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MASSMUTUAL INSTITUTIONAL FUNDS
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[ARTWORK APPEARS HERE]
. MassMutual Prime Fund
. MassMutual Short-Term Bond Fund
. MassMutual Core Bond Fund
. MassMutual Balanced Fund
. MassMutual Core Equity Fund
. MassMutual Small Cap Value Equity Fund
. MassMutual International Equity Fund
Annual Report . December 31, 1998
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Table of Contents
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 ........................................... 21
Portfolio of Investments ........................................... 24
Financial Statements ............................................... 29
MassMutual Balanced Fund
Portfolio Manager Report ........................................... 33
Portfolio of Investments ........................................... 36
Financial Statements ............................................... 41
MassMutual Core Equity Fund (Formerly known as the MassMutual Value Equity Fund)
Portfolio Manager Report ........................................... 45
Portfolio of Investments ........................................... 48
Financial Statements ............................................... 50
MassMutual Small Cap Value Equity Fund
Portfolio Manager Report ........................................... 54
Portfolio of Investments ........................................... 57
Financial Statements ............................................... 59
MassMutual International Equity Fund
Portfolio Manager Report ........................................... 63
Portfolio of Investments ........................................... 67
Financial Statements ............................................... 69
Notes to Financial Statements ........................................... 73
Report of Independent Accountants1 ...................................... 83
1The 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.
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MassMutual Institutional Funds -- Letters to Shareholders
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To Our Shareholders
[PHOTO OF STUART H. REESE APPEARS HERE]
Stuart H. Reese
"Stocks responded with a vigorous fourth-quarter rally..."
February 26, 1999
Another Year of Expansion in the U.S.
1998 marked the eighth consecutive year of economic expansion in the United
States, once again confounding those who were looking for the economy to falter.
Real growth of gross domestic product for the year is likely to be somewhere
around 3.75%, a shade under 1997's 3.9%. While economic growth continued,
inflation remained virtually dormant, with the Consumer Price Index rising about
1.7%. Producer prices, which often lead changes in consumer prices, actually
declined in 1998. Interest rates fell for most of the year, ending December at
near-record low levels. Contributing to the easing of interest rates was the
fact that the U.S. government had a $70 billion surplus in fiscal year 1998
after several decades of deficits. Another surplus is forecast for the current
fiscal year.
Consumption and fixed investment both contributed strongly to the expansion in
1998. Thanks to solid income growth and another banner year for large
capitalization stocks, consumers were able to maintain spending at high levels
all year. Fixed investment benefited from steady increases in residential
construction and producers' durable equipment--mainly computers and other
business equipment. Investment in technology contributed not only to growth but
also to gains in productivity.
The only broad-based drag on economic growth was the trade deficit, which grew
by close to $100 billion in 1998. The deficit was exacerbated by strong domestic
growth, which spurred imports, and by serious financial problems abroad, which
dampened foreign demand for U.S. goods and services and therefore limited U.S.
exports.
Overseas: Some Progress, Some New Challenges
In Asia, where severe financial problems first came to a head in 1997, there was
some progress. The stock markets of Thailand and South Korea rebounded
noticeably in 1998, indicating that investors are beginning to overcome their
generalized fear of Southeast Asian markets and instead are making investment
decisions on a nation-specific basis. This is a key prerequisite for meaningful
recovery in the region.
In Japan, political leaders finally adopted an aggressive plan to stimulate the
economy and reform the country's ailing banking system. Policy is now moving in
the proper direction, but it will be a long road back to economic health for
Japan.
One key concern continues to be the extent to which the problems in Asia will
spread to other emerging markets, and eventually to the U.S. This concern gained
renewed force in August, when Russia announced a substantial devaluation of its
currency, the ruble, and defaulted on much of its foreign debt. South America,
particularly Brazil, also gave investors cause for concern in 1998.
Equities Take a Hit But Finish Strong
U.S. equities were uniformly strong during the first three months of the year,
as concerns about Asia receded into the background and investors focused on
strong economic growth. In April, a two-tiered market emerged, with
large-capitalization technology and other growth issues leading the S&P 500
Index and the Dow Jones Industrial Average higher through mid-July. The Russell
2000 Index, however, trended lower throughout the second quarter, indicating
that many small-capitalization stocks were not participating in the rally.
Indeed, even the S&P 500's gains -- at its high water mark in July -- were
largely due to its twenty largest components. The rally, therefore, was quite
narrow.
(Continued)
1
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MassMutual Institutional Funds -- Letters to Shareholders (Continued)
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In the third quarter, amid Russia's financial difficulties and renewed concerns
about Asia, stocks turned south, giving up all they had gained earlier in the
year and then some in many cases. A flight to quality ensued in which investors
shunned stocks in general. Especially hard hit were small-capitalization issues,
technology stocks, and other sectors perceived to have more than average risk.
With the financial markets reeling, the Federal Reserve Board stepped in,
lowering interest rates three times in three months. Stocks responded with a
vigorous fourth-quarter rally, again concentrated primarily in growth stocks.
The Dow Jones Industrial Average, S&P 500 Index, NASDAQ Composite Index and
Russell 2000 Index ended 1998 with returns of 18.17%, 28.58%, 39.63% and -2.55%,
respectively. The disparity in performance between the different market segments
is especially evident in the latter two indices.
Bonds Ride the Roller Coaster, Too
Bonds were by no means immune to the third quarter's volatility. Up to that
point, interest rates, which began the year at low levels, had trended
irregularly lower, as the yield curve gradually flattened. Although first-half
credit spreads widened in January and June, new issuances remained at relatively
healthy levels due to the low absolute level of interest rates.
In August, trouble began brewing in the credit markets when Russia's devaluation
and default caused a number of hedge funds to liquidate some large credit
positions. Panic ensued, and spreads widened dramatically, especially between
corporate issues and U.S. Treasuries, as investors sold corporate securities and
fled to the safety of Treasury securities.
As happened with equities, the credit markets recovered somewhat when the
Federal Reserve Board lowered interest rates. Spreads narrowed considerably by
year-end, although not nearly to their levels before the crisis.
Looking Ahead to 1999
The central economic event of 1999 is likely to be a mild slowdown in the U.S.
economy. The lower rate of expansion in non-farm payrolls in the second half of
1998, together with the associated easing of personal income growth, makes it
unlikely that consumers will be able to keep spending at 1998's brisk rate.
Softness in corporate earnings, a symptom of reduced consumer spending, may be
evident. Federal Reserve Board policy, which was extremely accommodating in
response to the 1998 crisis in the financial markets, has returned to a neutral
stance and will likely remain so until circumstances clearly mandate a change.
Inflation may rise a little but should remain unthreatening. In this
environment, MassMutual should continue to serve shareholders well with its
focus on thorough research and identifying value in the financial markets.
/s/ Stuart H. Reese
Stuart H. Reese
President
MassMutual Institutional Funds
2
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MassMutual Prime Fund -- Portfolio Manager Report
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What are the investment objectives 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 during 1998?
The Fund's Class S shares had a net return of 5.39% for the 12 months ended
December 31, 1998, well ahead of the 4.86% return recorded by the money market
funds average monitored by Lipper Analytical Services and ahead of the return of
91-day U.S. Treasury Bills of 5.05%. Although interest rates in the United
States declined during the period, the Fund's continued strong emphasis on Tier
2 securities enabled it to outperform the Lipper average. Funds in the Lipper
average are required to hold a much higher percentage of Tier 1 commercial paper
(rated in the highest rating category of at least one nationally recognized
statistical rating organization) than the Fund does.
What was the market environment during the period?
The first half of 1998 was relatively placid, as the U.S. economy continued to
grow moderately in spite of the slowing effects expected by many investors as a
result of the Asian financial crisis. Inflation remained in check, and interest
rates were stable and near record lows. At the short end of the fixed-income
market, U.S. Treasury bill rates fell slightly, while Tier 1 and Tier 2 issues
rose a bit, with spreads between Treasuries and 30-day Tier 2 commercial paper
widening from 69 to 96 basis points at the end of June.
In the third quarter, world financial markets became extremely volatile. For one
thing, corporate earnings began to show more evidence of susceptibility to the
slowdown in Asia. There was also increased concern about the Brazilian banking
system. However, the straw that broke the camel's back was Russia, which
unexpectedly devalued it's currency and defaulted on some of its debt. Finally,
the near-failure of a prominent hedge fund added to investors' crisis mentality.
This confluence of events precipitated a worldwide flight to quality that drove
30-day U.S. Treasury bills down to an average yield of 3.56% in October from
4.75% in August, while the spread between Treasuries and 30-day Tier 2
commercial paper ballooned to 197 basis points, reflecting the increased premium
investors were demanding to accept the added risk of Tier 2 investments.
The markets settled down to some degree in the fourth quarter, primarily in
response to three cuts in short-term interest rates by the Federal Reserve Board
(Fed) in September, October, and November. The October easing had a particularly
beneficial effect because it was a surprise move that occurred between meetings
of the Fed's Open Market Committee, the group that decides the fate of
short-term interest rates. However, spreads between Tier 1 and Tier 2 issues
continued to widen in November and, in the 30-day maturity category, in December
due to typical year-end liquidity pressures.
How did you position the Fund's portfolio throughout this turmoil?
On balance, the Fund invested a greater percentage of its assets in Tier 2
investments than in prior years. Moreover, as the spread between Tier 1 and Tier
2 commercial paper widened during 1998, we gradually increased our Tier 2
exposure, until by the end of October the Fund's allocation of Tier 2 issues
reached its apex at 97%. The confidence we have in our credit analysis
capabilities made us very comfortable in assuming the extra risk inherent in
Tier 2 investments, especially with the economy in overall sound condition. In
December, the Tier 2 portion of the Fund declined to 85%, mainly because the
supply of Tier 2 commercial paper dried up. Consequently, we purchased some Tier
1 agency paper to bring the Fund closer in the average duration of its holdings
to the IBC/Donohue Universe, an index that we use as a benchmark for that
purpose.
How is the Fund Administrator preparing for the Year 2000 Issue?
Like other businesses and governments around the world, the Fund could be
adversely affected if the computer systems used by the Fund's service providers
and those with which they do business do not properly recognize the Year 2000.
This is commonly known as the "Year 2000 issue." In 1996, MassMutual began an
enterprise-wide process of identifying, evaluating and implementing changes to
its computer systems to address the Year 2000 issue. MassMutual is addressing
the Year 2000 issue internally with modifications to existing programs and
conversions to new programs. MassMutual has advised the Fund that the Year 2000
issue is one of MassMutual's highest business operational priorities. MassMutual
is also seeking assurances from the Fund's other service providers in order to
identify and resolve Year 2000 issues. In addition, because the Year 2000 issue
affects virtually all organizations, the companies in which the Fund invests
could be adversely impacted by the Year 2000 issue. The extent of such impact
cannot be predicted.
3
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MAssMutual Prime Fund -- Portfolio Manager Report (Continued)
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What is your outlook for 1999?
The U.S. economy has continued to surprise investors with its resilience--gross
domestic product grew at the rate of 3.7% estimated for 1998 compared to 3.9%
for 1997--and the Fed proved that it will move aggressively to lower interest
rates if economic growth appears threatened. As of the end of 1998, the Fed was
in a holding pattern as it sought to evaluate the effects of its three
interventions in the second half of 1998. Meanwhile, Japanese interest rates are
rising, and we will have to see if that prompts some repatriation of investment
assets to Japan, which would tend to boost U.S. interest rates. Another wild
card is the Euro--the common currency of the European Monetary Union--which
debuted on January 1, 1999. Some experts have speculated that the Euro might
rival the U.S. dollar as a reserve currency, and that a significant amount of
funds might flow from U.S. dollar-denominated assets into Euro-denominated
assets. There is also the Year 2000 issue, which could impact the supply of or
demand for commercial paper towards the end of the year. We remain confident,
however, that regardless of the challenges that arise during 1999, our credit
expertise will enable the Fund to offer shareholders competitive returns.
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Prime Fund
Class S and 91-day Treasury Bills
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MassMutual Prime Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 5.39% 5.43%
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91-Day
Treasury Bills 5.05% 5.32%
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Hypothetical Investments in MassMutual Prime Fund
Class A and Class Y and 91-day Treasury Bills
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MassMutual Prime Fund
Total Return One Year
1/1/98 - 12/31/98
Class A 4.60%
Class Y 5.14%
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91-Day
Treasury Bills 5.05%
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GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
Date Class S T-Bills
"10/3/94" 10,000 10,000
"12/94" 10,126 10,112
"6/95" 10,419 10,385
"12/95" 10,711 10,672
"6/96" 10,982 10,932
"12/96" 11,272 11,209
"6/97" 11,565 11,489
"12/97" 11,880 11,785
"6/98" 12,194 12,166
"12/98" 12,520 12,380
[LINE GRAPH APPEARS HERE]
Date Class A Class Y T-Bills
"12/97" 10,000 10,000 10,000
"3/98" 10,110 10,130 10,128
"6/98" 10,230 10,250 10,255
"9/98" 10,350 10,380 10,386
"12/98" 10,460 10,514 10,505
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.
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4
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MassMutual Prime Fund -- Portfolio of Investments
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Portfolio of Investments
December 31, 1998
Principal
Amount Market Value
--------- ------------
SHORT-TERM INVESTMENTS -- 98.2%
Commercial Paper -- 94.2%
Boston Scientific
Corporation
5.450% 2/26/1999 $ 2,800,000 $ 2,776,262
Boston Scientific
Corporation
5.550% 2/19/1999 1,780,000 1,766,554
Boston Scientific
Corporation
5.650% 1/25/1999 3,410,000 3,397,156
Boston Scientific
Corporation
5.700% 1/22/1999 2,175,000 2,167,769
Burlington Northern
Santa Fe Corp.
5.620% 1/13/1999 4,255,000 4,247,029
Case Credit
Corporation
5.900% 3/24/1999 7,420,000 7,332,114
Case Credit
Corporation
6.150% 2/12/1999 2,045,000 2,030,327
Central and South
West Corporation
5.450% 3/16/1999 3,620,000 3,581,306
Central and South
West Corporation
5.500% 3/17/1999 1,445,000 1,429,346
Comdisco, Inc.
5.600% 1/20/1999 3,600,000 3,589,360
ConAgra, Inc.
5.470% 1/08/1999 3,455,000 3,451,325
ConAgra, Inc.
5.590% 1/25/1999 3,975,000 3,960,187
ConAgra, Inc.
6.070% 2/05/1999 2,445,000 2,430,571
Cox Enterprises, Inc.
5.680% 1/27/1999 9,400,000 9,361,439
Crown Cork & Seal
Company, Inc.
