<PAGE>
MassMutual
Institutional Funds
. MassMutual Prime Fund
. MassMutual Short-Term Bond Fund
. MassMutual Core Bond Fund
. MassMutual Balanced Fund
. MassMutual Value Equity Fund
. MassMutual Small Cap Value Equity Fund
. MassMutual International Equity Fund
ANNUAL REPORT - December 31, 1996
<PAGE>
Table of Contents
Letter to Shareholders.................................................. 1
MassMutual Prime Fund
Portfolio Manager Report............................................. 3
Portfolio of Investments............................................. 4
Financial Statements................................................. 6
MassMutual Short-Term Bond Fund
Portfolio Manager Report............................................. 10
Portfolio of Investments............................................. 12
Financial Statements................................................. 14
MassMutual Core Bond Fund
Portfolio Manager Report............................................. 19
Portfolio of Investments............................................. 21
Financial Statements................................................. 24
MassMutual Balanced Fund
Portfolio Manager Report............................................. 29
Portfolio of Investments............................................. 31
Financial Statements................................................. 35
MassMutual Value Equity Fund
Portfolio Manager Report............................................. 40
Portfolio of Investments............................................. 42
Financial Statements................................................. 44
MassMutual Small Cap Value Equity Fund
Portfolio Manager Report............................................. 49
Portfolio of Investments............................................. 51
Financial Statements................................................. 53
MassMutual International Equity Fund
Portfolio Manager Report............................................. 58
Portfolio of Investments............................................. 60
Financial Statements................................................. 62
Notes to Financial Statements........................................... 67
Report of Independent Accountants/1/.................................... 75
/1/The Report of Independent Accountants extends to the respective Portfolios of
Investments and Financial Statements for each Fund, and the combined Notes to
Financial Statements as listed above.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Institutional Funds - Letter to Shareholders
- --------------------------------------------------------------------------------
January 31, 1997
To Our Shareholders
[PHOTO OF STUART H. REESE APPEARS HERE]
Stuart H. Reese
"The domestic and international stock and bond markets required selectivity
during 1996."
Another Year of Solid Economic Growth with Low Inflation
Though figures released throughout the year were often contradictory, 1996
closed as the sixth consecutive year of the current U.S. economic expansion.
Growth during the year was driven by consumption and household sales, and by
capital investment by businesses; it was slowed only by relatively weak foreign
trade.
Even with continued growth, however, inflation has remained subdued. In
addition, because prices were stronger during 1996 than they had been in 1995,
the Federal Reserve stopped lowering interest rates after January. The
achievement of an "orchestrated economy" -- growth without inflationary
pressures -- meant the Federal Reserve did not have to intervene again during
the year. As a consequence, interest rates rose only slightly.
A Banner Year for Stocks
More efficient and competitive every year, corporate America enjoyed another
period of profitability. The stock market, reflecting this plus the favorable
economic environment and tremendous demand for stocks from investors, climbed to
new record highs throughout the year. While larger stocks gained most over the
course of the year, nearly all sectors of the market outperformed their
long-term averages.
Underlying the market's tremendous positives, it is important to recognize that
an ongoing trend toward more selective markets continued over the year. So,
while market sectors were generally up, there was often disparity between how
well the best and weakest stocks within an industry performed, and expert stock
picking was the identifying trademark of the year's real winners.
Volatility Limits the U.S. Bond Market
The bond market, on the other hand, had a difficult year. In contrast to 1995,
when declining interest rates spurred a broad bond rally, 1996's increase in
rates hurt bond prices. Especially in Treasuries, which tend to be most
sensitive to changes in rates, price performance eroded returns. After its
strong run in 1995, the bond market was also subject to changing investor
emotions throughout the past year.
Volatility was the rule in the market during 1996, with the release of changing
economic data alternately sending investors chasing and then running from the
market. In this climate, the best performers were shorter-term securities, which
generally have less price sensitivity than their longer counterparts.
Japan Overshadows Strong Foreign Markets
Over the course of the past year, there were numerous success stories among the
world's stock and bond markets, with many developed and developing markets
turning in performance that bettered that of the U.S., even when translated into
dollar terms. However, here again, selectivity was of the utmost importance.
Weakness in the economically-troubled Japanese market -- which after the U.S. is
the second largest world securities market -- showed up in many global
performance measures, taking the shine off of what was a fairly good year in
most regions.
While American foreign trade was off during the year due to slowness in certain
economies and a relatively strong dollar, the long-term trend is for growth to
pick up overseas, and in many areas, to continue to surpass the domestic
economic growth rate. With this view, we believe opportunities in the
international arena abound.
(Continued)
1
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Institutional Funds - Letter to Shareholders (Continued)
- --------------------------------------------------------------------------------
Value Investing in Selective Markets
The domestic and international stock and bond markets required selectivity
during 1996. In selective markets, value investors like us benefit from the
extensive research that is an inherent part of our strategy. We view temporary
price fluctuations as a chance to buy the stocks and bonds we feel represent
strong opportunities over time. And by the same token, our value requirements
mean that we tend not to buy into or hold stocks and bonds that have already
appreciated significantly during a given cycle. This helps keep us from paying
too much for a security, or holding it too long.
Throughout 1996, our value approach was a benefit. While more growth-oriented
stock strategies often outperform during strong bull markets, at the domestic
market's current price levels, we feel a more conservative approach is
appropriate. In both bonds and overseas investments, our careful strategies
helped us successfully navigate the changing markets and avoid their pitfalls.
We Enter 1997 Cautiously Optimistic
As we head into 1997, we are entering the seventh year of economic expansion in
the U.S. While such a prolonged cycle is unusual, and the likelihood exists that
growth in the coming year may be slower than what we experienced in 1996, there
are still very few reasons to expect we are moving toward a recession. Not all
data has been finalized at this point, but it appears that the Christmas season
at the end of 1996, though a week shorter than usual, was fair. And while
announcements of layoffs repeatedly made news over the year, there is very
little net change in employment. While consumer debt has risen, consumer
confidence remains quite high. And finally, wages and prices are fairly stable,
with core inflation estimated to be a low three percent.
We believe these factors support cautious optimism for the financial markets in
1997. Until the scenario detailed above changes significantly, the Federal
Reserve should not feel pressure to change monetary policy dramatically. Without
more interest rate increases, the bond market should stabilize, so that income
can dictate returns without a drag from price performance. If rates are less
volatile, then stocks have a better change of continued positive results. We
will continue to do as we always do . . . look for value in whatever markets
prevail.
/s/ Stuart H. Reese
Stuart H. Reese
President
MassMutual Institutional Funds
2
<PAGE>
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MassMutual Prime Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Prime Fund?
The objective and policies of the Fund are to:
. maximize current income, consistent with liquidity and preservation of capital
. invest in a diversified portfolio of money market instruments
. invest in high quality debt instruments with remaining maturity not to exceed
397 days
Note: This is not a money market fund.
How has the Fund performed over the past year?
The Fund performed well. This has been another period of consistently good
performance both on an absolute basis and versus other money market type
investments. The yields from the very short maturity fixed income securities we
invest in remained competitive over the year, and that has helped us. In all,
during a year in which conflicting economic statistics caused volatility in the
longer end of the bond market, "cash" investments like this one have been a good
place for investors.
What was the strategy over the course of the year?
In short, because the market was more volatile in the longer maturities, keeping
the portfolio steady and short paid off again this year. The average life of the
portfolio was 45 days at year end, closely in line with that of Donohue's Money
Market Fund universe. Our strategy for outperformance during 1996 was again to
focus our investments on Tier 2 commercial paper. Since Prime Fund is not a
money market fund, we are able to own Tier 2 paper. Because it is of slightly
lower credit quality than Tier 1 paper, Tier 2 issues can offer real income
advantages to money managers with the investment flexibility and credit
expertise necessary to take advantage of them. Tier 2 investments served us well
over the year. Partly as a result of where most of the supply was to be found,
the top three industry sectors in which we had investments at year end were
finance companies, energy and railroads.
How is the portfolio currently positioned?
The portfolio is shorter now than it was at the beginning of 1996, and that
could be advantageous depending on what actions the Federal Reserve may take
going forward. If rates were to increase, owning securities that mature quickly
would enable us to replace them with newer, higher-yielding issues more rapidly.
That in turn would boost the portfolio's yield. Beyond maturity considerations,
we continue to conduct extensive research into both issuers and specific issues
in an effort to provide stability and competitive income in a highly liquid
investment portfolio.
What is the outlook for the Fund?
Our outlook continues to be positive both for the economy and for the Fund. We
believe the U.S. economy is still strong and growing but at a sustainable,
orchestrated rate with little evidence of inflation. If signs of inflation
should arise - and so far they haven't, even six years into the current growth
phase - we'd expect the Federal Reserve might raise rates slightly in reaction.
If interest rates were increased, it could potentially hurt stocks and the long
bond market. Funds like this one, however, would benefit from higher current
yields. Having said that, economic results for the fourth quarter of 1996 will
not be confirmed before February 1997. We believe the Federal Reserve is
unlikely to make any changes to rates until the statistical data to back such
decisions is available.
[LINE GRAPH APPEARS HERE]
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Prime Fund
Classes 1-4 and 91-day Treasury Bills
- ---------------------------------------------------------------
MassMutual Prime Fund
Total Return One Year Average Annual
1/1/96-12/1/96 10/3/94-12/31/96
Class 1 4.05% 4.27%
Class 2 4.63% 4.87%
Class 3 5.00% 5.23%
Class 4 5.24% 5.47%
- ---------------------------------------------------------------
91-Day 5.03% 5.20%
Treasury Bills
- ---------------------------------------------------------------
Past performance is not predicitive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund . when redeemed, may be worth more or less than their
original cost. Investors should note that the Fund is a professionally managed
mutual fund, while 91-day Treasury Bills are unmanaged and do not incur
expenses.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
<TABLE>
<CAPTION>
Class 1 Class 2 Class 3 Class 4 T-Bills
<S> <C> <C> <C> <C> <C>
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 10,096 10,115 10,121 10,126 10,112
6/95 10,330 10,337 10,401 10,419 10,384
12/95 10,559 10,639 10,680 10,711 10,671
6/96 10,767 10,876 10,939 10,982 10,932
12/96 10,987 11,129 11,214 11,272 11,209
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 100.4%
Commercial Paper -- 99.8%
American Brands, Inc.
5.320% 2/10/1997 $ 4,925,000 $ 4,895,888
Aristar, Inc.
5.380% 1/28/1997 4,445,000 4,427,064
Baxter International
Inc.
5.500% 3/21/1997 4,425,000 4,370,622
Burlington Northern
Santa Fe Corp.
5.850% 1/30/1997 8,800,000 8,758,530
Carter Holt Harvey
Limited
5.560% 3/11/1997 5,270,000 5,213,435
Carter Holt Harvey
Limited
5.700% 1/10/1997 3,855,000 3,849,507
Central and South
West Corporation
5.520% 1/14/1997 9,435,000 9,416,193
Comdisco, Inc.
5.520% 2/13/1997 4,015,000 3,988,528
Comdisco, Inc.
5.580% 3/14/1997 5,000,000 4,944,000
ConAgra, Inc.
5.500% 2/18/1997 7,750,000 7,693,167
Cox Enterprises, Inc.
5.480% 2/24/1997 4,185,000 4,150,599
Cox Enterprises, Inc.
5.530% 3/07/1997 1,250,000 1,237,361
Crown Cork & Seal
Company Inc.
5.650% 3/06/1997 2,865,000 2,836,477
CSX Corporation
5.470% 1/31/1997 4,980,000 4,957,299
CSX Corporation
5.470% 2/14/1997 4,450,000 4,420,249
Dana Credit
Corporation
5.470% 1/21/1997 4,165,000 4,152,343
Dana Credit
Corporation
5.550% 1/10/1997 890,000 888,765
Dean Witter, Discover
& Company
5.380% 1/31/1997 4,955,000 4,932,785
Dominion Resources,
Inc.
5.500% 1/29/1997 7,000,000 6,970,055
Dominion Resources,
Inc.
5.500% 2/20/1997 2,300,000 2,282,431
Federal Signal Corp.
5.450% 1/07/1997 4,670,000 4,665,758
Frontier Corporation
5.600% 2/14/1997 5,385,000 5,348,143
General Motors
Acceptance
Corporation
5.822% 2/04/1997 7,690,000 7,881,516
Illinois Power
Company
5.590% 2/12/1997 1,140,000 1,132,565
Illinois Power
Company
5.680% 2/19/1997 7,800,000 7,739,697
ITT Corporation
5.720% 2/06/1997 4,870,000 4,842,144
ITT Corporation
5.730% 1/13/1997 4,900,000 4,890,641
Kerr-McGee Credit
Corporation
5.700% 2/11/1997 6,475,000 6,432,966
Lockheed Martin
Corporation
5.480% 3/07/1997 4,700,000 4,652,478
Lockheed Martin
Corporation
5.720% 1/24/1997 2,290,000 2,281,632
Lockheed Martin
Corporation
5.750% 2/07/1997 2,495,000 2,480,256
NYNEX Corporation
5.420% 3/26/1997 5,690,000 5,615,651
ORIX Credit Alliance,
Inc.
5.530% 2/28/1997 4,700,000 4,658,125
ORIX Credit Alliance,
Inc.
5.550% 1/16/1997 4,780,000 4,768,947
Praxair, Inc.
5.450% 2/25/1997 3,835,000 3,803,069
Praxair, Inc.
5.450% 2/27/1997 2,660,000 2,637,046
Praxair, Inc.
5.450% 3/27/1997 2,985,000 2,945,532
Public Service
Company of Colorado
5.600% 2/07/1997 4,870,000 4,841,971
Public Service
Electric and Gas
Company
5.520% 1/24/1997 410,000 408,554
Ralston Purina
Company
5.500% 1/06/1997 1,475,000 1,473,873
Rite Aid Corporation
5.600% 3/04/1997 5,510,000 5,456,859
Service Corporation
International
5.480% 2/03/1997 7,170,000 7,133,983
Texas Utilities
Electric Co.
5.590% 2/12/1997 8,800,000 8,742,609
Textron Financial
Corporation
5.550% 3/03/1997 1,325,000 1,312,427
Textron Financial
Corporation
5.670% 3/24/1997 8,700,000 8,589,027
Timken Company
5.510% 3/04/1997 5,000,000 4,951,778
Tyson Foods, Inc.
5.720% 1/22/1997 2,300,000 2,292,326
Union Camp Corp.
5.475% 2/26/1997 3,390,000 3,361,128
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
Union Pacific
Corporation
5.620% 3/18/1997 $ 7,635,000 $ 7,544,737
UOP
5.620% 2/26/1997 1,645,000 1,630,619
UOP
5.650% 3/05/1997 7,425,000 7,352,235
UOP
6.000% 2/10/1997 3,150,000 3,129,000
Western Resources
Inc.
5.470% 2/27/1997 490,000 485,756
Western Resources
Inc.
5.600% 1/15/1997 8,625,000 8,606,217
Whirlpool Financial
Corporation
5.600% 1/17/1997 10,070,000 10,044,936
-------------
258,519,499
-------------
Discount Note -- 0.6%
Federal Farm Credit
Bank
5.230% 8/19/1997 1,530,000 1,475,260
-------------
TOTAL SHORT-TERM
INVESTMENTS 259,994,759
=============
(Cost $260,002,847)+
TOTAL INVESTMENTS-- 100.4% 259,994,759
Other Assets/
(Liabilities) - (0.4%) (933,278)
-------------
NET ASSETS-- 100.0% $259,061,481
=============
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
[The remainder of this page intentionally left blank.]
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Financial Statements
- --------------------------------------------------------------------------------
December 31, 1996
-----------------
Statement of Assets and Liabilities
<TABLE>
<S> <C>
Assets:
Short-term investments, at value (cost $260,002,847) (Note 2)............ $ 259,994,759
Cash..................................................................... 1,293
Receivables from:
Fund shares sold....................................................... 967,627
Investment manager (Note 3)............................................ 9,209
-------------------
Total assets......................................................... 260,972,888
-------------------
Liabilities:
Payables for:
Fund shares redeemed................................................... 1,784,741
Directors' fees and expenses (Note 3).................................. 5,177
Affiliates (Note 3):
Investment management fees........................................... 95,194
Administration fees.................................................. 17,288
Service and distribution fees........................................ 220
Accrued expenses and other liabilities................................... 8,787
-------------------
Total liabilities.................................................... 1,911,407
-------------------
Net assets............................................................... $ 259,061,481
===================
Net assets consist of:
Paid-in capital.......................................................... $ 258,996,044
Undistributed net investment income...................................... 80,676
Accumulated net realized loss on investments............................. (7,151)
Net unrealized depreciation on investments............................... (8,088)
-------------------
$ 259,061,481
===================
Net assets:
Class 1.................................................................. $ 109,724
===================
Class 2.................................................................. $ 111,039
===================
Class 3.................................................................. $ 111,694
===================
Class 4.................................................................. $ 258,729,024
===================
Shares outstanding:
Class 1.................................................................. 726.501
===================
Class 2.................................................................. 734.255
===================
Class 3.................................................................. 738.294
===================
Class 4.................................................................. 1,713,473.880
===================
Net asset value, offering price and
redemption price per share:
Class 1.................................................................. $ 151.03
===================
Class 2.................................................................. $ 151.23
===================
Class 3.................................................................. $ 151.29
===================
Class 4.................................................................. $ 151.00
===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-----------------
Statement of Operations
<S> <C>
Investment income:
Interest...................................................... $ 14,350,850
-------------------
Expenses (Note 1):
Investment management fees (Note 3)........................... 1,150,292
Custody fees.................................................. 26,962
Audit and legal fees.......................................... 8,160
Directors' fees (Note 3)...................................... 15,247
Fees waived by the investment manager (Note 3)................ (89,223)
-------------------
1,111,438
Administration fees (Note 3):
Class 1..................................................... 605
Class 2..................................................... 557
Class 3..................................................... 344
Class 4..................................................... 207,299
Distribution and service fees (Note 3):
Class 1..................................................... 699
Class 2..................................................... 163
-------------------
Net expenses.............................................. 1,321,105
-------------------
Net investment income..................................... 13,029,745
-------------------
Realized and unrealized gain (loss):
Net realized loss on investment transactions.................. (5,068)
Net change in unrealized appreciation (depreciation)
on investments.............................................. 11,447
-------------------
Net realized and unrealized gain.......................... 6,379
-------------------
Net increase in net assets resulting from operations.......... $ 13,036,124
===================
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Statements of Changes in Net Assets
Increase (Decrease) in Net Assets:
Operations:
Net investment income.............................................. $ 13,029,745 $ 12,817,140
Net realized loss on investment transactions....................... (5,068) (1,781)
Net change in unrealized appreciation (depreciation)
on investments.................................................... 11,447 (15,459)
------------------- -------------------
Net increase in net assets resulting from operations........... 13,036,124 12,799,900
------------------- -------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1............................................................ (4,288) (4,178)
Class 2............................................................ (4,922) (4,746)
Class 3............................................................ (5,335) (5,095)
Class 4............................................................ (13,067,477) (12,693,331)
------------------- -------------------
Total distributions from net investment income................. (13,082,022) (12,707,350)
------------------- -------------------
Net fund share transactions (Note 5):
Class 1............................................................ 4,288 4,178
Class 2............................................................ 4,922 4,746
Class 3............................................................ 5,335 5,095
Class 4............................................................ 4,838,727 83,297,102
------------------- -------------------
Increase in net assets from net fund share transactions........ 4,853,272 83,311,121
------------------- -------------------
Total increase in net assets....................................... 4,807,374 83,403,671
Net assets:
Beginning of period................................................ 254,254,107 170,850,436
------------------- -------------------
End of period (including undistributed net investment income
of $80,676 and $132,953, respectively)............................ $ 259,061,481 $ 254,254,107
=================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements. 7
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94+**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 151.05 $ 150.39 $ 150.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 6.09*** 6.90 *** 1.02
Net realized and unrealized gain (loss) on investments 0.03 (0.01) 0.42
----------- ------------ ------------
Total income (loss) from investment operations 6.12 6.89 1.44
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (6.14) (6.23) (1.05)
----------- ------------ ------------
Net asset value, end of period $ 151.03 $ 151.05 $ 150.39
=========== ============ ============
Total Return 4.05% 4.58% 0.96%
Ratios / Supplemental Data:
Net assets, end of period (000's) $110 $105 $101
Net expenses to average daily net assets# 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 3.97% 4.48% 4.07%*
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.68% 1.68% 1.69%*
<CAPTION>
Class 2
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94+**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 151.24 $ 150.56 $ 150.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 6.96*** 7.78 *** 1.16
Net realized and unrealized gain (loss) on investments 0.04 (0.02) 0.57
----------- ------------ ------------
Total income (loss) from investment operations 7.00 7.76 1.73
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (7.01) (7.08) (1.17)
----------- ------------ ------------
Net asset value, end of period $ 151.23 $ 151.24 $ 150.56
=========== ============ ============
Total Return 4.63% 5.16% 1.15%
Ratios / Supplemental Data:
Net assets, end of period (000's) $111 $106 $101
Net expenses to average daily net assets# 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 4.52% 5.03% 4.62%*
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.13% 1.13% 1.14%*
</TABLE>
+All per share amounts for the period have been restated to reflect a 1-for-15
reverse stock split effective December 16, 1994.
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
***Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of
the undistributed income method does not accord with the results of
operations.
8 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94+**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 151.32 $ 150.61 $ 150.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 7.51*** 8.33 *** 1.21
Net realized and unrealized gain (loss) on investments 0.05 (0.01) 0.61
----------- ------------ ------------
Total income (loss) from investment operations 7.56 8.32 1.82
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (7.59) (7.61) (1.21)
----------- ------------ ------------
Net asset value, end of period $ 151.29 $ 151.32 $ 150.61
=========== ============ ============
Total Return 5.00% 5.53% 1.21%
Ratios / Supplemental Data:
Net assets, end of period (000's) $112 $106 $101
Net expenses to average daily net assets# 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 4.86% 5.38% 4.99%*
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.78% 0.78% 0.79%*
<CAPTION>
Class 4
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94+**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 151.06 $ 150.36 $ 150.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 7.85*** 8.70 *** 1.55
Net realized and unrealized gain (loss) on investments 0.06 (0.02) 0.34
----------- ------------ ------------
Total income (loss) from investment operations 7.91 8.68 1.89
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (7.97) (7.98) (1.53)
----------- ------------ ------------
Net asset value, end of period $ 151.00 $ 151.06 $ 150.36
=========== ============ ============
Total Return@ 5.24% 5.78% 1.26%
Ratios / Supplemental Data:
Net assets, end of period (000's) $258,729 $253,936 $170,548
Net expenses to average daily net assets# 0.5160% 0.5160% 0.5160%*
Net investment income to average daily net assets 5.10% 5.61% 5.01%*
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.5509% 0.5468% 0.5605%*
</TABLE>
+All per share amounts for the period have been restated to reflect a 1-for-15
reverse stock split effective December 16, 1994.
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
***Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of the
undistributed income method does not accord with the results of operations.
@Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
The accompanying notes are an integral part of the financial statements. 9
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Short-Term
Bond Fund?
The objective and policies of the Fund are to:
. achieve high total rate of return from current income while minimizing
fluctuations in capital values
. invest primarily in a diversified portfolio of short-term, investment-grade,
fixed-income securities
. manage duration to seek the best yield, while maintaining duration below three
years to reduce volatility
. diversify investments among market sectors on the basis of relative value
How did the Fund perform over the past year?
