ASSETS. ANNUAL STATEMENT FOR THE YEAR 2008 OF THE MML Bay State Life Insurance Company. 4 Net Admitted Assets. 3 Net Admitted Assets (Cols.

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2 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company ASSETS Assets Current Year Nonadmitted Assets Net Admitted Assets (Cols. - ) Prior Year Net Admitted Assets. Bonds (Schedule D). Stocks (Schedule D):. Preferred stocks. Common stocks. Mortgage loans on real estate (Schedule B):. First liens. Other than first liens. Real estate (Schedule A):. Properties occupied by the company (less $ encumbrances). Properties held for the production of income (less $ encumbrances). Properties held for sale (less $ encumbrances) 5. Cash ($, Schedule E - Part ), cash equivalents ($, Schedule E - Part ) and short-term investments ($, Schedule DA) 6. Contract loans (including $ premium notes) 7. Other invested assets (Schedule BA) 8. Receivables for securities 9. Aggregate write-ins for invested assets 0. Subtotals, cash and invested assets (Lines to 9). Title plants less $ charged off (for Title insurers only). Investment income due and accrued. Premiums and considerations:. Uncollected premiums and agents' balances in the course of collection. Deferred premiums and agents' balances and installments booked but deferred and not yet due (including $ earned but unbilled premiums). Accrued retrospective premiums. Reinsurance:. Amounts recoverable from reinsurers. Funds held by or deposited with reinsured companies. Other amounts receivable under reinsurance contracts 5. Amounts receivable relating to uninsured plans 6. Current federal and foreign income tax recoverable and interest thereon 6. Net deferred tax asset 7. Guaranty funds receivable or on deposit 8. Electronic data processing equipment and software 9. Furniture and equipment, including health care delivery assets ($ ) 0. Net adjustment in assets and liabilities due to foreign exchange rates. Receivables from parent, subsidiaries and affiliates. Health care ($ ) and other amounts receivable. Aggregate write-ins for other than invested assets. Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 0 to ) 5. From Separate Accounts, Segregated Accounts and Protected Cell Accounts 6. Total (Lines and 5) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 9 from overflow page Totals (Lines 090 thru 090 plus 0998)(Line 9 above) Summary of remaining write-ins for Line from overflow page 99. Totals (Lines 0 thru 0 plus 98)(Line above)

3 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company LIABILITIES, SURPLUS AND OTHER FUNDS Prior Year Current Year. Aggregate reserve for life contracts $ (Exh. 5, Line ) less $ included in Line 6. (including $ Modco Reserve). Aggregate reserve for accident and health contracts (Exhibit 6, Line 7, Col. ) (including $ Modco Reserve). Liability for deposit-type contracts (Exhibit 7, Line, Col. ) (including $ Modco Reserve). Contract claims:. Life (Exhibit 8, Part, Line., Col. less sum of Cols. 9, 0 and ). Accident and health (Exhibit 8, Part, Line., sum of Cols. 9, 0 and ) 5. Policyholders dividends $ and coupons $ due and unpaid (Exhibit, Line 0) 6. Provision for policyholders dividends and coupons payable in following calendar year - estimated amounts: 6. Dividends apportioned for payment (including $ Modco) 6. Dividends not yet apportioned (including $ Modco) 6. Coupons and similar benefits (including $ Modco) 7. Amount provisionally held for deferred dividend policies not included in Line 6 8. Premiums and annuity considerations for life and accident and health contracts received in advance less $ discount; including $ accident and health premiums (Exhibit, Part, Col., sum of lines and ) 9. Contract liabilities not included elsewhere: 9. Surrender values on canceled contracts 9. Provision for experience rating refunds, including $ accident and health experience rating refunds 9. Other amounts payable on reinsurance including $ assumed and $ ceded 9. Interest maintenance reserve (IMR, Line 6) 0. Commissions to agents due or accrued-life and annuity contracts $ accident and health $ and deposit-type contract funds $. Commissions and expense allowances payable on reinsurance assumed. General expenses due or accrued (Exhibit, Line, Col. 6). Transfers to Separate Accounts due or accrued (net) (including $ accrued for expense allowances recognized in reserves, net of reinsured allowances). Taxes, licenses and fees due or accrued, excluding federal income taxes (Exhibit, Line 9, Col. 5) 5. Current federal and foreign income taxes including $ on realized capital gains (losses) 5. Net deferred tax liability 6. Unearned investment income 7. Amounts withheld or retained by company as agent or trustee 8. Amounts held for agents'account, including $ agents'credit balances 9. Remittances and items not allocated 0. Net adjustment in assets and liabilities due to foreign exchange rates. Liability for benefits for employees and agents if not included above. Borrowed money $ and interest thereon $. Dividends to stockholders declared and unpaid. Miscellaneous liabilities:. Asset valuation reserve (AVR, Line 6, Col. 7). Reinsurance in unauthorized companies. Funds held under reinsurance treaties with unauthorized reinsurers. Payable to parent, subsidiaries and affiliates.5 Drafts outstanding.6 Liability for amounts held under uninsured plans.7 Funds held under coinsurance.8 Payable for securities.9 Capital notes $ and interest thereon $ 5. Aggregate write-ins for liabilities 6. Total Liabilities excluding Separate Accounts business (Lines to 5) 7. From Separate Accounts Statement 8. Total Liabilities (Lines 6 and 7) 9. Common capital stock 0. Preferred capital stock. Aggregate write-ins for other than special surplus funds. Surplus notes. Gross paid in and contributed surplus (Page, Line, Col. plus Page, Line 5., Col. ). Aggregate write-ins for special surplus funds 5. Unassigned funds (surplus) 6. Less treasury stock, at cost: 6. shares common (value included in Line 9 $ ) 6. shares preferred (value included in Line 0 $ ) 7. Surplus (Total Lines ) (including $ in Separate Accounts Statement) 8. Totals of Lines 9, 0 and 7 (Page, Line 55) 9. Totals of Lines 8 and 8 (Page, Line 6, Col. ) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 5 from overflow page 599. Totals (Lines 50 thru 50 plus 598)(Line 5 above) Summary of remaining write-ins for Line from overflow page 99. Totals (Lines 0 thru 0 plus 98)(Line above) Summary of remaining write-ins for Line from overflow page 99. Totals (Lines 0 thru 0 plus 98)(Line above)

