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Understanding your choicesA look at asset allocation for VUL IIIVariable Universal Life Insurance
An Educational Guidefor Consumers
Investment Strategies
When it comes to investing, each individual has unique goals,tolerance for risk and time horizons. To be successful, you mustadhere to time-tested principles and stay true to the uniquecharacteristics that you want your portfolio to exhibit.
Contents2 | Asset allocation
3 | Diversification
4 | Risk tolerance questionnaire
10 | Model portfolios
12 | Dollar Cost Averaging
13 | Portfolio Rebalancing
14 | Directed Monthly Deduction Program
Pocket | Investment choices and asset allocation worksheets
VARIABLE UNIVERSAL LIFE INSURANCE IS: NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION • NOT FDIC- OR NCUA-INSURED •NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY ANY BANK OR CREDIT UNION • MAY GO DOWN IN VALUE
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This guide to asset allocation is designed to help you gaugewhat type of investor you are so that you can select the rightcombination of investments to meet your goals based on yourtolerance for risk and time horizon. The included questionnairewill help you answer some key questions:
• How aggressively do you want to pursueinvestment growth?
• How willing are you to tolerate the market’sups and downs?
• How much time do you have to let your investment grow?
But before we learn about you, let’s discuss the time-testedprinciples of investing – asset allocation and diversification –and the critical role they play in your investment strategy.
The decision to purchase life insurance should be based on long term financial goals and the need for a death benefit. Life insurance is not an appropriatevehicle for short-term savings or short-term investment strategies. Early surrender charges apply for the first nine years of the policy. Those charges maydecrease the value of the policy substantially depending on how early the policy, or any portion of it, is surrendered or accessed. While the policy allows foraccess to the cash value in the short term, through loans and withdrawals, there are costs and risks associated with those transactions. You should know thatthere may be little to no cash value available for loans and withdrawals in the policy’s early years. Additionally, unless required by law, you generally can notreinstate a variable life insurance policy once it’s surrendered.
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Why is asset allocation important?
Asset allocation is among your most important investment
decisions. Asset allocation is the process of selecting and
combining asset classes such as stocks, bonds and cash in
varying percentages within a portfolio in order to help you
meet your investment goals. Successful investing is most
often achieved through a disciplined asset allocation strategy.
In fact, research shows that it’s the asset allocation decision
that accounts for nearly 92% of the variation between returns
on different investment portfolios.Asset classes
Stock-based investments (equities)
International stocks(Stocks of companies located throughout the world)
• Developed markets
• Emerging markets
Value stocks(Stocks of attractively priced companies, such as thosewith low price/earnings and price/book ratios)
• Small company
• Mid-size company
• Large company
Growth stocks(Stocks of companies with strong prospects for growthin earnings)
• Small company
• Mid-size company
• Large company
Bond-based investments (fixed income)
• Government bonds • Corporate bonds
• High-yield bonds • Foreign bonds
• Asset-backed bonds • High-quality bonds
Cash
• Money market instruments
Asset allocation
Source: Based on the study by Gary P. Brinson, Randolph L. Hood, andGilbert L. Beebower, “Determinants of Portfolio Performance II,” FinancialAnalysts Journal, May/June 1991. The study analyzed data from 82 largecorporate pension plans with assets of at least $100 million over a 10-yearperiod beginning in 1977 and concluded that asset allocation policyexplained on average 91.5% of variation in total plan return. This is themost recent study available on the topic.
91.5%
8.5%
Market timingand securityselection
Assetallocation
What is an asset class?
An asset class is simply a type of investment. Examples of
basic asset classes are stock-based investments (also known
as “equities”), bond-based investments (also known as “fixed
income”), and cash (a commonly used term for money market
investments). The universe of stock and bond asset classes
includes many variations.
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Why diversify variable life insurance investments?