The Fund enjoyed strong performance during what was a tough year for the bond
market as a whole. Since longer-term bonds are more susceptible to price
fluctuations than shorter-term bonds, our focus on the short-to-intermediate
sector of the market served us well. In addition, because the market was
difficult, our risk-averse strategic positioning was beneficial. We look for
attractively-priced investment grade securities with limited potential for
principal value fluctuation, and that was exactly what was required in the past
year's market.
How did the bond market change over the year?
Most of the market's changes occurred during the first half of 1996. In contrast
to 1995, a rise in interest rates coupled with conflicting reports on the
direction of the economy in 1996 hurt prices, particularly in longer-term bonds.
So whereas price appreciation added to income for total return performance in
last year's market, negative price movements were a drag on income in many
sectors of this year's market.
What investment decisions worked best under these market conditions?
Though this is always a relatively short portfolio, when interest rates
increased, the yield curve steepened, meaning that there was more value to be
found in slightly longer bonds. As a result, we moved our average duration from
0.7 years at the end of 1995 to 2.7 years -- very close to our 3 year maximum --
by December 1996. This change helped us capture more yield without adding
significantly to interest rate risk.
As part of this program, we moved money out of shorter cash-type investments
into better-yielding Treasuries and corporate bonds. As an illustration, at the
end of 1995, we owned no Treasuries at all, but as of December 1996, they made
up 44 percent of the portfolio. Likewise, our corporate holdings, nine percent
of the portfolio in 1995 comprised 16 percent of the portfolio at year end.
These two decisions added both value and income to the portfolio. Over the
course of the year, we also bought selected asset-backed and government agency
securities with known cash flows for the income they offer and to help offset
the effects of some of our maturing assets. And finally, our holdings of
mortgage-backed securities were beneficial over the year. The fact that we tend
to emphasize issues that are either well-seasoned or call-protected, plus the
increase in rates over the year, meant steady income with minimal prepayment
risk.
What changes, if any, are being made to the portfolio?
Our investment decisions are heavily based on the shape of the yield curve, so
our duration will likely remain in its current range until the curve shifts.
Within those parameters, we're looking now, as we always do, for areas of
outstanding value among high quality bonds with short-to-intermediate
maturities. We continue to believe that with research, both mortgages and
corporate bonds can offer real opportunity. With rates where they are, mortgages
continue to look attractive, and with what appears to have been another steady
quarter under corporate America's belt, we'd expect corporate bonds to continue
to perform well.
What is the outlook for the Fund?
We're pleased with how well the Fund performed throughout the turbulence of the
past year, and believe it confirms that our strategy is a sound one. Looking
ahead, with the economy continuing to hold its own and few signs of a meaningful
uptick in inflation, we expect the bond market to have an easier time in 1997.
In this environment, we believe the Fund's limited duration positioning and
focus on attractively-priced issues will make it a desirable investment.
10
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investment in MassMutual Short-Term
Bond Fund Classes 1-4 and the Lehman Brothers
1-3 Year Government Bond Index
<TABLE>
<CAPTION>
- ------------------------------------------------------------
MassMutual Short-Term Bond Fund
Total Return One Year Average Annual
1/1/96-12/31/96 10/3/94-12/31/96
<S> <C> <C>
Class I 4.35% 6.48%
Class 2 5.02% 7.06%
Class 3 5.28% 7.43%
Class 4 5.57% 7.70%
- ------------------------------------------------------------
Lehman Brothers 5.04% 6.99%
1-3 Year
Government Bond Index
- ------------------------------------------------------------
</TABLE>
Past Performance is not predictive of future relults. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed, may be worth more or less than their
original cost. Investors should note that the Fund is a professionally managed
mutual fund, while the Lehman Brothers 1-3 Year Government Bond Index is
unmanaged and does not incur expense.
[GRAPH APPEARS HERE]
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
"10/3/94" 10,000 10,000 10,000 10,000 10,000
"12/94" 9,983 9,991 10,013 10,013 10,002
"6/95" 10,730 10,769 10,801 10,816 10,661
"12/95" 11,035 11,101 11,160 11,192 11,086
"6/96" 11,165 11,264 11,346 11,380 11,244
"12/96" 11,516 11,658 11,750 11,816 11,643
</TABLE>
[PIE CHART APPEARS HERE]
Quality Structure (12/31/96)
MassMutual Short-Term Bond Fund
U.S. Governments Cash Equivalents Aaa/AAA 83.9%
Baa/BBB 6.1%
Aa/AA 1.7%
A/A 8.3%
[PIE CHART APPEARS HERE]
Duration Diversification (12/31/96)
MassMutual Short-Term Bond Fund
Average Duration = 2.7 years
Less than 1 year 24.4%
7-10 years 2.1%
5-7 years 20.1%
1-3 years 42.5%
3-5 years 10.9%
11
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
BONDS & NOTES - 83.9%
ASSET BACKED SECURITIES -- 7.6%
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 $1,000,000 $ 1,001,560
Chase Manhattan Auto
Grantor Trust 1996-B,
Class A
6.610% 9/15/2002 1,829,055 1,841,621
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 357,498 361,520
Ford Credit Auto
Loan Master Trust,
Series 1992-1
6.875% 1/15/1999 1,500,000 1,500,465
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 2,000,000 2,007,980
Nissan Auto
Receivables 1994-A
Grantor Trust,
Class A
6.450% 9/15/1999 626,917 628,484
Railcar Trust No.
1992-1
7.750% 6/01/2004 1,196,415 1,250,254
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class A1
6.300% 6/25/2002 2,500,000 2,508,575
------------
TOTAL ASSET BACKED
SECURITIES 11,100,459
------------
(Cost $11,074,953)
CORPORATE DEBT -- 16.1%
AirTouch
Communications, Inc.
7.500% 7/15/2006 1,000,000 1,026,480
America West Airlines
1996-1, Class A
6.850% 7/02/2009 2,000,000 1,960,000
Analog Devices, Inc.
6.625% 3/01/2000 1,000,000 987,300
Associates Corporation
of North America
6.750% 8/01/2001 1,500,000 1,505,505
Bell Atlantic Financial
Services, Inc.
6.610% 2/07/2000 2,000,000 2,012,380
CSC Enterprises 144A
6.500% 11/15/2001 2,000,000 1,992,380
Ford Motor Credit
Company
9.350% 6/10/1997 1,000,000 1,015,200
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 971,900
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,046,230
McDonnell Douglas
Corporation
6.875% 11/01/2006 1,000,000 981,260
Norfolk Southern
Corporation
7.400% 9/15/2006 1,000,000 1,015,570
NYNEX Capital
Funding Company
7.450% 5/01/1997 1,000,000 1,005,680
ORIX Credit Alliance,
Inc. 144A
6.480% 4/20/1999 2,000,000 1,997,600
Polaroid Corporation
7.250% 1/15/1997 1,500,000 1,500,330
Rite Aid Corporation
6.700% 12/15/2001 1,000,000 998,090
W.R. Grace & Co.
8.000% 8/15/2004 3,240,000 3,430,253
------------
TOTAL CORPORATE DEBT 23,446,158
------------
(Cost $23,230,308)
U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 16.9%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 3.0%
Collateralized Mortgage Obligations -- 2.7%
FHLMC Series 1693
Class G
6.000% 7/15/2007 2,000,000 1,946,240
FHLMC Series 1704
Class PE
6.000% 7/15/2007 2,000,000 1,972,500
------------
3,918,740
------------
Pass-Through Securities -- 0.3%
FHLMC
4.750% 2/01/1997 -
9/01/2006 531,541 508,060
------------
4,426,800
------------
Federal National Mortgage Association
(FNMA) -- 3.9%
Collateralized Mortgage Obligations -- 2.7%
FNMA Series 1992-86
Class C
7.000% 6/25/2003 57,873 57,709
FNMA Series 1993-175
Class PL
5.000% 10/25/2002 1,390,909 1,381,770
FNMA Series 1993-71
Class PG
6.250% 7/25/2007 2,500,000 2,471,875
------------
3,911,354
------------
Pass-Through Securities -- 1.2%
FNMA
8.000% 5/01/2013 832,639 856,772
FNMA
9.000% 10/01/2009 864,176 918,023
------------
1,774,795
------------
5,686,149
------------
</TABLE>
(Continued)
12 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
Government National Mortgage Association
(GNMA) -- 1.3%
Pass-Through Securities -- 1.3%
GNMA
8.000% 5/15/2001 -
11/15/2007 $1,808,533 $ 1,868,991
-------------
U.S. Government Guaranteed Notes -- 8.7%
1991-A Jacksonville,
FL
8.400% 8/01/1997 1,150,000 1,167,250
1991-A St. Louis, MO
8.400% 8/01/1997 3,350,000 3,400,250
1994-A Baxter
Springs, KS
6.310% 8/01/2001 500,000 497,390
1994-A Detroit, MI
6.310% 8/01/2001 450,000 447,651
1994-A Jacksonville,
FL
6.310% 8/01/2001 1,485,000 1,477,248
1994-A Los Angeles
County, CA
6.310% 8/01/2001 225,000 223,826
1994-A Tacoma, WA
6.310% 8/01/2001 195,000 193,982
1994-A Trenton, NJ
6.310% 8/01/2001 145,000 144,243
U.S. Dept. of Housing
and Urban
Development, Series
1995-A
8.080% 8/01/1998 3,000,000 3,090,000
U.S. Dept. of Housing
and Urban
Development, Series
1996-A
6.440% 8/01/1999 2,000,000 2,012,500
-------------
12,654,340
-------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 24,636,280
-------------
(Cost $24,077,001)
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 43.3%
U.S. Treasury Notes
U.S. Treasury Note
5.750% 8/15/2003 $ 6,000,000 $ 5,820,000
U.S. Treasury Note
7.125% 2/29/2000 22,000,000 22,649,660
U.S. Treasury Note
7.250% 5/15/2004 15,200,000 15,993,288
U.S. Treasury Note
8.875% 2/15/1999 17,500,000 18,514,475
-------------
TOTAL U.S. TREASURY
OBLIGATIONS 62,977,423
-------------
(Cost $62,760,329)
TOTAL BONDS & NOTES 122,160,320
-------------
(Cost $121,142,591)
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 14.7%
Commercial Paper
Bausch & Lomb Inc.
5.600% 1/24/1997 $ 4,435,000 $ 4,419,133
Countrywide Home
Loans, Inc.
5.970% 1/14/1997 780,000 778,318
Crown Cork & Seal
Company Inc.
5.720% 1/09/1997 490,000 489,377
Crown Cork & Seal
Company Inc.
5.830% 2/13/1997 1,480,000 1,469,694
Crown Cork & Seal
Company Inc.
5.950% 2/13/1997 520,000 516,304
Dana Credit
Corporation
5.650% 1/30/1997 510,000 507,679
Illinois Power
Company
5.540% 1/16/1997 5,360,000 5,347,628
NYNEX Corporation
6.250% 1/03/1997 4,360,000 4,358,486
ORIX Credit Alliance,
Inc.
6.080% 2/03/1997 1,210,000 1,203,256
Public Service
Company of Colorado
5.550% 1/03/1997 472,000 471,855
Public Service
Electric and Gas
Company
5.600% 1/09/1997 1,840,000 1,837,710
-------------
TOTAL SHORT-TERM
INVESTMENTS 21,399,440
-------------
(At Amortized Cost)
TOTAL INVESTMENTS -- 98.6% 143,559,760
(Cost $142,542,031)[
Other Assets/
(Liabilities) - 1.4% 1,973,649
-------------
NET ASSETS-- 100.0% $145,533,409
-------------
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
144A: Securities exempt from registration under rule 144A of the Securities Act
of 1933. The Securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The accompanying notes are an integral part of the financial statements. 13
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Statement of Assets and Liabilities
Assets:
Investments, at value (cost $121,142,591) (Note 2)......................... $ 122,160,320
Short-term investments, at amortized cost (Note 2)......................... 21,399,440
-------------------
Total Investments........................................................ 143,559,760
Cash....................................................................... 1,576
Receivables from:
Fund shares sold......................................................... 25,221
Interest................................................................. 2,325,244
Investment manager (Note 3).............................................. 7,243
-------------------
Total assets........................................................... 145,919,044
-------------------
Liabilities:
Payables for:
Fund shares redeemed..................................................... 305,355
Directors' fees and expenses (Note 3).................................... 5,177
Affiliates (Note 3):
Investment management fees............................................. 57,775
Administration fees.................................................... 10,156
Service and distribution fees.......................................... 232
Accrued expenses and other liabilities..................................... 6,940
-------------------
Total liabilities...................................................... 385,635
-------------------
Net assets................................................................. $ 145,533,409
-------------------
Net assets consist of:
Paid-in capital............................................................ $ 144,792,097
Undistributed net investment income........................................ 18,783
Accumulated net realized loss on investments............................... (295,200)
Net unrealized appreciation on investments................................. 1,017,729
-------------------
$ 145,533,409
===================
Net assets:
Class 1.................................................................... $ 115,863
===================
Class 2.................................................................... $ 117,250
===================
Class 3.................................................................... $ 118,001
===================
Class 4.................................................................... $ 145,182,295
===================
Shares outstanding:
Class 1.................................................................... 11,415
===================
Class 2.................................................................... 11,544
===================
Class 3.................................................................... 11,599
===================
Class 4.................................................................... 14,365,202
===================
Net asset value, offering price and
redemption price per share:
Class 1.................................................................... $ 10.15
===================
Class 2.................................................................... $ 10.16
===================
Class 3.................................................................... $ 10.17
===================
Class 4.................................................................... $ 10.11
===================
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-----------------
<S> <C>
Statement of Operations
Investment income:
Interest....................................................................... $ 8,783,175
-------------------
Expenses (Note 1):
Investment management fees (Note 3)............................................ 606,206
Custody fees................................................................... 15,494
Audit and legal fees........................................................... 4,657
Directors' fees (Note 3)....................................................... 15,247
Fees waived by the investment manager (Note 3)................................. (47,791)
-------------------
593,813
Administration fees (Note 3):
Class 1...................................................................... 628
Class 2...................................................................... 577
Class 3...................................................................... 353
Class 4...................................................................... 105,079
Distribution and service fees (Note 3):
Class 1...................................................................... 733
Class 2...................................................................... 171
-------------------
Net expenses............................................................... 701,354
-------------------
Net investment income...................................................... 8,081,821
-------------------
Realized and unrealized gain (loss):
Net realized loss on investment transactions................................... (274,845)
Net change in unrealized appreciation (depreciation)
on investments............................................................... (384,702)
-------------------
Net realized and unrealized loss........................................... (659,547)
-------------------
Net increase in net assets resulting from operations........................... $ 7,422,274
===================
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
Statements of Changes in Net Assets
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 8,081,821 $ 7,424,141
Net realized gain (loss) on investment transactions (274,845) 2,489,218
Net change in unrealized appreciation (depreciation)
on investments (384,702) 2,855,699
----------------- -----------------
Net increase in net assets resulting from operations 7,422,274 12,769,058
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 (5,225) (5,481)
Class 2 (5,891) (6,066)
Class 3 (6,321) (6,421)
Class 4 (8,133,246) (7,354,246)
----------------- -----------------
Total distributions from net investment income (8,150,683) (7,372,214)
----------------- -----------------
In excess of net investment income:
Class 1 (1) --
Class 2 (1) --
Class 3 (1) --
Class 4 (1,569) --
----------------- -----------------
Total distributions in excess of net investment income (1,572) --
----------------- -----------------
From net realized gains:
Class 1 (59) (2,049)
Class 2 (59) (2,050)
Class 3 (59) (2,046)
Class 4 (71,288) (2,256,969)
----------------- -----------------
Total distributions from net realized gains (71,465) (2,263,114)
----------------- -----------------
Net fund share transactions (Note 5):
Class 1 5,285 7,530
Class 2 5,951 8,116
Class 3 6,381 8,467
Class 4 23,078,364 12,933,618
----------------- -----------------
Increase in net assets from net fund share transactions 23,095,981 12,957,731
----------------- -----------------
Total increase in net assets 22,294,535 16,091,461
Net assets:
Beginning of period 123,238,874 107,147,413
----------------- -----------------
End of period (including undistributed net investment
income of $18,783 and $68,862, respectively) $ 145,533,409 $ 123,238,874
================= =================
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE>
- -------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.19 $ 9.89 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.50 0.55 0.09
Net realized and unrealized gain (loss) on investments (0.05) 0.49 (0.11)
----------- ------------ ------------
Total income (loss) from investment operations 0.45 1.04 (0.02)
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.48) (0.54) (0.09)
From net realized gains (0.01) (0.20) --
----------- ------------ ------------
Total distributions (0.49) (0.74) (0.09)
----------- ------------ ------------
Net asset value, end of period $ 10.15 $ 10.19 $ 9.89
=========== ============ ============
Total Return 4.35% 10.54% (0.17)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $116 $111 $100
Net expenses to average daily net assets# 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 4.86% 5.20% 5.45%*
Portfolio turnover rate 61% 114% 15%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.68% 1.68% 1.70%*
</TABLE>
<TABLE>
<CAPTION>
Class 2
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.19 $ 9.89 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.56 0.61 0.10
Net realized and unrealized gain (loss) on investments (0.04) 0.49 (0.11)
----------- ------------ ------------
Total income (loss) from investment operations 0.52 1.10 (0.01)
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.54) (0.60) (0.10)
From net realized gains (0.01) (0.20) --
----------- ------------ ------------
Total distributions (0.55) (0.80) (0.10)
----------- ------------ ------------
Net asset value, end of period $ 10.16 $ 10.19 $ 9.89
=========== ============ ============
Total Return 5.02% 11.11% (0.09)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $117 $112 $101
Net expenses to average daily net assets# 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 5.41% 5.75% 5.99%*
Portfolio turnover rate 61% 114% 15%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.13% 1.13% 1.15%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
The accompanying notes are an integral part of the financial statements. 17
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.21 $ 9.91 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.60 0.64 0.10
Net realized and unrealized gain (loss) on investments (0.05) 0.49 (0.09)
----------- ------------ ------------
Total income (loss) from investment operations 0.55 1.13 0.01
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.58) (0.63) (0.10)
From net realized gains (0.01) (0.20) --
----------- ------------ ------------
Total distributions (0.59) (0.83) (0.10)
----------- ------------ ------------
Net asset value, end of period $ 10.17 $ 10.21 $ 9.91
=========== ============ ============
Total Return 5.28% 11.46% 0.13%
Ratios / Supplemental Data:
Net assets, end of period (000's) $118 $112 $100
Net expenses to average daily net assets# 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 5.76% 6.10% 6.36%*
Portfolio turnover rate 61% 114% 15%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.79% 0.78% 0.80%*
<CAPTION>
Class 4
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.15 $ 9.85 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.60 0.66 0.16
Net realized and unrealized gain (loss) on investments (0.03) 0.50 (0.15)
----------- ------------ ------------
Total income (loss) from investment operations 0.57 1.16 0.01
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.60) (0.66) (0.16)
From net realized gains (0.01) (0.20) --
----------- ------------ ------------
Total distributions (0.61) (0.86) (0.16)
----------- ------------ ------------
Net asset value, end of period $ 10.11 $ 10.15 $ 9.85
========== ============ ============
Total Return@ 5.57% 11.77% 0.13%
Ratios / Supplemental Data:
Net assets, end of period (000's) $145,182 $122,904 $106,846
Net expenses to average daily net assets# 0.5190% 0.5190% 0.5190%*
Net investment income to average daily net assets 6.00% 6.32% 6.37%*
Portfolio turnover rate 61% 114% 15%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.5545% 0.5524% 0.5654%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
@Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
18 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Core Bond
Fund?
The objective and policies of the Fund are to:
. achieve high total rate of return over the long term consistent with prudent
investment risk and the preservation of capital
. invest primarily in investment-grade, fixed-income securities
. maintain duration in a targeted range from four to seven years to reduce
volatility
. diversify investments by industry sector, maturity, issuer class, and quality
sectors to reduce risk of capital erosion
How did the Fund perform over the past year?
1996 was a trying year for the bond market, in part because interest rates rose
somewhat over the course of the year, and also because releases of conflicting
economic data filled the market with a high degree of volatility. Even so, the
Fund's performance was positive. The portfolio's results were closely in line
with its benchmark, the Lehman Brothers Government/Corporate Bond Index.
How did the bond market change over the past year?
Although there was a good degree of volatility throughout the year, conditions
changed most during the first half of 1996. During 1995, interest rates fell,
leading to excellent performance. In contrast, as rates increased over the past
year, prices, especially in longer bonds and Treasuries, were damaged. So
although we were fully diversified across bond market sectors and maturities,
this downturn had a temporary dampening effect on our portfolio's performance.
What investments worked best under these conditions?
Though the impact of the rate increase was felt immediately, the resulting
steepening of the yield curve created value in the market over the longer term.
As the curve steepened, we were able to move out of very short-term securities
toward better yielding alternatives that we expect will perform well for us
going forward.
Beyond that, not all areas of the market suffered during the year.
Non-investment grade bonds performed particularly well. While we avoided this
sector of the market because of the relative risks associated with it, we were
pleased with our holdings of investment grade corporate bonds and
mortgage-backed securities. Investment grade corporate bonds, which made up 33.4
percent of the portfolio as of December 31, 1996, remained strong regardless of
the broader market's difficulties. Corporate profits held steady, and as a
result, demand in the bond market supported prices. Some of the corporate bonds
that performed best for us were airline enhanced equipment trusts. These are
bonds backed by assets such as planes and capital equipment, and they benefited
as profitability increased across the airline business.
In addition to our successes with corporate bonds, mortgage-backed securities
performed well. We tend to buy well-structured, seasoned issues, and, as their
behavior tends to mimic corporate bonds, they worked well for us again this
year. Since concerns about the prepayment of all types of mortgages are greatest
when rates are falling, these securities paid competitive income and avoided
significant price declines during the past year. Mortgage-backed securities were
19.9 percent of the Fund's portfolio at year end.
What changes, if any, are being made to the portfolio?
Because of their strong performance, we would have liked to have owned more
mortgage-backed securities and corporate bonds than we did over the year. After
their dramatic 1996 movements, however, they are currently less compelling as
value investments. So, at this time, we're not really making any major changes
to our sector holdings.
Looking for value is an inherent part of our strategy, and we've continued to do
that. With an impressive growth in assets under management this year, we are
generally sticking with our bottom-up investment approach. We're keeping our
duration neutral relative to our benchmark and constantly performing extensive
credit analyses across the investment grade bond market. We work to add value
for investors by looking at individual issues from a critical risk/reward
perspective, hoping to discover outstanding opportunities for both income and
appreciation.
What is the outlook for the Fund?
Our outlook for both the Fund and the bond market is positive. The economy, even
in the sixth year of an expansion, appears steady, and shows little in the way
of inflation. With that as a background, we expect the coming year to be a good
one. Without threats of inflation, it is unlikely that the Federal Reserve will
move aggressively. While we may see minor volatility in the market, we'd expect
improvements going forward and a market whose performance is primarily a product
of coupon income.
