position, results of
operations or liquidity.
9. AFFILIATED COMPANIES
The relationship of the Company, its parent and affiliated companies as of
December 31, 1996 is illustrated below. Subsidiaries are wholly-owned by the
parent, 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 Investors Services, Inc.
State House One (Liquidated in December 1996)
24
<PAGE>
Notes To Statutory Financial Statements (Continued)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation
Charter Oak Capital Management, Inc.
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation
Oppenheimer Acquisition Corporation - 86.15%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc.
CM International, Inc.
CM Property Management, Inc.
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
Subsidiaries of MassMutual International
----------------------------------------
MassLife Seguros de Vida (Argentina) S. A.
MassMutual International (Bermuda) Ltd.
Mass Seguros de Vida (Chile) S. A.
MassMutual International (Luxemburg) S. A.
MassMutual Holding MSC, Incorporated
------------------------------------
MassMutual/Carlson CBO N. V. - 50%
MassMutual Corporate Value Limited - 46%
Affiliates of Massachusetts Mutual Life Insurance Company
---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
25
<PAGE>
PART II. INFORMATION NOT REQUIRED IN A PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
Not applicable.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
MML Bay State directors and officers are indemnified under its by-laws. MML Bay
State indemnifies each person who was or is a party to any threatened, pending
or completed action, suit or to any liability to any entity which is registered
as an investment company under the Investment Company Act of 1940 or to the
security holders thereof provided that:
(a) Such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation;
(b) With respect to any criminal action or proceeding, such person had no
reasonable cause to believe their conduct was unlawful;
(c) Unless ordered by a court, indemnification shall be made only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
set forth in subparagraphs (a) and (b) above, such determination to be made
(i) by the Board of Directors of the MML Bay State by a majority vote of a
quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders of the
corporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
MML Bay State pursuant to the foregoing provisions, or otherwise, MML Bay
State has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by MML Bay State of expenses incurred or paid by a director,
officer or controlling person of MML Bay State in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, MML
Bay State will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issues.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
MML Bay State offers two unregistered privately placed variable universal
life insurance products. These products are offered by MML Bay State
Variable Life Separate Accounts II, III, IV and V respectively. The
products offered by these Separate Accounts are used either as a means of
funding long-term corporate obligations such as retiree health care
obligations or are sold to individuals and families with significant
resources for wealth accumulation and estate planning purposes.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
<TABLE>
<CAPTION>
Exhibit Number Description ........................................ Method of Filing
- -------------- ----------- ----------------
<S> <C> <C>
(1)(a) Underwriting Agreements with........................
MML Investors Services, Inc. ....................... **
(1)(b) Form of Underwriting Agreement with
MML Distributors, LLC............................... Filed herewith
(3)(i) MML Bay State Articles of
Incorporation....................................... *
(3)(ii) MML Bay State Bylaws................................ *
4 Individual Annuity Contract......................... *
5 Opinion re legality................................. Filed herewith
23 Consent of
Coopers & Lybrand L.L.P,............................
independent accountants............................. Filed herewith
Financial Statement
Schedules........................................... Filed herewith
24 Powers of Attorney.................................. Filed Herewith
27 Financial Data Schedule............................. Filed Herewith
</TABLE>
*Incorporated by reference pursuant to Rule 411 of the Securities Act of 1933
from the Registrant's Registration Statement No. 33-79750 filed on June 6, 1994.
**Incorporated by reference pursuant to Rule 411 of the Securities Act of 1933
from the Registrant's Registration No. 33-79750 filed and effective May 1,
1996.
Item 17. Undertakings
------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i.) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii.) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which,
4
<PAGE>
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii.) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement, including (but
not limited to) any addition or deletion of a managing
underwriter;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this Post-Effective Amendment No. 3 to Registration Statement No. 33-
79750 to be signed on its behalf by the undersigned thereunto duly authorized,
all in the city of Springfield and the Commonwealth of Massachusetts, on the 3rd
day of April, 1997.
MML BAY STATE LIFE INSURANCE COMPANY
By: /s/ Lawrence V. Burkett, Jr.*
------------------------------------------------
Lawrence V. Burkett, Jr., President and Chief Executive Officer
MML Bay State Life Insurance Company
/s/ Richard M. Howe On April 3, 1997, as Attorney-in-Fact pursuant to
- --------------------- powers of attorney filed herewith.
*Richard M. Howe
As required by the Securities Act of 1933, this Post-Effective
Amendment No. 3 to Registration Statement No. 33-79750 has been signed by the
following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lawrence V. Burkett, Jr.* President, Chief Executive April 3, 1997
- ------------------------------- and Director
Lawrence V. Burkett, Jr
/s/ Ann Iseley* Treasurer (Principal Financial April 3, 1997
- ------------------------------- Officer)
Ann Iseley
/s/ John Miller, Jr.* Second Vice President and Comptroller April 3, 1997
- ------------------------------- (Principal Accounting Officer)
John Miller, Jr
/s/ Paul D. Adornato* Director April 3, 1997
- -------------------------------
Paul D. Adornato
/s/ John B. Davies* Director April 3, 1997
- -------------------------------
John B. Davies
/s/ Anne Melissa Dowling* Director April 3, 1997
- -------------------------------
Anne Melissa Dowling
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Daniel F. Fitzgerald* Director April 3, 1997
- -------------------------------
Daniel F. Fitzgerald
/s/ Maureen R. Ford* Director April 3, 1997
- -------------------------------
Maureen R. Ford
/s/ Isadore Jermyn* Director April 3, 1997
- -------------------------------
Isadore Jermyn
/s/ Stuart H. Reese* Director April 3, 1997
- -------------------------------
Stuart H. Reese
/s/ Richard M. Howe On April 3, 1997, as Attorney-in-Fact
- ------------------------------- pursuant to powers of attorney filed herewith.