When planning your asset allocation strategy, it is important
to remember that these are life insurance products. Unless
you purchase a no-lapse guarantee and maintain the required
premium level, your policy must have enough value to cover
policy charges in order to remain in force. Fluctuations in
underlying fund investment performance can have an effect
on the charges associated with the life insurance components
of your policy, and in turn, on your overall account value.
Variable universal life insurance policies perform most
efficiently when there is a smooth accumulation of values
over time, rather than a highly volatile investment earnings
pattern. What can you do to help smooth some of the sharp
ups and downs in investment performance? Diversify.
You can’t predict which investments will perform well or
poorly. Diversification – spreading your assets among a
variety of investments – can help reduce the impact on your
overall portfolio if a single investment option performs
poorly. The idea is that different asset classes, such as stocks,
bonds and cash, respond in a variety of ways to changes in
the investment markets and the economy. By investing in a
diverse collection of assets, a decline in one asset class may
be offset by other asset classes that are unchanged or rising.
How does diversification work?
Here is a simplified hypothetical example: if stocks of large
U.S. companies are down 10% one year, an investor who only
owns those types of stocks would experience a 10% decline in
his or her portfolio’s value. What if the same investor added
international stocks to the mix, creating a portfolio composed
of 50% large company U.S. stocks and 50% international
stocks? Assuming the international stocks were up 15% that
year, the investor would have a far smoother ride, realizing a
2.5% increase in his or her portfolio that year.
In addition, including fixed income based investments in a
portfolio often makes sense for all but the most aggressive
portfolios. Bonds are generally less volatile than stocks and
can help to reduce the overall volatility of a portfolio.
However, it should be understood that diversification does not
assure a profit or protect against loss in a declining market.
This example is for illustration purposes only and is not meant to imply theperformance of any particular investment strategy.
1 There are special risks associated with international investing, such aspolitical changes and currency fluctuations. These risks are heightened in emerging markets.
Impact on two hypothetical investment portfolios
-10%-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%
Portfolio A100% large company
U.S. stocks
Portfolio B50% large company U.S stocks
50% international stocks1
2.5%
-10%
Port
folio
ann
ual r
etur
n
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To assist you with the process of asset allocation, we have provided you
with this risk tolerance questionnaire. Complete this questionnaire to help
determine how you want to invest your assets. Make sure to discuss the results
with your registered representative.
After you have completed the questionnaire, you will be assigned a risk
tolerance level. For each level, there is a model portfolio that may help you
to diversify your investments with the right amount of risk.
As the policy owner and investor, you are ultimately responsible for allocating
your net premium payments among the investment choices offered in your
variable universal life policy. You may find one of the model portfolios on the
following pages to be a good starting point from which to select your life
insurance policy’s investment choices.
Each of the model portfolios was developed to help meet the needs of
policyowners with varying objectives and tolerance for risk. However,
these are examples only and your individual situation should dictate
your investment choices.
Risk tolerance questionnaire
Models were developed by
Kanon Bloch Carré (KBC).
KBC develops diversified portfolio
models that seek consistently
strong returns while mitigating
risk through effective asset
allocation and diversification.
Their emphasis on downside risk
analysis differentiates their
research in this field.
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To find out what level of risk may be right for you, complete the following
questionnaire. The questions are designed to help match an investor to the
most appropriate life product asset allocation model based on information
concerning an individual’s time horizon and risk tolerance.
Circle the letter (a, b, c, d, or e) next to the answer that best fits your comfort level, then refer to thescoring information following thisquestionnaire to determine yourasset allocation model.