4 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company SUMMARY OF OPERATIONS Prior Year Current Year. Premiums and annuity considerations for life and accident and health contracts (Exhibit, Part, Line 0., Col., less Col. ). Considerations for supplementary contracts with life contingencies. Net investment income (Exhibit of Net Investment Income, Line 7). Amortization of interest maintenance reserve (IMR, Line 5) 5. Separate Accounts net gain from operations excluding unrealized gains or losses 6. Commissions and expense allowances on reinsurance ceded (Exhibit, Part, Line 6., Col. ) 7. Reserve adjustments on reinsurance ceded 8. Miscellaneous Income: 8. Income from fees associated with investment management, administration and contract guarantees from Separate Accounts 8. Charges and fees for deposit-type contracts 8. Aggregate write-ins for miscellaneous income 9. Total (Lines to 8.) 0. Death benefits. Matured endowments (excluding guaranteed annual pure endowments). Annuity benefits (Exhibit 8, Part, Line 6., Cols. + 8). Disability benefits and benefits under accident and health contracts. Coupons, guaranteed annual pure endowments and similar benefits 5. Surrender benefits and withdrawals for life contracts 6. Group conversions 7. Interest and adjustments on contract or deposit-type contract funds 8. Payments on supplementary contracts with life contingencies 9. Increase in aggregate reserves for life and accident and health contracts 0. Totals (Lines 0 to 9). Commissions on premiums, annuity considerations, and deposit-type contract funds (direct business only) (Exhibit, Part, Line, Col. ). Commissions and expense allowances on reinsurance assumed (Exhibit, Part, Line 6., Col. ). General insurance expenses (Exhibit, Line 0, Cols.,, and ). Insurance taxes, licenses and fees, excluding federal income taxes (Exhibit, Line 7, Cols. + + ) 5. Increase in loading on deferred and uncollected premiums 6. Net transfers to or (from) Separate Accounts net of reinsurance 7. Aggregate write-ins for deductions 8. Totals (Lines 0 to 7) 9. Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 8) 0. Dividends to policyholders. Net gain from operations after dividends to policyholders and before federal income taxes (Line 9 minus Line 0). Federal and foreign income taxes incurred (excluding tax on capital gains). Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) (Line minus Line ). Net realized capital gains (losses) (excluding gains (losses) transferred to the IMR) less capital gains tax of $ (excluding taxes of $ transferred to the IMR) 5. Net income (Line plus Line ) CAPITAL AND SURPLUS ACCOUNT 6. Capital and surplus, December, prior year (Page, Line 8, Col. ) 7. Net income (Line 5) 8. Change in net unrealized capital gains (losses) less capital gains tax of $ 9. Change in net unrealized foreign exchange capital gain (loss) 0. Change in net deferred income tax. Change in nonadmitted assets. Change in liability for reinsurance in unauthorized companies. Change in reserve on account of change in valuation basis, (increase) or decrease (Exh. 5A, Line , Col. ). Change in asset valuation reserve 5. Change in treasury stock (Page, Lines 6. and 6., Col. minus Col. ) 6. Surplus (contributed to) withdrawn from Separate Accounts during period 7. Other changes in surplus in Separate Accounts Statement 8. Change in surplus notes 9. Cumulative effect of changes in accounting principles 50. Capital changes: 50. Paid in 50. Transferred from surplus (Stock Dividend) 50. Transferred to surplus 5. Surplus adjustment: 5. Paid in 5. Transferred to capital (Stock Dividend) 5. Transferred from capital 5. Change in surplus as a result of reinsurance 5. Dividends to stockholders 5. Aggregate write-ins for gains and losses in surplus 5. Net change in capital and surplus for the year (Lines 7 through 5) 55. Capital and surplus, December, current year (Lines 6 + 5) (Page, Line 8) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 8. from overflow page Totals (Lines 08.0 thru 08.0 plus 08.98)(Line 8. above) 70.!" Summary of remaining write-ins for Line 7 from overflow page 799. Totals (Lines 70 thru 70 plus 798)(Line 7 above) 50. #! " Summary of remaining write-ins for Line 5 from overflow page 599. Totals (Lines 50 thru 50 plus 598)(Line 5 above)

5 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company CASH FLOW Current Year Prior Year Cash from Operations. Premiums collected net of reinsurance. Net investment income. Miscellaneous income. Total (Lines through ) 5. Benefit and loss related payments 6. Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts 7. Commissions, expenses paid and aggregate write-ins for deductions 8. Dividends paid to policyholders 9. Federal and foreign income taxes paid (recovered) net of $ tax on capital gains (losses) 0. Total (Lines 5 through 9). Net cash from operations (Line minus Line 0) Cash from Investments. Proceeds from investments sold, matured or repaid:. Bonds. Stocks. Mortgage loans. Real estate.5 Other invested assets.6 Net gains or (losses) on cash, cash equivalents and short-term investments.7 Miscellaneous proceeds.8 Total investment proceeds (Lines. to.7). Cost of investments acquired (long-term only):. Bonds. Stocks. Mortgage loans. Real estate.5 Other invested assets.6 Miscellaneous applications.7 Total investments acquired (Lines. to.6). Net increase (decrease) in contract loans and premium notes 5. Net cash from investments (Line.8 minus Line.7 minus Line ) Cash from Financing and Miscellaneous Sources 6. Cash provided (applied): 6. Surplus notes, capital notes 6. Capital and paid in surplus, less treasury stock 6. Borrowed funds 6. Net deposits on deposit-type contracts and other insurance liabilities 6.5 Dividends to stockholders 6.6 Other cash provided (applied) 7. Net cash from financing and miscellaneous sources (Lines 6. to 6. minus Line 6.5 plus Line 6.6) RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 8. Net change in cash, cash equivalents and short-term investments (Line, plus Lines 5 and 7) 9. Cash, cash equivalents and short-term investments: 9. Beginning of year 9. End of year (Line 8 plus Line 9.) Note: Supplemental disclosures of cash flow information for non-cash transactions: !" 5