*Richard M. Howe
</TABLE>
7
<PAGE>
EXHIBIT (1)(b)
Form of Underwriting Agreement with MML Distributors, LLC
8
<PAGE>
UNDERWRITING AND
SERVICING AGREEMENT
This UNDERWRITING AND SERVICING AGREEMENT is made this 1st day of May, 1996, by
and between MML Distributors, LLC ("MML DISTRIBUTORS") and Massachusetts Mutual
Life Insurance Company ("MassMutual"), on its own behalf and on behalf of
_______________ Separate Account (the "Separate Account"), a separate account of
MassMutual, as follows:
WHEREAS, the Separate Account was established on _____________ pursuant to
authority of the Board of Directors of MassMutual in order to set aside and
invest assets attributable to certain variable annuity contracts (the
"Contracts") issued by MassMutual; and
WHEREAS, MassMutual has registered the Separate Account under the Investment
Company Act of 1940, as amended, (the "1940 Act") and has registered the
Contracts under the Securities Act of 1933, as amended, (the "1933 Act");
and
WHEREAS, MassMutual will continue the effectiveness of the registrations of the
Separate Account under the 1940 Act and the Contracts under the 1933 Act;
and
WHEREAS, MassMutual intends for the Contracts to be sold by agents and brokers
who are required to be registered representatives of a broker-dealer that is
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934 ("1934 Act") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, MassMutual desires to engage MML DISTRIBUTORS, a broker-dealer
registered with the SEC under the 1934 Act and a member of the NASD, to act as
the principal underwriter ("Underwriter") of the Contracts, and to otherwise
perform certain duties and functions that are necessary and proper for the
distribution of the Contracts as required under applicable federal and state
securities laws and NASD regulations, and MML DISTRIBUTORS desires to act as
Underwriter for the sale of the Contracts and to assume such responsibilities;
9
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Underwriter. MassMutual hereby appoints MML DISTRIBUTORS as, and MML
DISTRIBUTORS agrees to serve as, Underwriter of the Contracts during
the term of this Agreement for purposes of federal and state
securities laws. MassMutual reserves the right, however, to refuse at
any time or times to sell any Contracts hereunder for any reason, and
MassMutual maintains ultimate responsibility for the sales of the
Contracts.
MML DISTRIBUTORS shall use reasonable efforts to sell the Contracts
but does not agree hereby to sell any specific number of Contracts
and shall be free to act as underwriter of other securities. MML
DISTRIBUTORS agrees to offer the Contracts for sale in accordance
with the prospectus then in effect for the Contracts.
2. Services. MML DISTRIBUTORS agrees, on behalf of MassMutual and the
Separate Account, and in its capacity as Underwriter, to undertake at
its own expense except as otherwise provided herein, to provide
certain sales, administrative and supervisory services relative to
the Contracts as described below, and otherwise to perform all duties
that are necessary and proper for the distribution of the Contracts
as required under applicable federal and state securities laws and
NASD regulations.
3. Selling Group. MML DISTRIBUTORS may enter into sales agreements for
the sale of the Contracts with independent broker-dealer firms
("Independent Brokers") whose registered representatives have been or
shall be licensed and appointed as life insurance agents of
MassMutual. All such agreements shall be in a form agreed to by
MassMutual. All such agreements shall provide that the Independent
Brokers must assume full responsibility for continued compliance by
itself and its associated persons with the NASD Rules of Fair
Practice (the "Rules") and all applicable federal and state
securities and insurance laws. All associated persons of such
Independent Brokers soliciting applications for the Contracts shall
be duly and appropriately licensed and appointed for the sale of the
Contracts under the Rules and applicable federal and state securities
and insurance laws.
4. Compliance and Supervision. All persons who are engaged directly or
indirectly in the operations of MML DISTRIBUTORS and MassMutual in
connection with the offer or sale of the Contracts shall be
considered a "person associated" with MML DISTRIBUTORS as defined in
Section 3(a)(18) of the 1934 Act. MML DISTRIBUTORS shall have full
responsibility for the securities activities of each such person as
contemplated by Section 15 of the 1934 Act.
MML DISTRIBUTORS shall be fully responsible for carrying out all
compliance, supervisory and other obligations hereunder with respect
to the activities of its registered representatives as required by
the Rules and applicable federal and state securities laws. Without
limiting the generality of the foregoing, MML DISTRIBUTORS agrees
that it shall be fully responsible for:
(a) ensuring that no representative of MML DISTRIBUTORS shall
offer or sell the Contracts until such person is
appropriately licensed, registered, or otherwise qualified
to offer and sell such Contracts under the federal
securities laws and any applicable securities laws of each
state or other jurisdiction in which such Contracts may be
lawfully sold, in which MassMutual is licensed to sell the
Contracts, and in which such person shall offer or sell the
Contracts; and
(b) training and supervising MassMutual's agents and brokers
who are also registered representatives of MML DISTRIBUTORS
for purposes of complying on a continuous basis with the
Rules and with federal and state securities laws applicable
in connection with the offering and sale of the Contracts.
