<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders .................................................. 1
MassMutual Prime Fund
Portfolio Manager Report .............................................. 3
Portfolio of Investments .............................................. 5
Financial Statements .................................................. 7
MassMutual Short-Term Bond Fund
Portfolio Manager Report .............................................. 11
Portfolio of Investments .............................................. 14
Financial Statements .................................................. 17
MassMutual Core Bond Fund
Portfolio Manager Report .............................................. 22
Portfolio of Investments .............................................. 25
Financial Statements .................................................. 29
MassMutual Balanced Fund
Portfolio Manager Report .............................................. 34
Portfolio of Investments .............................................. 36
Financial Statements .................................................. 41
MassMutual Value Equity Fund
Portfolio Manager Report .............................................. 46
Portfolio of Investments .............................................. 49
Financial Statements .................................................. 51
MassMutual Small Cap Value Equity Fund
Portfolio Manager Report .............................................. 56
Portfolio of Investments .............................................. 59
Financial Statements .................................................. 61
MassMutual International Equity Fund
Portfolio Manager Report .............................................. 66
Portfolio of Investments .............................................. 69
Financial Statements .................................................. 71
Notes to Financial Statements ........................................... 76
Report of Independent Accountants/(1)/ .................................. 84
</TABLE>
/(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 30, 1998
To Our
Shareholders
[PHOTO OF STUART H. REESE APPEARS HERE]
Stuart H. Reese
"By almost any measure,
1997 was a solidly good
year."
More Positive News From The U.S.
As we begin 1998, the U.S. economy appears to be embarking on its eighth
consecutive year of expansion. By almost any measure, 1997 was a solidly good
year. Consumption was up, consumer confidence reached a 28-year high,
unemployment hit a 24-year low, gains were made in personal income and corporate
profits, housing starts and new and existing housing sales were up, and the
Federal budget deficit was reduced to a point where 1998 may even see a small
surplus.
All of this happened against a backdrop of declining price pressures, fueling
debate over the relevance of the Phillips Curve, which is the historical model
suggesting that economic growth will eventually breed inflation. Inflation
measured by the Consumer Price Index remained below two percent, down from 1996
levels, and both the Producer Price Index and commodities prices dropped.
Without inflationary pressures, the Federal Reserve, which had raised interest
rates by 25 basis points in March, did not take action again for the remainder
of the year, and rates consequently declined.
Against Uncertainty From Overseas
Working counter to the forces supporting the domestic economy over the past year
was the financial breakdown in the Pacific Rim. After years of over-investment,
weak infrastructure and poor economic policy, high-flying markets including
South Korea, Thailand and Indonesia suffered tremendous losses during the second
half of 1997.
The problems these economies face are deep and far-reaching, and recognition of
this fact has caused turmoil in markets throughout the world. Japan, which has
fiscal problems of its own, is a close trading partner to much of the rest of
Southeast Asia and will be impacted by weakness there. The U.S. has seen effects
of the Asian crisis on a number of levels. The uncertainty created by the Asian
crisis has added volatility to an already nervous stock market, precipitating a
one day drop in the Dow Jones Industrial Average of over 500 points in late
October. A flight to quality in the currency markets bolstered the U.S. dollar,
making American exports expensive in overseas markets and potentially increasing
the trade deficit. Domestic firms that rely on sales to Asian markets may see
profits come under pressure as orders decline, and competitive price pressures
from Asian exporters may impact the ability for companies to raise prices on a
global basis.
Strength Overcame Volatility in Stocks
Even though the U.S. stock market increased in volatility, it turned in
impressive results for the year. As of December 31, 1997, the S&P 500 was up
33.37%, the Dow Jones Industrial Average increased 24.93%, the NASDAQ was up
21.63% and the Russell 2000 earned 22.36%.
Because of the uncertainty inherent in a market that's enjoyed such a tremendous
three year advance, plus the concerns that arose from the Asian markets'
problems, it was large cap growth stocks that benefited most during the year.
These companies, which are well-represented in indices like the S&P 500, were
part of a `flight to quality' that the market experienced over the course of the
year. They are companies that are large enough to endure competitive pressures,
and due to their large capitalizations, their stocks are very liquid.
A Profitable Year For Bonds
The bond market also advanced during 1997. After the Federal Reserve's March
tightening, rates began to decline, and bonds rallied as a result. During the
second half of the year, investors moved into bonds as a safe haven from stock
market volatility. Rates declined and the yield curve flattened.
Toward the end of the year, bonds paying higher yields than Treasuries seemed to
offer the best opportunities. For the first time in quite a while, there was
some risk premium available in moving lower in quality.
(Continued)
1
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Institutional Funds - Letter to Shareholders (Continued)
- --------------------------------------------------------------------------------
Strategic Positioning For The Future
We expect the positive economic factors that determined 1997's market to
outweigh Asian concerns as 1998 continues. While the situation in the Far East
is dominating current market psychology, the International Monetary Fund is
assembling both the personnel and the financing necessary to begin restoring
investor confidence and economic stability to the region. If that takes hold,
domestic factors should begin to take precedence again. All things considered,
we expect another year of economic growth, but at less vigorous levels than what
we've seen recently.
In any event, recent volatility reminds us of the need to be paid for taking
risk. In this environment, we believe that research, selectivity and a value
orientation will separate winners from losers in both the stock and bond
markets. MassMutual's strategic focus on identifying value in the markets has
been tested over time. Our managers are experienced and talented, and supported
by a team of in-house researchers and analysts. All told, we should be well
positioned to act on the opportunities the coming year presents.
/s/ Stuart Reese]
Stuart H. Reese
President
MassMutual Institutional Funds
2
<PAGE>
- --------------------------------------------------------------------------------
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 to the extent consistent with liquidity and the
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 did the Fund perform over the past year?
The Fund has enjoyed another good year, with two classes of shares outperforming
Lipper Analytical's Money Market fund average of 4.9% and keeping investors'
purchasing power well ahead of inflation. Interest rates were favorable for
investors focused on the shortest part of the fixed income spectrum this year
and the Fund took advantage of the opportunities that were created.
How did your market change over the course of the year?
During the first half of the year, there was some concern in the fixed income
markets that the Federal Reserve would raise interest rates to prevent economic
growth from causing higher inflation. Rates did increase once, by 25 basis
points, after the Federal Reserve's March meeting. In the second half,
anticipation of further tightening dissipated. The Federal Reserve's policy
makers met five times during the second half, but did not change rates at all,
due in part to the fact that the rate of increase in the Consumer Price Index
(inflation) was slowing, and that the Producer Price Index and commodity prices
were actually falling. Another reason the Federal Reserve saw no need for action
was the unraveling of the markets in Southeast Asia, a situation that could
potentially slow the growth of the domestic economy.
Yields on bonds at the long end of maturities fell and prices rose as the year
progressed and investors in search of quality looked to Treasuries. Rates at the
short end, where we are focused, were already competitive and remained
relatively stable. We were positioned to do well within this type of
environment.
What investment decisions worked best for the Fund during the year?
Because the Prime Fund is not restrained by the rules that govern pure money
market funds, we were again able to make use of the competitive advantages of
Tier 2 commercial paper. Tier 2 paper carries slightly lower credit ratings than
Tier 1 paper, but in exchange, it pays higher income, which can add to the
Fund's total return. With our expertise and the resources to research all of our
investments thoroughly, we are very comfortable with Tier 2 paper. During 1997,
our Tier 2 holdings reached a peak of 90 percent of the portfolio, and the added
income the sector provided helped us outperform our competitors.
Another advantage was the average life of our portfolio, a measure of the
maturities of our holdings. Particularly during the second half of the year,
when uncertainty in the broad markets sent investors searching for alternatives
to stocks, demand at the short end of the fixed income market led to higher
rates on new issuances. At an average life of 50 days versus 55 for the
IBC/Donohue universe, our portfolio was somewhat shorter than our competitors'.
Shorter maturity investments sent us back into the market more quickly, so we
were able to take advantage of increasing rates faster.
What is your current investment strategy?
Other than looking for opportunities to increase our holdings of Tier 2
commercial paper, we are readjusting the average life of the Fund. There is
currently a slight inversion in the yield curve, meaning that investments at the
shortest end of maturities are yielding more than slightly longer instruments.
Because an inversion in the curve is unusual, we are working on extending our
average life to be more in line with that of the IBC benchmark. By buying longer
paper now, the portfolio should enjoy the benefits of the current yield
advantage longer when the curve returns to normal.
What is your outlook for the Fund as we move into 1998?
We think the outlook is strong. While we're not anticipating any major changes
in interest rates, in the near term, we continue to watch economic and market
data closely. In the current environment, money market securities are paying
competitive rates, and that should continue as the year progresses. In addition,
until the depth of the Asian markets' difficulties are fully understood and
corrective actions taken, we may benefit from the shift in demand from volatile
market sectors in favor of safer, more predictable investments.
3
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Prime Fund Classes 1, 2, 3 and S and
91-day Treasury Bills
<TABLE>
<CAPTION>
MassMutual Prime Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
<S> <C> <C>
Class 1 4.19% 4.25%
Class 2 4.76% 4.84%
Class 3 5.12% 5.19%
Class S 5.39% 5.44%
- ------------------------------------------- --------------------
91-Day 5.14% 5.18%
Treasury Bills
</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 91-day Treasury Bills are unmanaged and do not incur
expenses. Treasury Bills are backed by the U.S. Government and offer a fixed
rate of return, while the fund's shares are not guaranteed.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
<TABLE>
DATE CLASS 1 CLASS 2 CLASS 3 CLASS S 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 10,377 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
6/97 11,211 11,387 11,493 11,566 11,489
12/97 11,447 11,659 11,788 11,880 11,785
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Principal
Amount Market Value
------ ------------
SHORT-TERM INVESTMENTS -- 94.4%
Commercial Paper -- 92.2%
Aristar, Inc.
5.890% 2/19/1998 $3,245,000 $ 3,218,985
Aristar, Inc.
5.950% 2/06/1998 7,200,000 7,157,160
Baxter International Inc.
5.800% 4/15/1998 2,650,000 2,604,449
Baxter International Inc.
5.850% 4/15/1998 7,645,000 7,513,591
Boston Scientific Corporation
5.970% 1/29/1998 5,600,000 5,573,997
Burlington Northern Santa Fe Corp.
5.890% 2/17/1998 10,000,000 9,923,103
Carter Holt Harvey Limited
5.750% 1/30/1998 5,100,000 5,076,377
Carter Holt Harvey Limited
5.800% 2/03/1998 4,415,000 4,391,527
Carter Holt Harvey Limited
6.000% 1/30/1998 880,000 875,747
Comdisco, Inc.
5.900% 2/25/1998 3,465,000 3,433,767
ConAgra, Inc.
5.720% 2/26/1998 6,400,000 6,343,054
Cox Enterprises, Inc.
5.780% 1/22/1998 2,875,000 2,865,307
Crown Cork & Seal Company Inc.
5.950% 2/18/1998 1,215,000 1,205,361
Crown Cork & Seal Company Inc.
5.970% 1/28/1998 3,620,000 3,603,792
Crown Cork & Seal Company Inc.
5.970% 2/24/1998 5,425,000 5,376,419
CSX Corporation
5.710% 1/14/1998 3,700,000 3,692,371
CSX Corporation
5.730% 1/16/1998 4,450,000 4,439,375
CSX Corporation
5.740% 2/06/1998 1,950,000 1,938,807
Dana Credit Corporation
6.060% 2/05/1998 1,455,000 1,446,428
Dominion Resources, Inc.
5.950% 1/27/1998 5,900,000 5,874,646
Echlin, Inc.
5.740% 2/11/1998 2,810,000 2,791,630
Echlin, Inc.
5.900% 2/23/1998 4,975,000 4,931,787
Enron Corp.
5.740% 1/23/1998 1,855,000 1,848,493
Federal Signal Corp.
5.720% 1/15/1998 3,815,000 3,806,514
Federal Signal Corp.
5.730% 1/15/1998 4,065,000 4,055,942
Fina Oil and Chemical Company
5.780% 3/26/1998 1,200,000 1,183,340
Finova Capital Corporation
5.640% 1/29/1998 4,630,000 4,609,690
Humana, Inc.
5.750% 1/09/1998 1,975,000 1,972,476
Humana, Inc.
5.999% 1/08/1998 1,565,000 1,563,174
Illinois Power Company
5.760% 1/13/1998 4,510,000 4,501,341
Illinois Power Company
5.780% 1/20/1998 5,845,000 5,827,170
Lockheed Martin Corporation
5.770% 2/10/1998 5,970,000 5,931,726
Lockheed Martin Corporation
5.830% 4/13/1998 2,340,000 2,300,552
Lockheed Martin Corporation
5.850% 3/13/1998 2,100,000 2,075,357
Mallinckrodt Group Inc.
6.050% 2/13/1998 5,220,000 5,182,278
Mallinckrodt Group Inc.
6.300% 1/05/1998 1,320,000 1,319,076
ORIX Credit Alliance, Inc.
5.710% 2/20/1998 2,775,000 2,752,993
ORIX Credit Alliance, Inc.
5.840% 2/27/1998 1,250,000 1,238,442
ORIX Credit Alliance, Inc.
5.980% 3/13/1998 1,690,000 1,670,168
ORIX Credit Alliance, Inc.
6.150% 3/12/1998 3,945,000 3,899,359
Public Service Electric and Gas Company
5.750% 2/05/1998 3,180,000 3,162,223
Public Service Electric and Gas Company
5.800% 2/04/1998 7,200,000 7,160,560
Ryder System, Inc.
6.080% 2/24/1998 3,710,000 3,676,165
Ryder System, Inc.
6.220% 3/03/1998 2,925,000 2,895,510
Textron Financial Corporation
5.870% 3/25/1998 1,215,000 1,198,333
Textron Financial Corporation
5.900% 2/12/1998 260,000 258,210
(Continued)
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------------- ---------------
<S> <C> <C>
Textron Financial Corporation 5.980% 3/20/1998 $ 3,600,000 $ 3,553,590
Textron Financial Corporation 6.020% 2/13/1998 3,700,000 3,673,395
Textron Financial Corporation 6.100% 1/29/1998 1,060,000 1,054,971
Union Camp Corp. 5.600% 1/26/1998 1,600,000 1,593,778
Union Camp Corp. 5.640% 5/01/1998 4,350,000 4,263,725
Union Pacific Corporation 5.800% 2/02/1998 2,470,000 2,457,265
Union Pacific Corporation 5.930% 2/11/1998 4,775,000 4,742,752
Union Pacific Corporation 6.050% 3/09/1998 3,275,000 3,238,734
UOP 5.770% 2/27/1998 4,900,000 4,855,234
UOP 5.850% 1/21/1998 4,990,000 4,973,783
Vastar Resources, Inc. 5.820% 2/12/1998 4,510,000 4,479,377
Vastar Resources, Inc. 5.850% 3/18/1998 5,655,000 5,583,967
Volvo AB 5.800% 2/09/1998 10,000,000 9,937,167
---------------
222,774,510
===============
Discount Notes -- 2.2%
Farm Credit 5.420% 11/20/1998 1,390,000 1,315,695
Federal National Mortgage Association 5.410% 4/27/1998 4,200,000 4,119,476
---------------
5,435,171
===============
TOTAL SHORT-TERM INVESTMENTS 228,209,681
===============
(Cost $228,230,839)+
TOTAL INVESTMENTS -- 94.4% 228,209,681
Other Assets/(Liabilities) - 5.6% 13,508,786
---------------
NET ASSETS -- 100.0% $ 241,718,467
===============
</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.
6
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
Assets:
Short-term investments, at value (cost $228,230,839) (Note 2)................... $ 228,209,681
Cash ........................................................................... 881
Receivables from:
Fund shares sold .............................................................. 15,760,118
-----------------
Total assets ................................................................. 243,970,680
-----------------
Liabilities:
Payables for:
Fund shares redeemed .......................................................... 2,101,153
Directors' fees and expenses (Note 3) ......................................... 5,869
Affiliates (Note 3):
Investment management fees ................................................... 105,518
Administration fees .......................................................... 18,390
Service and distribution fees ................................................ 230
Accrued expenses and other liabilities ........................................... 21,053
-----------------
Total liabilities ............................................................ 2,252,213
-----------------
Net assets ....................................................................... $ 241,718,467
=================
Net assets consist of:
Paid-in capital ................................................................ $ 241,757,785
Accumulated net realized loss on investments ................................... (18,160)
Net unrealized depreciation on investments ..................................... (21,158)
=================
$ 241,718,467
=================
Net assets:
Class 1 ........................................................................ $ 114,315
=================
Class 2 ........................................................................ $ 116,323
=================
Class 3 ........................................................................ $ 117,416
=================
Class S ........................................................................ $ 241,370,413
=================
Shares outstanding:
Class 1 ........................................................................ 757.816
=================
Class 2 ........................................................................ 769.958
=================
Class 3 ........................................................................ 776.927
=================
Class S ........................................................................ 1,600,181.474
=================
Net asset value, offering price and
redemption price per share:
Class 1 ........................................................................ $ 150.85
=================
Class 2 ........................................................................ $ 151.08
=================
Class 3 ........................................................................ $ 151.13
=================
Class S ........................................................................ $ 150.84
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of
Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Investment income:
Interest ........................................................................................ $ 14,872,581
------------
Expenses (Note 1):
Investment management fees (Note 3) ............................................................. 1,155,353
Custody fees .................................................................................... 23,463
Audit and legal fees ............................................................................ 8,135
Directors' fees (Note 3) ........................................................................ 21,363
Fees waived by the investment manager (Note 3) .................................................. (29,758)
------------
1,178,556
Administration fees (Note 3):
Class 1 ........................................................................................ 630
Class 2 ........................................................................................ 583
Class 3 ........................................................................................ 361
Class S ........................................................................................ 207,430
Distribution and service fees (Note 3):
Class 1 ........................................................................................ 728
Class 2 ........................................................................................ 170
------------
Net expenses .................................................................................. 1,388,458
------------
Net investment income ......................................................................... 13,484,123
------------
Realized and unrealized gain (loss):
Net realized loss on investment transactions ................................................... (11,009)
Net change in unrealized appreciation (depreciation)
on investments ................................................................................ (13,070)
------------
Net realized and unrealized loss ............................................................. (24,079)
------------
Net increase in net assets resulting from operations ........................................... $ 13,460,044
============
</TABLE>
Statements of
Changes in Net
Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ............................................................ $ 13,484,123 $ 13,029,745
Net realized loss on investment transactions .................................. (11,009) (5,068)
Net change in unrealized appreciation (depreciation)
on investments ............................................................... (13,070) 11,447
------------- -------------
Net increase in net assets resulting from operations ........................ 13,460,044 13,036,124
------------- -------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 ....................................................................... (4,723) (4,288)
Class 2 ....................................................................... (5,393) (4,922)
Class 3 ....................................................................... (5,838) (5,335)
Class S ....................................................................... (13,552,104) (13,067,477)
------------- -------------
Total distributions from net investment income ............................... (13,568,058) (13,082,022)
------------- -------------
Net fund share transactions (Note 5):
Class 1 ....................................................................... 4,723 4,288
Class 2 ....................................................................... 5,393 4,922
Class 3 ....................................................................... 5,838 5,335
Class S ....................................................................... (17,250,954) 4,838,727
------------- -------------
Increase (Decrease) in net assets from net fund
share transactions ......................................................... (17,235,000) 4,853,272
------------- -------------
Total increase (decrease) in net assets........................................ (17,343,014) 4,807,374
Net assets:
Beginning of period ........................................................... 259,061,481 254,254,107
------------- -------------
End of period (including undistributed net investment income
of $0 and $80,676, respectively) ............................................. $ 241,718,467 $ 259,061,481
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94+**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 151.03 $ 151.05 $ 150.39 $ 150.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 6.33*** 6.09*** 6.90 *** 1.02
Net realized and unrealized gain (loss) on investments (0.01) 0.03 (0.01) 0.42
---------- ---------- ---------- ------------
Total income (loss) from investment operations 6.32 6.12 6.89 1.44
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (6.50) (6.14) (6.23) (1.05)
---------- ---------- ---------- ------------
Net asset value, end of period $ 150.85 $ 151.03 $ 151.05 $ 150.39
========== ========== ========== ============
Total Return 4.19% 4.05% 4.58% 0.96%
Ratios/Supplemental Data:
Net assets, end of period (000s) $114 $110 $105 $101
Net expenses to average daily net assets# 1.67% 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 4.11% 3.97% 4.48% 4.07%*
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.68% 1.68% 1.68% 1.69%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94+(**)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 151.23 $ 151.24 $ 150.56 $ 150.00
----------- ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income 7.22*** 6.96*** 7.78*** 1.16
Net realized and unrealized gain (loss) on investments (0.03) 0.04 (0.02) 0.57
----------- ----------- ----------- ------------
Total income (loss) from investment operations 7.19 7.00 7.76 1.73
----------- ----------- ----------- ------------
Less distributions to shareholders:
From net investment income (7.34) (7.01) (7.08) (1.17)
----------- ----------- ----------- ------------
Net asset value, end of period $ 151.08 $ 151.23 $ 151.24 $ 150.56
=========== =========== =========== ============
Total Return 4.76% 4.63% 5.16% 1.15%
Ratios/Supplemental Data:
Net assets, end of period (000s) $116 $111 $106 $101
Net expenses to average daily net assets# 1.12% 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 4.66% 4.52% 5.03% 4.62%*
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.13% 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.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94+**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 151.29 $ 151.32 $ 150.61 $ 150.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 7.77*** 7.51*** 8.33*** 1.21
Net realized and unrealized gain (loss) on investments (0.02) 0.05 (0.01) 0.61
---------- ---------- ---------- ------------
Total income (loss) from investment operations 7.75 7.56 8.32 1.82
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (7.91) (7.59) (7.61) (1.21)
---------- ---------- ---------- ------------
Net asset value, end of period $ 151.13 $ 151.29 $ 151.32 $ 150.61
========== ========== ========== ============
Total Return 5.12% 5.00% 5.53% 1.21%
Ratios/Supplemental Data:
Net assets, end of period (000s) $117 $112 $106 $101
Net expenses to average daily net assets# 0.77% 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 5.01% 4.86% 5.38% 4.99%*
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.79% 0.78% 0.78% 0.79%*
<CAPTION>
Class S(1)
---------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94+**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 151.00 $ 151.06 $ 150.36 $ 150.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 8.14*** 7.85*** 8.70*** 1.55
Net realized and unrealized gain (loss) on investments (0.01) 0.06 (0.02) 0.34
---------- ---------- ---------- ------------
Total income (loss) from investment operations 8.13 7.91 8.68 1.89
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (8.29) (7.97) (7.98) (1.53)
---------- ---------- ---------- ------------
Net asset value, end of period $ 150.84 $ 151.00 $ 151.06 $ 150.36
========== ========== ========== ============
Total Return@ 5.39% 5.24% 5.78% 1.26%
Ratios/Supplemental Data:
Net assets, end of period (000s) $ 241,370 $ 258,729 $ 253,936 $ 170,548
Net expenses to average daily net assets# 0.5399% 0.5160% 0.5160% 0.5160%*
Net investment income to average daily net assets 5.25% 5.10% 5.61% 5.01%*
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.5515% 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.
1 Class S shares were previously designated as Class 4 shares.
@ 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.
10
<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 a high total rate of return primarily from current income
while minimizing fluctuations in capital values
. invest primarily in a diversified portfolio of short-term, investment
grade, fixed income securities
. maintain duration below three years
. diversify investments among market sectors on the basis of relative
value
How did the Fund perform over the past year?
The Fund performed well for the year, providing a steady stream of income
along with opportunities for price appreciation, but with less sensitivity
to interest rate risk than longer-term bond funds. During the course of the
year, our assets under management continued to grow as well, both due to
return from our investments and significant inflows of cash.
Describe the investment climate over that period.
During the first six months of the year, the most significant event was the
rise in interest rates that followed the Federal Reserve's March meeting.
Rates increased in the first quarter, but then declined in the second as
concerns over another Federal Reserve policy move diminished. The yield
curve, which we use to strategically set the length of our portfolio, was
steep during the first half, meaning that investors were being rewarded for
holding longer-maturity bonds. As a result, our duration at that time was
at the three year mark.
In the second half, investors reacting to Asian markets' difficulties moved
into the bond market for its relative safety. Since bond prices and yields
move in opposite directions, this demand caused a flattening of the yield
curve and resulted in a shortening of the Fund's duration to under two
years by the end of December. By shortening the portfolio when the yield
curve is relatively flat, we are able to capture yields that are
competitive with those offered by longer bonds, but with lower overall
price volatility.