6 6 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company ANALYSIS OF OPERATIONS BY LINES OF BUSINESS Ordinary 6 Group Accident and Health Aggregate of All Total Industrial Life Life Insurance Individual Annuities Supplementary Contracts Credit Life (Group and Individual) Life Insurance (a) Annuities Group Credit (Group and Individual) Other Other Lines of Business. Premiums and annuity considerations for life and accident and health contracts. Considerations for supplementary contracts with life contingencies. Net investment income. Amortization of Interest Maintenance Reserve (IMR) 5. Separate Accounts net gain from operations excluding unrealized gains or losses 6. Commissions and expense allowances on reinsurance ceded 7. Reserve adjustments on reinsurance ceded 8. Miscellaneous Income: 8. Fees associated with income from investment management, administration and contract guarantees from Separate Accounts 8. Charges and fees for deposit-type contracts 8. Aggregate write-ins for miscellaneous income 9. Totals (Lines to 8.) 0. Death benefits. Matured endowments (excluding guaranteed annual pure endowments). Annuity benefits. Disability benefits and benefits under accident and health contracts. Coupons, guaranteed annual pure endowments and similar benefits 5. Surrender benefits and withdrawals for life contracts 6. Group conversions 7. Interest and adjustments on contract or deposit-type contract funds 8. Payments on supplementary contracts with life contingencies 9. Increase in aggregate reserves for life and accident and health contracts 0. Totals (Lines 0 to 9). Commissions on premiums, annuity considerations and deposit-type contract funds (direct business only). Commissions and expense allowances on reinsurance assumed. General insurance expenses. Insurance taxes, licenses and fees, excluding federal income taxes 5. Increase in loading on deferred and uncollected premiums 6. Net transfers to or (from) Separate Accounts net of reinsurance 7. Aggregate write-ins for deductions 8. Totals (Lines 0 to 7) 9. Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 8) 0. Dividends to policyholders. Net gain from operations after dividends to policyholders and before federal income taxes (Line 9 minus Line 0). Federal income taxes incurred (excluding tax on capital gains). Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) (Line minus Line ) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 8. from overflow page Totals (Lines 08.0 thru 08.0 plus 08.98) (Line 8. above) 70.!" Summary of remaining write-ins for Line 7 from overflow page 799. Totals (Lines 70 thru 70 plus 798) (Line 7 above) (a) Includes the following amounts for FEGLI/SGLI: Line, Line 0, Line 6, Line, Line

7 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company ANALYSIS OF INCREASE IN RESERVES DURING THE YEAR Ordinary 6 Group 5 7 Total Industrial Life Life Insurance Individual Annuities Supplementary Contracts Credit Life (Group and Individual) Life Insurance 8 Annuities Involving Life or Disability Contingencies (Reserves) (Net of Reinsurance Ceded). Reserve December, prior year. Tabular net premiums or considerations. Present value of disability claims incurred XXX. Tabular interest 5. Tabular less actual reserve released 7 6. Increase in reserve on account of change in valuation basis 7. Other increases (net) 8. Totals (Lines to 7) 9. Tabular cost XXX 0. Reserves released by death XXX XXX XXX. Reserves released by other terminations (net). Annuity, supplementary contract and disability payments involving life contingencies. Net transfers to or (from) Separate Accounts. Total Deductions (Lines 9 to ) 5. Reserve December, current year

8 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT OF NET INVESTMENT INCOME Collected During Year Earned During Year. U.S. Government bonds (a). Bonds exempt from U.S. tax (a). Other bonds (unaffiliated) (a). Bonds of affiliates (a). Preferred stocks (unaffiliated) (b). Preferred stocks of affiliates (b). Common stocks (unaffiliated). Common stocks of affiliates. Mortgage loans (c). Real estate (d) 5 Contract loans 6 Cash, cash equivalents and short-term investments (e) 7 Derivative instruments (f) 8. Other invested assets 9. Aggregate write-ins for investment income 0. Total gross investment income. Investment expenses (g). Investment taxes, licenses and fees, excluding federal income taxes (g). Interest expense (h). Depreciation on real estate and other invested assets (i) 5. Aggregate write-ins for deductions from investment income 6. Total deductions (Lines through 5) 7. Net investment income (Line 0 minus Line 6) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 9 from overflow page Totals (Lines 090 thru 090 plus 0998) (Line 9, above) Summary of remaining write-ins for Line 5 from overflow page 599. Totals (Lines 50 thru 50 plus 598) (Line 5, above) (a) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases. (b) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued dividends on purchases. (c) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases. (d) Includes $ for company s occupancy of its own buildings; and excludes $ interest on encumbrances. (e) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases. (f) Includes $ accrual of discount less $ amortization of premium. (g) Includes $. investment expenses and $ investment taxes, licenses and fees, excluding federal income taxes, attributable to segregated and Separate Accounts. (h) Includes $ interest on surplus notes and $ interest on capital notes. (i) Includes $ depreciation on real estate and $ depreciation on other invested assets. EXHIBIT OF CAPITAL GAINS (LOSSES) 5 Total Realized Capital Gain (Loss) (Columns + ) Change in Unrealized Capital Gain (Loss) Change in Unrealized Foreign Exchange Capital Gain (Loss) Realized Gain (Loss) On Sales or Maturity Other Realized Adjustments. U.S. Government bonds. Bonds exempt from U.S. tax. Other bonds (unaffiliated). Bonds of affiliates. Preferred stocks (unaffiliated). Preferred stocks of affiliates. Common stocks (unaffiliated). Common stocks of affiliates. Mortgage loans. Real estate 5. Contract loans 6. Cash, cash equivalents and short-term investments 7. Derivative instruments 8. Other invested assets 9. Aggregate write-ins for capital gains (losses) 0. Total capital gains (losses) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 9 from overflow page Totals (Lines 090 thru 090 plus 0998) (Line 9, above) 8