In this connection, MML DISTRIBUTORS shall:
10
<PAGE>
(i) jointly conduct with MassMutual such training
(including the preparation and utilization of
training materials) as in the opinion of MML
DISTRIBUTORS and MassMutual is necessary to
accomplish the purposes of this Agreement;
(ii) establish and implement reasonable written procedures
for supervision of sales practices of registered
representatives of MML DISTRIBUTORS who sell the
Contracts;
(iii) provide a sufficient number of registered principals
and an adequately staffed compliance department to
carry out the responsibilities as set forth
herein;
(iv) take reasonable steps to ensure that
MassMutual agents and brokers who are also
registered representatives of MML DISTRIBUTORS
recommend the purchase of the Contracts only
upon reasonable grounds to believe that the
purchase of the Contracts is suitable for such
applicant; and
(v) impose disciplinary measures on agents of MassMutual
who are also registered representatives of MML
DISTRIBUTORS as required.
The parties hereto recognize that any registered
representative of MML DISTRIBUTORS or Independent Broker
selling the Contracts as contemplated by this Agreement
shall also be acting as an insurance agent of MassMutual or
as an insurance broker, and that the rights of MML
DISTRIBUTORS and Independent Broker to supervise such
persons shall be limited to the extent specifically
described herein or required under applicable federal or
state securities laws or NASD regulations.
5. Registration and Qualification of Contracts. MassMutual has prepared or
caused to be prepared a registration statement describing the Contracts,
together with exhibits thereto (hereinafter referred to as the
"Registration Statement"). The Registration Statement includes a
prospectus (the "Prospectus") for the Contracts.
MassMutual agrees to execute such papers and to do such acts and
things as shall from time-to-time be reasonably requested by MML
DISTRIBUTORS for the purpose of qualifying and maintaining
qualification of the Contracts for sale under applicable state law
and for maintaining the registration of the Separate Account and
interests therein under the 1933 Act and the 1940 Act, to the end
that there will be available for sale from time-to-time such amounts
of the Contracts as MML DISTRIBUTORS may reasonably request.
MassMutual shall advise MML DISTRIBUTORS promptly of any action of
the SEC or any authorities of any state or territory, of which it is
aware, affecting registration or qualification of the Separate
Account, or rights to offer the Contracts for sale.
If any event shall occur as a result of which it is necessary to
amend or supplement the Registration Statement in order to make the
statements therein, in light of the circumstances under which they
were or are made, true, complete or not misleading, MassMutual will
forthwith prepare and furnish to MML DISTRIBUTORS, without charge,
amendments or supplements to the Registration Statement sufficient to
make the statements made in the Registration Statement as so amended
or supplemented true, complete and not misleading in light of the
circumstances under which they were made.
6. Representations of MassMutual. MassMutual represents and warrants to MML
DISTRIBUTORS and to the Independent Brokers as follows:
(a) MassMutual is an insurance company duly organized under the laws
of the Commonwealth of Massachusetts and is in good standing and
is authorized to conduct business under the laws of each state in
which the Contracts are sold, that the Separate Account was
legally and validly
11
<PAGE>
established as a segregated asset account under the Insurance Code
of Massachusetts, and that the Separate Account has been properly
registered as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment
account for the Contracts.
(b) All persons that will be engaging in the offer or sale of the
Contracts will be authorized insurance agents of MassMutual.
(c) The Registration Statement does not and will not contain any
misstatements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were or are made, not materially misleading.
(d) MassMutual shall make available to MML DISTRIBUTORS copies of all
financial statements that MML DISTRIBUTORS reasonably requests for
use in connection with the offer and sale of the Contracts.
(e) No federal or state agency or bureau has issued an order
preventing or suspending the offer of the Contracts or the use of
the Registration Statement, or of any part thereof, with respect
to the sale of the Contracts.
(f) The offer and sale of the Contracts is not subject to
registration, or if necessary, is registered, under the Blue Sky
laws of the states in which the Contracts will be offered and
sold.
(g) The Contracts are qualified for offer and sale under the
applicable state insurance laws in those states in which the
Contracts shall be offered for sale. In each state where such
qualification is effected, MassMutual shall file and make such
statements or reports as are or may be required by the laws of
such state.
(h) This Agreement has been duly authorized, executed and delivered by
MassMutual and constitutes the valid and legally binding
obligation of MassMutual. Neither the execution and delivery of
this Agreement by MassMutual nor the consummation of the
transactions contemplated herein will result in a breach or
violation of any provision of the state insurance laws applicable
to MassMutual, any judicial or administrative orders in which it
is named or any material agreement or instrument to which it is a
party or by which it is bound.
7. Representations of MML DISTRIBUTORS. MML DISTRIBUTORS represents and
warrants to MassMutual as follows:
(a) MML DISTRIBUTORS is duly registered as a broker-dealer under the
1934 Act and is a member in good standing of the NASD and, to the
extent necessary to perform the activities contemplated hereunder,
is duly registered, or otherwise qualified, under the applicable
securities laws of every state or other jurisdiction in which the
Contracts are available for sale.
(b) This Agreement has been duly authorized, executed and delivered by
MML DISTRIBUTORS and constitutes the valid and legally binding
obligation of MML DISTRIBUTORS. Neither the execution and delivery
of this Agreement by MML DISTRIBUTORS nor the consummation of the
transactions contemplated herein will result in a breach or
violation of any provision of the federal or state securities laws
or the Rules, applicable to MML DISTRIBUTORS, or any judicial or
administrative orders in which it is named or any material
agreement or instrument to which it is a party or by which it is
bound.
(c) MML DISTRIBUTORS shall comply with the Rules and the securities
laws of any jurisdiction in which it sells, directly or
indirectly, any Contracts.