What investment decisions benefited the portfolio most as the year progressed?
Throughout the year, we added to our holdings of corporate bonds and sold
Treasuries. Corporate bonds looked like better opportunities during the
first half of the year, and as of June 30, we had increased our corporate
bond holdings to 19 percent of the portfolio and reduced our Treasuries to
47 percent.
When the Asian markets' troubles caused stock market volatility in the
second half, investors looking for safer havens for their money turned to
high quality bonds. This movement began a rally in Treasuries, which in
turn caused spreads on corporate bonds versus Treasuries to widen
significantly from where they had been during the first six months of the
year. We had net purchases of $7.6 million in corporates, bringing the
sector to over 20 percent of the portfolio by year-end, and sold Treasuries
-- down to 25 percent of the portfolio at year-end -- when their prices
rallied.
One corporate disappointment worth mentioning was Korea Development Bank,
which we bought just before the Asian crisis was fully recognized. At
roughly one-quarter of one percent of the portfolio, however, its impact
was minimal, and we expect it to do well as the International Monetary Fund
works to get Asia back on its feet.
Another strong sector for us was asset-backed securities. During the year,
we owned RV loans, corporate credit cards and equipment loans plus a new
and interesting asset class called utility rate reduction bonds.
Asset-backed securities also saw spreads widen versus Treasuries as the
markets began to react to Asia, and we added $3.95 million to our assets in
the sector.
In agency debt, where we added $8 million to the portfolio, we were focused
primarily on HUD notes, which carry the full faith and credit of the U.S.
government, but trade at a premium over Treasuries because of their
slightly lower liquidity.
Finally, we increased our holdings of money market securities over the
period. As the yield curve flattened, and even inverted at the shortest
part, this sector has become extremely attractive. Our emphasis on it -- 38
percent of the portfolio at year-end -- has been an advantage.
11
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio Manager Report (continued)
- --------------------------------------------------------------------------------
How are you currently positioning the portfolio, and why?
Our current strategy is to book yield where it is most attractive, rather
than looking for potential price appreciation, so we are continuing to
shorten the average life and duration of the portfolio due to the flatness
of the yield curve. If the curve continues to flatten, or if it inverts
further, we will shorten the portfolio even more. We don't expect rates to
go too much lower, which means our short-duration focus should be a
benefit. However, if the market should continue to rally, this policy would
hold us back versus our longer-duration, more price-sensitive competitors.
What is your outlook for the Fund heading into 1998?
Our outlook is positive. This Fund's yield-driven strategy has worked well
over time, and we expect strong performance from it going forward. Another
advantage comes from our extensive research capabilities and focus on
credit analysis. These resources put us in an excellent position to take
advantage of market opportunities like rate reduction bonds as they arise.
In terms of the economic environment, we expect 1998 to be a less volatile
year than 1997 was, since the Asian financial crisis is likely to keep the
Federal Reserve from changing policy in the near term. That should benefit
us with our present short-duration portfolio and focus on capturing current
yield.
12
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio Manager-Report (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Short-Term
Bond Fund Classes 1, 2, 3 and S and the Lehman Brothers
1-3 Year Government Bond Index
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
Class 1 5.63% 6.21%
Class 2 6.18% 6.79%
Class 3 6.63% 7.19%
Class S 6.84% 7.43%
- --------------------------------------------------------------------------------
Lehman Brothers 6.64% 6.88%
1-3 Year
Government Bond 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 Lehman Brothers 1-3 Year Government Bond Index is
unmanaged and does not incur expenses, and cannot be purchased directly by
investors.
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Class 1 Class 2 Class 3 Class S Lehman 1-3 Yr.
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 9,983 9,991 10,000 10,013 10,013
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
6/97 11,753 11,933 12,050 12,119 11,976
12/97 12,164 12,378 12,529 12,624 12,416
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Quality Structure (12/31/97)
MassMutual Short-Term Bond Fund
U.S. Governments
Cash Equivalents
Aaa/AAA Aa/AA A/A Baa/BBB
79.9% 1.9% 8.2% 10.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Duration Diversification (12/31/97)
MassMutual Short-Term Bond Fund
Average Duration = 1.7 years
Less Than
1 year 1-3 years 3-5 years 5-7 years 7-10 years
38.5% 41.7% 12.9% 5.7% 1.2%
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
BONDS & NOTES -- 64.9%
ASSET BACKED SECURITIES -- 6.9%
California
Infrastructure PG&E-
1,1997-1, Class A4
6.160% 6/25/2003 $ 550,000 $ 552,101
California
Infrastructure PG&E-
1,1997-1, Class A6
6.320% 9/25/2005 250,000 252,178
California
Infrastructure
SCE-1,1997-1,
Class A3
6.170% 3/25/2003 350,000 351,306
California
Infrastructure
SCE-1,1997-1,
Class A5
6.280% 9/25/2005 300,000 301,413
California
Infrastructure
SDG&E-1,1997-1,
Class A5
6.190% 9/25/2005 200,000 200,616
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 1,000,000 1,004,120
Capita Equipment
Receivables Trust
1997-1, Class A3
6.120% 9/15/2000 1,500,000 1,502,340
Chase Manhattan Auto
Owner Trust 1997-A,
Class A4
6.400% 7/16/2001 1,500,000 1,509,375
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 1,000,000 1,001,180
First Bank Corporate
Card Master Trust
1997-1, Class A
6.400% 2/15/2003 $1,000,000 $ 1,008,120
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 159,393 160,588
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 2,000,000 2,007,500
Metlife Capital
Equipment Loan Trust
Series 1997-A,
Class A
6.850% 5/20/2008 1,000,000 1,030,350
Railcar Trust No.
1992-1
7.750% 6/01/2004 1,103,295 1,158,912
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class Al
6.300% 6/25/2002 1,883,748 1,885,500
-----------
TOTAL ASSET BACKED
SECURITIES 13,925,599
===========
(Cost $13,851,094)
CORPORATE DEBT -- 20.2%
AirTouch
Communications, Inc.
7.500% 7/15/2006 1,000,000 1,061,710
America West Airlines
1996-1, Class A
6.850% 7/02/2009 1,980,748 2,011,173
Analog Devices, Inc.
6.625% 3/01/2000 1,000,000 1,005,920
Associates Corporation
of North America
6.750% 8/01/2001 1,500,000 1,524,555
Bell Atlantic Financial
Services, Inc.
6.610% 2/07/2000 2,000,000 2,025,240
BHP Finance (USA)
Limited
7.875% 12/01/2002 $1,000,000 $1,061,040
Carlisle Companies
Incorporated
7.250% 1/15/2007 1,000,000 1,036,440
The CIT Group
Holdings, Inc.
6.250% 3/22/1999 2,200,000 2,208,492
CSC Enterprises 144A
6.500% 11/15/2001 2,000,000 2,027,780
First Brands
Corporation
7.250% 3/01/2007 1,500,000 1,545,900
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 1,010,880
Heller Financial, Inc.
6.330% 7/28/2000 2,000,000 1,998,280
Korea Development Bank
7.375% 9/17/2004 600,000 480,126
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,081,720
MAPCO Inc.
7.250% 3/01/2009 1,250,000 1,303,888
Norfolk Southern
Corporation
7.350% 5/15/2007 1,000,000 1,062,850
Orchard Supply
Hardware Stores
Corporation
9.375% 2/15/2002 2,000,000 2,068,880
ORIX Credit Alliance,
Inc. 144A
6.480% 4/20/1999 2,000,000 2,013,260
J. C. Penny Company, Inc.
7.250% 4/01/2002 2,500,000 2,588,200
Rite Aid Corporation
6.700% 12/15/2001 1,000,000 1,010,680
</TABLE>
(Continued)
14
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>
Union Oil Company of
California
9.875% 8/15/2002 $2,500,000 $ 2,867,975
The US West Capital
Funding, Inc.
6.850% 1/15/2002 1,500,000 1,516,890
Valero Pass-Through
Asset Trust 1997-1 144A
6.750% 12/15/2002 1,000,000 1,004,910
Walt Disney Company, The
6.375% 3/30/2001 1,500,000 1,515,555
WR. Grace & Co.
8.000% 8/15/2004 3,240,000 3,505,810
------------
TOTAL CORPORATE DEBT 40,538,154
============
(Cost $39,785,561)
U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 12.8%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 2.2%
Collateralized Mortgage Obligations -- 2.0%
FHLMC Series 1693
Class G
6.000% 7/15/2007 2,000,000 1,988,740
FHLMC Series 1704
Class PE
6.000% 7/15/2007 2,000,000 1,995,000
------------
3,983,740
============
Pass-Through Securities -- 0.2%
FHLMC
4.750% 9/01/2006 341,974 330,645
------------
4,314,385
============
Federal National Mortgage Association
(FNMA) -- 1.8%
Collateralized Mortgage Obligations -- 1.2%
FNMA Series 1993-71
Class PG
6.250% 7/25/2007 2,500,000 2,503,900
============
Pass-Through Securities -- 0.6%
FNMA
8.000% 5/01/2013 577,967 589,601
FNMA
9.000% 10/01/2009 616,037 654,810
------------
1,244,411
------------
3,748,311
============
Government National Mortgage Association
(GNMA) -- 0.8%
Pass-Through Securities
GNMA
8.000% 5/15/2001 -
11/15/2007 1,433,730 1,505,558
============
U.S. Government Guaranteed Notes -- 8.0%
1994-A Baxter
Springs, KS
6.310% 8/01/2001 $ 500,000 $ 503,880
1994-A Detroit, MI
6.310% 8/01/2001 450,000 453,492
1994-A Jacksonville,
FL
6.310% 8/01/2001 1,485,000 1,496,524
1994-A Los Angeles
County, CA
6.310% 8/01/2001 225,000 226,746
1994-A Tacoma, WA
6.310% 8/01/2001 195,000 196,513
1994-A Trenton, NJ
6.310% 8/01/2001 145,000 146,125
U.S. Dept. of Housing
and Urban
Development, Series
1995-A
8.080% 8/01/1998 3,000,000 3,041,250
U.S. Dept. of Housing
and Urban
Development, Series
1996-A
6.440% 8/01/1999 2,000,000 2,017,500
U.S. Dept. of Housing
and Urban
Development, Series
1997-A
6.110% 8/01/2000 4,000,000 4,020,000
U.S. Dept. of Housing
and Urban
Development, Series
1997-A
6.230% 8/01/2002 4,000,000 4,035,000
------------
16,137,030
============
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 25,705,284
============
(Cost $24,949,590)
U.S. TREASURY OBLIGATIONS -- 25.0%
U.S. Treasury Notes
U.S. Treasury Note
7.125% 2/29/2000 31,000,000 31,896,210
U.S. Treasury Note
8.875% 2/15/1999 17,500,000 18,104,275
------------
TOTAL U.S. TREASURY
OBLIGATIONS 50,000,485
============
(Cost $50,289,938)
TOTAL BONDS & NOTES 130,169,522
============
(Cost $128,876,183)
SHORT-TERM INVESTMENTS -- 38.1%
Commercial Paper
Baxter International
Inc.
6.050% 2/27/1998 $6,620,000 $6,556,586
Burlington Northern
Santa Fe Corp.
5.890% 2/17/1998 4,590,000 4,554,704
Carter Holt Harvey
Limited
6.300% 1/13/1998 5,040,000 5,029,416
Carter Holt Harvey
Limited
6.600% 1/13/1998 265,000 264,417
Comdisco, Inc.
5.770% 1/21/1998 3,440,000 3,428,973
Comdisco, Inc.
6.050% 3/09/1998 1,240,000 1,226,038
Crown Cork & Seal
Company Inc.
5.970% 1/13/1998 245,000 244,512
Crown Cork & Seal
Company Inc.
6.000% 3/09/1998 2,630,000 2,600,632
CSX Corporation
5.820% 1/13/1998 2,620,000 2,614,917
Dominion Resources,
Inc.
5.780% 1/26/1998 1,705,000 1,698,156
Federal Signal Corp.
7.300% 1/02/1998 2,185,000 2,184,557
Humana, Inc.
6.130% 1/09/1998 4,495,000 4,488,877
Illinois Power
Company
5.830% 1/28/1998 4,315,000 4,296,133
ORIX Credit Alliance,
Inc.
5.960% 1/20/1998 575,000 573,191
ORIX Credit Alliance,
Inc.
5.970% 1/20/1998 658,000 655,927
ORIX Credit Alliance,
Inc.
6.020% 1/13/1998 113,000 112,773
ORIX Credit Alliance,
Inc.
6.200% 2/20/1998 5,000,000 4,956,944
ORIX Credit Alliance,
Inc.
7.000% 1/16/1998 340,000 339,008
Public Service
Electric and Gas
Company
5.980% 2/26/1998 1,400,000 1,386,977
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
MassMututal Short-Term Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
Ryder System, Inc.
6.050% 1/27/1998 $2,965,000 $2,952,044
Ryder System, Inc.
6.450% 3/12/1998 5,700,000 5,628,513
Textron Financial
Corporation
6.050% 2/13/1998 4,185,000 4,154,758
Tyson Foods, Inc.
5.810% 1/23/1998 5,740,000 5,719,620
Union Pacific
Corporation
5.720% 1/16/1998 3,350,000 3,342,016
Union Pacific
Corporation
6.000% 3/06/1998 1,600,000 1,582,934
UOP
5.900% 1/30/1998 5,990,000 5,961,531
-------------
TOTAL SHORT-TERM
INVESTMENTS 76,554,154
=============
(At Amortized Cost)
TOTAL INVESTMENTS -- 103.0% 206,723,676
(Cost $205,430,337)+
Other Assets/
(Liabilities)-(3.0%) (6,082,389)
=============
NET ASSETS -- 100.0% $ 200,641,287
=============
</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 remainder of this page intentionally left blank.
16 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of
Assets and
Liabilities
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Assets:
<S> <C>
Investments, at value (cost $128,876,183) (Note 2) ....................................... $ 130,169,522
Short-term investments, at amortized cost (Note 2) ........................................ 76,554,154
-----------------
Total Investments ........................................................................ 206,723,676
Cash ...................................................................................... 26,124
Receivables from:
Fund shares sold .......................................................................... 1,941,166
Interest .................................................................................. 2,636,882
-----------------
Total assets ............................................................................ 211,327,848
-----------------
Liabilities:
Payables for:
Investments purchased ................................................................... 9,055,799
Fund shares redeemed .................................................................... 1,526,514
Directors' fees and expenses (Note 3) ................................................... 5,869
Affiliates (Note 3):
Investment management fees .............................................................. 79,099
Administration fees ..................................................................... 13,790
Service and distribution fees ........................................................... 245
Accrued expenses and other liabilities .................................................... 5,245
-----------------
Total liabilities ....................................................................... 10,686,561
-----------------
Net assets ................................................................................ $ 200,641,287
=================
Net assets consist of:
Paid-in capital ........................................................................... $ 198,964,924
Undistributed net investment income ....................................................... 61,151
Accumulated net realized gain on investments .............................................. 321,873
Net unrealized appreciation on investments ................................................ 1,293,339
-----------------
$ 200,641,287
=================
Net assets:
Class 1 .................................................................................. $ 122,436
=================
Class 2 .................................................................................. $ 124,585
=================
Class 3 .................................................................................. $ 125,819
=================
Class S .................................................................................. $ 200,268,447
=================
Shares outstanding:
Class 1 .................................................................................. 11,916
=================
Class 2 .................................................................................. 12,115
=================
Class 3 .................................................................................. 12,213
=================
Class S .................................................................................. 19,577,260
=================
Net asset value, offering price and redemption price per share:
Class 1 .................................................................................. $ 10.27
=================
Class 2 .................................................................................. $ 10.28
=================
Class 3 .................................................................................. $ 10.30
=================
Class S .................................................................................. $ 10.23
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of
Operations
Year ended
December 31, 1997
-----------------
Investment income:
Interest ............................................... $ 11,550,126
-----------------
Expenses (Note 1):
Investment management fees (Note 3) .................... 769,014
Custody fees ........................................... 16,687
Audit and legal fees ................................... 4,364
Directors' fees (Note 3) ............................... 21,363
Fees waived by the investment manager (Note 3) ......... (18,246)
-----------------
793,182
Administration fees (Note 3):
Class 1 ................................................ 660
Class 2 ................................................ 610
Class 3 ................................................ 375
Class S ................................................ 133,274
Distribution and service fees (Note 3):
Class 1 ................................................ 771
Class 2 ................................................ 180
-----------------
Net expenses .......................................... 929,052
-----------------
Net investment income ................................. 10,621,074
Realized and unrealized gain (loss):
Net realized gain on investment transactions ........... 667,141
Net change in unrealized appreciation (depreciation)
on investments ........................................ 275,610
-----------------
Net realized and unrealized gain ..................... 942,751
-----------------
Net increase in net assets resulting from operations ... $ 11,563,825
=================
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of
Changes in Net
Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ............................................. $ 10,621,074 $ 8,081,821
Net realized gain (loss) on investment transactions ............... 667,141 (274,845)
Net change in unrealized appreciation (depreciation)
on investments ................................................... 275,610 (384,702)
----------------- -----------------
Net increase in net assets resulting from operations ............. 11,563,825 7,422,274
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 .......................................................... (5,130) (5,225)
Class 2 .......................................................... (5,845) (5,891)
Class 3 .......................................................... (6,291) (6,321)
Class S .......................................................... (10,576,607) (8,133,246)
----------------- -----------------
Total distributions from net investment income .................. (10,593,873) (8,150,683)
----------------- -----------------
In excess of net investment income:
Class 1 .......................................................... -- (1)
Class 2 .......................................................... -- (1)
Class 3 .......................................................... -- (1)
Class S .......................................................... -- (1,569)
----------------- -----------------
Total distributions in excess of net investment income .......... -- (1,572)
----------------- -----------------
From net realized gains:
Class 1 .......................................................... (21) (59)
Class 2 .......................................................... (22) (59)
Class 3 .......................................................... (22) (59)
Class S .......................................................... (34,836) (71,288)
----------------- -----------------
Total distributions from net realized gains ..................... (34,901) (71,465)
----------------- -----------------
Net fund share transactions (Note 5):
Class 1 .......................................................... 5,151 5,285
Class 2 .......................................................... 5,867 5,951
Class 3 .......................................................... 6,313 6,381
Class S .......................................................... 54,155,496 23,078,364
----------------- -----------------
Increase in net assets from net fund share transactions ......... 54,172,827 23,095,981
----------------- -----------------
Total increase in net assets ..................................... 55,107,878 22,294,535
Net assets:
Beginning of period ............................................. 145,533,409 123,238,874
----------------- -----------------
End of period (including undistributed net investment
income of $61,151 and $18,783, respectively .................... $ 200,641,287 $ 145,533,409
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.15 $ 10.19 $ 9.89 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.53*** 0.50 0.55 0.09
Net realized and unrealized gain (loss) on investments 0.04 (0.05) 0.49 (0.11)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.57 0.45 1.04 (0.02)
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.45) (0.48) (0.54) (0.09)
From net realized gains 0.00 (0.01) (0.20) --
---------- ---------- ---------- ----------
Total distributions (0.45) (0.49) (0.74) (0.09)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.27 $ 10.15 $ 10.19 $ 9.89
========== ========== ========== ==========
Total Return 5.63% 4.35% 10.54% (0.17)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $122 $116 $111 $100
Net expenses to average daily net assets# 1.67% 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 5.10% 4.86% 5.20% 5.45%*
Portfolio turnover rate 48% 61% 114% 15%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.68% 1.68% 1.68% 1.70%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.16 $ 10.19 $ 9.89 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.59*** 0.56 0.61 0.10
Net realized and unrealized gain (loss) on investments 0.04 (0.04) 0.49 (0.11)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.63 0.52 1.10 (0.01)
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.51) (0.54) (0.60) (0.10)
From net realized gains 0.00 (0.01) (0.20) --
---------- ---------- ---------- ----------
Total distributions (0.51) (0.55) (0.80) (0.10)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.28 $ 10.16 $ 10.19 $ 9.89
---------- ---------- ---------- ----------
Total Return 6.18% 5.02% 11.11% (0.09)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $125 $117 $112 $101
Net expenses to average daily net assets# 1.12% 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 5.65% 5.41% 5.75% 5.99%*
Portfolio turnover rate 48% 61% 114% 15%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.13% 1.13% 1.13% 1.15%*
</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 statements.
20
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.17 $ 10.21 $ 9.91 $ 10.00
---------- ---------- ----------- ------------
Income (loss) from investment operations:
Net investment income 0.63*** 0.60 0.64 0.10
Net realized and unrealized gain (loss) on investments 0.04 (0.05) 0.49 (0.09)
---------- ---------- ----------- ------------
Total income (loss) from investment operations 0.67 0.55 1.13 0.01
---------- ---------- ----------- ------------
Less distributions to shareholders:
From net investment income (0.54) (0.58) (0.63) (0.10)
From net realized gains 0.00 (0.01) (0.20) --
---------- ---------- ----------- ------------
Total distributions (0.54) (0.59) (0.83) (0.10)
---------- ---------- ----------- ------------
Net asset value, end of period $ 10.30 $ 10.17 $ 10.21 $ 9.91
========== ========== =========== =============
Total Return 6.63% 5.28% 11.46% 0.13%
Ratios / Supplemental Data:
Net assets, end of period (000s) $126 $118 $112 $100
Net expenses to average daily net assets# 0.77% 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 5.99% 5.76% 6.10% 6.36%*
Portfolio turnover rate 48% 61% 114% 15%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.78% 0.79% 0.78% 0.80%*
<CAPTION>
Class S(1)
---------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.11 $ 10.15 $ 9.85 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 0.65*** 0.60 0.66 0.16
Net realized and unrealized gain (loss) on investments 0.04 (0.03) 0.50 (0.15)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 0.69 0.57 1.16 0.01
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.57) (0.60) (0.66) (0.16)
From net realized gains 0.00 (0.01) (0.20) --
---------- ---------- ---------- ------------
Total distributions (0.57) (0.61) (0.86) (0.16)
---------- ---------- ---------- ------------
Net asset value, end of period $ 10.23 $ 10.11 $ 10.15 $ 9.85
========== ========== ========== ============
Total Return@ 6.84% 5.57% 11.77% 0.13%
Ratios / Supplemental Data:
Net assets, end of period (000s) $ 200,268 $145,182 $122,904 $ 106,846
Net expenses to average daily net assets# 0.5423% 0.5190% 0.5190% 0.5190%*
Net investment income to average daily net assets 6.22% 6.00% 6.32% 6.37%*
Portfolio turnover rate 48% 61% 114% 15%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.5530% 0.5545% 0.5524% 0.5654%*
</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.
(1) Class S shares were previously designated as Class 4 shares.
@ 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.
21
<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 a high total rate of return consistent with prudent investment
risk and the preservation of capital
. invest primarily in a diversified portfolio of investment grade, fixed
income securities
. maintain duration in a targeted range from four to seven years
. 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?
The Fund performed very well for the year, with Class S shares outpacing
the Fund's benchmark, the Lehman Brothers Government/Corporate Index. A
major factor contributing to its performance was the overweight of spread
product, that is, product that offered incremental yield advantages to
treasuries.
Describe the investment climate over the past year.
The past year was another positive one for the U.S. economy. Continued
growth without a serious threat from inflation caused interest rates to
trend downward as the year progressed, making it a generally positive
environment for the bond market as well.
During the first half of the year, the Federal Reserve's only policy
move -- a 25 basis point increase occurred, creating price volatility,
especially in Treasuries. Volatility proved temporary, however. During the
second half, stock investors reacting to uncertainty from the Asian
markets' difficulties moved to the relative safety of the Treasury bond
market and their demand caused bond prices to rise. Coupled with a rise in
short term rates, as central bankers liquidated their Treasury bill
holdings, the yield curve flattened, that is, the differential between
short and long rates narrowed. When Treasuries rallied, the yield spread
between them and other categories of bonds with similar maturities widened,
creating opportunities for the Fund.
What investment decisions benefited the portfolio most as the year
progressed?
Even though the markets of the first and second halves of the year were
different, during both periods, we pursued the same strategy by increasing
our exposure to those securities that offered a yield advantage over U.S.
Treasuries. We increased our allocations to those spread classes --
including asset backed securities, agency bonds, mortgage backed securities
as well as corporate bonds -- from 61.3% at December 1996 to 70.2% at
year-end.
