<PAGE>
Pre-effective Amendment No. 2 to
Registration Statement No. 333-41667
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-6
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 OF SECURITIES OF
UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
A. Exact name of Trust: C.M. Life Variable Life Separate Account I
B. Name of Depositor: C.M. Life Insurance Company
C. Complete address of 140 Garden Street
Depositor's principal Hartford, CT 06154
executive offices:
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: May 26, 1998.
Pursuant to Rule 24-F-2 of the Investment Company Act of 1940, the Registrant
hereby declares that an indefinite amount of its securities is being registered
under the Securities Act of 1933.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such date as
the Commission, acting pursuant to said section, may determine.
- --------------------------
STATEMENT PURSUANT TO RULE 24F-2
The Registrant registers an indefinite number or amount of its variable life
insurance contracts under the Securities Act of 1933 pursuant to Rule 24F-2
under the Investment Company Act of 1940. The Rule 24F-2 notice for Registrant's
fiscal year ending December 31, 1997 was filed on March 20, 1998.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
Item No. of
Form N-8B-2 Caption
- ----------- -------
1 Cover Page; Definition of Terms; The Separate Account
2 Cover Page; C.M. Life and the Separate Account
3 Cover Page; C.M. Life and the Separate Account
4 Sales and Other Agreements
5 C.M. Life and the Separate Account
6 C.M. Life and the Separate Account
7 Not Applicable
8 Appendix F. Financial Statement
9 Legal Proceedings
10 Cover Page; Introduction; Detailed Information about the Policy;
Transfers; Surrender Charges; Withdrawals; Death Benefit; Voting
Rights; Free Look Provision
11 C.M. Life and the Separate Account
12 C.M. Life and the Separate Account; Sales and Other Agreements
13 C.M. Life and the Separate Account; Charges and Deductions
14 Introduction; C.M. Life and the Separate Account; Detailed
Information About the Policy; The Investment Advisors and
Portfolio Managers; C.M. Life and the Separate Account; Surrender
Charges; Other Charges; Sales and Other Agreements
15 Introduction; Detailed Information About the Policy; Exhibit 11
16 Introduction; C.M. Life and the Separate Account
17 Introduction; Account Value and Net Surrender Value; Withdrawal
Fee; Exhibit 11
18 C.M. Life and the Separate Account
19 Records and Reports
20 Not Applicable
21 Introduction; Policy Loan Privilege
22 Assignment
23 Bonding Arrangement
24 Detailed Information About the Policy; C.M. Life and the Separate
Account
25 C.M. Life and the Separate Account
26 C.M. Life and MassMutual; The Investment Advisers
27 Detailed Information About the Policy; C.M. Life and the Separate
Account
28 Appendix C; Directors and Executive Officers of C.M. Life
29 C.M. Life and the Separate Account
30 C.M. Life and MassMutual
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
Item No. of
Form N-8B-2 Caption
- ----------- -------
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Detailed Information about the Policy; Sales and Other Agreements
36 Not Applicable
37 Not Applicable
38 Sales and Other Agreements
39 Sales and Other Agreements
40 Sales and Other Agreements
41 Sales and Other Agreements
42 Not Applicable
43 Sales and Other Agreements
44 Detailed Information About the Policy; C.M. Life and the Separate
Account; Charges for Federal Taxes;
45 Not Applicable
46 Account Values; C.M. Life and the Separate Account
47 C.M. Life and the Separate Account
48 C.M. Life and the Separate Account
49 Detailed Information About the Policy
50 C.M. Life and the Separate Account
51 Cover Page; Detailed Information About the Policy; Additional
Information
52 C.M. Life and the Separate Account; Reservation of Rights
53 Federal Income Tax Considerations
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Appendix F
<PAGE>
SURVIVORSHIP FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY C.M. LIFE INSURANCE COMPANY
This Prospectus describes a survivorship flexible premium adjustable variable
life insurance policy (the "Policy") offered by C.M. Life Insurance Company
("C.M. Life"). The Policy, for as long as it remains in force, provides lifetime
insurance protection on the two Insureds named in the Policy, and pays a Death
Benefit at the death of the last surviving Insured (the "second death"). The
minimum Initial Face Amount which may be purchased is $500,000 currently. The
Policy is designed to provide flexibility of premium payments and Death Benefits
by permitting the Owner, subject to certain restrictions, to vary the frequency
and amount of premium payments and to increase or decrease the Death Benefit
payable under the Policy. This flexibility allows an Owner to provide for
changing insurance needs under a single insurance policy. A Policy also may be
surrendered for its Net Surrender Value.
The Owner may allocate Net Premiums and Account Value among the divisions (the
"Divisions") of the designated segment of C.M. Life Variable Life Separate
Account I (the "Separate Account") and a Guaranteed Principal Account (the
"GPA"). The assets of each Division will be used to purchase, at net asset
value, shares of a designated investment fund. Currently, the available funds
include six funds of MML Series Investment Fund (the "MML Trust"), four funds of
Oppenheimer Variable Account Funds (the "Oppenheimer Trust"), one fund of the
Variable Insurance Products Fund II (VIP Fund II, managed by Fidelity Management
& Research Company), one fund of the T. Rowe Price Equity Series, Inc, and one
fund of American Century Variable Portfolios, Inc. The individual funds are as
follow.
<TABLE>
<CAPTION>
MML Trust Oppenheimer Trust Variable Insurance Products Fund II
- --------- ----------------- -----------------------------------
<S> <C> <C>
MML Equity Fund Oppenheimer Aggressive Growth Fund VIP II Contrafund Portfolio
MML Money Market Fund Oppenheimer Global Securities Fund
MML Managed Bond Fund Oppenheimer Growth Fund T. Rowe Price Equity Series, Inc
--------------------------------------
MML Blend Fund Oppenheimer Strategic Bond Fund T. Rowe Price Mid-Cap Growth Portfolio
MML Equity Index Fund
MML Small Cap Value Equity Fund American Century Variable Portfolios, Inc
-----------------------------------------
American Century VP Income & Growth
</TABLE>
The Owner bears the investment risk of any Account Value allocated to the
Separate Account. The Death Benefit may, and the Net Surrender Value will, vary
depending on the investment performance of the Divisions. While there is no
guaranteed minimum Net Surrender Value for funds invested in the Separate
Account, a Policy's Death Benefit will never be less than the Face Amount less
any Policy Debt and any unpaid premiums. Furthermore, the Policy will not
terminate if the Policy Value is sufficient to pay the Monthly Charges or if the
Safety Test has been met during a Guarantee Period.
All Policies are serviced through C.M. Life's Administrative Office, located at
1295 State Street, Springfield, Massachusetts 01111-0001. The telephone number
is (413) 788-8411. C.M. Life's Home Office is located in Hartford, Connecticut.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE
PROSPECTUSES FOR THE INDIVIDUAL INVESTMENT FUNDS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FURTHER REFERENCE.
THE PURPOSE OF THE POLICY WE ARE OFFERING IS TO PROVIDE INSURANCE PROTECTION.
WE DO NOT CLAIM THE POLICY IS IN ANY WAY SIMILAR TO OR COMPARABLE WITH A MUTUAL
FUND'S SYSTEMATIC INVESTMENT PLAN. REPLACING EXISTING INSURANCE WITH THE POLICY
DESCRIBED IN THIS PROSPECTUS MAY NOT BE TO YOUR ADVANTAGE.
EFFECTIVE MAY 26, 1998
This Prospectus does not constitute an offer or solicitation to acquire any
interest or participation in the survivorship flexible premium adjustable
variable life insurance policies offered by this Prospectus in any jurisdiction
to anyone to whom it is unlawful to make such an offer or solicitation in such
jurisdiction.
*Title may vary in some jurisdictions.
<PAGE>
Table of Contents
I. INTRODUCTION 3
II. DETAILED DESCRIPTION OF THE POLICY
Availability of Policy 4
Death Benefit 4
Premiums 6
Transfers 7
Policy Termination and Reinstatement 7
Charges and Deductions 8
Deductions from Premiums 9
Monthly Charges Against the Account Value 9
Daily Charges Against the Separate Account 9
Surrender Charges 9
Other Charges 10
Account Value and Net Surrender Value 10
Policy Loan Privilege 10
Free Look Provision 11
The Guaranteed Principal Account 11
When We Pay Proceeds 12
Federal Income Tax Considerations 12
Your Voting Rights 14
Reservation of Rights 15
Additional Benefits You Can Get by Rider 15
Payment Options 16
Beneficiary 16
Assignment 16
Limits on Our Right to Challenge the Policy 17
Error of Age or Sex 17
Suicide 17
Sales and Other Agreements 17
Compensation 18
Service Agreement 18
Bonding Arrangement 18
Legal Proceedings 18
Experts 18
III. ADDITIONAL INFORMATION
C.M. Life and MassMutual 18
Records and Reports 19
The Separate Account 19
MML Trust and Oppenheimer Trust 20
Variable Insurance Products Fund II 20
T. Rowe Price Equity Series, Inc. 20
American Century Variable Portfolios 20
The Investment Advisers 22
Appendix A
Definition of Terms 24
Appendix B
Examples of Death Benefit Option Changes 26
Appendix C
Rates of Return 27
Appendix D
Illustration of Death Benefits, Net Surrender
Values, and Accumulated Premiums 31
Appendix E
Directors of C.M. Life 44
Principals 44
Appendix F
Financial Statements 45
<PAGE>
I. INTRODUCTION
Note: Please refer to Appendix A, Glossary for definitions of the terms
contained in this Prospectus.
You should consult Your Policy for further understanding of its term and
conditions, and for any state-specific provisions and variances that may apply
to Your Policy.
The Policy is a life insurance contract providing a Death Benefit, an Account
Value, surrender rights, policy loan privileges, and other features
traditionally associated with life insurance. The Policy is a "survivorship"
policy because it provides life insurance on two insured lives and pays a death
benefit at the time of the second death.
The Policy is a "flexible premium" policy because there is no fixed schedule of
premium payments. Although the Owner may establish a schedule of premium
payments ("Planned Premium Payments"), failure to make a Planned Premium Payment
will not necessarily cause a Policy to terminate nor will making the Planned
Premium payments guarantee a Policy will remain in force. The flexibility of
premium payment timing and amount allows an Owner to match premium payments to
income flows or other financial decisions.
The Policy is "adjustable" because the Owner may choose to increase or decrease
the Death Benefit and to change the Death Benefit Option under the Policy. The
Policy is "variable" because the Death Benefit may, and the Net Surrender Value
will, vary in relation to the investment experience of the Divisions of the
Separate Account to which an Owner has allocated Net Premiums. Additionally,
the GPA's crediting interest rate may be adjusted periodically, although it will
not drop below 3%.
The following diagram summarizes the elements of this Policy, and how the Policy
works.
<TABLE>
<CAPTION>
HOW THE POLICY WORKS
-----------------------------------------
Premium Payment
-----------------------------------------
A Premium Expense Charge is deducted from
each Premium Payment
(graphic arrow to "Net Premium")
-----------------------------------------
Net Premium
-----------------------------------------
Net Premium and Account Value are
allocated among the Divisions of the
Separate Account and the GPA
(graphic arrow to "Account Value")
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- ----------------------------------------------
Investment Earnings Account Value Account Value Charges
- ----------------------------------------- ----------------------------------------- ----------------------------------------------
Investment earnings of the Divisions of Monthly deductions for administrative,
the Separate Account less fund Insurance, and rider expenses are
investment management fees and separate deducted each month
account fees are credited/ debited daily The Account Value is allocated among the
available investment options. ----------------------------------------------
Interest is credited on values in the (graphic arrows to "Death Benefit", OWNER ACCESS TO ACCOUNT VALUE
Guaranteed Principal Account "Account Value Charges", "Owner Access ----------------------------------------------
(graphic arrow to "Account Value") to Account Value" and "Policy Surrender")
You may access Account Values through
loans and withdrawals
- ----------------------------------------- ----------------------------------------------
Death Benefit Policy Surrender
- ----------------------------------------- ----------------------------------------------
A choice of 3 Death Benefit Options is In the first 10 years of coverage, if
available. The Option chosen may be coverage is surrendered, a surrender
changed at a later date charge will be deducted from the
surrender proceeds
</TABLE>
3
<PAGE>
II. DETAILED DESCRIPTION OF THE POLICY
Availability of the Policy
Individuals wishing to purchase a Policy must send a completed application to
C.M. Life's Administrative Office. Under our current rules, which can be
changed at our sole discretion, the minimum Initial Face Amount of a Policy is
$500,000. The Policy can be issued for two Insureds where the older Insured is
between the ages 18 and 90 inclusive, and the younger Insured is between the
ages 18 and 85 inclusive. Before issuing a Policy, C.M. Life will require
satisfactory evidence of insurability, which usually will include a medical
examination.
The Policy is available to individuals who are purchasing a Policy in connection
with employee benefit plans that qualify for tax benefits under the Internal
Revenue Code (the "qualified market") and to other individuals (the
"nonqualified market").
Unisex Policies issued in states requiring "unisex" policies (currently only
Montana) provide policy values that do not vary by the sexes of the Insureds.
In addition, Policies issued in conjunction with employee benefit plans provide
policy values that do not vary by sex. Thus, references in the Prospectus to
sex-distinct policy values are not applicable to Policies issued in Montana or
issued in conjunction with employee benefit plans. Illustrations showing the
effect of these unisex rates on premiums, Net Surrender Values and Death
Benefits are available from C.M. Life on request.
Death Benefit
As long as the Policy remains in force, C.M. Life will, upon due proof of the
deaths of both Insureds, pay the Death Benefit of the Policy to the named
Beneficiary. Although C.M. Life normally will pay the Death Benefit within
seven days of receiving satisfactory proof of the Insureds' deaths, the Company
may delay payments under certain circumstances. All or part of the Death
Benefit can be paid in cash or under one or more of the payment options set
forth in the Policy.
Minimum Death Benefit. In order to qualify as life insurance pursuant to I.R.C.
Section 7702, the Policy has a Minimum Death Benefit. The Minimum Death Benefit
is determined using one of two allowable Death Benefit Compliance Tests. The
applicable Test is chosen at the time of application and cannot be changed after
the Policy is issued. Under one of the tests, the Cash Value Test, the Minimum
Death Benefit is equal to an applicable percentage of the Account Value. The
applicable percentage depends on the sexes (male, female, unisex), tobacco
classifications, and Attained Ages of both Insureds. Under the other test, the
Guideline Premium Test, the Minimum Death Benefit also is equal to an applicable
percentage of the Account Value, but the percentage varies only by the Attained
Age of the younger Insured. The applicable percentages are set forth in the
Policy.
The choice of the Guideline Premium Test or the Cash Value Test will depend on
how You intend to pay premiums. In general, if You intend to pay premiums in
early policy years only, the Cash Value Test may be more appropriate. If You
intend to pay level premiums over a long period of years, the Guideline Premium
Test may be more appropriate. It is important You see policy illustrations of
both approaches to determine how the policy works under each approach, and which
is best for You.
Death Benefit Options. The Death Benefit is the amount of the benefit provided
under the Death Benefit Option in effect on the date of the second death, less
any outstanding Policy Debt and less any unpaid premium needed to avoid policy
termination under the grace period provision. (See Policy Termination and
Reinstatement) The Owner may choose one of three Death Benefit Options: Option
1 (a level amount option) or Options 2 or 3 (variable amount options). The Death
Benefit Option is chosen in the application and subsequently may be changed
subject to certain restrictions described in Changes in the Death Benefit
Option.
Options 1, 2 and 3 provide the following benefits.
Option 1 - Under Option 1, the benefit provided is the greater of: (a) the Face
Amount on the date of the second death; and (b) the Minimum Death Benefit on the
date of the second death.
Option 2 - Under Option 2, the benefit provided is the greater of: (a) the Face
Amount plus the Account Value on the date of the second death; and (b) the
Minimum Death Benefit on the date of the second death.
Option 3 - Under Option 3, the benefit provided is the greater of: (a) the Face
Amount plus the premiums paid less any premiums refunded (See Premium
Limitations) under the Policy to the date of the second death; and (b) the
Minimum Death Benefit on the date of the second death.
The following examples illustrate how changes in the Account Value and the
amount of premiums paid may affect the Death Benefits under Options 1, 2, and 3.
Example I
Under Option 1, the Death Benefit will remain at the Face Amount, in this
example $1,000,000, unless the Minimum Death Benefit exceeds the Face Amount.
Assume the Owner has selected Option 1 with a Face Amount of $1,000,000. The
Account Value is $50,000. The Death Benefit in this case is $1,000,000. The
Minimum Death Benefit is $219,000. If the Account Value increases to $80,000,
the Minimum Death Benefit increases to
4
<PAGE>
$350,400, but the Death Benefit remains at $1,000,000. If the Account Value
decreases to $30,000, the Minimum Death Benefit decreases to $131,400 and the
Death Benefit still remains at $1,000,000.
Example II
Under Option 2, the Death Benefit will be the Face Amount plus the Account Value
unless the Minimum Death Benefit exceeds the sum of the Face Amount plus the
Account Value.
Assume the Owner has selected Option 2 with a Face Amount of $1,000,000. The
Account Value is $50,000, and the Minimum Death Benefit is $219,000. The Death
Benefit in this case is $1,050,000 (Face Amount plus Account Value). If the
Account Value increases to $80,000, the Minimum Death Benefit will increase to
$350,400, and the Death Benefit will increase to $1,080,000. If the Account
Value decreases to $30,000, the Minimum Death Benefit will decrease to $131,400,
and the Death Benefit will decrease to $1,030,000.
Example III
Under Option 3, the Death Benefit will be the Face Amount plus the premiums paid
under the Policy, less any premium refunds, unless the Minimum Death Benefit
exceeds the sum of the Face Amount plus the premiums paid.
Assume the Owner has selected Option 3 with a Face Amount of $1,000,000. The
Account Value is $50,000, the Minimum Death Benefit is $219,000 and premiums
paid under the Policy to-date total $40,000. The Death Benefit in this case is
$1,040,000. If an additional $30,000 of premium is paid into the Policy and the
Account Value increases to $80,000, the Minimum Death Benefit will increase to
$350,400, and the Death Benefit will increase to $1,070,000.
Changes in Death Benefit Option. After the first Policy Year, the Owner may
change the Death Benefit Option. Any changes of Death Benefit Option may require
a written application and satisfactory evidence of insurability. The effective
date of any change will be the Monthly Charge Date that is on or precedes the
date C.M. Life approves the change. A change in the Death Benefit Option will
not in and of itself result in an immediate change in the amount of a Policy's
Death Benefit. The Policy Face Amount will be increased or decreased to give the
same Death Benefit under the new Death Benefit Option.
A change in Death Benefit Option will not be allowed if it would result in a
Face Amount of less than $500,000 after the change, if the older insured is
older than Attained Age 85, or if only one of the Insureds is alive.
An increase or decrease in Face Amount resulting from a change in the Death
Benefit Option will affect the Monthly Charges, as they depend in part on the
Face Amount. The charge for certain additional benefits also may be affected.
The Surrender Charge, however, will not be affected by an increase or decrease
in Face Amount resulting from a change in the Death Benefit Option.
For examples of Death Benefit Option changes and their impacts on the contract,
see Appendix B.
Changes in Face Amount. The Owner may request an increase or decrease in the
Face Amount subject to certain requirements. Any request for an increase or
decrease must be submitted in writing to C.M. Life's Administrative Office. It
will become effective on the Monthly Charge Date that is on or precedes C.M.
Life's acceptance of the request.
Increases in Face Amount. For an increase in the Face Amount, C.M. Life requires
a written application and satisfactory evidence of insurability. An increase
may not be less than $50,000, and no increase will be permitted after the
younger Insured reaches Attained Age 85, or the older Insured reaches Attained
Age 90.
An increase in Face Amount will affect the Monthly Charges. The Face Amount
Charge and the Insurance Charges will increase.
Decreases in Face Amount. Decreases in coverage are allowed after the first
Policy Year or one year after a Face Amount increase by written request. A
decrease will not be permitted if the Face Amount would fall below $500,000.
A decrease may result in the deduction of Surrender Charges from the Account
Value. (For a discussion of the Surrender Charges associated with a decrease,
see Surrender Charges.) Any Surrender Charges applicable to a decrease will be
deducted from the Division(s) of the Separate Account and from the GPA in
proportion to the non-loaned values in each.
A decrease will reduce the Face Amount in the following order: (a) the Face
Amount provided by the most recent increase; (b) the Face Amounts provided by
the next most recent increases successively; and finally (c) the Initial Face
Amount. As a result, a decrease in Face Amount will affect the Monthly Charges
deducted from the Account Value.
A decrease may result in the Policy becoming a "modified endowment contract".
(See Policy Proceeds, Premiums and Loans.)
Premiums
Subject to certain limitations, the Owner has flexibility in determining the
frequency and amount of premium payments.
Premium Flexibility. Unlike traditional insurance policies, this Policy frees
the Owner from required premium payments and a rigid premium schedule. Instead,
C.M. Life
5
<PAGE>
requires an Owner to pay only a minimum initial premium at the time of
application or at any time before delivery of the Policy. After the first
premium has been paid, subject to certain limitations, premiums may be paid in
any amount and at any interval.
The minimum initial premium depends on the planned frequency of premium
payments, and the Issue Ages, sexes, and rating classes of the Insureds, as well
as the initial Death Benefit Option and Initial Face Amount of the Policy.
Planned Annual Premium. When applying for a Policy, the Owner will select a
planned annual premium and payment frequency (annual, semiannual, quarterly, or
monthly check service). The planned premium at the payment frequency chosen is
shown on the schedule page of the Policy. C.M. Life will send premium notices
for the planned premium according to the amount and frequency selected. The
Owner may change the amount and frequency of planned premiums at any time by
sending written notice to C.M. Life's Administrative Office.
An Owner may elect to pay premiums by means of a pre-authorized check procedure.
Under this procedure, premium payments are deducted automatically on a monthly
basis from a designated bank account. An Owner does not receive a "bill" for
these payments.
There is no penalty if the planned premium is not paid, nor does payment of this
amount guarantee coverage for any period of time. Instead, the duration of the
Policy depends on maintaining a sufficient Policy Value, or meeting the Safety
Test (See Policy Termination section.). The Policy Value is equal to the
Account Value less any outstanding Policy Debt during the first three Policy
Years. It is equal to the Net Surrender Value in years four and later. Even if
planned premiums are paid, if the Safety Test is not met, the Policy terminates
when the Policy Value becomes insufficient to pay the Monthly Charges and the
grace period expires without sufficient payment.