5.600% 2/25/1999 3,460,000 3,430,398
Crown Cork & Seal
Company, Inc.
5.600% 3/15/1999 2,125,000 2,102,593
Crown Cork & Seal
Company, Inc.
5.900% 3/29/1999 2,700,000 2,666,070
Crown Cork & Seal
Company, Inc.
5.900% 4/16/1999 2,400,000 2,363,600
CSX Corporation
5.500% 1/12/1999 8,170,000 8,156,269
CVS Corporation
5.650% 1/29/1999 665,000 662,078
CVS Corporation
5.740% 1/15/1999 9,900,000 9,877,901
Enron Corp.
5.200% 5/28/1999 4,460,000 4,365,299
Enron Corp.
5.580% 1/29/1999 1,525,000 1,518,382
Fina Oil and Chemical
Company
5.250% 2/23/1999 5,000,000 4,961,354
Finova Capital
Corporation
5.125% 2/04/1999 6,550,000 6,518,297
Ford Motor Credit
Corporation
4.780% 9/24/1999 6,230,000 6,015,626
General Electric
Capital Corporation
4.860% 6/25/1999 1,975,000 1,930,069
Georgia Power
Company
5.150% 2/22/1999 7,011,000 6,958,843
Humana, Inc.
6.000% 1/14/1999 1,130,000 1,127,552
Humana, Inc.
6.000% 2/05/1999 2,920,000 2,902,967
Humana, Inc.
6.050% 2/03/1999 1,560,000 1,551,349
Humana, Inc.
6.050% 2/26/1999 3,500,000 3,467,061
IMC Global Inc.
5.400% 1/19/1999 360,000 359,028
IMC Global Inc.
5.700% 3/12/1999 2,400,000 2,375,733
IMC Global Inc.
5.850% 2/12/1999 6,000,000 5,959,050
Mallinckrodt Group
Inc.
5.700% 2/08/1999 10,000,000 9,939,833
McKesson Corp.
6.150% 1/22/1999 6,200,000 6,177,758
ORIX Credit Alliance,
Inc.
5.750% 4/09/1999 2,120,000 2,089,990
ORIX Credit Alliance,
Inc.
5.900% 2/26/1999 370,000 366,604
ORIX Credit Alliance,
Inc.
5.950% 2/19/1999 6,594,000 6,540,598
Praxair, Inc.
5.130% 7/30/1999 4,600,000 4,460,467
Praxair, Inc.
5.530% 1/28/1999 4,125,000 4,107,892
Public Service
Company of Colorado
5.200% 1/14/1999 7,880,000 7,865,203
Public Service
Company of Colorado
5.900% 1/14/1999 510,000 508,913
Public Service Electric
and Gas Company
5.620% 1/19/1999 7,000,000 6,980,330
Ralston Purina
Company
5.700% 1/26/1999 5,770,000 5,747,160
Raytheon Company
5.600% 1/21/1999 2,075,000 2,068,545
Raytheon Company
5.650% 2/02/1999 7,450,000 7,412,585
Rite Aid Corporation
5.620% 1/29/1999 6,335,000 6,307,309
(Continued)
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
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MassMutual Prime Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
--------- ------------
Safeway Inc.
5.630% 2/11/1999 $ 3,715,000 $ 3,691,180
Safeway Inc.
6.000% 1/21/1999 4,255,000 4,240,817
Service Corporation
International
5.480% 2/01/1999 10,200,000 10,151,867
Sonat Inc.
5.200% 3/12/1999 1,985,000 1,964,929
Sonat Inc.
5.500% 2/23/1999 4,460,000 4,423,886
The Timken Company
5.180% 3/16/1999 5,820,000 5,757,791
US West Capital
Funding
5.700% 2/24/1999 6,270,000 6,216,392
-------------
237,810,313
=============
Discount Notes -- 4.0%
Federal Farm Credit
Bank
4.650% 12/23/1999 5,700,000 5,438,826
Federal Home Loan
Mortgage
Corporation
4.780% 6/02/1999 4,485,000 4,397,363
Federal National
Mortgage Association
5.270% 4/02/1999 315,000 311,327
=============
10,147,516
=============
TOTAL SHORT-TERM
INVESTMENTS 247,957,829
=============
(Cost $247,916,928)+
TOTAL INVESTMENTS -- 98.2% 247,957,829
Other Assets/
(Liabilities) -- 1.8% 4,474,664
=============
NET ASSETS -- 100.0% $ 252,432,493
=============
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>
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MassMutual Prime Fund -- Financial Statements
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Statement of Assets and Liabilities
December 31, 1998
Assets:
Short-term investments, at value
(cost $247,916,928) (Note 2) $ 247,957,829
Cash 1,496
Receivables from:
Fund shares sold 8,305,239
--------------------
Total assets 256,264,564
--------------------
Liabilities:
Payables for:
Fund shares redeemed 3,711,487
Directors' fees and expenses (Note 3) 4,604
Affiliates (Note 3):
Investment management fees 92,672
Administration fees 16,044
Service fees 74
Accrued expenses and other liabilities 7,190
--------------------
Total liabilities 3,832,071
--------------------
Net assets $ 252,432,493
====================
Net assets consist of:
Paid-in capital $ 252,393,164
Undistributed net investment income 19,112
Accumulated net realized loss on investments (20,684)
Net unrealized appreciation on investments 40,901
--------------------
$ 252,432,493
====================
Net assets:
Class A $ 119,698
====================
Class Y $ 556,080
====================
Class S $ 251,756,715
====================
Shares outstanding:
Class A* 793.581
====================
Class Y* 3,689.154
====================
Class S 1,670,109.993
====================
Net asset value, offering price and
redemption price per share:
Class A* $ 150.83
====================
Class Y* $ 150.73
====================
Class S $ 150.74
====================
*Amounts have been restated to reflect reverse stock splits (See Note 9).
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
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MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
Year ended
December 31, 1998
--------------------
Investment income: (Note 2)
Interest......................................... $ 14,691,779
--------------------
Expenses (Note 2):
Investment management fees (Note 3).............. 1,143,154
Custody fees..................................... 25,320
Audit and legal fees............................. 9,195
Directors' fees (Note 3)......................... 17,773
--------------------
1,195,442
Administration fees (Note 3):
Class A...................................... 563
Class Y...................................... 1,123
Class S...................................... 196,947
Service fees (Note 3):
Class A...................................... 292
--------------------
Total expenses.......................... 1,394,367
--------------------
Net investment income................... 13,297,412
--------------------
Realized and unrealized gain (1oss):
Net realized loss on investment transactions..... (2,524)
Net change in unrealized appreciation
(depreciation) on investments................... 62,059
--------------------
Net realized and unrealized gain........ 59,535
--------------------
Net increase in net assets resulting from
operations...................................... $ 13,356,947
====================
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
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MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
Increase (Decrease) in Net Assets: December 31, 1998 December 31, 1997
----------------------- -----------------------
<S> <C> <C>
Operations:
Net investment income ................................................ $ 13,297,412 $ 13,484,123
Net realized loss on investment transactions ......................... (2,524) (11,009)
Net change in unrealized appreciation (depreciation)
on investments ................................................... 62,059 (13,070)
----------------------- -----------------------
Net increase in net assets resulting from operations ............. 13,356,947 13,460,044
----------------------- -----------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1* ............................................................. -- (4,723)
Class 2* ............................................................. -- (5,393)
Class 3* ............................................................. -- (5,838)
Class A .............................................................. (94,659) --
Class Y .............................................................. (440,359) --
Class S .............................................................. (12,743,282) (13,552,104)
----------------------- -----------------------
Total distributions from net investment income ................... (13,278,300) (13,568,058)
----------------------- -----------------------
Net fund share transactions (Note 5):
Class 1* ............................................................. (114,315) 4,723
Class 2* ............................................................. (116,323) 5,393
Class 3* ............................................................. (117,416) 5,838
Class A .............................................................. 208,974 --
Class Y .............................................................. 973,553 --
Class S .............................................................. 9,800,906 (17,250,954)
----------------------- -----------------------
Increase (Decrease) in net assets from net fund
share transactions .............................................. 10,635,379 (17,235,000)
----------------------- -----------------------
Total increase (decrease) in net assets .............................. 10,714,026 (17,343,014)
Net assets:
Beginning of period .................................................. 241,718,467 259,061,481
----------------------- -----------------------
End of period (including undistributed net investment income of
$19,112 and $0, respectively) .................................... $ 252,432,493 $ 241,718,467
======================= =======================
</TABLE>
* Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were
terminated (See Note 1).
The accompanying notes are an integral part of the Financial statements.
9
<PAGE>
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MassMutual Prime Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Class Y
------- -------
Year ended Year ended
12/31/98 + 12/31/98 +
------------ -----------
<S> <C> <C>
Net asset value, beginning of period $ 691.21 $ 690.78
------------ -----------
Income (loss) from investment operations:
Net investment income 32.03 *** 36.67 ***
Net realized and unrealized gain (loss) on
investments (0.09) (1.30)
------------ -----------
Total income (loss) from investment
operations 31.94 35.37
------------ -----------
Less distributions to shareholders:
From net investment income (572.32) (575.42)
------------ -----------
Net asset value, end of period $ 150.83 $ 150.73
============ ===========
Total Return 4.60% 5.14%
Ratios / Supplemental Data:
Net assets, end of period (000's) $120 $556
Net expenses to average daily net assets # 1.20% 0.74%
Net investment income to average daily net assets 4.59% 5.21%
</TABLE>
<TABLE>
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94/\**
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 150.84 $ 151.00 $ 151.06 $ 150.36 $ 150.00
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income 8.10 *** 8.14 *** 7.85 *** 8.70 *** 1.55
Net realized and unrealized gain (loss) on
investments 0.03 (0.01) 0.06 (0.02) 0.34
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 8.13 8.13 7.91 8.68 1.89
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (8.23) (8.29) (7.97) (7.98) (1.53)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 150.74 $ 150.84 $ 151.00 $ 151.06 $ 150.36
=========== =========== =========== =========== ===========
Total Return @ 5.39% 5.39% 5.24% 5.78% 1.26%
Ratios / Supplemental Data:
Net assets, end of period (000's) $251,757 $241,370 $258,729 $253,936 $170,548
Net expenses to average daily net assets # 0.5482% 0.5399% 0.5160% 0.5160% 0.5160% *
Net investment income to average daily net assets 5.23% 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: N/A 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.
+ Amounts have been restated to reflect reverse stock splits (See Note 9).
(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 objectives and policies for the MassMutual Short-Term
Bond Fund?
The objective and policies of the Fund are to:
. achieve a high total 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 less than three years
. diversify investments among market sectors on the basis of relative value
How did the Fund perform during 1998?
The Fund's Class S shares had a net return of 6.29% for the 12 months ended
December31, 1998, slightly trailing the 6.97% return of the Lehman Brothers 1-3
Year Government Bond Index. The Fund marginally outperformed the Index during
the first half of the year, but then fell behind in the second half, as a flight
to quality led to a massive rally in the U.S. Treasury markets. Although the
Fund had an average of 31.2% of its holdings in Treasuries in the second half of
the year, the shorter duration of its holdings relative to those in the Index
led the Fund to underperform the Index during the rally. The portfolio also had
an average of 42.1% invested in commercial paper during the second half of the
year. In addition, the Fund's non-Treasury holdings were hurt in the flight to
Treasuries.
What was the market environment during the period?
Most of 1998 saw a gradual flattening of the yield curve, which depicts
graphically how the yields demanded by fixed-income investors change as the
duration of their investments lengthens. In a positive yield curve environment,
yields increase along with investment risk and duration. However, for myriad
reasons, the yield curve can become flat or inverted. That is what we saw in
1998 as the perception of increased risk in the credit markets caused investors
to favor short-term instruments as a defensive measure.
The year was also marked by extreme volatility in the second half. During the
summer, it became more clear that the slowdown in Asian economies would affect
the earnings of U.S. corporations more than investors had been expecting earlier
in the year. Furthermore, Brazil's banking system became an increasing source of
concern. Then in August, Russia unexpectedly devalued its currency and defaulted
on some of its debt. The well-publicized financial difficulties of a prominent
hedge fund added to investors' crisis mentality and caused dislocations in the
credit markets when some of the firm's massive positions were liquidated.
These events precipitated a plunge in world stock markets. On the other hand,
Treasuries of all maturities rallied sharply, and spreads between Treasuries and
other credit instruments, particularly corporate securities, widened, as
investors avoided risk and sought safety. The 30-year Treasury bond, for
example, dipped below 5%, a level not seen in over 30 years. Three cuts in
short-term interest rates by the Federal Reserve Board in September, October,
and November helped the markets recover to some degree toward the end of the
year. Spreads between Treasuries and corporate securities narrowed considerably
in November and December, although not nearly back to their pre-August levels.
How did you position the Fund during 1998?
The Fund's duration strategy, which we refer to as the yield preference
strategy," is based on the shape of the yield curve. The duration of the Fund's
investments can range anywhere from that of money market instruments, on the
short end, to as long as three years. If the yield curve is steep, we will
lengthen the Fund's average duration to take advantage of the higher yields
available in longer-term instruments. If the yield curve is flat or inverted,
with short-term issues yielding roughly the same as or more than longer-term
issues, we shorten the Fund's average duration because we are not getting
adequately compensated to take the increased risk of purchasing investments with
a longer horizon.
Since 1998 was a year in which the yield curve was flattening for the most part,
we shortened the average duration of the Fund's investments from 1.8 years at
the end of 1997 to 1.1 years as of December 31, 1998. This was significantly
shorter than the duration of the Lehman Brothers Index, which tends to remain
steady at around 1.8 years.
Most of the Fund's transactions occurred in the second half of the year, when we
purchased a number of A/BBB-rated corporate issues at very attractive spreads.
Issuers of these holdings included IMC Global,
11
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Heller Financial, Occidental Petroleum, CSX Corp., and J. Seagram & Sons. In
addition, we purchased roughly $6.5 million of commercial mortgage-backed
securities, also at attractive spread levels. The Fund added to its holdings of
commercial paper and U.S. Treasuries in the first half of 1998, coincident with
a strong inflow of funds that increased the Fund's size by about 25%. In the
latter half of the year, we were net sellers of Treasuries, as that sector
rallied and wide spreads resulted in more attractive opportunities in other
sectors.
How is the Fund Administrator preparing for the Year 2000 Issue?
Like other businesses and governments around the world, the Fund could be
adversely affected if the computer systems used by the Fund's service providers
and those with which they do business do not properly recognize the Year 2000.