12
<PAGE>
8. Expenses. MML DISTRIBUTORS shall be responsible for all expenses incurred
in connection with its provision of services and the performance of its
obligations hereunder, except as otherwise provided herein.
MassMutual shall be responsible for all expenses of printing and
distributing the Prospectuses, and all other expenses of preparing,
printing and distributing all other sales literature or material for use
in connection with offering the Contracts for sale.
9. Sales Literature and Advertising. MML DISTRIBUTORS agrees to ensure that
it uses and distributes only the Prospectus, statements of additional
information, or other applicable and authorized sales literature then in
effect in selling the Contracts. MML DISTRIBUTORS is not authorized to
give any information or to make any representations concerning the
Contracts other than those contained in the current Registration Statement
filed with the SEC or in such sales literature as may be authorized by
MassMutual.
MML DISTRIBUTORS agrees to make timely filings with the SEC, the NASD, and
such other regulatory authorities as may be required of any sales
literature or advertising materials relating to the Contracts and intended
for distribution to prospective investors. MassMutual shall review and
approve all advertising and sales literature concerning the Contracts
utilized by MML DISTRIBUTORS. MML DISTRIBUTORS also agrees to furnish to
MassMutual copies of all agreements and plans it intends to use in
connection with any sales of the Contracts.
10. Applications. All applications for Contracts shall be made on application
forms supplied by MassMutual, and shall be remitted by MML DISTRIBUTORS or
Independent Brokers promptly, together with such forms and any other
required documentation, directly to MassMutual at the address indicated on
such application or to such other address as MassMutual may, from time to
time, designate in writing. All applications are subject to acceptance or
rejection by MassMutual at its sole discretion.
11. Payments. All money payable in connection with any of the Contracts,
whether as premiums, purchase payments or otherwise, and whether paid by,
or on behalf of any applicant or Contract owner, is the property of
MassMutual and shall be transmitted immediately in accordance with the
administrative procedures of MassMutual without any deduction or offset
for any reason, including by example but not limitation, any deduction or
offset for compensation claimed by MML DISTRIBUTORS. Checks or money
orders as payment on any Contract shall be drawn to the order of
"Massachusetts Mutual Life Insurance Company." No cash payments shall be
accepted by MML DISTRIBUTORS in connection with the Contracts. Unless
otherwise agreed to by MassMutual in writing, neither MML DISTRIBUTORS nor
any of MassMutual's agents nor any broker shall have an interest in any
surrender charges, deductions or other fees payable to MassMutual as set
forth herein.
12. Insurance Licenses. MassMutual shall apply for and maintain the proper
insurance licenses and appointments for each of the agents and brokers
selling the Contracts in all states or jurisdictions in which the
Contracts are offered for sale by such person. MassMutual reserves the
right to refuse to appoint any proposed agent or broker, and to terminate
an agent or broker once appointed. MassMutual agrees to be responsible for
all licensing or other fees required under pertinent state insurance laws
to properly authorize agents or brokers for the sale of the Contracts;
however, the foregoing shall not limit MassMutual's right to collect such
amount from any person or entity other than MML DISTRIBUTORS.
13. Agent/Broker Compensation. Commissions or other fees due all brokers and
agents in connection with the sale of Contracts shall be paid by
MassMutual, on behalf of MML DISTRIBUTORS, to the persons entitled thereto
in accordance with the applicable agreement between each such broker or
agent and MassMutual or a general agent thereof. MML DISTRIBUTORS shall
assist MassMutual in the payment of such amounts as MassMutual shall
reasonably request, provided that MML DISTRIBUTORS shall not
13
<PAGE>
be required to perform any acts that would subject it to registration
under the insurance laws of any state. The responsibility of MML
DISTRIBUTORS shall include the performance of all activities by MML
DISTRIBUTORS necessary in order that the payment of such amounts fully
complies with all applicable federal and state securities laws. Unless
applicable federal or state securities law shall require, MassMutual
retains the ultimate right to determine the commission rate paid to its
agents.
14. MML DISTRIBUTORS Compensation. As payment for its services hereunder, MML
DISTRIBUTORS shall receive an annual fee that has the following
components: (1) a fixed fee in the amount of $_____ per year, and (2) a
variable fee in the amount of ___ basis points (.000x) per year of new
sales of the Contracts. Payments shall commence and be made no later than
December 31 of the year in which a Contract is issued. The variable
component of the fee shall be paid to MML DISTRIBUTORS's affiliate, MML
Insurance Agency, Inc. ("MMLIAI"). The fixed component shall be
renegotiated annually commencing in 1997. The last agreed-to amounts for
each of these fees shall remain in effect until the new fees are mutually
agreed upon and are set forth in schedules attached hereto.
15. Books and Records. MML DISTRIBUTORS and MassMutual shall each cause to be
maintained and preserved for the period prescribed such accounts, books,
and other documents as are required of it by the 1934 Act and any other
applicable laws and regulations. In particular, without limiting the
foregoing, MML DISTRIBUTORS shall cause all the books and records in
connection with the offer and sale of the Contracts by its registered
representatives to be maintained and preserved in conformity with the
requirements of Rules 17a-3 and 17a-4 under the 1934 Act, to the extent
that such requirements are applicable to the Contracts. The books,
accounts, and records of MML DISTRIBUTORS and MassMutual as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. The payment of
premiums, purchase payments, commissions and other fees and payments in
connection with the Contracts by its registered representatives shall be
reflected on the books and records of MML DISTRIBUTORS as required under
applicable NASD regulations and federal and state securities laws
requirements.