Premium Limitations. After the first premium is paid, the minimum premium
payment is $20. If the Cash Value Test has been chosen as the Death Benefit
Compliance Test, the maximum premium that may be paid in any Policy Year without
evidence of insurability is the greatest of: (a) the premium that will not
increase the net amount at risk under the Policy; (b) twice the Policy's Target
Premium plus $100; and (c) the annual premium paid in the preceding Policy year.
If the Guideline Premium Test has been chosen, the maximum premium is equal to
the lesser of the maximum premium as determined above and the Guideline Premium
Test premium limitation. We have the right to refund any premium amount that
exceeds these limitations. Premium payments should be sent either to C.M.
Life's Administrative Office or to the address indicated on the billing notice.
Allocation of Net Premium Payments. The Net Premium equals the premium paid
less the Premium Expense Charge. (See Deductions from Premiums.) At the time
of Application, the Owner indicates how Net Premiums are to be allocated among
the Divisions of the Separate Account and the GPA. The allocation percentages
must be in whole numbers and the sum of the allocation percentages must equal
100%.
The allocation percentages may be changed without charge at any time by
providing written notice to C.M. Life's Administrative Office. The maximum
number of different Divisions that may be used during the life of the Policy is
16.
Any Initial Net Premium remitted with an application will be deposited to C.M.
Life's General Account and earn interest at the rate set by C.M. Life from the
date We receive the premium in good order, or from the Policy Date if later, to
the date the Policy is issued. Once the Policy has been issued, the Net Premium
plus interest earnings, less any Monthly Charges will be allocated either in
accordance with the allocation percentages in the Application, or to the Money
Market Division of the Separate Account on the next business day following the
Issue Date. If under the Free Look Provision, the Owner receives (i) any
premium paid for this Policy plus (ii) interest credited to this Policy under
the Guaranteed Principal Account, plus or minus (iii) an amount reflecting the
investment experience of the investment divisions of the Separate Account under
this Policy to the date the Policy is received by us, minus (iv) any amounts
withdrawn and any Policy Debt, this amount will be allocated to the GPA and the
Divisions of the Separate Account based on the allocation percentages in the
Application. If under the Free Look Provision, the Owner receives the total of
all premiums paid for the Policy, reduced by any amounts borrowed or withdrawn,
this amount will be allocated to the Money Market Division of the Separate
Account.
If the Initial Net Premium plus interest earnings, less any Monthly Charges is
allocated to the Money Market Division of the Separate Account, Subsequent Net
Premiums received during the Free Look Period also will be allocated to the
Money Market Division of the Separate Account at the price next determined after
receipt in good order at our Administrative Office, or at the address indicated
on the billing notice. At the end of the Free Look Period, the Money Market
account balance will be transferred to the GPA and the Separate Accounts in
accordance with the allocation percentages in the Application.
If the Initial Net Premium plus interest earnings, less any Monthly Charges is
allocated in accordance with the allocation percentages in the Application,
Subsequent Net Premiums will be deposited on the Valuation Date We receive the
Subsequent Net Premiums in good order at our Administrative Office, or at the
address indicated on the billing notice. Transfers from one Division to another
will
6
<PAGE>
be credited on the Valuation Date the Transfer Request is received in good
order.
Transfers
By written request, the Owner may transfer all or part of the Account Value of a
Division of the Separate Account to any other Division or to the GPA. Although
C.M. Life currently imposes no limitation on the right of the Owner to make
transfers, we reserve the right to limit transfers to no more than one every 90
days in connection with compliance with Section 404(c) of ERISA. Any limitation
would not apply to a transfer of all funds in the Separate Account to the GPA or
to automated transfers made in connection with any program C.M. Life has in
place.
Transfers of values from the GPA to the Separate Account are limited to one each
Policy Year. Any transfer from the GPA cannot exceed 25% of the Fixed Account
Value (less any Policy Debt) at the time of the transfer. If 25% of the Fixed
Account Value has been transferred from the GPA each year for three consecutive
Policy Years, and no value has been transferred into the GPA, nor premiums
allocated to the GPA, during this time, the remainder of the Fixed Account Value
(less any Policy Debt) may be transferred, in one transaction, out of the GPA in
the succeeding Policy Year.
Any transfer is effective on the Valuation Date at the price next determined
after receipt of the request in good order at our Administrative Office. There
are no charges for transfers.
Policy Termination and Reinstatement
Policy Termination. This Policy will not terminate for failure to pay premiums
since premium payments, other than the Initial Premium Payment, are not
specifically required. Rather, if in the first three Policy Years the Account
Value less any Policy Debt is not enough to cover the Monthly Charges on a
Monthly Charge Date, or if in subsequent Policy Years the Net Surrender Value is
not enough to cover the Monthly Charges on a Monthly Charge Date, the Policy
will enter a 61-day grace period unless the Safety Test has been met.
At the beginning of the grace period, C.M. Life will mail a notice to the
Owner's last known address stating the amount of premium needed to cover the
shortfall. During the grace period, the Policy remains in force. If the
required premium is not paid within 61 days after the Monthly Charge Date (or,
if later, within 30 days after we mail the written notice), the Policy
terminates without value.
If the Account Value less Policy Debt in the first three Policy Years or the Net
Surrender Value in subsequent years is insufficient to pay the Monthly Charges
on a particular Monthly Charge Date and the Safety Test (as described below) has
been met on that date, the Monthly Charges for that Date will be reduced to an
amount equal to the Account Value less any Policy Debt.
The Safety Test can be met only during a Guarantee Period. There are two
Guarantee Periods. One Period is the lesser of 20 years or to the younger
Insured's age 90. The other is to the younger Insured's age 100. Each
Guarantee Period has a Guarantee premium associated with it. These premiums
vary depending on the issue ages, sexes, and issue classifications of the
Insureds and the Death Benefit Option in effect. The Guarantee premiums for
Your Policy are shown in the Policy. On any day during a Guarantee Period, the
Safety Test is met if the premiums paid less amounts withdrawn accumulated with
interest to that day, equal or exceed the Guarantee premium accumulated with
interest to that date. The effective annual rate of interest used to accumulate
these amounts is 3%. The Guarantee Period in effect is determined by the
Guarantee premium paid. The Guarantee Periods available and the Safety Test may
vary depending on the contract state of Your Policy. Consult Your Policy for
the Guarantee Periods available to You.
Reinstatement. For a period of five years after a Policy terminates, the Owner
can request that We reinstate the Policy provided neither Insured has died since
the Policy termination. However, the Policy cannot be reinstated if it has been
surrendered for its Net Surrender Value. Please note a termination or
reinstatement may cause the Policy to become a modified endowment contract. (See
Modified Endowment Contracts.)
Before We will reinstate the Policy, We must receive the following:
(a) Evidence of insurability satisfactory to C.M. Life;
(b) A premium payment sufficient to keep the policy in force for three months
following reinstatement;
(c) Where applicable, a signed acknowledgement the Policy has become a modified
endowment contract.
If We reinstate the Policy, the Face Amount for the reinstated Policy will be
the same as it would have been if the Policy had not terminated. The premium
payment will be allocated based on the allocation requested at the time of
reinstatement effective on the Monthly Charge Date on which the Policy is
reinstated. The Account Value at the time of reinstatement will be the net
amount of the premium paid at the time of reinstatement, less any Monthly
Charges taken at that time.
Charges and Deductions
Charges will be deducted in connection with the Policy to compensate C.M. Life
for: (a) providing the insurance benefits under the Policy (including any
riders); (b) administering the Policy; (c) assuming certain risks in
7
<PAGE>
connection with the Policy (including any riders); and (d) expenses incurred in
selling and distributing the Policy. Additionally, certain expenses are deducted
from the underlying funds. For more information about these expenses, see the
individual fund prospectuses. A summary of the product and separate account
charges is as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT RATE GUARANTEED RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premium Expense Charge Coverage Years 1-10:13% of premium up to All Coverage Years: 13% of premium up to
Expense Premium; 3% of premium over Expense Expense Premium; 3% of premium over Expense
Premium Premium
Coverage Years 11+: 3% of all premium
Administrative Charge Policy Years 1-10: $12 per month per policy All Coverage Years: $12 per month per policy
Policy Years 11+: $6 per month per policy
Face Amount Charge Coverage Years 1-10: $0.13 per month per Coverage Years 1-10: $0.13 per month per
$1,000 of Face Amount $1,000 of Face Amount
Coverage Years 11+: $0.0 Coverage Years 11+: $0.0
Insurance Charges A per thousand rate multiplied by the For standard risks, the guaranteed cost of
amount at risk each month. The rate varies insurance rates are based on 1980
by the sexes, issue ages, and risk Commissioners Standard Ordinary (CSO)
classifications of the Insureds, and the Mortality Tables.
Year of Coverage.
Mortality and Expense Risk Charge All Policy Years: 0.25% on an annual basis All Policy Years: 0.90% on an annual basis
of daily net asset value of the Separate of daily net asset value of the Separate
Account Account
Loan Rate Expense Charge Policy Years 1-10: 0.50% of loaned amount All Policy Years: 2.0% of loaned amount
Policy Years 11+: 0.25% of loaned amount
Withdrawal Fee $25 $25
Surrender Charges First coverage year: the lesser of 100% of First coverage year: the lesser of 100% of
the Target Premium or $60 per thousand of the Target Premium or $60 per thousand of
Face Amount. Face Amount.
Coverage years 2-10: the prior year Coverage years 2-10: the prior year
Surrender Charge reduced by 10% of the Surrender Charge reduced by 10% of the
first year Surrender Charge first year Surrender Charge
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deductions from Premiums
A Premium Expense Charge is deducted from each premium payment made prior to the
allocation of the payment to the Divisions of the Separate Account and the GPA.
The Premium Expense Charge distinguishes between premium payments up to Expense
Premium, and premium payments over Expense Premium. The Expense Premium is
based on the issue ages, sexes, and risk classifications of the Insureds.
Premiums are allocated to the Initial Face Amount and any subsequent increases
based on the ratio of the Expense Premium for each segment to the total of the
Expense Premiums for all segments.
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Monthly Charges Against the Account Value
Charges will be deducted from the Account Value on each Monthly Charge Date. The
Monthly Charges consist of: (a) an Administrative Charge; (b) a Face Amount
Charge; (c) an Insurance Charge; and (d) a rider charge for any additional
benefits provided by rider. The Monthly Charges will be deducted from the
Division(s) of the Separate Account and the GPA in proportion to the non-loaned
values of the Policy in the Division(s) and the GPA.
Administrative Charge and Face Amount Charge. The monthly Administrative Charge
and Face Amount Charge reimburse C.M. Life for expenses incurred in issuing and
administering the Policy, and for such activities as processing claims,
maintaining records and communicating with Owners.
Insurance Charges. The monthly Insurance Charge for a Policy is equal to the
"amount at risk" under the Policy, multiplied by the monthly Insurance Charge
rate for that Policy month. The amount at risk is determined on the first day
of each Policy month and is the amount by which the Death Benefit (discounted at
the monthly equivalent of 3% per year) exceeds the Account Value.
Insurance rates will be based on the sexes, Issue Ages, and risk classes of the
Insureds, and the Year of Coverage. C.M. Life currently places Insureds into the
following three standard rate classes: Select-Preferred Nontobacco, Preferred
Nontobacco, and Preferred Tobacco; as well as substandard rate classes involving
higher mortality risks. In an otherwise identical Policy, the monthly insurance
rate is higher for tobacco users than for those who do not use tobacco and
higher for Preferred Nontobacco Insureds than for Select-Preferred Nontobacco
Insureds.
Rider Charge. The monthly rider charge will include charges for any additional
benefits provided by rider.
Daily Charges Against the Separate Account
Mortality and Expense Risk Charge. C.M. Life assesses a daily charge against
the net asset value of the Separate Account for mortality and expense risks.
This charge is not deducted from the assets in the GPA.
The mortality risk We assume is that the group of lives insured under our
Policies may, on average, live for shorter periods of time than We estimated.
The expense risk We assume is that our costs of issuing and administering
Policies may be more than We estimated.
If not all the money C.M. Life collects from this charge is needed to cover
death benefits and expenses, it will be our gain and will be used for any proper
purpose, including payment of sales commissions. Conversely, even if the money
We collect is insufficient, We will provide for all Death Benefits and expenses.
Investment Management Fee and Other Expenses. Because the Divisions of the
Separate Account purchase shares of MML Trust, Oppenheimer Trust, (Fidelity)
Variable Insurance Products Fund II, T. Rowe Price Equity Series, Inc., or
American Century Variable Portfolios, Inc., the value of Accumulation Units of
the Divisions will reflect the investment management fee and other expenses
incurred by these entities. The following were the total fund operating
expenses expressed as a percentage of average net assets for the year ended
December 31, 1997 for the Funds.
<TABLE>
<CAPTION>
Management Total Fund
Fund Name Fees Other Expenses Operating Expenses
---------- ---------------- --------------------
<S> <C> <C> <C>
MML Equity 0.35% 0.00% 0.35%
MML Money Market 0.48% 0.04% 0.52%
MML Managed Bond 0.44% 0.03% 0.46%
MML Blend 0.37% 0.00% 0.37%
MML Equity Index 0.40% 0.03% 0.43%
Oppenheimer Growth 0.73% 0.02% 0.75%
Oppenheimer Aggressive Growth 0.71% 0.02% 0.73%
Oppenheimer Global Securities 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond 0.75% 0.08% 0.83%
VIP II Contrafund Portfolio 0.60% 0.11% 0.71%
T. Rowe Price Mid-Cap Growth Portfolio 0.85% 0.00% 0.85%
American Century VP Income & Growth 0.70% 0.00% 0.70%
</TABLE>
MML Small Cap Value Equity had not been established as of December 31, 1997. The
management fees, other expenses and total fund operating expenses for the 1998
calendar year are estimated to be 0.65%, 0.39% and 1.04%, respectively.
Surrender Charges
During the first 10 Years of Coverage under the Initial Face Amount, and during
the first 10 Years of Coverage under any increase in Face Amount, C.M. Life will
impose a Surrender Charge against the Account Value if the Owner surrenders the
Policy or decreases the Face Amount under the Policy. The Surrender Charge in
the first Year of Coverage is the lesser of 100% of the Target Premium or $60
per thousand of Face Amount. The Target Premium is used to determine the
maximum premium limitation, Surrender Charges and agent commissions. The Target
Premium is based on the issue ages, sexes, and risk classifications of the
Insureds. The Surrender Charge is decreased by 10% of the first year Surrender
Charge in each of the next nine years of coverage, and is zero in the eleventh
year. Surrender Charges are calculated separately for the Initial Face Amount
and for each increase in the Face Amount.
Surrender Charge Upon Decrease in Selected Face Amount. Elected decreases in
Face Amount--that is, decreases resulting from other than a withdrawal or a
change in the Death Benefit Option-- result in canceling all or a part of
previously issued Face Amount segments. A partial Surrender Charge is assessed
and deducted from the Account Value. The partial Surrender Charge is equal to
the Surrender Charge associated with each canceled Face Amount segment. If the
partial Surrender Charge for a decreased or canceled Face Amount segment would
be greater than the Account Value of the policy, the partial Surrender Charge
for that decrease is set equal to the Account Value on the date of the
surrender.
The Surrender Charge after the decrease equals the Surrender Charge prior to the
decrease less the partial Surrender Charge taken.
Other Charges
Withdrawal Fee. For each Withdrawal, a charge of $25 will be deducted from the
amount withdrawn. This fee is guaranteed not to increase for the duration of
the Policy.
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<PAGE>
Loan Interest Rate Expense Charge. This charge reimburses C.M. Life for
expenses incurred in administering loans.
Special Circumstances
C.M. Life may vary the charges and other terms of Flexible Premium Adjustable
Variable Life Policies where special circumstances result in sales or
administrative expenses or mortality risks that are different than those
normally associated with these Policies. These variations will be made only in
accordance with uniform rules we establish.
Account Value And Net Surrender Value
Account Value. The Account Value of the Policy is the sum of all Net Premium
payments adjusted by periodic charges and credits and by Withdrawals. Following
the Free Look Period, this amount is allocated among the Separate Account
Divisions and the GPA according to the net premium allocation requested at the
time of Application (See Allocation of Net Premium Payments section for more
details.).
Investment Return. The investment return of a Policy is based on:
(a) The Account Value held for the Policy in each Division of the Separate
Account;
(b) The investment experience of each Division as measured by its actual net
rate of return; and
(c) The interest credited on Account Values held in the GPA.
The investment experience of a Division reflects increases and decreases in the
net asset value of the shares of the underlying Fund, any dividend or capital
gains distributions declared by the Fund, and any charges assessed against
assets of the Division. The investment experience is determined each day the
net asset value of the underlying Fund is determined--that is, on each Valuation
Date. The actual net rate of return for a Division measures the net investment
experience from the end of one Valuation Date to the end of the next Valuation
Date.
Net Surrender Value. The Policy may be fully surrendered for its Net Surrender
Value at any time while at least one Insured is living. The Net Surrender Value
is equal to the Account Value less any applicable Surrender Charges and less any
Policy Debt as of the date the Company receives the request to surrender in good
order. The surrender will be processed within seven days.
An Owner may surrender the Policy by sending a written request together with the
Policy to C.M. Life's Administrative Office. The proceeds will be determined as
of the end of the Valuation Date on which the request for surrender is received
in good order.
Withdrawals. After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw up to 75% of the Net Surrender Value. For each
Withdrawal, a fee of $25 is deducted from the amount withdrawn. The minimum
amount of a Withdrawal is $100 (before deducting the Withdrawal fee). We
reserve the right to prohibit Withdrawals that would result in a reduction of
the Face Amount to less than $500,000.
The Owner must state in the Withdrawal Request the account and/or Divisions from
which the withdrawal will be made. The amount can be stated as a dollar amount
or a percentage. The withdrawal will be effective on the date We receive the
written request in good order and will be processed within seven days. The
Withdrawal amount attributable to a Division of the Separate Account or to the
GPA may not exceed the non-loaned Account Value of the Division or GPA. If Death
Benefit Option 1 or 3 is in effect, C.M. Life will reduce the Face Amount by the
amount of the Withdrawal unless satisfactory evidence of insurability is
provided. A Surrender Charge is not assessed for a Withdrawal.
Policy Loan Privilege
General. After the first Policy Year, the Owner may obtain a loan from the
Policy as long as the Account Value exceeds the total of any Surrender Charges.
The Policy must be assigned to C.M. Life as collateral for the loan. The
maximum amount that can be borrowed at any time is 90% of the Policy's Account
Value less any Surrender Charge. This is reduced by any outstanding Policy
Debt, which includes accrued interest.
Source of Loan. The Policy loan amount requested is taken from the Divisions of
the Separate Account and the GPA in proportion to the Account Value of each
Division and the GPA (excluding any outstanding loans) on the date of the loan.
Loaned amounts are taken from the Divisions by liquidating units and the
resulting dollar amounts are transferred to the loaned portion of the GPA. We
may delay the granting of any loan taken from the GPA for up to six months. We
also may delay the granting of any loan from the Divisions of the Separate
Account during any period that: (i) the New York Stock Exchange is closed (other
than customary weekend and holiday closings); (ii) trading is restricted; (iii)
the SEC determines a state of emergency exists; or (iv) the Securities and
Exchange Commission permits C.M. Life to delay payment for the protection of our
Owners.
Whenever total Policy Debt (which includes accrued interest) equals or exceeds
the Account Value less Surrender Charges, C.M. Life will send a notice to the
Owner. This notice will state the amount necessary to bring the Policy Debt
back within the limit. If We do not receive
10
<PAGE>
payment of that amount plus a premium payment sufficient to keep the policy in
force for three months, within 31 days after the date we mailed the notice, and
if Policy Debt exceeds the Account Value less any Surrender Charges at the end
of those 31 days, the Policy terminates without value.
Loan Interest Charged. At the time of Application, the Owner may select a loan
interest rate of 5% or (in all jurisdictions except Arkansas) an adjustable loan
rate. Each year C.M. Life will set the adjustable rate that will apply for the
next Policy Year. The maximum loan rate is based on the Monthly Average
Corporate yield on seasoned corporate bonds as published by Moody's Investors
Service, Inc., or, if it is no longer published, a substantially similar
average. The maximum rate is the published monthly average for the calendar
month ending two months before the Policy Year begins, or 4%, whichever is
higher. If the maximum limit is not at least 1/2% higher than the rate in effect
for the previous year, we will not increase the rate. If the maximum limit is at
least 1/2% lower than the rate in effect for the previous year, we will decrease
the rate.
Interest on Policy loans accrues daily and becomes part of the Policy Debt as it
accrues. It is due on each Policy Anniversary. If not paid when due, the
interest will be added to the loan and, as part of the loan, will bear interest
at the same rate. Any interest capitalized on a Policy Anniversary will be
treated the same as a new loan and will be taken from the Divisions and the GPA
in proportion to the non-loaned Account Value in each.
Repayment. All or part of any Policy Debt may be repaid at any time while at
least one of the Insureds is living and while the Policy is in force. Any loan
repayment made within 30 days of the Policy Anniversary date pays policy loan
interest due. Any other loan repayment first will be allocated to the GPA until
the Owner has repaid all loan amounts that originated from the GPA. Additional
loan repayments will be allocated according to the premium allocation factors in
effect. Loan repayments must be clearly identified as such; otherwise they will
be considered premium payments.
Any outstanding Policy Debt will be deducted from the proceeds payable at the
second death or the surrender of the Policy.
Interest on Loaned Value. Any loaned amount is held in the GPA and earns
interest at a rate determined by C.M. Life, equal to the greater of 3% and the
Policy loan rate less the Loan Interest Rate Expense Charge. This Charge is 2%
on a guaranteed basis and 0.50% in Policy Years one through 10 and 0.25% in
Policy Years 11 and later on a current basis.
Effect of Loan. A Policy loan affects the Policy since the Death Benefit and
Net Surrender Value under a Policy are reduced by the amount of the loan.
Repayment of the loan increases the Death Benefit and Net Surrender Value under
the Policy by the amount of the repayment. Taking a Policy loan could have tax
consequences. (See Policy Proceeds, Premiums and Loans.)
As long as a loan is outstanding, a portion of the Policy Account Value equal to
the loan is held in the GPA. This amount is not affected by the Separate Account
investment performance. The Account Value may be impacted since the portion of
the Account Value equal to the Policy loan is credited with an interest rate
declared by C.M. Life rather than a rate of return reflecting the investment
performance of the Division(s) of the Separate Account from which the loan was
taken.
Free Look Provision
The Owner may cancel the Policy within 10 days. (This period may be longer in
some states.).
