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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

For the transition period from______ to ______

Commission File Number 33-45123

C.M. LIFE INSURANCE COMPANY

140 Garden Street, Hartford, Connecticut 06154

Telephone Number: Area Code 860-987-6500

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

___________________________________

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1) Yes X   No __

(2) Yes X   No __

Registrant has 12,500 shares of common stock outstanding on March 28, 2000, all of which are owned by Massachusetts Mutual Life Insurance Company.

PART I

Item 1. Business

We are a stock life insurance company located at 140 Garden Street, Hartford, Connecticut, 06154, and were chartered by a Special Act of the Connecticut General Assembly on April 25, 1980. Effective March 1, 1996, we became a wholly-owned stock life insurance subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual ") when the operations of our former parent, Connecticut Mutual Life Insurance Company were merged with and into MassMutual.

We are principally engaged in the sale of life insurance and annuities, primarily flexible premium universal life insurance, variable life insurance, and variable annuity products. We distribute these products through career agents, registered financial planners, and brokers. We are licensed to sell life insurance and annuities in Puerto Rico, the District of Columbia and 49 states (excluding New York.)

Functionally, we are part of MassMutual's operations, and as a result, a discussion of MassMutual's operations is useful for an understanding of our business.

MassMutual is a mutual life insurance company organized as a Massachusetts corporation, which was originally chartered in 1851. As a mutual life insurance company, MassMutual has no shareholders. MassMutual's primary business is individual life insurance, annuity and disability income products distributed primarily through career agents. MassMutual also provides, directly or through its subsidiaries, a wide range of pension products and services, as well as investment services to individuals, corporations, and institutions in all 50 states of the United States, Puerto Rico, and the District of Columbia. MassMutual and its subsidiaries or affiliates are also licensed to transact business in six provinces of Canada, Chile, Argentina, Bermuda, and Luxembourg although its operations in such jurisdictions are not material.

MassMutual's principal lines of business are:

• Individual Line of Business, which includes life, disability, annuities, large corporate owned life insurance, and investment products and services; and
• Retirement Services, which provides retirement plan sponsors and participants a full range of products and services in the defined contribution, defined benefit, and non-qualified deferred compensation plan markets.

The MassMutual Investment Group, whose operations effective January 1, 2000, were merged into David L. Babson and Company, Inc., a MassMutual wholly-owned subsidiary, provides investment advisory services to us, our affiliates and various outside individual and institutional investors through MassMutual's investment management staff and its subsidiaries: Oppenheimer Acquisition Corporation, which owns OppenheimerFunds, Inc.; DLB Acquisition Corporation, which owns David L. Babson and Company, Inc.; Antares Capital Corporation; and Cornerstone Real Estate Advisors, Inc.

Together with our parent, Massachusetts Mutual Life Insurance Company ("MassMutual") and its subsidiaries, we comprise a growth-oriented, diversified financial services company that seeks to provide superior value for policyholders and other customers by achieving exceptional results. We are in the business of helping our customers achieve financial success while protecting their families and businesses. We are committed to maintaining a position of preeminent financial strength by achieving consistent and long-term profitable growth. This will be done by:

•   developing and distributing a broad and superior portfolio of innovative financial products and services,
•   sophisticated asset/liability management,
•   rigorous expense control,
•   prudent underwriting standards,
•   the adoption of efforts to improve persistency and retention levels, and
•   Continued commitment to the high credit quality of our general account investment portfolio.

Products

The principal products we offer include:

•   term life, variable, universal, and corporate owned life insurance products, and
•   individual annuity products.

Set forth below is a description of our principal products:
Term Life. Term life insurance provides life insurance protection for a fixed period and has no cash value. We offer a variety of term insurance products designed to meet varying client needs. Almost all term insurance products allow conversion within a specified time period to one of our other insurance products.

Universal Life. Universal life insurance provides the policyholder with flexible premiums and death benefits as well as no lapse guarantees. We credit premiums in excess of specified sales charges to the account value of the policy, which are allocated to the fixed account backed by our general investment account. That account value includes a guaranteed principal with a minimum interest credit. The policy value is the net result of the premium payments plus interest credits minus expense and cost of insurance charges minus the amount of any partial surrenders.

Variable and Corporate Owned Life. Variable life insurance provides the policyholder, within guidelines established by the terms of the policy, the ability to select and change premium levels, amounts of death benefits and investment options. We credit premiums in excess of specified sales charges to the account value of the policy. We apply net premiums, as instructed by the policyholder, to a guaranteed principal account backed by our general investment account, or to one or more of our separate account investment options. The policyholder bears the investment risk for cash values invested in the separate accounts. We deduct the cost of insurance and administrative charges from the accumulating account value to which we credit the premiums. We also offer various corporate owned fixed or variable universal life products.

Fixed and Variable Annuities. Annuity products provide for the payment of periodic benefits at regular intervals beginning at a specified date and continuing for a specific period of time or for life. For our fixed annuity products, we credit premiums to the account value of the contract, which are allocated to a fixed account backed by our general investment account. Variable annuities are individual non-participating contracts which provide for either a single or periodic premium, which may be directed to a guaranteed principal account backed by general investment account, or to one of several separate account investment options for which the investment risk is borne by the contract holder.

Reinsurance

We cede a portion of our life insurance business to MassMutual and other insurers in the normal course of business. Our retention limit per individual insured is $15.0 million; the portion of the risk exceeding the retention limit is reinsured with other insurers including MassMutual. We are contingently liable with respect to ceded reinsurance in the event any reinsurer is unable to fulfill its contractual obligations.