9 9 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT - PART - PREMIUMS AND ANNUITY CONSIDERATIONS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTS Ordinary 5 Group Accident and Health Aggregate of All Total Industrial Life Life Insurance Individual Annuities Credit Life (Group and Individual) Life Insurance Annuities Group Credit (Group and Individual) Other Other Lines of Business FIRST YEAR (other than single). Uncollected. Deferred and accrued. Deferred, accrued and uncollected:. Direct. Reinsurance assumed. Reinsurance ceded. Net (Line + Line ). Advance 5. Line. - Line 6. Collected during year: 6. Direct 6. Reinsurance assumed 6. Reinsurance ceded 6. Net 7. Line 5 + Line Prior year (uncollected + deferred and accrued - advance) 9. First year premiums and considerations: 9. Direct 9. Reinsurance assumed 9. Reinsurance ceded 9. Net (Line 7 - Line 8) SINGLE 0. Single premiums and considerations: 0. Direct 0. Reinsurance assumed 0. Reinsurance ceded 0. Net RENEWAL. Uncollected. Deferred and accrued. Deferred, accrued and uncollected:. Direct. Reinsurance assumed. Reinsurance ceded. Net (Line + Line ). Advance 5. Line. - Line 6. Collected during year: 6. Direct 6. Reinsurance assumed 6. Reinsurance ceded 6. Net 7. Line 5 + Line Prior year (uncollected + deferred and accrued - advance) 9. Renewal premiums and considerations: 9. Direct 9. Reinsurance assumed 9. Reinsurance ceded 9. Net (Line 7 - Line 8) TOTAL 0. Total premiums and annuity considerations: 0. Direct 0. Reinsurance assumed 0. Reinsurance ceded 0. Net (Lines )

10 0 DIVIDENDS AND COUPONS APPLIED (included in Part ) ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT - PART - DIVIDENDS AND COUPONS APPLIED, REINSURANCE COMMISSIONS AND EXPENSE ALLOWANCES AND COMMISSIONS INCURRED (Direct Business Only) Ordinary 5 Group Accident and Health Total Industrial Life Life Insurance Individual Annuities Credit Life (Group and Individual) Life Insurance Annuities Group Credit (Group and Individual) Other Aggregate of All Other Lines of Business. To pay renewal premiums. All other REINSURANCE COMMISSIONS AND EXPENSE ALLOWANCES INCURRED. First year (other than single):. Reinsurance ceded. Reinsurance assumed. Net ceded less assumed. Single:. Reinsurance ceded. Reinsurance assumed. Net ceded less assumed 5. Renewal: 5. Reinsurance ceded 5. Reinsurance assumed 5. Net ceded less assumed 6. Totals: 6. Reinsurance ceded (Page 6, Line 6) 6. Reinsurance assumed (Page 6, Line ) 6. Net ceded less assumed COMMISSIONS INCURRED (direct business only) 7. First year (other than single) 8. Single 9. Renewal 0. Deposit-type contract funds. Totals (to agree with Page 6, Line )

11 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT - GENERAL EXPENSES Insurance 5 6 Accident and Health Life Cost Containment All Other All Other Lines of Business Investment Total. Rent. Salaries and wages. Contributions for benefit plans for employees. Contributions for benefit plans for agents. Payments to employees under non-funded benefit plans. Payments to agents under non-funded benefit plans. Other employee welfare. Other agent welfare. Legal fees and expenses. Medical examination fees. Inspection report fees. Fees of public accountants and consulting actuaries.5 Expense of investigation and settlement of policy claims 5. Traveling expenses 5. Advertising 5. Postage, express, telegraph and telephone 5. Printing and stationery 5.5 Cost or depreciation of furniture and equipment 5.6 Rental of equipment 5.7 Cost or depreciation of EDP equipment and software 6. Books and periodicals 6. Bureau and association fees 6. Insurance, except on real estate 6. Miscellaneous losses 6.5 Collection and bank service charges 6.6 Sundry general expenses 6.7 Group service and administration fees 6.8 Reimbursements by uninsured plans 7. Agency expense allowance 7. Agents balances charged off (less $ recovered) 7. Agency conferences other than local meetings 9. Real estate expenses 9. Investment expenses not included elsewhere 9. Aggregate write-ins for expenses 0. General expenses incurred (a). General expenses unpaid December, prior year. General expenses unpaid December, current year. Amounts receivable relating to uninsured plans, prior year. Amounts receivable relating to uninsured plans, current year 5. General expenses paid during year (Lines 0+--+) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 9. from overflow page Totals (Lines 09.0 thru 09.0 plus 09.98) (Line 9. above) (a) Includes management fees of $ to affiliates and $ to non-affiliates. EXHIBIT - TAXES, LICENSES AND FEES (EXCLUDING FEDERAL INCOME TAXES) Insurance 5 Life Accident and Health All Other Lines of Business Investment Total. Real estate taxes. State insurance department licenses and fees. State taxes on premiums. Other state taxes, including $ for employee benefits 5. U.S. Social Security taxes 6. All other taxes 7. Taxes, licenses and fees incurred 8. Taxes, licenses and fees unpaid December, prior year 9. Taxes, licenses and fees unpaid December, current year 0. Taxes, licenses and fees paid during year (Lines ) EXHIBIT - DIVIDENDS OR REFUNDS. Applied to pay renewal premiums. Applied to shorten the endowment or premium-paying period. Applied to provide paid-up additions. Applied to provide paid-up annuities 5. Total Lines through 6. Paid in cash 7. Left on deposit 8. Aggregate write-ins for dividend or refund options 9. Total Lines 5 through 8 0. Amount due and unpaid NONE. Provision for dividends or refunds payable in the following calendar year. Terminal dividends. Provision for deferred dividend contracts. Amount provisionally held for deferred dividend contracts not included in Line 5. Total Lines 0 through 6. Total from prior year 7. Total dividends or refunds (Lines ) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 8 from overflow page Totals (Lines 080 thru 080 plus 0898) (Line 8 above) Life Accident and Health