Corporate bonds performed well during most of 1997 as corporate
profitability improved. In the investment grade sector BBB rated issues
performed the best. Roughly, a quarter of our corporate holdings were
invested in credits rated in the BBB category. Corporate bond spreads
widened out late in the third quarter as the Asia crisis unfolded. We own
one security, Korea Development Bank, which was directly impacted by the
Asian crisis. This issue was purchased prior to the upheaval and its
performance suffered for the remainder of the quarter. At roughly
one-quarter of one percent of the portfolio, however, the bond's impact was
minimal, and we expect it will do better as the International Monetary Fund
works to get Asia back on its feet.
Asset backed securities offered us an interesting opportunity late in the
year. The combination of spread widening and an increase in supply led to
some new investments in this sector. A new type of asset backed security
was introduced in the fourth quarter namely utility rate reduction bonds.
Rate reduction bonds issued by California utilities were priced at
attractive levels relative to similarly structured asset backed credit card
transactions.
How are you currently positioning the portfolio?
Assets under management have grown significantly over the course of the
year. As we invest new cash, we continue to focus on those investment
opportunities that offer us attractive yield advantages over Treasuries.
Primarily because of concerns over the impact weakness in Asia may have on
domestic corporations, corporate bonds are selling at significant yield
advantages over Treasuries. We think corporates continue to offer
compelling opportunity, but since Asia related concerns are real, that
careful research into individual bonds is imperative.
22
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
The mortgage holdings of the Fund are either "well-seasoned" pass
through issues, low coupon adjustable rates mortgages, or well
structured collateralized mortgage obligations. All of these types of
mortgage backed obligations should perform well in 1998 if lower rates
spur a refinancing wave.
What is your outlook for the Fund heading into 1998?
1998 marks the eighth year of the current economic expansion, and many
of the factors that have kept the economy positive -- such as a 28
year high in consumer confidence, positive corporate earnings, low
interest rates and low unemployment against a background of low to
declining inflation -- endure. However, new concerns have arisen as
well. Foremost among these is the Asian crisis, which has the
potential to slow growth here in the U.S. So while we continue to look
upon the market favorably, the potential for changes in economic
conditions exists, making research and close monitoring of credits and
market activity important.
With interest rates likely to remain in a close trading range at least
until the Asian markets improve, we think the outlook for both the
Fund and the bond market is positive. While volatility in the stock
market may continue to bolster bond prices, we expect that most of the
returns from fixed income investments will be driven by income in the
coming year. We believe our focus on yield and our analytical strength
as a firm should be a benefit to the Fund in that environment.
23
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Core Bond
Fund Classes 1, 2, 3 and S and the Lehman Brothers
Government/Corporate Bond Index
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 -12/31//97
Class 1 8.09% 8.25%
Class 2 9.16% 8.95%
Class 3 9.53% 9.32%
Class S 9.78% 9.61%
- --------------------------------------------------------------------------------
Lehman Brothers 9.75% 9.71%
Government/Corporate
Bond 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 Lehman Brothers Government/Corporate Bond Index is
unmanaged and does not incur expenses, and cannot be purchased directly by
investors.
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Class 1 Class 2 Class 3 Class S Lehman Bros. Gov't/Corp.
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 10,000 10,008 10,009 10,020 10,037
6/95 11,121 11,170 11,192 11,212 11,220
12/95 11,781 11,860 11,898 11,940 11,968
6/96 11,475 11,575 11,645 11,695 11,743
12/96 11,970 12,105 12,197 12,274 12,315
6/97 12,243 12,427 12,545 12,626 12,652
12/97 12,938 13,214 13,359 13,474 13,515
[PIE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Quality Structure (12/31/97)
MassMutual Core Bond Fund
U.S Governments
Cash Equivalents
Aaa/AAA Below Baa/BBB Baa/BBB Aa/AA A/A
56.6% 3.1% 23.4% 2.3% 14.6%
- --------------------------------------------------------------------------------
[PIE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Duration Diversification (12/31/97)
MassMutual Core Bond Fund
Average Duration = 5.3 years
Less than Greater than
1 year 1-3 years 3-5 years 5-7 years 7-10 years 10 years
7.4% 28% 20% 20.9% 4.1% 19.6%
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Principal
Amount Market Value
------ ------------
BONDS & NOTES -- 88.0%
ASSET BACKED SECURITIES -- 5.9%
California
Infrastructure PG&E-
1,1997-1, Class A4
6.160% 6/25/2003 $1,250,000 $ 1,254,775
California
Infrastructure PG&E-
1,1997-1, Class A6
6.320% 9/25/2005 550,000 554,791
California
Infrastructure SCE-
1,1997-1, Class A3
6.170% 3/25/2003 1,000,000 1,003,730
California
Infrastructure SCE-
1,1997-1, Class AS
6.280% 9/25/2005 700,000 703,297
California
Infrastructure
SDG&E-1,1997-1,
Class AS
6.190% 9/25/2005 500,000 501,540
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 3,000,000 3,012,360
Caterpillar Financial
Asset Trust, 1997-B,
Class A3
6.160% 9/25/2003 3,500,000 3,493,000
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 4,500,000 4,505,310
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 239,089 240,882
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 5,000,000 5,018,750
Metlife Capital
Equipment Loan Trust
Series 1997-A, Class A
6.850% 5/20/2008 1,500,000 1,545,525
Railcar Trust No.
1992-1
7.750% 6/01/2004 1,287,178 1,352,064
World Omni 1995-A
Automobile Lease
Securitization Trust,
Class A
6.050% 11/25/2001 1,597,656 1,597,145
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class Al
6.300% 6/25/2002 1,996,773 1,998,630
------------
TOTAL ASSET BACKED
SECURITIES 26,781,799
(Cost $26,678,499) ============
CORPORATE DEBT -- 44.3%
Airgas, Inc.
7.140% 3/08/2004 4,000,000 4,147,552
AirTouch
Communications, Inc.
7.500% 7/15/2006 3,000,000 3,185,130
America West Airlines
1996-1, Class A
6.850% 7/02/2009 3,961,496 4,022,345
American Airlines
1994-A Pass-Through
Trusts, Class A4 *
9.780% 11/26/2011 1,959,704 2,347,235
AMR Corporation *
9.000% 8/01/2012 2,000,000 2,373,020
Analog Devices, Inc. *
6.625% 3/01/2000 1,500,000 1,508,880
Archer-Daniels-Midland
Company
6.750% 12/15/2027 2,000,000 2,003,460
Associates Corporation
of North America
6.750% 8/01/2001 2,000,000 2,032,740
Associates Corporation
of North America *
7.875% 9/30/2001 1,500,000 1,581,225
Barrick Gold
Corporation
7.500% 5/01/2007 4,000,000 4,206,280
Bell Atlantic Financial
Services, Inc.
6.610% 2/04/2000 1,750,000 1,772,033
BHP Finance (USA)
Limited
6.420% 3/01/2026 3,500,000 3,509,485
Capital Cities/ABC,
Inc.
8.875% 12/15/2000 875,000 940,030
Carlisle Companies
Incorporated
7.250% 1/15/2007 2,500,000 2,591,100
Celulosa Arauco
Constitucion
6.950% 9/15/2005 2,000,000 1,998,220
Champion International
Corporation
6.400% 2/15/2026 2,500,000 2,485,225
The Charles Schwab
Corporation
6.250% 1/23/2003 2,500,000 2,493,425
CITGO Petroleum
Corporation
7.875% 5/15/2006 1,000,000 1,048,500
The Columbia Gas
System, Inc.
6.610% 11/28/2002 3,000,000 3,025,560
Comcast Cable
Communications, Inc.
8.375% 5/01/2007 2,500,000 2,784,250
Commercial Credit
Company *
7.750% 3/01/2005 3,000,000 3,217,890
Continental Airlines,
Inc., Series 1996-2B
8.560% 1/02/2016 1,701,186 1,935,066
(Continued)
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------ ------------
Continental Airlines, Inc., Series 1996-B
7.820% 4/15/2015 $1,960,784 $ 2,113,118
Corning Glass Works *8.875% 3/15/2016 1,000,000 1,205,550
Crown Cork & Seal Company Inc. 6.750% 12/15/2003 3,550,000 3,594,375
CSX Corporation 7.250% 5/01/2027 4,000,000 4,395,360
English China Clays Delaware Inc. *7.375% 10/01/2002 1,000,000 1,037,450
Equifax Inc. 6.500% 6/15/2003 1,000,000 1,000,320
ERAC USA Finance Company 144A 6.950% 1/15/2006 1,500,000 1,536,300
FBG Finance Limited 144A 7.875% 6/01/2016 3,000,000 3,302,490
First Brands Corporation 7.250% 3/01/2007 2,000,000 2,061,200
Fletcher Challenge Ltd. 7.750% 6/20/2006 2,000,000 2,114,840
Foodbrands America, Inc. 10.750% 5/15/2006 3,000,000 3,492,450
Foster Wheeler Corporation 6.750% 11/15/2005 2,000,000 2,012,640
General American Transportation Corporation
6.750% 3/01/2006 3,000,000 3,032,640
General Electric Capital Corporation 6.500%
11/01/2006 1,250,000 1,269,675
General Electric Capital Corporation 8.750%
5/21/2007 1,500,000 1,763,595
General Mills, Inc. 8.900% 6/15/2006 2,250,000 2,611,620
General Motors Acceptance Corporation 8.625%
6/15/1999 4,175,000 4,316,700
General Telephone Company of Florida 7.500%
8/01/2002 1,000,000 1,044,440
The Goldman Sachs Group, L.P 144A 6.200% 2/15/2001 2,500,000 2,508,325
Harrahs Operating Inc. 8.750% 3/15/2000 1,100,000 1,124,750
Hercules Incorporated *6.625% 6/01/2003 1,000,000 1,006,060
Hershey Foods Corporation 7.200% 8/15/2027 3,750,000 3,986,625
Hilton Hotels Corporation 7.000% 7/15/2004 3,500,000 3,552,255
IMCERA Group Inc. *6.000% 10/15/2003 1,000,000 964,870
Interpool, Inc. 7.350% 8/01/2007 2,000,000 2,000,520
Korea Development Bank 7.375% 9/17/2004 1,500,000 1,200,315
Leucadia National Corporation 7.750% 8/15/2013 2,500,000 2,585,525
Lockheed Martin Corporation 7.700% 6/15/2008 3,000,000 3,245,160
MAPCO Inc. 7.250% 3/01/2009 3,250,000 3,390,108
Millipore Corporation 7.500% 4/01/2007 3,750,000 3,955,275
Mobil Corporation 8.625% 8/15/2021 4,000,000 5,003,560
Morgan Stanley Group, Inc. 6.875% 3/01/2007 5,500,000 5,619,625
Newmont Mining Corporation * 8.625% 4/01/2002 2,000,000 2,148,260
News America Holdings Incorporated 9.250% 2/01/2013 3,000,000 3,573,270
Norfolk Southern Corporation 7.050% 5/01/2037 5,000,000 5,284,700
North Finance (Bermuda) Limited 144A 7.000%
9/15/2005 2,000,000 2,042,120
Orchard Supply Hardware Stores Corporation
9.375% 2/15/2002 3,871,000 4,004,317
Penske Truck Leasing Co., L.P 7.750% 5/15/1999 1,500,000 1,534,185
Petroleum Geo-Services ASA 7.500% 3/31/2007 750,000 793,688
Ralston Purina Company 7.750% 10/01/2015 2,000,000 2,175,080
Raytheon Company 6.750% 8/15/2007 2,500,000 2,550,425
Rite Aid Corporation 6.700% 12/15/2001 2,000,000 2,021,360
Rolls-Royce Capital Inc. 7.125% 7/29/2003 2,000,000 2,061,000
Scholastic Corporation 7.000% 12/15/2003 4,000,000 4,104,720
Sears Roebuck Acceptance Corp. 6.750% 9/15/2005 3,500,000 3,568,040
Texaco Inc. 8.500% 2/15/2003 2,500,000 2,743,850
Thomas & Betts Corporation * 8.250% 1/15/2004 2,500,000 2,720,200
Time Warner Inc. Pass-Thru Asset Trust 1997-1 144A
6.100% 12/30/2001 4,000,000 3,919,280
United Air Lines, Inc. 10.110% 2/19/2006 924,283 1,046,335
US Air, Inc., Class B 7.500% 10/15/2009 1,425,421 1,491,347
The US West Capital Funding, Inc. 6.850% 1/15/2002 3,750,000 3,792,225
Valassis Communications, Inc. 9.550% 12/01/2003 2,000,000 2,247,200
Valero Pass-Through Asset Trust 1997-1 144A
6.750% 12/15/2002 2,000,000 2,009,820
WorldCom, Inc. 7.750% 4/01/2007 2,000,000 2,147,780
WorldCom, Inc. 9.375% 1/15/2004 1,525,000 1,614,624
WR. Grace & Co. 8.000% 8/15/2004 5,000,000 5,410,200
-----------
TOTAL CORPORATE DEBT 202,260,413
(Cost $193,280,633) ===========
NON - U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 0.9%
Prudential Home Mortgage Securities
Collateralized Mortgage Obligations
Prudential Home
Mortgage Securities
1993-26 Class A6
6.750% 7/25/2008 4,000,000 4,032,480
(Cost $3,955,000)
(Continued)
The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------ ------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 20.0%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 1.1%
Collateralized Mortgage Obligations -- 1.0%
FHLMC Series 1322
Class G
7.500% 2/15/2007 $2,000,000 $ 2,053,120
FHLMC Series 1460
Class H
7.000% 5/15/2007 2,000,000 2,051,240
FHLMC Series 1490
Class PJ
6.000% 5/15/2007 600,000 597,558
------------
4,701,918
============
Pass-Through Securities -- 0.1%
FHLMC
9.000% 3/01/2017 300,225 321,520
------------
5,023,438
============
Federal National Mortgage Association
(FNMA) -- 4.0%
Collateralized Mortgage Obligations -- 3.9%
FNMA Series 1989-20
Class A
6.750% 4/25/2018 4,137,448 4,002,981
FNMA Series 1993-
134 Class GA
6.500% 2/25/2007 5,000,000 5,037,500
FNMA Series 1993-
191 Class PD
5.400% 3/25/2004 1,240,567 1,234,365
FNMA Series 1993-
221 Class D
6.000% 12/25/2008 2,500,000 2,464,825
FNMA Series 1996-54
Class C
6.000% 9/25/2008 5,000,000 4,885,350
------------
17,625,021
============
Pass-Through Securities -- 0.1%
FNMA
8.000% 5/01/2013 385,311 393,067
------------
18,018,088
============
Government National Mortgage Association
(GNMA) -- 13.6%
Collateralized Mortgage Obligations -- 0.4%
JHM Acceptance
Corporation Series E
Class 5
8.960% 4/01/2019 1,548,083 1,619,682
============
Pass-Through Securities -- 13.2%
GNMA
5.500% 10/20/2027 -
12/20/2027 6,831,097 6,843,543
GNMA
6.000% 1/20/2027 -
12/20/2027 28,456,886 28,937,195
GNMA
7.000% 8/15/2023 -
11/15/2023 4,950,004 5,007,225
GNMA
7.500% 1/15/2017 -
6/15/2017 6,460,948 6,683,011
GNMA
8.000% 4/15/2001 -
1/15/2009 11,966,862 12,566,394
GNMA
9.000% 12/15/2004 -
10/15/2009 422,766 459,083
------------
60,496,451
------------
62,116,133
============
U.S. Government Guaranteed Notes -- 1.3%
1994-A Baxter
Springs, KS
5.930% 8/01/1999 700,000 700,875
1994-A Erie, PA
5.930% 8/01/1999 1,590,000 1,591,988
1994-A Los Angeles
County, CA
5.930% 8/01/1999 190,000 190,238
1994-A Montgomery
County, PA
5.930% 8/01/1999 150,000 150,188
1994-A Pohatcong
Township, NJ
5.930% 8/01/1999 255,000 255,319
1994-A Rochester, NY
5.930% 8/01/1999 135,000 135,169
1994-A Sacramento, CA
5.930% 8/01/1999 60,000 60,075
1994-A Santa Ana, CA
5.930% 8/01/1999 920,000 921,150
U.S. Dept. of Housing
and Urban Development,
Series 1996-A
6.670% 8/01/2001 2,000,000 2,045,000
------------
6,050,002
============
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 91,207,661
(Cost $89,014,515) ============
U.S. TREASURY OBLIGATIONS -- 16.9%
U.S. Treasury Bonds -- 14.1%
U.S. Treasury Bond
7.250% 5/15/2016 28,650,000 32,634,070
U.S. Treasury Bond
8.875% 8/15/2017 23,750,000 31,524,325
------------
64,158,395
============
U.S. Treasury Note -- 0.5%
U.S. Treasury Note
5.875% 9/30/2002 2,400,000 2,413,128
============
U.S. Treasury Strips -- 2.3%
U.S. Treasury Strip -- Principal Only
0.000% 8/15/2015 12,100,000 4,215,398
U.S. Treasury Strip -- Principal Only
0.000% 5/15/2016 19,300,000 6,429,409
------------
10,644,807
============
TOTAL U.S. TREASURY
OBLIGATIONS 77,216,330
(Cost $72,179,992) ============
TOTAL BONDS & NOTES 401,498,683
(Cost $385,108,639) ============
SHORT-TERM INVESTMENTS -- 10.4%
Commercial Paper
Boston Scientific
Corporation
6.200% 1/20/1998 1,690,000 1,684,470
Boston Scientific
Corporation
6.750% 1/16/1998 4,710,000 4,696,753
Carter Holt Harvey
Limited
6.200% 1/06/1998 1,815,000 1,813,437
Carter Holt Harvey
Limited
6.250% 1/05/1998 2,015,000 2,013,601
Carter Holt Harvey
Limited
6.350% 1/13/1998 5,310,000 5,298,761
Comdisco, Inc.
6.150% 2/10/1998 5,650,000 5,611,392
Comdisco, Inc.
6.850% 1/22/1998 505,000 502,982
ConAgra, Inc.
6.330% 1/07/1998 4,250,000 4,245,516
ConAgra, Inc.
6.850% 1/02/1998 5,175,000 5,174,015
Indiana Michigan
Power Company
6.400% 1/08/1998 3,620,000 3,615,495
(Continued)
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------ ------------
Mallinckrodt Group
Inc.
6.150% 1/12/1998 $3,700,000 $ 3,693,047
ORIX Credit Alliance,
Inc.
6.170% 1/09/1998 5,055,000 5,048,069
Public Service
Company of Colorado
6.300% 1/22/1998 2,560,000 2,550,592
Union Oil Company of
California
6.270% 1/09/1998 1,635,000 1,632,722
------------
TOTAL SHORT-TERM
INVESTMENTS 47,580,852
(At Amortized Cost) ============
TOTAL INVESTMENTS -- 98.4% 449,079,535
Other Assets/
(Liabilities) - 1.6% 7,250,624
============
NET ASSETS -- 100.0% $456,330,159
(Cost $432,689,491)+ ============
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).
The remainder of this page intentionally left blank.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1997
-----------------
Assets:
Investments, at value (cost $385,108,639) (Note 2) ......... $ 401,498,683
Short-term investments, at amortized cost (Note 2) ......... 47,580,852
-----------------
Total Investments ........................................ 449,079,535
Cash ....................................................... 46,527
Receivables from:
Settlement of investments purchased on a
forward commitment basis (Note 2) ...................... 69,262
Fund shares sold ......................................... 4,180,459
Interest ................................................. 5,841,824
-----------------
Total assets ........................................... 459,217,607
-----------------
Liabilities:
Payables for:
Investments purchased .................................... 9,945
Fund shares redeemed ..................................... 2,639,343
Directors' fees and expenses (Note 3) .................... 5,869
Affiliates (Note 3):
Investment management fees ............................. 190,543
Administration fees .................................... 33,205
Service and distribution fees .......................... 262
Accrued expenses and other liabilities ................... 8,281
-----------------
Total liabilities ...................................... 2,887,448
-----------------
Net assets ............................................... $ 456,330,159
=================
Net assets consist of:
Paid-in capital .......................................... $ 438,706,742
Undistributed net investment income ...................... 1,094,301
Accumulated net realized gain on investments ............. 69,810
Net unrealized appreciation on investments
and forward commitments ................................ 16,459,306
-----------------
$ 456,330,159
=================
Net assets:
Class 1 .................................................. $ 131,171
=================
Class 2 .................................................. $ 133,481
=================
Class 3 .................................................. $ 134,838
=================
Class S .................................................. $ 455,930,669
=================
Shares outstanding:
Class 1 .................................................. 12,073
=================
Class 2 .................................................. 12,265
=================
Class 3 .................................................. 12,379
=================
Class S .................................................. 42,182,957
=================
Net asset value, offering price and
redemption price per share:
Class 1 .................................................. $ 10.86
=================
Class 2 .................................................. $ 10.88
=================
Class 3 .................................................. $ 10.89
=================
Class S .................................................. $ 10.81
=================
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Investment income:
Interest .............................................................. $ 28,599,868
-----------------
Expenses (Note 1):
Investment management fees (Note 3) ................................... 1,869,877
Custody fees .......................................................... 43,020
Audit and legal fees .................................................. 8,768
Directors' fees (Note 3) .............................................. 21,363
Fees waived by the investment manager (Note 3) ........................ (49,361)
-----------------
1,893,667
Administration fees (Note 3):
Class 1 ............................................................ 708
Class 2 ............................................................ 655
Class 3 ............................................................ 409
Class S ............................................................. 346,971
Distribution and service fees (Note 3):
Class 1 ............................................................ 809
Class 2 ............................................................ 190
-----------------
Net expenses ...................................................... 2,243,409
-----------------
Net investment income ............................................. 26,356,459
-----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions and forward commitments .. 2,197,948
Net change in unrealized appreciation (depreciation) on
investments and forward commitments ................................. 11,750,983
-----------------
Net realized and unrealized gain .................................. 13,948,931
-----------------
Net increase in net assets resulting from operations .................. $ 40,305,390
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ................................................ $ 26,356,459 $ 19,120,753
Net realized gain (loss) on investment transactions
and forward commitments ............................................. 2,197,948 (1,886,093)
Net change in unrealized appreciation (depreciation) on
investments and forward commitments ................................. 11,750,983 (6,456,882)
------------- -------------
Net increase in net assets resulting from operations ................ 40,305,390 10,777,778
------------- -------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 .............................................................. (5,999) (4,416)
Class 2 .............................................................. (6,818) (5,227)
Class 3 .............................................................. (7,342) (5,674)
Class S .............................................................. (27,133,147) (17,374,307)
------------- -------------
Total distributions from net investment income ...................... (27,153,306) (17,389,624)
------------- -------------
From net realized gains:
Class 1 .............................................................. (55) (740)
Class 2 .............................................................. (55) (714)
Class 3 .............................................................. (56) (715)
Class S .............................................................. (196,689) (1,942,817)
------------- -------------
Total distributions from net realized gains ......................... (196,855) (1,944,986)
------------- -------------
Net fund share transactions (Note 5):
Class 1 .............................................................. 6,094 (45,858)
Class 2 .............................................................. 6,894 5,941
Class 3 .............................................................. 7,406 6,389
Class S .............................................................. 86,289,359 111,704,711
------------- -------------
Increase in net assets from net fund share transactions ............. 86,309,753 111,671,183
------------- -------------
Total increase in net assets ......................................... 99,264,982 103,114,351
Net assets:
Beginning of period .................................................. 357,065,177 253,950,826
------------- -------------
End of period (including undistributed net investment income
of $1,094,301 and $1,845,746, respectively) ......................... $ 456,330,159 $ 357,065,177
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.50 $ 10.79 $ 9.90 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.56*** 0.53*** 0.50 0.10
Net realized and unrealized gain (loss) on investments 0.33 (0.36) 1.26 (0.10)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.89 0.17 1.76 --
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.51) (0.40) (0.54) (0.10)
From net realized gains (0.02) (0.06) (0.33) --
---------- ---------- ---------- ----------
Total distributions (0.53) (0.46) (0.87) (0.10)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.86 $ 10.50 $ 10.79 $ 9.90
========== ========== ========== ==========
Total Return 8.09% 1.60% 17.81% 0.00%
Ratios / Supplemental Data:
Net assets, end of period (000s) $131 $121 $171 $101
Net expenses to average daily net assets# 1.67% 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 5.22% 5.10% 5.39% 5.91%*
Portfolio turnover rate 54% 54% 104% 7%
#Computed after giving effect to the voluntary partial waiver
of management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.69% 1.69% 1.69% 1.71%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.51 $ 10.82 $ 9.90 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.63*** 0.60*** 0.64 0.11
Net realized and unrealized gain (loss) on investments 0.33 (0.38) 1.19 (0.10)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 0.96 0.22 1.83 0.01
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.57) (0.47) (0.58) (0.11)
From net realized gains (0.02) (0.06) (0.33) --
---------- ---------- ---------- ----------
Total distributions (0.59) (0.53) (0.91) (0.11)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.88 $ 10.51 $ 10.82 $ 9.90
========== ========== ========== ==========
Total Return 9.16% 2.07% 18.51% 0.08%
Ratios / Supplemental Data:
Net assets, end of period (000s) $133 $122 $120 $101
Net expenses to average daily net assets# 1.12% 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 5.77% 5.67% 5.97% 6.46%*
Portfolio turnover rate 54% 54% 104% 7%
#Computed after giving effect to the voluntary partial waiver
of management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.14% 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 statements.