Questionnaire
Risk capacity
1. Your age:
a. Over 65
b. 60 to 65
c. 55 to 59
d. 50 to 54
e. Under 50
2. Within the next six years, how confident are you that you will
have sufficient liquidity to meet your ongoing expenses and any
predictable financial obligations (e.g., mortgages, college
expenses or dependent care services)?
a. not confident, unsure, or really don’t know
b. somewhat confident
c. confident
d. very confident
e. completely confident
Score
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3. Which statement best describes your experience investing in
equity markets?
a. I have not invested in stocks or mutual funds before or I am very
dissatisfied with my equity investing experience; I don’t understand
the prospectus at all; I am uncomfortable with stock market
invest ments; I don’t know what “risk vs. reward” means.
b. I have had a very limited investing experience or I am somewhat
dissatisfied with my past equity investing experience; I find the
prospectus confusing; I would prefer a more conservative investment
strategy; “risk vs. reward” makes me uncomfortable.
c. I have less than 10 years of experience investing in stocks or mutual
funds; I am comfortable making some equity investments but also
want some balance with fixed income; I understand “risk vs. reward”;
I am comfortable seeking growth with fixed income.
d. I have 10-15 years experience investing in stocks or mutual funds;
I carefully read the prospectus of any investment before investing,
I am comfortable making equity investments; I understand “risk vs.
reward”; I am comfortable seeking greater capital appreciation with
some fixed income.
e. I have more than 20 years of experience investing in stocks or mutual
funds; I often refer to a prospectus or research online for investment
details; I understand the idea of “risk vs. reward”; I am confident in
more aggressive investments.
Questionnaire continued
Score
Returns
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Risk attitude
4. Which best describes your attitude toward investing?
a. I cannot afford any possible loss of principal, and worry a lot about
market declines.
b. I prefer to have my entire portfolio invested in lower-risk equity
and fixed income assets, with less volatility and lower capital risk
(typically, with lower returns).
c. I like to have a broadly balanced portfolio consisting of high-,
medium-, and low-risk investments, in a well diversified mix
of asset classes.
d. I seek mostly investments with a likely potential for high growth,
with a minor stake in fixed income investments; I tolerate market
fluctuations without great concern.
e. I want higher returns, and will accept greater market volatility
(and possibly, major setbacks), to try to achieve that goal with
more aggressive investments.
5. Here are hypothetical returns for a $100,000 investment portfolio
over a five year investment period. Which characteristics do you
find most acceptable for both reward and risk?
Questionnaire continued
Score
Median annual return Best year Worst year
a. 5% 15% -5%
b. 6% 20% -10%
c. 7% 25% -15%
d. 8% 30% -25%
e. 9% 40% -30%
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6. Capital markets have always experienced significant price
swings (rising and falling value). Imagine that your investment
goal is five years away, but your well diversified portfolio
loses 20% of its value in a brief period. Which best describes
your reaction?
a. I would abandon that investment vehicle.
b. I would immediately switch to a more conservative strategy.
c. I would not wait until the year-end review before reorganizing
my portfolio.
d. I would wait to reassess my portfolio at year-end review before
making any major changes.
e. I would not alter my portfolio.
7. I would describe my current investing objectives/goals as:
a. very conservative, and worried about equity investments.
b. conservative, reducing exposure to market swings.
c. moderate (with growth and income), or a more
balanced strategy.
d. primarily growth-oriented.
e. somewhat aggressive.
Questionnaire continued
Score
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Scoring your answers
Your total score will determine the type of investor you are. Once you know
that, review the options available to you for suggestions on how to diversify
your variable universal life policy premium.
• For Questions 1-7, assign the following points to your answers:
a = 1 point, b = 2 points, c = 3 points, d = 4 points and e = 5 points.
• Total your score for all questions.
Interpreting your total score
7-10 points: You may have identified serious investment concerns and may
require additional investment information and/or financial education.
Variable universal life insurance may not be suitable for you.
11-15 points: Your profile confirms conservative positioning; alternately,
you might still have critical financial concerns, or have strong risk aversion
to the fluctuations of variable universal life insurance.
16-20 points: Your profile indicates you may be inclined toward a balanced
style of investing, with conservative attributes.
21-25 points: Your profile indicates you may be inclined toward a moderate
growth style of investing, with a fairly secure outlook.