12 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT 5 - AGGREGATE RESERVE FOR LIFE CONTRACTS Valuation Standard Total Industrial Ordinary 5 Credit (Group and Individual) 6 Group Totals (Gross) Reinsurance ceded Life Insurance: Totals (Net) !"#$! XXX XXX % XXX XXX Totals (Gross) XXX XXX Reinsurance ceded XXX XXX Annuities: Totals (Net) XXX XXX Reinsurance ceded SCWLC: Totals (Net) &' &' Totals (Gross) Reinsurance ceded Accidental Death Benefits: Totals (Net) %!' %!' Totals (Gross) Reinsurance ceded Disability-Active Lives: Totals (Net) %! Totals (Gross) Reinsurance ceded Disability-Disabled Lives: Totals (Net) ()*+, (-.* & - (, *./0* ( )) ()*- - (, Totals (Gross) Reinsurance ceded Miscellaneous Reserves: Totals (Net) Totals (Net) - Page, Line

13 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT 5 - INTERROGATORIES. Has the reporting entity ever issued both participating and non-participating contracts?. If not, state which kind is issued.. Does the reporting entity at present issue both participating and non-participating contracts?. If not, state which kind is issued.. Does the reporting entity at present issue or have in force contracts that contain non-guaranteed elements? If so, attach a statement that contains the determination procedures, answers to the interrogatories and an actuarial opinion as described in the instructions.. Has the reporting entity any assessment or stipulated premium contracts in force? If so, state:. Amount of insurance? $. Amount of reserve? $. Basis of reserve:. Basis of regular assessments:.5 Basis of special assessments:.6 Assessments collected during the year $ 5. If the contract loan interest rate guaranteed in any one or more of its currently issued contracts is less than 5%, not in advance, state the contract loan rate guarantees on any such contracts. 6. Does the reporting entity hold reserves for any annuity contracts that are less than the reserves that would be held on a standard basis? 6. If so, state the amount of reserve on such contracts on the basis actually held: $ 6. That would have been held (on an exact or approximate basis) using the actual ages of the annuitants; the interest rate(s) used in 6.; and the same mortality basis used by the reporting entity for the valuation of comparable annuity benefits issued to standard lives. If the reporting entity has no comparable annuity benefits for standard lives to be valued, the mortality basis shall be the table most recently approved by the state of domicile for valuing individual annuity benefits: $ Attach statement of methods employed in their valuation. 7. Does the reporting entity have any Synthetic GIC contracts or agreements in effect as of December of the current year? 7. If yes, state the total dollar amount of assets covered by these contracts or agreements $ 7. Specify the basis (fair value, amortized cost, etc.) for determining the amount: 7. State the amount of reserves established for this business: $ 7. Identify where the reserves are reported in the blank: EXHIBIT 5A - CHANGES IN BASES OF VALUATION DURING THE YEAR NONE Valuation Basis Increase in Actuarial Reserve Due to Description of Valuation Class Changed From Changed To Change Total (Column, only)

14 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company Exhibit 6 - Aggregate Reserves for Accident and Health Contracts N O N E

15 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT 7 - DEPOSIT TYPE CONTRACTS Total Guaranteed Interest Contracts Annuities Certain Supplemental Contracts 5 Dividend Accumulations or Refunds 6 Premium and Other Deposit Funds. Balance at the beginning of the year before reinsurance. Deposits received during the year. Investment earnings credited to the account. Other net change in reserves 5. Fees and other charges assessed 6. Surrender charges 7. Net surrender or withdrawal payments 8. Other net transfers to or (from) Separate Accounts 5 9. Balance at the end of current year before reinsurance (Lines ) 0. Reinsurance balance at the beginning of the year. Net change in reinsurance assumed. Net change in reinsurance ceded. Reinsurance balance at the end of the year (Lines 0+-). Net balance at the end of current year after reinsurance (Lines 9 + )

16 . Due and unpaid:. In course of settlement: ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT 8 - CLAIMS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTS PART - Liability End of Current Year Ordinary 6 Group Accident and Health Total Industrial Life Life Insurance Individual Annuities Supplementary Contracts Credit Life (Group and Individual) Life Insurance Annuities Group Credit (Group and Individual). Direct. Reinsurance assumed. Reinsurance ceded. Net. Resisted. Direct. Reinsurance assumed. Reinsurance ceded. Net (b) (b) (b) (b) Other 6. Other. Direct. Reinsurance assumed. Reinsurance ceded. Net (b) (b) (b) (b) (b) (b) (b). Incurred but unreported:. Direct. Reinsurance assumed. Reinsurance ceded. Net (b) (b) (b) (b) (b) (b) (b). TOTALS. Direct. Reinsurance assumed. Reinsurance ceded. Net (a) (a) (a) (a) Including matured endowments (but not guaranteed annual pure endowments) unpaid amounting to $ in Column, $ in Column and $ in Column 7. (b) Include only portion of disability and accident and health claim liabilities applicable to assumed "accrued" benefits. Reserves (including reinsurance assumed and net of reinsurance ceded) for unaccrued benefits for Ordinary Life Insurance $ Individual Annuities $, Credit Life (Group and Individual) $, and Group Life $, are included in Page, Line, (See Exhibit 5, Section on Disability Disabled Lives); and for Group Accident and Health $ Credit (Group and Individual) Accident and Health $, and Other Accident and Health $ are included in Page, Line (See Exhibit 6, Claim Reserve).