MML DISTRIBUTORS and MassMutual, from time to time during the term of this
Agreement, shall divide the administrative responsibility for maintaining
and preserving the books, records and accounts kept in connection with the
Contracts; provided, however, in the case of books, records and accounts
kept pursuant to a requirement of applicable law or regulation, the
ultimate and legal responsibility for maintaining and preserving such
books, records and accounts shall be that of the party which is required
to maintain or preserve such books, records and accounts under the
applicable law or regulation, and such books, records and accounts shall
be maintained and preserved under the supervision of that party. MML
DISTRIBUTORS and MassMutual shall each cause the other to be furnished
with such reports as it may reasonably request for the purpose of meeting
its reporting and recordkeeping requirements under such regulations and
laws, and under the insurance laws of the Commonwealth of Massachusetts
and any other applicable states or jurisdictions.
MML DISTRIBUTORS and MassMutual each agree and understand that all
documents, reports, records, books, files and other materials required
under applicable Rules and federal and state securities laws shall be the
property of MML DISTRIBUTORS, unless such documents, reports, records,
books, files and other materials are required by applicable regulation or
law to be also maintained by MassMutual, in which case such material shall
be the joint property of MML DISTRIBUTORS and MassMutual. All other
documents, reports, records, books, files and other materials maintained
relative to this Agreement shall be the property of MassMutual. Upon
termination of this Agreement, all said material shall be returned to the
applicable party.
MML DISTRIBUTORS and MassMutual shall establish and maintain facilities
and procedures for the safekeeping of all books, accounts, records, files,
and other materials related to this Agreement. Such
14
<PAGE>
books, accounts, records, files, and other materials shall remain
confidential and shall not be voluntarily disclosed to any other person or
entity except as described below in section 16.
16. Availability of Records. MML DISTRIBUTORS and MassMutual shall each submit
to all regulatory and administrative bodies having jurisdiction over the
sales of the Contracts, present or future, any information, reports, or
other material that any such body by reason of this Agreement may request
or require pursuant to applicable laws or regulations. In particular,
without limiting the foregoing, MassMutual agrees that any books and
records it maintains pursuant to paragraph 15 of this Agreement which are
required to be maintained under Rule 17a-3 or 17a-4 of the 1934 Act shall
be subject to inspection by the SEC in accordance with Section 17(a) of
the 1934 Act and Sections 30 and 31 of the 1940 Act.
17. Confirmations. MassMutual agrees to prepare and mail a confirmation for
each transaction in connection with the Contracts at or before the
completion thereof as required by the 1934 Act and applicable
interpretations thereof, including Rule 10b-10 thereunder. Each such
confirmation shall reflect the facts of the transaction, and the form
thereof will show that it is being sent on behalf of MML DISTRIBUTORS or
Independent Broker acting in the capacity of agent for MassMutual.
18. Indemnification. MassMutual shall indemnify MML DISTRIBUTORS, Independent
Brokers, their registered representatives, officers, directors, employees,
agents and controlling persons and hold such persons harmless, from and
against any and all losses, damages, liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever
(including reasonable attorneys' fees and disbursements) resulting or
arising out of or based upon an allegation or finding that: (i) the
Registration Statement or any application or other document or written
information provided by or on behalf of MassMutual includes any untrue
statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they are made, not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, written information furnished to
MassMutual by MML DISTRIBUTORS, Independent Brokers, or their registered
representatives specifically for use in the preparation thereof, or (ii)
there is a misrepresentation, breach of warranty or failure to fulfill any
covenant or warranty made or undertaken by MassMutual hereunder.
MML DISTRIBUTORS will indemnify MassMutual, its officers, directors,
employees, agents and controlling persons and hold such persons harmless,
from and against any and all losses, damages, liabilities, claims,
demands, judgments, settlements, costs and expenses of any nature
whatsoever (including reasonable attorneys' fees and disbursements)
resulting or arising out of or based upon an allegation or finding that:
(i) MML DISTRIBUTORS or its registered representatives offered or sold or
engaged in any activity relating to the offer and sale of the Contracts
which was in violation of any provision of the federal securities laws or,
(ii) there is a material misrepresentation, material breach of warranty or
material failure to fulfill any covenant or warranty made or undertaken by
MML DISTRIBUTORS hereunder.
Promptly after receipt by an indemnified party under this paragraph 18 of
notice of the commencement of any action by a third party, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this paragraph 18, notify the
indemnifying party of the commencement thereof; but the omission to notify
the indemnifying party will not relieve the indemnifying party from
liability which the indemnifying party may have to any indemnified party
otherwise than under this paragraph. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this
15
<PAGE>
paragraph for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
19. Independent Contractor. MML DISTRIBUTORS shall be an independent
contractor. MML DISTRIBUTORS is responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees.
MML DISTRIBUTORS assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
20. Termination. Subject to termination as hereinafter provided, this
Agreement shall remain in full force and effect for the initial term of
the Agreement, which shall be for a two year period commencing on the date
first above written, and this Agreement shall continue in full force and
effect from year to year thereafter, until terminated as herein
provided.
This Agreement may be terminated by either party hereto upon 30 days
written notice to the other party, or at any time upon the mutual written
consent of the parties hereto. This Agreement shall automatically be
terminated in the event of its assignment. Subject to MassMutual's
approval, however, MML DISTRIBUTORS may delegate any duty or function
assigned to it in this agreement provided that such delegation is
permissible under applicable law. Upon termination of this Agreement, all
authorizations, rights and obligations shall cease except the obligations
to settle accounts hereunder, including the settlement of monies due in
connection with the Contracts in effect at the time of termination or
issued pursuant to applications received by MassMutual prior to
termination.