19
<PAGE>
- --------------------------------------------------------------------------------
Mass Mutual Core Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
[CHART OF GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C>
"10/3/94" 10000 10000 10000 10000 10000
"12/94" 10000 10008 10009 10020 10037
"6/95" 11121 11170 11192 11212 11220
"12/95" 11781 11860 11894 11940 11968
"6/96" 11475 11575 11645 11695 11743
"12/96" 11970 12105 12197 12274 12315
</TABLE>
[PIE CHART OF QUALITY STRUCTURE APPEARS HERE]
[PIE CHART OF DURATION DIVERSIFICATION]
20
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
BONDS & NOTES - 97.0%
ASSET BACKED SECURITIES -- 8.1%
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 $3,000,000 $ 3,004,680
Chase Manhattan Auto
Grantor Trust 1996-B,
Class A
6.610% 9/15/2002 4,572,639 4,604,053
Daimler-Benz Auto
Grantor Trust 1995-A,
Class A
5.850% 5/15/2002 2,505,290 2,503,712
Daimler-Benz Vehicle
Trust 1994-A
5.950% 12/15/2000 220,873 221,079
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 536,247 542,280
Ford Credit Auto
Loan Master Trust,
Series 1992-1
6.875% 1/15/1999 2,000,000 2,000,620
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 5,000,000 5,019,950
Keystone Auto
Grantor Trust 1996-B,
Class A 144A
6.150% 4/15/2003 2,801,590 2,799,349
Nissan Auto
Receivables 1994-A
Grantor Trust,
Class A
6.450% 9/15/1999 1,253,833 1,256,967
Railcar Trust No.
1992-1
7.750% 6/01/2004 1,395,818 1,458,629
World Omni 1995-A
Automobile Lease
Securitization Trust,
Class A
6.050% 11/25/2001 2,835,307 2,838,852
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class A1
6.300% 6/25/2002 2,650,000 2,659,090
------------
TOTAL ASSET BACKED
SECURITIES 28,909,261
------------
(Cost $28,855,243)
CORPORATE DEBT -- 33.0%
AirTouch
Communications, Inc.
7.500% 7/15/2006 3,000,000 3,079,440
America West Airlines
1996-1, Class A
6.850% 7/02/2009 4,000,000 3,920,000
American Airlines, Inc.
9.780% 11/26/2011 2,000,000 2,277,500
AMR Corporation (D)
9.000% 8/01/2012 2,000,000 2,263,880
Analog Devices, Inc. (D)
6.625% 3/01/2000 1,500,000 1,480,950
Associates Corporation
of North America
6.750% 8/01/2001 2,000,000 2,007,340
Associates Corporation
of North America (D)
7.875% 9/30/2001 1,500,000 1,573,275
Bell Atlantic Financial
Services, Inc.
6.610% 2/04/2000 1,750,000 1,760,868
BHP Finance (USA)
Limited
6.420% 3/01/2026 3,500,000 3,464,685
Capital Cities/ABC,
Inc.
8.875% 12/15/2000 875,000 944,151
Champion International
Corporation
6.400% 2/15/2026 2,500,000 2,386,725
The Charles Schwab
Corporation
6.250% 1/23/2003 2,500,000 2,409,375
Chrysler Corporation
10.400% 8/01/1999 1,500,000 1,537,440
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
CITGO Petroleum
Corporation
7.875% 5/15/2006 1,000,000 1,019,600
Columbia Gas System,
Inc.
6.610% 11/28/2002 3,000,000 2,976,750
Commercial Credit
Company (D)
7.750% 3/01/2005 3,000,000 3,133,380
Continental Airlines,
Inc., Series 1996-2B
8.560% 7/02/2014 1,749,640 1,904,921
Continental Airlines,
Inc., Series 1996-B
7.820% 10/15/2013 2,000,000 2,067,400
Corning Glass Works (D)
8.875% 3/15/2016 1,000,000 1,128,240
English China Clays
Delaware Inc. (D)
7.375% 10/01/2002 1,000,000 1,027,760
Equifax Inc.
6.500% 6/15/2003 1,000,000 973,260
ERAC USA Finance
Company 144A
6.950% 1/15/2006 1,500,000 1,475,625
FBG Finance Ltd.
144A
7.875% 6/01/2016 3,000,000 3,049,830
Fletcher Challenge Ltd
7.750% 6/20/2006 2,000,000 2,074,100
Foster Wheeler
Corporation
6.750% 11/15/2005 2,000,000 1,932,440
General American
Transportation
Corporation
6.750% 3/01/2006 3,000,000 2,915,700
General Electric
Capital Corporation
8.750% 5/21/2007 1,500,000 1,700,370
General Telephone
Company of Florida
7.500% 8/01/2002 1,000,000 1,011,310
The Goldman Sachs
Group, L.P. 144A
6.200% 2/15/2001 2,500,000 2,450,000
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements. 21
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
Harrahs Operating Inc.
8.750% 3/15/2000 $1,100,000 $ 1,113,750
Hercules Incorporated (D)
6.625% 6/01/2003 2,000,000 1,979,860
IMCERA Group Inc. (D)
6.000% 10/15/2003 1,000,000 957,700
Leucadia National
Corporation
7.750% 8/15/2013 2,500,000 2,471,425
Lockheed Martin
Corporation
7.700% 6/15/2008 3,000,000 3,138,690
McDonnell Douglas
Corporation
6.875% 11/01/2006 3,000,000 2,943,780
McDonnell Douglas
Corporation (D)
9.250% 4/01/2002 1,500,000 1,675,350
Newmont Mining
Corporation
8.625% 4/01/2002 2,000,000 2,111,380
News America
Holdings Incorporated
9.250% 2/01/2013 3,000,000 3,360,870
Norfolk Southern
Corporation
7.220% 9/15/2006 3,000,000 3,056,580
Norfolk Southern
Corporation
7.400% 9/15/2006 2,000,000 2,031,140
North Finance
(Bermuda) Limited
144A
7.000% 9/15/2005 2,000,000 1,970,000
Pearson Inc. 144A
7.375% 9/15/2006 3,000,000 3,012,900
Penske Truck Leasing
Co., L.P.
7.750% 5/15/1999 1,500,000 1,548,210
Ralston Purina
Company
7.750% 10/01/2015 2,000,000 2,050,920
Rite Aid Corporation
6.700% 12/15/2001 2,000,000 1,996,180
Rolls-Royce Capital
Inc.
7.125% 7/29/2003 2,000,000 2,002,980
Scholastic Corporation
7.000% 12/15/2003 4,000,000 3,992,280
Thomas & Betts
Corporation (D)
8.250% 1/15/2004 2,500,000 2,597,825
Time Warner Inc.
7.750% 6/15/2005 3,000,000 3,017,790
United Air Lines, Inc.
10.110% 2/19/2006 939,710 1,040,390
US Air, Inc.
7.500% 10/15/2009 1,461,057 1,475,667
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
Valassis
Communications, Inc.
9.550% 12/01/2003 $ 2,000,000 $ 2,081,280
Westinghouse Electric
Corporation
8.375% 6/15/2002 1,000,000 1,019,670
W.R. Grace & Co.
8.000% 8/15/2004 5,000,000 5,293,600
------------
TOTAL CORPORATE DEBT 117,886,532
------------
(Cost $114,776,584)
NON - U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 1.1%
Collateralized Mortgage Obligation
Prudential Home
Mortgage Securities
1993-26 Class A6
6.750% 7/25/2008 4,000,000 4,008,720
------------
(Cost $3,955,000)
U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 20.2%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 4.6%
Collateralized Mortgage Obligations -- 4.5%
FHLMC Series 1080
Class D
7.000% 7/15/2020 2,900,319 2,933,847
FHLMC Series 1322
Class G
7.500% 2/15/2007 2,000,000 2,048,120
FHLMC Series 1460
Class H
7.000% 5/15/2007 2,000,000 2,020,000
FHLMC Series 1490
Class PJ
6.000% 5/15/2007 600,000 589,122
FHLMC Series 1612
Class PD
5.750% 5/15/2006 5,000,000 4,915,600
FHLMC Series 1625
Class EA
5.750% 3/15/2007 3,500,000 3,436,545
------------
15,943,234
------------
Pass-Through Securities -- 0.1%
FHLMC
9.000% 3/01/2017 368,612 392,225
------------
16,335,459
------------
Federal National Mortgage
Association (FNMA) -- 5.6%
Collateralized Mortgage Obligations -- 5.4%
FNMA Series 1989-20
Class A
6.750% 4/25/2018 4,267,616 4,107,580
FNMA Series 1992-86
Class C
7.000% 6/25/2003 115,745 115,419
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
FNMA Series 1993-134
Class GA
6.500% 2/25/2007 $ 5,000,000 $ 4,964,050
FNMA Series 1993-175
Class PL
5.000% 10/25/2002 1,390,909 1,381,770
FNMA Series 1993-191
Class PD
5.400% 3/25/2004 1,500,000 1,487,340
FNMA Series 1993-221
Class D
6.000% 12/25/2008 2,500,000 2,390,625
FNMA Series 1996-54
Class C
6.000% 9/25/2008 5,000,000 4,800,000
------------
19,246,784
------------
Pass-Through Securities -- 0.2%
FNMA
8.000% 5/01/2013 555,094 571,180
------------
19,817,964
------------
Government National Mortgage
Association (GNMA) -- 8.3%
Collateralized Mortgage Obligation -- 0.5%
JHM Acceptance
Corporation Series E
Class 5
8.960% 4/01/2019 1,633,748 1,718,491
-----------
Pass-Through Securities -- 7.8%
GNMA
6.000% 12/20/2025 5,579,916 5,706,355
GNMA
7.000% 7/20/2025 -
9/20/2025 5,474,412 5,591,443
GNMA
7.500% 1/15/2017 -
6/15/2017 7,142,857 7,188,784
GNMA
8.000% 4/15/2001 -
3/15/2008 8,808,388 9,102,855
GNMA
9.000% 12/15/2004 -
10/15/2009 500,156 532,822
------------
28,122,259
------------
29,840,750
------------
U.S. Government Guaranteed Notes -- 1.7%
1994-A Baxter
Springs, KS
5.930% 8/01/1999 700,000 696,500
1994-A Erie, PA
5.930% 8/01/1999 1,590,000 1,582,050
1994-A Los Angeles
County, CA
5.930% 8/01/1999 190,000 189,050
</TABLE>
(Continued)
22 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
1994-A Montgomery
County, PA
5.930% 8/01/1999 $ 150,000 $ 149,250
1994-A Pohatcong
Township, NJ
5.930% 8/01/1999 255,000 253,725
1994-A Rochester, NY
5.930% 8/01/1999 135,000 134,325
1994-A Sacramento,
CA
5.930% 8/01/1999 60,000 59,700
1994-A Santa Ana,
CA
5.930% 8/01/1999 920,000 915,400
U.S. Dept. of Housing
and Urban
Development, Series
1996-A
6.670% 8/01/2001 2,000,000 2,020,000
------------
6,000,000
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 71,994,173
------------
(Cost $70,455,483)
U.S. TREASURY OBLIGATIONS -- 34.6%
U.S. Treasury Bonds -- 15.4%
U.S. Treasury Bond
7.250% 5/15/2016 20,700,000 21,857,958
U.S. Treasury Bond
8.875% 8/15/2017 26,750,000 33,040,530
------------
54,898,488
------------
U.S. Treasury Notes -- 13.6%
U.S. Treasury Note
5.875% 4/30/1998 7,000,000 7,010,920
U.S. Treasury Note
6.375% 5/15/1999 23,500,000 23,701,865
U.S. Treasury Note
8.875% 11/15/1998 17,000,000 17,887,230
------------
48,600,015
------------
U.S. Treasury Strips -- 5.6%
U.S. Treasury Strip -- Principal Only
0.000% 2/15/1999 19,500,000 17,237,220
U.S. Treasury Strip -- Principal Only
0.000% 2/15/2015 9,250,000 2,708,308
------------
19,945,528
------------
TOTAL U.S. TREASURY
OBLIGATIONS 123,444,031
------------
(Cost $123,480,345)
TOTAL BONDS & NOTES 346,242,717
------------
(Cost $341,522,655)
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.8%
Commercial Paper
Bausch & Lomb Inc.
6.850% 1/08/1997 1,140,000 1,138,482
Indiana Michigan
Power Company
6.700% 1/03/1997 3,000,000 2,998,883
Lockheed Martin
Corporation
7.000% 1/02/1997 2,355,000 2,354,542
------------
TOTAL SHORT-TERM
INVESTMENTS 6,491,907
------------
(At Amortized Cost)
TOTAL INVESTMENTS -- 98.8% 352,734,624
(Cost $348,014,562)[
Other Assets/
(Liabilities) - 1.2% 4,330,553
------------
NET ASSETS-- 100.0% $357,065,177
------------
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes
(Note 7)
144A: Securities exempt from registration under rule 144A of the Securities Act
of 1933. The Securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
(D) All or a portion of this security is segregated to cover forward purchase
commitments (Note 2).
The accompanying notes are an integral part of the financial statements. 23
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
----------------
Statement of Assets and Liabilities
<S> <C>
Assets:
Investments, at value (cost $341,522,655) (Note 2)..... $ 346,242,717
Short-term investments, at amortized cost (Note 2)..... 6,491,907
----------------
Total Investments.................................... 352,734,624
Cash................................................... 4,936
Receivables from:
Fund shares sold..................................... 380,193
Interest............................................. 4,574,725
Investment manager (Note 3).......................... 17,663
----------------
Total assets....................................... 357,712,141
----------------
Liabilities:
Payables for:
Investments purchased................................ 142,615
Settlement of investments purchased on a
forward commitment basis (Note 2).................. 11,739
Fund shares redeemed................................. 306,112
Directors' fees and expenses (Note 3)................ 5,176
Affiliates (Note 3):
Investment management fees......................... 139,334
Administration fees................................ 26,194
Service and distribution fees...................... 243
Accrued expenses and other liabilities................. 15,551
----------------
Total liabilities.................................. 646,964
----------------
Net assets............................................. $ 357,065,177
================
Net assets consist of:
Paid-in capital........................................ 352,396,989
Undistributed net investment income.................... 1,845,746
Accumulated net realized loss on investments........... (1,885,881)
Net unrealized appreciation on investments
and forward commitments............................ 4,708,323
----------------
$ 357,065,177
================
Net assets:
Class 1................................................ $ 120,838
================
Class 2................................................ $ 122,293
================
Class 3................................................ $ 123,107
================
Class 4................................................ $ 356,698,939
================
Shares outstanding:
Class 1................................................ 11,512
================
Class 2................................................ 11,631
================
Class 3................................................ 11,699
================
Class 4................................................ 34,141,922
================
Net asset value, offering price and
redemption price per share:
Class 1................................................ $ 10.50
================
Class 2................................................ $ 10.51
================
Class 3................................................ $ 10.52
================
Class 4................................................ $ 10.45
================
</TABLE>
24 The accompanying notes are an integral part of the finanial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-----------------
Statement of Operations
<S> <C>
Investment income:
Interest........................................... $ 20,691,459
-----------------
Expenses (Note 1):
Investment management fees (Note 3)................ 1,375,667
Custody fees....................................... 38,056
Audit and legal fees............................... 10,158
Directors' fees (Note 3)........................... 15,247
Fees waived by the investment manager (Note 3)..... (128,270)
-----------------
1,310,858
Administration fees (Note 3):
Class 1.......................................... 737
Class 2.......................................... 614
Class 3.......................................... 257,095
Distribution and service fees (Note 3):
Class 1.......................................... 842
Class 2.......................................... 178
-----------------
Net expenses................................... 1,570,706
-----------------
Net investment income.......................... 19,120,753
-----------------
Realized and unrealized gain (loss):
Net realized loss on investment transactions
and forward commitments............................ (1,886,093)
Net change in unrealized appreciation
(depreciation) on
investments and forward commitments.............. (6,456,882)
-----------------
Net realized and unrealized loss............... (8,342,975)
-----------------
Net increase in net assets resulting from
operations......................................... $ 10,777,778
=================
</TABLE>
The accompanying notes are an integral part of the financial statements. 25
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
Statements of Changes in Net Assets
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income................................................ $ 19,120,753 $ 14,053,804
Net realized gain (loss) on investment transactions
and forward commitments............................................. (1,886,093) 9,143,745
Net change in unrealized appreciation (depreciation) on
investments and forward commitments................................. (6,456,882) 14,064,619
----------------- -----------------
Net increase in net assets resulting from operations................ 10,777,778 37,262,168
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1.............................................................. (4,416) (7,975)
Class 2.............................................................. (5,227) (5,956)
Class 3.............................................................. (5,674) (6,329)
Class 4.............................................................. (17,374,307) (13,924,661)
----------------- -----------------
Total distributions from net investment income...................... (17,389,624) (13,944,921)
----------------- -----------------
From net realized gains:
Class 1.............................................................. (740) (4,784)
Class 2.............................................................. (714) (3,332)
Class 3.............................................................. (715) (3,329)
Class 4.............................................................. (1,942,817) (7,028,844)
----------------- -----------------
Total distributions from net realized gains......................... (1,944,986) (7,040,289)
----------------- -----------------
Net fund share transactions (Note 5):
Class 1.............................................................. (45,858) 61,915
Class 2.............................................................. 5,941 9,288
Class 3.............................................................. 6,389 9,658
Class 4.............................................................. 111,704,711 43,139,641
----------------- -----------------
Increase in net assets from net fund share transactions............. 111,671,183 43,220,502
----------------- -----------------
Total increase in net assets......................................... 103,114,351 59,497,460
Net assets:
Beginning of period.................................................. 253,950,826 194,453,366
----------------- -----------------
End of period (including undistributed net investment income
of $1,845,746 and $114,829, respectively)........................... $ 357,065,177 $ 253,950,826
================= =================
</TABLE>
26 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.79 $ 9.90 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.53*** 0.50 0.10
Net realized and unrealized gain (loss) on investments (0.36) 1.26 (0.10)
----------- ------------ ------------
Total income (loss) from investment operations 0.17 1.76 --
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.40) (0.54) (0.10)
From net realized gains (0.06) (0.33) --
----------- ------------ ------------
Total distributions (0.46) (0.87) (0.10)
----------- ------------ ------------
Net asset value, end of period $ 10.50 $ 10.79 $ 9.90
=========== ============ ============
Total Return 1.60% 17.81% 0.00%
Ratios / Supplemental Data:
Net assets, end of period (000's) $121 $171 $101
Net expenses to average daily net assets# 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 5.10% 5.39% 5.91%*
Portfolio turnover rate 54% 104% 7%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.69% 1.69% 1.71%*
<CAPTION>
Class 2
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.82 $ 9.90 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.60*** 0.64 0.11
Net realized and unrealized gain (loss) on investments (0.38) 1.19 (0.10)
----------- ------------ ------------
Total income (loss) from investment operations 0.22 1.83 0.01
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.47) (0.58) (0.11)
From net realized gains (0.06) (0.33) --
----------- ------------ ------------
Total distributions (0.53) (0.91) (0.11)
----------- ------------ ------------
Net asset value, end of period $ 10.51 $ 10.82 $ 9.90
=========== ============ ============
Total Return 2.07% 18.51% 0.08%
Ratios / Supplemental Data:
Net assets, end of period (000's) $122 $120 $101
Net expenses to average daily net assets# 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 5.67% 5.97% 6.46%*
Portfolio turnover rate 54% 104% 7%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.14% 1.14% 1.16%*
</TABLE>
* Annualized
** For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
*** Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of
the undistributed income method does not accord with the results of
operations.
The accompanying notes are an integral part of the financial statesments. 27
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.82 $ 9.90 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.64*** 0.68 0.11
Net realized and unrealized gain (loss) on investments (0.37) 1.19 (0.10)
----------- ------------ ------------
Total income (loss) from investment operations 0.27 1.87 0.01
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.51) (0.62) (0.11)
From net realized gains (0.06) (0.33) --
----------- ------------ ------------
Total distributions (0.57) (0.95) (0.11)
----------- ------------ ------------
Net asset value, end of period $ 10.52 $ 10.82 $ 9.90
=========== ============ ============
Total Return 2.52% 18.87% 0.09%
Ratios / Supplemental Data:
Net assets, end of period (000's) $123 $120 $101
Net expenses to average daily net assets# 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 6.01% 6.32% 6.83%*
Portfolio turnover rate 54% 104% 7%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.79% 0.79% 0.81%*
<CAPTION>
Class 4
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
Net asset value, beginning of period $ 10.75 $ 9.84 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.67*** 0.72*** 0.18
Net realized and unrealized gain (loss) on investments (0.37) 1.17 (0.16)
----------- ------------ ------------
Total income (loss) from investment operations 0.30 1.89 0.02
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.54) (0.65) (0.18)
From net realized gains (0.06) (0.33) --
----------- ------------ ------------
Total distributions (0.60) (0.98) (0.18)
----------- ------------ ------------
Net asset value, end of period $ 10.45 $ 10.75 $ 9.84
=========== ============ ============
Total Return/@/ 2.80% 19.15% 0.20%
Ratios / Supplemental Data:
Net assets, end of period (000's) $356,699 $253,540 $194,150
Net expenses to average daily net assets# 0.5130% 0.5130% 0.5130%*
Net investment income to average daily net assets 6.26% 6.56% 6.86%*
Portfolio turnover rate 54% 104% 7%
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.5550% 0.5553% 0.5672%*
</TABLE>
/*/Annualized
/**/For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
/***/Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of
the undistributed income method does not accord with the results of
operations.
/@/Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
28 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Balanced Fund?
The objective and policies of the Fund are to:
. achieve high total rate of return over the long term consistent with the
preservation of capital
. invest in equity securities, fixed-income securities and money market
instruments
. manage the allocation of investments in three sectors within the following
ranges:
10%-45% Prime Sector
10%-25% Core Bond Sector
45%-65% Value Equity Sector
How did the Fund perform over the past year?
We're very pleased with the Fund's performance. With 50% of net assets invested
in stocks, we participated in the strong performance of the equity market over
the period. But with 16% of net assets invested in bonds and the remaining 34%
in cash and short-term fixed income investments, we were able to do so with far
less risk than pure stock investments.
What types of stocks worked best over the period?
The stocks of the large, well-established companies we tend to own performed
best over the year, and that was a benefit. Within the portfolio, some of our
top performers were financial services, capital spending, technology and drug
stocks. Many of our bank stocks did well due to strong profits and ongoing
consolidations. Capital spending stocks were also strong. We owned a full
position in GE, which was one of our best performers, up approximately 40
percent for the year. And though we tend to be underweighted in technology
stocks since few have the reasonable valuations and dividend records we require,
we added to our position in IBM over the course of the year, and that benefited
us.
On the whole, our stock strategy remained consistent over the past year. We
maintained a well-diversified portfolio of what we considered the best stocks
across numerous industries rather than making investments based on current
economic forecasts. We worked to buy good value wherever we found it in the
market, and we sold stocks that we felt had become risky, reaching what we'd
targeted as peaks for their performance cycles.
What was the bond strategy during the year?
The bond portfolio turned in a positive performance for the year, but it fell
far short of the returns generated by stocks. The investment grade fixed income
market had a somewhat difficult year due primarily to two factors. First,
interest rates rose slightly, and that negatively impacted price performance.
Second, a high level of volatility resulting from continuously changing economic
expectations colored the market and investor emotion throughout the year. Our
strategy inside this uneasy environment was to remain diversified between
Treasuries, mortgage-backed securities, asset-backed securities, and corporate
bonds, searching for opportunities to add value over time. This, plus
maintaining a duration of approximately five years, kept our performance closely
in line with our benchmark, the Lehman Brothers Government/Corporate Bond Index.
What changes, if any, are being made to the portfolio?
As always, we are constantly looking for compelling opportunities in both the
stock and bond markets. Outside of that, however, our plan barring any
unforeseen world economic or political events is to keep the portfolio
allocations near their current positions. Both our Value Equity and Core Bond
portions have risen since mid-year -- stocks due to their appreciation, and
bonds because we were able to buy into value -- but they are still slightly
below our neutral positions for both markets. At this allocation, we believe we
are positioned to capture most of the markets' potential returns while keeping a
tight rein on risk.
What is the outlook for the Fund?