The Owner should mail or deliver the Policy and Policy delivery receipt either
to C.M. Life's Administrative Office or to the agent who sold the Policy or to
one of our agency offices. If the Policy is canceled in this fashion, a refund
will be made to the Owner. The refund may be equal to the sum of: (i) any
premium paid for this Policy plus (ii) interest credited to this Policy under
the Guaranteed Principal Account, plus or minus (iii) an amount reflecting the
investment experience of the investment divisions of the Separate Account under
this Policy to the date the Policy is received by us, minus (iv) any amounts
withdrawn and any Policy Debt. Or, the refund may be equal to the total of all
premiums paid for the Policy, reduced by any amounts borrowed or withdrawn.
Check Your contract to determine which refund is applicable under Your Policy.
The Guaranteed Principal Account
An Owner may allocate some or all of the Net Premiums and transfer some or all
of the Account Value in the Divisions of the Separate Account, to the Guaranteed
Principal Account ("GPA"). Because of exemptive and exclusionary provisions,
interests in C.M. Life's General Account (which include interests in the
Guaranteed Principal Account) are not registered under the Securities Act of
1933 and the General Account is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and C.M. Life
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in the Prospectus relating to the General Account.
Disclosures regarding the General Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
11
<PAGE>
Amounts allocated to the Guaranteed Principal Account become part of the General
Account of C.M. Life, which consists of all assets owned by C.M. Life other than
those in the Separate Account and other separate accounts of C.M. Life. Subject
to applicable law, C.M. Life has sole discretion over the investment of the
assets of its General Account.
C.M. Life guarantees those amounts allocated to the GPA in excess of any Policy
Debt (which includes accrued interest) will accrue interest daily at an
effective annual rate at least equal to 3%. For amounts in the GPA equal to any
Policy Debt, the guaranteed minimum interest rate is an effective annual rate of
3% or, if greater, the Policy loan rate less the Loan Interest Rate Expense
Charge. This charge will not be greater than 2% per year. Such interest will be
paid regardless of the actual investment experience of the GPA. Although C.M.
Life is not obligated to credit interest at a rate higher than the guaranteed
minimum, it may declare a higher rate applicable for such periods as it deems
appropriate.
When We Pay Proceeds
If the Policy has not terminated, payment of the Net Surrender Value is made
within seven days, and payment of loan proceeds or the Death Benefit are made
within seven days after We receive all required documents in a form satisfactory
to us at our Administrative Office. But We can delay payment of the Net
Surrender Value or any Withdrawal from the Separate Account or any loan proceeds
attributable to the Separate Account during any period when: (i) it is not
reasonably practical to determine the amount because the New York Stock Exchange
is closed (other than customary week-end and holiday closings); or (ii) trading
is restricted by the SEC; or (iii) the SEC declares an emergency exists; or (iv)
the SEC, by order, permits us to delay payment in order to protect our Owners.
We may delay paying any Net Surrender Value, any Withdrawal, or any loan
proceeds based on the GPA for up to six months from the date the request is
received at our Administrative Office.
We can delay payment of the entire Death Benefit if payment is contested. We
investigate all death claims arising within the two-year contestable period. We
may investigate death claims arising beyond the two-year contestable period.
Upon receiving the information from a completed investigation, We generally make
a determination within five days as to whether the claim should be authorized
for payment. Payments are made promptly after authorization.
If payment of a Net Surrender or Withdrawal is delayed for 30 days or more, We
add interest to the date of payment at the same rate it is paid under the
interest payment option. Interest is paid on the Death Benefit from the date of
death to the date of payment.
Federal Income Tax Considerations
Policy Proceeds, Premiums and Loans C.M. Life believes the Policy meets the
statutory definition of life insurance under Code Section 7702 and hence
receives the same tax treatment as that accorded to fixed benefit life
insurance. Thus, the Death Benefit under the Policy is generally excludible from
the gross income of the Beneficiary under Section 101(a)(1) of the Code. As an
exception to this general rule, where a Policy has been transferred for value,
only the portion of the Death Benefit that is equal to the total consideration
paid for the Policy may be excluded from gross income. The Owner is not deemed
to be in constructive receipt of the cash values, including increments thereon,
under the Policy until a full surrender or partial Withdrawal is made (unless
the Policy is a "modified endowment contract," as discussed below).
Decreases in Face Amount and Withdrawals may be taxable depending on the
circumstances. Code Section 7702(f)(7) provides that where a reduction of future
benefits occurs during the first 15 years after a Policy is issued and where
there is a cash distribution associated with that reduction, the Owner may be
taxed on all or a part of the amount distributed. Where the provisions of Code
Section 7702(f) do not cause a taxable event, a Withdrawal is taxable only to
the extent it exceeds the Owner's unrecovered premiums. After 15 years, such
cash distributions are not subject to federal income tax, except to the extent
they exceed the total amount of premiums paid but not previously recovered. C.M.
Life suggests You consult with your tax adviser in advance of a proposed
decrease in Face Amount or Withdrawal as to the portion, if any, which would be
subject to federal income tax.
A change of the Owner or the Insured(s) or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances.
C.M. Life also believes that under current law any loan received under the
Policy will be treated as Policy Debt of an Owner, and that no part of any loan
under a Policy will constitute income to the Owner unless the Policy has become
a "modified endowment contract." If the Policy is a modified endowment contract
under Code Section 7702A, loans will be fully taxable to the extent of any
income in the Policy and could be subject to an additional 10 percent tax. In
general, income in the policy is defined as the excess of the Account Value
(both loaned and unloaned) over previously unrecovered premiums paid. See the
discussion on modified endowment contracts below. Under the "personal" interest
limitation provisions of the Tax Reform Act of 1986, interest on Policy loans
used for personal purposes, which otherwise meet the requirements of Code
Section 264, will no longer be tax-deductible. However, other rules may apply to
allow all or part of the interest expense as a deduction if the loan proceeds
are used for "trade or business" or "investment" purposes. See your tax adviser
for further guidance.
12
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If the Policy Owner is a business or corporation, the 1986 Act may impose
additional restrictions. The Act limits the interest deduction available for
loans against a business-owned Policy. It imposes an indirect tax on the gain in
corporate-owned life insurance policies by way of the corporate alternative
minimum tax for those corporations subject to the alternative minimum tax. The
corporate alternative minimum tax also could apply to a portion of the amount by
which Death Benefits received exceed the Policy's date-of-death Net Surrender
Value.
Federal estate and gift and state and local estate and other tax consequences of
ownership or receipt of Policy proceeds depend on the circumstances of each
Owner or Beneficiary.
C.M. Life cannot make any guarantee regarding the future tax treatment of any
Policy. For complete information on the impact of changes with respect to the
Policy and federal and state tax considerations, a qualified tax adviser should
be consulted.
The ultimate effect of federal income taxes on values under this Policy and on
the economic benefit to the Owner or Beneficiary depends on C.M. Life's tax
status and on the tax status of the individual concerned. The discussion
contained herein is general in nature and is not an exhaustive discussion of all
tax questions that might arise under the Policy, and is not intended as tax
advice. Moreover, no representation is made as to the likelihood of continuation
of current federal income tax laws and Treasury Regulations or of the current
interpretations of the Internal Revenue Service. C.M. Life reserves the right to
make changes in the Policy to assure that it continues to qualify as life
insurance for tax purposes. For complete information on federal and state tax
law considerations, You should consult a qualified tax adviser. No attempt is
made herein to consider any applicable state or other tax laws.
Charges for Federal Taxes. C.M. Life currently does not make any charge against
the Separate Account for federal income taxes. We may make such a charge
eventually in order to provide for the future federal income tax liability of
the Separate Account.
Upon a full surrender of a Policy for its Net Surrender Value, the Owner may
recognize ordinary income for federal income tax purposes. Ordinary income is
computed to be the amount by which the Account Value, unreduced by any
outstanding Policy Debt but less any Surrender Charges assessed, exceeds the
premiums paid but not previously recovered and any other consideration paid for
the Policy.
Modified Endowment Contracts. Contrary to the rules described above, loans,
collateral assignments, and other amounts distributed under a "modified
endowment contract" are taxable to the extent of any accumulated income in the
Policy. In general, the amount that may be subject to taxation is the excess of
the Account Value (both loaned and unloaned) over the previously unrecovered
premiums paid. Death benefits paid under a modified endowment contract, however,
are not taxed any differently than death benefits payable under other life
insurance contracts.
A Policy is a modified endowment contract if it satisfies the definition of life
insurance in the Internal Revenue Code but fails the additional "7-pay test." A
Policy fails this test if the accumulated amount paid under the contract at any
time during the first seven contract years exceeds the total premiums that would
have been payable under a policy providing guaranteed benefits upon the payment
of seven level annual premiums. Also, a Policy that would otherwise satisfy the
7-pay test will be taxed as a modified endowment contract if it is received in
exchange for a modified endowment contract.
Certain changes will require a Policy to be retested to determine whether it has
become a modified endowment contract. For example, a reduction in death benefits
during the first seven contract years will cause the Policy to be re-tested as
if it originally had been issued with the reduced death benefit. If the premiums
actually paid into the Policy exceed the limits under the 7-pay test for a
policy with the reduced death benefit, the Policy will become a modified
endowment contract. This classification change is effective retroactively to the
Policy Year in which the actual premiums paid exceed the new 7-pay limits.
In addition, a "material change" occurring at any time while the Policy is in
force will require the Policy to be retested to determine whether it continues
to meet the 7-pay test. A material change starts a new 7-pay test period. The
term "material change" includes many increases in death benefits. A material
change does not include an increase in death benefit attributable to the payment
of premiums necessary to fund the lowest level of death benefit payable during
the first seven contract years, or which is attributable to the crediting of
interest with respect to such premiums.
Since the Policy provides for flexible premium payments, the Company has
instituted procedures to monitor whether increases in death benefits or
additional premium payments cause either the start of a new seven-year test
period or the taxation of distributions and loans.
If any amount is taxable as a distribution of income under a modified endowment
contract, it also will be subject to a 10% penalty tax. Limited exceptions from
the additional penalty tax are available for individual Owners. The penalty tax
will not apply to distributions: (i) made on or after the date the taxpayer
attains age 59 1/2 or (ii) attributable to the taxpayer becoming disabled; or
(iii) made as part of a series of substantially equal periodic payments (made at
least annually) made for the life or life expectancy of the taxpayer. For
complete information about modified endowment contract status, a qualified tax
adviser should be consulted.
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Once a Policy fails the 7-pay test, loans and distributions occurring in the
year of failure and thereafter become subject to the rules for modified
endowment contracts. In addition, a recapture provision applies to loans and
distributions received in anticipation of failing the 7-pay test. Any
distribution or loan made within two years prior to failing the 7-pay test is
considered to have been made in anticipation of the failure.
Under certain circumstances, a loan, collateral assignment, or other
distribution under a modified endowment contract may be taxable even though it
exceeds the amount of income accumulated in the Policy. For purposes of
determining the amount of income received from a modified endowment contract,
the law requires the aggregation of all modified endowment contracts issued to
the same Owner by an insurer and its affiliates within the same calendar year.
Therefore, loans, collateral assignments, and distributions from any one such
Policy are taxable to the extent of the income accumulated in all the Policies
required to be aggregated.
Qualified Plans. The Policy may be used in conjunction with certain tax-
qualified employee benefit plans. Since the rules governing such use are
complex, a purchaser should not use the Policy in conjunction with any such
qualified plan until a competent tax adviser has been consulted. The Policy may
not be used in conjunction with an Individual Retirement Account (IRA).
Diversification Standards. To comply with final regulations under Code Section
817(h) ("Final Regulations"), each Fund of the Trusts is required to diversify
its investments. The Final Regulations generally require that on the last day of
each quarter of a calendar year no more than 55% of the value of a Fund's assets
is represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. A "look-through" rule
applies to treat a pro rata portion of each asset of a Fund as an asset of the
Separate Account. All securities of the same issuer are treated as a single
investment. However, each government agency or instrumentality is treated as a
separate issuer.
With respect to variable life insurance contracts, the general diversification
requirements are modified if any of the assets of the Separate Account are
direct obligations of the United States Treasury. In this case, there is no
limit on the investment that may be made in United States Treasury securities;
and for purposes of determining whether assets other than United States Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the Separate Account's
investment in United States Treasury securities. Notwithstanding this
modification of the general diversification requirements, the Funds of the
Trusts will be structured to comply with the general diversification standards
because they serve as an investment vehicle for certain variable annuity
contracts that must comply with the general standards.
In connection with the issuance of the temporary regulations prior to the Final
Regulations, the Treasury announced that such temporary regulations did not
provide guidance concerning the extent to which Owners may direct their
investments to particular Divisions of a separate account. Regulations in this
regard were not issued in connection with the Final Regulations, however. It is
not clear, at this time, what future regulations might provide. It is possible,
if future regulations are issued, the Policy may need to be modified to comply
with such regulations. For these reasons, C.M. Life reserves the right to modify
the Policy, as necessary, to prevent the Owner from being considered the owner
of the assets of the Separate Account.
C. M. Life intends to comply with the Final Regulations to assure the Policy
continues to qualify as life insurance for federal income tax purposes.
Your Voting Rights
As long as the Separate Account continues to operate as a unit investment trust
under the Investment Company Act of 1940, the Owner is entitled to give C.M.
Life instructions as to how shares of the Funds held in the Separate Account (or
other securities held in lieu of such shares) deemed attributable to the Policy
shall be voted at meetings of shareholders of the Funds of the Trusts. Those
persons entitled to give voting instructions are determined as of the record
date for the meeting.
The number of shares of the Funds held in the Separate Account deemed
attributable to the Policy during the lifetimes of the Insureds is determined by
dividing the Policy's Account Value held in each Division of the Separate
Account, if any, by $100. Fractional votes are counted.
Owners receive proxy material and a form on which Owner instructions may be
given. Shares of the Funds held by the Separate Account for which no effective
Owner instructions have been received are voted for or against any proposition
in the same proportion as the shares for which instructions have been received.
Reservation of Rights
We reserve the right to take certain actions in connection with our operations
and the operations of the Separate Account. These actions will be taken in
accordance with applicable laws (including obtaining any required approval of
the Securities and Exchange Commission). If necessary, we will seek approval by
Owners.
Specifically, we reserve the right to:
. Create new Divisions of the Separate Account;
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. Create new Separate Accounts;
. Combine any two or more Separate Accounts;
. Make available additional Divisions of the Separate Account investing in
additional investment companies;
. Invest the assets of the Separate Account in securities other than shares of
the Funds as a substitute for such shares already purchased or as the
securities to be purchased in the future;
. Operate the Separate Account as a management investment company under the
Investment Company Act of 1940 or in any other form permitted by law;
. De-register the Separate Account under the Investment Company Act of 1940 in
the event such registration is no longer required;
. Substitute one or more Funds for other funds with similar investment
objectives; and
. Delete Funds.
C.M. Life also reserves the right to change the name of the Separate Account.
We have reserved all rights to the name C.M. Life Insurance Company or any part
of it. We may allow the Separate Account and other entities to use our name or
part of it, but we also may withdraw this right.
Additional Benefits You Can Get by Rider
At the Owner's request, the Policy can include additional benefits We approve
based on our standards and limits for issuing insurance and classifying risks.
An additional benefit is provided by rider and is subject to the terms of both
the rider and the Policy. The cost of any rider is deducted as part of the
Monthly Charges. Subject to state availability, the following riders are
available.
Policy Split Option Rider. This rider allows the Owner, while both Insureds are
living, to exchange the Policy for two new policies, one on the life of each
Insured, without evidence of insurability. Each new policy may be a fixed
premium permanent life policy or a flexible premium adjustable life policy. This
right will be available for the six-month period beginning on:
. The date six months after the effective date of a final decree of divorce,
issued by a court of competent jurisdiction, ending the Insureds' marriage to
each other, if the decree first becomes effective at least one year after the
Policy Issue Date, and remains in effect during the entire six-month period
after it first becomes effective.
. The date Section 2056 of the Internal Revenue Code (I.R.C.) is nullified or
amended to eliminate or reduce by at least 50% the Insureds' federal estate
tax marital deduction; or the date the maximum federal estate tax rate given
in I.R.C. Section 2001 is reduced to half the rate in effect on the Policy
Issue Date of this Policy.
. If this Policy is owned by a corporation or partnership, the effective date
the corporation or partnership dissolves.
The new policies must meet the policy requirements in effect at the time of the
exchange. The face amount of each new policy will be one-half the face Amount of
this Policy at the time of the split. The policy date of each new policy will be
the date of exchange. The issue age of each Insured will be the age of each
Insured on the birthday nearest the policy date. This rider may be attached to
the Policy at the time of issue as long as the younger Insured is younger than
age 80, the older insured is younger than age 85, and the insurance risk class
of neither Insured is uninsurable.
There is no charge for this rider.
Estate Protection Rider. This rider may be attached to the Policy at the time
of issue. It provides an additional Death Benefit during the first four Policy
Years if both Insureds die during this period. The Owner selects the Face Amount
of the rider subject to a minimum of $25,000 and a maximum of 125% of the
Policy's Initial Face Amount.
A charge equal to the policy Insurance Charge multiplied by the Face Amount of
the rider divided by $1,000.
Payment Options
The Policy proceeds (the Death Benefit or the Net Surrender Value) can be paid
in cash, or if elected, all or part of these proceeds can be placed under one or
more of the following payment options. The minimum amount that can be applied
under a payment option is $2,000. If the periodic payment under any option is
less than $20, we reserve the right to make payments at less-frequent intervals.
None of these benefits depends on the performance of the Separate Account or the
GPA. For additional information concerning these options, see the Policy. The
following payment options are currently available.
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- ------------------------------------------------------------------------------
Installments for a Specified Period Equal monthly payments will be made
for any period selected, up to 30
years. The amount of each payment
depends on the total amount applied,
the period selected, and the monthly
income rates We are using when the
first payment is due.
- ------------------------------------------------------------------------------
Life Income Equal monthly payments will be based
on the life of a named person.
Payments will continue for the
lifetime of that person. Income with
or without a minimum payment period
may be elected.
- ------------------------------------------------------------------------------
Interest We will hold any amount applied under
this option. Interest on the amount
will be paid at an effective annual
rate determined by us. This rate
will not be less than 3%.
- ------------------------------------------------------------------------------
Installments of Specified Amount Each payment will be made for an
agreed fixed amount. The total
amount paid during the first year
must be at least 6% of the total
amount applied. Interest will be
credited each month on the unpaid
balance and added to it. This
interest will be an effective annual
rate determined by us, but not less
than 3%. Payments continue until the
balance we hold is reduced to less
than the agreed fixed amount. The
last payment will be for the balance
only.
- ------------------------------------------------------------------------------
Life Income with Payments Guaranteed Equal monthly payments will be based
for Amount Applied on the life of a named person.
Payments will be made until the total
amount paid equals the amount
applied, and as long thereafter as
the named person lives.
- ------------------------------------------------------------------------------
Joint Lifetime Income with Reduced Monthly payments will be based on the
Payments to Survivor lives of two named persons. Payments
at the initial level will continue
while both are living, or for 10
years if longer. When one dies (but
not before the 10 years has elapsed),
payments are reduced by one-third and
will continue at that level for the
lifetime of the other. After the 10
years has elapsed, payments stop when
both named persons have died.
- ------------------------------------------------------------------------------
Withdrawal Rights Under Payment Options. If provided in the payment option
election, all or part of the unpaid balance under the Fixed Amount or Interest
Payment Option may be withdrawn or applied under any other option. No part of
the payments under the Fixed Time Payment Option or payments that are based on a
named person's life may be withdrawn.
Beneficiary
A Beneficiary is any person named on our records to receive insurance proceeds
at the second death. The Beneficiary is named in the application for the Policy.
There may be different classes of beneficiaries, such as primary and secondary.
These classes set the order of payment. There may be more than one Beneficiary
in a class.
Any Beneficiary may be named an Irrevocable Beneficiary. An Irrevocable
Beneficiary is one whose consent is needed to change that Beneficiary. The
consent of any Irrevocable Beneficiary is needed to exercise any Policy right
except the rights to change the frequency of Planned Premiums and Reinstate the
Policy after termination.
The Owner may change the Beneficiary during either Insured's lifetime by writing
to our Administrative Office. Generally, the change will take effect as of the
date of the request. If no Beneficiary is living at the second death, unless
provided otherwise, the Death Benefit is paid to the Owner or, if deceased, to
the Owner's estate.
Assignment
The Policy may be assigned as collateral for a loan or other obligation. For any
assignment to be binding on C.M. Life, however, We must receive a signed copy of
it at our Administrative Office. We are not responsible for the validity of any
assignment.
Limits on Our Right to Challenge the Policy
Except for any policy change or reinstatement requiring evidence of
insurability, we cannot contest the validity of the policy:
. with respect to any material misrepresentation in the application regarding
the insurability of Insured No. 1, once the policy has been in force during
the lifetime of Insured No. 1 for two years after the its Issue Date; or
. with respect to any material misrepresentation in the application regarding
the insurability of Insured No. 2, once the policy has been in force during
the lifetime of Insured No. 2 for two years after the Issue Date.
For any policy change or reinstatement requiring evidence of insurability, We
cannot contest the validity of the change or reinstatement with respect to each
Insured after the change has been in effect for two years during the lifetime of
that Insured.
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<PAGE>
Error of Age or Sex
If either Insured's age or sex is misstated in the Policy application, the Death
Benefit payable under the Policy will be adjusted based on what the Policy would
provide according to the most recent Monthly Charge for the correct date of
birth and correct sex.
Suicide
Suicide within two years of the Policy Date is not covered by the Policy. If
either Insured dies by suicide, while sane or insane, within two years from the
Issue Date or Reinstatement Date, the Policy will terminate. We will refund the
amount of all premiums paid, less any Withdrawals and Policy Debt. If either
Insured, while sane or insane, dies by suicide within two years after the
effective date of any increase in the Face Amount, the increase will terminate
and We will refund the Monthly Charges for that increase. However, if a refund
was payable as the result of suicide during the first two years following the
Issue Date or the Reinstatement Date of the Policy, there is no additional
refund for any Face Amount increase.
Sales And Other Agreements
MML Distributors, LLC ("MML Distributors"), 1414 Main Street, Springfield, MA
01144-1013, is the principal underwriter of the Policy pursuant to an
Underwriting and Servicing Agreement to which MML Distributors, C.M. Life and
the Separate Account are parties. MML Investors Services, Inc. ("MMLISI"), also
located at 1414 Main Street, Springfield, MA 01144-1013, serves as the co-
underwriter of the Policy. Both MML Distributors and MMLISI are registered with
the Securities and Exchange Commission (the "SEC") as broker-dealers under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. (the "NASD").