17 7 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT 8 - CLAIMS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTS PART - Incurred During the Year Ordinary 6 Group Accident and Health Total Industrial Life (a) Life Insurance (b) Individual Annuities Supplementary Contracts Credit Life (Group and Individual) Life Insurance (c) Annuities Group Credit (Group and Individual). Settlements During the Year:. Direct. Reinsurance assumed. Reinsurance ceded. Net (d). Liability December, current year from Part :. Direct. Reinsurance assumed. Reinsurance ceded. Net. Amounts recoverable from reinsurers December, current year. Liability December, prior year:. Direct. Reinsurance assumed. Reinsurance ceded. Net 5. Amounts recoverable from reinsurers December, prior year 6. Incurred Benefits 6. Direct 6. Reinsurance assumed 6. Reinsurance ceded 6. Net (a) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line., $ in Line.. $ in Line 6., and $ in Line 6.. (b) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line., $ in Line.. $ in Line 6., and $ in Line 6.. (c) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line., $ in Line.. $ in Line 6., and $ in Line 6.. (d) Includes $ premiums waived under total and permanent disability benefits. Other

18 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company EXHIBIT OF NON-ADMITTED ASSETS Current Year Total Nonadmitted Assets Prior Year Total Nonadmitted Assets Change in Total Nonadmitted Assets (Col. - Col. ). Bonds (Schedule D). Stocks (Schedule D):. Preferred stocks. Common stocks. Mortgage loans on real estate (Schedule B):. First liens. Other than first liens. Real estate (Schedule A):. Properties occupied by the company. Properties held for the production of income. Properties held for sale 5. Cash (Schedule E - Part ), cash equivalents (Schedule E - Part ) and short-term investments (Schedule DA) 6. Contract loans 7. Other invested assets (Schedule BA) 8. Receivables for securities 9. Aggregate write-ins for invested assets 0. Subtotals, cash and invested assets (Lines to 9). Title plants (for Title insurers only). Investment income due and accrued. Premiums and considerations:. Uncollected premiums and agents'balances in the course of collection. Deferred premiums, agents'balances and installments booked but deferred and not yet due. Accrued retrospective premiums. Reinsurance:. Amounts recoverable from reinsurers. Funds held by or deposited with reinsured companies. Other amounts receivable under reinsurance contracts 5. Amounts receivable relating to uninsured plans 6. Current federal and foreign income tax recoverable and interest thereon 6. Net deferred tax asset 7. Guaranty funds receivable or on deposit 8. Electronic data processing equipment and software 9. Furniture and equipment, including health care delivery assets 0. Net adjustment in assets and liabilities due to foreign exchange rates. Receivables from parent, subsidiaries and affiliates. Health care and other amounts receivable. Aggregate write-ins for other than invested assets. Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 0 to ) 5. From Separate Accounts, Segregated Accounts and Protected Cell Accounts 6. Total (Lines and 5) DETAILS OF WRITE-INS Summary of remaining write-ins for Line 9 from overflow page Totals (Lines 090 thru 090 plus 0998)(Line 9 above) Summary of remaining write-ins for Line from overflow page 99. Totals (Lines 0 thru 0 plus 98)(Line above) 8

19 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company NOTES TO FINANCIAL STATEMENTS TABLE OF CONTENTS. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. ACCOUNTING CHANGES AND CORRECTIONS OF ERRORS. BUSINESS COMBINATIONS AND GOODWILL. DISCONTINUED OPERATIONS 5. INVESTMENTS 6. JOINT VENTURES, PARTNERSHIPS AND LIMITED LIABILITY COMPANIES 7. INVESTMENT INCOME 8. DERIVATIVE INSTRUMENTS 9. INCOME TAXES 0. INFORMATION CONCERNING PARENT, SUBSIDIARIES AND AFFILIATES. DEBT. RETIREMENT PLANS, DEFERRED COMPENSATION, POSTEMPLOYMENT BENEFITS AND COMPENSATED ABSENCES AND OTHER POSTRETIREMENT BENEFIT PLANS. CAPITAL AND SURPLUS, SHAREHOLDERS DIVIDEND RESTRICTIONS AND QUASI-REORGANIZATIONS. CONTINGENCIES 5. LEASES 6. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK 7. SALE, TRANSFER AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES 8. GAIN OR LOSS TO THE REPORTING ENTITY FROM UNINSURED A&H PLANS AND THE UNISURED PORTION OF PARTIALLY INSURED PLANS 9. DIRECT PREMIUM WRITTEN/PRODUCED BY MANAGING GENERAL AGENTS/THIRD PARTY ADMINISTRATORS 0. OTHER ITEMS. EVENTS SUBSEQUENT. REINSURANCE. RETROSPECTIVELY RATED CONTRACTS & CONTRACTS SUBJECT TO REDETERMINATION. CHANGE IN INCURRED LOSSES AND LOSS ADJUSTMENT EXPENSES 5. INTERCOMPANY POOLING ARRANGEMENTS 6. STRUCTURED SETTLEMENTS 7. HEALTH CARE RECEIVABLES 8. PARTICIPATING POLICIES 9. PREMIUM DEFICIENCY RESERVES 0. RESERVES FOR LIFE CONTRACTS AND DEPOSIT-TYPE CONTRACTS. ANALYSIS OF ANNUITY ACTUARIAL RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED. SEPARATE ACCOUNTS. LOSS/CLAIM ADJUSTMENT EXPENSES 9