We have a modified coinsurance quota-share reinsurance agreement with MassMutual whereby we cede 75% of the premiums on certain universal life policies. In return, MassMutual pays us a stipulated expense allowance, death and surrender benefits, and a modified coinsurance adjustment based upon experience. Assets and related reserves for payment of future benefits for the ceded policies are retained by us. Premium income of $29.8 million in 1999, $33.7 million in 1998 and $35.1 million in 1997 was ceded to MassMutual. Policyholder benefits of $38.7 million in 1999, $38.4 million in 1998 and $36.9 million in 1997 were ceded to MassMutual.

We also have a stop-loss agreement with MassMutual under which we cede claims, which, in aggregate, exceed .22% of the covered volume for any year, with maximum coverage of $25.0 million above the aggregate limit. The aggregate limit was $45.4 million in 1999, $36.9 million in 1998, and $35.6 million in 1997 and it was not exceeded in any of the years. Premium income of $1.3 million in 1999, and $1.0 million in 1998 and 1997 was ceded to MassMutual.

Competition

The life insurance industry is highly competitive. There are more than 1,500 life insurance companies in the United States, many of which offer insurance products similar to those we market. In addition to competition within the industry, insurers are increasingly facing competition from non-traditional sources in the financial services industry. Such businesses include mutual funds, banks, securities brokerage houses, and other financial service entities. Many of our competitors provide alternative investment and savings vehicles for consumers. Legislative initiatives at the federal level were enacted in November of 1999 that could reorder the financial services industry, thereby changing the environment in which we compete.

We believe our financial strength, agent skill, and product performance provide competitive advantages for the products we offer in these markets. Our, and MassMutual's, year-end 1999 ratings were again among the highest enjoyed by any company in any industry. Our, and MassMutual's, AAA financial strength rating from Standard & Poor's, A++ (Superior) financial strength rating from A.M. Best, and AAA claims-paying rating from Duff & Phelps were the highest possible. Our, and MassMutual's, Aa1 financial strength rating from Moody's Investors Service was the highest in its "Excellent" category.

Each rating agency independently assigns ratings based on its own separate review and takes into account a variety of factors, which are subject to change in making its decision. Accordingly, there can be no assurance of the ratings that will be afforded us in the future.

Transactions with MassMutual

We have an agreement with MassMutual whereby, for a fee, MassMutual furnishes us, as required, operating facilities, human resources, computer software development and managerial services. Also, MassMutual provides us with investment and administrative services pursuant to a management services agreement. Fees incurred under the terms of these agreements were $124.5 million in 1999, $74.1 million in 1998, and $39.7 million in 1997.

In addition, as discussed earlier, we have a modified coinsurance quota-share reinsurance agreement on certain universal life policies and a stop-loss agreement with MassMutual.

Regulation

We are organized as a Connecticut stock life insurance company, and are subject to Connecticut laws governing insurance companies. We are regulated and supervised by the State of Connecticut Insurance Commissioner. By March 1 of every year, we must prepare and file an annual statement, in a form prescribed by the State of Connecticut Insurance Department, as of December 31 of the preceding year. The Commissioner's agents have the right at all times to review or examine our books and assets. A full examination of our operations is conducted periodically according to the rules and practices of the National Association of Insurance Commissioners. We are also subject to the insurance laws of the states in which we are authorized to do business, to various federal and state securities laws and regulations, and to regulatory agencies that administer those laws and regulations.

We are licensed to transact our insurance business in, and are subject to regulation and supervision by the Commonwealth of Puerto Rico, the District of Columbia, and 49 states (excluding New York.) The extent of such regulation varies. However, most jurisdictions have laws and regulations requiring the licensing of insurers and their agents, and setting standards of solvency and business conduct to be maintained by licensed insurance companies, and may regulate withdrawal from certain markets. In addition, statutes and regulations in certain states usually require the approval of policy forms and, for certain lines of insurance, the approval of rates. Such statutes and regulations also prescribe the permitted types and concentration of investments. We are also subject to regulation of our accounting methodologies and are required to file detailed annual financial statements with supervisory agencies in each of the jurisdictions in which we do business. Each of our operations and accounts are also subject to examination by such agencies at regular intervals.

All 50 states of the United States, the District of Columbia, and Puerto Rico have insurance guaranty fund laws requiring insurance companies doing business within those jurisdictions to participate in guaranty associations. Guaranty associations are organized to cover, subject to certain limits, contractual obligations under insurance policies and certificates issued under group insurance policies, issued by impaired or insolvent life insurance companies. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state. Levies are calculated on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets, usually over a period of years.

In addition to regulation of our insurance business, we are subject to various types of federal and state laws and regulations affecting the conduct, taxation, and other aspects of our businesses and products. Certain policies and contracts we offer are subject to the federal securities laws administered by the Securities and Exchange Commission.

We believe that we are in compliance, in all material respects, with all applicable regulations.

New Accounting Pronouncements

In March 1998, the NAIC adopted the Codification of Statutory Accounting Principles ("Codification"). Codification provides a comprehensive guide of statutory accounting principles for use by insurers in all states and is expected to become effective not later than January 1, 2001. We will report the effect of adopting Codification as an adjustment to shareholder's equity on the effective date. We are currently reviewing the impact of Codification, however, due to the nature of certain required accounting changes and their sensitivity to factors such as interest rates, we can not determine at this time the actual impact of adoption.