MML Distributors may enter into selling agreements with other broker-dealers
that are registered with the SEC and are members of the NASD ("selling
brokers"). C.M. Life sells the Policy through agents who are licensed by state
insurance officials to sell the Policy. These agents also are registered
representatives of selling brokers or of MMLISI. The Policy is offered in all
states where C.M. Life is authorized to sell variable life insurance.
The Company also may contract with independent third party broker-dealers who
may act as wholesalers by assisting the Company in finding Broker-dealers to
offer and sell the Policies. These parties also may provide training, marketing
and other sales related functions for the Company and other broker-dealers and
may provide certain administrative services to the Company in connection with
the Policies. The Company may pay such parties compensation based on premium
payments for the Policies purchased through broker-dealers selected by the
wholesaler. In addition, some sales personnel may receive various types of non-
cash compensation as special sales incentives, including trips and educational
and/or business seminars.
When an application for the Policy is completed, it is submitted to C.M. Life.
Under a service agreement between C.M. Life and MassMutual (described below
under Service Agreement), MassMutual performs suitability and insurance
underwriting and determines whether to accept or reject the application for the
Policy and the Insureds' risk classifications. If the application is not
accepted, C.M. Life will refund any premium paid.
Pursuant to the Underwriting and Servicing Agreement, both MML Distributors and
MMLISI will receive compensation for their activities as underwriters of the
Policy.
MML Distributors does business under different variations of its name; including
the name MML Distributors, L.L.C. in the states of Illinois, Michigan, Oklahoma,
South Dakota and Washington; and the name MML Distributors, Limited Liability
Company in the states of Maine, Ohio and West Virginia.
Compensation
Writing agents will receive commissions based on a commission schedule and
rules. Some commissions are paid as a percentage of the premium paid in each
Policy Year. These commissions distinguish between premiums up to the Target
Premium and premiums paid in excess of the Target Premium. The Target Premium is
based on the issue ages, sexes, and risk classifications of the Insureds.
Commissions also are paid as a percentage of the average monthly Account Value
in each Policy Year. The maximum commission percentages are as follow.
Premium-based Commissions
- --------------------------------------------------------------------------------
Coverage Year 1 50% of premium paid up to the Target Premium
3% of premium paid over the Target Premium
Coverage Years 2-5 5% of premium paid up to the Target Premium
3% of premium paid over the Target Premium
Coverage Years 6-10 3% of all premium paid
Coverage Years 11 and beyond 1% of all premium paid
- --------------------------------------------------------------------------------
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<PAGE>
Asset-based Commissions
- --------------------------------------------------------------------------------
Policy Years 2 and beyond 0.15% of the average monthly Account Value in
each Policy Year
- --------------------------------------------------------------------------------
Agents under financing agreements with a general agent of MassMutual may be
compensated differently. Agents who meet certain productivity and persistency
standards in selling C.M. Life and MassMutual policies are eligible for
additional compensation. General agents and district managers who are registered
representatives of MMLISI also may receive commission overrides, allowances and
other compensation.
While the compensation payable to broker-dealers for sales of Policies may vary
with the sales agreement and level of production, they generally are expected to
be comparable to the aggregate compensation paid to Company agents and general
agents.
Service Agreement
In addition to acting as an investment manager for the funds underlying the
Divisions of the Separate Account, MassMutual performs certain investment and
administrative duties for C.M. Life. MassMutual does this according to a written
agreement. The agreement is renewed automatically each year, unless either party
terminates it. Under this agreement, C.M. Life pays MassMutual for salary costs
and other services and an amount for indirect costs incurred through C.M. Life's
use of MassMutual's personnel and facilities.
Bonding Arrangement
An insurance company blanket bond is maintained providing $50,000,000 coverage
for officers and employees of MassMutual and C.M. Life (subject to a $350,000
deductible) and $50,000,000 for MassMutual's general agents and agents (also
subject to a $350,000 deductible).
Legal Proceedings
We are not currently involved in any legal proceedings that would have a
material impact on the Policy.
Experts
The audited statements of statutory financial position of C.M. Life Insurance
Company as of December 31, 1997 and 1996 and the related statutory statements of
income, changes in capital stock and surplus and cash flows for the years then
ended December 31, 1997 included in this Prospectus have been so included in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The statutory statements of income, changes in capital stock and surplus and
cash flows for the year ended December 31, 1995 included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Actuarial matters in the Prospectus have been examined by Craig Waddington, FSA,
MAAA. An opinion on actuarial matters is filed as an exhibit to the registration
statements We filed with the SEC.
III. ADDITIONAL INFORMATION
C.M. Life and MassMutual
C.M. Life is a stock life insurance company located at 140 Garden Street,
Hartford, CT 06154. It was chartered by a Special Act of the Connecticut General
Assembly on April 25, 1980. C.M. Life is engaged principally in the sale of life
insurance policies and annuity contracts, and is licensed to sell such products
in all states except New York. C.M. Life is a wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company ("MassMutual"). C.M. Life is
licensed to transact variable life insurance business in all jurisdictions in
the United States, including Puerto Rico, other than New York and California.
MassMutual is a mutual life insurance company chartered in 1851 under the laws
of Massachusetts. Its Home Office is located in Springfield, Massachusetts.
MassMutual is licensed to transact life, accident, and health business in all
fifty states of the United States, the District of Columbia, Puerto Rico, and
certain provinces of Canada. As of December 31, 1997, MassMutual had total
assets under management of $152.5 billion and unconsolidated MassMutual assets
in excess of $57.5 billion.
C.M. Life's Tax Status. C.M. Life is taxed as a life insurance company under
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). The Segment and
the Separate Account are not separate entities from C.M. Life and its operations
form a part of C.M. Life.
Investment income and realized capital gains on the assets of the Segment are
reinvested and taken into account in determining Account Value. The investment
income and realized capital gains are applied automatically to increase book
reserves associated with the Policy. Under existing federal income tax law, the
Segment's investment income, including net capital gains, is not taxed to C.M.
Life to the extent it is applied to increase reserves associated with the
Policy. The reserve items taken into account at the close of
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<PAGE>
the taxable year for purposes of determining net increases and net decreases
must be adjusted for tax purposes by subtracting any amount attributable to
appreciation in the value of assets and by adding any amount attributable to
depreciation. C.M. Life's basis in the Policy's share of the assets underlying
the Segment will be adjusted for appreciation or depreciation, to the extent the
reserves are adjusted. Thus, corporate-level capital gains and losses, and the
tax effect thereof, are eliminated.
Due to C.M. Life's current tax status, no charge is made to the Segment for C.M.
Life's federal income taxes that may be attributable to the Segment.
Periodically, C.M. Life reviews the question of a charge to the Segment for C.M.
Life's federal income taxes. A charge may be made for any federal income taxes
incurred by C.M. Life and attributable to the Segment. Depending on the method
of calculating interest on Policy values allocated to the Guaranteed Principal
Account (see preceding section), a charge may be imposed for the Policy's share
of C.M. Life's federal income taxes attributable to that account.
Under current laws, C.M. Life may incur state or local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, C.M. Life
reserves the right to charge the Separate Account for taxes, if any,
attributable to the Separate Account.
Records and Reports
All records and accounts relating to the Separate Account and the GPA are
maintained by MassMutual or C.M. Life. Each year within the 30 days following
the Policy Anniversary, C.M. Life will mail You a report showing the Account
Value at the beginning of the previous Policy Year, all premiums paid since that
time, all additions to and deductions from the Account Value during the year,
and the Account Value, Death Benefit, Net Surrender Value and Policy Debt as of
the last Policy Anniversary. This report contains any additional information
required by any applicable law or regulation.
The Separate Account
The Separate Account was established on February 2, 1995, as a separate
investment account of C.M. Life by C.M. Life's Board of Directors in accordance
with the laws of the State of Connecticut. The Separate Account is registered
with the Securities and Exchange Commission as a unit investment trust pursuant
to the provisions of the Investment Company Act of 1940, and meets the
definition of a "separate account" in that statute. Registration does not
involve supervision of the management or investment practices of either the
Separate Account or of C.M. Life. A separate segment for the Policies (the
"Segment") was established on November 12, 1997 and has since been divided into
13 Divisions. Each Division invests in a corresponding series of shares of a
designated Fund of MML Trust, Oppenheimer Trust, Variable Insurance Products
Fund II (managed by Fidelity Management & Research Company), T. Rowe Price
Equity Series, Inc., or American Century Variable Portfolios, Inc. C.M. Life may
establish additional divisions within the Separate Account in the future, which
may invest in other investment funds, including those of MML Trust, Oppenheimer
Trust, (Fidelity) Variable Insurance Products Fund II, T. Rowe Price Equity
Series, Inc., or American Century Variable Portfolios, Inc., or in any other
investment fund C.M. Life deems to be appropriate.
C.M. Life owns the assets in the Separate Account and is required to maintain
sufficient assets in the Separate Account to meet anticipated obligations of the
Policies funded by the Separate Account. The income, gains, or losses, realized
or unrealized, of the Separate Account are credited to or charged against the
assets held in the Separate Account without regard to the other income, gains,
or losses of C.M. Life. Assets in the Separate Account attributable to the
reserves and other liabilities under the Policies are not chargeable with
liabilities arising from any other business conducted by C.M. Life. C.M. Life
may transfer to its General Account; however, any assets that exceed anticipated
obligations of the Separate Account. All obligations arising under the Policy
are general corporate obligations of C.M. Life. C.M. Life may accumulate in the
Separate Account proceeds from various Policy charges and investment results
applicable to those assets.
Some of the Funds offered are substantially identical to or are "clones" of
mutual funds offered in the retail marketplace. These "clone" funds have the
same investment objectives, policies, and portfolio managers as the retail funds
and usually were formed after the retail funds. For example, the Variable
Product Insurance Funds' Contrafund is a clone of Fidelity's Contrafund;
American Century Variable Portfolios' Income & Growth Portfolio is a clone of
the American Century Income & Growth Fund and the T. Rowe Price Equity Series'
Mid-Cap Growth Portfolio is a clone of the T. Rowe Price Mid-Cap Growth Fund.
While the clone funds generally have identical investment objectives, policies
and portfolio managers, they are separate and distinct from the retail funds. In
fact, the performance of the clone funds may be dramatically different from the
performance of the retail funds due to differences in the funds' sizes, dates
shares of stock are purchased and sold, cash flows and expenses. Thus, while the
performance of the retail funds may be informative, you should remember that
such performance is not the performance of the funds that support the Policy and
is not an indication of future performance of such funds.
MML Trust and Oppenheimer Trust
The MML Trust is a no-load, open-end, management investment company registered
under the Investment Company Act of 1940. The Oppenheimer Trust is an open-end,
diversified, management investment company registered under the Investment
Company Act of 1940.
Both the MML Trust and the Oppenheimer Trust provide an investment vehicle for
the separate investment accounts of variable life and variable annuity contracts
offered by companies such as MassMutual. Shares of the MML Trust and the
Oppenheimer Trust are not offered to the general public.
The assets of certain variable annuity separate accounts for which MassMutual or
an affiliate is the depositor are invested in shares of the MML Trust's and
Oppenheimer Trust's Funds. Because these separate accounts are invested in the
same underlying Funds, it is possible material irreconcilable conflicts could
arise between Policy Owners and owners of the variable annuity contracts.
Possible conflicts could arise if: (i) state insurance regulators should
disapprove or require changes in investment policies, investment advisers or
principal underwriters or if C.M. Life should be permitted to act contrary to
actions approved by holders of the Policies under rules of the Securities and
Exchange Commission; (ii) adverse tax treatment of the
19
<PAGE>
Policies or the variable annuity contracts would result from utilizing the same
underlying funds; (iii) different investment strategies would be more suitable
for the variable annuity contracts than for the Policies; or (iv) state
insurance laws or regulations or other applicable laws would prohibit the
funding of both the Separate Account and other investment accounts by the same
Funds. The Board of Trustees of each Trust will follow monitoring procedures
that have been developed to determine whether material conflicts have arisen. If
it is determined a conflict exists, the Trustees will notify MassMutual, C.M.
Life and OppenheimerFunds and appropriate action will be taken to eliminate such
irreconcilable conflicts.
C.M. Life purchases the shares of each Fund for the corresponding Division at
net asset value. All dividends and capital gain distributions received from a
Fund are automatically reinvested in that Fund at net asset value, unless C.M.
Life, on behalf of the Separate Account, elects otherwise. Shares of the MML
Trust and the Oppenheimer Trust will be redeemed by C.M. Life at their net asset
values to the extent necessary to make payments under the Policies.
Variable Insurance Products Fund II
Variable Insurance Products Fund II ("Fidelity VIP II"), managed by Fidelity
Management & Research Company ("FMR"), is an open-end diversified management
investment company organized as a Massachusetts business trust on March 21, 1988
and is registered with the SEC under the 1940 Act. One of its investment
portfolios, the VIP II Contrafund Portfolio, is available under this Policy.
T. Rowe Price Equity Series, Inc.
The T. Rowe Price Equity Series, Inc. (the "Corporation") was incorporated in
Maryland in 1994, and is a diversified, open-end investment company, or mutual
fund. Currently, the corporation consists of four series, each representing a
separate class of shares having different objectives and investment policies.
One of the series, the Mid-Cap Growth Portfolio, is available under this Policy.
American Century Variable Portfolios, Inc.
American Century Variable Portfolios, Inc. is part of American Century
Investments, a family of funds that includes nearly 70 no-load mutual funds
covering a variety of investment opportunities. American Century Variable
Portfolios offers its shares only to insurance companies to fund the benefits of
variable annuity or variable life insurance contracts. One of the funds, VP
Income and Growth, is offered under this Policy.
Following is a chart illustrating the risk profiles of the investment options
available under this Policy, and a summary of the investment objectives of each
fund. Please note there can be no assurance any fund will achieve its
objectives. More detailed information concerning these investment objectives is
contained in the accompanying prospectuses, including information on the risks
associated with the investments, the investment techniques of each of the funds,
and the deduction of expenses applicable to each of the funds.
20
<PAGE>
INVESTMENT PREFERENCE CHART
- --------------------------------------------------------------------------------
Oppenheimer Global Securities Fund
VIP II Contrafund Portfolio
Oppenheimer Aggressive Growth Fund
MML Small Cap Value Equity Fund
T. Rowe Price Mid-Cap Growth Portfolio
Oppenheimer Growth Fund
MML Equity Index Fund
American Century VP Income & Growth
MML Equity Fund
MML Blend Fund
Oppenheimer Strategic Bond Fund
MML Managed Bond Fund
MML Money Market Fund
Guaranteed Principal Account
- --------------------------------------------------------------------------------
Conservative Less Conservative Moderate Aggressive More Aggressive
Conservative: Investment goal is preservation of principal, while incurring
little or no risk.
Less Conservative: Investment goal is primarily preservation of principal, with
some desire for growth.
Moderate: Investment goal is growth, while seeking some preservation of
principal.
Aggressive: Investment goal is growth, with more tolerance for risk.
More Aggressive: Investment goal is significant growth over the long-term, with
short-term fluctuations in value expected.
21
<PAGE>
MML Money Market Fund
MML Money Market Fund seeks to achieve high current income, while preserving
capital, and liquidity. This Fund invests in short-term debt instruments,
including but not limited to commercial paper, certificates of deposit, bankers'
acceptances, and obligations of the United States government, its agencies and
instrumentalities. An investment in the Fund is neither insured nor guaranteed
by the U.S. Government and there can be no assurance that the Fund will be able
to maintain a stable net asset value of $1.00 per share.
MML Managed Bond Fund
MML Managed Bond Fund seeks to achieve as high a total rate of return on an
annual basis as is considered consistent with the preservation of capital. This
Fund invests primarily in investment grade, publicly-traded fixed income
securities of such maturities as MassMutual deems appropriate from time to time
in light of market conditions and prospects.
Oppenheimer Strategic Bond Fund
Oppenheimer Strategic Bond Fund seeks a high level of current income principally
derived from interest on debt securities; and seeks to enhance such income by
writing covered call options on debt securities. The Fund intends to invest
principally in: (i) foreign government and corporate debt securities; (ii) U.S.
Government securities; and (iii) lower-rated, high-yield domestic debt
securities, commonly known as "junk bonds", which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
Current income is not an objective.
MML Blend Fund
MML Blend Fund seeks to achieve as high a level of total rate of return over an
extended period of time as is considered consistent with prudent investment risk
and the preservation of capital. This Fund invests in a portfolio of common
stocks and other equity-type securities, bonds and other debt securities with
maturities generally exceeding one year, and money market instruments and other
debt securities with maturities generally not exceeding one year. Sub-advisor
for the equity sector of the fund is David L. Babson & Company, Inc.
MML Equity Fund
MML Equity Fund seeks to achieve a superior total rate of return over an
extended period of time from both capital appreciation and current income. A
secondary objective is the preservation of capital when business and economic
conditions indicate investing for defensive purposes is appropriate. The assets
of this Fund are expected to be invested primarily in equity-type securities.
Sub-advisor to the Fund is David L. Babson & Company, Inc.
American Century VP Income & Growth
American Century VP Income & Growth seeks long-term growth of capital as well as
current income. The Fund pursues a total return and dividend yield that exceed
those of the S&P 500 by investing in stocks of companies with strong dividend
growth potential.
MML Equity Index Fund
MML Equity Index Fund seeks to provide investment results that correspond to the
price and yield performance of the publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index. ("Standard & Poor's 500" and "S&P 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use. The Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's or the McGraw-Hill Companies,
Inc.)
Oppenheimer Growth Fund
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in
securities of well-known established companies.
T. Rowe Price Mid-Cap Growth Portfolio
The Mid-Cap Growth Portfolio seeks to provide long-term capital appreciation by
investing primarily in common stocks of medium-sized (mid-cap) growth companies.
The Fund focuses on companies with higher earnings growth potential that are no
longer considered new or emerging, but may still be in the dynamic phase of
their life cycles.
MML Small Cap Value Equity Fund
This Fund seeks to earn a high rate of return over an extended period. The Fund
invests primarily in stocks of smaller capitalization companies with some unique
product, market position, or operating characteristic which, in the portfolio
manager's opinion distinguishes them and will result in above-average
returns.
Oppenheimer Aggressive Growth Fund
Oppenheimer Aggressive Growth Fund seeks to achieve capital appreciation by
investing in "growth-type" companies. Prior to May 1, 1998, this Fund was named
Oppenheimer Capital Appreciation Fund.
VIP II Contrafund Portfolio
This Fund seeks capital appreciation by investing in the securities of companies
whose value FMR believes is not fully recognized by the public. This Fund may
be appropriate for policyowners who are willing to ride out stock market
fluctuations in pursuit of potentially high long-term returns. The Fund is
designed for those who are looking for an investment approach that follows a
contrarian philosophy.
Oppenheimer Global Securities Fund
Oppenheimer Global Securities Fund seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign issuers,
"growth-type" companies, cylical industries and special situations which are
considered to have appreciation possibilities, but which may be considered to be
speculative.
The Investment Advisers
MassMutual serves as investment manager of each of the MML Funds pursuant to
investment management agreements.
22
<PAGE>
Concert Capital Management, Inc. ("Concert") served as the investment sub-
adviser to MML Equity Fund and the Equity Sector of the MML Blend Fund from
1993-1996. Concert merged with and into David L. Babson & Company, Inc.
("Babson") effective December 31, 1996. Both Concert and Babson are wholly-owned
subsidiaries of Babson Acquisition Corporation, which is a controlled subsidiary
of MassMutual. Effective January 1, 1997, Babson became the investment sub-
adviser to MML Equity Fund and the Equity Sector of the MML Blend Fund. Babson
also is the sub-adviser to the MML Small Cap Value Equity Fund. Both MassMutual
and Babson are registered investment advisers under the Investment Advisers Act
of 1940.
MassMutual entered into a sub-advisory agreement with Mellon Equity whereby
Mellon Equity manages the investment and reinvestment of the assets of the MML
Equity Index Fund.
OppenheimerFunds, Inc. ("OFI") is an investment adviser organized under the laws
of Colorado as a corporation; it was originally organized in 1959. It (including
a subsidiary) has assets aggregating over $62 billion as of December 31, 1996,
and over three million shareholder accounts. OFI is owned by Oppenheimer
Acquisition Corporation, a holding company owned in part by senior management of
OFI and ultimately controlled by MassMutual. OFI serves as investment adviser to
the Oppenheimer Trust. OFI is registered as an investment adviser under the
Investment Advisers Act of 1940. OFI serves as Investment Adviser to the
Oppenheimer Funds.
Citibank N.A., with its home office located at 111 Wall Street, New York, NY,
10005, acts as custodian for the MML Trust. Bank of New York, with its home
office at One Wall Street, New York, NY 10015, acts as custodian for the
Oppenheimer Trust.
MassMutual is also the investment adviser to MassMutual Corporate Investors and
MassMutual Participation Investors, closed-end investment companies, certain
wholly-owned subsidiaries of MassMutual, and various employee benefit plans.
MassMutual is the investment sub-adviser to Oppenheimer Investment Grade Bond
Fund and Oppenheimer Value Stock Fund, open-end management investment companies.
Fidelity Management & Research Company ("FMR") is the investment adviser to the
VIP II Contrafund Portfolio. FMR is the management arm of Fidelity
Investments(R), which was established in 1946. Fidelity Investments(R) has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. FMR
handles the VIP II Contrafund business affairs and, with the assistance of
affiliates, chooses the Fund's investments. Fidelity Management & Research
(U.K.) Inc, in London, England, and Fidelity Management & Research (Far East)
Inc, serve as sub-advisers for the VIP II Contrafund Portfolio.
T. Rowe Price Associates, Inc ("T. Rowe Price") is the investment adviser to the
T. Rowe Price Mid-Cap Growth Portfolio. T. Rowe Price was founded in 1937. The
T. Rowe Price Equity Series, Inc. (the "Corporation") was incorporated in
Maryland in 1994, and is a diversified, open-end investment company. The
Corporation is governed by a Board of Directors that meets regularly to review
the Fund's investments, performance, expenses, and other business affairs. The
policy of the Corporation is that a majority of Board members will be
independent of T. Rowe Price.
American Century Investment Management, Inc. is the investment adviser to the
American Century VP Income & Growth Fund. Under the laws of the state of
Maryland, the Board of Directors is responsible for managing the business and
affairs of the Fund. Acting pursuant to an investment management agreement
entered into with the Fund, American Century Investment Management, Inc. serves
as the manager of the Fund. Its principal place of business is American Century
Tower, 4500 Main Street, Kansas City, Missouri. The manager has been providing
investment advisory services to investment companies and institutional investors
since it was founded in 1958.
23
<PAGE>
Appendix A
Definition of Terms
Account Value: The sum of the Variable Account Value and the Fixed Account Value
of the Policy.