This is commonly known as the "Year 2000 issue." In 1996, MassMutual began an
enterprise-wide process of identifying, evaluating and implementing changes to
its computer systems to address the Year 2000 issue. MassMutual is addressing
the Year 2000 issue internally with modifications to existing programs and
conversions to new programs. MassMutual has advised the Fund that the Year 2000
issue is one of MassMutual's highest business operational priorities. MassMutual
is also seeking assurances from the Fund's other service providers in order to
identify and resolve Year 2000 issues. In addition, because the Year 2000 issue
affects virtually all organizations, the companies in which the Fund invests
could be adversely impacted by the Year 2000 issue. The extent of such impact
cannot be predicted.
What is your outlook for 1999?
In 1998, it paid to own U.S. Treasuries, and it paid to own credit investments
with longer durations, as interest rates fell across the board. As 1999 unfolds,
we will be keeping an eye on the U.S. economy to see if the much-anticipated
slowdown gains momentum. The Federal Reserve Board has a neutral stance
currently but will probably lower short-term rates again if the economy shows
signs of weakening. If this does occur, the spreads between Treasuries and other
credit investments could remain volatile during 1999. Our strategy calls for us
to avoid timing interest rate changes and to position the Fund according to the
shape of the yield curve, which should add value over the long term for the
Fund's shareholders.
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 Class S and the Lehman Brothers
1-3 Year Government Bond Index
- ------------------------------------------------------
MassMutual Short-Term Bond Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 6.29% 7.16%
- ------------------------------------------------------
Lehman Brothers
1-3 Year 6.97% 6.92%
Government Bond Index
- ------------------------------------------------------
Hypothetical Investments in MassMutual Short-Term
Bond Fund Class A and Class Y and the Lehman Brothers
1-3 Year Government Bond Index
- ------------------------------------------------------
MassMutual Short-Term Bond Fund
Total Return One Year
1/1/98 - 12/31/98
Class A 5.75%
Class Y 6.12%
- ------------------------------------------------------
Lehman Brothers 6.97%
1-3 Year
Government Bond Index
- ------------------------------------------------------
[LINE GRAPH APPEARS HERE]
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Date Class S Lehman 1-3 Yr.
"10/3/94" 10,000 10,000
"12/94" 10,013 10,013
"6/95" 10,816 10,659
"12/95" 11,192 11,084
"6/96" 11,380 11,244
"12/96" 11,816 11,643
"6/97" 12,119 11,976
"12/97" 12,624 12,416
"6/98" 13,007 12,794
"12/98" 13,418 13,281
[LINE GRAPH APPEARS HERE]
Date Class A Class Y Lehman 1-3 Yr.
"12/97" 10,000 10,000 10,000
"3/98" 10,150 10,160 10,144
"6/98" 10,270 10,300 10,300
"9/98" 10,471 10,511 10,616
"12/98" 10,575 10,612 10,697
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 Brother 1-3 Year Government Bond Index is
unmanaged and does not incur expenses and cannot be purchased directly by
investors.
Duration Diversification (12/31/98)
MassMutual Short-Term bond Fund
Average Duration = 1.1 years
[PIE CHART APPEARS HERE]
less than 1% 75.9%
1-3 years 12.2%
3-5 years 8.3%
5-10 years 3.1%
10-20 years 0.5%
Quality Structure (12/31/98)
MassMutual Short-Term Bond Fund
[PIE CHART APPEARS HERE]
U.S. Governments Cash Equivalents
Aaa/AAA 84.3%
Baa/BBB 8.6%
A/A 5.8%
Aa/AA 1.3%
13
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments December 31, 1998
Principal
Amount Market Value
--------- ------------
BONDS & NOTES -- 58.9%
ASSET BACKED SECURITIES -- 4.6%
California
Infrastructure PG&E-
1,1997-1, Class A6
6.320% 9/25/2005 $ 250,000 $ 257,083
California
Infrastructure SCE-1,
1997-1, Class A5
6.280% 9/25/2005 300,000 312,726
California
Infrastructure
SDG&E-1, 1997-1,
Class A5
6.190% 9/25/2005 200,000 207,776
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 1,000,000 1,005,140
Capita Equipment
Receivables Trust
1997-1, Class A3
6.120% 9/15/2000 1,500,000 1,514,925
Chase Manhattan Auto
Owner Trust 1997-A,
Class A4
6.400% 7/16/2001 1,500,000 1,517,340
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 1,000,000 1,004,290
First Bank Corporate
Card Master Trust
1997-1, Class A
6.400% 2/15/2003 1,000,000 1,024,370
Ford Credit Auto
Owner Trust, 1996-
B, Class A-4
6.300% 1/15/2001 2,000,000 2,013,740
Metlife Capital
Equipment Loan
Trust Series 1997-A,
Class A
6.850% 5/20/2008 1,000,000 1,044,675
Railcar Trust No.
1992-1
7.750% 6/01/2004 965,895 1,027,693
Student Loan
Marketing
Association Series
1998-1, Class Al
5.294% 1/25/2007 1,805,915 1,787,801
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class Al
6.300% 6/25/2002 377,272 377,744
-----------
TOTAL ASSET BACKED
SECURITIES 13,095,303
(Cost $12,910,383) ===========
CORPORATE DEBT -- 15.8%
AirTouch
Communications,
Inc.
7.500% 7/15/2006 1,000,000 1,101,910
America West Airlines
1996-1, Class A
6.850% 7/02/2009 1,941,978 2,012,608
Analog Devices, Inc.
6.625% 3/01/2000 1,000,000 1,011,590
Associates Corporation
of North America
6.750% 8/01/2001 1,500,000 1,546,905
Bell Atlantic Financial
Services, Inc.
6.610% 2/07/2000 2,000,000 2,027,700
BHP Finance (USA)
Limited
7.875% 12/01/2002 1,000,000 1,053,100
Carlisle Companies
Incorporated
7.250% 1/15/2007 1,000,000 1,030,590
The CIT Group, Inc.
6.250% 3/22/1999 2,200,000 2,204,972
CSC Enterprises 144A
6.500% 11/15/2001 2,000,000 2,081,180
CSX Corporation
7.050% 5/01/2002 2,900,000 3,009,301
First Brands
Corporation
7.250% 3/01/2007 1,500,000 1,599,480
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 1,023,940
Heller Financial, Inc.
6.250% 3/01/2001 2,000,000 2,021,440
Heller Financial, Inc.
6.330% 7/28/2000 2,000,000 2,010,660
IMC Global Inc.
6.625% 10/15/2001 1,500,000 1,487,490
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,130,510
MAPCO Inc.
7.250% 3/01/2009 1,250,000 1,316,875
Norfolk Southern
Corporation
7.350% 5/15/2007 1,000,000 1,098,460
Occidental Petroleum
Corporation
6.750% 11/15/2002 2,900,000 2,906,235
ORIX Credit Alliance,
Inc. 144A
6.480% 4/20/1999 2,000,000 2,006,280
J.C. Penny Company,
Inc.
7.250% 4/01/2002 2,500,000 2,614,125
Joseph E. Seagram &
Sons, Inc.
6.250% 12/15/2001 3,200,000 3,183,232
Union Oil Company of
California
9.875% 8/15/2002 2,500,000 2,818,400
Valero Pass-Through Asset
Trust 1997-1 144A
6.750% 12/15/2002 1,000,000 1,009,400
Walt Disney Company, The
6.375% 3/30/2001 1,500,000 1,540,440
-----------
TOTAL CORPORATE DEBT 44,846,823
(Cost $43,758,771) ===========
(Continued)
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
----------- ------------
NON-U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 2.3%
Collateralized Mortgage Obligations
Asset Securitization
Corporation Series
1995-MD4, Class Al
7.100% 8/13/2029 $ 2,428,970 $ 2,585,226
Merrill Lynch
Mortgage Investors,
Inc. Series 1998-
ASPI, Class C 144A
6.511% 10/01/2003 4,000,000 3,980,640
------------
TOTAL NON - U.S. GOVERNMENT
AGENCY OBLIGATIONS 6,565,866
(Cost $6,550,608) ============
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 6.3%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 1.5%
Collateralized Mortgage Obligations -- 1.4%
FHLMC Series 1693
Class G
6.000% 7/15/2007 2,000,000 2,013,740
FHLMC Series 1704
Class PE
6.000% 7/15/2007 2,000,000 2,001,240
------------
4,014,980
------------
Pass-Through Securities -- 0.1%
FHLMC
4.750% 9/01/2006 215,529 211,891
------------
4,226,871
------------
Federal National Mortgage Association
(FNMA) -- 1.2%
Collateralized Mortgage Obligations -- 0.9%
FNMA Series 1993-71
Class PG
6.250% 7/25/2007 2,500,000 2,515,625
============
Pass-Through Securities -- 0.3%
FNMA
8.000% 5/01/2013 376,378 381,978
FNMA
9.000% 10/01/2009 380,441 401,917
------------
783,895
============
3,299,520
============
Government National Mortgage Association
(GNMA) -- 0.4%
Pass-Through Securities
GNMA
8.000% 5/15/2001-
11/15/2007 1,071,747 1,121,477
------------
U.S. Government Guaranteed Notes -- 3.2%
1994-A Baxter
Springs, KS
6.310% 8/01/2001 500,000 515,245
1994-A Detroit, MI
6.310% 8/01/2001 450,000 463,721
1994-A Jacksonville,
FL
6.310% 8/01/2001 1,485,000 1,530,278
1994-A Los Angeles
County, CA
6.310% 8/01/2001 225,000 231,860
1994-A Tacoma, WA
6.310% 8/01/2001 195,000 200,946
1994-A Trenton, NJ
6.310% 8/01/2001 145,000 149,421
U.S. Dept. of Housing
and Urban
Development, Series
1996-A
6.440% 8/01/1999 2,000,000 2,055,000
U.S. Dept. of Housing
and Urban
Development, Series
1997-A
6.110% 8/01/2000 4,000,000 4,056,240
------------
9,202,711
============
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 17,850,579
(Cost $16,994,808) ============
U.S. TREASURY OBLIGATIONS -- 29.9%
U.S. Treasury Note
5.625% 12/31/1999 84,100,000 84,914,928
(Cost $84,221,215) ============
TOTAL BONDS & NOTES 167,273,499
(Cost $164,435,785) ============
SHORT-TERM INVESTMENTS -- 40.9%
Commercial Paper -- 38.6%
Aristar, Inc.
5.690% 2/01/1999 4,790,000 4,766,530
Boston Scientific
Corporation
5.420% 2/26/1999 2,265,000 2,245,904
Boston Scientific
Corporation
5.600% 2/12/1999 3,290,000 3,268,506
Boston Scientific
Corporation
5.600% 2/26/1999 5,420,000 5,372,786
Case Credit
Corporation
6.000% 2/22/1999 920,000 912,027
Case Credit
Corporation
6.150% 2/12/1999 7,225,000 7,173,161
Central and South
West Corporation
5.500% 3/17/1999 3,470,000 3,432,408
Comdisco, Inc.
5.600% 1/20/1999 2,555,000 2,547,448
Comdisco, Inc.
5.750% 1/22/1999 5,170,000 5,152,659
ConAgra, Inc.
5.720% 1/21/1999 3,330,000 3,319,418
ConAgra, Inc.
6.070% 2/05/1999 4,075,000 4,050,952
Cox Enterprises, Inc.
6.000% 1/19/1999 1,470,000 1,465,590
Crown Cork & Seal
Company, Inc.
5.600% 2/25/1999 3,830,000 3,797,232
CSX Corporation
5.590% 1/08/1999 1,875,000 1,872,962
CVS Corporation
5.780% 1/26/1999 5,635,000 5,612,382
Enron Corp.
5.200% 5/28/1999 5,540,000 5,422,367
The Goldman Sachs
Group, L.P.
4.840% 6/11/1999 3,815,000 3,726,280
Illinois Power
Company
6.250% 1/20/1999 2,680,000 2,671,160
IMC Global Inc.
5.650% 1/19/1999 1,245,000 1,241,483
IMC Global Inc.
5.700% 1/29/1999 4,645,000 4,624,406
Mallinckrodt Group
Inc.
5.800% 1/27/1999 4,595,000 4,575,752
Maytag Corp.
5.300% 1/04/1999 1,415,000 1,414,375
ORIX Credit Alliance,
Inc.
5.650% 3/12/1999 1,980,000 1,959,980
ORIX Credit Alliance,
Inc.
5.850% 3/19/1999 6,680,000 6,605,704
ORIX Credit Alliance,
Inc.
5.900% 2/26/1999 140,000 138,715
Rayonier Inc.
5.900% 2/24/1999 5,460,000 5,411,679
Raytheon Company
5.300% 2/05/1999 1,790,000 1,780,777
Raytheon Company
5.650% 2/02/1999 4,300,000 4,278,404
Service Corporation
International
5.600% 2/26/1999 4,925,000 4,882,098
Service Corporation
International
5.680% 2/25/1999 2,625,000 2,602,221
(Continued)
The accompanying notes are an integral part of the Financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
------------- -------------
Textron Financial Corporation
5.900% 1/15/1999 $ 3,275,000 $ 3,267,486
Textron Financial Corporation
6.350% 1/14/1999 145,000 144,668
------------
109,737,520
Discount Note -- 2.3%
Federal National
Mortgage Association
4.480% 11/02/1999 6,690,000 6,436,077
------------
TOTAL SHORT-TERM
INVESTMENTS 116,173,597
(Cost $116,166,551) ------------
TOTAL INVESTMENTS -- 99.8% 283,447,096
(Cost $280,602,336)+
Other Assets/
(Liabilities) -- 0.2% 624,236
------------
Net Assets -- 100.0% $284,071,332
============
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.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Assets:
Investments, at value (cost $164,435,785) (Note 2)............. $ 167,273,499
Short-term investments, at value (cost $116,166,551) (Note 2).. 116,173,597
----------------
Total Investments.......................................... 283,447,096
----------------
Cash........................................................... 131,503
Receivables from:
Investments sold........................................... 4,882
Fund shares sold........................................... 49,236
Interest................................................... 1,154,293
----------------
Total assets........................................... 284,787,010
----------------
Liabilities:
Payables for:
Fund shares redeemed....................................... 578,499
Directors' fees and expenses (Note 3)...................... 4,604
Affiliates (Note 3):
Investment management fees............................. 106,423
Administration fees.................................... 18,442
Service fees........................................... 81
Accrued expenses and other liabilities......................... 7,629
----------------
Total liabilities....................................... 715,678
----------------
Net assets..................................................... $ 284,071,332
================
Net assets consist of
Paid-in capital................................................ $ 281,302,233
Accumulated net realized loss on investments................... (75,661)
Net unrealized appreciation on investments..................... 2,844,760
----------------
$ 284,071,332
================
Net assets:
Class A........................................................ $ 129,354
================
Class Y........................................................ $ 268,784
================
Class S........................................................ $ 283,673,194
================
Shares outstanding:
Class A*....................................................... 12,541
================
Class Y*....................................................... 26,073
================
Class S........................................................ 27,529,935
================
Net asset value, offering price and redemption price per share:
Class A*....................................................... $ 10.31
================
Class Y*....................................................... $ 10.31
================
Class S........................................................ $ 10.30
================
</TABLE>
*Amounts have been restated to reflect reverse stock splits (See Note 9).