32
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.52 $ 10.82 $ 9.90 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.67*** 0.64*** 0.68 0.11
Net realized and unrealized gain (loss) on investments 0.33 (0.37) 1.19 (0.10)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.00 0.27 1.87 0.01
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.61) (0.51) (0.62) (0.11)
From net realized gains (0.02) (0.06) (0.33) --
---------- ---------- ---------- ----------
Total distributions (0.63) (0.57) (0.95) (0.11)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.89 $ 10.52 $ 10.82 $ 9.90
========== ========== ========== ==========
Total Return 9.53% 2.52% 18.87% 0.09%
Ratios / Supplemental Data:
Net assets, end of period (000s) $135 $123 $120 $101
Net expenses to average daily net assets# 0.78% 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 6.12% 6.01% 6.32% 6.83%*
Portfolio turnover rate 54% 54% 104% 7%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.79% 0.79% 0.79% 0.81%*
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.45 $ 10.75 $ 9.84 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.69*** 0.67*** 0.72*** 0.18
Net realized and unrealized gain (loss) on investments 0.33 (0.37) 1.17 (0.16)
---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.02 0.30 1.89 0.02
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.64) (0.54) (0.65) (0.18)
From net realized gains (0.02) (0.06) (0.33) --
---------- ---------- ---------- ----------
Total distributions (0.66) (0.60) (0.98) (0.18)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.81 $ 10.45 $ 10.75 $ 9.84
========== ========== ========== ==========
Total Return@ 9.78% 2.80% 19.15% 0.20%
Ratios / Supplemental Data:
Net assets, end of period (000s) $455,931 $356,699 $253,540 $194,150
Net expenses to average daily net assets# 0.5393% 0.5130% 0.5130% 0.5130%*
Net investment income to average daily net assets 6.34% 6.26% 6.56% 6.86%*
Portfolio turnover rate 54% 54% 104% 7%
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.5512% 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.
(1)Class S shares were previously designated as Class 4 shares.
@ 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.
33
<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 a high total rate of return over an extended period of time
consistent with the preservation of capital values
. invest in a diversified portfolio of equity securities, fixed income
securities and money market instruments
. manage the allocation of investments, under normal circumstances, in
three sectors within the following ranges:
Prime Sector no more than 35% of net assets
Core Bond Sector no more than 35% of net assets
Value Equity Sector no more than 65% of net assets
How did the Fund perform over the past year?
The Fund performed quite well for the year. We're pleased to report that
our stock-picking strategy allowed us to actively participate in another
very positive 12-month period for the equity market. Additionally the
benefits of our balanced strategy were demonstrated as the stock market
became volatile toward the end of the year. During the fourth quarter,
which was negative for stocks, the income and price appreciation we
garnered from our fixed income holdings allowed us to continue to report
positive results.
Within your stock holdings, what types of investments were strongest over
the period?
Within stocks, our healthcare holdings were our best performers for the
year. Bristol-Myers, our largest single holding, doubled the performance of
the broad market for the period. Its excellent product development pipeline
and aggressive marketing program caught investors' attention, and that
drove the stock to new highs.
Insurance companies have also been strong. Since they tend to own
significant bond portfolios, they do well in periods of declining interest
rates. American General is a well-capitalized insurer in a steady growth
business with a focused and capable management and it's been a good holding
for us for the year.
In basic industries, well-managed chemical companies benefited the Fund.
Two examples were Air Products, a distributor of industrial gases, and
Englehard, a firm providing technological solutions to air quality issues.
Some of our best performers during the turbulent fourth quarter were
electric utilities and telephone companies, up roughly 10 percent as a
group during a down quarter for the broad market. Pinnacle West, a
Phoenix-based electric utility has been a strong performer for us, as has
Tampa-based Teco. We feel both of these companies offer stable earnings and
good dividends at reasonable valuations.
What was your fixed income strategy, and how did it benefit the Fund?
Over the year, we held roughly equivalent portions of bonds and money
market instruments, and both have served the portfolio well. In bonds, we
were focused primarily on AA rated corporate issues, followed by
mortgage-backed securities and Treasuries. Most classes of bonds have
performed well, especially during the second half, when yields declined on
fears about the depth of the Asian financial troubles. Price appreciation
resulted from declining rates and then combined with coupon income to make
bonds an excellent investment this year.
We also strategically increased our holdings of short-term debt instruments
this period because of a relatively flat yield curve. When the yield curve
flattens, the yield advantage investors earn by owning longer maturity,
more interest rate sensitive bonds diminishes. Over the past year, we found
we could earn competitive income from short-maturity investments and reduce
risk at the same time.
How are you currently positioning the portfolio and why?
We're very comfortable with the current sector allocation of the portfolio,
so we're not planning on making any significant changes at this time. At
year-end, the Fund was roughly 57 percent invested in stocks, 15 percent in
bonds and 28 percent in money market instruments. The overweighting in
stocks has been a plus, and we expect that to continue for the coming year.
And our fixed income holdings should continue to help temper any volatility
from the stock portion by providing an income cushion. Within each of the
portfolio's components, we will continue to use first-hand analysis and
intensive research to identify the stock and bond investments we believe
represent the best opportunities for the Fund.
34
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
What is your outlook for the Fund as we move into 1998?
We think this will be another good year. The economy continues to show
signs of strength. Consumer confidence is at a 28-year high, corporations
continue to be well-managed and profitable, inflation is in decline from an
already low level and interest rates are low and fairly stable. We believe
these facts bode well for the stock market, though volatility may continue
due to a combination of high valuations and financial instability in the
Pacific Rim. On the bond side, we expect returns to come primarily from
income after last year's rally, but for the market to remain positive. If
the Federal Reserve begins to fear an economic slowdown either as fallout
from Asia or as a natural part of the economic cycle, however, rates could
decline further. Should that happen, we would expect even more strength in
the bond sector. Being invested in both markets has been the key to our
strong long-term performance, and we would expect that strategy will
continue to serve the Fund well, allowing us to capture competitive returns
without excessive exposure to risk.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Balanced Fund Classes 1, 2, 3 and S and
the Lipper Balanced Fund Index
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
<S> <C> <C>
Class 1 17.28% 14.90%
Class 2 17.93% 15.51%
Class 3 18.37% 15.94%
Class S 18.72% 16.21%
- --------------------------------------------------------------------------------
Lipper Balanced 19.00% 16.90%
Fund Index
Standard & Poor's 500 33.37% 28.44%
Composite Index
Lehman Brothers 9.75% 9.71%
Government/Corporate
Bond 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 Lipper Balanced Fund Index, the Lehman Brother
Government/Corporate Bond Index, and the Standard & Poor's 500 Composite Index
are unmanaged and do not incur expenses, and cannot be purchased directly by
investors.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Lehman Brothers
Balanced Government/Corporate Standard & Poor's 500
Class 1 Class 2 Class 3 Class S Fund Index Bond Index Composite Index
------- ------- ------- ------- ---------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/3/94 10,000 10,000 10,000 10,000 10,000 10,000 10,000
12/94 10,000 10,017 10,028 10,029 9,880 10,037 9,998
6/95 11,086 11,124 11,158 11,179 11,203 11,220 12,019
12/95 11,992 12,070 12,132 12,164 12,306 11,968 13,756
6/96 12,544 12,656 12,741 12,788 12,860 11,743 15,144
12/96 13,391 13,548 13,662 13,725 13,960 12,315 16,915
6/97 14,659 14,873 15,028 15,126 15,522 12,652 20,401
12/97 15,705 15,977 16,172 16,294 16,612 13,515 22,559
</TABLE>
- --------------------------------------------------------------------------------
[PIE GRAPH APPEARS HERE]
--------------------------------
MassMutual Balanced Fund
Asset Allocation
on 12/31/97
Common Stocks 57%
Short-term Issues 28%
Bonds 15%
--------------------------------
--------------------------------
MassMutual Balanced Fund
Largest Stock Holdings (12/31/97)
---------------------------------
Bristol-Myers Squibb Company
General Electric Company
Albertson's, Inc.
Bank of New York Company,
Incorporated
Hewlett-Packard Company
Marsh & McLennan Companies, Inc.
Schering-Plough Corp.
International Business Machines
Corporation
Goodyear Tire & Rubber Company
Kimberly-Clark Corporation
--------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Number of
Shares Market Value
------ ------------
EQUITIES -- 56.6%
Aerospace & Defense -- 1.8%
Raytheon Company Class A 34,000 $ 1,676,625
Raytheon Company Class B 92,000 4,646,000
TRW Inc. 98,500 5,257,438
------------
11,580,063
============
Apparel, Textiles & Shoes -- 0.6%
VF Corporation 89,000 4,088,438
------------
Automotive & Parts -- 2.6%
Ford Motor Company 97,300 4,737,294
Genuine Parts Company 154,500 5,243,344
Goodyear Tire & Rubber Company 113,700 7,234,163
------------
17,214,801
============
Banking, Savings & Loans -- 4.3%
The Bank of New York Company, Incorporated 135,000 7,804,688
Comerica, Incorporated 53,000 4,783,250
CoreStates Financial Corp. 47,200 3,778,950
Norwest Corporation 114,000 4,403,250
Pacific Century Financial Corporation 116,800 2,890,800
Wachovia Corp. 60,100 4,875,613
------------
28,536,551
============
Beverages -- 0.7%
Brown-Forman Corporation (Class B) 80,700 4,458,675
============
Chemicals -- 3.3%
Air Products and Chemicals, Inc. 36,500 3,002,125
Engelhard Corporation 140,200 2,435,975
E. I. du Pont de Nemours and Company 66,000 3,964,125
The Lubrizol Corporation 68,300 2,518,563
Nalco Chemical Company 96,000 3,798,000
Rohm & Haas Company 60,000 5,745,000
------------
21,463,788
============
Commercial Services -- 0.5%
Pinnacle West Capital Corporation 76,200 3,228,975
============
Computers & Office Equipment -- 4.9%
Electronic Data Systems Corporation 111,500 4,899,031
Hewlett-Packard Company 122,000 7,625,000
International Business Machines Corporation 70,000 7,319,365
Pitney Bowes, Inc. 65,000 5,845,938
Xerox Corporation 90,000 6,643,125
------------
32,332,459
============
Containers -- 0.5%
Temple-Inland, Inc. 63,000 3,295,688
============
Cosmetics & Personal Care -- 1.1%
Kimberly-Clark Corporation 145,800 7,189,763
============
Drugs -- 0.5%
Pharmacia & Upjohn, Inc. 94,000 3,442,750
============
Electric Utilities -- 0.6%
SCANA Corporation 130,500 3,906,844
============
Electrical Equipment & Electronics -- 3.9%
AMP, Incorporated 156,700 $ 6,581,400
General Electric Company 125,000 9,171,875
Honeywell Inc. 76,000 5,206,000
Hubbell, Incorporated (Class B) 96,023 4,735,114
-----------
25,694,389
===========
Energy -- 3.4%
Amoco Corporation 74,000 6,299,250
Kerr-McGee Corporation 43,500 2,754,094
Mobil Corporation 70,000 5,053,125
Teco Energy, Inc. 117,000 3,290,625
Unocal Corporation 130,000 5,045,625
-----------
22,442,719
===========
Financial Services -- 0.8%
American Express Company 56,500 5,042,625
===========
Foods -- 2.3%
Archer-Daniels-Midland Company 180,600 3,916,763
ConAgra, Inc. 148,400 4,869,375
CPC International, Inc. 61,000 6,572,750
-----------
15,358,888
===========
Forest Products & Paper -- 1.1%
Westvaco Corporation 101,500 3,190,906
Weyerhaeuser Company 84,600 4,150,688
-----------
7,341,594
===========
Hardware & Tools -- 0.6%
The Stanley Works 77,000 3,633,438
===========
(Continued)
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
------ ------------
Healthcare -- 3.7%
Becton, Dickinson and
Company 102,000 $ 5,100,000
Bristol-Myers Squibb
Company 123,000 11,638,875
Schering-Plough Corp. 119,600 7,430,150
------------
24,169,025
============
Industrial Distribution -- 0.7%
W.W. Grainger, Inc. 48,000 4,665,000
============
Industrial Transportation -- 1.5%
Burlington Northern
Santa Fe Corp. 51,900 4,823,456
Norfolk Southern
Corporation 167,200 5,151,850
------------
9,975,306
============
Insurance -- 4.3%
American General
Corporation 70,000 3,784,375
Jefferson-Pilot
Corporation 39,250 3,056,594
Marsh & McLennan
Companies, Inc. 100,000 7,456,250
MBIA, Inc. 103,000 6,881,688
SAFECO Corporation 139,000 6,776,250
------------
27,955,157
============
Machinery & Components -- 0.9%
Dover Corporation 124,000 4,479,500
Parker-Hannifin
Corporation 38,000 1,743,250
------------
6,222,750
============
Manufacturing -- 0.9%
Armstrong World
Industries, Inc. 61,000 4,559,750
Pall Corporation 49,800 1,030,238
------------
5,589,988
============
Miscellaneous -- 0.9%
Harsco Corporation 69,000 2,975,625
Minnesota Mining &
Manufacturing
Company 34,200 2,806,538
------------
5,782,163
============
Oil & Gas -- 1.1%
ENI SPA, Sponsored
ADR 55,400 3,161,263
Occidental Petroleum
Corporation 128,500 3,766,656
------------
6,927,919
============
Photography -- 0.5%
Eastman Kodak
Company 59,200 $ 3,600,100
============
Publishing & Printing -- 1.4%
The McGraw-Hill
Companies, Inc. 89,000 6,586,000
R.R. Donnelley & Sons
Company 75,500 2,812,375
------------
9,398,375
============
Retail -- 1.5%
The May Department
Stores Company 98,500 5,189,719
Sears Roebuck and Co. 98,000 4,434,500
------------
9,624,219
============
Retail-Grocery -- 1.8%
Albertson's, Inc. 169,100 8,011,113
American Stores
Company 185,000 3,804,063
------------
11,815,176
============
Telecommunications -- 0.9%
GTE Corporation 116,000 6,061,000
============
Telephone Utilities -- 1.6%
Ameritech Corporation 44,500 3,582,250
Frontier Corporation 159,500 3,837,969
Southern New England
Telecommunications
Corporation 57,100 2,872,844
------------
10,293,063
============
Tobacco -- 1.4%
Fortune Brands, Inc. 105,400 3,906,388
UST Inc. 136,800 5,053,050
------------
8,959,438
============
TOTAL EQUITIES $371,291,127
============
(Cost $236,958,405)
Principal
Amount Market Value
------ ------------
BONDS & NOTES -- 15.2%
ASSET BACKED SECURITIES -- 1.1%
California
Infrastructure PG&E-
1,1997-1, Class A4
6.160% 6/25/2003 $ 300,000 301,146
California
Infrastructure PG&E-
1,1997-1, Class A6
6.320% 9/25/2005 150,000 151,307
California
Infrastructure SCE-
1,1997-1, Class A3
6.170% 3/25/2003 200,000 200,746
California
Infrastructure
SCE-1,1997-1,
Class A5
6.280% 9/25/2005 150,000 150,707
California
Infrastructure
SDG&E-1,1997-1,
Class A5
6.190% 9/25/2005 100,000 100,308
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 1,000,000 1,004,120
Caterpillar Financial
Asset Trust, 1997-B,
Class A3
6.160% 9/25/2003 1,000,000 998,000
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 1,000,000 1,001,180
Ford Credit 1994-B
Grantor Trust
7.300% 10/15/1999 159,393 160,588
Ford Credit Auto
Owner Trust 1996-B,
Class A-4
6.300% 1/15/2001 1,000,000 1,003,750
Metlife Capital
Equipment Loan Trust
Series 1997-A,
Class A
6.850% 5/20/2008 500,000 515,175
Railcar Trust No.
1992-1
7.750% 6/01/2004 367,765 386,304
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class Al
6.300% 6/25/2002 1,130,249 1,131,300
---------
TOTAL ASSET BACKED
SECURITIES 7,104,631
=========
(Cost $7,073,371)
CORPORATE DEBT -- 7.4%
AirTouch
Communications, Inc.
7.500% 7/15/2006 1,000,000 1,061,710
America West Airlines
1996-1, Class A
6.850% 7/02/2009 990,374 1,005,586
(Continued)
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
------ ------------
<S> <C> <C>
American Airlines
1994-A Pass-Through
Trusts, Class A4
9.780% 11/26/2011 $ 979,852 $ 1,173,618
AMR Corporation
9.000% 8/01/2012 500,000 593,255
Analog Devices, Inc.
6.625% 3/01/2000 500,000 502,960
Archer-Daniels-Midland
Company
6.750% 12/15/2027 350,000 350,606
Associates Corporation
of North America
6.500% 8/15/2002 500,000 504,850
Associates Corporation
of North America
6.750% 8/01/2001 1,000,000 1,016,370
Barrick Gold
Corporation
7.500% 5/01/2007 1,000,000 1,051,570
Bell Atlantic Financial
Services, Inc.
6.610% 2/04/2000 1,000,000 1,012,590
BHP Finance (USA)
Limited
6.420% 3/01/2026 1,000,000 1,002,710
Carlisle Companies
Incorporated
7.250% 1/15/2007 500,000 518,220
Celulosa Arauco
Constitucion
6.950% 9/15/2005 500,000 499,555
Champion International
Corporation
6.400% 2/15/2026 1,000,000 994,090
The Charles Schwab
Corporation
6.250% 1/23/2003 1,000,000 997,370
The CIT Group
Holdings, Inc.
6.375% 10/01/2002 1,000,000 1,002,410
CITGO Petroleum
Corporation
7.875% 5/15/2006 250,000 262,125
Comcast Cable
Communications, Inc.
8.375% 5/01/2007 750,000 835,275
Continental Airlines,
Inc., Series 1996-2B
8.560% 1/02/2016 486,053 552,876
Continental Airlines,
Inc., Series 1996-B
7.820% 4/15/2015 490,196 528,279
Crown Cork & Seal
Company Inc.
6.750% 12/15/2003 1,000,000 1,012,500
CSX Corporation
7.250% 5/01/2027 1,200,000 1,318,608
Delta Air Lines, Inc.,
1992, Series C
8.540% 1/02/2007 419,455 445,944
English China Clays
Delaware Inc.
7.375% 10/01/2002 500,000 518,725
ERAC USA Finance
Company 144A
6.950% 1/15/2006 500,000 512,100
FBG Finance Limited
144A
7.875% 6/01/2016 1,000,000 1,100,830
Fletcher Challenge Ltd.
7.750% 6/20/2006 500,000 528,710
Foodbrands America,
Inc.
10.750% 5/15/2006 1,000,000 1,164,150
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 1,010,880
General Electric
Capital Corporation
6.500% 11/01/2006 250,000 253,935
General Mills, Inc.
8.900% 6/15/2006 500,000 580,360
The Goldman Sachs
Group, L.P. 144A
6.200% 2/15/2001 1,000,000 1,003,330
GTE Corporation
9.100% 6/01/2003 375,000 419,903
Hershey Foods
Corporation
7.200% 8/15/2027 1,000,000 1,063,100
Hilton Hotels
Corporation
7.000% 7/15/2004 1,000,000 1,014,930
Interpool, Inc.
7.350% 8/01/2007 500,000 500,130
Korea Development
Bank
7.375% 9/17/2004 350,000 280,074
Leucadia National
Corporation
7.750% 8/15/2013 1,000,000 1,034,210
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,081,720
MAPCO Inc.
7.250% 3/01/2009 1,000,000 1,043,110
Millipore Corporation
7.500% 4/01/2007 1,000,000 1,054,740
Mobil Corporation
8.625% 8/15/2021 1,000,000 1,250,890
Morgan Stanley Group,
Inc.
6.875% 3/01/2007 500,000 510,875
Newmont Mining
Corporation
8.625% 4/01/2002 1,000,000 1,074,130
News America
Holdings Incorporated
9.250% 2/01/2013 1,000,000 1,191,090
Norfolk Southern
Corporation
7.050% 5/01/2037 1,350,000 1,426,869
North Finance
(Bermuda) Limited
144A
7.000% 9/15/2005 1,000,000 1,021,060
Petroleum Geo-
Services ASA
7.500% 3/31/2007 250,000 264,563
Raytheon Company
6.750% 8/15/2007 500,000 510,085
Rite Aid Corporation
6.700% 12/15/2001 500,000 505,340
Rolls-Royce Capital
Inc.
7.125% 7/29/2003 1,000,000 1,030,500
Scholastic Corporation
7.000% 12/15/2003 1,000,000 1,026,180
Thomas & Betts
Corporation
8.250% 1/15/2004 500,000 544,040
Time Warner Inc.
7.750% 6/15/2005 1,000,000 1,054,740
Time Warner Inc.
Pass-Thru Asset
Trust 1997-1 144A
6.100% 12/30/2001 750,000 734,865
US Air, Inc., Class B
7.500% 10/15/2009 475,140 497,116
The US West Capital
Funding, Inc.
6.850% 1/15/2002 1,000,000 1,011,260
Valero Pass-Through
Asset Trust
1997-1 144A
6.750% 12/15/2002 500,000 502,455
WorldCom, Inc.
7.750% 4/01/2007 500,000 536,945
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------ ------------
WorldCom, Inc.
9.375% 1/15/2004 $ 435,000 $ 460,565
W.R. Grace & Co.
8.000% 8/15/2004 1,000,000 1,082,040
-----------
TOTAL CORPORATE DEBT 48,643,622
===========
(Cost $46,114,710)
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 3.6%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 0.2%
Collateralized Mortgage Obligations -- 0.1%
FHLMC Series 1322
Class G
7.500% 2/15/2007 1,000,000 1,026,560
===========
Pass-Through Securities -- 0.1%
FHLMC
9.000% 3/01/2017 150,112 160,760
-----------
1,187,320
===========
Federal National Mortgage Association
(FNMA) -- 0.8%
Collateralized Mortgage Obligations -- 0.7%
FNMA Series 1993-
134 Class GA
6.500% 2/25/2007 1,000,000 1,007,500
FNMA Series 1993-
191 Class PD
5.400% 3/25/2004 827,045 822,910
FNMA Series 1993-
221 Class D
6.000% 12/25/2008 1,000,000 985,930
FNMA Series 1996-54
Class C
6.000% 9/25/2008 2,000,000 1,954,140
-----------
4,770,480
===========
Pass-Through Securities -- 0.1%
FNMA
8.000% 5/01/2013 385,311 393,067
-----------
5,163,547
===========
Government National Mortgage Association
(GNMA) -- 1.8%
Pass-Through Securities
GNMA
5.500% 10/20/2027 -
11/20/2027 1,863,751 1,867,255
GNMA
6.000% 5/20/2027 2,431,322 2,477,663
GNMA
7.000% 8/15/2023 -
10/15/2023 990,000 1,001,445
GNMA
7.500% 10/15/2006 -
6/15/2017 2,575,523 2,667,548
GNMA
8.000% 11/15/2004 -
1/15/2009 2,811,429 2,952,279
GNMA
9.000% 12/15/2008 -
5/15/2009 479,372 520,549
-----------
11,486,739
===========
U.S. Government Guaranteed Notes -- 0.8%
1991-A Fairfax
County, VA
8.740% 8/01/2001 200,000 215,500
1991-A Jefferson
Park, CA
8.740% 8/01/2001 1,740,000 1,874,850
1991-A Monroe
County, NY
8.740% 8/01/2001 500,000 538,750
1991-A Rochester, NY
8.740% 8/01/2001 60,000 64,650
U.S. Dept. of Housing
and Urban
Development, Series
1995-A
8.240% 8/01/2002 3,000,000 3,259,770
-----------
5,953,520
===========
TOTAL US. GOVERNMENT
AGENCY OBLIGATIONS 23,791,126
===========
(Cost $22,913,562)
U.S. TREASURY OBLIGATIONS -- 3.1%
U.S. Treasury Bonds -- 2.2%
U.S. Treasury Bond
7.250% 5/15/2016 6,000,000 6,834,360
U.S. Treasury Bond
8.750% 5/15/2017 6,000,000 7,866,540
-----------
14,700,900
===========
U.S. Treasury Note -- 0.5%
U.S. Treasury Note
7.125% 2/29/2000 3,000,000 3,086,730
===========
U.S. Treasury Strips -- 0.4%
U.S. Treasury Strip -- Principal Only
0.000% 2/15/1999 2,250,000 2,114,055
U.S. Treasury Strip -- Principal Only
0.000% 8/15/2015 700,000 243,866
-----------
2,357,921
===========
TOTAL U.S. TREASURY
OBLIGATIONS 20,145,551
===========
(Cost $18,769,405)
TOTAL BONDS & NOTES 99,684,930
===========
(Cost $94,871,048)
Principal
Amount Market Value
------ ------------
SHORT-TERM INVESTMENTS -- 28.9%
Commercial Paper
Aristar, Inc.