Administrative Office: C.M. Life's Administrative Office is located at 1295
State Street, Springfield, Massachusetts 01111-0001.
Attained Age: The Issue Age of an Insured plus the number of completed Policy
Years.
Beneficiary(ies): The person or persons specified by the Owner to receive some
or all of the Death Benefit at the second death.
Death Benefit: The amount paid following receipt of due proof of the death of
both Insureds. The amount is equal to the benefit provided by the Death Benefit
Option in effect on the date of the second death less any Policy Debt
outstanding and any unpaid premium.
Death Benefit Option: The Policy offers three Death Benefit Options for
determination of the amount of the Death Benefit. The Death Benefit Option is
elected at time of application and, subject to certain requirements, may be
changed at a later date.
Expense Premium: The level of premium payment used to determine the Premium
Expense Charges. The Expense Premium is based on the Issue Ages, sexes, and
risk classifications of the Insureds in effect at the time of any Premium
payment.
Fixed Account Value: The current Account Value that is allocated to the
Guaranteed Principal Account.
Free Look Period: The Period during which an Owner may return the Policy for
cancellation and refund.
Guaranteed Principal Account ("GPA"): Part of our General Account, the GPA is a
fixed account to and from which the Owner may make allocations and transfers.
Initial Face Amount: The amount of insurance coverage issued under the Policy.
Subject to certain limitations, the Owner may change the Face Amount after
issue.
Initial Net Premium: The premium received before or at delivery of the Policy,
reduced by the Premium Expense Charge.
Insureds: The two persons whose lives this Policy insures.
Issue Age: The age of an Insured at his or her birthday nearest the Policy Date.
Issue Date: The date on which the suicide and contestability periods begin.
Minimum Death Benefit: The Death Benefit determined in accordance with the
applicable Death Benefit Compliance Test. The applicable Test is either the
Cash Value Test or the Guideline Premium Test, as chosen at the time of
application.
Monthly Charge Date: The monthly date on which the Monthly Charges for the
Policy are deducted from the Account Value. The first Monthly Charge Date is
the Policy Date, and subsequent Monthly Charge Dates are on the same day of each
succeeding calendar month.
Monthly Charges: The charges assessed against the Policy Account Value on each
Monthly Charge Date.
Net Premium: The premium payment less the Premium Expense Charge we deduct.
Net Surrender Value: The amount payable to an Owner upon surrender of the
Policy. It is equal to the Account Value less any surrender charges that apply
and less any Policy Debt.
Owner: The person or entity that owns the Policy.
Policy: The survivorship flexible premium adjustable variable life insurance
policy offered by C.M. Life and described in this Prospectus.
Policy Anniversary Date: An anniversary of the Policy Date.
Policy Date: The date shown on the Policy that is the starting point for
determining Policy Anniversary Dates, Policy Years, and Monthly Charge Dates.
Policy Debt: All outstanding Policy loans plus accrued loan interest.
Policy Value: The Account Value less any outstanding Policy Debt during the
first three Policy Years. It is equal to the Net Surrender Value in years four
and later.
Policy Year: A twelve-month period commencing with the Policy Date or a Policy
Anniversary Date.
Safety Test: On any day during the Guarantee Periods as shown on the Policy
Specifications page of Your Policy, the Safety Test is met if the result of
premiums paid less amounts withdrawn, accumulated with interest to that day,
equals or exceeds the Guarantee Period premium requirement as shown on the
Policy Specification page of Your Policy accumulated with interest to that date.
Second Death: The death of the surviving Insured.
Separate Account: The Policies' designated segment of the "C. M. Life Variable
Life Separate Account I"
24
<PAGE>
established by C. M. Life under the laws of Connecticut and registered as a unit
investment trust with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940, as amended ("1940 Act"). The Separate Account is
used to receive and invest Net Premiums for this Policy.
Subsequent Net Premium: Any premium received after the Policy is delivered,
reduced by the Premium Expense Charge.
Target Premium: The level of premium payments used to determine commission
payments and surrender charges. The Target Premium is based on the Issue Ages,
sexes, and risk classifications of the Insureds.
Valuation Date: A date on which the net asset value of the shares of each
Division of the Separate Account is determined. Generally, this will be any
date on which the New York Stock Exchange (or its successor) is open for
trading.
Valuation Period: The period, consisting of one or more days, from one Valuation
Date to the next succeeding Valuation Date.
Valuation Time: The time of the close of the New York Stock Exchange (currently
4:00 p.m. eastern time) on a Valuation Date. All actions which are to be
performed on a Valuation Date will be performed as of the Valuation Time.
Variable Account Value: The total of the values of the Accumulation Units
credited to the Policy in each Division of the Separate Account multiplied by
the Owner's number of units in that Division.
We: Refers to C.M. Life.
Year of Coverage: For the Initial Face Amount, each Policy Year is a Year of
Coverage. For any increase in the Face Amount, each Year of Coverage is
measured from the effective date of the increase.
You: Refers to the Owner.
25
<PAGE>
Appendix B
Examples of Death Benefit Option Changes
Example I - Change from Option 2 to Option 1
For a change from Option 2 to Option 1, the Face Amount is increased by the
amount of the Account Value on the effective date of the change. For example,
if the Policy has a Face Amount of $500,000 and an Account Value of $25,000, the
Death Benefit under Option 2 is equal to the Face Amount plus the Account Value,
or $525,000. If the Owner changes from Option 2 to Option 1, the Death Benefit
under Option 1 is equal to the Policy Face Amount. Since the Death Benefit
under a Policy does not change as the result of a Death Benefit Option change,
the Face Amount will be increased from $500,000 under Option 2 to $525,000 under
Option 1.
Example II - Change from Option 3 to Option 1
For a change from Option 3 to Option 1, the Face Amount is increased by the
amount of the premiums paid to the effective date of the change. For example,
if a Policy has a Face Amount of $500,000, and premium payments of $12,000 have
been made to-date, the Policy Death Benefit under Option 3 is equal to the Face
Amount plus the premiums paid, or $512,000. If the Owner changes from Option 3
to Option 1, the Death Benefit under Option 1 is equal to the Policy Face
Amount. Since the Death Benefit under a Policy does not change as the result of
a Death Benefit Option change, the Face Amount will be increased from $500,000
under Option 3 to $512,000 under Option 1.
Example III - Change from Option 1 to Option 2
For a change from Option 1 to Option 2, the Face Amount will be decreased by the
amount of the Account Value on the effective date of the change. For example,
if the Policy has a Face Amount of $700,000 and an Account Value of $25,000,
under Option 1 the Death Benefit is equal to the Face Amount, or $700,000. If
the Owner changes from Option 1 to Option 2, the Death Benefit under Option 2 is
equal to the Face Amount plus the Account Value. Since the Death Benefit does
not change as the result of a Death Benefit Option change, the Face Amount will
be decreased by $25,000 to $675,000, and the Death Benefit under Option 2 after
the change will remain $700,000.
Example IV - Change from Option 1 to Option 3
For a change from Option 1 to Option 3, the Face Amount will be decreased by the
amount of the premiums paid to the effective date of the change. For example,
if the Policy has a Face Amount of $700,000 and premiums paid to-date are
$30,000, the Death Benefit under Option 1 is equal to the Face Amount, or
$700,000. If the Owner changes from Option 1 to Option 3, the Death Benefit
under Option 3 is equal to the Face Amount plus the premiums paid to-date.
Since the Death Benefit under a Policy does not change as the result of a Death
Benefit Option change, the Face Amount will be decreased from $700,000 under
Option 1 to $670,000 under Option 3.
Example V - Change from Option 2 to Option 3, or from Option 3 to Option 2
For a change from Option 2 to Option 3 or from Option 3 to Option 2, the Face
Amount is changed (increased or decreased) by the difference between the Account
Value and the premiums paid less any premium refunds. For example, if the
Policy has a Face Amount of $1,000,000, and an Account Value of $70,000, and
premiums paid of $25,000, the Death Benefit under Option 2 is equal to the
Account Value plus the Face Amount, or $1,070,000. If the Owner changes from
Option 2 to Option 3, the Death Benefit under Option 3 is equal to the Face
Amount plus the premiums paid less any premium refunds. Since the Death Benefit
under a Policy does not immediately change as the result of a Death Benefit
Option change, the Face Amount will be increased by the difference between the
Account Value and the premiums paid, or $45,000, to $1,045,000 under Option 3,
maintaining a Death Benefit of $1,070,000.
A similar type of change would be made for a change from Option 3 to Option 2.
26
<PAGE>
Appendix C
Rates of Return
From time to time, the Company may report different types of historical
performance for the Divisions of the Separate Account available under the
Policy. The Company may report the average annual total returns of the funds
over various time periods. Such returns will reflect an annual reduction for
investment management fees and fund expenses, but not deductions at the Separate
Account or policy level for Mortality and Expense Risk Charges and Policy
expenses, which, if included, would reduce performance.
The Company will accompany the returns of the funds with at least one of the
following: (i) returns, for the same periods as shown for the funds, which
include deductions under the Separate Account for the Mortality and Expense Risk
Charge in addition to deductions of investment management fees and fund
expenses, but does not include other charges under the Policy; or (ii) an
illustration of Account Values and Net Surrender Values as of the performance
reporting date for hypothetical Insureds of given ages, sexes, risk
classifications, premium levels and Initial Face Amounts. Each illustration will
assume 100% of each Net Premium was allocated to the Division of the Separate
Account illustrated. The Net Surrender Value figures will assume all fund
charges, the Mortality and Expense Risk Charge, and all other Policy charges are
deducted. The Account Value figures will assume all charges except the Surrender
Charge are deducted.
We also may distribute sales literature comparing the percentage change in the
net asset values of the funds or in the Accumulation Unit Values for any of the
Divisions of the Separate Account to established market indices, such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. We also
may make comparisons to the percentage change in values of other mutual funds
with investment objectives similar to those of the Divisions of the Separate
Account being compared.
Tables 1 and 2 show the Effective Annual Rates of Return and One Year Total
Returns, respectively, of the funds based on the actual investment performance
(after deduction of investment management fees and direct operating expenses)
underlying each Division of the Separate Account. Table 1 shows figures for
periods ended December 31, 1997, while Table 2 shows December 31 one year total
returns for each year shown. These rates do not reflect the Mortality and
Expense Risk Charges assessed against the Separate Account. Tables 1 and 2 do
not reflect deductions from premiums or Monthly Charges assessed against the
Account Value of the Policies, nor do they reflect the Policy's Surrender
Charges. (For a discussion of these charges, please see Charges and Deductions.)
Therefore, these rates are not illustrative of how actual investment performance
will affect the benefits under the Policy (see, however, Performance
Illustration, Appendix D). The rates of return shown are not necessarily
indicative of future performance. These rates of return may be considered,
however, in assessing the competence and performance of the investment
advisers.
27
<PAGE>
TABLE 1
EFFECTIVE ANNUAL RATES OF RETURN
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Fund Since
Inception 15 Years 10 Years 5 Years 1 Year
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MML Equity 14.78% 16.19% 16.44% 18.25% 28.59%
MML Blend 13.67% --- 13.68% 13.81% 20.89%
MML Managed Bond 10.37% 9.73% 9.08% 7.79% 9.91%
MML Money Market 6.73% 6.44% 5.63% 4.47% 5.18%
MML Equity Index 21.93% --- --- --- ---
Oppenheimer Global Securities 12.26% --- --- 18.81% 22.42%
Oppenheimer Aggressive Growth 15.31% --- 16.23% 15.92% 11.67%
Oppenheimer Growth 15.43% --- 16.67% 18.61% 26.68%
Oppenheimer Strategic Bond 7.64% --- --- --- 8.71%
VIP II Contrafund Portfolio 28.11% --- --- --- 24.14%
Mid-Cap Growth Portfolio 18.80% --- --- --- 18.80%
VP Income & Growth 7.8% --- --- --- 7.8%*
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
<TABLE>
<S> <C>
Dates of inception:
MML Equity Fund - 9/15/71 MML Blend Fund - 2/3/84
Managed Bond Fund - 12/16/81 MML Small Cap Value Equity Fund - 6/1/98
MML Money Market Fund - 11/12/90 MML Equity Index Fund - 4/30/97
Oppenheimer Global Securities Funds - 11/12/90 Oppenheimer Aggressive Growth Fund - 8/15/86
Oppenheimer Growth Fund - 4/3/85 Oppenheimer Strategic Bond Fund - 5/3/93
VIP II Contrafund Portfolio - 1/3/95 Mid-Cap Growth Portfolio - 12/31/96
VP Income & Growth - 10/30/97
</TABLE>
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on
September 15, 1997. Because it has such a short period of performance history,
it is not included in this Table. For the performance history of a substantially
similar fund, the American Century Income & Growth Fund, turn to the Section in
the attached American Century Variable Portfolios prospectus entitled
"INVESTMENT PERFORMANCE OF SIMILAR FUND."
28
<PAGE>
TABLE 2
ONE YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
MML MML
Year MML Money Equity Oppenheimer
Ended Equity Market MML Bond MML Blend Index Growth
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 28.59% 5.18% 9.91% 20.89% 21.93%* 26.68%
1996 20.25% 5.01% 3.25% 13.95% --- 25.20%
1995 31.13% 5.58% 19.14% 23.28% --- 36.65%
1994 4.10% 3.84% (3.76%) 2.48% --- 0.98%
1993 9.52% 2.75% 11.81% 9.70% --- 7.25%
1992 10.48% 3.48% 7.31% 9.36% --- 14.53%
1991 25.56% 6.01% 16.66% 24.00% --- 25.54%
1990 (0.51%) 8.12% 8.38% 2.37% --- (8.21%)
1989 23.04% 9.16% 12.83% 19.96% --- 23.59%
1988 16.68% 7.39% 7.13% 13.40% --- 22.09%
1987 2.10% 6.49% 2.60% 3.12% --- 3.32%
1986 20.15% 6.60% 14.46% 18.30% --- 17.76%
1985 30.54% 8.03% 19.94% 24.88% --- 9.50%*
1984 5.40% 10.39% 11.69% 8.24%* --- ---
1983 22.85% 8.97% 7.26% --- --- ---
1982 25.67% 11.12%* 22.79%* --- --- ---
1981 6.67% --- --- --- --- ---
1980 27.62% --- --- --- --- ---
1979 19.54% --- --- --- --- ---
1978 3.71% --- --- --- --- ---
1977 (0.52%) --- --- --- --- ---
1976 24.77% --- --- --- --- ---
1975 32.85% --- --- --- --- ---
1974 (17.61%)* --- --- --- --- ---
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
<TABLE>
<S> <C>
Dates of inception:
MML Equity Fund - 9/15/71 MML Blend Fund - 2/3/84
Managed Bond Fund - 12/16/81 MML Small Cap Value Equity - 6/1/98
MML Money Market Fund - 11/12/90 MML Equity Index Fund - 4/30/97
Oppenheimer Global Securities - 11/12/90 Oppenheimer Aggressive Growth Fund - 8/15/86
Oppenheimer Growth Fund - 4/3/85 Oppenheimer Strategic Bond Fund - 5/3/93
VIP II Contrafund Portfolio - 1/3/95 Mid-Cap Growth Portfolio - 12/31/96
VP Income & Growth - 10/30/97
</TABLE>
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on
September 15, 1997. Because it has such a short period of performance history,
it is not included in this Table. For the performance history of a substantially
similar fund, the American Century Income & Growth Fund, turn to the Section in
the attached American Century Variable Portfolios prospectus entitled
"INVESTMENT PERFORMANCE OF SIMILAR FUND."
29
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 (continued)
ONE YEAR TOTAL RETURNS
- --------------------------------------------------------------------------------
Oppenheimer Oppenheimer Oppenheimer VIP II Mid Cap
Year Strategic Aggressive Global Contra fund Growth VP Income &
Ended Bond Growth Securities Portfolio Portfolio Growth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 8.71% 11.67% 22.42% 24.14% 18.80%* 7.8%*
1996 12.07% 20.16% 17.80% 21.22% -- ---
1995 15.33% 32.52% 2.24% 39.72%* -- ---
1994 (5.85%) (7.50%) (5.72%) --- -- ---
1993 4.25%* 27.32% 70.32% --- -- ---
1992 --- 15.42% (7.11%) --- -- ---
1991 --- 54.72% 3.39% --- -- ---
1990 --- (16.32%) 0.40%* --- -- ---
1989 --- 27.39% --- --- -- ---
1988 --- 13.41% --- --- -- ---
1987 --- 14.34% --- --- -- ---
1986 --- (1.65%)* --- --- -- ---
1985 --- --- --- --- -- ---
1984 --- --- --- --- -- ---
1983 --- --- --- --- -- ---
1982 --- --- --- --- -- ---
1981 --- --- --- --- -- ---
1980 --- --- --- --- -- ---
1979 --- --- --- --- -- ---
1978 --- --- --- --- -- ---
1977 --- --- --- --- -- ---
1976 --- --- --- --- -- ---
1975 --- --- --- --- -- ---
1974 --- --- --- --- -- ---
</TABLE>
The figures show in this Table do not reflect any charges at the Separate
Account or the Policy level.
*since inception.
<TABLE>
<S> <C>
Dates of inception:
MML Equity Fund - 9/15/71 MML Blend Fund - 2/3/84
Managed Bond Fund - 12/16/81 MML Small Cap Value Equity Fund - 6/1/98
MML Money Market Fund - 11/12/90 MML Equity Index Fund - 4/30/97
Oppenheimer Global Securities Fund - 11/12/90 Oppenheimer Aggressive Growth Fund - 8/15/86
Oppenheimer Growth Fund - 4/3/85 Oppenheimer Strategic Bond Fund - 5/3/93
VIP II Contrafund Portfolio - 1/3/95 Mid-Cap Growth Portfolio - 12/31/96
VP Income & Growth - 10/30/97
</TABLE>
Performance of MML Small Cap Value Equity Fund is unavailable since inception
date of the Fund is June 1, 1998.
American Century VP Income & Growth Portfolio commenced operations on
September 15, 1997. Because it has such a short period of performance history,
it is not included in this Table. For the performance history of a substantially
similar fund, the American Century Income & Growth Fund, turn to the Section in
the attached American Century Variable Portfolios prospectus entitled
"INVESTMENT PERFORMANCE OF SIMILAR FUND."
30
<PAGE>
Appendix D
Illustration of Death Benefits, Net Surrender Values, and Accumulated Premiums
The following tables illustrate the way in which a Policy operates. They show
how the Death Benefit and Net Surrender Value could vary over an extended period
of time assuming the funds experience hypothetical gross rates of investment
return (i.e., investment income and capital gains and losses, realized or
unrealized), equivalent to constant gross annual rates of 0%, 6%, and 12%. The
tables are based on annual premium payments of $5,000 for a combination of a
Select-Preferred Male age 35 and a Select-Preferred Female age 35. Select-
Preferred is C.M. Life's best risk classification. Separate tables are shown
for the current and guaranteed schedules of charges. These tables will assist
in the comparison of Death Benefits and Net Surrender Values for the Policy with
those of other variable life policies.
The Death Benefits and Net Surrender Values for a Policy would be different from
the amounts shown if the rates of return averaged 0%, 6%, and 12% over a period
of years, but varied above and below that average in individual Policy Years.
They also would differ if any Policy loan were made during the period of time
illustrated. They also would be different depending on the allocation of
investment value to each Division. They would be different depending on the
allocation of investment value to each Division if the rates of return for all
funds averaged 0%, 6%, and 12% but varied above or below that average for
particular funds.
The Death Benefits and Net Surrender Values shown in Tables 1, 2, 3, 7, 8, and 9
reflect the following current charges:
. Administrative Charges of $12 per month per Policy in Policy Years 1-10,
and $6 per month in Policy Years 11 and beyond.
. Face Amount Charges of $0.13 per month per $1,000 of Face Amount in
Coverage Years 1-10.
. Insurance Charges based on the current rates being charged by the Company
for Select-Preferred, fully underwritten risks.
. Mortality and Expense Risk Charges of 0.25% on an annual basis of the daily
net asset value of the Separate Account in all Policy Years.
. Fund level expenses of 0.66% on an annual basis of the net asset value of
the Separate Account. These expenses represent the unweighted average of
all fund expenses.
The Death Benefits and Net Surrender Values shown in Tables 4, 5, 6, 10, 11, and
12 reflect the following guaranteed maximum charges as wee as the current fund
level expenses.
. Administrative Charges equal to $12 per month per policy in all years.
. Face Amount Charge of $0.13 per month per $1,000 of Face Amount in Coverage
Years 1-10
. Insurance Charges based on the 1980 CSO Mortality Table.
. Mortality and Expense Risk Charges equal to 0.90% on an annual basis of the
daily net asset value of the Separate Account in all years.
Net Surrender Values shown in the Tables reflect the deduction of Surrender
Charges in the first 10 Policy Years. The Surrender Charge in the first year is
the Target Premium or $60 per $1,000 of Face Amount if less. In each of Years
two through 10, the Surrender Charge is equal to the Surrender Charge in the
prior year reduced by 10% of the Surrender Charge in the first year.
Taking the current Mortality and Expense Risk Charge and the fund level expenses
into account, the gross rates of 0%, 6%, and 12% are -0.90%, 5.05%, and 11.00%
respectively on a net basis.