26-30 points: Your profile indicates you may be seeking a portfolio with solid
capital appreciation potential and relatively more risk (a growth style of investing).
31-35 points: Your profile indicates you may be geared toward an aggressive
portfolio with strong capital appreciation potential and greater risk.
The results of this questionnaire are intended to help you identify the type
of investor you may be. Be sure to review the results with your registered
representative before investing. This questionnaire is not intended to provide
financial advice or to replace a personalized investment profile.
Questionnaire continued
Total
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Once you have determined the type of investor you are, you
can refer to the five risk tolerance models depicted below,
which offer suggested allocations of investment categories.
To determine your investment choices, you may refer to
the brochure Investment Choices and consult with your
registered representative to develop an investment profile
that is right for you.
Model portfolios
AggressiveModelThis model isdesigned forinvestors seekingmaximum capitalappreciation.
ConservativeModelThis model isdesigned forinvestors interestedin fixed income witha secondary focuson growth.
Balanced ModelThis model isdesigned forinvestors seekingequal participationin fixed incomeand equity sectors.
Moderate ModelThis model isdesigned forinvestors seekingbalanced growthwith significant allocation tofixed income.
Growth ModelThis model isdesigned forinvestors seekingcapital appreciationwith a minor fixedincome position.
Your score 11-15 16-20 21-25 26-30 31-35
International/Global 5% 9% 12% 17% 24%
Small/Mid CapGrowth 3% 7% 9% 16% 20%
Small/Mid CapValue 7% 10% 11% 16% 18%
Large Cap Growth 8% 13% 16% 19% 20%
Large Cap Value 7% 11% 12% 17% 18%
Fixed Income 70% 50% 40% 15% 0%
Total 100% 100% 100% 100% 100%
*These asset allocation models were constructed by Kanon Bloch Carré, but fund offerings available within these models have not been evaluated by KBC.Investment selection remains the responsibility of the policy owner and his/her registered representative.
Risk tolerance models*
Automatic features for long term investment strategiesOur variable universal life insurance portfolio offers three automatic features that make it easier tomaintain the investment mix you are comfortable with.
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Dollar Cost Averaging is a method that can take some of the
guesswork out of the timing of your investment decisions.
You select an investment choice, typically a choice with lower
risk, from which transfers will be made at selected intervals.
By transferring pre-determined dollar amounts at regular
intervals into investment choices you designate, you purchase
more units when prices are low than when prices are high.
A lower average cost per unit may be more achievable
through Dollar Cost Averaging than through a lump-sum
purchase of units or through non-level purchases of units.
Dollar Cost Averaging does not assure a profit or protect
against loss in a declining market, and involves continuous
investment in securities regardless of fluctuating prices.
You should consider your ability to continue investing
through periods of low price levels. There is no charge
for the Dollar Cost Averaging program. You may not elect
Dollar Cost Averaging and Portfolio Rebalancing at the
same time. MassMutual reserves the right to terminate,
suspend, or modify the Dollar Cost Averaging program
at any time without prior notification to policyholders.
Please see the appropriate product prospectus for
complete details.
Dollar Cost Averaging
A hypothetical example of Dollar Cost Averaging
If $6,000 was invested into an investment choice in
January when the price was $20 per unit, 300 units
would be purchased at an average price of $20 per unit
with an average cost of $20.
If the same $6,000 is invested over six months ($1,000
a month), the total investment is still $6,000. However,
due to the changing price per unit each month (see chart
below), in June there would be 311 units. The average
price per unit over the six months is $19.50 and the
average cost per unit is $19.29. When these numbers
are compared to the average price and cost of $20 for
the one payment of $6,000 in January, it is easy to see
the potential benefits of Dollar Cost Averaging.