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Short-Term Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Investment income: (Note 2)
Interest............................................ $ 15,845,978
-----------------
Expenses (Note 2):
Investment management fees (Note 3)................. 1,163,327
Custody fees........................................ 24,684
Audit and legal fees................................ 10,419
Directors' fees (Note 3)............................ 17,773
-----------------
1,216,203
Administration fees (Note 3):
Class A......................................... 601
Class Y......................................... 693
Class S......................................... 200,568
Service fees (Note 3):
Class A......................................... 315
-----------------
Total expenses............................. 1,418,380
-----------------
Net investment income...................... 14,427,598
-----------------
Realized and unrealized gain (1oss):
Net realized loss on investment transactions........ (104,694)
Net change in unrealized appreciation (depreciation)
on investments................................... 1,551,421
-----------------
Net realized and unrealized gain............. 1,446,727
-----------------
Net increase in net assets resulting from
operations....................................... $ 15,874,325
=================
</TABLE>
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, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ........................................................ $ 14,427,598 $ 10,621,074
Net realized gain (loss) on investment transactions .......................... (104,694) 667,141
Net change in unrealized appreciation (depreciation)
on investments ............................................................ 1,551,421 275,610
------------- -------------
Net increase in net assets resulting from operations ...................... 15,874,325 11,563,825
------------- -------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1* .................................................................... - (5,130)
Class 2* .................................................................... - (5,845)
Class 3* .................................................................... - (6,291)
Class A ..................................................................... (6,032) -
Class Y ..................................................................... (13,681) -
Class S ..................................................................... (14,459,636) (10,576,607)
------------- -------------
Total distributions from net investment income ........................... (14,479,349) (10,593,873)
------------- -------------
From net realized gains:
Class 1* .................................................................... - (21)
Class 2* .................................................................... - (22)
Class 3* .................................................................... - (22)
Class A ..................................................................... (137) -
Class Y ..................................................................... (279) -
Class S ..................................................................... (321,463) (34,836)
------------- -------------
Total distributions from net realized gains .............................. (321,879) (34,901)
------------- -------------
Net fund share transactions (Note 5):
Class 1* .................................................................... (122,436) 5,151
Class 2* .................................................................... (124,585) 5,867
Class 3* .................................................................... (125,819) 6,313
Class A ..................................................................... 128,605 -
Class Y ..................................................................... 267,365 -
Class S ..................................................................... 82,333,818 54,155,496
------------- -------------
Increase in net assets from net fund share transactions ................. 82,356,948 54,172,827
------------- -------------
Total increase in net assets ................................................ 83,430,045 55,107,878
Net assets:
Beginning of period ......................................................... 200,641,287 145,533,409
------------- -------------
End of period (including undistributed net
investment income of $0 and
$61,151, respectively ................................................... $ 284,071,332 $ 200,641,287
============= =============
</TABLE>
* Effective January 1, 1998, Class 1, Class 2 and Class 3 shares were
terminated (See Note 1).
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Mass Mutual Short-Term Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Class Y
------- -------
Year ended Year ended
12/31/98+ 12/31/98+
--------- ---------
<S> <C> <C>
Net asset value, beginning of period $ 10.25 $ 10.24
--------- ---------
Income (loss) from investment operations:
Net investment income 0.52*** 0.57***
Net realized and unrealized gain (loss) on investments 0.05 0.06
--------- ---------
Total income (loss) from investment operations 0.57 0.63
--------- ---------
Less distributions to shareholders:
From net investment income (0.50) (0.55)
From net realized gains (0.01) (0.01)
--------- ---------
Total distributions (0.51) (0.56)
--------- ---------
Net asset value, end of period $ 10.31 $ 10.31
========= =========
Total Return 5.75% 6.12%
Ratios / Supplemental Data:
Net assets, end of period (000's) $ 129 $ 269
Net expenses to average daily net assets # 1.20% 0.74%
Net investment income to average daily net assets 4.95% 5.40%
Portfolio turnover rate 44% 44%
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.23 $ 10.11 $ 10.15 $ 9.85 $ 10.00
-------- -------- -------- -------- ----------
Income (loss) from investment operations:
Net investment income 0.56 0.65*** 0.60 0.66 0.16
Net realized and unrealized gain (loss) on investments 0.08 0.04 (0.03) 0.50 (0.15)
-------- -------- -------- -------- ----------
Total income (loss) from investment operations 0.64 0.69 0.57 1.16 0.01
-------- -------- -------- -------- ----------
Less distributions to shareholders:
From net investment income (0.56) (0.57) (0.60) (0.66) (0.16)
From net realized gains (0.01) 0.00 (0.01) (0.20) --
-------- -------- -------- -------- ----------
Total distributions (0.57) (0.57) (0.61) (0.86) (0.16)
-------- -------- -------- -------- ----------
Net asset value, end of period $ 10.30 $ 10.23 $ 10.11 $ 10.15 $ 9.85
======== ======== ======== ======== ==========
Total Return @ 6.29% 6.84% 5.57% 11.77% 0.13%
Ratios / Supplemental Data:
Net assets, end of period (000's) $283,673 $200,268 $145,182 $122,904 $106,846
Net expenses to average daily net assets # 0.5482% 0.5423% 0.5190% 0.5190% 0.5190%*
Net investment income to average daily net assets 5.58% 6.22% 6.00% 6.32% 6.37%*
Portfolio turnover rate 44% 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: N/A 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.
+ Amounts have been restated to reflect reverse stock splits (see Note 9).
(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.
20
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio Merger Report
- --------------------------------------------------------------------------------
What are the investment The objective and policies of the Fund are to:
objectives and policies . achieve a high total rate of return consistent with
for the MassMutual prudent investment risk and the preservation of
Core Bond Fund? 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 For the 12 months ended December 31, 1998, the Fund's
perform over the past Class S shares had a net return of 8.44%. The Fund's
year? return lagged the 9.47% gain recorded by the Lehman
Brothers Government/Corporate Bond Index. Relative to
the Index, a larger percentage of the Fund's assets
were invested in securities that offered a risk
premium to U.S. Treasuries. This heavier allocation to
corporate securities and mortgage backed instruments
hurt the Fund's performance versus the Index.
What was the market Overall, interest rates declined in 1998, with the
environment during the steepest declines coming in the Treasury markets. This
period? phenomenon was particularly evident in the second half
of the year, when both stock and bond markets were
extremely volatile and a flight to quality caused
investors to favor U.S. Treasuries over other
securities. Several factors were at work to create
this environment. For one thing, the Asian financial
crisis began to manifest itself in the form of lower
earnings and earnings forecasts for many U.S.
corporations. There were also concerns that currency
devaluations in Asia would spread to Brazil and other
South American countries. A particularly negative
development occurred in August, when Russia announced
a substantial devaluation of the ruble, and defaulted
some of its debt. Finally, a prominent U.S. hedge fund
nearly failed and was forced to liquidate some massive
positions, causing dislocations in the credit markets.
In response to these events, world stock markets
plunged, Treasuries of all maturities rallied sharply,
and spreads between Treasuries and other credit
instruments, particularly corporate securities,
widened, as investors shunned risk and sought safety.
The 30-year Treasury bond, for example, briefly edged
below 5%, a level not seen in over 30 years.
However, the Federal Reserve Board responded quickly
to the crisis, reducing short-term interest rates in
September, October, and November. These interventions
helped the markets recover to some degree toward the
end of the year. Spreads between Treasuries and
corporate securities narrowed some in November and
December.
How was the Fund The Fund's assets grew dramatically during 1998, from
positioned during the $456 million at the end of 1997 to over $700 million
period? twelve months later. Most of this growth occurred
during the second half of the year and most of this
new money was invested in corporate securities and
mortgage backed instruments. Corporate purchases
during the last six months of the year were focused
along the yield curve when spreads reached their
widest levels. Credits were added to the portfolio
based upon our bottom-up analysis of the credit and
were weighed against the available alternatives.
Transactions during the second half included purchases
of issues rated either A or BBB. The issues purchased
included: IMC Global, Anheuser Busch, Conagra, Heller
Financial, Midway Airlines, Occidental Petroleum, CSX
Corp., Cable & Wireless and J. Seagram & Sons.
We reduced our allocation to the mortgage-backed
sector from 19.6% to 14.2% during the first nine
months of the year. Adjustable rate mortgage
securities were sold during the summer months as
interest rates were drifting lower. These securities
had performed well and our analysis indicated that
they were becoming overvalued. As spreads increased in
the third quarter, we gradually increased our
allocation to the mortgage-backed sector. We invested
$15.1 million in AAA rated commercial mortgage-backed
securities. This sector had widened significantly and
the underlying collateral suggested that this paper
was undervalued at the time. We also added to our
holdings current coupon thirty-year mortgage
passthrough instruments. Pass-through spreads had
widened to the cheaper end of their historical ranges
creating an attractive buying opportunity for the
fund.
21
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio Merger Report (Continued)
- --------------------------------------------------------------------------------
How is the Fund Like other businesses and governments around the
Administrator preparing world, the Fund could be adversely affected if the
for the Year 2000 Issue? computer systems used by the Fund's service providers
and those with which they do business do not properly
recognize the Year 2000. This is commonly known as the
"Year 2000 issue." In 1996, MassMutual began an
enterprise-wide process of identifying, evaluating and
implementing changes to its computer systems to
address the Year 2000 issue. MassMutual is addressing
the Year 2000 issue internally with modifications to
existing programs and conversions to new programs.
MassMutual has advised the Fund that the Year 2000
issue is one of MassMutual's highest business
operational priorities. MassMutual is also seeking
assurances from the Fund's other service providers in
order to identify and resolve Year 2000 issues. In
addition, because the Year 2000 issue affects
virtually all organizations, the companies in which
the Fund invests could be adversely impacted by the
Year 2000 issue. The extent of such impact cannot be
predicted.
What is your outlook for In 1998, we saw spreads on corporate securities that
1999? haven't occurred since the 1990 recession. At this
point, the U.S. economy has slowed to some degree, but
there appears to be no recession on the horizon.
Furthermore, we have a Federal Reserve Board that has
shown its determination to lower interest rates in an
attempt to fight off a recession in the United States.
This scenario implies heavier supply of new issues as
corporate treasurers attempt to seek lower financing
costs, but credit deterioration might also be
expected. If no recession materializes, the spreads on
the Fund's corporate securities should do well in the
coming year. Indeed, the mix of a moderately growing
economy, minimal inflation, and stable interest rates
at near-record low levels should be supportive of
fixed income investments generally.
22
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Core Bond Fund Class S and the Lehman
Brothers Government Corporate Bond Index
MassMutual Core Bond Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 8.44% 9.34%
Lehman Brothers
Government 9.47% 9.66%
Corporate Bond Index
Hypothetical Investments in MassMutual Core Bond Fund Class A and Class Y and
the Lehman Brothers Government/Corporate Bond Index
MassMutual Core Bond Fund
Total Return One Year
1/1/98 - 12/31/98
Class A 7.75%
Class Y 8.25%
Lehman Brothers
Government 9.47%
Corporate Bond Index
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
Lehman Bros.
Class S Gov't/Corp.
10/3/94 10,000 10,000
12/94 10,020 10,037
6/95 11,212 11,220
12/95 11,940 11,968
6/96 11,695 11,743
12/96 12,274 12,315
6/97 12,626 12,653
12/97 13,474 13,516
6/98 14,035 14,080
12/98 14,611 14,796
[LINE GRAPH APPEARS HERE]
Lehman Bros.
Class A Class Y Gov't/Corp.
12/97 10,000 10,000 10,000
3/98 10,140 10,150 10,152
6/98 10,380 10,410 10,417
9/98 10,796 10,831 10,933
12/98 10,775 10,825 10,947
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.
Duration Diversification (12/31/98)
MassMutual Core Bond Fund
Average Duration = 5.6 years
[PIE CHART APPEARS HERE]
10-20 years 18.5%
20-30 years 3.9%
less than 1 year 13.9%
1-3 years 12.1%
3-5 years 14.1%
5-10 years 37.5%
Quality Structure (12/31/98)
MassMutual Core Bond Fund
[PIE CHART APPEARS HERE]
Aa/AA 3.6%
A/A 11.8%
Baa/BBB 21.0%
Ba/BB 1.5%
U.S. Governments
Cash Equivalents
Aaa/AAA 62.1%
23
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1998
Principal
Amount Market Value
----------- ------------
BONDS & NOTES -- 91.4%
ASSET BACKED SECURITIES -- 6.5%
California
Infrastructure PG&E-
1,1997-1, Class A6
6.320% 9/25/2005 $ 550,000 $ 565,582
California
Infrastructure SCE-1,
1997-1, Class A5
6.280% 9/25/2005 700,000 729,694
California
Infrastructure
SDG&E-1,1997-1,
Class A5
6.190% 9/25/2005 500,000 519,440
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 3,000,000 3,015,420
Case Equipment Loan
Trust 1998-A, Class A4
5.830% 2/15/2005 3,500,000 3,539,970
Caterpillar Financial
Asset Trust, 1997-B,
Class A3
6.160% 9/25/2003 3,500,000 3,523,765
Chase Manhattan Auto
Owner Trust 1998-A,
Class A4
5.800% 12/16/2002 3,750,000 3,789,713
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 4,500,000 4,519,305
Community Program
Loan Trust, 1987-A,
Class A4
4.500% 10/01/2018 869,295 808,445
Ford Credit Auto
Owner Trust, 1996-
B, Class A-4
6.300% 1/15/2001 5,000,000 5,034,350
Metlife Capital
Equipment Loan
Trust Series 1997-A,
Class A
6.850% 5/20/2008 2,500,000 2,611,688
Premier Auto Trust
Series 1998-4, Class
A3
5.690% 6/08/2002 4,000,000 4,034,240
Premier Auto Trust
Series 1998-5, Class
A3
5.070% 7/08/2002 2,000,000 1,992,160
Railcar Trust No
1992-1
7.750% 6/01/2004 1,126,878 1,198,975
Textron Financial
Corporation
5.890% 1/15/2005 3,500,000 3,537,188
Toyota Auto Lease
Trust Series 1998-B,
Class Al
5.350% 7/25/2002 3,500,000 3,500,000
Travelers Funding Ltd.