21. Interpretation. This Agreement shall be subject to the provisions of the
1934 Act and the rules, regulations, and rulings thereunder and of the
NASD, from time to time in effect, and the terms hereof shall be
interpreted and construed in accordance therewith. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule, or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be interpreted in accordance with the laws
of the Commonwealth of Massachusetts.
22. Non-exclusivity. The services of MML DISTRIBUTORS and MassMutual to the
Separate Account hereunder are not to be deemed exclusive and MML
DISTRIBUTORS and MassMutual shall be free to render similar services to
others so long as their services hereunder are not impaired or interfered
with hereby.
23. Amendment. This Agreement constitutes the entire Agreement between the
parties hereto and may not be modified except in a written instrument
executed by all parties hereto.
24. Interests in and of MML DISTRIBUTORS. It is understood that any of the
policyholders, directors, officers, employees and agents of MassMutual may
be a shareholder, director, officer, employee, or agent of, or be
otherwise interested in, MML DISTRIBUTORS, any affiliated person of MML
DISTRIBUTORS, any organization in which MML DISTRIBUTORS may have an
interest, or any organization which may have an interest in MML
DISTRIBUTORS; that MML DISTRIBUTORS, any such affiliated person or any
such organization may have an interest in MassMutual; and that the
existence of any such dual interest shall not affect the validity hereof
or of any transaction hereunder except as otherwise provided in the
Charter, Articles of Incorporation, or By-Laws of MassMutual and MML
DISTRIBUTORS, respectively, or by specific provision of applicable
law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officials thereunto duly authorized and seals
to be affixed, as of the day and year first above written.
ATTEST: MASSACHUSETTS MUTUAL LIFE
16
<PAGE>
INSURANCE COMPANY, on its behalf
and on behalf of _______________
SEPARATE ACCOUNT
By: ___________________________
ATTEST: MML INVESTORS SERVICES, INC.
By: _________________________
17
<PAGE>
EXHIBIT 5
OPINION RE LEGALITY
April 4, 1997
MML Bay State Life Insurance Company
1295 State Street
Springfield, MA 01111
RE: MML Bay State Fixed Account with Market Value
Adjustment; Commission File No. 33-79750
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 3 to the Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933 for MML Bay State Fixed Account
with Market Value Adjustment (the "Fixed Account") offered in connection with
OppenheimerFunds LifeTrust Variable Annuity contract, issued by MML Bay
State.
The Fixed Account offers investors the choice among various guarantee periods to
which account value may be allocated. If such amounts remain in the Fixed
Account for the chosen guarantee period, then a guaranteed rate of interest will
be paid. If, however, amounts are withdrawn prior to the expiration of the
selected guarantee period, such withdrawal will be subject to a market value
adjustment.
As Chief Legal Officer for MML Bay State Life Insurance Company, ("MML Bay
State"), I provide legal advice to MML Bay State in connection with the
operation of its variable products. In such role I have participated in the
preparation of Post-Effective Amendment No. 3 to the Registration Statement for
the Fixed Account. In so acting, I have made such examination of the law and
examined such records and documents as in my judgment are necessary or
appropriate to enable me to render the opinion expressed below. I am of the
following opinion:
1. MML Bay State is a valid and subsisting corporation, organized and operated
under Missouri law, and subject to regulation by the Missouri Commissioner of
Insurance.
2. The securities being registered, when sold will be legally issued, fully
paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Post-Effective
Amendment.
Very truly yours,
Thomas F. English
-----------------
Thomas F. English
Chief Legal Officer and
Assistant Secretary
18
<PAGE>
EXHIBIT 23
CONSENTS OF EXPERTS
Consent of Coopers & Lybrand L.L.P.
19
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
MML Bay State Life Insurance Company
We consent to the inclusion in this registration statement on Form S-1 (File No.
33-79750 of our report, which includes explanatory paragraphs relating to the
use of statutory accounting practices, which practices are no longer considered
to be in accordance with generally accepted accounting principles, and the
change in our opinion for prior years dated February 7, 1997 on our audits of
the statutory financial statements and the statutory financial statement
schedules of MML Bay State Life Insurance Company. We also consent to the
reference to our Firm under the caption "Experts."
Springfield, Massachusetts Coopers & Lybrand, L.L.P.
April 4, 1997
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
MML Bay State Life Insurance Company
We have audited the accompanying statutory financial statements and financial
statement schedules of MML Bay State Life Insurance Company, listed in Item XI
of this Form S-1. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using statutory accounting practices of the National
Association of Insurance Commissioners and the accounting practices prescribed
or permitted by the Department of Insurance of the State of Missouri, 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
determinable at this time, are presumed to be material.
In our report dated February 23, 1996, we expressed our opinion that the 1995
and 1994 financial statement, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of the MML
Bay State Life Insurance Company as of December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles
("GAAP"). As described in Note 2 to the financial statements, financial
statements of stock life insurance subsidiaries of mutual life insurance
enterprises issued or reissued after 1996, and prepared in accordance with
statutory accounting principles, are no longer considered to be presentations in
conformity with GAAP. Accordingly, our present opinion on the 1995 and 1994
statutory financial statements as presented herein is different from that
expressed in our previous report.
In our opinion, because of the effects of the matter discussed in the third
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of MML Bay State Life Insurance Company at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MML Bay State Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, on
the statutory basis of accounting described in Note 2. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
Springfield, Massachusetts Coopers & Lybrand, L.L.P.