20 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company NOTES TO FINANCIAL STATEMENTS. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Accounting Practices: The accompanying financial statements of MML Bay State Life Insurance Company (the "Company") have been prepared in conformity with accounting practices prescribed or permitted by the National Association of Insurance Commissioners ("NAIC") and the State of Connecticut Insurance Department (the "Department"). b. Use of Estimates in the Preparation of the Financial Statements: The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates include those used in determining the carrying values of investments, the aggregate reserves and deposit-type fund balances, and the amount of mortgage loan investment valuation reserves on real estate held for sale, other-than-temporary impairments, and the liability for taxes. Future events, including, but not limited to, changes in the levels of mortality, morbidity, interest rates, persistency, asset valuations, and defaults, could cause actual results to differ from the estimates used in the financial statements. Although some variability is inherent in these estimates, management believes the amounts presented are appropriate. c. Accounting Policy: Life insurance premium revenue is generally recognized annually on the anniversary date of the policy and excess premium for flexible products is recognized when received. Annuity considerations are recognized as revenue when received. Expenses incurred in connection with acquiring new insurance business, including acquisition costs such as sales commissions, are charged to operations as incurred. Contract loans are carried at the outstanding loan balance less amounts unsecured by the cash surrender value of the policy. Where applicable, the values of invested assets have been adjusted for impairments considered other-than-temporary. In addition, the Company uses the following accounting policies: () Short-term investments, which are carried at amortized cost, consist of all highly liquid investments purchased with maturities of greater than three months and less than or equal to twelve months. The estimated fair value for these investments approximates the carrying value. () Generally, bonds are valued at amortized cost using the constant yield interest method. Bond transactions are recorded on a trade date basis, except for private placement bonds which are recorded on the funding date. For fixed income securities that do not have a fixed schedule of payments, such as asset-backed, mortgage-backed and structured securities, the effect on amortization or accretion is revalued quarterly based on the current estimated cash flows, using either the prospective or retrospective adjustment methodologies, consistently applied by type of security. Certain high quality fixed income securities follow the retrospective method of accounting. Under the retrospective method, the recalculated effective yield equates the present value of the actual and anticipated cash flows, including new prepayment assumptions, to the original cost of the investment. Prepayment assumptions are based on borrower constraints and economic incentives such as the original term, age and coupon of the loan as affected by the interest rate environment. The current carrying value is then increased or decreased to the amount that would have resulted had the revised yield been applied since inception, and investment income is correspondingly decreased or increased. The Company has elected to use the book value as of January, 99 as the cost for applying the retrospective adjustment method to securities purchased prior to that date. All other fixed securities, such as floating rate bonds and interest only securities, follow the prospective method of accounting. Under the prospective method, the recalculated future effective yield equates the carrying value of the investment to the present value of the anticipated future cash flows. The fair value of bonds is based on values provided by the NAIC s Securities Valuation Office ( SVO ) when available. If SVO values are not available, quoted market values provided by other third-party organizations are used. If quoted market values are unavailable, fair value is estimated using internal models by discounting expected future cash flows using current market rates applicable to yield, credit quality and maturity of the investment or using quoted market values for comparable investments. Internal inputs used in the determination of fair value include estimated prepayment speeds, default rates, discount rates and collateral values, among others. Structure characteristics and results of cash flow priority are also considered. Fair values resulting from internal models are those expected to be paid in an orderly transaction between willing market participants at the financial statement date. The Company considers the following factors in the evaluation of whether a non-interest related decline in value is other-thantemporary: (a) the financial condition and near-term prospects of the issuer; (b) the likelihood that the Company will be able to collect all amounts due according to the contractual terms of the debt security in effect at the date of acquisition or expected cash flow for a structured security; (c) the Company s ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value; and (d) the period and degree to which the market value has been below cost. The Company considers the following factors in the evaluation of whether an interest related decline in value is other-thantemporary: (a) the Company s near-term intent to sell; (b) the Company s contractual and regulatory obligations; and (c) the Company s ability and intent not to sell the investment until anticipated recovery of the cost of the investment. The Company employs a systematic methodology to evaluate other-than-temporary impairments by conducting a quarterly management review of all bonds including those in default, not-in-good standing, or valued below 80% of cost. The Company also considers other qualitative and quantitative factors in determining the existence of other-than-temporary impairments including, but not limited to, unrealized loss trend analysis and significant short-term changes in value. If the impairment is other-than-temporary, a direct write-down to fair value or, for structured securities including residential mortgage-backed securities ( RMBS ) after July, 008, to a value determined using undiscounted cash flows is recognized in realized capital losses and a new cost basis is established. The Company has a review process for determining if Collateralized Debt Obligation ( CDO ) investments are at risk for otherthan-temporary impairment. For the senior, mezzanine and junior debt tranches, cash flows are modeled using five scenarios based on the current ratings and prices of the underlying corporate credit risks and incorporated prepayment and default assumptions that vary according to collateral attributes of each deal. The prepayment and default assumptions are varied within each model based upon rating (base case), historical expectations (default vector), rating change improvement (optimistic), rating change downgrade (pessimistic), and market price (market implied). The default rates produced by these five scenarios are assigned an expectation weight according to current market and economic conditions and fed into a sixth scenario. An other-than-temporary impairment is recorded if the aggregate undiscounted projected cash flows, in this sixth scenario result in the default of any principal or interest payments due. For the most subordinated non-coupon bearing junior tranches (CDO equity tranches), the present value of the projected cash flows, in the sixth scenario, are measured using an % discount rate. If the current book value of the security is below the present value measured using an % discount rate, then the sum of the undiscounted cash flows are compared to the book value. If the undiscounted cash flows do not equal or exceed the book value of the security, then an other-than-temporary impairment is taken in an amount sufficient to adjust the book value to the sum of undiscounted cash flows. Certain CDOs cannot be modeled using all six scenarios, because of limitations on the data needed for all scenarios. The cash flows for these CDOs, including foreign denominated CDOs, are projected using a customized scenario management believes is appropriate for the applicable collateral pool. Asset-backed securities, including RMBS and commercial mortgage-backed securities ( CMBS ), are evaluated for other-thantemporary impairment on a periodic basis using scenarios customized by collateral type. The Company performs sensitivity analysis on defaults as loan-to-value ratios change, and on defaults as prepayments change using default curves under various 9.