Item 2. Properties

Our principal office is located at 140 Garden Street, Hartford, Connecticut.

Item 3. Legal Proceedings

We are involved in litigation arising in and out of the normal course of business, including suits which seek both compensatory and punitive damages. While we are not aware of any actions or allegations which should reasonably give rise to any material adverse effect, the outcome of litigation cannot be foreseen with certainty. It is our opinion, after consultation with legal counsel, that the ultimate resolution of these matters will not materially affect our financial position, results of operations or liquidity.

There were no matters submitted to a vote of security holders during 1999, other than routine corporate governance matters.

PART II

We are a wholly owned subsidiary of Massachusetts Mutual Life Insurance Company, and as such, there is no market for our common stock.

Item 6. Selected Financial Data

We have prepared the accompanying statutory financial information, in conformity with the practices of the National Association of Insurance Commissioners ("NAIC") and the accounting practices prescribed or permitted by the State of Connecticut Insurance Department ("statutory accounting practices").

The following statutory information as of and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 has been derived from our audited statutory financial statements. The 1999 statutory financial statements have been audited by Deloitte & Touche LLP, independent auditors'. The statutory financial statements for the years 1995 through 1998 were audited by auditors other than Deloitte & Touche LLP.

The accompanying statutory financial statements are different in some respects from financial statements prepared in accordance with generally accepted accounting principles ("GAAP "). The more significant differences are as follows:

We record our investments in accordance with rules established by the NAIC. Generally, we value:

• bonds at amortized cost, using the interest method,
• mortgage loans at unpaid principal net of unamortized premium or discount,
• other investments include holdings in affiliated mutual funds at fair value and preferred stocks at cost,
• policy loans at the outstanding loan balance less amounts unsecured by the cash surrender value of the policy, and
• short-term investments at amortized cost.

We develop reserves for life insurance contracts using accepted actuarial methods computed principally on the net level premium, the Commissioners' Reserve Valuation Method and the California Method bases using the 1980 Commissioners' Standard Ordinary mortality tables with assumed interest rates ranging from 2.50 to 4.50 percent.

We develop reserves for individual annuities based on accepted actuarial methods at interest rates ranging from 6.25 to 9.00 percent.

Provision for federal income taxes is based upon our estimate of our 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 policy acquisition costs, resulted in effective tax rates which differ from the statutory tax rate.

We maintain an Asset Valuation Reserve ("AVR") and an Interest Maintenance Reserve ("IMR"), in compliance with regulatory requirements. The AVR and other investment reserves stabilize surplus against fluctuations in the value of stocks and bonds. The IMR defers after-tax realized capital gains and losses that result from changes in the overall level of interest rates, for all types of fixed income investments and interest related hedging activities. These interest related capital gains and losses are amortized into net investment income using the grouped method over the remaining life of the investment sold or over the remaining life of the underlying asset.

The preparation of financial statements requires us 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. We 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, persistency, and asset valuations, could cause our actual results to differ from the estimates we used in the financial statements.

This information should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and other information included elsewhere in this filing. The results for past accounting periods are not necessarily indicative of the results to be expected for any future accounting period.

C.M. Life Insurance Company
Selected Historical Financial Data
For the Years Ended December 31,

(In Millions)

(1) In 1998, we received a surplus contribution of $25 million from MassMutual.
(2) Defined by the NAIC as surplus plus AVR.

We reclassified prior year amounts to conform with the current year presentation.

Item 7. Management's Discussion and Analysis of Financial Condition
            and Results of Operation

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited Statutory Financial Statements, Notes to Statutory Financial Statements, and Selected Historical Financial Data. This Management’s Discussion and Analysis reviews our financial condition at December 31, 1999 and 1998, our results of operations for the past three years and, where appropriate, factors that may affect our future financial performance.

Together with our parent, MassMutual and its subsidiaries, we comprise a growth-oriented, diversified financial services company that seeks to provide superior value for policyholders and other customers by achieving exceptional results. We are in the business of helping our customers achieve financial success while protecting their families and businesses. We are committed to maintaining a position of preeminent financial strength by achieving consistent and long-term profitable growth. This will be done by:

• developing and distributing a broad and superior portfolio of innovative financial products and services,
• sophisticated asset/liability management,
• rigorous expense control,
• prudent underwriting standards,
• the adoption of efforts to improve persistency and retention levels, and
• Continued commitment to the high credit quality of our general account investment portfolio.

At December 31, 1999, we had $3.2 billion in total statutory assets, over 200,000 individual policyholders and $56.7 billion of direct individual life insurance in force. Our total adjusted capital, as defined by the National Association of Insurance Commissioners (“NAIC”), was $116 million at December 31, 1999.

The following table sets forth the calculation of total adjusted capital:

⁽¹⁾ Defined by the NAIC as surplus plus AVR.

Objective testimony to our strong performance and market position is reflected in our ratings, which at year-end 1999 were again among the highest enjoyed by any company in any industry. Our, and MassMutual's, year-end 1999 ratings were again among the highest enjoyed by any company in any industry. Our, and MassMutual's, AAA financial strength rating from Standard & Poor's, A++ (Superior) financial strength rating from A.M. Best, and AAA claims-paying rating from Duff & Phelps were the highest possible. Our, and MassMutual's, Aa1 financial strength rating from Moody's Investors Service was the highest in its "Excellent" category. Each rating agency independently assigns ratings based on its own separate review and takes into account a variety of factors, which are subject to change in making its decision. Accordingly, there can be no assurance of the ratings that will be afforded us in the future.

Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a "Safe harbor" for forward-looking statements which are identified as such and are accompanied by the identification of important factors which could cause a material difference from the forward-looking statements.

Certain information contained in this discussion is or may be considered forward-looking. Forward-looking statements are those not based on historical information, but rather, related to future operations, strategies, financial results, or other developments, and contain terms such as "may," "expects," "should," "believes, " "anticipates," "intends," "estimates," "projects," "goals," "objectives," or similar expressions.

Forward-looking statements are based upon estimates and assumptions. These statements may change due to the business uncertainties, economic uncertainties, competitive uncertainties, and other factors, many of which are beyond our control. Additionally, our business decisions are also subject to change. We do not publicly update or revise any forward-looking statements, as a result of new information, future developments, or otherwise.

Results of Operations

The following table sets forth the components of our net income (loss):

NM = not meaningful or in excess of 200%.

Net income decreased in 1999 and 1998 primarily due to the continued growth in our annuity business, as well as increases in the amount of life insurance in force. This growth has caused a significant increase in acquisition and related costs, which exceed first year premiums on new business. Generally, the result of this growth is increased policyholders ’ benefits and payments, addition to policyholders’ reserves and funds, commissions and expenses, partially offset by increased premium income.

Selected premium and life insurance information is presented below:

Premium income increased in 1999 and 1998 primarily due to increases in premiums of universal life, variable life and variable annuity products. The increase in premiums for life insurance products is largely attributable to continued growth in the in force of universal life products; the redesign of an existing variable universal life product and the issuance of a new variable universal life product in 1999; and the introduction of two new life products in 1998. Variable annuity premiums have increased primarily due to adding new fund options on existing products and the introduction of two new annuity products.

Our business mix has shifted as a result of increasing sales of annuity products. Universal and other life products comprised 26% of total premium income during 1999, compared to 36% in 1998. Annuity products were 74% of total premium income in 1999, compared to 64% in 1998.

The components of net investment income are set forth in the table below:

Net investment income increased in 1999 due to a 10% increase in average invested assets partially offset by a decrease in the gross yield for the investment portfolio to 7.4% in 1999 from 7.9% in 1998. Net investment income increased in 1998 due to an 8% increase in average invested assets and an increase in the gross yield for the investment portfolio to 7.9% in 1998 from 7.6% in 1997.

The increase in 1999 in gross investment income from bonds is due to increased investment levels, while yields stayed steady. The decrease in 1998 gross investment income from bonds is due to declines in portfolio yields partially offset by increased assets invested. Bond yields declined in 1998 as older, higher yielding bonds matured and were replaced with bonds that had lower yields. The increase in income from mortgage loans in 1999 and 1998 is due to an increase in the size of the mortgage portfolio caused by our strategy to increase mortgage acquisition activity.

The decrease in gross investment income on other investments in 1999 resulted primarily from decreased investments in affiliated mutual fund common stock and the receipt of an extraordinary dividend from an affiliated mutual fund in 1998.

The increase in other investments gross investment income in 1998 is primarily due to increased investment in financial options as a result of favorable market conditions and the 1998 extraordinary dividend received from an affiliated mutual fund. Fluctuations in market conditions will impact future investment results.

The components of fees and other income are set forth in the table below:

Fees increased in 1999 and 1998 due to increases in fees collected from separate accounts as a result of increased variable life and variable annuity sales. In 1999 and 1998 we experienced decreases in commissions and expense allowances on reinsurance ceded and increases in the reserve adjustment on reinsurance ceded as a result of credits we received on our modified coinsurance agreement with MassMutual.

The primary driver of the $147 million increase in policyholders’ benefits and payments in 1999 from 1998 and $85 million increase in 1998 from 1997 was surrender benefits on individual annuity products and a $33 million 1999 surrender of one large corporate owned life insurance contract holder. Individual annuity surrenders increased $99 million, or 44%, during 1999 and $84 million, or 66%, during 1998 with the majority of the withdrawals coming from separate accounts. We believe this increased rate of individual annuity surrenders is primarily due to two factors: 1) the investment fund options currently offered with our annuity products use a “value” based investment philosophy that has temporarily fallen out of favor when compared to other investment options, such as “growth” funds, due to recent market conditions and, 2) a natural increase in the dollar amount of surrenders as business growth causes a higher level of annuity customer account values. Though it is not known if an increased level of surrenders will continue, we have and are taking steps that we believe will reduce surrender activity by enhancing product offerings through the addition of new fund options and other product features. Life insurance surrenders increased $3 million during both 1999 and 1998. The life insurance lapse rate, which is based upon the amount of insurance in force, increased to 7.9% for 1999 from 6.7% in 1998 and 6.5% in 1997. Death claims, net of reinsurance, increased $11 million, or 47%, to $35 million in 1999 compared to a decrease of $2 million, or 11%, in 1998. This increase was primarily due to unfavorable direct mortality experience in 1999 compared to 1998, partially offset by favorable reinsurance recoveries.

Addition to policyholders’ reserves and funds includes transfers to and from the separate accounts, based upon policyholder elections, and the change in general account reserves. The increase during 1999 is primarily attributable to a $330 million increase in separate account deposits, partially offset by a $109 million increase in separate account withdrawals and other transfers. The decrease during 1998 was primarily due to a $70 million increase in separate account withdrawals, partially offset by a $44 million increase in separate account deposits. General account reserves also increased by $118 million in 1999 and $20 million in 1998, primarily due to an increase in annuity deposits into the general account.