Class A-1
6.300% 2/15/2014 3,100,000 2,981,270
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class A1
6.300% 6/25/2002 550,819 551,508
-----------
TOTAL ASSET BACKED
SECURITIES 46,452,713
(Cost $46,094,680) ===========
CORPORATE DEBT -- 38.6%
Airgas, Inc.
7.140% 3/08/2004 4,000,000 4,061,892
AirTouch Communications, Inc.
7.500% 7/15/2006 3,000,000 3,305,730
Alcan Aluminum
Limited
6.250% 11/01/2008 2,500,000 2,527,175
America West Airlines
1996-1, Class A
6.850% 7/02/2009 4,369,451 4,528,368
American Airlines
1994-A Pass Through
Trusts, Class A4
9.780% 11/26/2011 1,854,036 2,184,333
American General
Finance Corporation
5.750% 11/01/2003 2,000,000 2,005,400
AMR Corporation
9.000% 8/01/2012 2,000,000 2,356,380
Analog Devices, Inc.
6.625% 3/01/2000 1,500,000 1,517,385
Anheuser-Busch
Companies, Inc.
5.375% 9/15/2008 3,500,000 3,495,135
Archer-Daniels-
Midland Company
6.750% 12/15/2027 2,000,000 2,136,360
Associates Corporation
of North America
5.750% 11/01/2003 3,500,000 3,531,395
Associates Corporation
of North America
6.750% 8/01/2001 2,000,000 2,062,540
Associates Corporation
of North America
7.875% 9/30/2001 1,500,000 1,591,650
Barrick Gold
Corporation
7.500% 5/01/2007 4,000,000 4,293,320
Bell Atlantic Financial
Services, Inc.
6.610% 2/04/2000 1,750,000 1,774,115
BHP Finance (USA)
Limited
6.420% 3/01/2026 3,500,000 3,479,175
(Continued)
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
--------- ------------
Boston Scientific
Corporation
6.625% 3/15/2005 $ 3,800,000 $ 3,686,950
Cable & Wireless
Communications plc
6.750% 12/01/2008 6,000,000 6,076,152
Capital Cities/ABC, Inc.
8.875% 12/15/2000 875,000 934,789
Carlisle Companies
Incorporated
7.250% 1/15/2007 2,665,000 2,746,522
Celulosa Arauco
Constitucion
6.950% 9/15/2005 2,000,000 1,776,000
Champion
International
Corporation
6.400% 2/15/2026 2,500,000 2,567,675
The Charles Schwab
Corporation
6.250% 1/23/2003 2,500,000 2,479,600
The CIT Group, Inc.
5.625% 10/15/2003 2,500,000 2,498,975
CITGO Petroleum
Corporation
7.875% 5/15/2006 1,000,000 980,710
Colorado Interstate
Gas Company
10.000% 6/15/2005 500,000 597,365
The Columbia Gas
System, Inc.
6.610% 11/28/2002 3,000,000 3,097,200
Comcast Cable
Communications,
Inc.
8.375% 5/01/2007 2,500,000 2,900,525
Commercial Credit
Company
7.750% 3/01/2005 3,000,000 3,318,600
ConAgra, Inc.
7.000% 10/01/2028 3,000,000 3,080,220
Continental Airlines,
Inc., Series 1996-2B
8.560% 7/02/2014 1,660,621 1,940,851
Continental Airlines,
Inc., Series 1996-B
7.820% 4/15/2015 1,908,230 2,061,041
Corning Glass Works
8.875% 3/15/2016 1,000,000 1,177,650
Crown Cork & Seal
Company, Inc.
6.750% 12/15/2003 3,550,000 3,559,656
CSX Corporation
7.050% 5/01/2002 3,000,000 3,113,070
CSX Corporation
7.250% 5/01/2027 4,000,000 4,265,280
Dana Corporation
6.500% 3/15/2008 1,750,000 1,798,545
Dover Corporation
6.250% 6/01/2008 2,000,000 2,093,960
Dover Corporation
6.650% 6/01/2028 2,000,000 2,067,860
Emerson Electric Co.
5.500% 9/15/2008 2,000,000 2,022,822
Equifax Inc.
6.500% 6/15/2003 1,000,000 1,029,650
ERAC USA Finance
Company 144A
6.750% 5/15/2007 3,000,000 3,028,290
FBG Finance Limited
144A
7.875% 6/01/2016 3,000,000 3,469,710
First Brands
Corporation
7.250% 3/01/2007 2,000,000 2,132,640
Fleet/Norstar Group
9.900% 6/15/2001 500,000 550,445
Fletcher Challenge
Capital Canada Inc.
6.750% 3/24/2005 2,000,000 1,918,920
Fletcher Challenge
Capital Canada Inc.
7.750% 6/20/2006 2,500,000 2,521,375
Foster Wheeler
Corporation
6.750% 11/15/2005 2,000,000 1,872,040
General American
Transportation
Corporation
6.750% 3/01/2006 3,000,000 3,071,820
General Electric
Capital Corporation
6.500% 11/01/2006 1,250,000 1,332,600
General Electric
Capital Corporation
8.750% 5/21/2007 1,500,000 1,831,110
General Mills, Inc.
8.900% 6/15/2006 2,250,000 2,697,165
General Motors
Acceptance
Corporation
8.625% 6/15/1999 4,175,000 4,241,717
The Goldman Sachs
Group, L.P. 144A
6.200% 2/15/2001 2,500,000 2,537,950
Halliburton Company
5.625% 12/01/2008 2,750,000 2,776,290
Heller Financial, Inc.
6.250% 3/01/2001 2,500,000 2,526,800
Hershey Foods
Corporation
7.200% 8/15/2027 5,000,000 5,723,100
Hilton Hotels
Corporation
7.000% 7/15/2004 800,000 801,912
HNG Internorth Inc.
9.625% 3/15/2006 400,000 472,688
Household Finance
Corporation
6.500% 11/15/2008 2,400,000 2,491,805
ICI Wilmington, Inc.
7.050% 9/15/2007 2,000,000 2,048,880
IMC Global Inc.
6.625% 10/15/2001 3,000,000 2,974,980
IMCERA Group Inc.
6.000% 10/15/2003 1,000,000 968,380
Interpool, Inc.
7.350% 8/01/2007 2,000,000 1,904,418
Kimberly-Clark
Corporation
7.875% 2/01/2023 400,000 438,336
Lafarge Corporation
6.375% 7/15/2005 2,000,000 2,047,720
LASMO (USA) Inc.
6.750% 12/15/2007 5,000,000 4,808,140
Leucadia National
Corporation
7.750% 8/15/2013 2,500,000 2,469,200
Lockheed Martin
Corporation
7.700% 6/15/2008 3,000,000 3,391,530
MAPCO Inc.
7.250% 3/01/2009 3,250,000 3,423,875
MCI Communications
Corporation
7.125% 1/20/2000 500,000 508,345
Midway Airlines Pass
Through Certificates
1998-lB 144A
8.140% 1/02/2013 2,766,000 2,801,709
Millipore Corporation
7.500% 4/01/2007 3,750,000 3,839,250
Mobil Corporation
8.625% 8/15/2021 4,500,000 5,922,405
Morton International
9.250% 6/01/2020 500,000 665,350
Newmont Mining
Corporation
8.625% 4/01/2002 2,000,000 2,103,700
News America
Holdings
Incorporated
9.250% 2/01/2013 3,000,000 3,716,190
Norfolk Southern
Corporation
7.050% 5/01/2037 5,000,000 5,409,150
Norfolk Southern
Corporation
7.350% 5/15/2007 1,000,000 1,098,460
Norsk Hydro ASA 144A
8.750% 10/23/2001 500,000 538,438
(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
--------- ------------
North Finance
(Bermuda) Limited
144A
7.000% 9/15/2005 $ 2,000,000 $ 2,097,820
Norwest Financial, Inc.
5.375% 9/30/2003 1,500,000 1,491,330
Occidental Petroleum
Corporation
7.375% 11/15/2008 6,000,000 6,119,340
Penske Truck Leasing
Co., L.P.
7.750% 5/15/1999 1,500,000 1,513,605
PHH Corporation
6.500% 2/01/2000 500,000 507,470
PPG Industries, Inc.
9.000% 5/01/2021 750,000 969,990
Procter & Gamble
Company, The
9.360% 1/01/2021 500,000 665,200
Ralston Purina
Company
7.750% 10/01/2015 2,000,000 2,200,120
Raytheon Company
6.150% 11/01/2008 3,000,000 3,055,110
Raytheon Company
6.750% 8/15/2007 2,500,000 2,646,775
Reed Elsevier Inc.
6.625% 10/15/2023 300,000 295,758
Rolls-Royce Capital
Inc.
7.125% 7/29/2003 2,000,000 2,085,600
Ryder System, Inc.
6.600% 11/15/2005 3,800,000 3,814,782
Safeway Inc.
6.050% 11/15/2003 1,000,000 1,006,860
Scholastic Corporation
7.000% 12/15/2003 3,000,000 3,122,070
Joseph E. Seagram &
Sons, Inc.
7.500% 12/15/2018 4,500,000 4,504,590
Sears Roebuck
Acceptance Corp.
6.750% 9/15/2005 3,500,000 3,674,685
Sprint Capital
Corporation
6.125% 11/15/2008 2,000,000 2,043,660
Sprint Capital
Corporation
6.875% 11/15/2028 2,000,000 2,078,600
SunAmerica Inc.
9.000% 1/15/1999 500,000 500,460
Texaco Inc.
8.500% 2/15/2003 2,500,000 2,793,325
Thomas & Betts
Corporation
8.250% 1/15/2004 2,500,000 2,714,625
Time Warner Inc.
Pass-Thru Asset Trust
1997-1 144A
6.100% 12/30/2001 4,000,000 4,064,440
Trans-Canada
Pipelines Limited
9.875% 1/01/2021 500,000 643,725
TTX Company 144A
6.290% 5/15/2002 5,000,000 4,947,845
United Air Lines, Inc.
10.110% 2/19/2006 788,361 890,115
US Air, Inc., Class B
7.500% 10/15/2009 1,393,349 1,389,434
US West Capital
Funding
6.125% 7/15/2002 2,000,000 2,041,700
Valero Pass-Thru Asset
Trust 1997-1 144A
6.750% 12/15/2002 2,000,000 2,018,800
WorldCom, Inc.
7.750% 4/01/2007 2,000,000 2,259,300
WPP Finance (USA)
Corporation
6.625% 7/15/2005 2,250,000 2,282,594
------------
TOTAL CORPORATE DEBT 274,238,582
(Cost $263,116,186) ============
NON-U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 3.4%
Collateralized Mortgage Obligations
Asset Securitization
Corporation Series
1995-MD4, Class Al
7.100% 8/13/2029 6,374,500 6,784,571
Chase Commercial
Mortgage Securities
Corp. Series 1998-2,
Class Al
6.025% 8/18/2007 2,983,987 3,019,407
CS First Boston
Mortgage Securities
Corp. Series 1998-
C2, Class Al
5.960% 12/15/2007 2,985,615 3,019,024
Merrill Lynch
Mortgage Investors,
Inc., Series 1997-Cl-
CTL, A-1
6.310% 11/15/2026 4,266,791 4,360,405
Merrill Lynch Trust
Series 43, Class E
6.500% 8/27/2015 465,918 466,645
Morgan Stanley Capital
Investments Series
1998-HF2, Class Al
6.010% 11/15/2030 894,933 930,692
Nationslink Funding
Corporation Series
1998-2, Class Al
6.001% 11/20/2007 1,492,170 1,507,868
Prudential Home
Mortgage Securities
1993-26 Class A6
6.750% 7/25/2008 4,000,000 4,015,000
------------
TOTAL NON-U.S. GOVERNMENT
AGENCY OBLIGATIONS 24,103,612
(Cost $23,799,419) ============
U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 14.7%
Federal Home Loan Mortgage Corporation
(FHLMC) -- 2.2%
Collateralized Mortgage Obligations -- 1.5%
FHLMC Series 1322
Class G
7.500% 2/15/2007 1,786,943 1,813,175
FHLMC Series 1460
Class H
7.000% 5/15/2007 2,000,000 2,027,500
FHLMC Series 1490
Class PJ
6.000% 5/15/2007 600,000 601,500
FHMLC Series 1337
Class D
6.000% 8/15/2007 1,000,000 990,000
FHMLC Series 1667,
Class PE
6.000% 3/15/2008 5,000,000 5,032,800
FHMLC Series B
Class 3
12.500% 9/30/2013 117,992 132,998
------------
10,597,973
============
Pass-Through Securities -- 0.7%
FHLMC
9.000% 3/01/2017 211,960 225,593
FHMLC
6.420% 12/01/2005 4,834,851 5,063,007
------------
5,288,600
------------
15,886,573
------------
Federal National Mortgage Association
(FNMA) -- 6.7%
Collateralized Mortgage Obligations -- 2.4%
FNMA Series 1989-20
Class A
6.750% 4/25/2018 3,997,801 4,154,035
FNMA Series 1993-134
Class GA
6.500% 2/25/2007 5,000,000 5,075,000
(Continued)
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
----------- -------------
FNMA Series 1993-221
Class D
6.000% 12/25/2008 $ 2,500,000 $ 2,521,075
FNMA Series 1994-43
Class PE
6.000% 12/25/2019 500,000 499,840
FNMA Series 1996-54 Class C
6.000% 9/25/2008 5,000,000 5,053,100
------------
17,303,050
============
Pass-Through Securities -- 4.3%
FNMA
6.000% 10/01/2028
- 11/01/2028 6,051,250 5,972,705
FNMA
6.500% 11/01/2028 23,932,935 24,096,875
FNMA
8.000% 5/01/2013 250,919 254,652
------------
30,324,232
============
47,627,282
============
Government National Mortgage Association
(GNMA) -- 5.2%
Collateralized Mortgage Obligations -- 0.2%
JHM Acceptance
Corporation Series E
Class 5
8.960% 4/01/2019 1,181,467 1,208,783
============
Pass-Through Securities -- 5.0%
GNMA
5.500% 12/20/2027 1,101,871 1,109,099
GNMA
6.000% 12/20/2027 1,647,006 1,657,810
GNMA
6.625% 8/20/2027 731,909 737,860
GNMA
6.625% 9/20/2027 6,990,450 7,047,282
GNMA
6.875% 1/20/2027 4,214,449 4,246,058
GNMA
7.000% 8/15/2023-
11/15/2023 4,309,971 4,410,954
GNMA
7.500% 1/15/2017-
6/15/2017 5,350,372 5,567,865
GNMA
8.000% 4/15/2001-
1/15/2009 9,744,812 10,196,971
GNMA
9.000% 12/15/2004-
10/15/2009 308,827 331,834
GNMA
11.000% 8/15/2000-
2/15/2001 49,408 50,863
------------
35,356,596
------------
36,565,379
------------
U.S. Government Guaranteed Notes -- 0.6%
1994-A Baxter
Springs, KS
5.930% 8/01/1999 700,000 703,500
1994-A Erie, PA
5.930% 8/01/1999 1,590,000 1,597,950
1994-A Los Angeles
County, CA
5.930% 8/01/1999 190,000 190,950
1994-A Montgomery
County, PA
5.930% 8/01/1999 150,000 150,750
1994-A Pohatcong
Township, NJ
5.930% 8/01/1999 255,000 256,275
1994-A Rochester, NY
5.930% 8/01/1999 135,000 135,675
1994-A Sacramento,
CA
5.930% 8/01/1999 60,000 60,300
1994-A Santa Ana, CA
5.930% 8/01/1999 920,000 924,600
------------
4,020,000
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 104,099,234
(Cost $101,842,484) ============
U.S. TREASURY OBLIGATIONS -- 28.2%
U.S. Treasury Bonds -- 9.0%
U.S. Treasury Bond
7.125% 2/15/2023 2,900,000 3,573,786
U.S. Treasury Bond
7.500% 11/15/2016 23,970,000 29,775,294
U.S. Treasury Bond
8.875% 8/15/2017 21,800,000 30,707,262
------------
64,056,342
============
U.S. Treasury Notes -- 13.0%
U.S. Treasury Note
5.625% 11/30/1999 6,500,000 6,556,875
U.S. Treasury Note
6.500% 10/15/2006 13,050,000 14,475,321
U.S. Treasury Note
6.625% 5/15/2007 33,000,000 37,109,486
U.S. Treasury Note
7.500% 5/15/2002 19,000,000 20,629,820
U.S. Treasury Note
7.875% 11/15/2004 11,515,000 13,341,164
------------
92,112,666
============
U.S. Treasury Strips -- 6.2%
U.S. Treasury Strip -
Principal Only
0.000% 8/15/2015 2,250,000 904,658
U.S. Treasury Strip -
Principal Only
0.000% 5/15/2016 112,000,000 43,003,520
------------
43,908,178
------------
TOTAL U.S. TREASURY
OBLIGATIONS 200,077,186
(Cost $192,783,523) ============
TOTAL BONDS & NOTES 648,971,327
(Cost $627,636,292) ============
SHORT-TERM INVESTMENTS -- 17.2%
Cash Equivalents -- 9.5%
Bank Boston
Eurodollar Time
Deposit.