5.970% 2/13/1998 $ 6,315,000 $ 6,269,970
Boston Scientific
Corporation
5.940% 1/12/1998 5,300,000 5,290,381
Carter Holt Harvey
Limited
5.750% 1/16/1998 5,253,000 5,240,415
Carter Holt Harvey
Limited
6.000% 2/05/1998 3,600,000 3,579,000
Comdisco, Inc.
5.750% 1/07/1998 5,285,000 5,279,935
Comdisco, Inc.
5.750% 1/23/1998 4,515,000 4,499,135
Comdisco, Inc.
5.770% 1/21/1998 3,430,000 3,419,005
Comdisco, Inc.
5.830% 1/29/1998 4,030,000 4,011,726
Comdisco, Inc.
6.000% 1/08/1998 4,735,000 4,729,476
Cox Enterprises, Inc.
5.770% 1/28/1998 4,600,000 4,580,094
Cox Enterprises, Inc.
5.900% 2/06/1998 1,935,000 1,923,584
Crown Cork & Seal
Company Inc.
6.070% 3/31/1998 6,140,000 6,049,682
CSX Corporation
5.820% 1/13/1998 3,035,000 3,029,112
CSX Corporation
5.980% 2/03/1998 4,000,000 3,978,073
Dana Credit
Corporation
6.100% 3/05/1998 3,815,000 3,774,275
Dominion Resources,
Inc.
5.720% 1/14/1998 5,000,000 4,989,672
Dominion Resources,
Inc.
5.780% 1/26/1998 5,250,000 5,228,927
Echlin, Inc.
5.900% 2/23/1998 2,410,000 2,389,066
Echlin, Inc.
6.000% 2/02/1998 4,275,000 4,252,200
Federal Signal Corp.
5.720% 1/15/1998 3,760,000 3,751,636
Federal Signal Corp.
7.300% 1/02/1998 4,315,000 4,314,125
Humana, Inc.
5.980% 1/09/1998 5,270,000 5,262,997
(Continued)
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------ ------------
Humana, Inc.
6.020% 1/06/1998 $3,965,000 $ 3,961,685
Illinois Power Company
5.960% 2/17/1998 2,990,000 2,966,734
International Paper Company
5.920% 2/10/1998 3,070,000 3,049,806
Lockheed Martin Corporation
5.850% 3/13/1998 6,450,000 6,374,311
Mallinckrodt Group Inc.
6.030% 2/11/1998 5,000,000 4,965,663
ORIX Credit Alliance, Inc.
6.100% 2/20/1998 4,000,000 3,966,111
ORIX Credit Alliance, Inc.
6.130% 3/02/1998 2,845,000 2,816,787
ORIX Credit Alliance, Inc.
6.150% 3/16/1998 3,370,000 3,328,783
ORIX Credit Alliance, Inc.
7.000% 1/13/1998 450,000 448,950
Public Service Electric and Gas Company
5.800% 1/20/1998 5,000,000 4,984,695
Public Service Electric and Gas Company
5.800% 1/30/1998 5,235,000 5,210,541
Ryder System, Inc.
6.050% 2/27/1998 7,025,000 6,957,706
Ryder System, Inc.
6.080% 2/24/1998 2,585,000 2,561,425
Ryder System, Inc.
6.150% 2/18/1998 3,935,000 3,902,733
Textron Financial Corporation
5.980% 3/20/1998 575,000 578,792
Textron Financial Corporation
6.000% 1/05/1998 5,740,000 5,736,173
Textron Financial Corporation
6.100% 1/02/1998 5,100,000 5,099,136
Tyson Foods, Inc.
5.810% 1/27/1998 4,845,000 4,824,670
Tyson Foods, Inc.
5.980% 2/12/1998 4,865,000 4,831,059
Union Pacific Corporation
6.000% 2/09/1998 5,455,000 5,419,543
Union Pacific Corporation
6.070% 4/30/1998 2,275,000 2,230,255
UOP
5.850% 1/22/1998 6,525,000 6,502,733
UOP
6.200% 2/04/1998 2,890,000 2,873,077
-------------
TOTAL SHORT-TERM
INVESTMENTS 189,433,854
=============
(Cost $189,418,921)
TOTAL INVESTMENTS -- 100.7% 660,409,911
(Cost $521,248,374)+
Other Assets/
(Liabilities) - (0.7%) (4,796,780)
-------------
NET ASSETS -- 100.0% $655,613,131
=============
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.
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1997
-----------------
<S> <C>
Assets:
Investments, at value (cost $331,829,453) (Note 2) ............ $ 470,976,057
Short-term investments, at value (cost $189,418,921) (Note 2) . 189,433,854
-----------------
Total Investments ........................................... 660,409,911
Cash .......................................................... 1,001
Receivables from:
Investments sold ............................................. 1,709,145
Fund shares sold ............................................. 1,081,911
Interest and dividends ....................................... 2,153,880
-----------------
Total assets ............................................... 665,355,848
-----------------
Liabilities:
Payables for:
Investments purchased ........................................ 1,385,886
Fund shares redeemed ......................................... 8,018,295
Directors' fees and expenses (Note 3) ........................ 5,867
Affiliates (Note 3):
Investment management fees ................................. 271,183
Administration fees ........................................ 47,263
Service and distribution fees .............................. 312
Accrued expenses and other liabilities ........................ 13,911
-----------------
Total liabilities .......................................... 9,742,717
-----------------
Net assets .................................................... $ 655,613,131
=================
Net assets consist of:
Paid-in capital ............................................... $ 510,255,546
Accumulated net realized gain on investments .................. 6,196,048
Net unrealized appreciation on investments
and forward commitments .................................... 139,161,537
-----------------
$ 655,613,131
=================
Net assets:
Class 1 ....................................................... $ 156,975
=================
Class 2 ....................................................... $ 159,724
=================
Class 3 ....................................................... $ 161,227
=================
Class S ....................................................... $ 655,135,205
=================
Shares outstanding:
Class 1 ....................................................... 11,560
=================
Class 2 ....................................................... 11,735
=================
Class 3 ....................................................... 11,820
=================
Class S ....................................................... 48,223,502
=================
Net asset value, offering price and
redemption price per share:
Class 1 ....................................................... $ 13.58
=================
Class 2 ....................................................... $ 13.61
=================
Class 3 ....................................................... $ 13.64
=================
Class S ....................................................... $ 13.59
=================
</TABLE>
The accompanying notes are an integral part of the financial statements. 41
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Investment income:
Interest ...................................................... $ 18,009,660
Dividends ..................................................... 7,554,347
-----------------
Total investment income ..................................... 25,564,007
-----------------
Expenses (Note 1):
Investment management fees (Note 3) ........................... 2,799,328
Custody fees .................................................. 66,289
Audit and legal fees .......................................... 14,611
Directors' fees (Note 3) ...................................... 21,362
Fees waived by the investment manager (Note 3) ................ (74,994)
-----------------
2,826,596
Administration fees (Note 3):
Class 1 ..................................................... 832
Class 2 ..................................................... 770
Class 3 ..................................................... 482
Class S ..................................................... 525,386
Distribution and service fees (Note 3):
Class 1 ..................................................... 947
Class 2 ..................................................... 222
-----------------
Net expenses .............................................. 3,355,235
-----------------
Net investment income ..................................... 22,208,772
-----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions and
forward commitments.......................................... 30,475,696
Net change in unrealized appreciation (depreciation) on
investments and forward commitments ......................... 53,068,589
-----------------
Net realized and unrealized gain .......................... 83,544,285
-----------------
Net increase in net assets resulting from operations .......... $ 105,753,057
=================
</TABLE>
42 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase(Decrease) in Net Assets:
Operations:
Net investment income .................................................... $ 22,208,772 $ 19,347,629
Net realized gain on investment transactions
and forward commitments ................................................ 30,475,696 8,885,806
Net change in unrealized appreciation (depreciation) on
investments and forward commitments .................................... 53,068,589 33,108,845
---------------- ----------------
Net increase in net assets resulting from operations ................... 105,753,057 61,342,280
---------------- ----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 .................................................................. (3,540) (3,204)
Class 2 .................................................................. (4,381) (4,068)
Class 3 .................................................................. (4,913) (4,538)
Class S .................................................................. (22,163,635) (19,441,756)
---------------- ----------------
Total distributions from net investment income ......................... (22,176,469) (19,453,566)
---------------- ----------------
From net realized gains:
Class 1 .................................................................. (6,158) (1,969)
Class 2 .................................................................. (6,204) (1,970)
Class 3 .................................................................. (6,230) (1,972)
Class S .................................................................. (26,240,454) (7,883,759)
---------------- ----------------
Total distributions from net realized gains ............................ (26,259,046) (7,889,670)
---------------- ----------------
Net fund share transactions (Note 5):
Class 1 .................................................................. 9,696 (49,367)
Class 2 .................................................................. 10,600 6,038
Class 3 .................................................................. 11,159 6,510
Class S .................................................................. 34,578,286 72,536,092
---------------- ----------------
Increase in net assets from net fund share transactions ................ 34,609,741 72,499,273
---------------- ----------------
Total increase in net assets ............................................. 91,927,283 106,498,317
Net assets:
Beginning of period ...................................................... 563,685,848 457,187,531
---------------- ----------------
End of period (including undistributed net investment income
of $0 and $26,102, respectively) ......................................... $ 655,613,131 $ 563,685,848
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 1
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.35 $ 11.50 $ 9.94 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment operations
Net investment income 0.33 0.34 0.28 0.06
Net realized and unrealized gain (loss) on investments 1.80 1.01 1.70 (0.06)
--------- --------- --------- ---------
Total income (loss) from investment operations 2.13 1.35 1.98 -
--------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.33) (0.31) (0.33) (0.06)
From net realized gains (0.57) (0.19) (0.09) --
--------- --------- --------- ---------
Total distributions (0.90) (0.50) (0.42) (0.06)
--------- --------- --------- ---------
Net asset value, end of period $ 13.58 $ 12.35 $ 11.50 $ 9.94
========= ========= ========= =========
Total Return 17.28% 11.67% 19.92% 0.00%
Ratios / Supplemental Data:
Net assets, end of period (000s) $157 $134 $173 $100
Net expenses to average daily net assets# 1.68% 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 2.43% 2.71% 3.03% 3.39%*
Portfolio turnover rate 28% 26% 23% 2%
Average broker commission rate (a) $ 0.0579 $ 0.0594 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.69% 1.69% 1.69% 1.71%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.37 $ 11.53 $ 9.95 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.40 0.39 0.39 0.06
Net realized and unrealized gain (loss) on investments 1.81 1.03 1.65 (0.04)
--------- --------- --------- ---------
Total income (loss) from investment operations 2.21 1.42 2.04 0.02
--------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.40) (0.39) (0.37) (0.07)
From net realized gains (0.57) (0.19) (0.09) --
--------- --------- --------- ---------
Total distributions (0.97) (0.58) (0.46) (0.07)
--------- --------- --------- ---------
Net asset value, end of period $ 13.61 $ 12.37 $ 11.53 $ 9.95
========= ========= ========= =========
Total Return 17.93% 12.25% 20.50% 0.17%
Ratios / Supplemental Data:
Net assets, end of period (000s) $160 $135 $121 $100
Net expenses to average daily net assets# 1.12% 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 2.99% 3.23% 3.60% 3.94%*
Portfolio turnover rate 28% 26% 23% 2%
Average broker commission rate (a) $ 0.0579 $ 0.0594 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.14% 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.
44
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class 3
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.39 $ 11.55 $ 9.96 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.45 0.44 0.43 0.07
Net realized and unrealized gain (loss) on investments 1.82 1.02 1.66 (0.04)
--------- --------- --------- ---------
Total income (loss) from investment operations 2.27 1.46 2.09 0.03
--------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.45) (0.43) (0.41) (0.07)
From net realized gains (0.57) (0.19) (0.09) --
--------- --------- --------- ---------
Total distributions (1.02) (0.62) (0.50) (0.07)
--------- --------- --------- ---------
Net asset value, end of period $ 13.64 $ 12.39 $ 11.55 $ 9.96
========= ========= ========= =========
Total Return 18.37% 12.61% 20.96% 0.28%
Ratios / Supplemental Data:
Net assets, end of period (000s) $161 $136 $121 $100
Net expenses to average daily net assets# 0.78% 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 3.33% 3.60% 3.94% 4.32%*
Portfolio turnover rate 28% 26% 23% 2%
Average broker commission rate (a) $ 0.0579 $ 0.0594 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.79% 0.79% 0.79% 0.81%*
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.34 $ 11.51 $ 9.92 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.48 0.46 0.44 0.11
Net realized and unrealized gain (loss) on investments 1.82 1.02 1.68 (0.08)
--------- --------- --------- ---------
Total income (loss) from investment operations 2.30 1.48 2.12 0.03
--------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.48) (0.46) (0.44) (0.11)
From net realized gains (0.57) (0.19) (0.09) --
--------- --------- --------- ---------
Total distributions (1.05) (0.65) (0.53) (0.11)
--------- --------- --------- ---------
Net asset value, end of period $ 13.59 $ 12.34 $ 11.51 $ 9.92
========= ========= ========= =========
Total Return@ 18.72% 12.83% 21.31% 0.29%
Ratios / Supplemental Data:
Net assets, end of period (000s) $655,135 $563,280 $456,773 $349,688
Net expenses to average daily net assets# 0.5389% 0.5120% 0.5120% 0.5120%*
Net investment income to average daily net assets 3.57% 3.83% 4.18% 4.29%*
Portfolio turnover rate 28% 26% 23% 2%
Average broker commission rate (a) $ 0.0579 $ 0.0594 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.5510% 0.5522% 0.5514% 0.5650%*
</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.
(1) Class S shares were previously designated as Class 4 shares.
@ 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.
45
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment The objective and policies of the Fund are to:
objective and policies . achieve long-term growth of capital and income
for the MassMutual . invest primarily in a diversified portfolio of
Value Equity Fund? equity securities of larger, well established
companies (generally companies with market
capitalization over $2.0 billion)
. utilize a value-oriented strategy in making
investment decisions
. utilize fundamental analysis to identify
companies which
- are of high investment quality
- offer above-average dividend growth potential
- are attractively valued in the marketplace
How did the Fund The Fund did quite well over the year, however the
perform over the past Fund lagged the performance of the S&P 500 index,
year? which turned in an exceptional gain of 33.37%,
over 30% for the second time in the past three
years. The S&P 500 has changed in composition over
the past several years, with a much higher
component of technology stocks and large
capitalization growth stocks which strongly
influence the performance of the index. The past
year saw strong gains in these groups, causing the
index to exceed the results of most active
managers. As a value manager, we consider many of
these favored companies as too expensive, with
price-earning's ratios at substantial premiums to
the average stock. Such high valuations represent
risk to investors in the event that the companies
fall short of expectations. Our focus on high
quality companies selling at more modest
valuations should enable the Fund to compare well
with index returns over the full market cycle.
How did the stock The market has been remarkably strong over the
market perform over the past three years -- in fact we haven't had three
course of the year? consecutive years this buoyant in decades. This
hospitable market environment benefited from a
continued economic expansion without the obvious
excesses of past cycles, stable to declining
interest rates, high labor productivity, healthy
corporate profits, and a clear focus on
shareholder value on the part of corporate boards
and management.
On closer inspection, the first quarter of the
year was somewhat weak due to an increase in
interest rates. From there, the market came
roaring back in the second quarter and through
September. Problems in Asian markets caused a
difficult October, including a sharp one-day
selloff that interrupted trading. The market
recovered after October, showed strength in
December and finished the year close to the all-
time high. Still, the perception of increased risk
and volatility is now firmly in place.
How did your strategy Our healthcare holdings were among our best
work during this performers for the year. Bristol-Myers, our
environment? largest single holding, doubled the performance of
the broad market for the period. It's excellent
product pipeline and aggressive marketing program
are increasingly recognized by investors and
suggest a favorable outlook for the coming year,
as well.
The financial stocks in the portfolio achieved
outstanding gains throughout the year. CoreStates
Financial, the leading bank in the Philadelphia
area, agreed to be acquired by First Union, and
the Fund's holdings benefited accordingly. Other
large gainers included Bank of New York, Comerica,
and Norwest, all of which showed appreciation of
70% or more.
A conservative investment approach like ours can
lag more aggressive styles in a powerful bull
market, we held up better than most during the
challenges of the fourth quarter. Some of our best
performers during that period were electric
utilities and telephone companies, two groups
which did not participate earlier in the year.
Their stable, domestically based earnings and
ample dividends were appealing as the Asian
situation unfolded. Pinnacle West, which serves
the Phoenix area, was purchased mid-year, and
performed well for the Fund.
46
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
How are you currently We think selectivity will be the key to this
positioning the year's market. In general, we're looking for
portfolio? companies with stable earnings streams, little or
no exposure to Asia, and little import
competition. Market valuation continues to be
high, but low interest rates and declining
inflation are encouraging signs. Growth in the
economy and corporate profits are likely to be
substantially lower than in recent years, and we
have reduced our expectations accordingly. On the
negative side, this country's competitive position
has been weakened by the strong dollar, and import
competition is likely to be fierce. This
represents an unusually challenging period for
capital equipment and commodity basic materials.
Our emphasis will be on value added products which
can retain their share of market.
Insurance companies may be particularly well
positioned, as declining interest rates increase
the value of their bond holdings. American
General, a well-capitalized insurer with a focused
management team, is a recent addition to the
portfolio. Finally, well managed specialty
chemical companies such as Air Products, a
producer of industrial gases, and Englehard Corp.,
whose catalysts provide solutions to air quality
problems, offer opportunity for the Fund.
What is your outlook as We expect the coming year's market to be
we enter into 1998? challenging. There is still a fair amount of risk
from the unfolding Asian financial situation, and
market valuation continues to be high. Balancing
these negatives is the fact that we can still find
individual stocks offering both high quality and
valuations which suggest sound returns over the
long term. As always, we will focus on well
financed companies with competitive advantages
that can grow earnings at an attractive rate in
the future. This strategy has generated strong
returns with low volatility in the past and we
expect continued success in the future.
47
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Value Equity Fund Classes 1, 2, 3 and S
and the Standard & Poor's 500 Composite Index
---------------------------------------------------------------------------
MassMutual Value Equity Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
Class 1 27.56% 23.09%
Class 2 28.34% 23.80%
Class 3 28.71% 24.21%
Class S 29.01% 24.51%
---------------------------------------------------------------------------
Standard & Poor's 33.37% 28.44%
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, and cannot be purchased directly by investors.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE CHART APPEARS HERE]
S&P 500
Class 1 Class 2 Class 3 Class S 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
6/97 17,862 18,144 18,319 18,435 20,401
12/97 19,643 20,009 20,228 20,386 22,559
- ---------------------------------------------
MassMutual Value Equity Fund
Largest Stock Holdings (12/31/97)
- ---------------------------------------------
Bristol-Myers Squibb Company
General Electric Company
Albertson's, Inc.
Bank of New York Company, Incorporated
Hewlett-Packard Company
International Business Machines Corporation
Goodyear Tire & Rubber Company
Kimberly-Clark Corporation
Marsh & McLennan Companies, Inc.
MBIA, Inc.
- ---------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Number of
Shares Market Value
------ ------------
EQUITIES -- 97.1%
Aerospace & Defense -- 3.0%
Raytheon Company
Class A 283,000 $ 13,955,438
Raytheon Company
Class B 772,000 38,986,000
TRW Inc. 829,800 44,290,575
------------
97,232,013
============
Apparel, Textiles & Shoes -- 1.0%
VF Corporation 730,000 33,534,375
============
Automotive & Parts -- 4.7%
Ford Motor Company 945,300 46,024,294
Genuine Parts
Company 1,290,000 43,779,375
Goodyear Tire &
Rubber Company 955,000 60,761,875
------------
150,565,544
============
Banking, Savings & Loans -- 7.5%
The Bank of New
York Company,
Incorporated 1,140,000 65,906,250
Comerica, Incorporated 450,000 40,612,500
CoreStates Financial
Corp. 392,000 31,384,500
Norwest Corporation 970,000 37,466,250
Pacific Century
Financial Corporation 979,400 24,240,150
Wachovia Corp. 494,000 40,075,750
------------
239,685,400
============
Beverages -- 1.2%
Brown-Forman
Corporation (Class B) 682,600 37,713,650
============
Chemicals -- 5.6%
Air Products and
Chemicals, Inc. 303,600 24,971,100
Engelhard Corporation 1,179,500 20,493,813
E. I. du Pont de
Nemours and Company 550,000 33,034,375
The Lubrizol
Corporation 571,200 21,063,000
Nalco Chemical
Company 797,400 31,547,138
Rohm & Haas
Company 503,000 48,162,240
------------
179,271,666
============
Commercial Services -- 0.8%
Pinnacle West Capital
Corporation 636,868 26,987,282
============
Computers & Office Equipment -- 8.5%
Electronic Data
Systems Corporation 930,000 40,861,875
Hewlett-Packard
Company 1,020,000 63,750,000
International Business
Machines Corporation 582,000 60,855,375
Pitney Bowes, Inc. 542,000 48,746,125
Xerox Corporation 723,000 53,366,438
------------
267,579,813
============
Containers -- 0.9%
Temple-Inland, Inc. 525,000 27,464,063
============
Cosmetics & Personal Care -- 1.9%
Kimberly-Clark
Corporation 1,231,000 60,703,688
============
Drugs -- 0.9%
Pharmacia & Upjohn,
Inc. 792,000 29,007,000
============
Electric Utilities -- 1.0%
SCANA Corporation 1,090,600 32,649,838
============
Electrical Equipment & Electronics -- 6.6%
AMP, Incorporated 1,213,000 50,946,000
General Electric
Company 1,035,000 75,943,125
Honeywell Inc. 630,000 43,155,000
Hubbell, Incorporated
(Class B) 846,471 41,741,621
------------
211,785,746
============
Energy -- 5.9%
Amoco Corporation 615,000 52,351,875
Kerr-McGee
Corporation 360,000 22,792,500
Mobil Corporation 580,000 41,868,750
Teco Energy, Inc. 1,000,000 28,125,000
Unocal Corporation 1,090,000 42,305,625
------------
187,443,750
============
Financial Services -- 1.3%
American Express
Company 470,000 41,947,500
============
Foods -- 3.8%
Archer-Daniels-Midland
Company 1,489,005 32,292,796
ConAgra, Inc. 1,226,000 40,228,125
CPC International, Inc. 462,500 49,834,375
------------
122,355,296
============
Forest Products & Paper -- 1.9%
Westvaco Corporation 855,000 26,879,063
Weyerhaeuser Company 721,900 35,418,219
------------
62,297,282
============
Hardware & Tools -- 0.9%
The Stanley Works 639,000 30,152,813
============
Healthcare -- 6.2%
Becton, Dickinson and
Company 922,800 46,140,000
Bristol-Myers Squibb
Company 1,025,000 96,990,625
Schering-Plough Corp. 907,200 56,359,800
------------
199,490,425
============
(Continued)
The accompanying notes are an integral part of the financial statements. 49
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
------ ------------
Industrial Distribution -- 1.2%
W.W. Grainger, Inc. 400,000 $ 38,875,000
==============
Industrial Transportation -- 2.6%
Burlington Northern
Santa Fe Corp. 432,200 40,167,588
Norfolk Southern
Corporation 1,390,200 42,835,538
--------------
83,003,126
==============
Insurance -- 7.4%
American General
Corporation 585,000 31,626,563
Jefferson-Pilot
Corporation 337,000 26,243,875
Marsh & McLennan
Companies, Inc. 809,800 60,380,713
MBIA, Inc. 870,000 58,126,875
SAFECO Corporation 1,140,000 55,575,000
--------------
231,953,026
==============
Machinery & Components -- 1.7%
Dover Corporation 1,080,000 39,015,000
Parker-Hannifin
Corporation 317,000 14,542,375
--------------
53,557,375
==============
Manufacturing -- 1.5%
Armstrong World
Industries, Inc. 515,000 38,496,250
Pall Corporation 426,200 8,817,013
--------------
47,313,263
==============
Miscellaneous -- 1.5%
Harsco Corporation 600,000 25,875,000
Minnesota Mining &
Manufacturing
Company 279,700 22,952,881
--------------
48,827,881
==============
Oil & Gas -- 1.8%
ENI SPA, Sponsored
ADR 464,200 26,488,413
Occidental Petroleum
Corporation 1,067,000 31,276,438
--------------
57,764,851
==============
Photography -- 0.9%
Eastman Kodak
Company 496,300 30,181,244
==============
Publishing & Printing -- 2.4%
The McGraw-Hill
Companies, Inc. 740,000 54,760,000
R.R. Donnelley & Sons
Company 630,000 23,467,500
--------------
78,227,500
==============
Retail -- 2.7%
The May Department
Stores Company 825,000 43,467,188
Sears Roebuck and Co. 973,100 44,032,775
--------------
87,499,963
==============
Retail-Grocery -- 3.1%
Albertson's, Inc. 1,414,000 66,988,250
American Stores
Company 1,531,600 31,493,525
--------------
98,481,775
==============
Telecommunications -- 1.6%
GTE Corporation 965,800 50,463,050
==============
Telephone Utilities -- 2.7%
Ameritech Corporation 372,000 29,946,000
Frontier Corporation 1,319,000 31,738,438
Southern New England
Telecommunications
Corporation 480,400 24,170,125
--------------
85,854,563
==============
Tobacco -- 2.4%
Fortune Brands, Inc. 961,300 35,628,181
UST Inc. 1,126,800 41,621,175
--------------
77,249,356
==============
TOTAL EQUITIES 3,107,119,117
==============
(Cost $1,987,657,293)
Principal
Amount Market Value
------ ------------
SHORT-TERM INVESTMENTS -- 2.8%
Commercial Paper
Abbott Laboratories
5.950% 1/13/1998 $ 4,000,000 $3,992,067
Abbott Laboratories
6.000% 1/09/1998 7,000,000 6,990,665
AlliedSignal Inc.