Commissions increased in 1999 and 1998 primarily due to increases in sales of annuities and life insurance. Life insurance commissions increased $21 million in 1999 and $11 million in 1998, while annuity products contributed increases of $11 million in 1999 and $6 million in 1998. The overall decrease in commissions as a percentage of sales is due to the shift in sales mix to annuity products, which have lower commission rates than life products.

The increase in operating expenses, state taxes, licenses, and fees during 1999 and 1998 is primarily attributable to the increased production of new business that resulted in increased management fees. Management fees charged by MassMutual include increases in agency allowances associated with business growth. The growth in these expenses is consistent with our premium growth.

The decrease in federal income taxes during 1999 and 1998 is primarily attributable to the declining net gain (loss) from operations before federal income taxes, partially offset by the difference between statutory insurance reserves and tax reserves and the timing of the tax deductibility of acquisition costs and other items.

Net realized capital gains (losses) were comprised of the following:

NM = Not meaningful or in excess of 200%.

We attribute the increase in 1999 realized capital losses after transfers to the IMR, primarily to losses from investments in affiliated mutual funds, and credit-related losses from the sale of bonds.

We attribute the increase in 1998 net realized capital losses after transfers to the IMR, primarily to credit related mortgage loan losses, which are not transferred to the IMR.

Statement of Financial Position

The following table sets forth our more significant assets, liabilities and shareholder’s equity:

Assets

Total assets at December 31, 1999, increased by $622 million, from December 31, 1998. We attribute this increase primarily to continued growth in our separate accounts, as the result of continued growth in deposits of variable products, partially offset by withdrawals.

General account assets increased $177 million, or 15%, to $1,389 million as of December 31, 1999, from $1,212 million as of December 31, 1998. We attribute this increase primarily to increases in mortgage loans, bonds and cash and short-term investments, partially offset by a reduction in other investments. These increases in investments were primarily the result of our continued growth and the investment of cash flow generated by our operations.

The increase in bonds during 1999 includes $475 million in purchases and $423 million of maturities and sales proceeds. There was a slight change in the mix of bonds at December 31, 1999, compared with December 31, 1998. Bond investments in U. S. Treasury and other government holdings increased to 12% of the total portfolio as of December 31, 1999, from 10% as of December 31, 1998. Mortgage-backed securities dropped from 8% to 7% and corporate debt securities dropped from 77% to

76% of the portfolio in 1999 and 1998, respectively. Bonds and short-term securities in NAIC classes 1 and 2 were 64% of general account invested assets at December 31, 1999, as compared to 61% at December 31, 1998. The percentage of our general account invested assets representing bonds and short-term investments in NAIC classes 3 through 6 was 6% at December 31, 1999, and 8% at December 31, 1998. See "Investments" section for more discussion of NAIC Investment classes.

The increase in mortgage loans is primarily attributed to a continuation of our strategy of increasing our investments in mortgage loans due to favorable market conditions. For the year ended December 31, 1999, $130 million of new loans were issued and $31 million was received on outstanding accounts.

Other investments consisting of financial options, interest rate caps and floors, preferred stocks, and affiliated common stocks decreased during 1999 primarily due to the reduction of affiliated common stock. This decrease in affiliated common stock was driven by a $51 million withdrawal of seed money from affiliated mutual funds. The seed money was an investment used to fund the creation of new mutual funds.

Policy loans decreased during 1999 primarily due to a large surrender in late 1999 of a corporate owned life policy with an outstanding policy loan of $33 million.

The increase in other assets is due primarily to a $25 million increase in transfers due from the separate accounts. Transfers due from separate accounts represents policyholders' account values in excess of statutory benefit reserves. This growth is consistent with the overall increase in separate account business in force.

Liabilities

As with assets, most of the 1999 growth occurred in the separate accounts as discussed earlier.

The increase in policyholders' reserves and funds, primarily attributable to growth from new sales in annuity products and interest credited, was partially offset by transfers to separate accounts and withdrawals.

The increase in other liabilities is primarily due to our continued growth. This resulted in a $21 million increase in payable to parent and a $30 million increase in suspense accounts, partially offset by a net decrease in other liabilities.

Shareholder's Equity

The decrease in shareholder's equity was due to:

• a 1999 net loss of $44 million,
• a decrease of $3 million due to a change in the valuation of policyholders' reserves,
• a decrease of $4 million due to an increase in non-admitted assets,

partially offset by:

• an increase of $1 million due to the change in Asset Valuation Reserve ("AVR") and General Investment Reserve ("GIR"), and
• an increase of $4 million primarily due to unrealized capital gains on bonds.

Liquidity and Capital Resources

Liquidity

Cash and short-term investments increased $76 million, or 72%, during 1999 as a result of increased funds available for investment provided by operating activities.

Net cash provided by operating activities increased $103 million, or 184%, in 1999. We attribute the increase primarily to increased sales, investment income, and fees from separate accounts. This increase was partially offset by increased surrender benefits, withdrawals, death benefits, general expenses, and commissions.

Loans and purchases of investments decreased $83 million, or 15%, and sales and maturities of investments and receipts from repayments of loans decreased $102 million, or 20%, in 1999. We attribute these decreases primarily to a lower volume of purchases and sales of bonds due to changes in market conditions.