Average price$117 ÷ 6 = $19.50 per unit
Average cost$6,000 ÷ 311 units = $19.29 per unit
Amount Unit UnitsMonth invested price purchased
January $1,000 $20 50.00
February $1,000 $21 47.62
March $1,000 $18 55.56
April $1,000 $17 58.82
May $1,000 $18 55.56
June $1,000 $23 43.48
Total $6,000 $117 311.04
A hypothetical example of Portfolio Rebalancing
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Portfolio Rebalancing is another automatic feature that
adjusts for the varying investment performance among your
investment choices. Rebalancing helps keep your account
value allocations in sync with your investment objectives.
As with any investment strategy, a key element of your
variable universal life policy is selecting investment choices
that correspond with your risk/return profile. Regardless of
what risk profile is right for you, the investment choices
you select may perform differently over time.
When this occurs, your original allocation strategy may be lost.
Your portfolio may have become riskier than you originally
planned for, or may be too conservative for your needs.
Portfolio Rebalancing automatically transfers account
values among your designated investment choices so you
maintain the asset allocation percentages you elected.
This is done according to a schedule you choose (annually,
semi-annually, quarterly or monthly). There is no charge
for Portfolio Rebalancing. You may not elect Dollar Cost
Averaging and Portfolio Rebalancing at the same time.
MassMutual reserves the right to terminate, suspend, or
modify the Portfolio Rebalancing program at any time.
A hypothetical example of Portfolio Rebalancing
• An asset allocation strategy based on a risk tolerance
may call for allocation of 50% in fixed income
investments (conservative) and 50% in equity
investments (higher risk).
• Let’s assume the account value is $2,000 initially,
with $1,000 invested in equities and $1,000 invested
in bonds.
• Over time, the equity portion of the portfolio may
grow faster than the bond portion.
• Assuming that the equities have grown to $1,650
and the bonds have grown to $1,100, the allocation
percentages are now 60% equity and 40% bond —
not the 50% equity/50% bond allocation originally
chosen.
• At this point, the current allocation percentages
are riskier than the original allocation strategy.
• Portfolio Rebalancing automatically transfers $275
from equities to bonds (according to the schedule
selected) so that the original allocation strategy
remains intact.
Portfolio Rebalancing
50% 50%
Bond $1,000
Equity $1,000
40% 60%
Bond $1,000
Equity $1,650
50% 50%
Bond $1,375
Equity $1,375
Original account value Over time After Portfolio Rebalancing
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The Directed Monthly Deduction Program (DMDP) lets
you designate which of your policy’s investment choices
you use to pay monthly policy charges. The investment
choices include a Guaranteed Principal Account and
investment options.
Electing DMDP can help build and maintain account value
in certain investment choices while using another specified
investment choice for monthly policy charges. It is
important to note that electing DMDP does not ensure
better performance from your investment choices, but does
give you more control over how monthly policy charges
are deducted.
How it works
The account value in a variable universal life policy resides
in Separate Account investment divisions (also known as
“investment options”) and/or the Guaranteed Principal
Account. When you pay premiums, you can allocate that
money among the variable investment options and the
Guaranteed Principal Account.
You pay monthly policy charges using your account value.
When DMDP is not elected, monthly policy charges are
proportionately deducted (“pro-rata”) from all of the
investment choices that hold account value. Electing
DMDP lets you use one investment choice to pay
monthly policy charges.
DMDP makes sense in situations when you elect an
investment choice that is less likely to experience
considerable shifts in value to pay monthly policy charges.
This type of investment choice, such as a money market
investment choice or a fixed interest account, typically has
low volatility. By using the account value in this type of
investment to pay your monthly policy charges, the account
value you hold in other investment choices can continue to
participate in the markets.
You can elect DMDP at any time during the life of your
policy. If you elect DMDP, you must select only one
investment option or the Guaranteed Principal Account from
which to pay monthly policy charges. There is no minimum
account value required in the investment choice you elect.
However, if the elected DMDP investment choice has
insufficient value to cover the monthly policy charges,
the charges will be deducted pro-rata from the remaining
investment choices with account value.
Directed Monthly Deduction Program
MassMutual. We’ll help you get there.SM
Why MassMutual?