5.630% 4/30/1999 32,482,850 32,482,850
Janus Money Market
Fund. 35,000,000 35,000,000
------------
67,482,850
============
Commercial Paper -- 7.7%
Aristar, Inc.
5.250% 2/05/1999 5,000,000 4,974,479
Boston Scientific
Corporation
6.150% 1/29/1999 4,625,000 4,602,877
Boston Scientific
Corporation
6.850% 1/15/1999 3,350,000 3,341,076
Crown Cork & Seal
Company, Inc.
5.900% 3/29/1999 7,300,000 7,195,914
CSX Corporation
5.500% 1/12/1999 4,000,000 3,993,278
Federal Signal Corp.
5.900% 1/07/1999 3,720,000 3,716,342
Humana, Inc.
6.150% 1/06/1999 5,000,000 4,995,729
Indiana Michigan
Power Company
6.250% 1/05/1999 6,415,000 6,410,545
McKesson Corp.
6.750% 1/04/1999 5,095,000 5,092,135
ORIX Credit Alliance,
Inc.
5.150% 2/09/1999 3,350,000 3,331,310
(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
---------- ------------
ORIX Credit Alliance,
Inc.
6.150% 1/08/1999 $ 4,550,000 $ 4,544,559
Public Service
Company of Colorado
5.750% 2/02/1999 2,700,000 2,686,200
------------
54,884,444
------------
TOTAL SHORT-TERM
INVESTMENTS 122,367,294
(At Amortized Cost) ============
TOTAL INVESTMENTS -- 108.6% 771,338,621
(Cost $750,003,586)+
Other Assets/
(Liabilities) -- (8.6%) (61,337,763)
------------
Net Assets -- 100.0% $710,000,858
============
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.
. Represents investment of security lending collateral. (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
<TABLE>
<CAPTION>
December 31, 1998
-----------------------
<S> <C>
Assets:
Investments, at value (cost $627,636,292) (Note 2) ........................................ $ 648,971,327
Short-term investments, at amortized cost (Note 2) ........................................ 122,367,294
-----------------------
Total Investments ...................................................................... 771,338,621
Cash ...................................................................................... 164,850
Receivables from:
Investments sold ....................................................................... 1,587,019
Fund shares sold ....................................................................... 1,577,934
Interest ............................................................................... 7,456,024
-----------------------
Total assets ....................................................................... 782,124,448
-----------------------
Liabilities:
Payables for:
Investments purchased .................................................................. 3,023,136
Fund shares redeemed ................................................................... 1,294,835
Securities on loan (Note 2) ............................................................ 67,482,850
Directors' fees and expenses (Note 3) .................................................. 4,605
Affiliates (Note 3):
Investment management fees ......................................................... 255,605
Administration fees ................................................................ 44,218
Service fees ....................................................................... 88
Accrued expenses and other liabilities .................................................... 18,253
-----------------------
Total liabilities .................................................................. 72,123,590
-----------------------
Net assets ................................................................................ $ 710,000,858
=======================
Net assets consist of:
Paid-in capital ........................................................................... $ 688,172,382
Accumulated net realized gain on investments .............................................. 493,441
Net unrealized appreciation on investments
and forward commitments ................................................................ 21,335,035
-----------------------
$ 710,000,858
=======================
Net assets:
Class A ................................................................................... $ 141,315
=======================
Class Y ................................................................................... $ 400,056
=======================
Class S ................................................................................... $ 709,459,487
=======================
Shares outstanding:
Class A* .................................................................................. 12,774
=======================
Class Y* .................................................................................. 36,181
=======================
Class S ................................................................................... 64,158,721
=======================
Net asset value, offering price and
redemption price per share:
Class A* ..................................................................................... $ 11.06
=======================
Class Y* ..................................................................................... $ 11.06
=======================
Class S ...................................................................................... $ 11.06
=======================
</TABLE>
*Amounts have been restated to reflect reverse stock splits (See Note 9).
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, 1998
-------------------------
<S> <C>
Investment income: (Note 2)
Interest (including securities lending income of $38,585) ................................. $ 34,749,685
-------------------------
Expenses (Note 2):
Investment management fees (Note 3) ....................................................... 2,419,080
Custody fees .............................................................................. 59,056
Audit and legal fees ...................................................................... 18,157
Directors' fees (Note 3) .................................................................. 17,775
-------------------------
2,514,068
Administration fees (Note 3):
Class A ................................................................................ 658
Class Y ................................................................................ 806
Class S ................................................................................ 417,358
Service fees (Note 3):
Class A ................................................................................ 341
-------------------------
Total expenses ..................................................................... 2,933,231
-------------------------
Net investment income .............................................................. 31,816,454
-------------------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions and forward commitments ...................... 6,573,153
Net change in unrealized appreciation (depreciation) on
investments and forward commitments .................................................... 4,875,729
-------------------------
Net realized and unrealized gain ................................................... 11,448,882
-------------------------
Net increase in net assets resulting from operations ...................................... $ 43,265,336
=========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Bond Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
Increase (Decrease) in Net Assets: December 31, 1998 December 31, 1997
--------------------- ---------------------
<S> <C> <C>
Operations:
Net investment income............................................... $ 31,816,454 $ 26,356,459
Net realized gain on investment transactions
and forward commitments.......................................... 6,573,153 2,197,948
Net change in unrealized appreciation (depreciation) on
investments and forward commitments.............................. 4,875,729 11,750,983
--------------------- ---------------------
Net increase in net assets resulting from operations............. 43,265,336 40,305,390
--------------------- ---------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1*............................................................ - (5,999)
Class 2*............................................................ - (6,818)
Class 3*............................................................ - (7,342)
Class A............................................................. (6,554) -
Class Y............................................................. (18,553) -
Class S............................................................. (32,902,152) (27,133,147)
--------------------- ---------------------
Total distributions from net investment income................... (32,927,259) (27,153,306)
--------------------- ---------------------
From net realized gains:
Class 1*............................................................ - (55)
Class 2*............................................................ - (55)
Class 3*............................................................ - (56)
Class A............................................................. (1,221) -
Class Y............................................................. (3,456) -
Class S............................................................. (6,128,341) (196,689)
--------------------- ---------------------
Total distributions from net realized gains...................... (6,133,018) (196,855)
--------------------- ---------------------
Net fund share transactions (Note 5):
Class 1*............................................................ (131,171) 6,094
Class 2*............................................................ (133,481) 6,894
Class 3*............................................................ (134,838) 7,406
Class A............................................................. 138,831 -
Class Y............................................................. 400,648 -
Class S............................................................. 249,325,651 86,289,359
--------------------- ---------------------
Increase in net assets from net fund share
transactions................................................. 249,465,640 86,309,753
--------------------- ---------------------
Total increase in net assets........................................ 253,670,699 99,264,982
Net assets:
Beginning of period................................................. 456,330,159 357,065,177
--------------------- ---------------------
End of period (including undistributed net investment income of $0
and $1,094,301, respectively).................................... $ 710,000,858 $ 456,330,159
=================== ===================
</TABLE>
* Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were
terminated (See Note 1).
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 A Class Y
------- -------
Year ended Year ended
12/31/98 + 12/31/98 +
------------ ------------
<S> <C> <C>
Net asset value, beginning of period $ 10.85 $ 10.86
------------ ------------
Income (loss) from investment
operations:
Net investment income 0.59 *** 0.65 ***
Net realized and unrealized gain (loss) on
investments 0.25 0.25
------------ ------------
Total income (loss) from investment
operations 0.84 0.90
------------ ------------
Less distributions to shareholders:
From net investment income (0.52) (0.59)
From net realized gains (0.11) (0.11)
------------ ------------
Total distributions (0.63) (0.70)
------------ ------------
Net asset value, end of period $ 11.06 $ 11.06
============ ============
Total Return 7.75% 8.25%
Ratios / Supplemental Data:
Net assets, end of period (000's) $141 $400
Net expenses to average daily net assets # 1.20% 0.74%
Net investment income to average daily net assets 5.26% 5.73%
Portfolio turnover rate 51% 51%
</TABLE>
<TABLE>
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
-------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.81 $ 10.45 $ 10.75 $ 9.84 $ 10.00
-------------- -------------- ------------- ------------- ------------
Income (loss) from investment operations:
Net investment income 0.67 *** 0.69 *** 0.67 *** 0.72 *** 0.18
Net realized and unrealized gain (loss) on
investments 0.24 0.33 (0.37) 1.17 (0.16)
-------------- -------------- ------------- ------------- ------------
Total income (loss) from investment
operations 0.91 1.02 0.30 1.89 0.02
-------------- -------------- ------------- ------------- ------------
Less distributions to shareholders:
From net investment income (0.56) (0.64) (0.54) (0.65) (0.18)
From net realized gains (0.10) (0.02) (0.06) (0.33) -
-------------- -------------- ------------- ------------- ------------
Total distributions (0.66) (0.66) (0.60) (0.98) (0.18)
-------------- -------------- ------------- ------------- ------------
Net asset value, end of period $ 11.06 $ 10.81 $ 10.45 $ 10.75 $ 9.84
============== ============== ============= ============= ============
Total Return @ 8.44% 9.78% 2.80% 19.15% 0.20%
Ratios / Supplemental Data:
Net assets, end of period (000's) $709,459 $455,931 $356,699 $253,540 $194,150
Net expenses to average daily net assets # 0.5454% 0.5393% 0.5130% 0.5130% 0.5130% *
Net investment income to average daily net assets 5.92% 6.34% 6.26% 6.56% 6.86% *
Portfolio turnover rate 51% 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: N/A 0.5512% 0.5550% 0.5553% 0.5672% *
* Annualized
** For the period from October 3, ]994 (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.
+ Amounts have been restated to reflect reverse stock splits (See Note 9).
(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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment objectives 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
Core Equity Sector no more than 65% of net assets
How did the Fund perform over the past year?
For the twelve months ended December 31, 1998, the Fund's Class S shares had a
net return of 13.5%, trailing the 15.37% gain recorded by the Lipper Balanced
Fund Index, an unmanaged index of stocks and bonds. Large-capitalization growth
stocks once again garnered the lion's share of the gains compared to the
value-oriented stocks in which the Fund's equity portfolio invests. This hurt
performance relative to the Index. Volatility increased substantially during the
third quarter, and the Fund's fixed-income holdings helped cushion the declines
in equities that occurred during that period.
Can you explain the Fund's allocations among the three asset classes during the
year?
The target allocation for stocks remained around 55% for the entire year. The
allocation for bonds was increased from 14% at the beginning of 1998 to 21% at
the end of the year, while the percentage of money market securities was
decreased from 32% to 24% over the same period. In response to widening spreads
between U.S. Treasury securities and other credit instruments in the third
quarter, we felt that the Fund might be able to take advantage of some
compelling values in the bond market.
What was the investment environment in 1998?
It was a tumultuous year. Popular averages such as the Dow Jones Industrial
Average and the S&P 500 Index surged ahead through mid-July, gaining in excess
of 20%. At that point, however, concerns over the earnings of multinational
companies began to surface due to the Asian financial crisis. The most negative
news during the period, though, came from Russia, which substantially devalued
its currency and defaulted on some of its debt. The S&P 500 Index relinquished
all of the ground it gained earlier in the year. In the fixed-income markets,
there was a flight to quality, with U.S. Treasuries rallying sharply and spreads
widening dramatically.
In September, October and November, the Federal Reserve Board (Fed) cut
short-term interest rates. This helped fuel a resurgence in stocks which came
roaring back in the fourth quarter, with the S&P 500 Index gaining 21.3%. The
Fed's actions also helped the fixed-income markets recover to some degree.
Spreads between Treasuries and corporate securities narrowed in November and
December, although not nearly to their pre-August levels.
Can you comment on specific stock holdings and explain changes made during the
year?
The Fund had extensive health care holdings, and these generally performed well.
Pharmaceutical giant Schering-Plough, was a star performer, as were two other
health care holdings--Bristol Myers-Squibb and Becton Dickinson. Other stocks
that helped performance included IBM, GE, McGraw-Hill and Pitney Bowes.
One of our weaker sectors in 1998 was energy, where stocks were hurt by weak oil
and gas prices. Examples of this trend were Kerr-McGee, and Unocal. Minnesota
Mining & Manufacturing, a diversified manufacturer of industrial, commercial and
health care products, was hurt by its Asian exposure.