In the second quarter of 1998, MassMutual made a $25 million surplus contribution to supply us with cash flow and the capital needed to support our continued business growth. The Board of Directors of MassMutual has authorized the contribution of funds to us sufficient to meet the capital requirements of all states in which we are licensed to do business.

We utilize sophisticated asset/liability analysis techniques in order to set the investment policy for each liability class. Additionally, we test the adequacy of the projected cash flow provided by assets to meet all of our future policyholder and other obligations. We perform these studies using stress tests regarding future credit and other asset losses, market interest rate fluctuations, claim losses and other considerations. The result is a complete picture of the adequacy of our underlying assets, reserves, and capital.

We have structured our investment portfolio to ensure a strong liquidity position in order to permit timely payment of policy and contract benefits without requiring an untimely sale of assets. We manage our liquidity position by matching our exposure to cash demands with adequate sources of cash and other liquid assets.

Our principal sources of liquidity are operating cash flow and holdings of cash, cash equivalents, and other readily marketable assets. Our primary cash flow sources are investment income, principal repayments on invested assets, and life insurance premiums.

Our liquid assets include Treasury bond holdings, short-term money market investments, stocks, and marketable long-term fixed income securities. The carrying value of highly liquid securities, comprised of NAIC Class 1 and 2 publicly traded bonds, was approximately $548 million at December 31, 1999.

We proactively manage our liquidity position on an ongoing basis to meet cash needs while minimizing adverse impacts on investment returns. We analyze a variety of scenarios modeling potential demands on liquidity, taking into account the provisions of our policies and contracts in force, our cash flow position, and the volume of cash and readily marketable securities in our portfolio.

One of our primary liquidity concerns is the risk of early contract holder and policyholder withdrawal. The two most affected products are individual life insurance and individual deferred annuities. Life insurance policies are less susceptible to withdrawal than annuity contracts because annuities are primarily used as investment vehicles, while life policies are used to fulfill longer-term financial planning needs. We closely evaluate and manage our liquidity risk by, for example, seeking to include provisions such as contingent deferred sales charges limiting withdrawal rights to discourage surrenders.

Based on our ongoing monitoring and analysis of our liquidity sources and demands, we believe that we are in a strong liquidity position.

Capital Resources

As of December 31, 1999, our total adjusted capital as defined by the NAIC was $116 million. The NAIC developed the Risk Based Capital ( "RBC") model to compare the total adjusted capital with a standard design in order to reflect an insurance company's risk profile. Although we believe that there is no single appropriate means of measuring RBC needs, we feel that the NAIC approach to RBC measurement is reasonable, and we manage our capital position with significant attention to maintaining adequate total adjusted capital relative to RBC. Our total adjusted capital was well in excess of all RBC standards at December 31, 1999 and 1998. We believe we enjoy a strong capital position in light of our risks and that we are well positioned to meet policyholder and other obligations.

Inflation

A large portion of our operating expenses consist of administrative fees charged by MassMutual. The largest component of these fees is salaries, which are subject to wage increases that are at least partially affected by the rate of inflation. Our continuing efforts to control expenses may reduce the impact of inflation on operating expenses.

Inflation also indirectly affects us. New sales and surrenders of our insurance products, as well as investment income are influenced by inflation to the extent that the government's economic policy to control the level of inflation results in changes in interest rates.

Investments

General

As directed by our policyholders, the majority of our assets are policyholders’ investments in our separate accounts. We record the assets in our separate accounts at market value, and we pass all investment risks on to the policyholders. The following discussion focuses on the general investment account portfolio, which does not include our separate account assets.

At December 31, 1999, we had $1,289 million of invested assets in our general investment account. We manage the portfolio of invested assets to support the general account liabilities of the business in light of yield, liquidity, and diversification considerations.

The following table sets forth our invested assets in the general investment account and related gross investment yield:

We calculate the yield on each investment category, before federal income taxes as: (a) two times gross investment income divided by (b) the sum of assets at the beginning of the year and assets at the end of the year, less gross investment income. If investment expenses were deducted, our net yields would be 7.2%, 7.7%, and 7.5% for the years ended December 31, 1999, 1998 and 1997, respectively.

Bonds

The following table provides certain information regarding the maturity distribution of bonds, excluding short-term securities:

(1) Average life is 6.5 years, including securities guaranteed by the U.S. Government.

We carefully monitor and manage our bond portfolio to ensure that bond maturities are sufficiently diversified in light of our liquidity needs.

Bonds consist primarily of government securities and high-quality marketable corporate securities. We invest a significant portion of our investment funds in high quality publicly traded bonds in order to maintain and manage liquidity and reduce the risk of default in the portfolio.

As of December 31, 1999, mortgage-backed securities in the bond portfolio consisted of $52 million of Government National Mortgage Association ( “GNMA”), and Federal National Mortgage Association (“FNMA ”) commitments, Federal Home Loan Mortgage Corporation (“FHLMC ”) and Federal Housing Authority (“FHA”) mortgage-backed pass-through securities, and $44 million of government agency-backed collateralized mortgage obligations.

The tables below set forth the carrying value, gross unrealized gains and losses, net unrealized gains and losses and estimated fair value of our bond portfolio (excluding short-term securities) at December 31, 1999 and 1998.

The estimated fair value of bonds is based upon quoted market prices for actively traded securities. We subscribe to commercial pricing services providing estimated fair values of fixed income securities that are not actively traded. We generally determine estimated fair values for privately placed bonds by applying interest rate spreads based on quality and asset type to the appropriate duration on the Treasury yield curve.