We continue to expect that the coming year will be more typical than 1996 or
1995 was for both markets. The economy remains healthy, corporate America is
efficient and competitive, and even after the sixth year of economic expansion,
there are very few signs suggesting inflation is on the rise. As a result, we
believe stocks will have another positive year, but after an impressive two-year
run, one that is more in line with the market's long-term history. In the bond
market, without seeing a need for the Federal Reserve to aggressively tighten
money supply, we expect a better year than last, with income the major component
driving returns. Since it is under historically "normal" conditions like these
that this portfolio typically performs best, our outlook is quite favorable.
29
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
[CHART OF GROWTH OF A $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C>
"10/3/94" 10000 10000 10000 10000 10000
"12/94" 10000 10017 10028 10029 9880
"6/95" 11086 11124 11158 11179 11203
"12/95" 11992 12070 12132 12164 12306
"6/96" 12544 12656 12741 12788 12860
"12/96" 13391 13548 13662 13725 13960
</TABLE>
[PIE CHART OF MASSMUTUAL BALANCED FUND APPEARS HERE]
MassMutual Balanced Fund
Largest Stock Holdings (12/31/96)
Bristol-Myers Squibb Company
General Electric Company
Pfizer, Incorporated
Hewlett-Packard Company
AMP, Incorporated
Amoco Corporation
SAFECO Corporation
Goodyear Tire & Rubber Company
The Bank of New York Company,
Incorporated
Marsh & McLennan Companies, Inc.
30
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
EQUITIES -- 50.2%
Aerospace & Defense -- 0.9%
Boeing Company 27,000 $ 2,872,125
Raytheon Company 1,200 57,750
TRW, Inc. 48,200 2,385,900
------------
5,315,775
------------
Agribusiness -- 0.6%
Pioneer Hi-Bred
International, Inc. 45,500 3,185,000
------------
Apparel, Textiles & Shoes -- 0.5%
VF Corporation 44,500 3,003,750
------------
Automotive & Parts -- 2.4%
Ford Motor Company 97,300 3,101,438
Genuine Parts
Company 103,000 4,583,500
Goodyear Tire &
Rubber Company 113,700 5,841,338
------------
13,526,276
------------
Banking, Savings & Loans -- 3.2%
The Bank of New
York Company,
Incorporated 170,000 5,737,500
Comerica, Incorporated 41,500 2,173,563
CoreStates Financial
Corp. 81,500 4,227,813
Norwest Corporation 57,000 2,479,500
Wachovia Corp. 60,100 3,395,650
------------
18,014,026
------------
Beverages -- 1.0%
Brown-Forman
Corporation (Class B) 66,600 3,046,950
Pepsico, Inc. 84,000 2,457,000
------------
5,503,950
------------
Chemicals -- 2.0%
E. I. du Pont de
Nemours and Company 33,000 3,114,375
The Lubrizol
Corporation 63,300 1,962,300
Nalco Chemical
Company 81,500 2,944,188
Rohm & Haas
Company 39,000 3,183,375
------------
11,204,238
------------
Communications -- 0.6%
AT & T Corporation 84,000 3,654,000
------------
Computers & Office Equipment -- 3.7%
Hewlett-Packard
Company 122,000 6,130,500
International Business
Machines Corporation 35,000 5,285,000
Pitney Bowes, Inc. 84,000 4,578,000
Xerox Corporation 90,000 4,736,250
------------
20,729,750
------------
Containers -- 0.6%
Temple-Inland, Inc. 63,000 3,409,875
------------
Cosmetics & Personal Care -- 0.8%
Kimberly-Clark
Corporation 48,400 4,610,100
------------
Drugs -- 0.6%
Pharmacia & Upjohn,
Inc. 85,000 3,368,125
------------
Electric Utilities -- 0.6%
NIPSCO Industries,
Inc. 40,000 1,585,000
SCANA Corporation 75,000 2,006,250
------------
3,591,250
------------
Electrical Equipment & Electronics -- 3.8%
AMP, Incorporated 156,700 6,013,363
General Electric
Company 82,000 8,107,750
Honeywell Inc. 44,000 2,893,000
Hubbell, Incorporated
(Class B) 96,023 4,152,986
------------
21,167,099
------------
Energy -- 4.3%
Amoco Corporation 74,000 5,957,000
Atlantic Richfield
Company 20,300 2,689,750
Chevron Corporation 70,500 4,582,500
Kerr-McGee
Corporation 43,500 3,132,000
Mobil Corporation 35,000 4,278,750
Teco Energy, Inc. 57,000 1,375,125
Unocal Corporation 68,900 2,799,063
------------
24,814,188
------------
Financial Services -- 0.8%
American Express
Company 76,500 4,322,250
Foods -- 1.4%
ConAgra, Inc. 62,200 3,094,450
CPC International, Inc. 61,000 4,727,500
------------
7,821,950
------------
Forest Products & Paper -- 1.3%
Westvaco Corporation 101,500 2,918,125
Weyerhaeuser Company 90,400 4,282,700
------------
7,200,825
------------
Hardware & Tools -- 0.6%
The Stanley Works 123,000 3,321,000
------------
Healthcare -- 4.4%
Becton, Dickinson and
Company 102,000 4,424,250
Bristol-Myers Squibb
Company 89,000 9,678,750
Pfizer, Incorporated 74,000 6,132,750
Schering-Plough Corp. 69,800 4,519,550
------------
24,755,300
------------
Industrial Distribution -- 0.7%
W.W. Grainger, Inc. 48,000 3,852,000
------------
Industrial Transportation -- 0.7%
Norfolk Southern
Corporation 48,000 4,200,000
------------
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements. 31
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
Insurance -- 4.0%
Allstate Corporation 36,544 $ 2,114,984
Jefferson-Pilot
Corporation 39,750 2,250,844
Marsh & McLennan
Companies, Inc. 55,000 5,720,000
MBIA, Inc. 51,500 5,214,375
SAFECO Corporation 149,000 5,876,188
Unitrin, Inc. 28,500 1,588,875
------------
22,765,266
------------
Machinery & Components -- 0.9%
Dover Corporation 62,000 3,115,500
Parker-Hannifin
Corporation 48,000 1,860,000
------------
4,975,500
------------
Miscellaneous -- 1.4%
Harsco Corporation 34,500 2,363,250
Minnesota Mining &
Manufacturing
Company 68,000 5,635,500
------------
7,998,750
------------
Oil & Gas -- 1.0%
Occidental Petroleum
Corporation 128,500 3,003,688
Union Pacific
Resources Group Inc. 89,500 2,617,875
------------
5,621,563
------------
Photography -- 0.7%
Eastman Kodak
Company 49,300 3,956,325
------------
Publishing & Printing -- 1.1%
The McGraw-Hill
Companies, Inc. 89,000 4,105,125
R.R. Donnelley & Sons
Company 75,500 2,368,813
------------
6,473,938
------------
Retail -- 1.0%
The May Department
Stores Company 70,500 3,295,875
Sears Roebuck and Co. 48,000 2,214,000
------------
5,509,875
------------
Retail-Grocery -- 1.0%
Albertson's, Inc. 119,000 4,239,375
American Stores
Company 31,900 1,303,913
------------
5,543,288
------------
Telecommunications -- 0.5%
GTE Corporation 57,000 2,593,500
------------
Telephone Utilities -- 1.5%
Ameritech Corporation 44,500 2,697,813
Frontier Corporation 134,500 3,043,063
Southern New England
Telecommunications
Corporation 66,000 2,565,750
------------
8,306,626
------------
Tobacco -- 1.6%
American Brands, Inc. 88,500 4,391,813
UST Inc. 135,000 4,370,625
------------
8,762,438
------------
TOTAL EQUITIES 283,077,796
------------
(Cost $198,917,229)
Principal
Amount Market Value
------ ------------
<S> <C> <C>
BONDS & NOTES -- 15.9%
ASSET BACKED SECURITIES -- 1.5%
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 $1,000,000 $ 1,001,560
Chase Manhattan Auto
Grantor Trust 1996-B,
Class A
6.610% 9/15/2002 2,286,319 2,302,026
Daimler-Benz Auto
Grantor Trust 1995-A,
Class A
5.850% 5/15/2002 1,113,462 1,112,761
Daimler-Benz Vehicle
Trust 1994-A
5.950% 12/15/2000 147,249 147,386
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 357,498 361,520
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 1,000,000 1,003,990
Nissan Auto
Receivables 1994-A
Grantor Trust, Class A
6.450% 9/15/1999 438,841 439,939
Railcar Trust No.
1992-1
7.750% 6/01/2004 398,805 416,751
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class A1
6.300% 6/25/2002 1,500,000 1,505,145
------------
TOTAL ASSET BACKED
SECURITIES 8,291,078
------------
(Cost $8,269,339)
CORPORATE DEBT -- 5.6%
AirTouch
Communications, Inc.
7.500% 7/15/2006 1,000,000 1,026,480
America West Airlines
1996-1, Class A
6.850% 7/02/2009 1,000,000 980,000
American Airlines,
Inc. (D)
9.780% 11/26/2011 1,000,000 1,138,750
AMR Corporation (D)
9.000% 8/01/2012 500,000 565,970
Analog Devices, Inc.
6.625% 3/01/2000 500,000 493,650
Associates Corporation
of North America
6.750% 8/01/2001 1,000,000 1,003,670
Bell Atlantic Financial
Services, Inc. (D)
6.610% 2/04/2000 1,000,000 1,006,210
BHP Finance (USA)
Limited
6.420% 3/01/2026 1,000,000 989,910
Cardinal Distribution,
Inc.
8.000% 3/01/1997 500,000 501,565
Champion International
Corporation
6.400% 2/15/2026 1,000,000 954,690
The Charles Schwab
Corporation
6.250% 1/23/2003 1,000,000 963,750
CITGO Petroleum
Corporation
7.875% 5/15/2006 250,000 254,900
Continental Airlines,
Inc., Series 1996-2B
8.560% 7/02/2014 499,897 544,263
Continental Airlines,
Inc., Series 1996-B
7.820% 10/15/2013 500,000 516,850
Delta Air Lines, Inc.
8.540% 1/02/2007 437,643 465,066
English China Clays
Delaware Inc. (D)
7.375% 10/01/2002 500,000 513,880
ERAC USA Finance
Company 144A
6.950% 1/15/2006 500,000 491,875
FBG Finance Ltd.
144A
7.875% 6/01/2016 1,000,000 1,016,610
Fletcher Challenge Ltd.
7.750% 6/20/2006 500,000 518,525
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 971,900
</TABLE>
(Continued)
32 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
The Goldman Sachs
Group, L.P. 144A
6.200% 2/15/2001 $1,000,000 $ 980,000
GTE Corporation
9.100% 6/01/2003 500,000 557,745
Leucadia National
Corporation
7.750% 8/15/2013 1,000,000 988,570
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,046,230
McDonnell Douglas
Corporation
6.875% 11/01/2006 500,000 490,630
McDonnell Douglas
Corporation (D)
9.250% 4/01/2002 500,000 558,450
Newmont Mining
Corporation (D)
8.625% 4/01/2002 1,000,000 1,055,690
News America
Holdings Incorporated
9.250% 2/01/2013 1,000,000 1,120,290
Norfolk Southern
Corporation
7.220% 9/15/2006 850,000 866,031
Norfolk Southern
Corporation
7.400% 9/15/2006 1,000,000 1,015,570
North Finance
(Bermuda) Limited
144A
7.000% 9/15/2005 1,000,000 985,000
Pearson Inc. 144A
7.375% 9/15/2006 500,000 502,150
Polaroid Corporation
7.250% 1/15/1997 1,000,000 1,000,220
Rite Aid Corporation
6.700% 12/15/2001 500,000 499,045
Rolls-Royce Capital
Inc.
7.125% 7/29/2003 1,000,000 1,001,490
Scholastic Corporation
7.000% 12/15/2003 1,000,000 998,070
Thomas & Betts
Corporation
8.250% 1/15/2004 500,000 519,565
Time Warner Inc.
7.750% 6/15/2005 1,000,000 1,005,930
US Air, Inc.
7.500% 10/15/2009 487,019 491,889
W.R. Grace & Co.
8.000% 8/15/2004 1,000,000 1,058,720
------------
TOTAL CORPORATE DEBT 31,659,799
------------
(Cost $30,638,759)
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 4.4%
Federal Home Loan Mortgage Corporation (FHLMC) -- 0.9%
Collateralized Mortgage Obligations -- 0.8%
FHLMC Series 1322
Class G
7.500% 2/15/2007 $1,000,000 $ 1,024,060
FHLMC Series 1625
Class D
5.250% 7/15/2004 3,100,000 3,067,047
FHLMC Series 1625
Class EA
5.750% 3/15/2007 1,000,000 981,870
------------
5,072,977
------------
Pass-Through Securities -- 0.1%
FHLMC
9.000% 3/01/2017 184,306 196,112
------------
5,269,089
------------
Federal National Mortgage Association
(FNMA) -- 1.0%
Collateralized Mortgage Obligations -- 0.9%
FNMA Series 1993-134
Class GA
6.500% 2/25/2007 1,000,000 992,810
FNMA Series 1993-191
Class PD
5.400% 3/25/2004 1,000,000 991,560
FNMA Series 1993-221
Class D
6.000% 12/25/2008 1,000,000 956,250
FNMA Series 1996-54
Class C
6.000% 9/25/2008 2,000,000 1,920,000
------------
4,860,620
------------
Pass-Through Securities -- 0.1%
FNMA
8.000% 5/01/2013 555,094 571,180
------------
5,431,800
------------
Government National Mortgage Association (GNMA) -- 1.4%
Pass-Through Securities
GNMA
6.000% 12/20/2025 464,993 475,530
GNMA
7.000% 7/20/2025 1,837,048 1,876,085
GNMA
7.500% 10/15/2006 -
6/15/2017 3,020,543 3,054,435
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
GNMA
8.000% 11/15/2004 -
7/15/2008 $1,863,588 $ 1,925,887
GNMA
9.000% 12/15/2008 -
5/15/2009 607,143 646,796
------------
7,978,733
------------
U.S. Government Guaranteed Notes -- 1.1%
1991-A Fairfax
County, VA
8.740% 8/01/2001 200,000 216,374
1991-A Jefferson
Park, CA
8.740% 8/01/2001 1,740,000 1,882,454
1991-A Monroe
County, NY
8.740% 8/01/2001 500,000 540,935
1991-A Rochester, NY
8.740% 8/01/2001 60,000 64,912
U.S. Dept. of Housing
and Urban
Development, Series
1995-A (D)
8.240% 8/01/2002 3,000,000 3,255,060
------------
5,959,735
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 24,639,357
------------
(Cost $23,963,711)
U.S. TREASURY OBLIGATIONS -- 4.4%
U.S. Treasury Bonds -- 2.7%
U.S. Treasury Bond
7.250% 5/15/2016 5,250,000 5,543,685
U.S. Treasury Bond
8.750% 5/15/2017 8,250,000 10,066,320
------------
15,610,005
------------
U.S. Treasury Notes -- 1.3%
U.S. Treasury Note
6.125% 3/31/1998 3,700,000 3,717,908
U.S. Treasury Note
7.125% 2/29/2000 3,300,000 3,397,449
------------
7,115,357
------------
U.S. Treasury Strip -- 0.4%
U.S. Treasury Strip -- Principal Only
0.000% 2/15/1999 2,250,000 1,988,910
TOTAL U.S. TREASURY
OBLIGATIONS 24,714,272
------------
(Cost $24,499,494)
TOTAL BONDS & NOTES 89,304,506
------------
(Cost $87,371,303)
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements. 33
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 30.2%
Commercial Paper
Burlington Northern
Santa Fe Corp.
5.500% 1/21/1997 $ 7,090,000 $ 7,068,336
Burlington Northern
Santa Fe Corp.
5.970% 1/03/1997 4,290,000 4,288,577
Carter Holt Harvey
Limited
5.500% 1/23/1997 3,750,000 3,737,396
Central and South
West Corporation
5.520% 1/14/1997 3,140,000 3,133,741
Central and South
West Corporation
5.620% 2/07/1997 3,470,000 3,449,957
Central and South
West Corporation
5.630% 1/17/1997 5,550,000 5,536,113
Comdisco, Inc.
5.520% 1/15/1997 2,790,000 2,784,011
Comdisco, Inc.
5.820% 1/29/1997 5,530,000 5,504,968
ConAgra, Inc.
5.490% 2/04/1997 4,135,000 4,113,560
Cox Enterprises, Inc.
5.470% 2/28/1997 3,000,000 2,973,562
Cox Enterprises, Inc.
5.480% 2/05/1997 2,680,000 2,665,722
Cox Enterprises, Inc.
5.500% 2/13/1997 6,170,000 6,129,467
Crown Cork & Seal
Company Inc.
5.800% 2/11/1997 4,000,000 3,973,578
CSX Corporation
5.800% 2/20/1997 5,990,000 5,941,747
Dana Credit
Corporation
5.460% 1/02/1997 4,320,000 4,319,345
Dana Credit
Corporation
5.530% 1/31/1997 2,635,000 2,622,857
Dominion Resources,
Inc.
5.470% 1/22/1997 4,300,000 4,286,279
Dominion Resources,
Inc.
5.520% 1/27/1997 5,915,000 5,891,419
Dominion Resources,
Inc.
5.520% 1/28/1997 3,335,000 3,321,193
ORIX Credit Alliance,
Inc.
5.490% 2/03/1997 3,685,000 3,666,455
ORIX Credit Alliance,
Inc.
5.520% 1/08/1997 2,230,000 2,227,606
ORIX Credit Alliance,
Inc.
5.620% 1/14/1997 170,000 169,655
ORIX Credit Alliance,
Inc.
5.800% 1/06/1997 5,335,000 5,330,702
ORIX Credit Alliance,
Inc.
5.850% 3/03/1997 3,750,000 3,714,417
ORIX Credit Alliance,
Inc.
6.020% 2/27/1997 2,285,000 2,263,220
Praxair, Inc.
5.650% 2/21/1997 3,435,000 3,407,506
Public Service
Company of Colorado
5.470% 1/17/1997 2,355,000 2,349,275
Public Service
Company of Colorado
5.800% 2/25/1997 4,200,000 4,162,783
Public Service
Electric and Gas
Company
5.470% 1/10/1997 3,955,000 3,949,592
Public Service
Electric and Gas
Company
5.470% 1/24/1997 2,360,000 2,351,753
Public Service
Electric and Gas
Company
5.490% 1/13/1997 3,655,000 3,648,311
Public Service
Electric and Gas
Company
5.570% 2/06/1997 5,655,000 5,623,502
Rayonier Inc.
5.540% 1/07/1997 3,000,000 2,997,230
Rite Aid Corporation
5.600% 3/04/1997 4,900,000 4,852,742
Sonat Inc.
5.650% 1/09/1997 5,030,000 5,023,685
Texas Utilities
Electric Co.
5.590% 2/14/1997 4,500,000 4,469,255
Texas Utilities
Electric Co.
5.600% 2/10/1997 3,800,000 3,776,356
Textron Financial
Corporation
5.500% 1/16/1997 1,642,000 1,638,237
Textron Financial
Corporation
5.500% 2/18/1997 3,000,000 2,978,000
Textron Financial
Corporation
5.560% 2/12/1997 2,800,000 2,781,837
Union Pacific
Corporation
5.650% 1/30/1997 2,920,000 2,906,710
Union Pacific
Corporation
5.800% 2/24/1997 2,550,000 2,527,815
UOP
5.600% 1/31/1997 3,255,000 3,239,810
UOP
5.620% 2/26/1997 4,635,000 4,594,478
UOP
5.750% 2/19/1997 4,125,000 4,092,716
=============
TOTAL SHORT-TERM
INVESTMENTS 170,485,476
=============
(Cost $170,483,887)
TOTAL INVESTMENTS -- 96.3% 542,867,778
Cost $456,772,419)
Other Assets/
(Liabilities) - 3.7% 20,818,070
============
NET ASSETS-- 100.0% $563,685,848
============
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
144A: Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
. All or a portion of this security is segregated to cover forward purchase
commitments. (Note 2).