5.550% 6/12/1998 5,000,000 4,866,125
AT&T Corp.
5.690% 2/02/1998 7,690,000 7,651,106
Caterpillar Financial
Services Corp.
5.520% 4/22/1998 3,000,000 2,944,963
Caterpillar Financial
Services Corp.
5.550% 4/24/1998 5,000,000 4,906,618
Coca-Cola Company,
The
5.660% 2/02/1998 10,000,000 9,949,689
Eastman Kodak
Company
5.950% 1/15/1998 2,983,000 2,976,098
Ford Motor Credit
Company
5.520% 4/20/1998 5,000,000 4,909,924
IBM Credit
Corporation
5.720% 2/11/1998 3,389,000 3,366,922
Motorola, Inc.
5.700% 2/06/1998 8,694,000 8,644,444
Procter & Gamble
Company, The
5.550% 4/14/1998 7,000,000 6,880,835
Procter & Gamble
Company, The
5.600% 4/14/1998 5,000,000 4,914,882
Sara Lee Corporation
6.000% 1/07/1998 11,000,000 10,989,000
Walt Disney Company,
The
5.550% 4/08/1998 5,000,000 4,919,840
--------------
TOTAL SHORT-TERM
INVESTMENTS 88,903,178
==============
(Cost $88,947,350)
TOTAL INVESTMENTS -- 99.9% 3,196,022,295
(Cost $2,076,604,643)+
Other Assets/
(Liabilities) - 0.1% 2,422,343
==============
NET ASSETS -- 100.0% $3,198,444,638
==============
Notes to Portfolio of Investments
+ Aggregate cost for Federal tax purposes (Note 7)
50 The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
Assets:
Investments, at value (cost $1,987,657,293) (Note 2) ................................. $ 3,107,119,117
Short-term investments, at value (cost $88,947,350) (Note 2) ......................... 88,903,178
-----------------
Total Investments .................................................................. 3,196,022,295
Cash ................................................................................. 5,510
Receivables from:
Investments sold ................................................................... 14,276,512
Fund shares sold ................................................................... 5,721,246
Interest and dividends ............................................................. 5,967,211
-----------------
Total assets ..................................................................... 3,221,992,774
-----------------
Liabilities:
Payables for:
Investments purchased .............................................................. 11,451,815
Fund shares redeemed ............................................................... 10,503,639
Directors' fees and expenses (Note 3) .............................................. 5,866
Affiliates (Note 3):
Investment management fees ....................................................... 1,298,717
Administration fees .............................................................. 226,696
Service and distribution fees .................................................... 387
Accrued expenses and other liabilities ............................................... 61,016
-----------------
Total liabilities ................................................................ 23,548,136
-----------------
Net assets ........................................................................... $ 3,198,444,638
=================
Net assets consist of:
Paid-in capital ...................................................................... $ 2,027,869,764
Undistributed net investment income .................................................. 1,297,337
Accumulated net realized gain on investments ......................................... 49,859,885
Net unrealized appreciation on investments ........................................... 1,119,417,652
-----------------
$ 3,198,444,638
=================
Net assets:
Class 1 ............................................................................. $ 196,012
=================
Class 2 ............................................................................. $ 199,451
=================
Class 3 ............................................................................. $ 201,310
=================
Class S ............................................................................. $ 3,197,847,865
=================
Shares outstanding:
Class 1 ............................................................................. 11,555
=================
Class 2 ............................................................................. 11,719
=================
Class 3 ............................................................................. 11,813
=================
Class S ............................................................................. 188,089,578
=================
Net asset value, offering price and redemption price per share:
Class 1 ............................................................................. $ 16.96
=================
Class 2 ............................................................................. $ 17.02
=================
Class 3 ............................................................................. $ 17.04
=================
Class S ............................................................................. $ 17.00
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
Year ended
December 31, 1997
-----------------
Investment income:
Dividends ................................................ $ 63,147,354
Interest ................................................. 7,971,314
-------------
Total investment income ................................ 71,118,668
-------------
Expenses (Note 1):
Investment management fees (Note 3) ...................... 13,063,454
Custody fees ............................................. 257,635
Audit and legal fees ..................................... 67,121
Directors' fees (Note 3) ................................. 21,361
Fees waived by the investment manager (Note 3) ........... (391,015)
-------------
13,018,556
Administration fees (Note 3):
Class 1 ................................................ 1,025
Class 2 ................................................ 951
Class 3 ................................................ 602
Class S ................................................ 2,592,022
Distribution and service fees (Note 3):
Class 1 ................................................ 1,146
Class 2 ................................................ 268
-------------
Net expenses .......................................... 15,614,570
-------------
Net investment income ................................. 55,504,098
-------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions ............... 263,910,119
Net change in unrealized appreciation (depreciation)
on investments ........................................... 407,559,726
-------------
Net realized and unrealized gain ...................... 671,469,845
-------------
Net increase in net assets resulting from operations ....... $ 726,973,943
=============
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Value Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ............................................. $ 55,504,098 $ 55,712,269
Net realized gain on investment transactions ...................... 263,910,119 74,040,546
Net change in unrealized appreciation (depreciation)
on investments ................................................... 407,559,726 296,454,766
--------------- ---------------
Net increase in net assets resulting from operations ............. 726,973,943 426,207,581
--------------- ---------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 .......................................................... (1,299) (1,849)
Class 2 .......................................................... (2,285) (2,628)
Class 3 .......................................................... (2,920) (3,152)
Class S .......................................................... (54,611,119) (55,920,646)
--------------- ---------------
Total distributions from net investment income .................. (54,617,623) (55,928,275)
--------------- ---------------
From net realized gains:
Class 1 .......................................................... (13,946) (4,035)
Class 2 .......................................................... (14,077) (4,054)
Class 3 .......................................................... (14,146) (4,061)
Class S .......................................................... (228,186,420) (64,653,761)
--------------- ---------------
Total distributions from net realized gains ..................... (228,228,589) (64,665,911)
--------------- ---------------
Net fund share transactions (Note 5):
Class 1 .......................................................... 15,245 5,884
Class 2 .......................................................... 16,362 6,682
Class 3 .......................................................... 17,066 7,213
Class S .......................................................... 268,059,999 54,936,919
--------------- ---------------
Increase in net assets from net fund share transactions ......... 268,108,672 54,956,698
--------------- ---------------
Total increase in net assets ..................................... 712,236,403 360,570,093
Net assets:
Beginning of period .............................................. 2,486,208,235 2,125,638,142
--------------- ---------------
End of period (including undistributed net investment income
of $1,297,337 and $410,862, respectively) ....................... $ 3,198,444,638 $ 2,486,208,235
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.44 $ 12.63 $ 9.92 $ 10.00
-------- -------- -------- ----------
Income (loss) from investment operations:
Net investment income 0.13 0.17 0.18 0.04
Net realized and unrealized gain (loss) on investments 3.81 2.21 2.81 (0.08)
-------- -------- -------- ----------
Total income (loss) from investment operations 3.94 2.38 2.99 (0.04)
-------- -------- -------- ----------
Less distributions to shareholders:
From net investment income (0.12) (0.18) (0.18) (0.04)
From net realized gains (1.30) (0.39) (0.10) --
-------- -------- -------- ----------
Total distributions (1.42) (0.57) (0.28) (0.04)
-------- -------- -------- ----------
Net asset value, end of period $ 16.96 $ 14.44 $ 12.63 $ 9.92
======== ======== =======- ==========
Total Return 27.56% 18.83% 30.10% (0.39)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $196 $154 $129 $99
Net expenses to average daily net assets# 1.68% 1.65% 1.65% 1.65%*
Net investment income to average daily net assets 0.77% 1.28% 1.58% 2.31%*
Portfolio turnover rate 20% 13% 16% 3%
Average broker commission rate (a) $ 0.0579 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.69% 1.69% 1.70% 1.71%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.47 $ 12.65 $ 9.93 $ 10.00
-------- -------- -------- ----------
Income (loss) from investment operations:
Net investment income 0.22 0.25 0.24 0.05
Net realized and unrealized gain (loss) on investments 3.84 2.22 2.82 (0.07)
-------- -------- -------- ----------
Total income (loss) from investment operations 4.06 2.47 3.06 (0.02)
-------- -------- -------- ----------
Less distributions to shareholders:
From net investment income (0.21) (0.26) (0.24) (0.05)
From net realized gains (1.30) (0.39) (0.10) --
-------- -------- -------- ----------
Total distributions (1.51) (0.65) (0.34) (0.05)
-------- -------- -------- ----------
Net asset value, end of period $ 17.02 $ 14.47 $ 12.65 $ 9.93
======== ======== ======== ==========
Total Return 28.34% 19.46% 30.80% (0.22)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $199 $155 $130 $99
Net expenses to average daily net assets# 1.13% 1.10% 1.10% 1.10%*
Net investment income to average daily net assets 1.32% 1.82% 2.13% 2.86%*
Portfolio turnover rate 20% 13% 16% 3%
Average broker commission rate (a) $ 0.0579 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.14% 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.
54
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.49 $ 12.66 $ 9.93 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 0.28 0.30 0.28 0.05
Net realized and unrealized gain (loss) on investments 3.84 2.23 2.83 (0.07)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 4.12 2.53 3.11 (0.02)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.27) (0.31) (0.28) (0.05)
From net realized gains (1.30) (0.39) (0.10) --
---------- ---------- ---------- ------------
Total distributions (1.57) (0.70) (0.38) (0.05)
---------- ---------- ---------- ------------
Net asset value, end of period $ 17.04 $ 14.49 $ 12.66 $ 9.93
========== ========== ========== ============
Total Return 28.71% 19.92% 31.30% (0.18)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $201 $156 $130 $99
Net expenses to average daily net assets# 0.78% 0.75% 0.75% 0.75%*
Net investment income to average daily net assets 1.67% 2.17% 2.48% 3.23%*
Portfolio turnover rate 20% 13% 16% 3%
Average broker commission rate (a) $ 0.0579 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.80% 0.80% 0.80% 0.81%*
<CAPTION>
Class S(1)
----------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.46 $ 12.63 $ 9.91 $ 10.00
----------- ----------- ----------- -------------
Income (loss) from investment operations:
Net investment income 0.32 0.34 0.31 0.08
Net realized and unrealized gain (loss) on investments 3.83 2.22 2.82 (0.09)
----------- ----------- ----------- -------------
Total income (loss) from investment operations 4.15 2.56 3.13 (0.01)
----------- ----------- ----------- -------------
Less distributions to shareholders:
From net investment income (0.31) (0.34) (0.31) (0.08)
From net realized gains (1.30) (0.39) (0.10) -
----------- ----------- ----------- -------------
Total distributions (1.61) (0.73) (0.41) (0.08)
----------- ----------- ----------- -------------
Net asset value, end of period $ 17.00 $ 14.46 $ 12.63 $ 9.91
=========== =========== =========== =============
Total Return@ 29.01% 20.24% 31.54% (0.10)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $3,197,848 $2,485,743 $2,125,248 $1,563,563
Net expenses to average daily net assets# 0.5378% 0.5067% 0.5067% 0.5067%*
Net investment income to average daily net assets 1.91% 2.42% 2.72% 3.20%*
Portfolio turnover rate 20% 13% 16% 3%
Average broker commission rate (a) $ 0.0579 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.5512% 0.5534% 0.5528% 0.5681%*
</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.
(1)Class S shares were previously designated as Class 4 shares.
@ 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.
55
<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 (companies with market capitalization, at the time of purchase, of
$750 million or less)
. utilize a value-oriented 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 characteristics
-offer above-average levels of profitability or superior growth potential
-are attractively valued in the marketplace
How did the Fund
perform over the past
year?
The Fund performed quite well, turning in the best performance since inception.
We finished the year well ahead of the Russell 2000 Index. In fact, due to our
success in having located stocks of well-positioned, well-managed small
companies when they were selling at what proved to be a discount, the Fund now
also surpasses the Russell 2000 on an annualized three-, five-, and ten-year
basis.
How did the small cap
stock market change
over the course of the
year?
Although it's been another extremely good year, 1997 was quite a volatile year
for the domestic stock market and for smaller stocks in particular. The year
started out strong for the small cap market, but took a sharp dip in April
fueled by concern over technology stocks and the Federal Reserve's interest rate
increase. After that resolved, we saw a strong run until October. Then part way
through the fourth quarter, trouble in the Asian markets spilled into the small
cap market. This occurred for two reasons. On a macroeconomic level, problems in
any of the more speculative areas of the markets tend to cause a general `flight
to quality.' This means investors move money indiscriminately to the most stable
areas of the market, typically domestic large cap growth companies. On a more
rational and localized level, investors became concerned about future profits
for domestic technology companies that sell into Asian markets. Though recent
volatility wasn't enough to offset performance for the year, both of these
elements increased volatility toward year-end.
How did your strategy
work in this
environment?
A value strategy is often a benefit during periods of rapid price swings. If you
haven't overpaid for a company's growth rate, you have less risk when volatility
increases. Specifically this year, however, it was our strong stock selections
that helped us most.
The industry sector that was strongest for us over the year was banking,
insurance and specialty finance. Declining interest rates in the second half
suggested high profit margins, and many companies hit new highs as a result.
Added to this was increased takeover talk within the banking industry. To put
the pricing into perspective, in 1991 investors were paying less than book value
to acquire small banks. In 1997, deals at four times book value were not
uncommon. Due to increased acquisition activity, some of the best stocks in our
portfolio over the year were First Republic and Sovereign Bancorp. Executive
Risk, a specialty insurance company was another top performer, as was Bank
United in Texas.
We increased our small exposure to the energy sector over the year, although the
difficulties in Southeast Asia are currently putting pressure on oil prices,
which in turn has been a drag on stocks in this sector recently. Our focus is
primarily on domestic companies providing natural gas from the Gulf of Mexico.
We believe that due to favorable supply and demand factors, this is an excellent
business for the long term.
Various other strong stocks for us over the year included Dallas Semiconductor,
a company that makes semiconductors for non-computer uses such as cell phones
and electronics; Greenbriar, a manufacturer of double-stacked rail cars that
came back strong from the 1996 railroad slump and benefited from rail car
shortages this year; and Arbor Drugs, a Detroit-based retail chain that has been
rebuilding its warehousing and distribution infrastructure and is now opening
new stores.
56
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
How are you currently
positioning the
portfolio?
Our strategy remains the same as we position the portfolio for the coming year.
On the whole, we're targeting companies that look better than average, and that
appear to be selling at good values. Until the Asian financial situation
recovers, we're concentrating on firms that are more domestically than
internationally oriented. And we're also trimming our exposure to companies that
we consider highly interest rate sensitive, since there is now downward pressure
on rates.
Recent volatility has created value in certain sectors, so we're watching for
opportunities in technology, where prices are where they were a year ago
regardless of having hit highs in mid-1997, and in energy, where again, we
believe negative price pressures are temporary.
What is your outlook
for the Fund as we
move into 1998?
It's business as usual for the Fund. The factors that made 1997 profitable -- a
sound economy, low interest rates, and a corporate focus on productivity and
shareholder value -- remain in place. However, at this point in the economic
cycle and the current bull market, we expect the volatility we experienced in
the past year to continue as well. In this environment, research, strong stock
selection and a long-term perspective should separate winners from losers. We
expect our requirements for both value and quality will help us make the most of
opportunities and avoid potential problems as the year progresses.
57
<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, 2,
3 and S and the Russell 2000 Index
MassMutual Small Cap Value Equity Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
Class 1 34.74% 21.52%
Class 2 35.58% 22.23%
Class 3 35.95% 22.64%
Class S 36.36% 22.94%
- --------------------------------------------------------------------------------
Russell 22.36% 19.76%
2000 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 Russell 2000 Index is unmanaged and does not incur
expenses, and cannot be purchased directly by investors.
[GRAPH APPEARS HERE]
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Russell
Class 1 Class 2 Class 3 Class S 2000 Index
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 9,711 9,728 9,732 9,734 9,813
6/95 10,422 10,470 10,495 10,507 11,229
12/95 11,515 11,601 11,642 11,681 12,605
6/96 12,535 12,665 12,731 12,794 13,912
12/96 13,983 14,161 14,277 14,346 14,683
6/97 16,144 16,398 16,550 16,664 16,181
12/97 18,841 19,199 19,410 19,562 17,966
- ----------------------------------
MassMutual
Small Cap Value Equity Fund
Largest Stock Holdings (12/31/97)
- ----------------------------------
Analysts International Corporation
Hughes Supply, Inc.
Graco, Incorporated
CCB Financial Corporation
Reliance Steel & Aluminum Company
Dallas Semiconductor Corporation
Trimas Corporation
Titan Wheel International, Inc.
Arbor Drugs, Inc.
Astoria Financial Corporation
58
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Number of
Shares Market Value
------ ------------
EQUITIES -- 98.4%
Air Transportation -- 1.5%
Atlantic Southeast Airlines, Inc. 365,600 $ 10,396,750
============
Automotive & Parts -- 4.2%
Excel Industries, Inc. 192,500 3,477,031
Keystone Automotive Industries, Inc * . 241,900 5,745,125
Myers Industries, Inc. 353,268 6,027,635
Titan Wheel International, Inc. 689,500 13,833,094
------------
29,082,885
============
Banking, Savings & Loans -- 13.2%
Astoria Financial Corporation 245,900 13,708,925
Bank United Corp.
Class A 173,200 8,475,975
CCB Financial Corporation 139,900 15,039,250
First Colorado Bancorp, Inc. 254,500 6,044,375
First Republic Bank * 250,100 7,987,569
Keystone Financial, Inc. 221,150 8,901,288
One Valley Bancorp of West Virginia, Inc. 229,687 8,900,371
Sovereign Bancorp, Inc. 431,080 8,944,910
Webster Financial Corporation 198,000 13,167,000
------------
91,169,663
============
Beverages -- 0.9%
The Robert Mondavi Corporation * 122,900 5,991,375
============
Building Materials & Construction -- 2.8%
Crossmann Communities, Inc. * 181,800 5,022,225
Group Maintenance America Corp. * 508,400 8,547,475
Service Experts, Inc. * 192,600 5,513,175
------------
19,082,875
============
Chemicals -- 2.3%
OM Group, Inc. 319,800 11,712,675
Spartech Corporation 288,700 4,366,588
------------
16,079,263
============
Communications -- 1.7%
True North Communications, Inc. 478,900 11,852,775
============
Computer Services -- 0.8%
Pomeroy Computer Resources, Inc. * 325,900 5,784,725
============
Computers & Office Equipment --1.1%
Cognex Corporation * 285,900 7,790,775
============
Diversified Operations -- 0.3%
SPS Technologies, Inc. * 50,000 2,181,250
============
Electrical Equipment & Electronics -- 7.0%
AFC Cable Systems, Inc. * 177,575 5,282,856
Altron Incorporated * 699,500 9,268,375
Belden, Inc. 293,700 10,352,925
Dallas Semiconductor Corporation 345,800 14,091,350
Teleflex, Incorporated 256,200 9,671,550
------------
48,667,056
============
Energy -- 1.1%
NGC Corporation 176,041 3,080,718
TNP Enterprises, Inc. 130,100 4,325,825
------------
7,406,543
============
Financial Services -- 0.5%
Eaton Vance Corp. 82,800 3,125,700
============
Foods -- 1.5%
International Home Foods, Inc. * 120,100 3,362,800
Morrison Health Care, Inc. 356,800 7,136,000
------------
10,498,800
============
Forest Products & Paper -- 1.9%
Wausau-Mosinee Paper Corporation 654,363 13,169,055
============
Gas Distribution -- 1.6%
WICOR, Inc. 233,000 10,819,938
============
Household Products -- 1.0%
Libbey Inc. 185,800 7,037,175
============
Industrial Transportation -- 3.3%
ABC Rail Products Corporation * 445,000 8,900,000
Arnold Industries, Inc. 363,800 6,275,550
The Greenbrier Companies, Inc. 429,400 7,433,988
------------
22,609,538
============
Insurance -- 8.6%
ALLIED Group, Incorporated 404,425 11,576,666
Capital RE Corp. 202,000 12,536,625
Executive Risk, Inc. 171,400 11,965,855
Highlands Insurance Group, Inc. * 468,200 13,285,175
Nationwide Financial Services, Inc.