21 ANNUAL STATEMENT FOR THE YEAR 008 OF THE MML Bay State Life Insurance Company NOTES TO FINANCIAL STATEMENTS scenarios. The Company combines scenario analysis with a monthly surveillance process in which it compares actual delinquencies and defaults to expectations established at the time securities are acquired and expectations considering current market conditions, and performs a statistical review to determine potential losses relative to credit support of troubled loan exposures on a transaction-by-transaction basis. Pursuant to confirmation with the State of Connecticut Insurance Department, the Company began utilizing undiscounted cash flows to determine other-than-temporary impairments for structured securities, prospectively beginning with the quarter ended September 0, 008. Internal inputs used in determining the amount of the other-than-temporary impairments on structured securities included collateral performance including prepayment speeds, default rates, and loss severity based on borrower and loan characteristics, as well as deal structure including subordination, over-collateralization and cash flow priority. Prior to July, 008, resulting cash flows were discounted at spreads consistent with the residential mortgage market s weakness and the uncertainty around the magnitude and timing of cash flows. This review process provided a framework for deriving other-thantemporary impairments in a manner consistent with market participant assumptions. In these analyses, credit quality by loan vintage, collateral type and investment structure were critical elements in determining other-than-temporary impairments. () Common stocks, including warrants, are valued at fair value with unrealized capital gains and losses included as a change in surplus. Common stock transactions are recorded on a trade date basis. The fair value of common stocks is based on values provided by the SVO when available. If SVO values are not available, quoted market values provided by other third-party organizations are used. If quoted market values are unavailable, fair values are determined by management using estimates based upon internal models. The cost basis of common stocks is adjusted for impairments deemed to be other-than-temporary. The Company considers the following factors in the evaluation of whether a decline in value is other-than-temporary: (a) the financial condition and nearterm prospects of the issuer; (b) the Company s ability and intent to hold the investment for a period of time sufficient to allow for a near- term recovery in value; and (c) the period and degree to which the market value has been below cost. The Company conducts a quarterly management review of all issuers whose common stock is not-in-good standing or valued below 80% of cost. The Company also considers other qualitative and quantitative factors in determining the existence of other-thantemporary impairments including, but not limited to, unrealized loss trend analysis and significant short-term changes. If the impairment is other-than-temporary, a direct write-down to fair value is recognized in realized capital losses and a new cost basis is established. () Preferred stocks in good standing are valued at amortized cost. Preferred stocks not in good standing are valued at the lower of amortized cost or fair value. Fair values of preferred stocks are based on published market values, where available. For preferred stocks without readily ascertainable market value, the Company has determined an estimated fair value using brokerdealer quotations or management pricing models. The carrying value of preferred stocks is written down when a decline in value is considered to be other-than-temporary. If the impairment is other-than-temporary, a direct write-down to fair value is recognized in realized capital losses and a new cost basis is established. As of December, 008 and 007, the Company held no preferred stocks for which the transfer of ownership was restricted by contractual requirements. (5) Mortgage loans are comprised of residential mortgage loan pools and are valued at the unpaid principal balance of the loan, net of unamortized premiums and discounts, non-refundable commitment fees and mortgage interest points, and valuation allowances. The fair value of mortgage loans is estimated by discounting expected future cash flows using current interest rates for similar loans with similar credit risk. For non-performing loans, the fair value is the estimated collateral value of the underlying real estate. When, based upon current information and events, it is probable that the Company will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement, a valuation allowance is established for the excess of the carrying value of the mortgage loan over the fair value. Collectibility and estimated recoveries are assessed on a loan-by-loan basis considering all events and conditions relevant to the loan. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available, as changes occur in the market or as negotiations with the borrowing entity evolve. Changes to the valuation allowance are recorded as unrealized capital gains or losses ( URCGs ) in surplus. When an event occurs resulting in an impairment that is other-than-temporary, a direct write-down is recognized in realized capital losses and a new cost basis is established. An impairment is deemed other-than-temporary when foreclosure proceedings or other procedures leading to the acquisition of the collateral are initiated, the acquisition of the collateral is probable, and a reasonable estimate of the collateral value has been made. (6) For fixed income securities that do not have a fixed schedule of payments, such as asset-backed, mortgage-backed and structured securities, the effect on amortization or accretion is revalued quarterly based on current estimated cash flows, using either the prospective or retrospective adjustment methodologies, consistently applied by type of security. Certain high quality fixed income securities follow the retrospective method of accounting. Under the retrospective method, the recalculated effective yield equates the present value of the actual and anticipated cash flows including new prepayment assumptions, to the original cost of the investment. Prepayment assumptions are based on borrower constraints and economic incentives such as the original term, age and coupon of the loan as affected by the interest rate environment. The current carrying value is then increased or decreased to the amount that would have resulted had the revised yield been applied since inception, and investment income is correspondingly decreased or increased. The Company has elected to use the book value as of January, 99 as the cost for applying the retrospective adjustment method to securities purchased prior to that date. All other fixed securities, such as floating rate bonds and interest only securities, follow the prospective method of accounting. Under the prospective method, the recalculated future effective yield is used to equate the carrying value of the investment to the present value of the anticipated future cash flows. (7) The Company did not own any subsidiaries and did not hold any investments in controlled or affiliated companies. (8) The Company did not hold any investments in joint ventures, partnerships and limited liability companies. (9) Derivative financial instruments are carried at estimated fair value, which is based primarily upon quotations obtained from independent sources. The Company models many of these instruments internally. These quotations are compared to internally derived prices and a price challenge is lodged with the independent source when a significant difference cannot be explained by appropriate adjustments to the internal model. Ultimately the Company accepts a final price obtained from an independent source as its measurement of fair value for these instruments. Changes in the fair value of these instruments are recorded as unrealized capital gains and losses in surplus. Gains and losses realized on the termination, closing or assignment of contracts are recorded as realized capital gains and losses. Amounts receivable and payable are accrued. Investment risk is assessed on a portfolio basis and individual derivative financial instruments are not designated in hedging relationships; therefore, as allowed by accounting rules, the Company specifically and intentionally made the decision not to apply hedge accounting. (0) The Company does not write accident and health business and therefore has no premium deficiency reserves. 9.