34 The accompanying notes are an integral part of the financial statements.
<PAGE>
- -------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-------------------
<S> <C>
Statement of
Assets and Assets:
Liabilities Investments, at value (cost $286,288,532) (Note 2)....................... $ 372,382,302
Short-term investments, at value (cost $170,483,887) (Note 2)............ 170,485,476
-------------------
Total Investments...................................................... 542,867,778
Cash..................................................................... 1,546
Receivables from:
Investments sold....................................................... 246,752
Fund shares sold....................................................... 19,719,860
Interest and dividends................................................. 1,898,035
Investment manager (Note 3)............................................ 22,488
-------------------
Total assets......................................................... 564,756,459
-------------------
Liabilities:
Payables for:
Investments purchased.................................................. 87,044
Settlement of investments purchased on a
forward commitment basis (Note 2).................................... 2,411
Fund shares redeemed................................................... 702,735
Directors' fees and expenses (Note 3).................................. 5,176
Affiliates (Note 3):
Investment management fees........................................... 213,324
Administration fees.................................................. 40,525
Service and distribution fees........................................ 266
Accrued expenses and other liabilities................................... 19,130
-------------------
Total liabilities.................................................... 1,070,611
-------------------
Net assets............................................................... $ 563,685,848
===================
Net assets consist of:
Paid-in capital.......................................................... $ 475,645,805
Undistributed net investment income...................................... 26,102
Accumulated net realized gain on investments............................. 1,920,993
Net unrealized appreciation on investments
and forward commitments.............................................. 86,092,948
-------------------
$ 563,685,848
===================
Net assets:
Class 1.................................................................. $ 133,821
===================
Class 2.................................................................. $ 135,418
===================
Class 3.................................................................. $ 136,218
===================
Class 4.................................................................. $ 563,280,391
===================
Shares outstanding:
Class 1.................................................................. 10,838
===================
Class 2.................................................................. 10,948
===================
Class 3.................................................................. 10,994
===================
Class 4.................................................................. 45,632,444
===================
Net asset value, offering price and
redemption price per share:
Class 1.................................................................. $ 12.35
===================
Class 2.................................................................. $ 12.37
===================
Class 3.................................................................. $ 12.39
===================
Class 4.................................................................. $ 12.34
===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-------------------
<S> <C>
Statement of
Operations Investment income:
Interest................................................................. $ 15,133,862
Dividends................................................................ 6,800,485
-------------------
Total investment income................................................ 21,934,347
-------------------
Expenses (Note 1):
Investment management fees (Note 3)...................................... 2,271,174
Custody fees............................................................. 53,996
Audit and legal fees..................................................... 16,737
Directors' fees (Note 3)................................................. 15,247
Fees waived by the investment manager (Note 3)........................... (203,071)
-------------------
2,154,083
Administration fees (Note 3):
Class 1................................................................ 794
Class 2................................................................ 661
Class 3................................................................ 412
Class 4................................................................ 429,674
Distribution and service fees (Note 3):
Class 1................................................................ 903
Class 2................................................................ 191
-------------------
Net expenses......................................................... 2,586,718
-------------------
Net investment income................................................ 19,347,629
-------------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions and forward commitments..... 8,885,806
Net change in unrealized appreciation (depreciation) on
investments and forward commitments.................................... 33,108,845
-------------------
Net realized and unrealized gain..................................... 41,994,651
-------------------
Net increase in net assets resulting from operations.................... $ 61,342,280
===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
Statements of
Changes in Net Increase(Decrease) in Net Assets:
Assets Operations:
Net investment income............................................ $ 19,347,629 $ 16,724,229
Net realized gain on investment transactions
and forward commitments......................................... 8,885,806 4,359,989
Net change in unrealized appreciation (depreciation) on
investments and forward commitments............................. 33,108,845 55,498,858
------------------- ------------------
Net increase in net assets resulting from operations............ 61,342,280 76,583,076
------------------- ------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1.......................................................... (3,204) (4,846)
Class 2.......................................................... (4,068) (3,751)
Class 3.......................................................... (4,538) (4,120)
Class 4.......................................................... (19,441,756) (16,528,781)
------------------- ------------------
Total distributions from net investment income.................. (19,453,566) (16,541,498)
------------------- ------------------
From net realized gains:
Class 1.......................................................... (1,969) (1,239)
Class 2.......................................................... (1,970) (859)
Class 3.......................................................... (1,972) (857)
Class 4.......................................................... (7,883,759) (3,230,318)
------------------- ------------------
Total distributions from net realized gains..................... (7,889,670) (3,233,273)
------------------- ------------------
Net fund share transactions (Note 5):
Class 1.......................................................... (49,367) 55,401
Class 2.......................................................... 6,038 4,610
Class 3.......................................................... 6,510 4,977
Class 4.......................................................... 72,536,092 50,326,522
------------------- ------------------
Increase in net assets from net fund share transactions......... 72,499,273 50,391,510
------------------- ------------------
Total increase in net assets..................................... 106,498,317 107,199,815
Net assets:
Beginning of period.............................................. 457,187,531 349,987,716
------------------- ------------------
End of period (including undistributed net investment income
of $26,102 and $179,574, respectively)......................... $ 563,685,848 $ 457,187,531
=================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.50 $ 9.94 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.34 0.28 0.06
Net realized and unrealized gain (loss) on investments 1.01 1.70 (0.06)
----------- ------------ ------------
Total income (loss) from investment operations 1.35 1.98 --
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.31) (0.33) (0.06)
From net realized gains (0.19) (0.09) --
----------- ------------ ------------
Total distributions (0.50) (0.42) (0.06)
----------- ------------ ------------
Net asset value, end of period $ 12.35 $ 11.50 $ 9.94
=========== ============ ============
Total Return 11.67% 19.92% 0.00%
Ratios / Supplemental Data:
Net assets, end of period (000's) $134 $173 $100
Net expenses to average daily net assets# 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 2.71% 3.03% 3.39%*
Portfolio turnover rate 26% 23% 2%
Average broker commission rate (a) $ .0594 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.69% 1.69% 1.71%*
<CAPTION>
Class 2
__________
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.53 $ 9.95 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.39 0.39 0.06
Net realized and unrealized gain (loss) on investments 1.03 1.65 (0.04)
----------- ------------ ------------
Total income (loss) from investment operations 1.42 2.04 0.02
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.39) (0.37) (0.07)
From net realized gains (0.19) (0.09) --
----------- ------------ ------------
Total distributions (0.58) (0.46) (0.07)
----------- ------------ ------------
Net asset value, end of period $ 12.37 $ 11.53 $ 9.95
=========== ============ ============
Total Return 12.25% 20.50% 0.17%
Ratios / Supplemental Data:
Net assets, end of period (000's) $135 $121 $100
Net expenses to average daily net assets# 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 3.23% 3.60% 3.94%*
Portfolio turnover rate 26% 23% 2%
Average broker commission rate (a) $ .0594 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.14% 1.14% 1.16%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.55 $ 9.96 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.44 0.43 0.07
Net realized and unrealized gain (loss) on investments 1.02 1.66 (0.04)
----------- ------------ ------------
Total income (loss) from investment operations 1.46 2.09 0.03
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.43) (0.41) (0.07)
From net realized gains (0.19) (0.09) --
----------- ------------ ------------
Total distributions (0.62) (0.50) (0.07)
----------- ------------ ------------
Net asset value, end of period $ 12.39 $ 11.55 $ 9.96
=========== ============ ============
Total Return 12.61% 20.96% 0.28%
Ratios / Supplemental Data:
Net assets, end of period (000's) $136 $121 $100
Net expenses to average daily net assets# 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 3.60% 3.94% 4.32%*
Portfolio turnover rate 26% 23% 2%
Average broker commission rate (a) $ .0594 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.79% 0.79% 0.81%*
<CAPTION>
Class 4
------------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.51 $ 9.92 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.46 0.44 0.11
Net realized and unrealized gain (loss) on investments 1.02 1.68 (0.08)
----------- ------------ ------------
Total income (loss) from investment operations 1.48 2.12 0.03
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.46) (0.44) (0.11)
From net realized gains (0.19) (0.09) --
----------- ------------ ------------
Total distributions (0.65) (0.53) (0.11)
----------- ------------ ------------
Net asset value, end of period $ 12.34 $ 11.51 $ 9.92
=========== ============ ============
Total Return@ 12.83% 21.31% 0.29%
Ratios / Supplemental Data:
Net assets, end of period (000's) $563,280 $456,773 $349,688
Net expenses to average daily net assets# 0.5120% 0.5120% 0.5120%*
Net investment income to average daily net assets 3.83% 4.18% 4.29%*
Portfolio turnover rate 26% 23% 2%
Average broker commission rate (a) $ .0594 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.5522% 0.5514% 0.5650%*
</TABLE>
*Annualized
** For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
@ Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
(a) Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were
charged. For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Value Equity
Fund?
The objective and policies of the Fund are to:
. achieve long-term growth of capital and income
. invest primarily in a diversified portfolio of equity securities of larger,
well established companies (market capitalization over $2.0 billion)
. utilize a value-oriented, risk-averse strategy in making investment decisions
. utilize fundamental analysis to identify companies which
- are of high investment quality
- offer above-average dividend growth
- are attractively valued
How has the Fund performed over the past year?
The Fund performed well in 1996. The Fund's conservative construction caused it
to lag behind the market some what for the full year, but its pattern of
performance was consistent with its low risk strategy. The Fund participated in
the continuing advance of stock prices, and in those few months when the market
paused, the Fund retained its value better than the stock market overall. With
the market now entering the seventh year since the most recent bull market
began, we believe that this strategy of maintaining relatively low portfolio
risk will be beneficial to the Fund in future periods.
What was the strategy over the past year's strong, but volatile market?
Our strategy remained consistent over the past year. We maintained a
well-diversified portfolio by following our investment decision process of stock
selection one-by-one. We find stocks through fundamental analysis, a 'bottom up
approach' to researching a company. We believe this approach is less risky and
wiser than making investments based on less reliable economic forecasts.
What types of stocks performed best over the year?
The Fund's results benefited from strong performance by several of the largest
holdings, such as Bristol Myers, General Electric, and Pfizer. The financial
holdings were outstanding performers, particularly the banks. Contributing to
bank stock gains were an accommodative Fed policy, continued good loan loss
experience, and the relentless trend toward industry consolidation.
Were there any investments that didn't perform as expected?
The telephone industry was a disappointment last year. The major factor here was
the telecommunications deregulation bill which was signed into law in the spring
of 1996. This provides for the eventual opening up of the industry to
competition, and as companies prepare for this, increased marketing spending
will restrain earnings growth. Early in 1996, the Fund had a relatively small
commitment to this industry, but we steadily increased its weighting during the
year as we found companies with competitive advantages which were undervalued
relative to the market. In the long run, the surviving companies will prosper
due to strong growth of telecommunications traffic.
What changes, if any, are being made to the portfolio?
As the economic expansion is aging, and valuations are clearly on the high side,
we are trying to minimize risk in the portfolio. We are reducing holdings whose
prices are full, and adding to stocks that we feel are currently underpriced and
can offer good long-term return through a combination of capital appreciation
and current income. In fact, well positioned electric utilities appear
attractive for the first time in a considerable period, and we are modestly
increasing our commitment there.
What is the outlook for the Fund?
We are optimistic about the long term outlook for stocks in general and the Fund
in particular. After a long period of exceptional stock market returns such as
we have seen, a pause in the market's up trend would not be a surprise. However,
the Fund is structured recognizing that there are risks in equity investing as
well as returns, and the conservative nature of the Fund is intended to help the
Fund hold up well in any weakness which might take place. We believe that by
participating in the gains of a rising market and conserving asset value in a
less positive environment, the Fund should show superior returns over the long
term.
40
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Value Equity
Fund Classes 1-4 and the Standard & Poor's 500
Composite Index
-------------------------------------------------------------------
MassMutual Value Equity Fund
Total Return One Year Average Annual
1/1/96 - 12/31/96 10/3/94 - 12/31/96
Class 1 18.83% 21.16%
Class 2 19.46% 21.83%
Class 3 19.92% 22.26%
Class 4 20.24% 22.56%
-------------------------------------------------------------------
Standard & Poor's 22.97% 26.31%
500 Composite Index
-------------------------------------------------------------------
Past performance is not predictive of future results. The
investment return and principal value of shares of the fund will
fluctuate with market conditions so that shares of the Fund,
when redeemed, may be worth more or less than their original
cost. Investors should note that the Fund is a professionally
managed mutual fund, while the Standard & Poor's 500 Composite
Index is unmanaged and does not incur expenses.
-------------------------------------------------------------------
-------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Class 1 Class 2 Class 3 Class 4 S&P 500 Index
"10/3/94" 10,000 10,000 10,000 10,000 10,000
"12/94" 9,961 9,978 9,982 9,990 9,998
" 6/95" 11,507 11,566 11,590 11,613 12,019
"12/95" 12,959 13,052 13,106 13,141 13,756
" 6/96" 13,995 14,135 14,213 14,276 15,144
"12/96" 15,399 15,591 15,716 15,802 16,915
- -------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------------------
MassMutual Value Equity Fund
Largest Stock Holdings (12/31/96)
---------------------------------------------------
Bristol-Myers Squibb Company
General Electric Company
Hewlett-Packard Company
Pfizer, Incorporated
AMP, Incorporated
Amoco Corporation
Goodyear Tire & Rubber Company
SAFECO Corporation
The Bank of New York Company,
Incorporated
Marsh & McLennan Companies, Inc.
---------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
EQUITIES - 95.2%
Aerospace & Defense -- 1.8%
Boeing Company 230,000 $ 24,466,250
Raytheon Company 10,000 481,250
TRW, Inc. 396,600 19,631,700
------------
44,579,200
============
Agribusiness -- 1.1%
Pioneer Hi-Bred
International, Inc. 385,000 26,950,000
------------
Apparel, Textiles & Shoes -- 1.0%
VF Corporation 365,000 24,637,500
============
Automotive & Parts -- 4.7%
Ford Motor Company 945,300 30,131,438
Genuine Parts
Company 860,000 38,270,000
Goodyear Tire &
Rubber Company 955,000 49,063,125
------------
117,464,563
============
Banking, Savings & Loans -- 6.1%
The Bank of New
York Company,
Incorporated 1,440,000 48,600,000
Comerica, Incorporated 338,000 17,702,750
CoreStates Financial
Corp. 700,000 36,312,500
Norwest Corporation 485,000 21,097,500
Wachovia Corp. 494,000 27,911,000
------------
151,623,750
------------
Beverages -- 1.9%
Brown-Forman
Corporation (Class B) 575,000 26,306,250
Pepsico, Inc. 700,000 20,475,000
------------
46,781,250
============
Chemicals -- 3.7%
E. I. du Pont de
Nemours and Company 275,000 25,953,125
The Lubrizol
Corporation 529,500 16,414,500
Nalco Chemical
Company 680,000 24,565,000
Rohm & Haas
Company 315,000 25,711,875
------------
92,644,500
------------
Communications -- 1.2%
AT & T Corporation 700,000 30,450,000
============
Computers & Office Equipment -- 6.9%
Hewlett-Packard
Company 1,020,000 51,255,000
International Business
Machines Corporation 291,000 43,941,000
Pitney Bowes, Inc. 700,000 38,150,000
Xerox Corporation 723,000 38,047,875
------------
171,393,875
============
Containers -- 1.1%
Temple-Inland, Inc. 525,000 28,415,625
------------
Cosmetics & Personal Care -- 1.5%
Kimberly-Clark
Corporation 403,000 38,385,750
============
Drugs -- 1.2%
Pharmacia & Upjohn,
Inc. 725,000 28,728,125
============
Electric Utilities -- 1.2%
NIPSCO Industries,
Inc. 330,000 13,076,250
SCANA Corporation 625,000 16,718,750
============
29,795,000
------------
Electrical Equipment & Electronics -- 7.0%
AMP, Incorporated 1,313,000 50,386,375
General Electric
Company 680,000 67,235,000
Honeywell Inc. 365,000 23,998,750
Hubbell, Incorporated
(Class B) 800,071 34,603,088
============
176,223,213
============
Energy -- 8.3%
Amoco Corporation 615,000 49,507,500
Atlantic Richfield
Company 168,000 22,260,000
Chevron Corporation 600,000 39,000,000
Kerr-McGee
Corporation 360,000 25,920,000
Mobil Corporation 290,000 35,452,500
Teco Energy, Inc. 487,700 11,765,763
Unocal Corporation 574,900 23,355,313
------------
207,261,076
============
Financial Services -- 1.5%
American Express
Company 665,000 37,572,500
------------
Foods -- 2.5%
ConAgra, Inc. 518,000 25,770,500
CPC International, Inc. 462,500 35,843,748
============
61,614,248
============
Forest Products & Paper -- 2.5%
Westvaco Corporation 855,000 24,581,250
Weyerhaeuser Company 775,000 36,715,625
------------
61,296,875
============
Hardware & Tools -- 1.1%
The Stanley Works 1,030,000 27,810,000
============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
Healthcare -- 8.3%
Becton, Dickinson and
Company 850,000 $ 36,868,750
Bristol-Myers Squibb
Company 750,000 81,562,500
Pfizer, Incorporated 610,000 50,553,750
Schering-Plough Corp. 565,600 36,622,600
--------------
205,607,600
--------------
Industrial Distribution -- 1.3%
W.W. Grainger, Inc. 400,000 32,100,000
--------------
Industrial Transportation -- 1.4%
Norfolk Southern
Corporation 400,000 35,000,000
--------------
Insurance -- 7.7%
Allstate Corporation 305,921 17,705,178
Jefferson-Pilot
Corporation 345,000 19,535,625
Marsh & McLennan
Companies, Inc. 454,900 47,309,600
MBIA, Inc. 435,000 44,043,750
SAFECO Corporation 1,240,000 48,902,500
Unitrin, Inc. 234,950 13,098,463
--------------
190,595,116
--------------
Machinery & Components -- 1.7%
Dover Corporation 540,000 27,135,000
Parker-Hannifin
Corporation 400,000 15,500,000
--------------
42,635,000
--------------
Miscellaneous -- 2.7%
Harsco Corporation 300,000 20,550,000
Minnesota Mining &
Manufacturing
Company 565,000 46,824,375
--------------
67,374,375
--------------
Oil & Gas -- 1.9%
Occidental Petroleum
Corporation 1,067,000 24,941,125
Union Pacific
Resources Group Inc. 729,700 21,343,725
--------------
46,284,850
--------------
Photography -- 1.3%
Eastman Kodak
Company 413,600 33,191,400
--------------
Publishing & Printing -- 2.2%
The McGraw-Hill
Companies, Inc. 740,000 34,132,500
R.R. Donnelley & Sons
Company 630,000 19,766,250
--------------
53,898,750
--------------
Retail -- 1.9%
The May Department
Stores Company 600,000 28,050,000
Sears Roebuck and Co. 400,000 18,450,000
--------------
46,500,000
--------------
Retail-Grocery -- 1.9%
Albertson's, Inc. 1,000,001 35,625,010
American Stores
Company 262,300 10,721,513
--------------
46,346,523
--------------
Telecommunications -- 0.9%
GTE Corporation 475,300 21,626,150
--------------
Telephone Utilities -- 2.8%
Ameritech Corporation 372,000 22,552,500
Frontier Corporation 1,112,200 25,163,525
Southern New England
Telecommunications
Corporation 555,000 21,575,625
--------------
69,291,650
--------------
Tobacco -- 2.9%
American Brands, Inc. 735,000 36,474,375
UST Inc. 1,111,000 35,968,625
--------------
72,443,000
--------------
TOTAL EQUITIES 2,366,521,464
(Cost $1,654,626,282) --------------
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 4.6%
Commercial Paper
AIG Funding Inc.
5.280% 2/28/1997 5,668,000 5,619,784
CoreStates Capital
Corporation
5.270% 4/28/1997 2,000,000 1,963,600
E. I. du Pont de
Nemours and Company
5.250% 5/09/1997 5,000,000 4,900,444
E. I. du Pont de
Nemours and Company
5.250% 5/19/1997 9,000,000 8,806,800
First Union
Corporation
5.270% 4/23/1997 3,000,000 2,947,733
First Union
Corporation
5.280% 3/28/1997 5,000,000 4,933,111
Ford Motor Credit
Company
5.290% 3/10/1997 14,000,000 13,851,912
Heinz (H.J.) Company
5.330% 1/21/1997 3,000,000 2,991,117
Heinz (H.J.) Company
5.400% 1/21/1997 8,000,000 7,976,000
J. P. Morgan &
Company Incorporated
5.280% 2/03/1997 14,000,000 13,932,240
Shell Oil Company
6.500% 1/02/1997 6,861,000 6,859,761
Sunoco Credit
Corporation
5.320% 2/04/1997 8,000,000 7,959,804
Sunoco Credit
Corporation
5.370% 1/21/1997 6,000,000 5,982,100
Transamerica
Financial Corporation
5.270% 3/14/1997 2,595,000 2,565,936
The Walt Disney
Company
5.320% 1/24/1997 10,000,000 9,966,011
Weyerhaeuser Company
5.300% 2/10/1997 9,000,000 8,947,000
Weyerhaeuser Company
5.300% 2/12/1997 4,000,000 3,975,267
--------------
TOTAL SHORT-TERM
INVESTMENTS 114,178,620
(Cost $114,215,876) --------------
TOTAL INVESTMENTS -- 99.8% 2,480,700,084
(Cost $1,768,842,158)+
Other Assets/
(Liabilities) - 0.2% 5,508,151
--------------
NET ASSETS-- 100.0% $2,486,208,235
--------------
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Assets:
Investments, at value (cost $1,654,626,282) (Note 2)..... $ 2,366,521,464
Short-term investments, at value (cost $114,215,876) (Note 2) 114,178,620
-----------------
Total Investments...................................... 2,480,700,084
Cash..................................................... 190
Receivables from:
Investments sold....................................... 2,044,107
Fund shares sold....................................... 1,696,480
Interest and dividends................................. 5,329,158
Investment manager (Note 3)............................ 106,983
-----------------
Total assets......................................... 2,489,877,002
-----------------
Liabilities:
Payables for:
Investments purchased.................................. 481,850
Fund shares redeemed................................... 1,916,768
Directors' fees and expenses (Note 3).................. 5,176
Affiliates (Note 3):
Investment management fees........................... 987,506
Administration fees.................................. 198,758
Service and distribution fees........................ 303
Accrued expenses and other liabilities................... 78,406
-----------------
Total liabilities.................................... 3,668,767
-----------------
Net assets............................................... $ 2,486,208,235
=================
Net assets consist of:
Paid-in capital.......................................... $ 1,759,761,092
Undistributed net investment income...................... 410,862
Accumulated net realized gain on investments............. 14,178,355
Net unrealized appreciation on investments............... 711,857,926
-----------------
$ 2,486,208,235
=================
Net assets:
Class 1.................................................. $ 153,607
=================
Class 2.................................................. $ 155,446
=================
Class 3.................................................. $ 156,351
=================
Class 4.................................................. $ 2,485,742,831
=================
Shares outstanding:
Class 1.................................................. 10,640
=================
Class 2.................................................. 10,740
=================
Class 3.................................................. 10,793
=================
Class 4.................................................. 171,928,663
=================
Net asset value, offering price and
redemption price per share:
Class 1.................................................. $ 14.44
=================
Class 2.................................................. $ 14.47
=================
Class 3.................................................. $ 14.49
=================
Class 4.................................................. $ 14.46
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-----------------
<S> <C>
Investment income:
Dividends................................................ $ 56,941,194
Interest................................................. 10,459,062
----------------
Total investment income................................ 67,400,256
----------------
Expenses (Note 1):
Investment management fees (Note 3)...................... 10,377,627
Custody fees............................................. 205,814
Audit and legal fees..................................... 77,183
Directors' fees (Note 3)................................. 15,195
Fees waived by the investment manager (Note 3)........... (1,077,667)
----------------
9,598,152
Administration fees (Note 3):
Class 1................................................ 814
Class 2................................................ 751
Class 3................................................ 474
Class 4................................................ 2,086,673
Distribution and service fees (Note 3):
Class 1................................................ 911
Class 2................................................ 212
----------------
Net expenses......................................... 11,687,987
----------------
Net investment income................................ 55,712,269
----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions............. 74,040,546
Net change in unrealized appreciation (depreciation)
on investments......................................... 296,454,766
----------------
Net realized and unrealized gain..................... 370,495,312
----------------
Net increase in net assets resulting from operations..... $ 426,207,581
================
</TABLE>
The accompanying notes are an integral part of the financial statements. 45
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income........................................... $ 55,712,269 $ 50,082,342
Net realized gain on investment transactions.................... 74,040,546 21,371,652
Net change in unrealized appreciation (depreciation)
on investments................................................. 296,454,766 429,724,511
----------------- ----------------
Net increase in net assets resulting from operations........... 426,207,581 501,178,505
----------------- ----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1......................................................... (1,849) (1,761)
Class 2......................................................... (2,628) (2,382)
Class 3......................................................... (3,152) (2,774)
Class 4......................................................... (55,920,646) (49,597,273)
----------------- ----------------
Total distributions from net investment income................. (55,928,275) (49,604,190)
----------------- ----------------
From net realized gains:
Class 1......................................................... (4,035) (990)
Class 2......................................................... (4,054) (990)
Class 3......................................................... (4,061) (988)
Class 4......................................................... (64,653,761) (16,056,271)
----------------- ----------------
Total distributions from net realized gains.................... (64,665,911) (16,059,239)
----------------- ----------------
Net fund share transactions (Note 5):
Class 1......................................................... 5,884 2,751
Class 2......................................................... 6,682 3,372
Class 3......................................................... 7,213 3,763
Class 4......................................................... 54,936,919 126,252,551
----------------- ----------------
Increase in net assets from net fund share transactions........ 54,956,698 126,262,437
----------------- ----------------
Total increase in net assets.................................... 360,570,093 561,777,513
Net assets:
Beginning of period............................................. 2,125,638,142 1,563,860,629
----------------- ----------------
End of period (including undistributed net investment income
of $410,862 and $626,868, respectively)........................ $ 2,486,208,235 $ 2,125,638,142
================= ================
</TABLE>
46 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.63 $ 9.92 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.17 0.18 0.04
Net realized and unrealized gain (loss) on investments 2.21 2.81 (0.08)
---------- ---------- ----------
Total income (loss) from investment operations 2.38 2.99 (0.04)
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.18) (0.18) (0.04)
From net realized gains (0.39) (0.10) --
---------- ---------- ----------
Total distributions (0.57) (0.28) (0.04)
---------- ---------- ----------
Net asset value, end of period $ 14.44 $ 12.63 $ 9.92
========== ========== ==========
Total Return 18.83% 30.10% (0.39)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $154 $129 $99
Net expenses to average daily net assets# 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 1.28% 1.58% 2.31%*
Portfolio turnover rate 13% 16% 3%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.69% 1.70% 1.71%*
<CAPTION>
Class 2
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.65 $ 9.93 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.25 0.24 0.05
Net realized and unrealized gain (loss) on investments 2.22 2.82 (0.07)
---------- ---------- ----------
Total income (loss) from investment operations 2.47 3.06 (0.02)
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.26) (0.24) (0.05)
From net realized gains (0.39) (0.10) --
---------- ---------- ----------
Total distributions (0.65) (0.34) (0.05)
---------- ---------- ----------
Net asset value, end of period $ 14.47 $ 12.65 $ 9.93
========== ========== ==========
Total Return 19.46% 30.80% (0.22)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $155 $130 $99
Net expenses to average daily net assets# 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 1.82% 2.13% 2.86%*
Portfolio turnover rate 13% 16% 3%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.14% 1.15% 1.16%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
The accompanying notes are an integral part of the financial statements. 47
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.66 $ 9.93 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.30 0.28 0.05
Net realized and unrealized gain (loss) on investments 2.23 2.83 (0.07)
---------- ---------- ----------
Total income (loss) from investment operations 2.53 3.11 (0.02)
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.31) (0.28) (0.05)
From net realized gains (0.39) (0.10) --
---------- ---------- ----------
Total distributions (0.70) (0.38) (0.05)
---------- ---------- ----------
Net asset value, end of period $ 14.49 $ 12.66 $ 9.93
========== ========== ==========
Total Return 19.92% 31.30% (0.18)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $156 $130 $99
Net expenses to average daily net assets# 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 2.17% 2.48% 3.23%*
Portfolio turnover rate 13% 16% 3%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.80% 0.80% 0.81%*
<CAPTION>
Class 4
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.63 $ 9.91 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.34 0.31 0.08
Net realized and unrealized gain (loss) on investments 2.22 2.82 (0.09)
---------- ---------- ----------
Total income (loss) from investment operations 2.56 3.13 (0.01)
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.34) (0.31) (0.08)
From net realized gains (0.39) (0.10) --
---------- ---------- ----------
Total distributions (0.73) (0.41) (0.08)
---------- ---------- ----------
Net asset value, end of period $ 14.46 $ 12.63 $ 9.91
========== ========== ==========
Total Return@ 20.24% 31.54% (0.10)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $2,485,743 $2,125,248 $1,563,563
Net expenses to average daily net assets# 0.5067% 0.5067% 0.5067%*
Net investment income to average daily net assets 2.42% 2.72% 3.20%*
Portfolio turnover rate 13% 16% 3%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.5534% 0.5528% 0.5681%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
@Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
48 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual Small Cap
Value Equity Fund?