Class A 146,400 5,288,700
State Auto Financial Corporation 138,100 4,453,725
------------
59,106,746
============
Investment Management Services -- 0.6%
Conning Corporation * 257,900 4,319,825
============
Leasing Companies -- 1.8%
Rollins Truck Leasing Company 704,450 12,592,044
============
Machinery & Components -- 13.0%
Columbus McKinnon Corporation 263,400 6,387,450
DT Industries, Inc. 380,300 12,930,200
Gleason Corporation 267,800 7,213,863
Graco, Incorporated 421,800 15,738,413
(Continued)
59
The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
------ ------------
Hardinge, Inc. 219,100 $ 8,161,475
Helix Technology
Corporation 494,600 9,644,700
OmniQuip
International, Inc. 241,800 4,820,888
Regal-Beloit
Corporation 290,750 8,595,297
Roper Industries, Inc. 335,300 9,472,225
Watsco, Inc. 249,300 6,154,594
------------
89,119,105
============
Marine Services -- 0.9%
Trico Marine Services,
Inc. * 208,100 6,112,938
============
Medical Supplies -- 0.7%
Invacare Corporation 223,800 4,867,650
============
Metals & Mining -- 2.1%
Reliance Steel &
Aluminum Company 489,300 14,556,675
============
Miscellaneous -- 2.0%
Trimas Corporation 407,100 13,994,063
============
Miscellaneous Distributor Wholesale -- 2.4%
Hughes Supply, Inc. 478,600 16,721,088
============
Office Products -- 0.8%
American Business
Products, Inc. 252,900 5,468,963
============
Oil & Gas -- 3.7%
Bayard Drilling
Technologies, Inc. * 305,800 4,969,250
The Houston
Exploration Company * 295,300 5,426,138
Parker Drilling
Company * 386,700 4,712,906
Stone Energy
Corporation * 215,700 7,225,950
TransCoastal Marine
Services, Inc. * 235,000 3,348,750
------------
25,682,994
============
Other Services -- 3.6%
Analysts International
Corporation 510,300 17,605,350
Landauer, Inc. 256,800 7,190,400
------------
24,795,750
============
Publishing & Printing -- 6.1%
Banta Corporation 284,250 7,674,750
Harte Hanks
Communications, Inc. 280,600 10,417,275
Houghton Muffin
Company 346,400 13,293,100
McClatchy
Newspapers, Inc. 402,650 10,947,047
------------
42,332,172
============
Real Estate -- 2.1%
Captec Net Lease
Realty, Inc. 379,000 6,514,063
Mid-Atlantic Realty
Trust 546,400 8,025,250
------------
14,539,313
============
Retail -- 2.0%
Arbor Drugs, Inc. 742,875 13,743,188
============
Transportation -- 1.3%
C.H. Robinson
Worldwide, Inc. 90,100 2,015,988
Hub Group, Inc.
Class A * 237,000 7,050,750
------------
9,066,738
------------
TOTAL EQUITIES $679,765,393
(Cost $451,951,657) ============
Principal
Amount Market Value
------ ------------
SHORT-TERM INVESTMENTS -- 1.0%
Commercial Paper -- 0.1%
Sara Lee Corporation
6.000% 1/07/1998 $1,000,000 $ 999,000
============
Discount Note -- 0.9%
Federal Home Loan
Bank
5.800% 1/07/1998 6,000,000 5,994,200
------------
TOTAL SHORT-TERM
INVESTMENTS 6,993,200
(At Amortized Cost) ============
TOTAL INVESTMENTS -- 99.4% 686,758,593
(Cost $458,944,857)+
Other Assets/
(Liabilities) - 0.6% 4,206,064
============
NET ASSETS -- 100.0% $690,964,657
============
Notes to Portfolio of Investments
+ Aggregate cost for Federal tax purposes (Note 7)
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity - Financial Statements
- --------------------------------------------------------------------------------
Statement of
Assets and
Liabilities December 31, 1997
-----------------
Assets:
Investments, at value (cost $451,951,657) (Note 2)......... $679,765,393
Short-term investments, at amortized cost (Note 2)......... 6,993,200
------------
Total Investments ....................................... 686,758,593
Cash ...................................................... 22,236
Receivables from:
Investments sold ........................................ 1,745,256
Fund shares sold ........................................ 2,591,194
Interest and dividends .................................. 663,346
------------
Total assets .......................................... 691,780,625
------------
Liabilities:
Payables for:
Fund shares redeemed .................................... 408,230
Directors' fees and expenses (Note 3) ................... 5,867
Affiliates (Note 3):
Investment management fees ............................ 341,243
Administration fees ................................... 48,734
Service and distribution fees ......................... 386
Accrued expenses and other liabilities .................... 11,508
------------
Total liabilities ..................................... 815,968
------------
Net assets ................................................ $690,964,657
------------
Net assets consist of:
Paid-in capital ........................................... $460,933,162
Accumulated net realized gain on investments .............. 2,217,759
Net unrealized appreciation on investments ................ 227,813,736
------------
$690,964,657
============
Net assets:
Class 1 ................................................... $ 192,471
============
Class 2 ................................................... $ 195,879
============
Class 3 ................................................... $ 198,007
============
Class S ................................................... $690,378,300
============
Shares outstanding:
Class 1 ................................................... 11,677
============
Class 2 ................................................... 11,809
============
Class 3 ................................................... 11,922
============
Class S ................................................... 41,565,529
============
Net asset value, offering price and
redemption price per share:
Class 1 ................................................... $ 16.48
============
Class 2 ................................................... $ 16.59
============
Class 3 ................................................... $ 16.61
============
Class S ................................................... $ 16.61
============
61
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Investment income:
Dividends ....................................................... $ 7,072,894
Interest ........................................................ 1,671,001
-----------------
Total investment income ...................................... 8,743,895
-----------------
Expenses (Note 1):
Investment management fees (Note 3) ............................ 3,149,017
Custody fees .................................................... 57,133
Audit and legal fees ............................................ 13,833
Directors' fees (Note 3) ........................................ 21,362
Fees waived by the investment manager (Note 3) .................. (65,671)
-----------------
3,175,674
Administration fees (Note 3):
Class 1 ..................................................... 949
Class 2 ..................................................... 879
Class 3 ..................................................... 552
Class S ...................................................... 488,152
Distribution and service fees (Note 3):
Class 1 ..................................................... 1,077
Class 2 ..................................................... 252
-----------------
Net expenses .............................................. 3,667,535
-----------------
Net investment income ..................................... 5,076,360
-----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions .................... 56,071,743
Net change in unrealized appreciation (depreciation) on
investments .................................................. 116,404,168
-----------------
Net realized and unrealized gain .......................... 172,475,911
-----------------
Net increase in net assets resulting from operations ............ $ 177,552,271
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income .............................................. $ 5,076,360 $ 10,013,929
Net realized gain on investment transactions ....................... 56,071,743 15,188,213
Net change in unrealized appreciation (depreciation)
on investments .................................................. 116,404,168 63,151,095
----------------- -----------------
Net increase in net assets resulting from operations ............ 177,552,271 88,353,237
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 ........................................................... -- (1,430)
Class 2 ........................................................... (449) (2,382)
Class 3 ........................................................... (1,067) (2,845)
Class S ........................................................... (5,267,208) (9,914,239)
----------------- -----------------
Total distributions from net investment income ................. (5,268,724) (9,920,896)
----------------- -----------------
From net realized gains:
Class 1 ........................................................... (16,515) (3,230)
Class 2 ........................................................... (16,672) (3,240)
Class 3 ........................................................... (16,782) (3,251)
Class S ........................................................... (58,776,388) (10,172,978)
----------------- -----------------
Total distributions from net realized gains .................... (58,826,357) (10,182,699)
----------------- -----------------
Net fund share transactions (Note 5):
Class 1 ........................................................... 16,505 (49,286)
Class 2 ........................................................... 17,114 5,622
Class 3 ........................................................... 17,846 6,096
Class S ........................................................... 120,087,619 8,348,780
----------------- -----------------
Increase in net assets from net fund share transactions ........ 120,139,084 8,311,212
----------------- -----------------
Total increase in net assets ................................... 233,596,274 76,560,854
Net assets:
Beginning of period ............................................ 457,368,383 380,807,529
----------------- -----------------
End of period (including undistributed net
investment income of $0 and $192,363, respectively) ......... $ 690,964,657 $ 457,368,383
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
63
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.39 $ 11.40 $ 9.69 $ 10.00
---------- ---------- ---------- -------------
Income (loss) from investment operations:
Net investment income (0.04) 0.21 0.06 0.02
Net realized and unrealized gain (loss) on investments 4.67 2.23 1.74 (0.31)
---------- ---------- ---------- -------------
Total income (loss) from investment operations 4.63 2.44 1.80 (0.29)
---------- ---------- ---------- -------------
Less distributions to shareholders:
From net investment income -- (0.14) (0.09) (0.02)
From net realized gains (1.54) (0.31) -- --
---------- ---------- ---------- -------------
Total distributions (1.54) (0.45) (0.09) (0.02)
---------- ---------- ---------- -------------
Net asset value, end of period $ 16.48 $ 13.39 $ 11.40 $ 9.69
========== ========== ========== =============
Total Return 34.74% 21.43% 18.58% (2.89)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $192 $143 $172 $99
Net expenses to average daily net assets# 1.78% 1.75% 1.75% 1.75%*
Net investment income to average daily net assets (0.25)% 1.56% 0.63% 1.14%*
Portfolio turnover rate 31% 28% 28% 4%
Average broker commission rate (a) $ 0.0517 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.79% 1.79% 1.79% 1.81%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.42 $ 11.44 $ 9.70 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 0.05 0.22 0.13 0.03
Net realized and unrealized gain (loss) on investments 4.70 2.30 1.74 (0.30)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 4.75 2.52 1.87 (0.27)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.04) (0.23) (0.13) (0.03)
From net realized gains (1.54) (0.31) -- --
---------- ---------- ---------- ------------
Total distributions (1.58) (0.54) (0.13) (0.03)
---------- ---------- ---------- ------------
Net asset value, end of period $ 16.59 $ 13.42 $ 11.44 $ 9.70
========== ========== ========== ============
Total Return 35.58% 22.07% 19.25% (2.72)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $196 $145 $118 $99
Net expenses to average daily net assets# 1.23% 1.20% 1.20% 1.20%*
Net investment income to average daily net assets 0.30% 1.81% 1.19% 1.69%*
Portfolio turnover rate 31% 28% 28% 4%
Average broker commission rate (a) $ 0.0517 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.24% 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.
64
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
Net asset value, beginning of period $ 13.44 $ 11.44 $ 9.70 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 0.10 0.27 0.16 0.03
Net realized and unrealized gain (loss) on investments 4.71 2.31 1.74 (0.30)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 4.81 2.58 1.90 (0.27)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.10) (0.27) (0.16) (0.03)
From net realized gains (1.54) (0.31) -- --
---------- ---------- ---------- ------------
Total distributions (1.64) (0.58) (0.16) (0.03)
---------- ---------- ---------- ------------
Net asset value, end of period $ 16.61 $ 13.44 $ 11.44 $ 9.70
========== ========== ========== ============
Total Return 35.95% 22.64% 19.62% (2.68)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $198 $146 $119 $99
Net expenses to average daily net assets# 0.88% 0.85% 0.85% 0.85%*
Net investment income to average daily net assets 0.65% 2.16% 1.54% 2.09%*
Portfolio turnover rate 31% 28% 28% 4%
Average broker commission rate (a) $ 0.0517 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.89% 0.89% 0.89% 0.91%*
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.43 $ 11.44 $ 9.69 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income 0.13 0.31 0.19 0.04
Net realized and unrealized gain (loss) on investments 4.73 2.29 1.75 (0.31)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 4.86 2.60 1.94 (0.27)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.14) (0.30) (0.19) (0.04)
From net realized gains (1.54) (0.31) -- --
---------- ---------- ---------- ------------
Total distributions (1.68) (0.61) (0.19) (0.04)
---------- ---------- ---------- ------------
Net asset value, end of period $ 16.61 $ 13.43 $ 11.44 $ 9.69
========== ========== ========== ============
Total Return@ 36.36% 22.82% 20.01% (2.66)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $ 690,378 $ 456,935 $ 380,398 $310,789
Net expenses to average daily net assets# 0.6400% 0.6110% 0.6110% 0.6110%*
Net investment income to average daily net assets 0.89% 2.40% 1.78% 1.78%*
Portfolio turnover rate 31% 28% 28% 4%
Average broker commission rate (a) $ 0.0517 $ 0.0585 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 0.6515% 0.6546% 0.6553% 0.6681%*
</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.
(1) Class S shares were previously designated as Class 4 shares.
@ 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.
65
<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 with respect to risks of
investing in foreign securities (economic, political and social influences
that are expected to dictate long-term growth trends)
How has the Fund
performed over the past
year?
The Fund has been extremely strong, finishing well within the top quartile of
all international equity funds tracked by Lipper Analytical. Its full-year
performance far outpaced the Morgan Stanley EAFE Index -- the unmanaged
international index we use as a benchmark. Once again, we've finished a year
during which some international markets showed tremendous results and others
were disastrous. We believe our ability to successfully navigate the markets is
a testament to the importance of active international investment management. Our
theme-driven approach to stock selection and our careful evaluation of regional
economic conditions directed us to well-managed businesses in healthy economies
and helped keep us away from some of the well-publicized problem areas.
How did different
regional markets
perform over the year,
and how was the Fund
positioned within them?
We're living in a dynamic world, in which one year's leaders can quickly become
another's losers and vice-versa. During 1997, the unraveling of many Asian
markets dominated headlines, with markets like Thailand and Indonesia off 77 and
69 percent respectively. On the other hand, emerging markets elsewhere did very
well. In a year when the Morgan Stanley U.S. Index was up roughly 31 percent,
Turkish and Russian markets both had returns of over 100 percent.
Because we're primarily stock pickers, we concentrate on individual companies'
fundamentals above regional forecasts. However, we believe even the best
companies need a favorable macroeconomic environment to thrive. Due to extremely
high stock market valuations, economic policy issues and potential profitability
problems in individual companies, we had concerns about Asia going into the
year. As a result, we'd relegated our Asian investments to about 10 percent of
the portfolio, a few Japanese stocks we considered special cases, and that
decision served us well.
The bulk of our portfolio during this period -- roughly 70 percent -- was in
Europe, which was strong as a region due to economic growth and
continuously-improving corporate management. Europe as a whole was up over 21
percent in dollar terms during the year, with Switzerland and Portugal up over
40 percent, and Denmark up 33.
Most of the balance of the portfolio was invested in Latin America, which had a
strong first half, but lost some ground during the emerging markets scare the
Asian markets' difficulties created in the second half. Even so, Latin America
returned over 28 percent for the year, and we believe our investments there will
continue to perform well.
Which investment
themes worked best for
the Fund in this
climate?
We had a large exposure to oil services companies during 1997 as part of our
natural resources theme, and they have performed well. We held positions in two
French companies, Coflexip and Geophysique, as well as the Dutch firm Fugro. All
three were up over 100 percent for the year in their local currency.
Another strong area was financial services. Some of our best performers were
Credito Italiano, a major Italian bank, Renten Anstalt, a Swiss life insurer
that is de-mutualizing, the Swedish insurer Skandia and Finnish bank Merita.
European technology firms were good investments for us as well. We benefited
from owning the German firm SAP, which was up about 160 percent for the year, as
well as the United Kingdom-based software company JBA Holdings. Ordina, a Dutch
information systems support company was strong as was Misys, another UK-based
firm.
In addition to these investment decisions and having strategically avoided Asia,
we benefited from an ongoing effort to concentrate the portfolio. Our holdings
over the year numbered only about 80 stocks, with over two percent of the
portfolio in our largest holdings.
66
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
How are you currently
positioning the
portfolio?
On a small scale, we are evaluating the few individual stocks that were
relatively weak over the year, such as luxury consumer goods company Remy
Cointreau, UK medical technology firm Biocompatibles, and French/Italian chip
maker SGS/Thompson. But the big question for international investment managers
right now is `when will Asia become a bargain?' We believe we are still seeing
the effects of the overinvestment binge of the past several years, measured in
excess capacity and unsustainable economic policy. Japan is doing better, but
remains vulnerable to the rest of the Asian market due to the region's close
commercial ties, and is operating with a financial system in need of further
restructuring. We are watching Asia closely, but suspect the bottom of the
market has not yet been reached.
In Europe, we continue to look for bargains in the United Kingdom, which lagged
other European markets somewhat for the year. We are also focusing on areas that
we think will benefit from the catalysts in the move toward a common currency.
We expect southern Europe, particularly Portugal, Spain, Italy and Greece, to
benefit from the imposition of sound economic policies, and should see merger
and acquisition activity increase as industry consolidates. Additionally, it
remains possible to find value-priced stocks throughout Europe, and a strong
dollar should continue to benefit European exporters.
What is your outlook
for the Fund in the
coming year?
As this year unfolds, we expect to see another period of good but divergent
performance, where active management will play a substantial role in capturing
strong returns. We think the environment continues to be one where careful stock
pickers -- who research economics, corporate structures, and debt markets --
will be rewarded, and where active managers who have the flexibility to move in
and out of markets will continue to outperform the indices. We anticipate a good
environment for the Fund and believe, as always, that our dual focus on thematic
investing and buying value will be an advantage.
67
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual International Equity Fund Classes 1, 2, 3
and S and the Morgan Stanley International Index for Europe, Australia and the
Far East (MSCI EAFE)
- --------------------------------------------------------------------------------
MassMutual International Equity Fund
Total Return One Year Average Annual
1/1/97 - 12/31/97 10/3/94 - 12/31/97
Class 1 14.46% 8.12%
Class 2 15.11% 8.74%
Class 3 15.29% 8.99%
Class S 15.79% 9.39%
- --------------------------------------------------------------------------------
MSCI EAFE 1.78% 5.44%
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 MSCI EAFE is unmanaged and does not incur expenses, and
cannot be purchased directly by investors.
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Class 1 Class 2 Class 3 Class S MSCI EAFE
10/3/94 10,000 10,000 10,000 10,000 10,000
12/94 9,250 9,260 9,270 9,280 9,898
6/95 9,420 9,460 9,480 9,510 10,155
12/95 9,616 9,679 9,713 9,756 11,007
6/96 10,513 10,620 10,667 10,734 11,504
12/96 11,259 11,406 11,473 11,562 11,672
6/97 13,049 13,257 13,343 13,476 12,980
12/97 12,887 13,129 13,227 13,388 11,880
- -------------------------------------------
MassMutual International Equity Fund
Largest Country Weightings (12/31/97)
- -------------------------------------------
% of fund
United Kingdom 15.56%
France 14.44%
Japan 13.75%
Switzerland 10.02%
Brazil 8.21%
The Netherlands 7.19%
Sweden 6.04%
Italy 5.45%
Germany 5.35%
Norway 4.34%
- -------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1997
Number of
Shares Market Value
------ ------------
EQUITIES -- 83.5%
Automobiles -- 1.8%
Porsche AG,
Preference 6,000 $ 10,077,623
============
Banking -- 12.1%
Banco Bradesco SA,
Preference 292,260,951 2,864,157
Banco de Galicia y
Buenos Aires SA de
CV, Sponsored ADR 127,000 3,270,250
Commerzbank AG 75,000 2,919,840
Credit Suisse Group 120,000 18,593,784
Credito Italiano 3,470,000 10,706,338
Liechtenstein Global
Trust AG 10,000 6,204,787
Skandinaviska Enskilda
Banken Group 200,000 2,533,280
Societe Generale 100,000 13,630,630
Unibanco-Uniao de
Banco Brasileiros SA,
Sponsored GDR * 190,000 6,115,625
------------
66,838,691
============
Computer Hardware -- 1.7%
Canon, Inc. 225,000 5,260,680
Eidos PLC * 225,000 2,498,940
Imagineer Co. Ltd. 205,000 1,608,184
------------
9,367,804
============
Computer Services -- 1.0%
Cap Gemini SA 70,000 5,742,317
============
Computer Software -- 4.9%
JBA Holdings PLC 525,000 8,940,645
Misys PLC 581,892 17,616,955
------------
26,557,600
============
Diversified Financial -- 2.4%
Cie Financiere de
Paribas, Series A 150,000 13,040,520
============
Electric Utilities -- 0.4%
Cia Paranaense
Energia, Sponsored
ADR, Preference B
Shares 170,000 $ 2,326,875
============
Electrical Equipment & Electronics -- 2.5%
LEM Holdings SA 11,192 2,271,317
Murata Mfg. Co. Ltd. 100,000 2,522,660
Sony Corporation 100,000 8,921,620
------------
13,715,597
============
Energy Services & Producers -- 6.8%
Cie Generale de
Geophysique SA * 54,000 6,911,725
Cie Generale de
Geophysique SA, *
Sponsored ADR 350,000 8,968,750
Coflexip SA,
Sponsored ADR 200,000 11,100,000
PTT Exploration &
Production Public Co.
Ltd. 93,000 1,070,058
Smedvig AS, Series B 160,000 3,363,984
Transocean Offshore Inc. 125,400 6,042,713
------------
37,457,230
============
Food & Beverage -- 2.3%
Cadbury Schweppes PLC 1,000,000 10,094,500
Remy Cointreau 120,000 2,240,076
------------
12,334,576
============
Healthcare/Drugs -- 6.5%
Biocompatibles
International PLC * 823,823 6,845,310
Glaxo Wellcome PLC 312,979 7,415,631
Novartis AG 4,264 6,928,574
Takeda Chemical
Industries Ltd. 350,000 10,013,745
Torii Pharmaceutical
Co. Ltd. 249,000 4,213,155
------------
35,416,415
============
Healthcare/Supplies & Services -- 2.3%
Medical Invest
Svenska AB Class A * 114,300 3,889,526
Medical Invest
Svenska AB Class B * 99,755 3,331,717
Nichii Gakkan
Company 150,000 5,191,455
------------
12,412,698
============
Industrial Services -- 3.8%
Bau Holdings AF,
Preference 170,611 7,727,552
Boskalis Westminster 479,798 8,520,349
Ordina NV * 208,000 2,862,621
VBH Holding AG 125,000 1,668,475
------------
20,778,997
============
Insurance -- 9.3%
Instituto Nazionale
delle Assicurazioni 7,000,000 14,193,900
Marschollek,
Lautenschlaeger und
Partner-VO, Non-vtg.
Preferred Stock 4,000 1,034,458
Reinsurance Australia
Corp. Ltd. 2,951,101 7,691,159
Schweizerische
Lebensversicherungs-
und Rentenanstalt 15,000 11,795,952
Skandia Forsakrings AB 338,400 15,972,378
------------
50,687,847
============
Leisure & Entertainment -- 6.2%
EMI Group PLC 600,000 5,015,160
Lusomundo SGPS SA 400,000 3,698,760
Nintendo Co. Ltd. 255,000 25,103,603
------------
33,817,523
============
(Continued)
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
------ ------------
Manufacturing -- 1.7%
Powerscreen International PLC 488,831 $ 4,886,257
Stork NV 123,157 4,252,599
-------------
9,138,856
=============
Media -- 1.1%
Grupo Televisa SA, Sponsored GDR * 44,700 1,729,331
Havas SA 60,000 4,318,578
-------------
6,047,909
=============
Non-Durable Household Goods -- 1.6%
Wella AG 2,000 1,412,647
Wella AG Preference 10,000 7,341,314
-------------
8,753,961
=============
Oil & Gas -- 3.9%
Expro International Group PLC 875,000 7,760,113
Novus Petroleum Limited 2,513,333 6,550,248
Petroleo Brasileiro SA, Preference 29,233,000 6,834,675
-------------
21,145,036
=============
Real Estate -- 1.4%
Brazil Realty SA, GDR 144A 62,000 1,277,752
IRSA Inversiones y Representaciones, SA 1,690,673 6,290,318
-------------
7,568,070
=============
Telecommunications -- 0.6%
Tandberg Television ASA * 300,000 3,458,940
=============
Telephone Utilities -- 2.6%
Telecomunicacoes Brasileiras SA, Sponsored ADR 120,000 13,972,500
=============
Transportation -- 5.9%
Argonaut AB-B Shares * 1,100,000 1,885,400
Frontline Ltd. * 1,500,000 6,063,300
Internatio-Muller NV 159,300 5,013,410
MIF Ltd. * 391,000 6,947,835
Smit Internationale NV 450,000 12,208,770
-------------
32,118,715
=============
Water Companies -- 0.7%
Cia de Saneamento Basico do Estado de Sao Paulo 17,250,000 4,095,150
-------------
TOTAL EQUITIES 456,871,450
(Cost $398,154,381) =============
RIGHTS -- 0.0%
Banking -- 0.0%
Banco Bradesco SA Rts., Preference, Exp. 2/98 12,495,669 --
-------------
TOTAL RIGHTS --
=============
Principal
Amount Market Value
------ ------------
SHORT-TERM INVESTMENTS -- 16.8%
Commercial Paper
American Express Company 5.830% 1/15/1998 $ 20,000,000 $ 19,954,656
Cooperative Association of Tractor Dealers
5.920% 1/14/1998 4,500,000 4,490,380
Ford Motor Credit Company 5.950% 1/09/1998 10,000,000 9,986,778
Ford Motor Credit Company 6.120% 1/02/1998 10,000,000 9,998,300
The Goldman Sachs Group, L.P. 5.850% 1/05/1998 10,000,000 9,993,500
Merrill Lynch & Co. Inc. 5.870% 1/12/1998 10,000,000 9,982,064
Merrill Lynch & Co. Inc. 5.900% 1/07/1998 10,000,000 9,990,167
New Center Asset 6.750% 1/02/1998 7,700,000 7,698,556
Prudential Funding Corporation 5.840% 1/13/1998 10,000,000 9,980,533
-------------
TOTAL SHORT-TERM INVESTMENTS 92,074,934
(At Amortized Cost) =============
TOTAL INVESTMENTS -- 100.3% 548,946,384
(Cost $490,229,315)+
Other Assets/
(Liabilities) -- (0.3%) (1,764,450)
-------------
NET ASSETS -- 100.0% $ 547,181,934
=============
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
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.