31
<PAGE>
Table 1
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 1 Guideline Premium Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $10,763 1,000,000 1,000,000 1,000,000 1,098 1,672 2,272
3 $16,551 1,000,000 1,000,000 1,000,000 4,117 5,233 6,448
4 $22,628 1,000,000 1,000,000 1,000,000 7,111 8,949 11,030
5 $29,010 1,000,000 1,000,000 1,000,000 10,079 12,827 16,063
6 $35,710 1,000,000 1,000,000 1,000,000 13,023 16,875 21,597
7 $42,746 1,000,000 1,000,000 1,000,000 15,943 21,103 27,689
8 $50,133 1,000,000 1,000,000 1,000,000 18,839 25,520 34,398
9 $57,889 1,000,000 1,000,000 1,000,000 21,713 30,137 41,795
10 $66,034 1,000,000 1,000,000 1,000,000 24,565 34,964 49,955
15 $113,287 1,000,000 1,000,000 1,000,000 47,041 72,936 117,818
20 $173,596 1,000,000 1,000,000 1,000,000 67,921 120,751 231,208
25 $250,567 1,000,000 1,000,000 1,000,000 87,446 181,480 421,897
30 $348,804 1,000,000 1,000,000 1,000,000 104,923 258,061 742,722
35 $474,182 1,000,000 1,000,000 1,488,162 117,923 352,929 1,282,898
40 $634,199 1,000,000 1,000,000 2,344,415 122,301 468,925 2,191,042
45 $838,426 1,000,000 1,000,000 3,903,636 106,516 607,964 3,717,748
50 $1,099,077 1,000,000 1,000,000 6,583,023 42,319 774,682 6,269,546
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
------------------------------------------------------------------------
End of Policy
Year 0% 6% 12%
------------------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,563 18,799
6 15,303 19,155 23,877
7 17,767 22,927 29,513
8 20,207 26,888 35,766
9 22,625 31,049 42,707
10 25,021 35,420 50,411
15 47,041 72,936 117,818
------------------------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
32
<PAGE>
Table 2
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 2 Guideline Premium Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- -------------------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,002,614 1,002,818 1,003,023 0 0 0
2 $10,763 1,005,202 1,005,776 1,006,376 1,098 1,672 2,272
3 $16,551 1,007,765 1,008,881 1,010,096 4,117 5,233 6,448
4 $22,628 1,010,303 1,012,141 1,014,222 7,111 8,949 11,030
5 $29,010 1,012,815 1,015,562 1,018,799 10,079 12,826 16,063
6 $35,710 1,015,302 1,019,154 1,023,877 13,022 16,874 21,597
7 $42,746 1,017,766 1,022,926 1,029,512 15,942 21,102 27,688
8 $50,133 1,020,206 1,026,886 1,035,764 18,838 25,518 34,396
9 $57,889 1,022,623 1,031,046 1,042,704 21,711 30,134 41,792
10 $66,034 1,025,020 1,035,417 1,050,407 24,564 34,961 49,951
15 $113,287 1,047,033 1,072,923 1,117,796 47,033 72,923 117,796
20 $173,596 1,067,894 1,120,697 1,231,096 67,894 120,697 231,096
25 $250,567 1,087,354 1,181,269 1,421,369 87,354 181,269 421,369
30 $348,804 1,104,619 1,257,242 1,740,226 104,619 257,242 740,226
35 $474,182 1,116,898 1,349,627 2,271,987 116,898 349,627 1,271,987
40 $634,199 1,119,382 1,457,284 3,155,976 119,382 457,284 2,155,976
45 $838,426 1,099,202 1,569,369 4,616,406 99,202 569,369 3,616,406
50 $1,099,077 1,028,232 1,653,814 7,010,620 28,232 653,814 6,010,620
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
--------------------------------------------------------------------
End of Policy
Year 0% 6% 12%
--------------------------------------------------------------------
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,877
7 17,766 22,926 29,512
8 20,206 26,886 35,764
9 22,623 31,046 42,704
10 25,020 35,417 50,407
15 47,033 72,923 117,796
--------------------------------------------------------------------
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
33
<PAGE>
Table 3
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 3 Guideline Premium Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- -----------------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $10,763 1,010,000 1,010,000 1,010,000 1,098 1,672 2,272
3 $16,551 1,015,000 1,015,000 1,015,000 4,117 5,233 6,448
4 $22,628 1,020,000 1,020,000 1,020,000 7,111 8,949 11,030
5 $29,010 1,025,000 1,025,000 1,025,000 10,079 12,826 16,063
6 $35,710 1,030,000 1,030,000 1,030,000 13,022 16,874 21,596
7 $42,746 1,035,000 1,035,000 1,035,000 15,942 21,102 27,687
8 $50,133 1,040,000 1,040,000 1,040,000 18,837 25,517 34,395
9 $57,889 1,045,000 1,045,000 1,045,000 21,710 30,133 41,791
10 $66,034 1,050,000 1,050,000 1,050,000 24,562 34,959 49,950
15 $113,287 1,075,000 1,075,000 1,075,000 47,028 72,920 117,798
20 $173,596 1,100,000 1,100,000 1,100,000 67,879 120,696 231,135
25 $250,567 1,125,000 1,125,000 1,125,000 87,311 181,304 421,653
30 $348,804 1,150,000 1,150,000 1,150,000 104,488 257,489 741,919
35 $474,182 1,175,000 1,175,000 1,661,088 116,438 350,982 1,281,110
40 $634,199 1,200,000 1,200,000 2,541,196 117,836 462,961 2,188,034
45 $838,426 1,225,000 1,225,000 4,123,323 93,639 590,437 3,712,689
50 $1,099,077 1,250,000 1,250,000 6,824,112 6,117 724,199 6,261,059
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
------------------------------------------------------------------------
End of Policy
Year 0% 6% 12%
------------------------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,876
7 17,766 22,926 29,511
8 20,205 26,885 35,763
9 22,622 31,045 42,703
10 25,018 35,415 50,406
15 47,028 72,920 117,798
------------------------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
34
<PAGE>
Table 4
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 1 Guideline Premium Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- ----------------------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $10,763 1,000,000 1,000,000 1,000,000 1,094 1,667 2,267
3 $16,551 1,000,000 1,000,000 1,000,000 4,104 5,220 6,433
4 $22,628 1,000,000 1,000,000 1,000,000 7,085 8,921 11,000
5 $29,010 1,000,000 1,000,000 1,000,000 10,034 12,777 16,009
6 $35,710 1,000,000 1,000,000 1,000,000 12,950 16,794 21,507
7 $42,746 1,000,000 1,000,000 1,000,000 15,830 20,976 27,546
8 $50,133 1,000,000 1,000,000 1,000,000 18,672 25,330 34,182
9 $57,889 1,000,000 1,000,000 1,000,000 21,474 29,862 41,478
10 $66,034 1,000,000 1,000,000 1,000,000 24,233 34,578 49,505
15 $113,287 1,000,000 1,000,000 1,000,000 43,057 68,145 112,045
20 $173,596 1,000,000 1,000,000 1,000,000 59,163 108,940 215,068
25 $250,567 1,000,000 1,000,000 1,000,000 71,223 157,695 385,795
30 $348,804 1,000,000 1,000,000 1,000,000 75,337 212,986 670,288
35 $474,182 1,000,000 1,000,000 1,333,819 61,036 267,787 1,149,844
40 $634,199 1,000,000 1,000,000 2,087,564 4,646 305,034 1,950,995
45 $838,426 0 1,000,000 3,452,613 0 274,501 3,288,203
50 $1,099,077 0 1,000,000 5,746,045 0 36,578 5,472,424
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
---------------------------------------------------------------------
End of Policy
Year 0% 6% 12%
---------------------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,868 10,081
4 10,277 12,113 14,192
5 12,770 15,513 18,745
6 15,230 19,074 23,787
7 17,654 22,800 29,370
8 20,040 26,698 35,550
9 22,386 30,774 42,390
10 24,689 35,034 49,961
15 43,057 68,145 112,045
---------------------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
35
<PAGE>
Table 5
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 2 Guideline Premium Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,002,613 1,002,817 1,003,022 0 0 0
2 $10,763 1,005,198 1,005,771 1,006,371 1,094 1,667 2,267
3 $16,551 1,007,752 1,008,867 1,010,081 4,104 5,219 6,433
4 $22,628 1,010,277 1,012,113 1,014,191 7,085 8,921 10,999
5 $29,010 1,012,769 1,015,512 1,018,744 10,033 12,776 16,008
6 $35,710 1,015,228 1,019,072 1,023,785 12,948 16,792 21,505
7 $42,746 1,017,651 1,022,797 1,029,366 15,827 20,973 27,542
8 $50,133 1,020,036 1,026,692 1,035,542 18,668 25,324 34,174
9 $57,889 1,022,380 1,030,765 1,042,378 21,468 29,853 41,466
10 $66,034 1,024,680 1,035,020 1,049,941 24,224 34,564 49,485
15 $113,287 1,043,009 1,068,063 1,111,900 43,009 68,063 111,900
20 $173,596 1,058,973 1,108,560 1,214,270 58,973 108,560 214,270
25 $250,567 1,070,614 1,156,237 1,382,035 70,614 156,237 382,035
30 $348,804 1,073,654 1,208,026 1,654,229 73,654 208,026 654,229
35 $474,182 1,056,996 1,251,961 2,087,433 56,996 251,961 1,087,433
40 $634,199 0 1,259,056 2,761,611 0 259,056 1,761,611
45 $838,426 0 1,155,504 3,769,693 0 155,504 2,769,693
50 $1,099,077 0 0 5,226,634 0 0 4,226,634
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,277 12,113 14,191
5 12,769 15,512 18,744
6 15,228 19,072 23,785
7 17,651 22,797 29,366
8 20,036 26,692 35,542
9 22,380 30,765 42,378
10 24,680 35,020 49,941
15 43,009 68,063 111,900
-----------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
36
<PAGE>
Table 6
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 3 Guideline Premium Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $10,763 1,010,000 1,010,000 1,010,000 1,094 1,667 2,267
3 $16,551 1,015,000 1,015,000 1,015,000 4,104 5,219 6,433
4 $22,628 1,020,000 1,020,000 1,020,000 7,084 8,920 10,999
5 $29,010 1,025,000 1,025,000 1,025,000 10,032 12,775 16,007
6 $35,710 1,030,000 1,030,000 1,030,000 12,947 16,791 21,504
7 $42,746 1,035,000 1,035,000 1,035,000 15,825 20,971 27,540
8 $50,133 1,040,000 1,040,000 1,040,000 18,664 25,321 34,172
9 $57,889 1,045,000 1,045,000 1,045,000 21,462 29,849 41,463
10 $66,034 1,050,000 1,050,000 1,050,000 24,216 34,558 49,482
15 $113,287 1,075,000 1,075,000 1,075,000 42,970 68,041 111,917
20 $173,596 1,100,000 1,100,000 1,100,000 58,839 108,533 214,545
25 $250,567 1,125,000 1,125,000 1,125,000 70,182 156,343 383,968
30 $348,804 1,150,000 1,150,000 1,150,000 72,281 208,909 664,529
35 $474,182 1,175,000 1,175,000 1,492,666 52,268 255,851 1,135,919
40 $634,199 0 1,200,000 2,262,659 0 271,046 1,927,718
45 $838,426 0 1,225,000 3,636,784 0 175,021 3,249,318
50 $1,099,077 0 0 5,928,452 0 0 5,408,050
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,276 12,112 14,191
5 12,768 15,511 18,743
6 15,227 19,071 23,784
7 17,649 22,795 29,364
8 20,032 26,689 35,540
9 22,374 30,761 42,375
10 24,672 35,014 49,938
15 42,970 68,041 111,917
-----------------------------------------------------------
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
37
<PAGE>
Table 7
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 1 Cash Value Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- ----------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $10,763 1,000,000 1,000,000 1,000,000 1,098 1,672 2,272
3 $16,551 1,000,000 1,000,000 1,000,000 4,117 5,233 6,448
4 $22,628 1,000,000 1,000,000 1,000,000 7,111 8,949 11,030
5 $29,010 1,000,000 1,000,000 1,000,000 10,079 12,827 16,063
6 $35,710 1,000,000 1,000,000 1,000,000 13,023 16,875 21,597
7 $42,746 1,000,000 1,000,000 1,000,000 15,943 21,103 27,689
8 $50,133 1,000,000 1,000,000 1,000,000 18,839 25,520 34,398
9 $57,889 1,000,000 1,000,000 1,000,000 21,713 30,137 41,795
10 $66,034 1,000,000 1,000,000 1,000,000 24,565 34,964 49,955
15 $113,287 1,000,000 1,000,000 1,000,000 47,041 72,936 117,818
20 $173,596 1,000,000 1,000,000 1,000,000 67,921 120,751 231,208
25 $250,567 1,000,000 1,000,000 1,101,124 87,446 181,480 421,886
30 $348,804 1,000,000 1,000,000 1,617,043 104,923 258,061 741,763
35 $474,182 1,000,000 1,000,000 2,346,049 117,923 352,929 1,275,026
40 $634,199 1,000,000 1,000,000 3,410,508 122,301 468,925 2,158,549
45 $838,426 1,000,000 1,000,000 5,013,034 106,516 607,964 3,606,499
50 $1,099,077 1,000,000 1,000,000 7,491,052 42,319 774,682 5,945,279
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,563 18,799
6 15,303 19,155 23,877
7 17,767 22,927 29,513
8 20,207 26,888 35,766
9 22,625 31,049 42,707
10 25,021 35,420 50,411
15 47,041 72,936 117,818
-----------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
38
<PAGE>
Table 8
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 2 Cash Value Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,002,614 1,002,818 1,003,023 0 0 0
2 $10,763 1,005,202 1,005,776 1,006,376 1,098 1,672 2,272
3 $16,551 1,007,765 1,008,881 1,010,096 4,117 5,233 6,448
4 $22,628 1,010,303 1,012,141 1,014,222 7,111 8,949 11,030
5 $29,010 1,012,815 1,015,562 1,018,799 10,079 12,826 16,063
6 $35,710 1,015,302 1,019,154 1,023,877 13,022 16,874 21,597
7 $42,746 1,017,766 1,022,926 1,029,512 15,942 21,102 27,688
8 $50,133 1,020,206 1,026,886 1,035,764 18,838 25,518 34,396
9 $57,889 1,022,623 1,031,046 1,042,704 21,711 30,134 41,792
10 $66,034 1,025,020 1,035,417 1,050,407 24,564 34,961 49,951
15 $113,287 1,047,033 1,072,923 1,117,796 47,033 72,923 117,796
20 $173,596 1,067,894 1,120,697 1,231,096 67,894 120,697 231,096
25 $250,567 1,087,354 1,181,269 1,421,369 87,354 181,269 421,369
30 $348,804 1,104,619 1,257,242 1,740,226 104,619 257,242 740,226
35 $474,182 1,116,898 1,349,627 2,340,382 116,898 349,627 1,271,947
40 $634,199 1,119,382 1,457,284 3,402,394 119,382 457,284 2,153,414
45 $838,426 1,099,202 1,569,369 5,001,214 99,202 569,369 3,597,996
50 $1,099,077 1,028,232 1,653,814 7,473,486 28,232 653,814 5,931,338
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,877
7 17,766 22,926 29,512
8 20,206 26,886 35,764
9 22,623 31,046 42,704
10 25,020 35,417 50,407
15 47,033 72,923 117,796
-----------------------------------------------------------
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
39
<PAGE>
Table 9
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 3 Cash Value Test
Current Schedule of Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- ----------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $10,763 1,010,000 1,010,000 1,010,000 1,098 1,672 2,272
3 $16,551 1,015,000 1,015,000 1,015,000 4,117 5,233 6,448
4 $22,628 1,020,000 1,020,000 1,020,000 7,111 8,949 11,030
5 $29,010 1,025,000 1,025,000 1,025,000 10,079 12,826 16,063
6 $35,710 1,030,000 1,030,000 1,030,000 13,022 16,874 21,596
7 $42,746 1,035,000 1,035,000 1,035,000 15,942 21,102 27,687
8 $50,133 1,040,000 1,040,000 1,040,000 18,837 25,517 34,395
9 $57,889 1,045,000 1,045,000 1,045,000 21,710 30,133 41,791
10 $66,034 1,050,000 1,050,000 1,050,000 24,562 34,959 49,950
15 $113,287 1,075,000 1,075,000 1,075,000 47,028 72,920 117,798
20 $173,596 1,100,000 1,100,000 1,100,000 67,879 120,696 231,135
25 $250,567 1,125,000 1,125,000 1,225,514 87,311 181,304 421,653
30 $348,804 1,150,000 1,150,000 1,766,171 104,488 257,489 741,363
35 $474,182 1,175,000 1,175,000 2,519,817 116,438 350,982 1,274,357
40 $634,199 1,200,000 1,200,000 3,608,745 117,836 462,961 2,157,433
45 $838,426 1,225,000 1,225,000 5,235,465 93,639 590,437 3,604,651
50 $1,099,077 1,250,000 1,250,000 7,737,235 6,117 724,199 5,942,250
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
<S> <C> <C> <C>
1 2,614 2,818 3,023
2 5,202 5,776 6,376
3 7,765 8,881 10,096
4 10,303 12,141 14,222
5 12,815 15,562 18,799
6 15,302 19,154 23,876
7 17,766 22,926 29,511
8 20,205 26,885 35,763
9 22,622 31,045 42,703
10 25,018 35,415 50,406
15 47,028 72,920 117,798
-----------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
40
<PAGE>
Table 10
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 1 Cash Value Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,000,000 1,000,000 1,000,000 0 0 0
2 $10,763 1,000,000 1,000,000 1,000,000 1,094 1,667 2,267
3 $16,551 1,000,000 1,000,000 1,000,000 4,104 5,220 6,433
4 $22,628 1,000,000 1,000,000 1,000,000 7,085 8,921 11,000
5 $29,010 1,000,000 1,000,000 1,000,000 10,034 12,777 16,009
6 $35,710 1,000,000 1,000,000 1,000,000 12,950 16,794 21,507
7 $42,746 1,000,000 1,000,000 1,000,000 15,830 20,976 27,546
8 $50,133 1,000,000 1,000,000 1,000,000 18,672 25,330 34,182
9 $57,889 1,000,000 1,000,000 1,000,000 21,474 29,862 41,478
10 $66,034 1,000,000 1,000,000 1,000,000 24,233 34,578 49,505
15 $113,287 1,000,000 1,000,000 1,000,000 43,057 68,145 112,045
20 $173,596 1,000,000 1,000,000 1,000,000 59,163 108,940 215,068
25 $250,567 1,000,000 1,000,000 1,006,926 71,223 157,695 385,795
30 $348,804 1,000,000 1,000,000 1,452,688 75,337 212,986 666,371
35 $474,182 1,000,000 1,000,000 2,051,751 61,036 267,787 1,115,082
40 $634,199 1,000,000 1,000,000 2,862,586 4,646 305,034 1,811,763
45 $838,426 0 1,000,000 3,952,379 0 274,501 2,843,438
50 $1,099,077 0 1,000,000 5,439,487 0 36,578 4,317,053
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,868 10,081
4 10,277 12,113 14,192
5 12,770 15,513 18,745
6 15,230 19,074 23,787
7 17,654 22,800 29,370
8 20,040 26,698 35,550
9 22,386 30,774 42,390
10 24,689 35,034 49,961
15 43,057 68,145 112,045
-----------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
41
<PAGE>
Table 11
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 2 Cash Value Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,002,613 1,002,817 1,003,022 0 0 0
2 $10,763 1,005,198 1,005,771 1,006,371 1,094 1,667 2,267
3 $16,551 1,007,752 1,008,867 1,010,081 4,104 5,219 6,433
4 $22,628 1,010,277 1,012,113 1,014,191 7,085 8,921 10,999
5 $29,010 1,012,769 1,015,512 1,018,744 10,033 12,776 16,008
6 $35,710 1,015,228 1,019,072 1,023,785 12,948 16,792 21,505
7 $42,746 1,017,651 1,022,797 1,029,366 15,827 20,973 27,542
8 $50,133 1,020,036 1,026,692 1,035,542 18,668 25,324 34,174
9 $57,889 1,022,380 1,030,765 1,042,378 21,468 29,853 41,466
10 $66,034 1,024,680 1,035,020 1,049,941 24,224 34,564 49,485
15 $113,287 1,043,009 1,068,063 1,111,900 43,009 68,063 111,900
20 $173,596 1,058,973 1,108,560 1,214,270 58,973 108,560 214,270
25 $250,567 1,070,614 1,156,237 1,382,035 70,614 156,237 382,035
30 $348,804 1,073,654 1,208,026 1,654,229 73,654 208,026 654,229
35 $474,182 1,056,996 1,251,961 2,087,433 56,996 251,961 1,087,433
40 $634,199 0 1,259,056 2,783,281 0 259,056 1,761,570
45 $838,426 0 1,155,504 3,842,382 0 155,504 2,764,304
50 $1,099,077 0 0 5,288,984 0 0 4,197,606
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
<S> <C> <C> <C>
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,277 12,113 14,191
5 12,769 15,512 18,744
6 15,228 19,072 23,785
7 17,651 22,797 29,366
8 20,036 26,692 35,542
9 22,380 30,765 42,378
10 24,680 35,020 49,941
15 43,009 68,063 111,900
-----------------------------------------------------------
</TABLE>
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
42
<PAGE>
Table 12
<TABLE>
<CAPTION>
Survivorship Flexible Premium Adjustable Variable Life Insurance Policy $5,000 Annual Premium
Male and Female Each Issue Age 35, Select-Preferred $1 million Initial Face Amount
Death Benefit Option 3 Cash Value Test
Guaranteed Schedules of Mortality and Expense Charges
and Current Fund Level Charges
Death Benefit Assuming Hypothetical Net Surrender Value Assuming Hypothetical
Gross Annual Investment Return of: Gross Annual Investment Return of:
- --------------------------------------------------------------------------------------------------------------------
End of Premiums
Policy Accumulated
Year at 5% Interest
Per Year 0% 6% 12% 0% 6% 12%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $5,250 1,005,000 1,005,000 1,005,000 0 0 0
2 $10,763 1,010,000 1,010,000 1,010,000 1,094 1,667 2,267
3 $16,551 1,015,000 1,015,000 1,015,000 4,104 5,219 6,433
4 $22,628 1,020,000 1,020,000 1,020,000 7,084 8,920 10,999
5 $29,010 1,025,000 1,025,000 1,025,000 10,032 12,775 16,007
6 $35,710 1,030,000 1,030,000 1,030,000 12,947 16,791 21,504
7 $42,746 1,035,000 1,035,000 1,035,000 15,825 20,971 27,540
8 $50,133 1,040,000 1,040,000 1,040,000 18,664 25,321 34,172
9 $57,889 1,045,000 1,045,000 1,045,000 21,462 29,849 41,463
10 $66,034 1,050,000 1,050,000 1,050,000 24,216 34,558 49,482
15 $113,287 1,075,000 1,075,000 1,075,000 42,970 68,041 111,917
20 $173,596 1,100,000 1,100,000 1,100,000 58,839 108,533 214,545
25 $250,567 1,125,000 1,125,000 1,127,155 70,182 156,343 383,968
30 $348,804 1,150,000 1,150,000 1,595,121 72,281 208,909 662,900
35 $474,182 1,175,000 1,175,000 2,216,335 52,268 255,851 1,109,421
40 $634,199 0 1,200,000 3,048,280 0 271,046 1,802,709
45 $838,426 0 1,225,000 4,157,819 0 175,021 2,829,366
50 $1,099,077 0 0 5,662,736 0 0 4,295,822
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Account Value Assuming Hypothetical
Gross Annual Investment Return of:
-----------------------------------------------------------
End of Policy
Year 0% 6% 12%
-----------------------------------------------------------
1 2,613 2,817 3,022
2 5,198 5,771 6,371
3 7,752 8,867 10,081
4 10,276 12,112 14,191
5 12,768 15,511 18,743
6 15,227 19,071 23,784
7 17,649 22,795 29,364
8 20,032 26,689 35,540
9 22,374 30,761 42,375
10 24,672 35,014 49,938
15 42,970 68,041 111,917
-----------------------------------------------------------
- ------------
It is emphasized that the hypothetical investment rates of return shown above
and elsewhere in this prospectus are illustrative only and should not be deemed
a representation of past or future investment rates of return. Actual rates of
return may be more or less than those shown. The death benefits and cash
surrender values for a policy would be different from the amounts shown if the
rates of return averaged 0%, 6% and 12% over a period of years, but varied above
or below that average in individual policy years. They would also be different,
depending on the allocation of investment value to each division of the separate
account, if the rates of return over all divisions averaged 0%, 6% or 12% but
varied above or below that average for individual divisions. They would also
differ if any policy loan were made during the period. No representations can be
made by the Company or the trust that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
43
<PAGE>
Appendix E
Directors of C.M. Life Insurance Company
Principal Occupation(s) During Past Five Years
Lawrence V. Burkett, Jr., Director, President and Chief Executive Officer
Director, President and Chief Executive Officer, C.M. Life, since 1996;
Executive Vice President and General Counsel, MassMutual, since 1993; Senior
Vice President and Deputy General Counsel, MassMutual, 1992-1993, 1295 State
Street, Springfield, MA 01111.