The objective and policies of the Fund are to:
. achieve long-term growth of capital and income
. invest primarily in a diversified portfolio of equity securities of smaller
companies (market capitalization less than $750 million)
. utilize a value-oriented, risk-averse strategy in making investment decisions
. utilize fundamental analysis to identify companies which
- are of high investment quality or possess a unique product, market position
or operating characteristic,
- offer above-average level of profitability or superior growth potential and
- are attractively valued
How has the Fund performed over the past year?
While smaller capitalization stocks generally lagged the broad market over the
course of the year, the portfolio performed very well on an absolute basis. It
not only more than doubled the long-term average for stocks, but also surpassed
the small-cap Russell 2000 Index's return of 16.5% and neared the much larger
S&P 500 Index's reported 23.0%.
What was the strategy over the year's strong, but volatile market?
Our strategy hasn't changed. We're still working to buy stocks of companies with
outstanding potential at reasonable prices. Volatility actually works to our
advantage especially in a high-priced market, in that investor emotion often
causes momentary dips in the prices of stocks that have appreciated
significantly. When this happens to companies we'd like to own, we view it as a
buying opportunity.
What stocks performed best for you over the year?
The best industry groups we invested in over the year were the banking and
finance sector and aerospace/defense firms. With rates generally declining,
banking enjoyed a profitable environment. Appreciation in the sector was further
fueled by continued merger and acquisition activity. First Colorado Bankshares,
United Carolina Bankshares and One Valley Bank were excellent holdings for us
over the year.
In the aerospace/defense field, 1996 saw companies engaged in large-scale
mergers and consolidations, as well as small acquisitions and spinoffs of
divisions. We think this cycle is nearing its end now, and that once completed,
several major companies will dominate the sector. As a participant in the year's
activities toward that end, the portfolio benefited significantly.
Although it is outside both areas, one of our best holdings over the period was
Apogee Enterprises, a glass technology and distribution firm. This is a company
that benefited from strong pricing in auto and new non-residential construction
glass, and its stock reflected it, appreciating over 130% for the year.
What changes, if any, are being made?
Technology stocks had an interesting year. They started out strong, suffered
some weakness over the summer, and then regained their robustness as the year
came to a close. While technology as a sector rarely exhibits either the
dividends or balance sheet strengths we prefer, we are currently evaluating
selected companies in what we'd call "related technologies" -- those that
provide critical services to the more visible technology outfits. Cognex is one
such company. They manufacture vision systems that are integrated into computer
chip production lines. The stock is selling well off of its high, and we think
it offers good value. Another example is Helix Technology. This company derives
an impressive cash flow from the manufacture of cryogenics systems used in chip
making. Because of the tech-related nature of its business, it is somewhat
removed from the threats of obsolescence that plague more primary technology
firms.
Most of our recent selling has been in the property and casualty insurance area.
By and large, these stocks performed well over the year. With some up in excess
of 40%, they added to our strong performance. However, at their current pricey
levels, we feel better opportunities for appreciation exist elsewhere.
What is the outlook for the portfolio?
We have a constructive outlook on the economy and the market, though we expect
we may see some first quarter 1997 slowing. Low inflationary pressures and a
reasonably good Christmas season keep the specter of a recession from becoming a
near-term concern. However, after a dramatic two year run, the U.S. stock market
isn't cheap. As a result, we wouldn't be surprised to find that most gains in
1997 to result from growth in earnings rather than in stock multiples. This
scenario suggests we're moving back into a "stock picker's market," where
opportunities will certainly exist, but where selectivity and research will make
all the difference. We believe our portfolio's regimented investment guidelines
will help us to be among the winners in such an environment.
49
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Small Cap
Value Equity Fund Classes 1-4 and the Frank Russell
1000 Index
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund
<TABLE>
<CAPTION>
Total Return One Year Average Annual
<S> <C> <C>
Class 1 21.43% 16.07%
Class 2 22.07% 16.73%
Class 3 22.64% 17.15%
Class 4 22.82% 17.41%
- --------------------------------------------------------------------------------
Frank Russell 16.50% 18.62%
Index
- --------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future results. The investment return and
principal value of shares of the Fund will fluctuate with market conditions so
that shares of the Fund, when redeemed may be worth more or less than their
original cost. Investors should note that the Fund is a professionally managed
mutual fund, while the Frank Russell 2000 Index is unmanaged and does not incur
expenses.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class 1 Class 2 Class 3 Class 4 Russel 2000
------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 9,711 9,728 9,732 9,733 9,813
06/95 10,422 10,470 10,495 10,507 11,229
12/95 11,515 11,601 11,642 11,681 12,605
06/96 12,535 12,665 12,731 12,794 13,912
12/96 13,983 14,161 14,277 14,346 14,683
</TABLE>
Capital RE Corp.
McClatchy Newspapers, Inc.
ALLIED Group, Incorporated
Frontier Insurance Group, Inc.
Harte Hanks Communications, Inc.
Belden, Inc.
Astoria Financial Corporation
Dallas Semiconductor Corporation
True North Communications, Inc.
Graco, Incorporated
50
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
EQUITIES - 98.4%
Air Transportation -- 1.4%
Atlantic Southeast
Airlines, Inc. 297,800 $ 6,514,375
------------
Apparel, Textiles & Shoes -- 1.2%
Unitog Company 206,500 5,627,125
------------
Automotive & Parts -- 5.7%
Amcast Industrial
Corporation 228,100 5,645,475
Excel Industries, Inc. 355,100 5,903,538
Myers Industries, Inc. 321,154 5,419,469
Titan Wheel
International, Inc. 698,500 8,905,875
------------
25,874,357
------------
Banking, Savings & Loans -- 10.9%
Astoria Financial
Corporation 293,000 10,804,375
Bank United Corp.
Class A 173,200 4,633,100
CCB Financial
Corporation 139,900 9,548,175
First Colorado
Bancorp, Inc. 284,200 4,831,400
Keystone Financial,
Inc. 221,150 5,528,750
One Valley Bancorp of
West Virginia, Inc. 183,750 6,821,719
Security Capital
Corporation 102,800 7,581,500
------------
49,749,019
------------
Building Materials & Construction -- 0.7%
Apogee Enterprises,
Inc. 76,800 3,052,800
------------
Chemicals -- 1.1%
OM Group, Inc. 188,100 5,078,700
------------
Communications -- 2.3%
True North
Communications, Inc. 483,500 10,576,563
------------
Computers & Office Equipment -- 1.0%
Cognex Corporation. (D) 238,500 4,412,250
------------
Containers -- 1.7%
Rock-Tenn Company
(Class A) 391,490 7,731,928
------------
Electrical Equipment & Electronics -- 8.2%
Belden, Inc. 293,700 10,866,900
Dallas Semiconductor
Corporation 468,600 10,777,800
Teleflex, Incorporated 128,100 6,677,213
Wyle Laboratories 227,200 8,974,390
------------
37,296,303
------------
Energy -- 3.2%
NGC Corporation 165,595 3,850,084
Production Operators
Corp. 156,100 7,258,650
TNP Enterprises, Inc. 137,100 3,753,113
------------
14,861,847
------------
Foods -- 3.2%
Midwest Grain
Products, Inc. (D) 167,100 2,840,700
Morrison Health Care,
Inc. 377,200 5,563,700
Riser Foods, Inc.
Class A 197,700 6,276,975
------------
14,681,375
------------
Forest Products & Paper -- 2.4%
Mosinee Paper
Corporation 125,833 4,467,072
Wausau Paper Mills
Company 357,775 6,618,838
------------
11,085,910
------------
Gas Distribution -- 1.9%
WICOR, Inc. 237,300 8,513,138
------------
Healthcare -- 1.0%
Beckman Instruments,
Inc. 113,800 4,367,075
------------
Industrial Transportation -- 3.1%
ABC Rail Products
Corporation . (D) 115,000 $ 2,285,625
Arnold Industries, Inc. 511,500 8,120,063
The Greenbrier
Companies, Inc. 385,300 3,997,488
------------
14,403,176
------------
Insurance -- 11.7%
ALLIED Group,
Incorporated 346,350 11,299,669
Capital RE Corp. 334,500 15,596,063
Executive Risk, Inc. 172,900 6,397,300
Frontier Insurance
Group, Inc. 290,080 11,095,560
Orion Capital
Corporation 147,137 8,993,749
------------
53,382,341
------------
Leasing Companies -- 2.0%
Rollins Truck Leasing
Company 715,750 9,036,344
------------
Machinery & Components -- 13.3%
Columbus McKinnon
Corporation 266,500 4,164,063
DT Industries, Inc. 269,200 9,422,000
The Gorman-Rupp
Company 257,825 3,512,866
Graco, Incorporated 427,000 10,461,500
Greenfield Industries,
Inc. 327,600 10,032,750
Hardinge, Inc. 224,300 5,971,988
Helix Technology
Corporation 247,300 7,171,700
Regal-Beloit
Corporation 297,750 5,843,344
Roper Industries, Inc. 109,200 4,272,450
------------
60,852,661
------------
Metals & Mining -- 1.8%
Reliance Steel &
Aluminum Company 229,600 8,036,000
------------
</TABLE>
The accompanying notes are an integral part of the financial statement.
51
<PAGE>
- -------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Portfolio of Investments (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Market Value
--------- ------------
<S> <C> <C>
Miscellaneous -- 2.1%
Trimas Corporation 407,100 $ 9,719,513
Miscellaneous Distributor Wholesale -- 1.2%
Hughes Supply, Inc. 130,200 5,614,875
Office Products -- 1.1%
American Business
Products, Inc. 197,700 4,967,213
Oil & Gas -- 2.9%
The Houston
Exploration Company. 261,800 4,581,500
Stone Energy
Corporation. 211,000 6,303,625
Titan Exploration, Inc. 200,000 2,400,000
------------
13,285,125
------------
Other Services -- 3.0%
Analysts International
Corporation 340,200 9,610,650
Landauer, Inc. 173,900 4,260,550
------------
13,871,200
------------
Publishing & Printing -- 8.4%
Banta Corporation 284,250 6,502,219
Harte Hanks
Communications, Inc. 398,300 11,052,825
Houghton Mifflin
Company 173,200 9,807,450
McClatchy
Newspapers, Inc. 327,400 11,459,000
------------
38,821,494
------------
Retail -- 1.9%
Arbor Drugs, Inc. 502,250 8,726,594
------------
TOTAL EQUITIES 450,139,301
------------
(Cost $338,729,733)
<CAPTION>
Principal
Amount Market Value
--------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.4%
Commercial Paper
Ford Motor Credit
Company
5.330% 1/29/1997 1,000,000 995,854
Shell Oil Company
6.500% 1/02/1997 4,350,000 4,349,215
Sunoco Credit
Corporation
5.370% 1/21/1997 1,000,000 997,017
-----------
TOTAL SHORT-TERM
INVESTMENTS 6,342,086
-----------
(At Amortized Cost)
TOTAL INVESTMENTS -- 99.8% 456,481,387
(Cost $345,071,819)+
Other Assets/
(Liabilities) - .2% 886,996
-----------
NET ASSETS--100.0% $ 457,368,383
------------
</TABLE>
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
(D) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
- -------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements
- -------------------------------------------------------------------------------
Statement of
Assets and
Liabilities
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Assets:
Investments, at value (cost $338,729,733) (Note 2)..... $ 450,139,301
Short-term investments, at amortized cost (Note 2)..... 6,342,086
----------------
Total Investments.................................... 456,481,387
Cash................................................... 16,575
Receivables from:
Investments sold..................................... 590,252
Fund shares sold..................................... 391,223
Interest and dividends............................... 614,637
Investment manager (Note 3).......................... 20,289
----------------
Total assets....................................... 458,114,363
----------------
Liabilities:
Payables for:
Investments purchased................................ 124,059
Fund shares redeemed................................. 349,247
Directors' fees and expenses (Note 3)................ 5,176
Affiliates (Note 3):
Investment management fees......................... 216,574
Administration fees................................ 34,087
Service and distribution fees...................... 274
Accrued expenses and other liabilities................. 16,563
----------------
Total liabilities.................................. 745,980
----------------
Net assets............................................. $ 457,368,383
================
Net assets consist of:
Paid-in capital........................................ $ 340,794,078
Undistributed net investment income.................... 192,363
Accumulated net realized gain on investments........... 4,972,374
Net unrealized appreciation on investments............. 111,409,568
----------------
$ 457,368,383
================
Net assets:
Class 1................................................ $ 142,813
================
Class 2................................................ $ 144,545
================
Class 3................................................ $ 145,609
================
Class 4................................................ $ 456,935,416
================
Shares outstanding:
Class 1................................................ 10,666
================
Class 2................................................ 10,767
================
Class 3................................................ 10,837
================
Class 4................................................ 34,013,589
================
Net asset value, offering price and
redemption price per share:
Class 1................................................ $ 13.39
================
Class 2................................................ $ 13.42
================
Class 3................................................ $ 13.44
================
Class 4................................................ $ 13.43
================
</TABLE>
The accompanying notes are an integral part of the financial statement.
53
<PAGE>
- -------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-----------------
<S> <C>
Statement of Operations
Investment income:
Dividends.............................................. $ 10,401,752
Interest............................................... 2,168,316
-----------------
Total investment income.............................. 12,570,068
-----------------
Expenses (Note 1):
Investment management fees (Note 3).................... 2,298,488
Custody fees........................................... 47,464
Audit and legal fees................................... 14,282
Directors' fees (Note 3)............................... 15,246
Fees waived by the investment manager (Note 3)......... (182,305)
-----------------
2,193,175
-----------------
Administration fees (Note 3):
Class 1.............................................. 844
Class 2.............................................. 667
Class 3.............................................. 417
Class 4.............................................. 359,887
Distribution and service fees (Note 3):
Class 1.............................................. 958
Class 2.............................................. 191
-----------------
Net expenses....................................... 2,556,139
-----------------
Net investment income............................... 10,013,929
-----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions........... 15,188,213
Net change in unrealized appreciation (depreciation) on
investments.......................................... 63,151,095
-----------------
Net realized and unrealized gain.................... 78,339,308
-----------------
Net increase in net assets resulting from operations... $ 88,353,237
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of
Changes in Net
Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income................................................. $ 10,013,929 $ 6,234,130
Net realized gain on investment transactions.......................... 15,188,213 776,790
Net change in unrealized appreciation (depreciation)
on investments....................................................... 63,151,095 57,391,484
----------------- ----------------
Net increase in net assets resulting from operations................. 88,353,237 64,402,404
----------------- ----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1............................................................... (1,430) (1,356)
Class 2............................................................... (2,382) (1,300)
Class 3............................................................... (2,845) (1,672)
Class 4............................................................... (9,914,239) (6,159,231)
----------------- ----------------
Total distributions from net investment income....................... (9,920,896) (6,163,559)
----------------- ----------------
From net realized gains:
Class 1............................................................... (3,230) --
Class 2............................................................... (3,240) --
Class 3............................................................... (3,251) --
Class 4............................................................... (10,172,978) --
----------------- ----------------
(10,182,699) --
----------------- ----------------
Total distributions from net realized
gains (10,182,699) -- Net fund share
transactions (Note 5):
Class 1............................................................... (49,286) 51,075
Class 2............................................................... 5,622 1,300
Class 3............................................................... 6,096 1,672
Class 4............................................................... 8,348,780 11,428,353
Increase in net assets from net fund share transactions.............. 8,311,212 11,482,400
----------------- ----------------
Total increase in net assets.......................................... 76,560,854 69,721,245
----------------- ----------------
Net assets:
Beginning of period................................................... 380,807,529 311,086,284
End of period (including undistributed net investment income
of $192,363 and $99,330, respectively)............................... $ 457,368,383 $ 380,807,529
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.40 $ 9.69 $ 10.00
---------- ----------- -----------
Income (loss) from investment operations:
Net investment income 0.21 0.06 0.02
Net realized and unrealized gain (loss) on investments 2.23 1.74 (0.31)
---------- ----------- -----------
Total income (loss) from investment operations 2.44 1.80 (0.29)
---------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.14) (0.09) (0.02)
From net realized gains (0.31) -- --
---------- ----------- -----------
Total distributions (0.45) (0.09) (0.02)
---------- ----------- -----------
Net asset value, end of period $ 13.39 $ 11.40 $ 9.69
========== =========== ===========
Total Return 21.43% 18.58% (2.89)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $143 $172 $99
Net expenses to average daily net assets# 1.75% 1.75% 1.75%*
Net investment income to average daily net assets 1.56% 0.63% 1.14%*
Portfolio turnover rate 28% 28% 4%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.79% 1.79% 1.81%*
Class 2
-----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ----------- -----------
Net asset value, beginning of period $ 11.44 $ 9.70 $ 10.00
---------- ----------- -----------
Income (loss) from investment operations:
Net investment income 0.22 0.13 0.03
Net realized and unrealized gain (loss) on investments 2.30 1.74 (0.30)
---------- ----------- -----------
Total income (loss) from investment operations 2.52 1.87 (0.27)
Less distributions to shareholders:
From net investment income (0.23) (0.13) (0.03)
From net realized gains (0.31) -- --
---------- ----------- -----------
Total distributions (0.54) (0.13) (0.03)
---------- ----------- -----------
Net asset value, end of period $ 13.42 $ 11.44 $ 9.70
========== =========== ===========
Total Return 22.07% 19.25% (2.72)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $145 $118 $99
Net expenses to average daily net assets# 1.20% 1.20% 1.20%*
Net investment income to average daily net assets 1.81% 1.19% 1.69%*
Portfolio turnover rate 28% 28% 4%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.24% 1.24% 1.26%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
---------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.44 $ 9.70 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.27 0.16 0.03
Net realized and unrealized gain (loss) on investments 2.31 1.74 (0.30)
----------- ------------ ------------
Total income (loss) from investment operations 2.58 1.90 (0.27)
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.27) (0.16) (0.03)
From net realized gains (0.31) -- --
----------- ------------ ------------
Total distributions (0.58) (0.16) (0.03)
----------- ------------ ------------
Net asset value, end of period $ 13.44 $ 11.44 $ 9.70
=========== ============ ============
Total Return 22.64% 19.62% (2.68)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $146 $119 $99
Net expenses to average daily net assets# 0.85% 0.85% 0.85%*
Net investment income to average daily net assets 2.16% 1.54% 2.09%*
Portfolio turnover rate 28% 28% 4%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.89% 0.89% 0.91%*
<CAPTION>
Class 4
---------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
----------- ------------ ------------
Net asset value, beginning of period $ 11.44 $ 9.69 $ 10.00
----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.31 0.19 0.04
Net realized and unrealized gain (loss) on investments 2.29 1.75 (0.31)
----------- ------------ ------------
Total income (loss) from investment operations 2.60 1.94 (0.27)
----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.30) (0.19) (0.04)
From net realized gains (0.31) -- --
----------- ------------ ------------
Total distributions (0.61) (0.19) (0.04)
----------- ------------ ------------
Net asset value, end of period $ 13.43 $ 11.44 $ 9.69
=========== ============ ============
Total Return@ 22.82% 20.01% (2.66)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $456,935 $380,398 $310,789
Net expenses to average daily net assets# 0.6110% 0.6110% 0.6110%*
Net investment income to average daily net assets 2.40% 1.78% 1.78%*
Portfolio turnover rate 28% 28% 4%
Average broker commission rate (a) $ .0585 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 0.6546% 0.6553% 0.6681%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
@Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund
is required to disclose its average commission rate per share for security
trades on which commissions are charged.
The accompanying notes are an integral part of the financial statements. 57
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objective and policies for the MassMutual International
Equity Fund?
The objective and policies of the Fund are to:
. achieve high total rate of return over the long term
. invest in a diversified portfolio of foreign and domestic equity securities
. utilize dominant themes to guide investment decisions (economic, political and
social influences that are expected to dictate long-term growth trends)
How has the portfolio performed over the year?
International markets lagged the U.S. over the year because of one main factor:
negative performance from Japan. Even though many world markets outperformed the
U.S. in dollar terms this year, Japan is the second largest world market. When
Japan suffers, it has an effect on most diversified international and global
portfolios -- especially indices and Index funds that aren't actively managed.
As hard as it is to avoid Japan completely in a fully-diversified investment
portfolio, over the past few years to do well in international markets has meant
to be vigilant and selective in terms of regional exposure. With that preface,
one of our moves was to actively limit our investment to the Japanese market. As
a result, our portfolio performed well, finishing in the top 20% of the 322
portfolios that make up the Lipper International Equity Average and surpassed
the 6.0% return of the Morgan Stanley Capital EAFE Index.
What countries or regions performed well?
Markets that performed better than the U.S. this year (as represented by the
23.0% return of the S&P 500) included the United Kingdom, Brazil, Indonesia,
Finland, Portugal, Malaysia, Canada, Sweden, Spain, Hong Kong, Ireland, the
Netherlands and Norway. This is part of why international diversification is so
important to a balanced investment portfolio. These are not just obscure,
developing markets -- and they outperformed the U.S. even in the second year of
its unusually impressive rally.
What were some of the global investment themes that worked best during the
period?
We found good companies within many of our themes. As a percentage of the
portfolio, Capital Markets Development was largest. Here our investments were in
banks -- often a very good way to play developing markets -- such as Standard
Chartered and HSBC Holdings, both of which are British firms serving Hong Kong
and the Far East. Next, our investments in luxury goods -- the Emerging Consumer
Markets theme -- were impressive. Consumer demand from developing Asia spurred
exceptional performance from stocks including LMVH, Gucci, Bulgari and Porsche.