February 7, 1997
21
<PAGE>
EXHIBIT 23 (i)
STATUTORY FINANCIAL STATEMENT SCHEDULES
22
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
SCHEDULE I: SCHEDULE OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
Amount at
Carrying which shown on
Type of Investment Value Fair Value Balance Sheet
- ------------------ -------- ---------- -------------
<S> <C> <C> <C>
Bonds:
U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies $ 7,768 $ 7,806 $ 7,768
Mortgage-backed securities 8,266 8,243 8,266
Industrial Securities 28,896 29,044 28,896
------- ------- -------
Total Bonds $44,930 $45,093 $44,930
------- ======= -------
Policy Loans 9,988 9,988
Cash and Short-term investments 7,014 7,014
------- -------
Total Investments $61,932 $61,932
======= =======
</TABLE>
23
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
SCHEDULE IV: REINSURANCE
(In Thousands)
<TABLE>
<CAPTION>
Ceded Assumed Percentage of
Gross to Other from Other Net Amount Assumed
Year ended December 31, 1996 Amount Companies Companies Amount to Net
- ---------------------------- ------ --------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $14,665,327 $1,604,851 $0.0 $13,060,476 0.0%
=========== ========== ==== =========== ====
Premiums and other considerations
Individual life & annuities $ 198,825 $ 3,601 $0.0 $195,224 0.0%
Group life & annuities 246,178 190 0.0 245,988 0.0
------------- ------------- ---- ------------ ---
Total Premium and other considerations $ 445,003 $ 3,791 $0.0 $ 441,212 0.0%
============= ============ ==== ============ ====
Year ended December 31, 1995
- ----------------------------
Life Insurance in Force $ 6,936,847 $1,088,642 $0.0 $ 5,848,205 0.0%
============ ========== ==== =========== ====
Premiums and other considerations
Individual life & annuities $ 90,730 $ 9,848 $0.0 $ 80,882 $0.0
Group life & annuities 12,504 653 0.0 11,851 0.0
------------- -------------- ---- ------------ ----
Total Premium and other considerations $ 103,234 $ 10,501 $0.0 $ 92,733 $0.0
============ ============ ==== ============ ====
Year ended December 31, 1994
- ----------------------------
Life Insurance in Force $ 5,123,903 $2,965,198 $0.0 $ 2,158,705 0.0%
=========== ========== ==== =========== ====
Premiums and other considerations
Individual life & annuities $ 52,156 $ 4,131 $0.0 $ 48,025 0.0%
Group life & annuities 6,988 532 0.0 6,456 0.0
-------------- ------------- ---- -------------- ---
Total Premium and other considerations $ 59,144 $ 4,663 $0.0 $ 54,481 0.0%
============= ============ ==== ============= ====
</TABLE>
24
<PAGE>
MML BAY STATE LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Reserve Balance at
beginning of Contributions end of
Description period (1) period
----------- ------ --- ------
<S> <C> <C> <C>
As of and for the year ended
December 31, 1994
- --------------------------
Bonds and Short-term Investments $ 64 $43 $107
---- --- ----
Total Asset Valuation Reserve $ 64 $43 $107
==== === ====
As of and for the year ended
December 31, 1995
- --------------------------
Bonds and Short-term Investments $107 $47 $154
---- --- ----
Total Asset Valuation Reserve $107 $47 $154
==== === ====
As of and for the year ended
December 31, 1996
- --------------------------
Bonds and Short- term Investments $154 $75 $229
---- --- ----
Total Asset Valuation Reserve $154 $75 $229
==== === ====
</TABLE>
(1) Amounts represent contributions calculated using a statutory formula.
Represents the net impact on Shareholder's Equity for investment gains and
losses not related to changes in interest rates. This net change in reserves
is recorded as a charge to Shareholder's Equity.
25
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
26
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, Lawrence V. Burkett, Jr., President, Chief Executive Officer
and a member of the Board of Directors of MML Bay State Life Insurance Company
("MML Bay State"), does hereby constitute and appoint Thomas F. English, Richard
M. Howe, and Michael Berenson, and each of them individually, as his true and
lawful attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as President, Chief Executive Officer and a member of the Board of Directors of
MML Bay State that said attorneys and agents may deem necessary or advisable to
enable MML Bay State to comply with the Securities Act of 1933, as amended (the
"1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations, orders or other requirements of the Securities and
Exchange Commission (the "Commission") thereunder. This power of attorney
applies to the registration, under the 1933 Act and the 1940 Act, of shares of
beneficial interest of MML Bay State separate investment accounts (the "MML Bay
State Separate Accounts"). This power of attorney authorizes such attorneys and
agents to sign the Undersigned's name on his behalf as President, Chief
Executive Officer and a member of the Board of Directors of MML Bay State to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MML Bay State Separate Account, including but
not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 26th day of February,
1997.
/s/ Lawrence V. Burkett, Jr.
- ----------------------------- -----------------------------
Lawrence V. Burkett, Jr. Witness
President, Chief Executive Officer
and Member, Board of Directors
27
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, John B. Davies, a member of the Board of Directors of MML Bay
State Life Insurance Company ("MML Bay State"), does hereby constitute and
appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M. Howe, and
Michael Berenson, and each of them individually, as his true and lawful
attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as a member of the Board of Directors of MML Bay State that said attorneys and
agents may deem necessary or advisable to enable MML Bay State to comply with
the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MML Bay State separate
investment accounts (the "MML Bay State Separate Accounts"). This power of
attorney authorizes such attorneys and agents to sign the Undersigned's name on
his behalf as a member of the Board of Directors of MML Bay State to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MML Bay State Separate Account, including but
not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 25th day of February,
1997.