MassMutual builds confidence among policyholders with outstanding financialperformance. Financial strength ratings are a key measure of a company’s abilityto meet its financial obligations to its policyholders, and MassMutual’s financialstrength ratings are among the highest of any company in any industry.
A.M. Best Company A++ (Superior)
Fitch Ratings AAA (Exceptionally Strong)
Moody’s Investors Service, Inc. Aa1 (Excellent)
Standard & Poor’s Corp. AAA (Extremely Strong)
This information is current as of November 1, 2008. Ratings are subject to change.Ratings apply to MassMutual and its subsidiaries C.M. Life Insurance Company and MML Bay State Life Insurance Company.Financial strength ratings do not apply to the separate account or the variable investment choices offered under the variable universal life insurance policy, nor do they imply any promise of investment performance.
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The asset allocation worksheets located in this pocket aredesigned to help you and your registered representative worktogether to further refine your investment strategy, now that you have read the MassMutual asset allocation guide andcompleted the risk tolerance questionnaire to help determine the type of investor you are. Next, complete the worksheet that best fits your investment results with your registeredrepresentative before purchasing a VUL insurance productoffered by MassMutual or any of its subsidiaries.
These worksheets are not meant to replace a thoroughinvestment profile and suitability analysis that your registeredrepresentative would complete with you. Additionally, they do not replace the appropriate MassMutual forms that arerequired to elect initial premium allocations at time of policyissue, request a change in allocation of future net premiums, or transfer policy values among investment choices. Please request forms through your registered representative or contact MassMutual:
MassMutual Customer Service CenterMonday through Friday, 8am-8pm Eastern Time:1-800-272-2216www.massmutual.com
Asset allocation worksheets and investment choices for VUL III
© 2008 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is amarketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.
LI4425 1008CRN201011-112024
The information provided is not written or intended as specific tax or legal advice and maynot be relied on for purposes of avoiding any federal tax penalties. MassMutual, itsemployees and representatives are not authorized to give tax or legal advice. Individualsare encouraged to seek advice from their own tax or legal counsel. Individuals involved inthe estate planning process should work with an estate planning team, including their ownpersonal tax or legal counsel.
VUL III variable universal life insurance is sold by prospectus. Before purchasinga variable life insurance policy, investors should carefully consider the investmentobjectives, risks, charges and expenses of the variable life insurance policy andits underlying investment choices. For this and other information, obtain the prospectuses for VUL III variable life insurance policy and its underlyinginvestment choices. Please read the prospectuses carefully before investing or sending money or recommending to a client.
Variable Universal Life III (VUL III) is variable universal life insurance. Policyform numbers are: P2-2008, ICC08-P2 and ICC08-P2X in certain states, includingNorth Carolina. The VUL III policy is issued by Massachusetts Mutual LifeInsurance Company, Springfield, MA 01111-0001.
MassMutual Financial Group is a marketing name for Massachusetts Mutual LifeInsurance Company (MassMutual) and its affiliated companies and sales representatives.
For investment performance results:www.massmutual.com (Select the “Product and Fund Performance” from the drop-down menu under the Products and Solutions tab.)— OR —1-800-272-2216 (24 hours/7 days a week)
Principal UnderwriterMML Distributors, LLC1295 State StreetSpringfield, MA 01111-0001
A wholly owned subsidiary of Massachusetts Mutual Life Insurance Company1295 State StreetSpringfield, MA 01111-0001
Securities offered through registered representatives of MML Investors Services, Inc.,Member SIPC, 1295 State Street, Springfield, MA 01111, or a broker-dealer that has aselling agreement with MML Distributors, LLC, Member SIPC.
Massachusetts Mutual Life Insurance Company and its affiliated insurance companieshave received certification from IMSA, an industry organization dedicated to promotingethical conduct in all customer contacts involving sales and service of individual lifeinsurance and annuity and long term care products.