In Efficiency Enhancing Technology, we did well with Dassault Electronics, a new
issue. Dassault is the leading CAD/CAM company worldwide, whose software helps
other companies bring new products to market quickly and inexpensively. Misys
and SGS Thompson were two other good stocks. The first markets financial
services software and the second designs and manufactures mixed signal
semiconductors. We've always liked the Healthcare theme, and some of our best
investments here were medical technology firms and the "second line"
pharmaceuticals companies. In Infrastructure, we focused primarily on equipment
companies. Within Natural Resources, we profited from oil services companies
like Trans-Ocean Drilling and Geophysique. The oil services sector has been on
the rebound from 15 years out of favor, and these two stocks in particular were
stellar performers. Finally, in Telecommunications, an area where we've been
highly selective, we were pleased with some of our media holdings and
"protected" telecommunications operators.
How is the portfolio being positioned for the coming year?
We continue to look for well-run, well-positioned companies in businesses with
excellent growth prospects. However, as an overlay, we also continue to be
cautious about our exposure to regions or economies that we believe have ongoing
difficulties, such as Japan and South Africa. In addition, we've been working to
concentrate the portfolio further in the names we really believe in. We've
reduced the total number of our holdings by over 20 stocks and have taken larger
positions in strong companies like Nintendo and Reinsurance of Australia.
What is the outlook for the Fund?
While there are still localized problem areas such as Japan, our outlook is
decidedly favorable. Many foreign markets have enjoyed a good run recently, but
in most cases it has not been either as long or as strong as the bull market in
domestic stocks. We think this, plus the fact that international companies are
rapidly becoming attuned to the needs of shareholders, will form a basis for
outperformance from the international markets going forward.
58
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
[CHART OF GROWTH OF A $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C>
"10/3/94" 10000 10000 10000 10000 10000
"12/94" 9250 9260 9270 9280 9898
"6/95" 9420 9460 9480 9510 10155
"12/95" 9616 9679 9713 9756 11007
"6/96" 10513 10620 10667 10734 11504
"12/96" 11259 11406 11473 11562 11672
</TABLE>
<TABLE>
<CAPTION>
MassMutual International Equity Fund
Largest Country Weightings (12/31/96)
% of fund
<S> <C>
Japan 14.05%
United Kingdom 12.83%
France 11.22%
Germany 9.99%
Switzerland 8.50%
The Netherlands 8.40%
Australia 4.47%
Hong Kong 3.65%
Norway 2.97%
Argentina 2.94%
</TABLE>
59
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
EQUITIES - 99.9%
Automobiles -- 2.8%
Ciadea SA (D) 280,885 $ 1,334,428
Mahindra & Mahindra
Ltd., GDR 140,683 1,653,025
Orbital Engine
Corporation Ltd. (D) 2,000,000 1,509,000
Porsche AG,
Preference 6,000 5,353,287
-------------
9,849,740
-------------
Banking -- 8.3%
Banco Bradesco SA,
Preference 230,260,951 1,657,879
Banco de Galicia y
Buenos Aires SA de
CV, Sponsored ADR 127,000 3,079,750
Banco Frances del Rio
de la Plata SA, ADR 57,500 1,581,250
Bank of Scotland 1,250,000 6,588,500
Bil GT Gruppe AG 2,500 1,277,256
Development Bank of
Singapore Limited 200,000 2,702,260
HSBC Holdings PLC 261,214 5,588,987
Skandinaviska Enskilda
Banken Group 150,000 1,537,770
Standard Chartered
Bank PLC 350,000 4,294,500
Turkiye Garanti
Bankasi, ADR 252,000 1,131,808
-------------
29,439,960
-------------
Commercial Services -- 0.3%
Adecco SA 4,000 1,000,952
-------------
Computer Hardware -- 0.8%
Canon, Inc. 100,000 2,205,560
PT Multipolar
Corporation 933,000 533,116
-------------
2,738,676
-------------
Computer Services -- 1.1%
Sligos SA 30,000 3,924,027
-------------
Computer Software -- 7.4%
Ines Corp. 42,000 611,524
Misys PLC 450,872 8,572,204
Nintendo Co. Ltd. 185,000 13,213,144
SAP AG, Preference 30,000 4,123,002
-------------
26,519,874
-------------
Conglomerates -- 2.1%
Chargeurs
International SA (D) 120,000 $ 5,932,200
First Philippine
Holdings Corp., B
Shares 700,000 1,596,910
-------------
7,529,110
-------------
Diversified Financial -- 5.8%
ABN Amro Holding
NV 101,630 6,604,009
ING Groep NV 137,500 4,944,390
IRSA Inversiones y
Representaciones, SA 1,014,404 3,256,744
Nomura Securities
Company Ltd. 250,000 3,747,725
Societe Generale de
Paris 20,000 2,158,216
-------------
20,711,084
-------------
Drugs -- 9.3%
Altana AG 6,000 4,668,067
Ares-Serono Group B 10,500 9,986,057
Biocompatibles
International PLC (D) 411,665 5,762,651
Glaxo Wellcome PLC,
Sponsored ADR 250,000 4,064,325
Sanofi SA 35,000 3,473,918
Takeda Chemical
Industries Ltd. 250,000 5,233,900
-------------
33,188,918
-------------
Electric Utilities -- 0.4%
Capex SA, GDR 76,000 1,262,360
-------------
Electrical Equipment & Electronics -- 6.5%
Austria Mikro
Systeme International
AG 54,800 4,226,450
Keyence Corporation 20,000 2,464,030
LEM Holdings SA 11,192 2,258,868
Matsushita Electric
Industrial Company
Ltd. 175,000 2,849,560
Rohm Company 40,000 2,619,108
SGS-Thomson
Microelectronics NV (D) 58,800 4,116,000
Yamatake-Honeywell
Co., Ltd. 70,000 1,127,763
Yokogawa Electric
Corp. 400,000 3,446,160
-------------
23,107,939
-------------
Energy Services & Producers -- 1.0%
Compagnie Generale de
Geophysique SA (D) 50,000 $ 3,462,375
-------------
Engineering -- 1.7%
Fugro NV 200,000 3,549,660
Internatio-Muller NV 100,000 2,509,050
-------------
6,058,710
-------------
Financial Services -- 3.8%
Compagnie Bancaire
SA 35,000 4,133,693
CS Holding AG 40,000 4,096,156
Merita Ltd.
A Shares (D) 1,399,600 4,342,399
Van der Hoop
Effektenbank NV 145,000 1,106,524
-------------
13,678,772
-------------
Food & Beverage -- 2.5%
Hellenic Bottling Co.,
SA 70,000 2,242,912
Remy Cointreau 120,000 3,393,120
Sermsuk Public
Company Limited 50,000 725,425
South African
Breweries Limited 100,000 2,533,400
-------------
8,894,857
-------------
Healthcare -- 1.4%
Novartis AG 4,264 4,868,254
-------------
Hotel/Gaming -- 0.8%
Lusomundo, SGPS,
SA (D) 257,500 2,962,280
-------------
Household Products -- 0.2%
Srithai Superware Co.
Ltd. 175,000 846,318
-------------
Industrial Services -- 3.2%
Boskalis Westminster 347,290 7,027,135
PT Citra Marga
Nusaphala Persada 2,120,000 1,660,106
VBH - Vereinigter
Baubeschlag Handel
AG 125,000 2,778,025
-------------
11,465,266
-------------
</TABLE>
(Continued)
60 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Market Value
------ ------------
<S> <C> <C>
Insurance -- 7.1%
AXA SA 75,000 $ 4,760,768
Marschollek,
Lautenschlaeger und
Partner AG 44,000 6,109,884
National Mutual Asia
Ltd. 1,816,000 1,725,563
Ockham Holdings PLC 1,000,000 1,283,400
Reinsurance Australia
Corp. Ltd. 2,910,000 11,325,138
-------------
25,204,753
-------------
Manufacturing -- 3.8%
Bucher Holding AG, B
Shares 1,750 1,199,057
Powerscreen
International PLC 494,100 4,777,354
Rolls-Royce PLC 750,000 3,298,500
SMH AG (Registered) 30,000 4,267,449
-------------
13,542,360
-------------
Medical Products -- 0.4%
Elekta Instrument AB
Free, Series B 40,000 1,420,612
Metals & Mining -- 2.1%
Boehler-Uddeholm AG 12,000 857,970
Boehler-Uddeholm AG
144A . 24,000 1,715,946
Compania de Minas
Buenaventura SA,
Sponsored ADR 200,000 3,375,000
Hoganas AB Cl. B 40,000 1,400,108
-------------
7,349,024
-------------
Non-Durable Household Goods -- 1.8%
Wella AG 2,000 1,057,680
Wella AG Preference 10,000 5,320,843
-------------
6,378,523
-------------
Oil & Gas -- 5.2%
Belle Corporation . 5,000,000 1,387,500
Coflexip SA,
Sponsored ADR 90,000 2,362,500
Expro International
Group PLC 775,000 6,266,495
Hong Kong and China
Gas Company Ltd. 720,000 1,391,544
PTT Exploration and
Production 50,000 721,525
Smedvig ASA A
Shares 165,000 3,617,625
Smedvig ASA B
Shares . 160,000 3,282,496
-------------
19,029,685
-------------
Publishing & Printing-- 0.9%
News Corp. Ltd., ADR 150,000 3,131,250
-------------
Real Estate -- 1.3%
Brazil Realty SA,
GDR 144A 59,000 1,121,000
MRC Allied Industries,
Inc. . 4,000,000 532,000
Sun Hung Kai
Properties Ltd. 250,000 3,062,375
-------------
4,715,375
-------------
Retail -- 2.4%
Autobacs Seven Co.
Limited 50,000 3,528,040
PT Matahari Putra
Prima 700,000 818,518
Vendex International
NV 100,000 4,272,320
-------------
8,618,878
-------------
Shipping -- 0.2%
Lisnave-Estaleiros
Navais de Lisbona SA . 306,300 806,917
-------------
Specialty Retail -- 3.7%
Adidas AG 42,200 3,641,919
FamilyMart Co. 60,000 2,393,382
Giordano International
Ltd. 1,500,000 1,279,800
Jusco Co. 100,000 3,385,880
Moebel Walther AG,
Preference 40,000 2,621,488
-------------
13,322,469
-------------
Telecommunications -- 4.0%
CPT Telefonica del
Peru SA, Cl. B 1,600,000 2,994,080
Korea Mobile
Telecommunications
Corporation 4,300 4,368,962
Millicom International
Cellular SA . 37,500 1,204,688
Portugal Telecom SA 86,000 2,448,437
Telecom Italia Mobile
SpA 1,299,900 3,278,478
-------------
14,294,645
-------------
Telephone Utilities -- 1.4%
Telecomunicacoes
Brasileiras S/A-
Telebras 18,500 1,415,250
Telefonica de Espana
ADS 150,000 3,476,835
-------------
4,892,085
-------------
Television -- 0.7%
Groupe AB SA . 165,000 2,371,875
-------------
Textiles -- 1.9%
Bulgari SpA 225,000 4,557,690
Gucci Group NV 35,000 2,235,625
-------------
6,793,315
-------------
Tobacco -- 0.4%
Compagnie Financiere
Richemont AG 1,000 1,400,141
-------------
Transportation -- 3.2%
Argonaut AB-B Shares . 1,100,000 2,207,040
East Japan Railway Co. 750 3,366,503
Frontline AB . 650,000 2,246,595
MIF Ltd. 250,000 3,719,425
-------------
11,539,563
-------------
TOTAL EQUITIES 356,320,942
-------------
(Cost $309,944,622)
WARRANTS -- 0.3%
Drugs -- 0.3%
Biocompatibles
International PLC . 71,593 912,676
-------------
Oil & Gas -- 0.0%
Hong Kong and China
Gas Company Ltd. . 72,000 3,723
-------------
TOTAL WARRANTS 916,399
-------------
(Cost $0)
TOTAL INVESTMENTS -- 100.2% 357,237,341
-------------
(Cost $309,944,622)+
Other Assets/
(Liabilities) - (0.2%) (585,529)
-------------
NET ASSETS-- 100.0% $356,651,812
-------------
</TABLE>
Notes to Portfolio of Investments
. Non-income producing security
+ Aggregate cost for Federal tax purposes (Note 7)
ADR: American Depository Receipt
GDR: Global Depository Receipt
ADS: American Depository Shares
144A: Securities exempt from registration under rule 144A of the Securities Act
of 1933. The Securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The accompanying notes are an integral part of the financial statements. 61
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Statement of Assets and Liabilities
Assets:
Investments, at value (cost $309,944,622) (Note 2)....................... $ 357,237,341
Cash..................................................................... 83,359
Foreign currency, at value (cost $4,918,907)............................. 4,903,738
Receivables from:
Investments sold....................................................... 1,783,534
Open forward foreign currency contracts (Note 2)....................... 612,258
Fund shares sold....................................................... 216,824
Interest and dividends................................................. 267,791
Foreign taxes withheld................................................. 274,223
Investment manager (Note 3)............................................ 54,877
-------------------
Total assets......................................................... 365,433,945
-------------------
Liabilities:
Payables for:
Investments purchased.................................................. 6,371,010
Borrowings under line of credit (Note 8)............................... 1,600,000
Fund shares redeemed................................................... 456,891
Directors' fees and expenses (Note 3).................................. 5,177
Affiliates (Note 3):
Investment management fees........................................... 254,834
Administration fees.................................................. 29,289
Service and distribution fees........................................ 219
Accrued expenses and other liabilities................................... 64,713
-------------------
Total liabilities.................................................... 8,782,133
-------------------
Net assets............................................................... $ 356,651,812
===================
Net assets consist of:
Paid-in capital.......................................................... $ 320,990,580
Undistributed net investment income...................................... 113,978
Accumulated net realized loss on investments and
foreign currency translations.......................................... (12,355,482)
Net unrealized appreciation on investments, forward foreign currency
contracts, foreign currency and other assets and liabilities........... 47,902,736
-------------------
$ 356,651,812
===================
Net assets:
Class 1.................................................................. $ 112,681
===================
Class 2.................................................................. $ 114,019
===================
Class 3.................................................................. $ 114,468
===================
Class 4.................................................................. $ 356,310,644
===================
Shares outstanding:
Class 1.................................................................. 10,176
===================
Class 2.................................................................. 10,281
===================
Class 3.................................................................. 10,315
===================
Class 4.................................................................. 32,070,618
===================
Net asset value, offering price and
redemption price per share:
Class 1.................................................................. $ 11.07
===================
Class 2.................................................................. $ 11.09
===================
Class 3.................................................................. $ 11.10
===================
Class 4.................................................................. $ 11.11
===================
</TABLE>
62 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31, 1996
----------------
<S> <C>
Statement of Operations
Investment income:
Dividends (net of withholding tax of $468,717)............................ $ 4,155,451
Interest.................................................................. 350,237
-------------------
Total investment income................................................. 4,505,688
-------------------
Expenses (Note 1):
Investment management fees (Note 3)....................................... 2,398,114
Custody fees.............................................................. 319,874
Audit and legal fees...................................................... 9,403
Excise taxes.............................................................. 6,854
Directors' fees (Note 3).................................................. 15,246
Fees waived by the investment manager (Note 3)............................ (196,769)
-------------------
2,552,722
Administration fees (Note 3):
Class 1................................................................. 698
Class 2................................................................. 569
Class 3................................................................. 465
Class 4................................................................. 273,938
Distribution and service fees (Note 3):
Class 1................................................................. 763
Class 2................................................................. 157
-------------------
Net operating expenses................................................ 2,829,312
Interest expense (Note 8)................................................. 25,373
-------------------
Net investment income................................................. 1,651,003
-------------------
Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain on:
Investment transactions................................................. 5,099,336
Foreign currency transactions........................................... 5,633,016
-------------------
Net realized gain..................................................... 10,732,352
-------------------
Net change in unrealized appreciation
(depreciation) on:
Investments............................................................. 36,945,058
Translation of assets and liabilities in foreign currencies............. (414,384)
-------------------
Net unrealized gain................................................... 36,530,674
-------------------
Net realized and unrealized gain from investments
and foreign currency................................................. 47,263,026
-------------------
Net increase in net assets resulting from operations...................... $ 48,914,029
===================
</TABLE>
The accompanying notes are an integral part of the financial statements. 63
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Statements of Changes in Net Assets
Increase (Decrease) in Net Assets:
Operations:
Net investment income.............................................. $ 1,651,003 $ 1,410,289
Net realized gain (loss) on investment and foreign
currency transactions............................................. 10,732,352 (11,680,240)
Net change in unrealized appreciation (depreciation) on
investments and translation of assets and liabilities in
foreign currencies................................................ 36,530,674 19,939,116
------------------- -------------------
Net increase in net assets resulting from operations........... 48,914,029 9,669,165
------------------- -------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1............................................................ (263) --
Class 2............................................................ (433) (195)
Class 3............................................................ (501) (467)
Class 4............................................................ (1,825,896) (1,565,611)
------------------- -------------------
Total distributions from net investment income................. (1,827,093) (1,566,273)
------------------- -------------------
In excess of net investment income:
Class 1............................................................ (794) (830)
Class 2............................................................ (1,308) (952)
Class 3............................................................ (1,513) (947)
Class 4............................................................ (5,515,423) (2,389,653)
------------------- -------------------
Total distributions in excess of net investment income......... (5,519,038) (2,392,382)
------------------- -------------------
Net fund share transactions (Note 5):
Class 1............................................................ (13,956) 16,103
Class 2............................................................ 1,742 1,191
Class 3............................................................ 2,018 1,430
Class 4............................................................ 94,070,522 64,817,475
------------------- -------------------
Increase in net assets from net fund share transactions........... 94,060,326 64,836,199
------------------- -------------------
Total increase in net assets....................................... 135,628,224 70,546,709
Net assets:
Beginning of period................................................ 221,023,588 150,476,879
------------------- -------------------
End of period (including undistributed net investment income
of $113,978 and distributions in excess of net investment
income of $215,389)................................................ $ 356,651,812 $ 221,023,588
=================== ===================
</TABLE>
64 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.54 $ 9.25 $ 10.00
---------- ---------- -----------
Income (loss) from investment operations:
Net investment income (0.07) (0.03) (0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.70 0.40 (0.73)
---------- ---------- -----------
Total income (loss) from investment operations 1.63 0.37 (0.75)
---------- ---------- -----------
Less distributions to shareholders:
From net investment income (0.10) -- --
In excess of net investment income -- (0.08) --
---------- ---------- -----------
Total distributions (0.10) (0.08) --
---------- ---------- -----------
Net asset value, end of period $ 11.07 $ 9.54 $ 9.25
========== ========== ===========
Total Return 17.09% 3.96% (7.50)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $113 $112 $93
Net expenses to average daily net assets# 2.15% 2.15% 2.15%*
Net investment income to average daily net assets (0.51)% (0.40)% (1.10)%*
Portfolio turnover rate 58% 121% 18%
Average broker commission rate (a) $ .0254 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 2.22% 2.24% 2.24%*
<CAPTION>
Class 2
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.56 $ 9.26 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.00 0.02 (0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.70 0.40 (0.73)
---------- ---------- ----------
Total income (loss) from investment operations 1.70 0.42 (0.74)
---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.17) (0.02) --
In excess of net investment income -- (0.10) --
---------- ---------- ----------
Total distributions (0.17) (0.12) --
---------- ---------- -----------
Net asset value, end of period $ 11.09 $ 9.56 $ 9.26
========== ========== ==========
Total Return 17.85% 4.52% (7.40)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $114 $97 $93
Net expenses to average daily net assets# 1.60% 1.60% 1.60%*
Net investment income to average daily net assets 0.02% 0.19% (0.55)%*
Portfolio turnover rate 58% 121% 18%
Average broker commission rate (a) $ .0254 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.67% 1.69% 1.69%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
The accompanying notes are an integral part of the financial statements. 65
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
----------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.57 $ 9.27 $ 10.00
---------- ---------- -----------
Income (loss) from investment operations:
Net investment income 0.03 0.04 (0.00)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.70 0.40 (0.73)
---------- ---------- -----------
Total income (loss) from investment operations 1.73 0.44 (0.73)
---------- ---------- -----------
Less distributions to shareholders:
From net investment income (0.20) (0.05) --
In excess of net investment income -- (0.09) --
---------- ---------- -----------
Total distributions (0.20) (0.14) --
---------- ---------- -----------
Net asset value, end of period $ 11.10 $ 9.57 $ 9.27
========== ========== ===========
Total Return 18.11% 4.78% (7.30)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $114 $97 $93
Net expenses to average daily net assets# 1.35% 1.35% 1.35%*
Net investment income to average daily net assets 0.27% 0.45% (0.30)%*
Portfolio turnover rate 58% 121% 18%
Average broker commission rate (a) $ .0254 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.42% 1.44% 1.44%*
<CAPTION>
Class 4
-------
Year ended Year ended Period Ended
12/31/96 12/31/95 12/31/94**
---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.58 $ 9.28 $ 10.00
---------- ---------- -----------
Income (loss) from investment operations:
Net investment income 0.06 0.07 0.00
Net realized and unrealized gain (loss) on investments
and foreign currency 1.71 0.41 (0.72)
---------- ---------- -----------
Total income (loss) from investment operations 1.77 0.48 (0.72)
---------- ---------- -----------
Less distributions to shareholders:
From net investment income (0.24) (0.07) --
In excess of net investment income -- (0.11) --
---------- ---------- -----------
Total distributions (0.24) (0.18) --
---------- ---------- -----------
Net asset value, end of period $ 11.11 $ 9.58 $ 9.28
========== ========== ===========
Total Return@ 18.51% 5.13% (7.20)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $356,311 $220,718 $150,199
Net expenses to average daily net assets# 1.0020% 1.0020% 1.0020%*
Net investment income to average daily net assets 0.59% 0.76% 0.04%*
Portfolio turnover rate 58% 121% 18%
Average broker commission rate (a) $ .0254 N/A N/A
#Computed after giving effect to the reduction in
management fee by MassMutual. Without this reduction of
fees by the investment manager, the ratio of expenses
to average daily net assets would have been: 1.0718% 1.0920% 1.0877%*
</TABLE>
*Annualized
**For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
@ Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth in
their respective Plan Documents. Total return figures would be lower for the
periods presented if they reflected these charges.
(a)Average commission rate paid is computed by dividing the total amount of
commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were charged.
For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
66 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. The Trust
MassMutual Institutional Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company. The Trust is organized under the laws of the
Commonwealth of Massachusetts as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust dated May 28, 1993, as amended. The Trust
consists of seven separate series of shares (each individually referred to as a
"Fund" or collectively as the "Funds"), each having four classes of shares:
Class 1, Class 2, Class 3 and Class 4. Class 1, Class 2 and Class 3 shares of
each Fund are offered primarily to employer-sponsored defined contribution plans
that satisfy the qualification requirements of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). Class 4 shares of each Fund are
available only to separate investment accounts ("SIAs") of Massachusetts Mutual
Life Insurance Company ("MassMutual") in which corporate qualified plans
including defined contribution plans and defined benefit plans are permitted to
invest pursuant to the issuance of group annuity contracts. The Funds are
MassMutual Prime Fund ("Prime Fund"), MassMutual Short-Term Bond Fund
("Short-Term Bond Fund"), MassMutual Core Bond Fund ("Core Bond Fund"),
MassMutual Balanced Fund ("Balanced Fund"), MassMutual Value Equity Fund ("Value
Equity Fund"), MassMutual Small Cap Value Equity Fund ("Small Cap Value Equity
Fund"), and MassMutual International Equity Fund ("International Equity Fund"),
all of which commenced operations on October 3, 1994.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed
consistently by each Fund in the preparation of the financial statements in
conformity with generally accepted accounting principles. The preparation of the
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Investment Valuation
Equity securities are valued on the basis of valuations furnished by a pricing
service, authorized by the Board of Trustees ("Trustees"), which provides the
last reported sale price for securities listed on a national securities exchange
or on the NASDAQ national market system, or in the case of over-the-counter
securities not so listed, the last reported bid price. Debt securities (other
than short-term obligations with a remaining maturity of sixty days or less) are
valued on the basis of valuations furnished by a pricing service, authorized by
the Trustees, which determines valuations taking into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. Money market obligations with a remaining maturity of
sixty days or less are valued at either amortized cost or at original cost plus
accrued interest, whichever approximates current market value. All other
securities and other assets, including debt securities for which the prices
supplied by a pricing agent are deemed by MassMutual not to be representative of
market values, and including restricted securities and securities for which no
market quotation is available, are valued at fair value in accordance with
procedures approved by and determined in good faith by the Trustees, although
the actual calculation may be done by others.