/s/ John B. Davies
- ------------------------- -------------------------
John B. Davies Witness
Member, Board of Directors
28
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, Maureen R. Ford, a member of the Board of Directors of MML Bay
State Life Insurance Company ("MML Bay State"), does hereby constitute and
appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M. Howe, and
Michael Berenson, and each of them individually, as her true and lawful
attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as a member of the Board of Directors of MML Bay State that said attorneys and
agents may deem necessary or advisable to enable MML Bay State to comply with
the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MML Bay State separate
investment accounts (the "MML Bay State Separate Accounts"). This power of
attorney authorizes such attorneys and agents to sign the Undersigned's name on
her behalf as a member of the Board of Directors of MML Bay State to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MML Bay State Separate Account, including but
not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set her hand this 28th day of February,
1997.
/s/ Maureen R. Ford
- ------------------------- -------------------------
Maureen R. Ford Witness
Member, Board of Directors
29
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, Anne Melissa Dowling, a member of the Board of Directors of MML
Bay State Life Insurance Company ("MML Bay State"), does hereby constitute and
appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M. Howe, and
Michael Berenson, and each of them individually, as her true and lawful
attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as a member of the Board of Directors of MML Bay State that said attorneys and
agents may deem necessary or advisable to enable MML Bay State to comply with
the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MML Bay State separate
investment accounts (the "MML Bay State Separate Accounts"). This power of
attorney authorizes such attorneys and agents to sign the Undersigned's name on
her behalf as a member of the Board of Directors of MML Bay State to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MML Bay State Separate Account, including but
not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set her hand this 6th day of March,
1997.
/s/ Anne Melissa Dowling
- --------------------------- ---------------------------
Anne Melissa Dowling Witness
Member, Board of Directors
30
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, Isadore Jermyn, Chairman of the Board of Directors of MML Bay
State Life Insurance Company ("MML Bay State"), does hereby constitute and
appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M. Howe, and
Michael Berenson, and each of them individually, as his true and lawful
attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as Chairman of the Board of Directors of MML Bay State that said attorneys and
agents may deem necessary or advisable to enable MML Bay State to comply with
the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission (the "Commission")
thereunder. This power of attorney applies to the registration, under the 1933
Act and the 1940 Act, of shares of beneficial interest of MML Bay State separate
investment accounts (the "MML Bay State Separate Accounts"). This power of
attorney authorizes such attorneys and agents to sign the Undersigned's name on
his behalf as Chairman of the Board of Directors of MML Bay State to the
Registration Statements and to any instruments or documents filed or to be filed
with the Commission under the 1933 Act and the 1940 Act in connection with such
Registration Statements, including any and all amendments to such statements,
documents or instruments of any MML Bay State Separate Account, including but
not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 25th day of February,
1997.
/s/ Isadore Jermyn
- ---------------------------- ----------------------------
Isadore Jermyn Witness
Chairman of the Board of Directors
31
<PAGE>
POWER OF ATTORNEY
MML BAY STATE SEPARATE INVESTMENT ACCOUNTS
------------------------------------------
The Undersigned, John Miller, Jr., Second Vice President and Comptroller of MML
Bay State Life Insurance Company ("MML Bay State"), does hereby constitute and
appoint Lawrence V. Burkett, Jr., Thomas F. English, Richard M. Howe, and
Michael Berenson, and each of them individually, as his true and lawful
attorneys and agents.
The attorneys and agents shall have full power of substitution and to take any
and all action and execute any and all instruments on the Undersigned's behalf
as Second Vice President and Comptroller of MML Bay State that said attorneys
and agents may deem necessary or advisable to enable MML Bay State to comply
with the Securities Act of 1933, as amended (the "1933 Act"), the Investment
Company Act of 1940, as amended (the "1940 Act"), and any rules, regulations,
orders or other requirements of the Securities and Exchange Commission (the
"Commission") thereunder. This power of attorney applies to the registration,
under the 1933 Act and the 1940 Act, of shares of beneficial interest of MML Bay
State separate investment accounts (the "MML Bay State Separate Accounts"). This
power of attorney authorizes such attorneys and agents to sign the Undersigned's
name on his behalf as Second Vice President and Comptroller of MML Bay State to
the Registration Statements and to any instruments or documents filed or to be
filed with the Commission under the 1933 Act and the 1940 Act in connection with
such Registration Statements, including any and all amendments to such
statements, documents or instruments of any MML Bay State Separate Account,
including but not limited to those listed below.
MML Bay State Variable Annuity Separate Account 1
MML Bay State Variable Life Separate Account I
MML Bay State Variable Life Separate Account II
MML Bay State Variable Life Separate Account III
MML Bay State Variable Life Separate Account IV
MML Bay State Variable Life Separate Account V
The Undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the Undersigned has set his hand this 26th day of February,
1997.
/s/ John Miller, Jr. ______________________________
- ------------------------
John Miller, Jr. Witness
Second Vice President
and Comptroller
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of MML Bay State Life Insurance Company and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 44,930
<DEBT-MARKET-VALUE> 45,093
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 61,932
<CASH> 7,014
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 826,240
<POLICY-LOSSES> 26,534
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,074
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 75,162
<TOTAL-LIABILITY-AND-EQUITY> 826,240
441,212
<INVESTMENT-INCOME> 8,431
<INVESTMENT-GAINS> (58)
<OTHER-INCOME> 0
<BENEFITS> 374,561
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 61,217
<INCOME-PRETAX> 13,807
<INCOME-TAX> 11,829
<INCOME-CONTINUING> 1,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,978
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>