John B. Davies, Director
Director, C.M. Life, since 1996; Executive Vice President, MassMutual since
1994; Associate Executive Vice President, 1994; General Agent, MassMutual,
1982-1993, 1295 State Street, Springfield, MA 01111.
Stuart H. Reese, Director and Senior Vice President - Investments
Director and Senior Vice President Investments, C.M. Life, since 1996; Senior
Vice President, MassMutual, since 1993; Investment Manager, Aetna Life and
Casualty and Affiliates, 1979-1993, 1295 State Street, Springfield, MA
01111.
Principal Officers (other than those who also are Directors):
Paul D. Adornato
Senior Vice President - Operations, C.M. Life since 1996; Senior Vice
President, MassMutual, since 1986, 140 Garden Street, Hartford, CT 06154.
Anne Melissa Dowling
Senior Vice President - Large Corporate Marketing, C.M. Life, 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, 140 Garden Street, Hartford,
CT 06154.
Maureen R. Ford
Senior Vice President - Annuity Marketing, C.M. Life, since 1996; Senior Vice
President, MassMutual, since 1996; Marketing Officer, Connecticut Mutual Life
Insurance Company, 1989-1996, 140 Garden Street, Hartford, CT 06154.
Isadore Jermyn
Senior Vice President and Actuary, C.M. Life, since 1996; Senior Vice President
and Actuary, MassMutual since 1995; Vice President and Actuary, MassMutual,
1980-1995, 1295 State Street, Springfield, MA 01111.
Edward M. Kline
Treasurer, C.M. Life since 1997, Vice President since 1989 and Treasurer since
1997, MassMutual, 1295 State Street, Springfield, MA 01111.
Ann F. Lomeli
Secretary, C.M. Life, since 1988; Vice President, Secretary and Associate
General Counsel, MassMutual, since 1998; Associate Secretary, 1996-1998,
MassMutual; Corporate Secretary and Counsel, Connecticut Mutual Life Insurance
Company, 1988-1996, 1295 State Street, Springfield, MA 01111.
44
<PAGE>
Report Of Independent Public Accountants
To the Board of Directors of
C.M. Life Insurance Company
We have audited the accompanying statutory statements of income, changes in
capital stock and surplus and cash flows of C.M. Life Insurance Company (a
Connecticut corporation and a wholly-owned subsidiary of Connecticut Mutual Life
Insurance Company) for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 our audit provides a reasonable basis for our opinion.
In our originally issued report dated February 15, 1996, we expressed an opinion
that the 1995 financial statements, prepared using accounting practices
prescribed or permitted by the Insurance Department of the State of Connecticut,
presented fairly, in all material respects, the financial position of C.M. Life
Insurance Company as of December 31, 1995, and the results of its operations and
its cash flows for the year ended December 31, 1995 in conformity with generally
accepted accounting principles. Pursuant to the provisions of Statement of
Financial Accounting Standards No. 120 (SFAS No. 120), Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts, financial statements of mutual life
insurance enterprises for periods ending on or before December 15, 1996,
prepared using accounting practices prescribed or permitted by insurance
regulators (statutory financial statements) are no longer considered
presentations in conformity with generally accepted accounting principles when
presented for comparative purposes with the enterprise's financial statements
for periods subsequent to the effective date of SFAS No. 120. Accordingly, our
present opinion on the presentation of the 1995 financial statements in
accordance with generally accepted accounting principles, 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 preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the results of
operations and cash flows of C.M. Life Insurance Company for the year ended
December 31, 1995.
In our opinion, the financial statements referred to above do present fairly, in
all material respects, the results of operations and cash flows of C.M. Life
Insurance Company for the year ended December 31, 1995 in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Connecticut.
Arthur Andersen LLP
Hartford, Connecticut
February 15, 1996
1
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Policyholders
of C.M. Life Insurance Company
We have audited the accompanying statutory statements of financial position of
C.M. Life Insurance Company as of December 31, 1997 and 1996, and the related
statutory statements of income, changes in capital stock and surplus, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The statutory
financial statements of C.M. Life Insurance Company for the year ended December
31, 1995 were audited by other auditors whose report, dated February 15, 1996,
expressed an adverse opinion on those statements as to fair presentation in
conformity with generally accepted accounting principles and expressed an
unqualified opinion in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Connecticut.
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 more fully in Note 1, these financial statements were prepared in
conformity with statutory accounting practices of the National Association of
Insurance Commissioners and the accounting practices prescribed or permitted by
the Department of Insurance of the State of Connecticut ("statutory accounting
principles"), which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable at this time, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of C.M. Life Insurance Company at December 31, 1997 and 1996, or the results of
its operations or its cash flows for the years then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C.M. Life Insurance Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, on the statutory basis of accounting described in Note
1.
COOPERS & LYBRAND, L.L.P.
Springfield, Massachusetts
February 6, 1998
28
<PAGE>
C.M. Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION
December 31,
1997 1996
---- ----
(in Millions)
Assets:
Bonds ...................................... $ 664.5 $ 736.5
Common stocks .............................. 61.4 55.6
Mortgage loans ............................. 101.6 33.8
Other investments .......................... 2.2 -
Policy loans ............................... 142.5 132.9
Cash and short-term investments ............ 88.4 63.7
-------- --------
1,060.6 1,022.5
Investment and insurance amounts
receivable ............................... 30.1 32.9
Federal income tax receivable .............. - 7.1
Transfer due from separate account ......... 32.0 24.3
-------- --------
1,122.7 1,086.8
Separate account assets .................... 1,096.5 779.8
-------- --------
$2,219.2 $1,866.6
======== ========
See Notes to Statutory Financial Statements.
29
<PAGE>
C.M. Life Insurance Company
STATUTORY STATEMENTS OF FINANCIAL POSITION (continued)
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
($ In Millions Except for Par Value
and Share Amounts
<S> <C> <C>
Liabilities:
Policyholders' reserves and funds .............. $ 951.0 $ 907.5
Policyholders' claims and other benefits ....... 4.5 3.8
Payable to parent .............................. 13.6 9.6
Federal income taxes payable ................... 6.1 -
Asset valuation reserve ........................ 22.7 18.5
Investment reserves ............................ 3.9 3.3
Other liabilities .............................. 7.7 34.3
-------- --------
1,009.5 977.0
Separate account reserves and liabilities ...... 1,096.5 779.8
-------- --------
2,106.0 1,756.8
-------- --------
Capital stock and surplus:
Common stock, $200 par value
50,000 shares authorized
12,500 shares issued and outstanding ........ 2.5 2.5
Paid-in and contributed surplus ................ 43.8 43.8
Surplus ........................................ 66.9 63.5
-------- --------
113.2 109.8
-------- --------
$2,219.2 $1,866.6
======== ========
</TABLE>
See Notes to Statutory Financial Statements.
30
<PAGE>
C.M. Life Insurance Company
STATUTORY STATEMENTS OF INCOME
Years ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
Revenue:
Premium Income ............................ $331.3 $314.4 $260.8
Net investment and other income ........... 72.1 76.4 84.4
------ ------ ------
403.4 390.8 345.2
------ ------ ------
Benefits and expenses:
Policy benefits and payments .............. 100.4 99.0 58.9
Addition to policyholders' reserves, funds
and separate accounts ................... 190.0 210.3 211.4
Operating expenses ........................ 49.5 45.4 32.1
Commissions ............................... 33.5 25.0 14.1
State taxes, licenses and fees ............ 3.5 3.2 5.0
------ ------ ------
376.9 382.9 321.5
------ ------ ------
Net gain from operations before federal
income taxes ............................ 26.5 7.9 23.7
Federal income taxes ...................... 19.0 6.3 9.4
------ ------ ------
Net gain from operations .................. 7.5 1.6 14.3
Net realized capital gain (loss) .......... 0.1 0.6 (0.5)
------ ------ ------
Net income ................................ $ 7.6 $ 2.2 $ 13.8
====== ====== ======
See Notes to Statutory Financial Statements.
31
<PAGE>
C.M. Life Insurance Company
STATUTORY STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
Years Ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
Capital stock and surplus equity,
beginning of year ............................ $109.8 $113.2 $103.8
Increases (decreases) due to:
Net income ................................... 7.6 2.2 13.8
Change in asset valuation and investment
reserves .................................... (4.8) (1.9) (9.2)
Change in non-admitted assets and other ...... (0.2) (2.7) (1.2)
Net unrealized capital gain (loss) ........... 0.8 (1.0) 6.0
------ ------ ------
3.4 (3.4) 9.4
------ ------ ------
Capital stock and surplus equity, end of year.. $113.2 $109.8 $113.2
====== ====== ======
See Notes to Statutory Financial Statements.
32
<PAGE>
C.M. Life Insurance Company
STATUTORY STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
---- ---- ----
(In Millions)
Operating activities:
Net income ....................................... $ 7.6 $ 2.2 $ 13.8
Additions to policyholders' reserves and funds
net of transfers to separate accounts ........... 44.2 41.6 84.2
Net realized capital gain (loss) ................. (0.1) (0.6) 0.5
Other changes .................................... 0.5 (0.8) (0.6)
------ ------ ------
Net cash provided by operating activities ........ 52.2 42.4 97.9
------ ------ ------
Investing activities:
Loans and purchases of investments ............... (438.6) (184.9) (491.9)
Sales and maturites of investments and
receipts from repayment of loans ................ 411.1 191.1 406.0
------ ------ ------
Net cash provided by (used in) investing
activities ........................................ (27.5) 6.2 (85.9)
------ ------ ------
Increase in cash and short-term investments ......... 24.7 48.6 12.0
Cash and short-term investments, beginning of
year ................................................ 63.7 15.1 3.1
------ ------ ------
Cash and short-term investments, end of year ........ $ 88.4 $ 63.7 $ 15.1
====== ====== ======
See Notes to Statutory Financial Statements.
33
<PAGE>
Notes To Statutory Financial Statements
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
C.M. Life Insurance Company (the Company) is a wholly owned stock life insurance
subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual"). On
March 1, 1996, the operations of the Company's former parent, Connecticut Mutual
Life Insurance Company, were merged into MassMutual. The Company is primarily
engaged in the sale of flexible premium universal life insurance and variable
annuity products distributed through career agents. The Company is licensed to
sell life insurance and annuities in Puerto Rico, the District of Columbia and
all 50 states except New York.
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the statutory accounting practices of the National
Association of Insurance Commissioners ("NAIC") and the accounting practices
prescribed or permitted by the Insurance Department of the State of Connecticut.
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs directly related to
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity, interest and withdrawals; (c) bonds are generally carried at
amortized cost whereas GAAP generally requires they be valued at fair value; (d)
deferred income taxes are not provided for book-tax timing differences as would
be required by GAAP; and (e) payments received for universal life products and
variable annuities are reported as premium revenue, whereas under GAAP, these
payments would be recorded as deposits to policyholders' account balances.
The NAIC is currently engaged in an extensive project to codify statutory
accounting principles ("Codification") with a goal of providing a comprehensive
guide of statutory accounting principles for use by insurers in all states. This
comprehensive guide, which has not been approved by the NAIC or any state
insurance department includes seventy-two Statements of Statutory Accounting
Principles ("SSAPs") and is expected to be effective no earlier than January 1,
1999. The effect of adopting these SSAPs shall be reported as an adjustment to
surplus on the effective date. Management is currently reviewing the impact of
Codification. However, since the SSAPs have not been finalized, the ultimate
impact cannot be determined at this time.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosures of contingent assets and liabilities, at the date of the
financial statements. Management must also make estimates and assumptions that
affect the amounts of revenues and expenses during the reporting period. Future
events, including changes in the levels of mortality, morbidity, interest rates
and asset valuations, could cause actual results to differ from the estimates
used in the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the Company's principal accounting policies
and practices.
A. Investments
Bonds and stocks are valued in accordance with rules established by the National
Association of Insurance Commissioners. Generally, bonds are valued at amortized
cost, preferred stocks in good standing at cost, and common stocks at fair
value.
Mortgage loans are valued at unpaid principal less unamortized discount.
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.
In compliance with regulatory requirements, the Company maintains an Asset
Valuation Reserve and an Interest Maintenance Reserve. The Asset Valuation
Reserve and other investment reserves stabilize surplus against fluctuations in
the value of stocks, as well as declines in the value of bonds and mortgage
loans.
Notes To Statutory Financial Statements (Continued)
The Interest Maintenance Reserve captures after-tax realized capital gains and
losses which result from changes in the overall level of
34
<PAGE>
interest rates for all types of fixed income investments, as well as other
financial instruments, including financial futures, U. S. Treasury purchase
commitments, options and interest rate swaps. This reserve is amortized into
income using the grouped method over the remaining life of the investment sold
or over the remaining life of the underlying asset. Net realized after tax
capital gains of $2.0 million in 1997 and $0.4 million in 1996 and net realized
after tax capital losses of $0.9 million in 1995 were transferred to the
Interest Maintenance Reserve. Amortization of the Interest Maintenance Reserve
into net investment income amounted to $0.1 million in 1997, 1996 and 1995. At
December 31, 1997, 1996 and 1995, the Interest Maintenance Reserve consisted of
a net loss deferral which was recorded as a reduction of surplus.
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 surplus.
B. Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of variable annuity contract
holders. The assets consist principally of marketable securities reported at
fair value. Transfers due from separate account represents the policyholders'
account values in excess of statutory benefit reserves. Premiums, benefits and
expenses of the separate accounts are reported in the Statutory Statement of
Income. Reserves for these life and annuity contracts have been established
using assumed interest rates and valuation methods that will provide reserves at
least as great as those required by law and contract provisions. The Company
receives administrative and investment advisory fees from these accounts.
C. Non-admitted Assets
Assets designated as "non-admitted" (principally prepaid agent commissions,
other prepaid expenses and the Interest Maintenance Reserve, when in a net loss
deferral position) are excluded from the statutory statement of financial
position. These amounted to $5.7 million and $6.6 million as of December 31,
1997 and 1996, respectively and changes therein are charged directly to surplus.
D. Policyholders' Reserves and Funds
Policyholders' reserves for life contracts are developed using accepted
actuarial methods computed principally on the net level premium and the
Commissioners' Reserve Valuation Method bases using the American Experience and
1980 Commissioners' Standard Ordinary mortality tables with assumed interest
rates ranging from 4.0 to 4.5 percent.
Reserves for individual annuities are based on accepted actuarial methods,
principally at interest rates ranging from 5.5 to 9.0 percent. Reserves for
policies and contracts considered investment contracts have a carrying value of
$115.6 million and $113.7 million at December 31, 1997 and 1996, respectively
(fair value of $116.0 million and $113.7 million at December 31, 1997 and 1996,
respectively as determined by discounted cash flow projections).
E. Premium and Related Expense Recognition
Life insurance premium revenue is recognized annually on the anniversary date of
the policy. Annuity premium is recognized when received. Commissions and other
costs related to the issuance of new policies, maintenance and settlement costs
are charged to current operations when incurred.
F. 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.
35
<PAGE>
Notes To Statutory Financial Statements (Continued)
3. FEDERAL INCOME TAXES
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 reporting of miscellaneous temporary differences, such as
reserves and acquisition costs, resulted in effective tax rates which differ
from the statutory tax rate.
The Internal Revenue Service has completed its examination of the Company's
income tax returns through the year 1991 and is currently examining the Company
for the years 1992 through 1995. The Company believes any adjustments resulting
from such examinations will not materially affect its financial statements.
The Company plans to file a separate company 1997 federal income tax return.
Federal tax payments were $6.8 million in 1997, $17.6 million in 1996 and $10.7
million in 1995.
4. CAPITAL STOCK AND SURPLUS
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
capital stock and surplus is subject to dividend restrictions relating to
various state regulations which limit the payment of dividends without prior
approval. Under these regulations, $10.7 million of capital stock and surplus is
available for distribution to the shareholder in 1998 without prior regulatory
approval.
5. RELATED PARTY TRANSACTIONS
MassMutual and the Company have an agreement whereby MassMutual, for a fee, will
furnish the Company, as required, operating facilities, human resources,
computer software development and managerial services. Investment and
administrative services are provided to the Company pursuant to a management
services agreement with MassMutual. Similar arrangements were in place with
Connecticut Mutual Life Insurance Company, the Company's former parent, prior to
its merger with MassMutual. Fees incurred under the terms of these agreements
were $39.7 million, $45.9 million and $34.0 million in 1997, 1996 and 1995,
respectively.
Prior to March 1, 1996, the Company had an underwriting agreement with its
affiliates GR Phelps and MML Distributors. Under this agreement, the affiliates
paid commissions and received the cash flows from variable annuity contract
fees. Effective March 1, 1996, this agreement was cancelled, and the Company
began paying all commissions and retained the right to the related future cash
flows from contract fees.
The Company cedes a portion of its life insurance business to MassMutual and
other insurers in the normal course of business. The Company's retention limit
per individual insured is $4 million; the portion of the risk exceeding the
retention limit is reinsured with other insurers. The Company is contingently
liable with respect to ceded reinsurance in the event any reinsurer is unable to
fulfill its contractual obligations.
The Company has a modified coinsurance quota-share reinsurance agreement with
Mass Mutual whereby the Company cedes 75% of the premiums on certain universal
life policies. In return, MassMutual pays the Company a stipulated expense
allowance, death and surrender benefits, and a modified coinsurance adjustment.
Reserves for payment of future benefits for the ceded policies are retained by
the Company.
The Company also has a stop-loss agreement with MassMutual, with maximum
coverage at $25.0 million, under which the Company cedes claims which, in
aggregate, exceed $35.6 million in 1997, $28.1 million in 1996, and $24.2
million in 1995. For each of the years, the limit was not exceeded. The Company
paid approximately $1.0 million, $0.4 million, and $0.6 million in premiums
under the agreement in 1997, 1996 and 1995, respectively.
36
<PAGE>
Notes To Statutory Financial Statements (Continued)
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.
A. Bonds
The carrying value and estimated fair value of investments in bonds as of
December 31, 1997 and 1996 are as follows:
December 31, 1997
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(in Millions)
U. S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 104.3 $ 2.2 $ 0.2 $ 106.3
Debt securities issued by
foreign governments 4.6 0.0 0.3 4.3
Mortgage-backed securities 38.8 1.0 0.2 39.6
State and local governments 20.0 0.3 - 20.3
Corporate debt securities 471.8 15.6 1.9 485.6
Utilities 25.0 1.1 - 26.1
------- ------ ----- -------
Total $ 664.5 $ 20.2 $ 2.6 $ 682.1
======= ====== ===== =======
December 31, 1996
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(In Millions)
U. S. Treasury securities
and obligations of U.S.
government corporations
and Agencies $138.8 $ 2.2 $ 1.0 $140.0
Debt securities issued by
foreign governments 3.9 0.1 - 4.0
Mortgage-backed securities 37.4 0.7 0.7 37.4
State and local governments 10.3 0.2 0.1 10.4
Industrial securities 509.2 11.6 3.7 517.1
Utilities 36.9 1.2 0.2 37.9
------ ------ ----- ------
Total $736.5 $ 16.0 $ 5.7 $746.8
====== ====== ===== ======
The carrying value and estimated fair value of bonds at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Estimated
Carrying Fair
Value Value
----- -----
(In Millions)
Due in one year or less $ 34.3 $ 34.3
Due after one year through five years 227.7 232.0
Due after five years through ten years 209.7 217.4
Due after ten years 80.3 83.4
------- ------
552.0 567.1
Mortgage-backed securities, including
securities guaranteed by the U.S.
Government 112.5 115.0
------- ------
Total $ 664.5 $682.1
======= ======
37
<PAGE>
Notes To Statutory Financial Statements (Continued)
Proceeds from sales of investments in bonds were $388.8 million during 1997,
$162.9 million during 1996, and $380.6 million during 1995. Gross capital gains
of $3.8 million in 1997, $1.6 million in 1996, and $3.6 million in 1995 and
gross capital losses of $0.5 million in 1997, $0.9 million in 1996, and $4.7
million in 1995 were realized on those sales, portions of which were included in
the Interest Maintenance Reserve. Estimated fair value of non-publicly traded
bonds is determined by the Company using a pricing matrix.
B. Stocks
Common stocks had a cost of $50.2 million in 1997 and $47.2 million in 1996.
C. Mortgages
The fair value of mortgage loans, as determined from a pricing matrix for
performing loans and the estimated underlying real estate value for
non-performing loans, approximated carrying value.
The Company had restructured loans with book values of $17.3 million and $21.9
million at December 31, 1997 and 1996, respectively. The loans typically have
been modified to defer a portion of the contracted interest payments to future
periods. Interest deferred to future periods totaled $0.2 million in 1997, 1996
and 1995.
D. Other
The carrying value of investments which were non-income producing for the
preceding twelve months was $0.4 million and $2.8 million at December 31, 1997
and 1996, respectively.
It is not practicable to determine the fair value of policy loans as they do not
have a stated maturity.
7. PORTFOLIO RISK MANAGEMENT
The Company manages its investment risks primarily to reduce interest rate and
duration imbalances determined in asset/liability analyses. The fair values of
these instruments, which are not recorded in the financial statements, are based
upon market prices or prices obtained from brokers. The Company does not hold or
issue these financial instruments for trading purposes.
The notional amounts described do not represent amounts exchanged by the parties
and, thus, are not a measure of the exposure of the Company. The amounts
exchanged are calculated on the basis of the notional amounts and the other
terms of the instruments, which relate to interest rates, exchange rates,
security prices or financial or other indexes.