Substantially all of our publicly traded and privately placed bonds are evaluated by the NAIC’s Securities Valuation Office (“SVO”), which assigns securities to one of six NAIC investment classes with Class 1 securities being the highest quality and Class 6 securities being the lowest quality. Classes 1 and 2 are investment grade, Class 3 is medium quality and Classes 4, 5 and 6 are non-investment grade. For securities which have not yet been rated by the NAIC, we use an internal rating system. We believe that our internal rating system is similar to that used by the SVO.

The table below sets forth the NAIC SVO ratings for our bond portfolio (including short-term securities) and, what we believe are the equivalent public rating agency designations. At December 31, 1999 and 1998, 91% and 88%, respectively, of the portfolio was invested in NAIC Classes 1 and 2 securities.

Bond Credit Quality
(includes short-term securities)

Publicly Traded Bond Credit Quality
(includes short-term securities)

Privately Placed Bond Credit Quality
(includes short-term securities)

We utilize our investments in the privately placed bond portfolio to enhance the value of our overall portfolio, increase diversification, and obtain higher yields than are possible with comparable quality public market securities. To control risk when utilizing privately placed securities, we rely upon:

• broader access to management information,
• strengthened negotiated protective covenants,
• call protection features, and
• a higher level of collateralization than can customarily be achieved in the public market.

The strength of our privately placed bond portfolio is demonstrated by the predominance of NAIC Classes 1 and 2 securities.

The following table sets forth by industry category the total bond portfolio, including short-term securities, as of December 31, 1999:

(1) These bonds are collateralized by mortgages backed by FNMA, GNMA or FHLMC and include collateralized mortgage obligations and pass-through securities. These amounts also include asset backed securities such as credit card, automobile, and residential mortgage securities.

Bond Portfolio Surveillance and Under-Performing Investments

To identify under-performing investments, we review all bonds on a regular basis utilizing the following criteria:

• material declines in revenues or margins,
• significant uncertainty regarding the issuer’s industry,
• debt service coverage or cash flow ratios that fall below industry-specific thresholds,
• violation of financial covenants,
• trading of public securities at a substantial discount due to specific credit concerns, and
• other subjective factors that relate to the issuer.

We actively review the bond portfolio to estimate the likelihood and amount of financial defaults or write-downs in the portfolio and to make timely decisions as to the potential sale or renegotiation of terms of specific investments.

The NAIC defines under-performing bonds as those whose deferral of interest and/or principal payments are deemed to be caused by the inability of the obligor to make such payments as called for in the bond contract. At December 31, 1999, we had $2 million in under-performing bonds. At December 31, 1998, we had no under-performing bonds.

As a result of our conservative monitoring process, we generate an internal watch list, which includes certain securities that would not be classified as under-performing under the SVO credit rating system. At December 31, 1999, bonds having a carrying value of $23 million, or 3% of the total bond portfolio including short-term securities, had been placed on our internal watch list. The internal watch list is comprised of bonds that have the following NAIC ratings:

• $2 million NAIC Class 1,
• $9 million NAIC Class 2 ,
• $1 million NAIC Class 3, and
• $11 million NAIC Class 4.

Mortgage Loans

The following table provides certain information regarding the contractual maturity distribution of mortgage loans:

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

Commercial

Our commercial mortgage loan portfolio consists of fixed and floating rate loans on completed, income producing properties. The majority of the portfolio is fixed rate mortgages.

At December 31, 1999, 97% of our commercial mortgage loan portfolio consisted of bullet loans compared to 98% at December 31, 1998. Bullet loans are loans that do not fully amortize over their term.

During 1999 and 1998, all renewed bullet loans were performing assets prior to renewal and all loan renewals reflected market conditions. Past experience with regard to bullet maturities, however, is not necessarily indicative of future results.

We consider the maturities of commercial mortgage loans to be sufficiently diversified, and carefully monitor and manage maturities in light of our liquidity needs. In 1999, we added approximately 34 new loans. Twenty-two of the new loans were office buildings, which resulted in an increase in our carrying value of office building mortgages as illustrated in the following chart. Additionally, in 1999, borrowers paid off one loan, which totaled $9 million.

The following tables set forth by property type and geographic distribution, the carrying value of commercial mortgage loan balances:

Commercial Mortgage Loans by Property Type

Commercial Mortgage Loans by Geographic Distribution

Residential

Our residential mortgage loan portfolio consists of conventional and FHA/VA mortgage pools. We impose rigorous investment standards, including governmental agency guarantees, seasoned pools, and discount pricing as protection against prepayment risk.

Mortgage Loan Portfolio Surveillance and Under-Performing Investments

We actively monitor, manage and directly service our commercial mortgage loan portfolio. Our personnel perform or review all aspects of loan origination and portfolio management, including:

• lease analysis
• property transfer analysis,
• economic and financial reviews,
• tenant analysis, and
• oversight of default and bankruptcy proceedings.

We revalue all properties each year and re-inspect all properties either each year or every other year based on internal quality ratings.

We use the following criteria to determine whether a current or potential problem exists:

• borrower bankruptcies,
• major tenant bankruptcies,
• requests for restructuring,
• delinquent tax payments,
• late payments,
• loan-to-value or debt service coverage deficiencies, and
• overall vacancy levels.