70
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of
Assets and
Liabilities
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C>
Assets:
Investments, at value (cost $398,154,381) (Note 2) ................... $ 456,871,450
Short-term investments, at amortized cost (Note 2) ................... 92,074,934
-----------------
Total Investments .................................................. 548,946,384
Cash ................................................................. 200,916
Receivables from:
Investments sold ................................................... 21,181,972
Open forward foreign currency contracts (Note 2) ................... 2,302,439
Fund shares sold ................................................... 3,179,598
Interest and dividends ............................................. 156,479
Foreign taxes withheld ............................................. 511,024
-----------------
Total assets ...................................................... 576,478,812
-----------------
Liabilities:
Payables for:
Payable to Custodian ............................................... 21,181,199
Investments purchased .............................................. 4,293,610
Fund shares redeemed ............................................... 3,274,192
Directors' fees and expenses (Note 3) .............................. 5,869
Affiliates (Note 3):
Investment management fees ........................................ 416,327
Administration fees ............................................... 38,673
Service and distribution fees ..................................... 263
Accrued expenses and other liabilities ............................... 86,745
-----------------
Total liabilities ................................................. 29,296,878
-----------------
Net assets ........................................................... $ 547,181,934
=================
Net assets consist of:
Paid-in capital ...................................................... $ 469,631,790
Undistributed net investment income .................................. 293,037
Accumulated net realized gain on investments and
foreign currency translations ....................................... 16,328,165
Net unrealized appreciation on investments, forward foreign currency
contracts, foreign currency and other assets and liabilities ........ 60,928,942
-----------------
$ 547,181,934
=================
Net assets:
Class 1 .............................................................. $ 128,942
=================
Class 2 .............................................................. $ 131,194
=================
Class 3 .............................................................. $ 132,039
=================
Class S .............................................................. $ 546,789,759
=================
Shares outstanding:
Class 1 .............................................................. 10,526
=================
Class 2 .............................................................. 10,635
=================
Class 3 .............................................................. 10,680
=================
Class S .............................................................. 44,180,338
=================
Net asset value, offering price and redemption price per share:
Class 1 .............................................................. $ 12.25
=================
Class 2 .............................................................. $ 12.34
=================
Class 3 .............................................................. $ 12.36
=================
Class S .............................................................. $ 12.38
=================
</TABLE>
The accompanying notes are an integral part of the financial statement.
71
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of
Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Investment income:
Dividends (net of withholding tax of $697,895) ........................ $ 6,628,667
Interest .............................................................. 1,167,260
-----------------
Total investment income ............................................. 7,795,927
-----------------
Expenses (Note 1):
Investment management fees (Note 3) .................................. 4,149,537
Custody fees .......................................................... 569,180
Audit and legal fees .................................................. 10,274
Directors' fees (Note 3) .............................................. 21,363
Fees waived by the investment manager (Note 3) ........................ (50,753)
-----------------
4,699,601
Administration fees (Note 3):
Class 1 ............................................................ 748
Class 2 ............................................................ 695
Class 3 ............................................................ 570
Class S ............................................................ 465,031
Distribution and service fees (Note 3):
Class 1 ............................................................ 817
Class 2 ............................................................ 191
-----------------
Net operating expenses ............................................. 5,167,653
-----------------
Interest Expense (Note 8) ............................................ 52,801
-----------------
Net investment income .............................................. 2,575,473
-----------------
Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain on:
Investment transactions ............................................ 46,198,883
Foreign currency transactions ...................................... 643,684
-----------------
Net realized gain .................................................. 46,842,567
-----------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ 11,424,350
Translation of assets and liabilities in foreign currencies ........ 1,601,856
-----------------
Net unrealized gain ................................................ 13,026,206
-----------------
Net realized and unrealized gain from investments
and foreign currency translation .................................. 59,868,773
-----------------
Net increase in net assets resulting from operations ................. $ 62,444,246
=================
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of
Changes in Net
Assets
<TABLE>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ......................................................... $ 2,575,473 $ 1,651,003
Net realized gain on investments and foreign
currency transactions ......................................................... 46,842,567 10,732,352
Net change in unrealized appreciation (depreciation) on
investments and translation of assets and liabilities in
foreign currencies ............................................................ 13,026,206 36,530,674
----------------- -----------------
Net increase in net assets resulting from operations ......................... 62,444,246 48,914,029
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1 ..................................................................... (91) (263)
Class 2 ..................................................................... (133) (433)
Class 3 ..................................................................... (256) (501)
Class S ..................................................................... (3,046,471) (1,825,896)
----------------- -----------------
Total distributions from net investment income ............................. (3,046,951) (1,827,093)
----------------- -----------------
In excess of net investment income:
Class 1 ..................................................................... -- (794)
Class 2 ..................................................................... -- (1,308)
Class 3 ..................................................................... -- (1,513)
Class S ..................................................................... -- (5,515,423)
----------------- -----------------
Total distributions in excess of net investment income .................... -- (5,519,038)
----------------- -----------------
From net realized gains:
Class 1 ..................................................................... (4,184) --
Class 2 ..................................................................... (4,229) --
Class 3 ..................................................................... (4,243) --
Class S ..................................................................... (17,495,727) --
----------------- -----------------
Total distributions from net realized gains ............................... (17,508,383) --
----------------- -----------------
Net fund share transactions (Note 5):
Class 1 ..................................................................... 4,275 (13,956)
Class 2 ..................................................................... 4,362 1,742
Class 3 ..................................................................... 4,499 2,018
Class S ..................................................................... 148,628,074 94,070,522
----------------- -----------------
Increase in net assets from net fund share transactions ................... 148,641,210 94,060,326
----------------- -----------------
Total increase in net assets ................................................ 190,530,122 135,628,224
Net assets:
Beginning of period ......................................................... 356,651,812 221,023,588
----------------- -----------------
End of period (including undistributed net investment
income of $293,037 and $113,978, respectively) ............................... $ 547,181,934 $ 356,651,812
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
Class 1
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.07 $ 9.54 $ 9.25 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income (0.07) (0.07) (0.03) (0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.67 1.70 0.40 (0.73)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 1.60 1.63 0.37 (0.75)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.01) (0.10) -- --
In excess of net investment income -- -- (0.08) --
From net realized gains (0.41) -- -- --
---------- ---------- ---------- ------------
Total distributions (0.42) (0.10) (0.08) --
---------- ---------- ---------- ------------
Net asset value, end of period $ 12.25 $ 11.07 $ 9.54 $ 9.25
========== ========== ========== ============
Total Return 14.46% 17.09% 3.96% (7.50)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $129 $113 $112 $93
Net expenses to average daily net assets# 2.20% 2.15% 2.15% 2.15%*
Net investment income to average daily net assets (0.61)% (0.51)% (0.40)% (1.10)%*
Portfolio turnover rate 83% 58% 121% 18%
Average broker commission rate (a) $ 0.0083 $ 0.0254 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 2.21% 2.22% 2.24% 2.24%*
<CAPTION>
Class 2
-------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.09 $ 9.56 $ 9.26 $ 10.00
---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income (0.01) 0.00 0.02 (0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.68 1.70 0.40 (0.73)
---------- ---------- ---------- ------------
Total income (loss) from investment operations 1.67 1.70 0.42 (0.74)
---------- ---------- ---------- ------------
Less distributions to shareholders:
From net investment income (0.01) (0.17) (0.02) --
In excess of net investment income -- -- (0.10) --
From net realized gains (0.41) -- -- --
---------- ---------- ---------- ------------
Total distributions (0.42) (0.17) (0.12) --
---------- ---------- ---------- ------------
Net asset value, end of period $ 12.34 $ 11.09 $ 9.56 $ 9.26
========== ========== ========== ============
Total Return 15.11% 17.85% 4.52% (7.40)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $131 $114 $97 $93
Net expenses to average daily net assets# 1.65% 1.60% 1.60% 1.60%*
Net investment income to average daily net assets (0.06)% 0.02% 0.19% (0.55)%*
Portfolio turnover rate 83% 58% 121% 18%
Average broker commission rate (a) $ 0.0083 $ 0.0254 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.66% 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 average broker commission rate will vary
depending on the markets in which trades are executed.
The accompanying notes are an integral part of the financial statements.
74
<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 Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.10 $ 9.57 $ 9.27 $ 10.00
-------- -------- -------- ----------
Income (loss) from investment operations:
Net investment income 0.02 0.03 0.04 (0.00)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.67 1.70 0.40 (0.73)
-------- -------- -------- ----------
Total income (loss) from investment operations 1.69 1.73 0.44 (0.73)
-------- -------- -------- ----------
Less distributions to shareholders:
From net investment income (0.02) (0.20) (0.05) --
In excess of net investment income -- -- (0.09) --
From net realized gains (0.41) -- -- --
-------- -------- -------- ----------
Total distributions (0.43) (0.20) (0.14) --
-------- -------- -------- ----------
Net asset value, end of period $ 12.36 $ 11.10 $ 9.57 $ 9.27
======== ======== ======== ==========
Total Return 15.29% 18.11% 4.78% (7.30)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $132 $114 $97 $93
Net expenses to average daily net assets# 1.40% 1.35% 1.35% 1.35%*
Net investment income to average daily net assets 0.19% 0.27% 0.45% (0.30)%*
Portfolio turnover rate 83% 58% 121% 18%
Average broker commission rate (a) $ 0.0083 $ 0.0254 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.41% 1.42% 1.44% 1.44%*
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Period ended
12/31/97 12/31/96 12/31/95 12/31/94**
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.11 $ 9.58 $ 9.28 $ 10.00
-------- -------- -------- ----------
Income (loss) from investment operations:
Net investment income 0.06 0.06 0.07 0.00
Net realized and unrealized gain (loss) on investments
and foreign currency 1.69 1.71 0.41 (0.72)
-------- -------- -------- ----------
Total income (loss) from investment operations 1.75 1.77 0.48 (0.72)
-------- -------- -------- ----------
Less distributions to shareholders:
From net investment income (0.07) (0.24) (0.07) --
In excess of net investment income -- -- (0.11) --
From net realized gains (0.41) -- -- --
-------- -------- -------- ----------
Total distributions (0.48) (0.24) (0.18) --
-------- -------- -------- ----------
Net asset value, end of period $ 12.38 $ 11.11 $ 9.58 $ 9.28
======== ======== ======== ==========
Total Return@ 15.79% 18.51% 5.13% (7.20)%
Ratios / Supplemental Data:
Net assets, end of period (000s) $546,790 $356,311 $220,718 $ 150,199
Net expenses to average daily net assets# 1.0580% 1.0020% 1.0020% 1.0020%*
Net investment income to average daily net assets 0.53% 0.59% 0.76% 0.04%*
Portfolio turnover rate 83% 58% 121% 18%
Average broker commission rate (a) $ 0.0083 $ 0.0254 N/A N/A
#Computed after giving effect to the voluntary partial waiver of
management fee by MassMutual, which terminated May 1, 1997.
Without this partial waiver of fees by MassMutual, the ratio
of expenses to average daily net assets would have been: 1.0684% 1.0718% 1.0920% 1.0877%*
</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 average broker commission rate
will vary depending on the markets in which trades are executed.
(1) Class S shares were previously designated as Class 4 shares.
@ 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.
75
<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, 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. As of
December 31, 1997 the Trust consisted of seven separate
diversified series of shares (each individually referred to as a
"Fund" or collectively as the "Funds"), each of which had four
classes of shares: Class 1, Class 2, Class 3 and Class S. Class
1, Class 2 and Class 3 shares of each Fund were 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 S
shares of each Fund, which were originally designated as Class 4
shares, 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. See Note 9 for a summary of the revisions to the
class structure of the Funds.
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. A new series of the Trust, the MassMutual
Indexed Equity Fund, is expected to commence operations March 1,
1998. The MassMutual Indexed Equity Fund will have three
classes, Class A, Class Y and Class S. See Note 9.
2. Significant The following is a summary of significant accounting policies
Accounting followed consistently by each Fund in the preparation of the
Policies 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 Equity securities are valued on the basis of valuations
Valuation 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.
76
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Accounting for Investment transactions are accounted for on the trade date.
Investments 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 It is each Fund's intent to continue to comply with the
Tax 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 Dividends from net investment income and distributions of
Distributions to any net realized capital gains of each Fund are declared and
Shareholders 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 and net realized gain 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 The books and records of the Funds are maintained in U.S.
Translation 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 Each Fund may enter into forward foreign currency contracts
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.
77
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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, 1997 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
01/02/98 Netherlands Guilder 44,232 $ 22,125 $21,819 $ (306)
SELLS
02/17/98 Japanese Yen 6,824,400,000 55,000,000 52,697,255 2,302,745
----------------
$ 2,302,439
================
</TABLE>
Forward Each Fund may purchase or sell securities on a "when issued" or
Commitments 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, 1997, is as follows:
<TABLE>
<CAPTION>
Forward Expiration Aggregate
Commitment of Face Value Market Unrealized
Contracts to Buy Contracts of Contracts Cost Value Appreciation
------------------ ----------- -------------- ------ -------- --------------
<S> <C> <C> <C> <C> <C>
Core Bond Fund
U.S. Treasury Note
6.00% 08/15/2000 February 1998 $30,000,000 $30,135,938 $30,205,200 $69,262
</TABLE>
78
<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 were limited to a
percentage of average daily net assets for a portion of the
year, 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:
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%
MassMutual has entered into investment sub-advisory agreements
with two subsidiaries: David L. Babson and 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:
Class 1 Class 2 Class 3 Class S
--------- --------- --------- ---------
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%
79
<PAGE>
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
In conjunction with the redesignation of Class 4 shares to Class
S shares on December 1, 1997, (see Note 9), the Class S
administrative service fee was adjusted to .0777% of the average
daily net assets of all the Funds with the exception of
International Equity Fund, which was adjusted to .0774% of
average daily net assets.
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 Oppenheimer 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
For the period January 1, 1997 to April 30, 1997, MassMutual
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 S
--------- --------- --------- ---------
<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 voluntary agreement to waive a portion of its
management fee terminated May 1, 1997. MassMutual's management
fee for the year ended December 31, 1997 was $26,955,580, of
which $679,798 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, 1997, 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, 1997 were as follows:
<TABLE>
<CAPTION>
Long-term U.S.
Government Other Long-term
Securities Securities
---------------- ---------------------
<S> <C> <C>
Purchases Short-Term Bond Fund $ 31,425,204 $ 39,742,452
Core Bond Fund 88,174,696 132,252,986
Balanced Fund 29,279,250 100,443,143
Value Equity Fund -- 642,451,976
Small Cap Value Equity Fund -- 250,070,186
International Equity Fund -- 408,627,335
Sales
Short-Term Bond Fund $ 44,702,047 $ 19,456,604
Core Bond Fund 142,167,673 66,371,875
Balanced Fund 35,319,378 84,175,961
Value Equity Fund -- 556,704,082
Small Cap Value Equity Fund -- 169,292,492
International Equity Fund -- 380,917,329
</TABLE>
80
<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 each class of shares. Changes in shares outstanding for each Fund are
as follows:
<TABLE>
<CAPTION>
Class 1 Class 2
Year ended Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Fund
Sold - - - - - - - -
Issued as reinvestment
of dividends 31 $ 4,723 28 $ 4,288 36 $ 5,393 33 $ 4,922
Redeemed - - - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase 31 $ 4,723 28 $ 4,288 36 $ 5,393 33 $ 4,922
========= ========= ========= ========= ========= ========= ========= =========
Short-Term Bond Fund
Sold - - - - - - - -
Issued as reinvestment
of dividends 501 5,151 519 5,285 571 5,867 584 5,951
Redeemed - - - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase 501 $ 5,151 519 $ 5,285 571 $ 5,867 584 $ 5,951
========= ========= ========= ========= ========= ========= ========= =========
Core Bond Fund
Sold - - 429 4,520 - - - -
Issued as reinvestment
of dividends 561 6,094 489 5,156 634 6,894 562 5,941
Redeemed - - (5,250) (55,534) - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) 561 $ 6,094 (4,332) $ (45,858) 634 $ 6,894 562 $ 5,941
========= ========= ========= ========= ========= ========= ========= =========
Balanced Fund
Sold - - 931 10,969 - - - -
Issued as reinvestment
of dividends 722 9,696 416 5,173 787 10,600 484 6,038
Redeemed - - (5,552) (65,509) - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) 722 $ 9,696 (4,205) $ (49,367) 787 $ 10,600 484 $ 6,038
========= ========= ========= ========= ========= ========= ========= =========
Value Equity Fund
Sold - - - - - - - -
Issued as reinvestment
of dividends 915 15,245 403 5,884 979 16,362 456 6,682
Redeemed - - - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase 915 $ 15,245 403 $ 5,884 979 $ 16,362 456 $ 6,682
========= ========= ========= ========= ========= ========= ========= =========
Small Cap Value Equity Fund
Sold - - 4,373 54,090 - - - -
Issued as reinvestment
of dividends 1,011 16,505 349 4,660 1,042 17,114 420 5,622
Redeemed - - (9,150) (108,036) - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) 1,011 $ 16,505 (4,428) $ (49,286) 1,042 $ 17,114 420 $ 5,622
========= ========= ========= ========= ========= ========= ========= =========
International Equity Fund
Sold - - 5,377 55,098 - - - -
Issued as reinvestment
of dividends 350 4,275 100 1,065 354 4,362 161 1,742
Redeemed - - (7,009) (70,119) - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) 350 $ 4,275 (1,532) $ (13,956) 354 $ 4,362 161 $ 1,742
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
81
<PAGE>
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 3 Class S
Year ended Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
Shares Amount Shares Amount Shares Amount Shares Amount
------ -------- ------ --------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Fund
Sold - - - - 2,313,757 $356,901,047 2,391,584 $370,653,176
Issued as reinvestment
of dividends 39 $ 5,838 35 $ 5,335 89,849 13,552,104 86,522 13,067,477
Redeemed - - - - (2,516,899) (387,704,105) (2,445,697) (378,881,926)
------ -------- ------ --------- --------- ------------ ---------- -----------
Net increase (decrease) 39 $ 5,838 35 $ 5,335 (113,293) $(17,250,954) 32,409 $ 4,838,727
====== ======== ====== ========= ========= ============ ========== ===========
Short-Term Bond Fund
Sold - - - - 9,428,262 98,207,327 6,074,656 62,871,971
Issued as reinvestment
of dividends 614 6,313 625 6,381 1,038,249 10,611,443 808,935 8,206,104
Redeemed - - - - (5,254,453) (54,663,274) (4,631,745) (47,999,711)
------ -------- ------ --------- --------- ------------ --------- -----------
Net increase 614 $ 6,313 625 $ 6,381 5,212,058 $ 54,155,496 2,251,846 $23,078,364
====== ======== ====== ========= ========= ============ ========== ===========
Core Bond Fund
Sold - - - - 18,573,681 200,529,976 15,244,478 161,638,362
Issued as reinvestment
of dividends 680 7,406 604 6,389 2,529,434 27,329,767 1,838,613 19,317,124
Redeemed - - - - (13,062,080) (141,570,384) (6,519,179) (69,250,775)
------ -------- ------ --------- --------- ----------- --------- -----------
Net increase 680 $ 7,406 604 $ 6,389 8,041,035 $86,289,359 10,563,912 $111,704,711
====== ======== ====== ========= ========= =========== ========== ============
Balanced Fund
Sold - - - - 15,490,780 208,070,969 16,529,257 200,170,935
Issued as reinvestment
of dividends 826 11,159 521 6,510 3,601,954 48,404,059 2,193,746 27,325,515
Redeemed - - - - (16,501,676) (221,896,742) (12,780,860) (154,960,358)
------ -------- ------ --------- --------- ------------ ---------- -----------
Net increase 826 $ 11,159 521 $ 6,510 2,591,058 $34,578,286 5,942,143 $72,536,092
====== ======== ====== ========= ========= ============ ========== ===========
Value Equity Fund
Sold - - - - 42,809,442 708,198,212 42,761,147 585,609,490
Issued as reinvestment
of dividends 1,020 17,066 492 7,213 16,938,371 282,797,539 8,235,214 120,574,407
Redeemed - - - - (43,586,898) (722,935,752) (47,300,940) (651,246,978)
------ -------- ------ --------- --------- ------------ ---------- -----------
Net increase 1,020 $ 17,066 492 $ 7,213 16,160,915 $268,059,999 3,695,421 $54,936,919
====== ======== ====== ========= ========== ============ ========== ===========
Small Cap Value Equity Fund
Sold - - - - 14,575,709 230,041,190 10,428,037 129,033,258
Issued as reinvestment
of dividends 1,085 17,846 455 6,096 3,890,912 64,043,615 1,500,824 20,087,217
Redeemed - - - - (10,914,681) (173,997,186) (11,168,365) (140,771,695)
------ -------- ------ --------- ---------- ------------ ---------- -----------
Net increase 1,085 $ 17,846 455 $ 6,096 7,551,940 $120,087,619 760,496 $ 8,348,780
====== ======== ====== ========= ========= ============ ========== ===========
International Equity Fund
Sold - - - - 22,135,252 274,603,312 14,964,804 154,912,942
Issued as reinvestment
of dividends 365 4,499 186 2,018 1,662,863 20,542,197 672,906 7,341,306
Redeemed - - - - (11,688,395) (146,517,435) (6,611,341) (68,183,726)
------ -------- ------ --------- --------- ------------ ---------- -----------
Net increase 365 $ 4,499 186 $ 2,018 12,109,720 $ 148,628,074 9,026,369 $94,070,522
====== ======== ====== ========= ========== ============= ========== ===========
</TABLE>
82
<PAGE>
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
6. Foreign The International Equity Fund invests substantially all of its
Securities 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 At December 31, 1997, the cost of securities and the
Income unrealized appreciation (depreciation) in the value of
Tax investments owned by the Funds, as computed on a Federal income
Information 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 $ 228,230,839 $ 3,815 $ (24,973) $ (21,158)
Short-Term Bond Fund 205,430,337 1,854,403 (561,064) 1,293,339
Core Bond Fund 432,689,491 16,919,821 (529,777) 16,390,044
Balanced Fund 521,260,171 139,690,566 (540,826) 139,149,740
Value Equity Fund 2,076,604,643 1,123,293,702 (3,876,050) 1,119,417,652
Small Cap Value Equity Fund 459,144,230 234,617,794 (7,003,431) 227,614,363
International Equity Fund 490,229,315 86,328,444 (27,611,375) 58,717,069
</TABLE>
At December 31, 1997, the following Funds had available, for
Federal income tax purposes, unused capital losses:
Amount Expiration Date
-------------------- -----------------------------
Prime Fund $ 2,082 December 31, 2003
Prime Fund 2,368 December 31, 2004
Prime Fund 7,761 December 31, 2005
8. Line of The Trust, on behalf of each Fund, maintains a discretionary
Credit 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,
1997. Average daily borrowings for the year ended December 31,
1997 were $6,100,000 and the average interest rate was 5.86%.
The maximum borrowing outstanding during the year ended December
31, 1997 was $31,600,000. There was no balance outstanding at
December 31, 1997.
9. Class 4 Effective December 1, 1997, all Class 4 shares of all Funds were
Redesignation redesignated as Class S shares, and the expense structure was
and Subsequent revised accordingly (see Note 3). Additionally, two new classes
Event of shares, Class A and Class Y, were created for all Funds.
Regarding New Effective January 1, 1998, Class A and Y shares began
Classes of operations, and Class 1 shares of all Funds were exchanged for
Shares Class A shares and Class 2 and Class 3 shares of all Funds were
exchanged for Class Y shares. The Class 1, Class 2, and Class 3
shares were subsequently terminated by the Trustees. The new
classes of shares are offered to different types of investors
and have different expense and sales charge structures, as
outlined in the Trust's Prospectus.
83
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
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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, 1997, 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
three 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 based 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, 1997, 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, 1997 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 three 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 6, 1998
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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.
DISTRIBUTOR
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
February 27, 1998