The Company utilizes interest rate swap agreements and options to reduce
interest rate exposures arising from mismatches between assets and liabilities
and to modify portfolio profiles to manage other risks identified. Under
interest rate swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and floating interest rates calculated by reference to
an agreed-upon notional principal amount. Net amounts receivable and payable are
accrued as adjustments to interest income and included in investment and
insurance amounts receivable on the Statutory Statement of Financial Position.
Gains and losses realized on the termination of contracts are amortized through
the Interest Maintenance Reserve over the remaining life of the associated
contract. At December 31, 1997 and 1996, the Company had swaps outstanding with
notional amounts of $46.5 million and $13.0 million, respectively. The fair
value of these instruments was $0.2 million at December 31, 1997 and $0.1
million at December 31, 1996.
Options grant the purchaser the right to buy or sell a security or enter into a
derivative transaction at a stated price within a stated period. The Company's
option contracts have terms of up to five years. The amounts paid for options
purchased are included in other investments on the Statutory Statement of
Financial Position. Gains and losses on these contracts are recorded at the
expiration or termination date and are amortized through the Interest
Maintenance Reserve over the remaining life of the option contract. At December
31, 1997 and 1996, the Company had option contracts with notional amounts of
$111.3 million and $34.7 million, respectively. The Company's credit risk
exposure was limited to the unamortized costs of $2.2 million and $0.1 million
which had fair values of $2.3 million and $0.1 million at December 31, 1997 and
1996, respectively.
Notes To Statutory Financial Statements (Continued)
The Company utilizes asset swap agreements to reduce exposures, such as currency
risk and prepayment risk, built into certain assets acquired. Cross-currency
interest rate swaps allow investment in foreign currencies, increasing access to
additional investment
38
<PAGE>
opportunities, while limiting foreign exchange risk. The net cash flows from
asset and currency swaps are recognized as adjustments to the underlying assets'
interest income. Gains and losses realized on the termination of these contracts
adjusts the bases of the underlying asset. Notional amounts relating to asset
and currency swaps totaled $1.0 million at December 31, 1997 and 1996. The fair
values of these instruments were an unrealized gain of $0.1 million and an
unrealized loss of $0.1 million at December 31, 1997 and 1996, respectively.
The Company enters into forward U.S. Treasury commitments for the purpose of
managing interest rate exposure. The Company generally does not take delivery on
forward commitments. These commitments are instead settled with offsetting
transactions. Gains and losses on forward commitments are recorded when the
commitment is closed and amortized through the Interest Maintenance Reserve over
the remaining life of the asset. At December 31, 1997 and 1996, the company had
U. S. Treasury purchase commitments which will settle during the following year
with contractual amounts of $3.0 million and $2.0 million, respectively.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to derivative financial instruments. This exposure is limited
to contracts with a positive fair value. The amounts at risk in a net gain
position were $2.6 million and $0.1 million at December 31, 1997 and 1996,
respectively. The Company monitors exposure to ensure counterparties are credit
worthy and concentration of exposure is minimized. Additionally, contingent
collateral positions have been obtained with counterparties when considered
prudent.
8. LIQUIDITY
The withdrawal characteristics of the policyholder's reserves and funds,
including separate accounts, and the invested assets which support them at
December 31, 1997 are illustrated below:
(In Millions)
Total policyholders' reserves and funds and,
separate account liabilities $2,047.5
Not subject to discretionary withdrawal (1.4)
Policy loans (142.5)
--------
Subject to discretionary withdrawal $1,903.6
========
Total invested assets, including separate
investment accounts $2,157.1
Policy loans and other invested assets (295.3)
--------
Marketable investments $1,861.8
========
9. BUSINESS RISKS AND CONTINGENCIES
The Company is subject to insurance guaranty fund laws in the states in which it
does business. These laws assess insurance companies amounts to be used to pay
benefits to policyholders and claimants of insolvent insurance companies. Many
states allow these assessments to be credited against future premium taxes. The
Company believes such assessments in excess of amounts accrued will not
materially affect its financial position, results of operations or liquidity.
The Company elected not to admit $1.3 million and $1.6 million of guaranty fund
premium tax offset receivable relating to prior assessments in 1997 and 1996,
respectively.
The Company is involved in litigation arising in and out of the normal course of
its business. Management intends to defend these actions vigorously. While the
outcome of litigation cannot be forseen 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.
10. RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.
39
<PAGE>
Notes To Statutory Financial Statements (Continued)
11. AFFILIATED COMPANIES
The relationship of the Company, its parent and affiliated companies as of
December 31, 1997 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 Investor Services, Inc.
State House One (Liquidated in December 1996)
Subsidiaries of MassMutual Holding Trust I
------------------------------------------
Antares Leveraged Capital Corporation - 98.5%
Charter Oak Capital Management, Inc. - 80.0%
Cornerstone Real Estate Advisors, Inc.
DLB Acquisition Corporation - 84.8%
Oppenheimer Acquisition Corporation - 88.55%
Subsidiaries of MassMutual Holding Trust II
-------------------------------------------
CM Advantage, Inc. - (Liquidated in December 1997)
CM International, Inc.
CM Property Management, Inc. - (Liquidated in December 1997)
High Yield Management, Inc.
MMHC Investments, Inc.
MML Realty Management
Urban Properties, Inc.
Westheimer 335 Suites, Inc.
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. - 100%
MassMutual Corporate Value Limited - 46%
9048 - 5434 Quebec, Inc.
Affiliates of Massachusetts Mutual Life Insurance Company
---------------------------------------------------------
MML Series Investment Fund
MassMutual Institutional Funds
Oppenheimer Value Stock Fund
40
<PAGE>
C.M. LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
($ In Millions Expect for
Par Value)
<S> <C> <C>
Assets:
Bonds $ 694.7 $ 664.5
Common stocks 68.9 61.4
Mortgage loans 101.7 101.6
Other investments 10.1 2.2
Policy loans 144.2 142.5
Cash and short-term investments 52.4 88.4
-------- --------
Total invested assets 1,072.0 1,060.6
Investment income and insurance amounts receivable 31.3 30.1
Transfers from separate account 33.4 32.0
-------- --------
1,136.7 1,122.7
Separate account assets 1,214.1 1,096.5
-------- --------
$ 2,350.8 $ 2,219.2
========= =========
Liabilities
Policyholders' reserves and funds $ 953.6 $ 951.0
Policy claims and other benefits 5.4 4.5
Payable to parent 12.4 13.6
Federal income tax payable 5.8 6.1
Asset valuation reserve 25.5 22.7
Investment reserves 3.4 3.9
Other liabilities 8.7 7.7
-------- --------
1,014.8 1,009.5
Separate account reserves and liabilities 1,214.1 1,096.5
-------- --------
2,228.9 2,106.0
-------- --------
Capital stock and surplus:
Common stock, $200 par value
50,000 shares authorized
12,500 shares issued and outstanding 2.5 2.5
Paid-in capital and contributed surplus 43.8 43.8
Surplus 75.6 66.9
-------- --------
121.9 113.2
-------- --------
$2,350.8 $2,219.2
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
C.M. LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---- ----
(In Millions)
<S> <C> <C>
Revenue:
Premium income $ 85.9 $ 78.1
Net investment income 18.5 17.6
Other income (charges) (2.6) (0.8)
------ -----
101.8 94.9
------ -----
Benefits and expenses:
Policy benefits and payments 33.0 27.0
Addition to policyholders' reserves, funds
and separate account 30.9 39.3
Operating expenses 13.4 11.7
Commissions 10.3 7.5
State taxes, licenses and fees 2.3 1.2
------ -----
89.9 86.7
------ -----
Net gain from operations before federal
income taxes 11.9 8.2
Federal income taxes 5.5 3.9
------ -----
Net gain from operations 6.4 4.3
Net realized capital gain (loss) -- --
------ -----
Net income $ 6.4 $ 4.3
====== =====
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
C.M. LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CAPITAL STOCK AND SURPLUS
(Unaudited)
Three Months Ended March 31,
1998 1997
---- ----
(In Millions)
Capital stock and surplus, beginning of the period $ 113.2 $ 109.7
Increases (decreases) due to:
Net income 6.4 4.3
Change in asset valuation and investment reserves (2.3) (0.6)
Changes in non-admitted assets and other 0.9 (0.7)
Change in unrealized capital gain (loss) 3.7 (0.5)
------- -------
8.7 2.5
------- -------
Capital stock and surplus, end of the period $ 121.9 $ 112.2
======== ========
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
C.M. LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASHFLOWS
(Unaudited)
Three Months Ended March 31,
1998 1997
---- ----
(In Millions)
Operating activities:
Net income $ 6.4 $ 4.3
Additions to policyholders' reserves and funds
net of transfers to separate accounts 3.5 3.1
Other changes (3.9) 18.3
-------- -------
Net cash provided by operating activities 6.0 25.7
-------- -------
Investing activities:
Loans and purchases of investments (224.7) (81.9)
Sales and maturities of investments and
receipts from repayments of loans 182.7 34.2
-------- -------
Net cash used in investing activities (42.0) (47.7)
-------- -------
Decrease in cash and short-term investments (36.0) (22.0)
Cash and short-term investments, beginning of year 88.4 63.7
-------- -------
Cash and short-term investments, end of period $ 52.4 $ 41.7
======== =======
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE>
C.M. Life Insurance Company
Condensed Notes to Statutory Financial Statements
March 31, 1998
(Unaudited)
1. General
- -----------
C.M. Life Insurance Company ("C.M. Life" or "The Company"), 140 Garden Street,
Hartford, Connecticut, 06154, is a stock life insurance company. It was
chartered by a Special Act of the Connecticut General Assembly on April 25,
1980. It is principally engaged in the sale of life insurance and annuities,
primarily flexible premium universal life insurance and variable annuity
products, and is licensed to sell life insurance and annuities in Puerto Rico,
the District of Columbia and all 50 states except New York. C.M. Life is a
wholly owned stock life insurance subsidiary of Massachusetts Mutual Life
Insurance Company ("MassMutual").
With regard to profitability, management believes that net gain from operations,
rather than net income, is the most relevant statutory measure of operating
results for C.M. Life. Net gain from operations represents the excess of income
derived from C.M. Life's lines of business over the costs of operating those
lines (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.
The accompanying statutory financial statements, except as to form, have been
prepared in conformity with the statutory accounting practices of the National
Association of Insurance Commissioners ("NAIC") and the accounting practices
prescribed or permitted by the Insurance Department of the State of Connecticut
("the Department").
The accompanying statutory financial statements are different in some respects
from GAAP financial statements. The more significant differences are as follows:
(a) acquisition costs, such as commissions and other costs directly related to
acquiring new business, are charged to current operations as incurred, whereas
GAAP would require these expenses to be capitalized and recognized over the life
of the policies; (b) policy reserves are based upon statutory mortality and
interest requirements without consideration of withdrawals, whereas GAAP
reserves would be based upon reasonably conservative estimates of mortality,
morbidity and interest; (c) bonds are generally carried at amortized cost
whereas GAAP generally requires they be valued at fair value; (d) deferred
income taxes are not provided for book-tax timing differences as would be
required by GAAP; and (e) payments received for universal life products and
variable annuities are reported as premium revenue, whereas under GAAP, these
payments would be recorded as deposits to policyholders' account balances.
In the Company's opinion these financial statements contain all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly its
statutory financial position in accordance with statutory accounting principles,
as of March 31, 1998 and December 31, 1997, the results of its operations,
changes in capital stock and surplus and its cash flows for the three months
ended March 31, 1998 and 1997.
7
<PAGE>
Part I - Item 1: Condensed Notes to Statutory Financial Statements (continued)
2. Related Party - Reinsurance
- -------------------------------
C.M. Life cedes a portion of its life insurance business to MassMutual and other
insurers in the normal course of business. C.M. Life's retention limit per
individual insured is $12.0 million; the portion of the risk exceeding the
retention limit is reinsured with other insurers. C.M. Life remains liable to
the policyholder for the payment of benefits if the reinsurer cannot meet its
obligations under the reinsurance agreement.
C.M. Life has a modified coinsurance quota-share reinsurance agreement with
MassMutual whereby C.M. Life cedes 75% of the premiums on certain universal life
policies. In return MassMutual pays C.M. Life a stipulated expense allowance,
death and surrender benefits, and a modified coinsurance adjustment. Reserves
for payment of future benefits and related assets for the ceded policies are
retained by C.M. Life.
C.M. Life also has a stop-loss agreement with MassMutual which provides for
ceding of claims, up to MassMutual's maximum liability of $25.0 million, that in
the aggregate, exceed the attachment point of 120% of annual expected claims,
where annual expected claims represents .18% of covered volume. C.M. Life paid
approximately $0.3 million and $0.2 million in premiums under the agreement for
the three months ended March 31, 1998 and 1997, respectively.
3. Other Transactions with MassMutual
- --------------------------------------
MassMutual and C.M. Life have an agreement whereby MassMutual for a fee will
furnish C.M. Life, as required, operating facilities, human resources, computer
software development and managerial services. Investment and administrative
services are provided to C.M. Life pursuant to a management services agreement
with MassMutual. Fees incurred under the terms of the agreement were $13.3
million and $10.2 million for the three months ended March 31, 1998 and 1997,
respectively.
4. New Accounting Pronouncements
- ---------------------------------
The NAIC is currently engaged in an extensive project to codify statutory
accounting ("Codification") principles with a goal of providing a comprehensive
guide of statutory accounting principles for use by insurers in all states. This
comprehensive guide, which has been approved by the NAIC, but must be adopted by
the Department before the Company must comply with its provisions, includes
seventy two Statements of Statutory Accounting Principles ("SSAPs"). At this
time, it is uncertain when or if the Department will adopt Codification,
however, if adopted the effective date is expected to be no earlier than January
1, 1999. Management is currently reviewing the impact of Codification.
8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission (the "Commission") such supplementary and
periodic information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The Bylaws of C.M. Life provide for indemnification of directors and officers as
follows:
C.M. Life directors and officers are indemnified under its by-laws. No
indemnification is provided with respect to any liability to any entity which is
registered as an investment company under the Investment Company Act of 1940 or
to the security holders thereof, where the basis for such liability is willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of office.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of C.M.
Life pursuant to the foregoing provisions, or otherwise, C.M. Life 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 C.M. Life of
expenses incurred or paid by a director, officer or controlling person of C.M.
Life 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, C.M. Life will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
REPRESENTATION UNDER SECTION 26(e)(2)(A) OF
THE INVESTMENT COMPANY ACT OF 1940
C.M. Life hereby represents that the fees and charges deducted under the
flexible premium adjustable variable life insurance policies described in this
Registration Statement in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by C.M. Life.
<PAGE>
CONTENTS OF FILING
This Registration Statement is comprised of the following documents:
The Facing Sheet.
Cross-Reference to items required by Form N-8B-2.
The Prospectus consisting of 65 pages.
The Undertaking to File Reports.
The Undertaking pursuant to Rule 484 under the Securities Act of
1933.
Representation under Section 26(e)(2)(a) of the Investment Company
Act of 1940.
The Signatures.
Written Consents of the Following Persons:
1. Coopers & Lybrand, L.L.P. and Arthur Andersen LLP,
independent accountants;
2. Counsel opining as to the legality of securities being
registered;
3. Opinion and consent of Craig Waddington, FSA, MAAA,
opining as to actuarial matters contained in the
Registration Statement.
The following Exhibits:
99.A The following Exhibits correspond to those required by
Paragraph A of the instructions as to Exhibits in Form N-8B-2:
1. a. Copy of Resolution of Board of Directors of C.M. Life
establishing the Separate Account./1/
b. Resolution of the Board of Directors establishing the
SVUL segment of the Separate Account./2/
2. Not Applicable.
3. Form of Distribution Agreements:
a. Form of Distribution Servicing Agreement between MML
Distributors, LLC and C.M. Life./3/
b. Form of Co-Underwriting Agreement between MML
Investors Services, Inc. and C.M. Life./4/
4. Not Applicable.
5. Form of Survivorship Flexible Premium Adjustable Variable
Life Policy./2/
<PAGE>
<TABLE>
<S> <C> <C>
6. a. Certificate of Incorporation of C.M. Life./1/
b. By-Laws of C.M. Life./1/
7. Not Applicable.
8. Form of Participation Agreements.
a. Oppenheimer Variable Account Fund/1/
b. Variable Insurance Products Fund II/5/
c. T. Rowe Price Equity Series, Inc./5/
d. American Century Variable Portfolios, Inc./5/
9. Not Applicable.
10. Form of Application for a Survivorship Flexible Premium
Adjustable Variable Life insurance policy./6/
11. Memorandum describing C.M. Life issuance, transfer, and
redemption procedures for the Policy./5/
99.B. Opinion and Consent of Counsel as to the legality of the
securities being registered./2/
99.C. No financial statement will be omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.
99.D. Not Applicable.
99.E. Consent of Coopers & Lybrand LLP
99.F. Consent of Arthur Andersen LLP
99.G. Opinion and consent of Craig Waddington, FSA, MAAA, as to
actuarial matters pertaining to the securities being
registered./2/
99.H. Powers of Attorney/3/
27. Not Applicable
</TABLE>
/1/ Incorporated by reference to Initial Registration Statement No. 33-91072
dated April 10, 1995.
/2/ Incorporated by reference to this Initial Registration Statement filed with
the Commission as an exhibit on December 5, 1997.
/3/ Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement No. 33-91072 dated August 11, 1995.
/4/ Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-91072 dated May 1, 1996.
/5/ Incorporated by reference to Pre-Effective Amendment No. 2 to Registration
Statement No. 333-41657 filed with the Commission as an exhibit on May 26,
1998.
/6/ Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement No. 333-41667 filed with the Commission on March 19,
1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this pre-effective Amendment No. 2 to Registration Statement 333-41667 to
be signed on its behalf by the undersigned thereunto duly authorized, all in the
city of Hartford and the state of Connecticut, on the 22nd day of May, 1998.
C.M. LIFE VARIABLE LIFE SEPARATE ACCOUNT I
C.M. LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Lawrence V. Burkett, Jr.*
----------------------------------------
Lawrence V. Burkett, Jr.,
Director, President and Chief Executive Officer
C.M. Life Insurance Company
/s/ Richard M. Howe On May 22, 1998, as Attorney-in-Fact pursuant to
- -------------------- powers of attorney incorporated by reference.
*Richard M. Howe
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signature Title Date
--------- ----- ----
/s/ Lawrence V. Burkett, Jr.* Director, President and Chief May 22, 1998
- ------------------------------- Executive Officer
Lawrence V. Burkett, Jr.
/s/ Edward M. Kline* Treasurer (Principal Financial May 22, 1998
- ------------------------------- Officer)
Edward M. Kline
/s/ John Miller, Jr.* Second Vice President and May 22, 1998
- ------------------------------- Comptroller (Principal Accounting
John Miller, Jr. Officer)
/s/ John B. Davies* Director May 22, 1998
- -------------------------------
John B. Davies
/s/ Stuart H. Reese* Director May 22, 1998
- -------------------------------
Stuart H. Reese
/s/ Richard M. Howe On May 22, 1998, as Attorney-in-Fact pursuant
- ------------------------------- to powers of attorney.
*Richard M. Howe
<PAGE>
EXHIBIT LIST
99.B. Opinion and Consent of Richard M. Howe, Esq.
99.E. Consent of Coopers & Lybrand L.L.P.
99.F. Consent of Arthur Andersen L.L.P.
99.G. Opinion and Consent of Craig Waddington, FSA, MAAA
<PAGE>
EXHIBIT 99.B.
(MASSMUTUAL LETTERHEAD)
May 22, 1998
C.M. Life Insurance Company
140 Garden Street
Hartford, CT 06154
RE: Re: Pre-Effective Amendment No. 2 to Registration Statement 333-41667
----------------------------------------------------------------------
filed on Form S-6
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of Pre-Effective
Amendment No. 2 to Registration Statement 333-41667 under the Securities Act of
1933 for C.M. Life Insurance Company's ("C.M. Life") Survivorship Flexible
Premium Adjustable Variable Life Insurance Policies (the "Policies"). C.M. Life
Variable Life Separate Account I issues the Policies.
As 2nd Vice President & Associate General Counsel for C.M. Life, I provide legal
advice to C.M. Life in connection with the operation of its variable products.
In such role I am familiar with the filing for the Policies. 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. C.M. Life is a valid and subsisting corporation, organized and operated under
the laws of the state of Connecticut and is subject to regulation by the
Connecticut Commissioner of Insurance.
2. C.M. Life Variable Life Separate Account I is a separate account validly
established and maintained by C.M. Life in accordance with Connecticut law.
3. All of the prescribed corporate procedures for the issuance of the Policies
have been followed, and all applicable state laws have been complied with.
I hereby consent to the use of this opinion as an exhibit to this filing.
Very truly yours,
/s/ Richard M. Howe
- ------------------------
Richard M. Howe
2nd Vice President & Associate General Counsel
<PAGE>
EXHIBIT 99.E.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
C.M. Life Insurance Company
We consent to the inclusion in this Pre-Effective Amendment No. 2 to the
Registration Statement of C.M. Life Variable Life Separate Account I
(Survivorship Variable Universal Life Segment) on Form S-6 (Registration No.
333-41667) of our report dated February 6, 1998 on our audits of the statutory
financial statements of C.M. Life Insurance Company, which includes explanatory
paragraphs relating to the use of statutory accounting practices, which differ
from generally accepted accounting principles. We also consent to the reference
to our Firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
May 26, 1998
<PAGE>
EXHIBIT 99.F.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration Statement for the Survivorship Variable Universal Life Segment of
C.M. Life Variable Life Separate Account I of C.M. Life Insurance Company.
Arthur Andersen LLP
Hartford, Connecticut
May 22, 1998
<PAGE>
EXHIBIT 99.G.
(MASSMUTUAL LETTERHEAD)
May 22, 1998
C.M. Life Insurance Company
140 Garden Street
Hartford, CT 06154
Re: Pre-Effective Amendment No. 2 to Registration Statement 333-41667
- ----------------------------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with Pre-Effective Amendment No. 2 to
Registration Statement 333-41667 for C.M. Life Insurance Company's Survivorship
Flexible Premium Adjustable Variable Life Insurance Policies (the "Policies")
under the Securities Act of 1933. The prospectus included in the filing
describes the Policies. I am familiar with the forms of the Policies and the
prospectus.
In my opinion, the illustrations of benefits under the Policies included in the
section entitled "Illustrations" in Appendix A of the prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the respective forms of the Policies. The age selected in the illustrations is
representative of the manner in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 2 to Registration Statement 333-41667 and to the reference of my
name under the heading "Experts" in the prospectus.
Sincerely,
/s/ Craig Waddington
- -------------------------
Craig Waddington, FSA, MAAA
Vice President and Actuary