Portfolio securities traded on more than one national securities exchange are
valued at the last price on the business day as of which such value is being
determined at the close of the exchange representing the principal market for
such securities. All assets and liabilities expressed in foreign currencies will
be converted into U.S. dollars at the mean between the buying and selling rates
of such currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Trustees.
67
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Accounting for Investments
Investment transactions are accounted for on the trade date. Realized gains and
losses on sales of investments and unrealized appreciation and depreciation of
investments are computed on the specific identification cost method. Interest
income, adjusted for amortization of discounts and premiums on investments, is
earned from the settlement date and is recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date.
Federal Income Tax
It is each Fund's intent to continue to comply with the provisions of subchapter
M of the Code applicable to a regulated investment company. Under such
provisions, the Funds will not be subject to federal income taxes on their
ordinary income and net realized capital gain to the extent they are distributed
or deemed to have been distributed to their shareholders. Therefore, no Federal
income tax provision is required.
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of any net realized
capital gains of each Fund are declared and paid annually and at other times as
may be required to satisfy tax or regulatory requirements. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to investments in forward contracts, passive foreign investment
companies, the deferral of wash sale losses, and paydowns on certain
mortgage-backed securities. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Funds may periodically make reclassifications among certain of their capital
accounts without impacting the net asset value of the Funds.
Foreign Currency Translation
The books and records of the Funds are maintained in U.S. dollars. The market
values of foreign currencies, foreign securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
at the mean of the buying and selling rates of such currencies against the U.S.
dollar at the end of each business day. Purchases and sales of foreign
securities and income and expense items are translated at the rates of exchange
prevailing on the respective dates of such transactions. The Funds do not
isolate that portion of the results of operations arising from changes in the
exchange rates from that portion arising from changes in the market prices of
securities.
Net realized foreign currency gains and losses resulting from changes in
exchange rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of dividends recorded on the
books of the Funds and the amount actually received.
Forward Foreign Currency Contracts
Each Fund may enter into forward foreign currency contracts in order to convert
foreign denominated securities or obligations to U.S. dollar denominated
investments. The International Equity Fund may engage in such transactions to
manage the value of portfolio holdings against future movements in certain
foreign currency exchange rates. A forward foreign currency contract is an
agreement between two parties to buy and sell a currency at a set price on a
future date. The market value of a forward currency contract fluctuates with
changes in forward foreign currency exchange rates. Forward foreign currency
contracts are marked to market daily and the change in their value is recorded
by the Funds as an unrealized gain or loss. When a forward foreign currency
contract is extinguished, through delivery or offset by entering into another
forward foreign currency contract, the Funds record a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it was extinguished or offset.
Forward foreign currency contracts involve a risk of loss from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in foreign currency values and interest rates.
68
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
The notional or contractual amounts of these instruments represent the
investments the Funds have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risk associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations for the International Equity Fund under these financial instruments
at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
In
Contracts Exchange Unrealized
Settlement to Units of for U.S. Contracts at Appreciation
Date Deliver/Receive Currency Dollars Value (Depreciation)
- ---------- --------------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BUYS
01/13/97 Austrian Schilling 2,124,732 $ 196,807 $ 196,017 $ (790)
SELLS
01/02/97 British Pound 114,041 190,471 195,147 (4,676)
01/03/97 British Pound 334,350 562,433 572,139 (9,706)
01/07/97 British Pound 110,538 188,114 189,153 (1,039)
01/27/97 Japanese Yen 4,007,200,000 35,305,727 34,677,258 628,469
---------------
613,048
---------------
$ 612,258
===============
</TABLE>
Forward Commitments
Each Fund may purchase or sell securities on a "when issued" or delayed delivery
or on a forward commitment basis. The Funds use forward commitments to manage
interest rate exposure or as a temporary substitute for purchasing or selling
particular debt securities. Forward commitments are not used for purposes of
trading. Delivery and payment for securities purchased on a forward commitment
basis can take place a month or more after the date of the transaction. The
Funds instruct the custodian to segregate assets in a separate account with a
current market value at least equal to the amount of its forward purchase
commitments. The price of the underlying security and the date when the
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. The value of the forward commitment is determined by management
using a commonly accepted pricing model and fluctuates based upon changes in the
value of the underlying security and market repurchase rates. Such rates equate
the counterparty's cost to purchase and finance the underlying security to the
earnings received on the security and forward delivery proceeds. The Funds
record on a daily basis the unrealized appreciation/depreciation based upon
changes in the value of the forward commitment. When a forward commitment
contract is closed, the Funds record a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value of the contract at the time it was extinguished. Forward commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date. The Funds could also be exposed to loss if they
cannot close out their forward commitments because of an illiquid secondary
market, or the inability of counterparties to perform. The Funds monitor
exposure to ensure counterparties are creditworthy and concentration of exposure
is minimized. A summary of open obligations under these forward commitments at
December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Forward Expiration Aggregate
Commitment of Face Value Market Unrealized
Contracts to Buy Contracts of Contracts Cost Value (Depreciation)
---------------- ---------- ------------ ---- ------ --------------
<S> <C> <C> <C> <C> <C>
Core Bond Fund
U.S. Treasury Note
5.875% 11/15/1999 February 1997 $ 9,250,000 $ 9,215,674 $ 9,203,935 ($11,739)
Balanced Fund
U.S. Treasury Note
5.875% 11/15/1999 February 1997 $1,900,000 $1,892,949 $1,890,538 ($ 2,411)
</TABLE>
69
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Allocation of Operating Activity
In maintaining the records for the Funds, the income and expense accounts are
allocated to each class of shares. Investment income, unrealized and realized
gains or losses are prorated among the classes of shares based on the relative
net assets of each. Expenses are allocated to each class of shares depending on
the nature of the expenditures. Administration and distribution and service
fees, which are directly attributable to a class of shares, are charged to that
class' operations. Expenses of the Fund not directly attributable to the
operations of any class of shares or Fund are prorated among the Funds and
classes to which the expense relates based on the relative net assets of each.
Total expenses per class are currently limited to a percentage of average daily
net assets, as discussed in Note 3.
3. Management Fees and Other Transactions With Affiliates
Investment Management Fees
Under an agreement between the Trust and MassMutual, MassMutual is responsible
for providing investment management of each Fund. In return for this service,
MassMutual receives advisory fees monthly based upon each Fund's average daily
net assets at the following annual rates:
<TABLE>
<S> <C>
Prime Fund .45%
Short-Term Bond Fund .45%
Core Bond Fund .45%
Balanced Fund .45%
Value Equity Fund .45%
Small Cap Value Equity Fund .55%
International Equity Fund .85%
</TABLE>
MassMutual has entered into investment sub-advisory agreements with two
subsidiaries: David L. Babson & Company, Inc. ("Babson") and HarbourView Asset
Management Corporation ("HarbourView"). These agreements provide that (1)
effective January 1, 1997, Babson will manage the investment and reinvestment of
the assets of the Value Equity Fund, the Small Cap Value Equity Fund and the
Value Equity sector of the Balanced Fund, and (2) HarbourView will manage the
investment and reinvestment of the assets of the International Equity Fund.
Prior to January 1, 1997, Concert Capital Management ("Concert Capital") served
as the investment sub-advisor to the Value Equity Fund, the Small Cap Value
Equity Fund and the Value Equity sector of the Balanced Fund. On January 1,
1996, the employees of Concert Capital became co-employees of Babson. At the
time, both Concert Capital and Babson were wholly-owned subsidiaries of DLB
Acquisition Corporation, a controlled subsidiary of MassMutual. Concert Capital
merged with and into Babson effective December 31, 1996.
MassMutual pays Babson a fee equal to an annual rate of .13% of the average
daily net asset value of the Value Equity Fund and the Value Equity sector of
the Balanced Fund and .25% of the average daily net asset value of the Small Cap
Value Equity Fund. MassMutual pays HarbourView a fee equal to an annual rate of
.50% of the average daily net asset value of the International Equity Fund.
Administration Fees
Under separate administrative and shareholder services agreements between each
Fund and MassMutual, MassMutual provides certain administrative and shareholder
services and bears some class specific administrative expenses. In return for
these services, MassMutual receives an administrative services fee monthly based
upon the average daily net assets of the applicable class of shares of the Fund
at the following annual rates:
<TABLE>
<CAPTION>
Class 1 Class 2 Class 3 Class 4
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Prime Fund .5628% .5128% .3152% .0812%
Short-Term Bond Fund .5568% .5068% .3092% .0782%
Core Bond Fund .5688% .5188% .3212% .0842%
Balanced Fund .5708% .5208% .3232% .0852%
Value Equity Fund .5814% .5314% .3338% .0905%
Small Cap Value Equity Fund .5728% .5228% .3252% .0862%
International Equity Fund .5948% .5448% .4448% .0972%
</TABLE>
70
<PAGE>
Notes to Financial Statements (Continued)
Distribution and Service Fees
OppenheimerFunds Distributor, Inc. ("Oppenheimer") acts as distributor to each
Fund. MML Investor Services, Inc. ("MMLISI") serves as sub-distributor to each
Fund. MassMutual has a controlling interest in OppenheimerFunds and MMLISI is a
wholly owned subsidiary of MassMutual. Oppenheimer is paid a distribution fee
with respect to Class 1 and Class 2 at the annual rate of .40% and .15%,
respectively, of the value of average daily net assets attributable to those
classes of shares of which a portion is subsequently allocated to MMLISI. The
Funds do not pay any fees directly to MMLISI. MassMutual is also paid a fee for
shareholder services with respect to Class 1 shares of the Funds at the annual
rate of .25% of the value of the average daily net assets of the respective
class of each Fund. These fees are authorized pursuant to separate service and
distribution plans for each of the classes of shares adopted by the Funds
pursuant to Rule 12b-1 under the Investment Company Act and are used by
Oppenheimer to cover expenses primarily intended to result in the sale of those
shares of the Funds.
Expense Limitations
MassMutual has voluntarily agreed to waive a portion of its management fee to
the extent that the aggregate annual operating expenses incurred during the year
exceed the following percentages of the average daily net assets:
<TABLE>
<CAPTION>
Class 1 Class 2 Class 3 Class 4
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Prime Fund 1.65% 1.10% .75% .5160%
Short-Term Bond Fund 1.65% 1.10% .75% .5190%
Core Bond Fund 1.65% 1.10% .75% .5130%
Balanced Fund 1.65% 1.10% .75% .5120%
Value Equity Fund 1.65% 1.10% .75% .5067%
Small Cap Value Equity Fund 1.75% 1.20% .85% .6110%
International Equity Fund 2.15% 1.60% 1.35% 1.002%
</TABLE>
MassMutual's management fee for the year ended December 31, 1996 was
$20,477,568, of which $1,925,096 was reimbursed to the Funds.
Other
Certain officers and directors of the Funds are also officers of
MassMutual. The compensation of unaffiliated directors of the Funds is borne by
the Funds.
At December 31, 1996, MassMutual or separate investment accounts thereof owned
all of the outstanding shares of the Trust.
4. Purchases And Sales Of Investments
Cost of purchases and proceeds from sales of investment securities (excluding
short-term investments) for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Long-term U.S.
Government Other Long-term
Securities Securities
--------------------- ----------------------
Purchases
<S> <C> <C>
Short-Term Bond Fund $ 102,126,595 $ 32,662,257
Core Bond Fund 168,040,130 117,409,164
Balanced Fund 48,825,564 81,833,743
Value Equity Fund -- 366,428,008
Small Cap Value Equity Fund -- 126,866,361
International Equity Fund -- 255,790,219
Sales
Short-Term Bond Fund $ 39,099,687 $ 14,835,789
Core Bond Fund 111,228,535 37,231,689
Balanced Fund 39,076,581 45,001,025
Value Equity Fund -- 281,828,695
Small Cap Value Equity Fund -- 107,156,414
International Equity Fund -- 161,400,001
</TABLE>
71
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
5. Capital Share Transactions
The Funds are authorized to issue an unlimited number of shares, with no par
value, in one or more of four classes of shares: Class 1, Class 2, Class 3 and
Class 4. Class 1 and Class 2 shares of each Fund are subject to distribution and
service fees. Class 3 shares are not subject to any distribution or service
fees. SIA Investors purchase Class 4 shares directly from the Funds and pay no
distribution or service fees. Changes in shares outstanding for each Fund are as
follows:
<TABLE>
<CAPTION>
Class 1
Year ended Year ended
December 31, 1996 December 31, 1995
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Prime Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 28 4,288 28 4,178
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 28 $ 4,288 28 $ 4,178
======== ======== ======== ========
Short-Term Bond Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 519 5,285 740 7,530
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 519 $ 5,285 740 $ 7,530
======== ======== ======== ========
Core Bond Fund
Sold 429 4,520 4,457 49,156
Issued as reinvestment
of dividends 489 5,156 1,186 12,759
Redeemed (5,250) (55,534) -- --
-------- -------- -------- --------
Net increase (decrease) (4,332) $(45,858) 5,643 $ 61,915
======== ======== ======== ========
Balanced Fund
Sold 931 10,969 4,480 49,577
Issued as reinvestment
of dividends 416 5,173 530 6,084
Redeemed (5,552) (65,509) (23) (260)
-------- -------- -------- --------
Net increase (decrease) (4,205) $(49,367) 4,987 $ 55,401
======== ======== ======== ========
Value Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 403 5,884 219 2,751
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 403 $ 5,884 219 $ 2,751
======== ======== ======== ========
Small Cap Value Equity Fund
Sold 4,373 54,090 4,740 49,719
Issued as reinvestment
of dividends 349 4,660 119 1,356
Redeemed (9,150) (108,036) -- --
-------- -------- -------- --------
Net increase (decrease) (4,428) $(49,286) 4,859 $ 51,075
======== ======== ======== ========
International Equity Fund
Sold 5,377 55,098 1,610 15,218
Issued as reinvestment
of dividends 100 1,065 93 885
Redeemed (7,009) (70,119) -- --
-------- -------- -------- --------
Net increase (decrease) (1,532) $(13,956) 1,703 $ 16,103
======== ======== ======== ========
<CAPTION>
Class 2
Year ended Year ended
December 31, 1996 December 31, 1995
Shares Amount Shares Amount
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Prime Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 33 4,922 32 4,746
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase 33 $ 4,922 32 $ 4,746
======== ======== ======== =======
Short-Term Bond Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 584 5,951 796 8,116
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase 584 $ 5,951 796 $ 8,116
======== ======== ======== =======
Core Bond Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 562 5,941 861 9,288
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase (decrease) 562 $ 5,941 861 $ 9,288
======== ======== ======== =======
Balanced Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 484 6,038 401 4,610
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase (decrease) 484 $ 6,038 401 $ 4,610
======== ======== ======== =======
Value Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 456 6,682 267 3,372
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase 456 $ 6,682 267 $ 3,372
======== ======== ======== =======
Small Cap Value Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 420 5,622 114 1,300
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase (decrease) 420 $ 5,622 114 $ 1,300
======== ======== ======== =======
International Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 161 1,742 124 1,191
Redeemed -- -- -- --
-------- -------- -------- -------
Net increase (decrease) 161 $ 1,742 124 $ 1,191
======== ======== ======== =======
</TABLE>
72
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 3
Year ended Year ended
December 31, 1996 December 31, 1995
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Prime Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 35 5,335 34 5,095
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 35 $ 5,335 34 $ 5,095
======== ======== ======== ========
Short-Term Bond Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 625 6,381 830 8,467
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 625 $ 6,381 830 $ 8,467
======== ======== ======== ========
Core Bond Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 604 6,389 894 9,658
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 604 $ 6,389 894 $ 9,658
======== ======== ======== ========
Balanced Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 521 6,510 433 4,977
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 521 $ 6,510 433 $ 4,977
======== ======== ======== ========
Value Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 492 7,213 299 3,763
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 492 $ 7,213 299 $ 3,763
======== ======== ======== ========
Small Cap Value Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 455 6,096 146 1,672
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 455 $ 6,096 146 $ 1,672
======== ======== ======== ========
International Equity Fund
Sold -- -- -- --
Issued as reinvestment
of dividends 186 2,018 149 1,430
Redeemed -- -- -- --
-------- -------- -------- --------
Net increase 186 $ 2,018 149 $ 1,430
======== ======== ======== ========
<CAPTION>
Class 4
Year ended Year ended
December 31, 1996 December 31, 1995
Shares Amount Shares Amount
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Prime Fund
Sold 2,391,584 370,653,176 1,826,450 281,187,060
Issued as reinvestment
of dividends 86,522 13,067,477 84,068 12,693,332
Redeemed (2,445,697) (378,881,926) (1,363,706) (210,583,290)
---------- ------------- ---------- -------------
Net increase 32,409 $ 4,838,727 546,812 $ 83,297,102
========== ============= ========== =============
Short-Term Bond Fund
Sold 6,074,656 62,871,971 5,136,925 53,696,509
Issued as reinvestment
of dividends 808,935 8,206,104 947,825 9,611,215
Redeemed (4,631,745) (47,999,711) (4,819,336) (50,374,106)
---------- ------------- ---------- -------------
Net increase 2,251,846 $ 23,078,364 1,265,414 $ 12,933,618
========== ============= ========== =============
Core Bond Fund
Sold 15,244,478 161,638,362 8,241,236 89,191,723
Issued as reinvestment
of dividends 1,838,613 19,317,124 1,952,750 20,953,505
Redeemed (6,519,179) (69,250,775) (6,340,632) (67,005,587)
---------- ------------- ---------- -------------
Net increase 10,563,912 $ 111,704,711 3,853,354 $ 43,139,641
========== ============= ========== =============
Balanced Fund
Sold 16,529,257 200,170,935 17,612,664 191,493,187
Issued as reinvestment
of dividends 2,193,746 27,325,515 1,722,693 19,759,099
Redeemed (12,780,860) (154,960,358) (14,889,389) (160,925,764)
---------- ------------- ---------- -------------
Net increase 5,942,143 $ 72,536,092 4,445,968 $ 50,326,522
========== ============= ========== =============
Value Equity Fund
Sold 42,761,147 585,609,490 39,224,457 451,052,424
Issued as reinvestment
of dividends 8,235,214 120,574,407 5,223,526 65,653,544
Redeemed (47,300,940) (651,246,978) (34,020,780) (390,453,417)
---------- ------------- ---------- -------------
Net increase 3,695,421 $ 54,936,919 10,427,203 $ 126,252,551
========== ============= ========== =============
Small Cap Value Equity Fund
Sold 10,428,037 129,033,258 9,765,741 102,623,894
Issued as reinvestment
of dividends 1,500,824 20,087,217 539,817 $6,159,231
Redeemed (11,168,365) (140,771,695) (9,110,662) (97,354,772)
---------- ------------- ---------- -------------
Net increase 760,496 $ 8,348,780 1,194,896 $ 11,428,353
========== ============= ========== =============
International Equity Fund
Sold 14,964,804 154,912,942 11,931,440 112,672,627
Issued as reinvestment
of dividends 672,906 7,341,306 412,266 3,955,148
Redeemed (6,611,341) (68,183,726) (5,487,562) (51,810,300)
---------- ------------- ---------- -------------
Net increase 9,026,369 $ 94,070,522 6,856,144 $ 64,817,475
========== ============= ========== =============
</TABLE>
73
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
6. Foreign Securities
The International Equity Fund invests substantially all of its assets in foreign
securities. The other Funds may also invest in foreign securities, subject to
certain percentage restrictions. Investing in securities of foreign companies
and foreign governments involves special risks and considerations not typically
associated with investing in securities of U.S. companies and the U.S.
Government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of many foreign
companies and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies and
the U.S. Government.
7. Federal Income Tax Information
At December 31, 1996, the cost of securities and the unrealized appreciation
(depreciation) in the value of investments owned by the Funds, as computed on a
Federal income tax basis, are as follows:
<TABLE>
<CAPTION>
Federal Tax Basis Tax Basis Net Unrealized
Income Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
--------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Prime Fund $ 260,002,847 $ 2,614 $ (10,702) $ (8,088)
Short-Term Bond Fund 142,542,031 1,257,932 (240,203) 1,017,729
Core Bond Fund 348,014,562 6,739,419 (2,019,357) 4,720,062
Balanced Fund 456,772,419 86,711,748 (616,389) 86,095,359
Value Equity Fund 1,768,842,158 713,420,243 (1,562,317) 711,857,926
Small Cap Value Equity Fund 345,263,421 119,498,338 (8,280,372) 111,217,966
International Equity Fund 309,948,749 59,397,218 (12,108,626) 47,288,592
</TABLE>
At December 31, 1996, the following Funds have available, for Federal income tax
purposes, unused capital losses:
<TABLE>
<CAPTION>
Amount Expiration Date
--------------------------------- -------------------------------------
<S> <C> <C>
Prime Fund $ 2,082 December 31, 2003
Prime Fund 2,368 December 31, 2004
Short-Term Bond Fund 295,197 December 31, 2004
Core Bond Fund 1,885,881 December 31, 2004
International Equity Fund 11,789,843 December 31, 2003
</TABLE>
8. Line of Credit
On January 11, 1996, the Trust, on behalf of each Fund, entered into a
discretionary line of credit agreement with PNC Bank, N.A. Each Fund may borrow
under the line of credit, provided that the Trust's borrowings do not exceed
$50,000,000 in the aggregate at any one time. Interest is charged based on
outstanding borrowings at the Federal Funds Rate plus .45%. Only the
International Equity Fund utilized the line of credit during the year ended
December 31, 1996. Average daily borrowings for the year ended December 31, 1996
were $3,517,944 and the average interest rate was 5.77%. The maximum borrowing
outstanding during the year ended December 31, 1996 was $9,870,500.
74
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of the MassMutual Institutional Funds:
We have audited the accompanying statements of assets and liabilities of the
MassMutual Institutional Funds, comprising, respectively, the Prime, Short-Term
Bond, Core Bond, Balanced, Value Equity, Small Cap Value Equity and
International Equity Funds, (the "Funds"), including the portfolios of
investments, as of December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
two years in the period then ended and for the period from October 3, 1994
(commencement of operations) through December 31, 1994. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the MassMutual Institutional Funds as of
December 31, 1996 and the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and their financial highlights for each of the two years in the period
then ended and for the period from October 3, 1994 (commencement of operations)
through December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 14, 1997
75
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This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus or private placement
memorandum, if applicable, containing more complete information including fees,
risks, and expenses. If used as sales material, this report must be accompanied
by a Performance Update for the most recently completed calendar quarter. The
figures in this report reflect past results. The investment return and principal
value of shares will fluctuate with market conditions so that shares, when
redeemed, may be worth more or less than their original cost. All investments
are subject to certain risks. For example, stocks are sensitive to price changes
and bonds are affected by interest rate fluctuations. Investors should make
investment decisions based on an investment strategy that takes into
consideration investment goals, the length of time money can stay invested, and
risk tolerance. Portfolio changes should not be considered recommendations for
action by individual investors.