In the second half of the year, we sold positions in specialty chemical
companies such as Lubrizol and Nalco Chemical. We felt that the earnings of
these companies would suffer significantly in the short term if economic growth
continued to slow. After stocks retreated in the third quarter, we bought
selectively, initiating or increasing positions in Burlington Resources, Conoco
(which was spun off from Dupont), Newell Corp, Pharmacia & Upjohn and American
Home Products.
33
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
How was the bond portfolio positioned, and what impact did this have on
the Fund?
The largest sector allocation for the bond portfolio was corporate securities.
The Fund's assets grew dramatically during 1998, and much of this new money went
into BBB- rated corporate securities, especially in the second half, when
spreads reached their widest levels. Widening spreads hurt the issues already in
the Fund's portfolio but enabled us to add new purchases at very favorable
spread levels.
During the first nine months of the year, we reduced the Fund's allocation of
mortgage backed securities but increased our holdings again in the final quarter
after the spreads on those products widened. Most of this money went into
current coupon pass-throughs and AAA- rated commercial mortgage obligations,
both of which tend to have less prepayment risk than the adjustable rate
mortgage securities we sold.
The other large sector allocation for the bond portfolio, and the best
performing sector for the year, was Treasuries. We increased Treasury holdings
as interest rates gradually worked lower in the first half. During the huge
rally in Treasuries in the second half of the year, we took some profits,
reducing Treasury holdings by the end of December. The bulk of the proceeds was
reinvested in corporate securities with attractive spreads.
How is the Fund Administrator preparing for the Year 2000 Issue?
Like other businesses and governments around the world, the Fund could be
adversely affected if the computer systems used by the Fund's service providers
and those with which they do business do not properly recognize the Year 2000.
This is commonly known as the "Year 2000 issue." In 1996, MassMutual began an
enterprise-wide process of identifying, evaluating and implementing changes to
its computer systems to address the Year 2000 issue. MassMutual is addressing
the Year 2000 issue internally with modifications to existing programs and
conversions to new programs. MassMutual has advised the Fund that the Year 2000
issue is one of MassMutual's highest business operational priorities. MassMutual
is also seeking assurances from the Fund's other service providers in order to
identify and resolve Year 2000 issues. In addition, because the Year 2000 issue
affects virtually all organizations, the companies in which the Fund invests
could be adversely impacted by the Year 2000 issue. The extent of such impact
cannot be predicted.
What is your outlook?
In 1999, a slowing economy and sluggish growth in corporate profits may limit
gains in stocks for much of the year. One factor that could counteract these
trends is further easing of interest rates by the Federal Reserve Board.
Moreover, the kind of stocks that meet the Fund's value criteria generally tend
to be less vulnerable to serious damage from unfavorable earnings surprises than
the market-leading growth stocks, whose rich valuations leave little room for
disappointing news. On the fixed income side, we continue to carry an
approximately 60% weighting in spread product--versus about 44% for our
benchmark bond index, a reflection of our expectation that spreads will narrow
during 1999. Overall, the Fund is well positioned for a slowing but still-
growing economy such as we are likely to find in 1999.
34
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Balanced
Fund Class S and the Lipper Balanced Fund Index
- --------------------------------------------------------------------------------
MassMutual Balanced Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 13.50% 15.57%
- --------------------------------------------------------------------------------
Lipper Balanced
Fund Index 15.37% 16.67%
Standard & Poor's 25.58% 28.47%
500 Composite Index
Lehman Brothers 9.47% 9.66%
Government/Corporate
Bond Index
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
Lipper Lehman Bros. S&P 500
Date Class S Balanced Gov't/Corp Index
"10/3/94" 10,000 10,000 10,000 10,000
"12/94" 10,029 9,880 10,037 9,998
"6/95" 11,179 11,206 11,220 12,019
"12/96" 12,164 12,309 11,968 13,756
"6/96" 12,788 12,860 11,743 15,141
"12/96" 13,725 13,960 12,315 16,915
"6/97" 15,126 15,522 12,653 20,401
"12/97" 16,294 16,612 13,516 22,559
"6/98" 17,361 18,328 14,080 26,554
"12/98" 18,494 19,165 14,797 29,006
Hypothetical Investments in MassMutual Balanced
Fund Class A and Class Y and the Lipper Balanced
Fund Index
- --------------------------------------------------------------------------------
MassMutual Balanced Fund
Total Return One Year
1/1/98 - 12/31/98
Class A 12.78%
Class Y 13.23%
- --------------------------------------------------------------------------------
Lipper Balanced
Fund Index 15.37%
Standard & Poor's 28.58%
500 Composite Index
Lehman Brothers 9.47%
Government/Corporate
Bond Index
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Lipper Lehman Bros. S&P 500
Date Class A Class Y Balanced Gov't/Corp Index
"12/97" 10,000 10,000 10,000 10,000 10,000
"3/98" 10,730 10,740 10,790 10,152 11,395
"6/98" 10,620 10,640 10,979 10,417 11,771
"9/98" 10,333 10,363 10,346 10,933 10,600
"12/98" 11,278 11,323 11,537 10,947 12,858
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 Brothers
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.
- --------------------------------------------------------------------------------
--------------------------------------------------
[PIE CHART APPEARS HERE]
MassMutual Balanced Fund Asset Allocation
on 12/31/98
Common Stocks 55%
Bonds 21%
Short-term Issues 24%
--------------------------------------------------
--------------------------------------------------
Massmutual Balanced Fund
Largest Stock Holdings (12/31/98)
--------------------------------------------------
Bristol-Myers Squibb Company
International Business Machines Corporation
General Electric Company
Pitney Bowes, Inc.
The McGraw-Hill Companies, Inc.
Xerox Corporation
Kimberly-Clark Corporation
The Bank of New York Company, Incorporated
Hewlett-Packard Company
Schering-Plough
--------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1998
Number of
Shares Market Value
--------- -------------
EQUITIES - 54.5%
Aerospace & Defense - 1.8%
Raytheon Company
Class A 32,600 $ 1,685,013
Raytheon Company
Class B 99,600 5,303,700
TRW Inc. 121,000 6,798,688
-------------
13,787,401
=============
Apparel, Textiles & Shoes - 0.6%
VF Corporation 95,000 4,453,125
-------------
Automotive & Parts - 2.1%
Ford Motor Company 85,700 5,029,519
Genuine Parts
Company 148,300 4,958,781
Goodyear Tire &
Rubber Company 125,000 6,304,688
-------------
16,292,988
=============
Banking, Savings & Loans - 3.9%
The Bank of New York
Company,
Incorporated 213,100 8,577,275
Comerica,
Incorporated 87,800 5,986,863
Pacific Century
Financial
Corporation 216,300 5,272,313
Wachovia Corp. 66,300 5,797,106
Wells Fargo &
Company 121,000 4,832,438
-------------
30,465,995
-------------
Beverages - 0.9%
Brown-Forman
Corporation
(Class B) 93,700 7,091,919
=============
Chemicals - 2.3%
Air Products and
Chemicals, Inc. 114,200 4,568,000
Engelhard Corporation 230,400 4,492,800
Rohm & Haas
Company 189,600 5,711,700
USEC Inc. 228,200 3,166,275
=============
17,938,775
=============
Commercial Services - 0.5%
Pinnacle West Capital
Corporation 86,700 3,673,913
=============
Computers & Office Equipment - 5.5%
Electronic Data
Systems Corporation 76,300 3,834,075
Hewlett-Packard
Company 125,300 8,559,556
International Business
Machines
Corporation 62,400 11,528,400
Pitney Bowes, Inc. 147,800 9,764,038
Xerox Corporation 77,300 9,121,400
-------------
42,807,469
=============
Containers - 1.4%
Bemis Company, Inc. 98,900 3,752,019
Crown Cork & Seal
Company, Inc. 108,500 3,343,156
Temple-Inland, Inc. 60,500 3,588,406
-------------
10,683,581
=============
Cosmetics & Personal Care - 1.1%
Kimberly-Clark
Corporation 159,200 8,676,400
-------------
Drugs - 0.9%
Pharmacia & Upjohn,
Inc. 120,500 6,823,313
=============
Electric Utilities - 0.8%
Dominion Resources,
Inc. 86,400 4,039,200
SCANA Corporation 59,700 1,925,325
-------------
5,964,525
=============
Electrical Equipment & Electronics - 3.2%
AMP, Incorporated 108,682 5,658,257
General Electric
Company 98,900 10,093,981
Honeywell Inc. 58,000 4,368,125
Hubbell, Incorporated
(Class B) 118,122 4,488,636
-------------
24,608,999
=============
Energy - 3.3%
Amoco Corporation 122,900 7,251,100
Kerr-McGee
Corporation 63,800 2,440,350
Mobil Corporation 88,300 7,693,138
Teco Energy, Inc. 136,300 3,841,956
Unocal Corporation 146,900 4,287,644
-------------
25,514,188
-------------
Financial Services - 0.6%
American Express
Company 45,000 4,601,250
=============
Foods - 2.4%
Archer-Daniels-
Midland Company 193,130 3,319,422
Bestfoods 72,000 3,834,000
ConAgra, Inc. 222,200 6,999,300
General Mills, Inc. 55,700 4,330,675
-------------
18,483,397
=============
Forest Products & Paper - 0.6%
Weyerhaeuser
Company 95,600 4,857,675
=============
Healthcare - 5.3%
American Home
Products Corporation 141,400 7,962,588
Becton, Dickinson and
Company 195,800 8,358,213
Bristol-Myers Squibb
Company 118,100 15,803,246
Schering-Plough Corp. 152,800 8,442,200
-------------
40,566,247
=============
(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
--------- -------------
Industrial Distribution - 0.6%
W.W. Grainger, Inc. 109,000 $ 4,537,125
=============
Industrial Transportation - 1.3%
Burlington Northern
Santa Fe Corp. 149,500 5,045,625
Norfolk Southern
Corporation 166,900 5,288,644
-------------
10,334,269
-------------
Insurance - 3.9%
American General
Corporation 87,100 6,793,800
CIGNA Corporation 28,800 2,226,600
Jefferson-Pilot
Corporation 63,675 4,775,625
Marsh & McLennan
Companies, Inc. 110,900 6,480,719
MBIA, Inc. 80,300 5,264,669
SAFECO Corporation 115,200 4,946,400
-------------
30,487,813
=============
Machinery & Components - 0.7%
Dover Corporation 137,300 5,028,613
=============
Manufacturing - 0.5%
Armstrong World
Industries, Inc. 58,600 3,534,313
=============
Metals - 0.4%
Newell Co. 70,100 2,891,625
=============
Miscellaneous - 0.5%
Minnesota Mining &
Manufacturing
Company 54,000 3,840,750
=============
Oil & Gas - 1.7%
Burlington Resources
Inc. 105,400 3,774,638
Conoco Inc. Cl. A* 90,500 1,889,188
ENI SPA, Sponsored
ADR 70,000 4,742,500
USX-Marathon Group 92,400 2,783,550
-------------
13,189,876
-------------
Publishing & Printing - 1.2%
The McGraw-Hill
Companies, Inc. 93,600 9,535,500
-------------
Retail - 1.1%
The May Department
Stores Company 70,600 4,262,475
Sears Roebuck and
Co. 94,100 3,999,250
-------------
8,261,725
-------------
Retail-Grocery - 1.8%
Albertson's, Inc. 106,700 6,795,456
American Stores
Company 185,000 6,833,438
-------------
13,628,894
-------------
Telecommunications - 0.9%
GTE Corporation 111,400 7,241,000
-------------
Telephone Utilities - 1.6%
Ameritech Corporation 117,100 7,421,213
Frontier Corporation 153,100 5,205,400
-------------
12,626,613
=============
Tobacco - 1.1%
Fortune Brands, Inc. 131,900 4,171,338
UST Inc. 131,300 4,579,088
-------------
8,750,426
=============
TOTAL EQUITIES 421,179,702
=============
(Cost $263,395,486)
Principal
Amount Market Value
--------- -------------
BONDS & NOTES - 20.9%
ASSET BACKED SECURITIES - 1.5%
California
Infrastructure PG&E
1, 1997-1, Class A6
6.320% 9/25/2005 $ 150,000 154,250
California
Infrastructure SCE-1,
1997-1, Class A5
6.280% 9/25/2005 150,000 156,363
California
Infrastructure
SDG&E-1, 1997-1,
Class A5
6.190% 9/25/2005 100,000 103,888
Capita Equipment
Receivables Trust
1996-1, Class A4
6.280% 6/15/2000 1,000,000 1,005,140
Case Equipment Loan
Trust 1998-A, Class
A4
5.830% 2/15/2005 750,000 758,565
Caterpillar Financial
Asset Trust, 1997-B,
Class A3
6.160% 9/25/2003 1,000,000 1,006,790
Chase Manhattan Auto
Owner Trust 1998-A,
Class A4
5.800% 12/16/2002 1,000,000 1,010,590
Chase Manhattan RV
Owner Trust 1997-A,
Class A7
6.140% 10/16/2006 1,000,000 1,004,290
Ford Credit Auto
Owner Trust, 1996-
B, Class A-4
6.300% 1/15/2001 1,000,000 1,006,870
Metlife Capital
Equipment Loan
Trust Series 1997-A,
Class A
6.850% 5/20/2008 750,000 783,506
Premier Auto Trust
Series 1998-4, Class
A3
5.690% 6/08/2002 1,000,000 1,008,560
Premier Auto Trust
Series 1998-5, Class
A3
5.070% 7/08/2002 500,000 498,040
Railcar Trust No.
1992-1
7.750% 6/01/2004 321,965 342,564
Textron Financial
Corporation
5.890% 1/15/2005 1,000,000 1,010,625
Toyota Auto Lease
Trust Series 1998-B,
Class A1
5.350% 7/25/2002 1,000,000 1,000,000
Travelers Funding Ltd.
Class A-1
6.300% 2/15/2014 700,000 673,190
World Omni 1996-A
Automobile Lease
Securitization Trust,
Class A1
6.300% 6/25/2002 226,364 226,647
-------------
TOTAL ASSET BACKED
SECURITIES 11,749,878
=============
(Cost $11,658,322)
CORPORATE DEBT - 8.3%
AirTouch
Communications,
Inc.
7.500% 7/15/2006 1,000,000 1,101,910
Allan Aluminum
Limited
6.250% 11/01/2008 500,000 505,435
America West Airlines
1996-1, Class A
6.850% 7/02/2009 970,989 1,006,304
American Airlines
1994-A Pass Through
Trusts, Class A4
9.780% 11/26/2011 927,022 1,092,171
American General
Finance Corporation
5.750% 11/01/2003 500,000 501,350
AMR Corporation
9.000% 8/01/2012 500,000 589,095
(Continued)
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
---------- ------------
Analog Devices, Inc.