The carrying value of current and potential problem mortgage loans, consisting of restructured mortgage loans, was $10 million at December 31, 1999 and 1998. There were no problem commercial mortgage loans in process of foreclosure, in default or in actively managed properties.

The AVR contains a mortgage loan component, which totaled $7 million at December 31, 1999. In addition, at December 31, 1999, we held other investment reserves on commercial mortgage loans of $2 million. See "Investment Reserves".

The following tables set forth current and potential problem mortgage loans by property type and geographic region as of December 31, 1999:

Commercial Mortgage Loan Distribution
by Property Type

Commercial Mortgage Loan Distribution
by Geographic Region

Investment Reserves

When we determine that it is probable that the net realizable value of an invested asset is less than our carrying value, we establish and record appropriate write-downs or investment reserves in accordance with statutory practice.

We determine the net realizable value of bonds in accordance with principles established by the SVO using criteria such as:

• the net worth and capital structure of the borrower,
• the value of the collateral,
• the presence of additional credit support, and
• our evaluation of the borrower's ability to compete in a relevant market.

In the case of real estate and commercial mortgage loans, we make borrower and property-specific assessments as well.

In compliance with regulatory requirements, we maintain the AVR. The AVR stabilizes surplus against non-interest rate related fluctuations in the value of stocks and bonds. We maintain general investment reserves ("GIR") which are not mandated by regulation, in anticipation of future losses on specific mortgage loans, particularly mortgage loans in the process of foreclosure.

Our total investment reserves at December 31, 1999, were $23 million, a 4% decrease from December 31, 1998, consisting of AVR of $21 million and GIR of $2 million.

The following table presents the change in total investment reserves for the years 1999 and 1998:

(2)

Amounts represent contributions calculated on a statutory formula and other amounts we deem necessary. The statutory formula provides for maximums that when exceeded cause a negative contribution. Additionally, these amounts represent the net impact on shareholder’s equity for investment gains and losses not related to changes in interest rates.

(3)

These amounts offset realized capital gains (losses), net of tax, that have been recorded as a component of net income. Amounts include realized capital gains and losses, net of tax, on sales not related to interest fluctuations, such as repayments of mortgage loans at a discount and mortgage loan foreclosures.

(4)

These amounts offset unrealized capital gains (losses), recorded as a change in shareholder’s equity. Amounts include unrealized losses due to market value reductions of securities with a NAIC quality rating of 6 and net changes in the unrealized capital gains and losses from affiliated mutual funds.

(5)	Amounts represent the reserve contribution (note 2) less amounts already recorded (notes 3 and 4). This net change in reserves is recorded as a change in shareholder’s equity.

We developed the following discussion of our risk-management activities using "forward-looking statements" that are based on estimates and assumptions. While we believe that the assumptions we have made are reasonably possible in the near term, actual results could differ materially from those projected in the forward-looking statements. In addition, we would likely take certain actions to mitigate the impacts of the assumed market changes, thereby reducing the negative impact discussed below.

We have excluded all non-guaranteed separate account assets and liabilities from the following discussion since all market risks associated with those accounts are not borne, by us, rather they are assumed by the contract holders.

Our assets, such as bonds, mortgage loans, policy loans and derivatives are financial instruments and are subject to the risk of market volatility and potential market disruptions. These risks may reduce the value of our financial instruments, or impact future cash flows and earnings from those instruments. We do not hold any financial instruments for the purposes of trading.

Our primary market risk exposure is changes in interest rates, which can cause changes in the fair value, cash flows, and earnings of certain financial instruments. To manage our exposure to interest rate changes we use sophisticated quantitative asset/liability management techniques. Asset/liability management allows us to match the market sensitivity of assets with the liabilities they support. If these sensitivities are matched perfectly, the impact of interest rate changes is effectively offset on an economic basis as the change in value of the asset is offset by a corresponding change in the value of the supported liability. In addition, we invest a significant portion of our investment funds in high quality bonds in order to maintain and manage liquidity and reduce the risk of default in the portfolio.

Based upon the information and assumptions we used in our asset/liability analysis as of December 31, 1999, we estimate that a hypothetical immediate 10% increase in interest rates would decrease the net fair value of our financial instruments by $21 million. A change in interest rates of 10% would not have a material impact on our future earnings or cash flows. A significant portion of our liabilities, e.g., insurance policy and claim reserves, are not considered financial instruments and are excluded from the above analysis. Because of our asset/liability management, a corresponding change in the fair values of these liabilities, based on the present value of estimated cash flows, would significantly offset the net decrease in fair value estimated above.

We also use derivative financial instruments to manage our market risks, primarily to reduce interest rate and duration imbalances determined in asset/liability analyses. We do 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 our exposure. 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.

We utilize interest rate swap agreements, options, and purchased caps and floors to reduce interest rate exposures arising from mismatches between assets and liabilities and to modify portfolio profiles to manage other risks identified. Under interest rate swaps, we agree to an exchange, at specified intervals, between streams of variable rate and fixed rate interest payments. The amount exchanged is calculated by reference to an agreed-upon notional principal amount. We had outstanding swaps with notional amounts of $227 million at December 31, 1999, and $198 million at December 31, 1998.

Options grant us the right to buy or sell a security or enter into a derivative transaction at a stated price within a stated period. Our option contracts have terms of up to ten years. We had option contracts with notional

amounts of $945 million at December 31, 1999, and $961 million at December 31, 1998. Our credit risk exposure was limited to the unamortized costs of $7 million at December 31, 1999, and $8 million at December 31, 1998.