6.625% 3/01/2000 $ 500,000 $ 505,795
Anheuser-Busch
Companies, Inc.
5.375% 9/15/2008 1,000,000 998,610
Archer-Daniels-
Midland Company
6.750% 12/15/2027 350,000 373,863
Associates Corporation
of North America
5.750% 11/01/2003 500,000 504,485
Associates Corporation
of North America
6.500% 8/15/2002 500,000 516,090
Associates Corporation
of North America
6.750% 8/01/2001 1,000,000 1,031,270
Barrick Gold
Corporation
7.500% 5/01/2007 1,000,000 1,073,330
Bell Atlantic Financial
Services, Inc.
6.610% 2/04/2000 1,000,000 1,013,780
BHP Finance (USA)
Limited
6.420% 3/01/2026 1,000,000 994,050
Boston Scientific
Corporation
6.625% 3/15/2005 1,000,000 970,250
Cable & Wireless
Communications plc
6.750% 12/01/2008 1,300,000 1,316,500
Carlisle Companies
Incorporated
7.250% 1/15/2007 750,000 772,943
Celulosa Arauco
Constitucion
6.950% 9/15/2005 500,000 444,000
Champion
International
Corporation
6.400% 2/15/2026 1,000,000 1,027,070
The Charles Schwab
Corporation
6.250% 1/23/2003 1,000,000 991,840
The CIT Group, Inc.
5.625% 10/15/2003 500,000 499,795
The CIT Group, inc.
6.375% 10/01/2002 1,000,000 1,028,740
CITGO Petroleum
Corporation
7.875% 5/15/2006 250,000 245,178
Comcast Cable
Communications, Inc.
8.375% 5/01/2007 750,000 870,158
ConAgra, Inc.
7.000% 10/01/2028 750,000 770,055
Continental Airlines,
Inc., Series 1996-2B
8.560% 7/02/2014 474,463 554,529
Continental Airlines,
Inc., Series 1996-B
7.820% 4/15/2015 477,057 515,260
Crown Cork & Seal
Company, Inc.
6.750% 12/15/2003 1,000,000 1,002,720
CSX Corporation
7.050% 5/01/2002 500,000 518,845
CSX Corporation
7.250% 5/01/2027 1,200,000 1,279,584
Dana Corporation
6.500% 3/15/2008 500,000 513,870
Delta Air Lines, Inc.,
1992, Series C
8.540% 1/02/2007 399,719 437,589
Dover Corporation
6.250% 6/01/2008 500,000 523,490
Dover Corporation
6.650% 6/01/2028 500,000 516,965
Emerson Electric Co.
5.500% 9/15/2008 500,000 505,706
ERAC USA Finance
Company 144A
6.750% 5/15/2007 1,250,000 1,261,788
FBG Finance Limited
144A
7.875% 6/01/2016 1,000,000 1,156,570
Fletcher Challenge
Capital Canada Inc.
6.750% 3/24/2005 500,000 479,730
Fletcher Challenge
Capital Canada Inc.
7.750% 6/20/2006 500,000 504,275
General American
Transportation
Corporation
6.750% 3/01/2006 1,000,000 1,023,940
General Electric
Capital Corporation
6.500% 11/01/2006 250,000 266,520
General Mills, Inc.
8.900% 6/15/2006 500,000 599,370
The Goldman Sachs
Group, L.P. 144A
6.200% 2/15/2001 1,000,000 1,015,180
GTE Corporation
9.100% 6/01/2003 275,000 314,223
Halliburton Company
5.625% 12/01/2008 750,000 757,170
Heller Financial, Inc.
6.250% 3/01/2001 500,000 505,360
Hershey Foods
Corporation
7.200% 8/15/2027 1,250,000 1,430,775
Hilton Hotels
Corporation
7.000% 7/15/2004 225,000 225,538
Household Finance
Corporation
6.500% 11/15/2008 500,000 519,126
ICI Wilmington, Inc.
7.050% 9/15/2007 500,000 512,220
IMC Global Inc.
6.625% 10/15/2001 500,000 495,830
Interpool, Inc.
7.350% 8/01/2007 500,000 476,105
LASMO (USA) Inc.
6.750% 12/15/2007 1,250,000 1,202,035
Leucadia National
Corporation
7.750% 8/15/2013 1,000,000 987,680
Lockheed Martin
Corporation
7.700% 6/15/2008 1,000,000 1,130,510
MAPCO Inc.
7.250% 3/01/2009 1,000,000 1,053,500
Midway Airlines Pass
Through Certificates
1998-lB 144A
8.140% 1/02/2013 500,000 506,455
Millipore Corporation
7.500% 4/01/2007 1,000,000 1,023,800
Mobil Corporation
8.625% 8/15/2021 1,000,000 1,316,090
Newmont Mining
Corporation
8.625% 4/01/2002 1,000,000 1,051,850
News America
Holdings
Incorporated
9.250% 2/01/2013 1,000,000 1,238,730
Norfolk Southern
Corporation
7.050% 5/01/2037 1,350,000 1,460,471
North Finance
(Bermuda) Limited
144A
7.000% 9/15/2005 1,000,000 1,048,910
Occidental Petroleum
Corporation
7.375% 11/15/2008 1,500,000 1,529,835
Raytheon Company
6.150% 11/01/2008 500,000 509,185
Raytheon Company
6.750% 8/15/2007 500,000 529,355
Rolls-Royce Capital Inc.
7.125% 7/29/2003 1,000,000 1,042,800
Ryder System, Inc.
6.600% 11/15/2005 750,000 752,918
Safeway Inc.
6.050% 11/15/2003 250,000 251,715
Scholastic Corporation
7.000% 12/15/2003 750,000 780,518
The E.W. Scripps
Company
6.625% 10/15/2007 1,000,000 1,038,610
Joseph E. Seagram &
Sons, Inc.
7.500% 12/15/2018 1,000,000 1,001,020
(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
------------------ ------------
Sprint Capital
Corporation
6.125% 11/15/2008 $ 500,000 $ 510,915
Sprint Capital
Corporation
6.875% 11/15/2028 500,000 519,650
Thomas & Betts
Corporation
8.250% 1/15/2004 500,000 542,925
Time Warner Inc.
Pass-Thru Asset Trust
1997-1 144A
6.100% 12/30/2001 750,000 762,083
Time Warner, Inc.
7.750% 6/15/2005 1,000,000 1,106,040
US Air, Inc., Class B
7.500% 10/15/2009 464,450 463,145
Valero Pass-Thru Asset
Trust 1997-1 144A
6.750% 12/15/2002 500,000 504,700
WorldCom, Inc.
7.750% 4/01/2007 500,000 564,825
WPP Finance (USA)
Corporation
6.625% 7/15/2005 375,000 380,432
------------
TOTAL CORPORATE DEBT 63,467,047
(Cost $60,327,667) ------------
NON-U.S. GOVERNMENT
AGENCY OBLIGATIONS - 0.6%
Collateralized Mortgage
Obligations
Asset Securitization
Corporation Series
1995-MD4, Class A1
7.100% 8/13/2029 1,427,127 1,518,934
Chase Commercial
Mortgage Securities
Corp. Series 1998-2,
Class A1
6.025% 8/18/2007 745,997 754,852
CS First Boston
Mortgage Securities
Corp. Series 1998-
C2, Class A1
5.960% 12/15/2007 746,404 754,756
Merrill Lynch
Mortgage Investors,
Inc., Series 1997-Cl-
CTL, A-1
6.310% 11/15/2026 948,176 968,979
Morgan Stanley Capital
Investments Series
1998-HF2, Class A1
6.010% 11/15/2030 248,593 258,526
Nationslink Funding
Corporation Series
1998-2, Class A1
6.001% 11/20/2007 497,390 502,623
------------
TOTAL NON-U.S. GOVERNMENT
AGENCY OBLIGATIONS 4,758,670
(Cost $4,700,950) ------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 2.7%
Federal Home Loan Mortgage
Corporation
(FHLMC) - 0.7%
Collateralized Mortgage
Obligations - 0.5%
FHLMC Series 1322 Class G
7.500% 2/15/2007 893,472 906,588
FHMLC Series 1607
Class G
6.000% 8/15/2013 3,000,000 3,027,180
------------
3,933,768
------------
Pass-Through Securities - 0.2%
FHLMC
9.000% 3/01/2017 105,980 112,797
FHMLC
6.420% 12/01/2005 1,257,061 1,316,382
------------
1,429,179
------------
5,362,947
------------
Federal National Mortgage
Association
(FNMA) - 0.7%
Collateralized Mortgage
Obligations - 0.5%
FNMA Series 1993-134 Class GA
6.500% 2/25/2007 1,000,000 1,015,000
FNMA Series 1993-221
Class D
6.000% 12/25/2008 1,000,000 1,008,430
FNMA Series 1996-54
Class C
6.000% 9/25/2008 2,000,000 2,021,240
------------
4,044,670
------------
Pass-Through Securities -- 0.2%
FNMA 6.000% 11/01/2028 1,513,069 1,493,429
FNMA
8.000% 5/01/2013 250,919 254,652
------------
1,748,081
------------
5,792,751
------------
Government National Mortgage
Association (GNMA) -0.9%
Pass-Through Securities
GNMA
6.500% 10/15/2028 1,789,074 1,807,699
GNMA
7.000% 8/15/2023-
10/15/2023 853,244 873,236
GNMA
7.500% 10/15/2006-
6/15/2017 1,986,707 2,063,707
GNMA
8.000% 11/15/2004-
1/15/2009 2,118,621 2,216,926
GNMA
9.000% 12/15/2008-
5/15/2009 348,480 374,441
------------
7,336,009
------------
U.S. Government Guaranteed
Notes -- 0.4%
1991-A Fairfax
County, VA 8.740% 8/01/2001 200,000 216,812
1991-A Jefferson Park, CA
8.740% 8/01/2001 1,740,000 1,886,264
1991-A Monroe
County, NY
8.740% 8/01/2001 500,000 542,030
1991-A Rochester, NY
8.740% 8/01/2001 60,000 65,044
------------
2,710,150
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 21,201,857
(Cost $20,449,593)
U.S. TREASURY OBLIGATIONS - 7.8%
U.S. Treasury Bonds - 2.6%
U.S. Treasury Bond
7.500% 11/15/2016 9,050,000 11,241,820
U.S. Treasury Bond
8.750% 5/15/2017 6,000,000 8,346,540
------------
19,588,360
------------
U.S. Treasury Notes - 5.1%
U.S. Treasury Note
5.875% 2/15/2004 150,000 158,250
U.S. Treasury Note
6.500% 8/15/2005 14,315,000 15,733,044
U.S. Treasury Note
6.875% 5/15/2006 14,050,000 15,885,200
U.S. Treasury Note
7.125% 2/29/2000 1,000,000 1,026,870
U.S. Treasury Note
7.500% 5/15/2002 500,000 542,890
U.S. Treasury Note
7.500% 2/15/2005 5,500,000 6,297,500
------------
39,643,754
------------
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Market Value
---------- ------------
U.S. Treasury Strips - 0.1%
U.S. Treasury Strip -
Principal Only 0.000% 2/15/1999 $ 500,000 $ 497,325
U.S. Treasury Strip -
Principal Only 0.000% 8/15/2015 700,000 281,449
------------
778,774
------------
TOTAL U.S. TREASURY
OBLIGATIONS 60,010,888
(Cost $57,741,055) ------------
TOTAL BONDS & NOTES 161,188,340
(Cost $154,877,587) ------------
SHORT-TERM INVESTMENTS - 25.8%
Cash Equivalents - 1.7%
BankBoston
Eurodollar Time
Deposit.
5.630% 4/30/1999 1,837,200 1,837,200
General America Life
Funding Agreement.
5.240% 4/22/1999 11,000,000 11,000,000
------------
12,837,200
------------
Commercial Paper - 24.1%
Appalachian Power
Company
6.350% 1/05/1999 5,975,000 5,970,784
Aristar, Inc.
5.700% 2/09/1999 3,485,000 3,463,480
Aristar, Inc.
5.700% 2/10/1999 1,740,000 1,728,980
Atlantic Richfield
Company
5.170% 3/01/1999 2,855,000 2,830,809
Boston Scientific
Corporation
5.580% 1/29/1999 6,120,000 6,093,439
Boston Scientific
Corporation
6.000% 2/01/1999 2,170,000 2,158,788
Boston Scientific
Corporation
6.000% 2/23/1999 4,140,000 4,103,430
Boston Scientific
Corporation
6.100% 1/25/1999 4,815,000 4,795,419
Case Credit
Corporation
5.870% 3/24/1999 3,675,000 3,631,472
Case Credit
Corporation
6.000% 2/22/1999 580,000 574,973
Case Credit
Corporation
6.000% 2/24/1999 4,000,000 3,964,000
Central Illinois Light
Company
5.270% 2/17/1999 1,585,000 1,574,095
Comdisco, Inc.
5.670% 1/28/1999 3,210,000 3,196,350
Comdisco, Inc.
5.950% 2/12/1999 5,850,000 5,809,392
Comdisco, Inc.
6.050% 2/11/1999 5,320,000 5,283,344
ConAgra, Inc.
5.720% 1/22/1999 7,460,000 7,435,108
ConAgra, Inc.
5.900% 2/05/1999 2,310,000 2,296,749
ConAgra, Inc.
6.020% 1/13/1999 5,000,000 4,989,967
Cox Enterprises, Inc.
5.950% 1/05/1999 4,945,000 4,941,731
Crown Cork & Seal
Company, Inc.
5.650% 1/27/1999 4,590,000 4,571,271
CVS Corporation
5.720% 1/15/1999 3,575,000 3,567,047
CVS Corporation
5.740% 1/26/1999 4,075,000 4,058,757
CVS Corporation
6.150% 1/20/1999 4,395,000 4,380,734
DTE Energy Company
6.250% 1/04/1999 2,470,000 2,468,714
Great Lakes Chemical
Corp.
5.000% 2/18/1999 3,300,000 3,278,000
Humana, Inc.
5.700% 2/08/1999 3,725,000 3,702,588
Humana, Inc.
5.950% 2/03/1999 4,000,000 3,978,183
Humana, Inc.
6.000% 2/04/1999 3,980,000 3,957,447
Humana, Inc.
6.050% 1/21/1999 3,235,000 3,224,127
IMC Global Inc.
5.570% 1/19/1999 865,000 862,591
IMC Global Inc.
5.700% 3/10/1999 2,655,000 2,628,922
IMC Global Inc.
5.700% 3/11/1999 3,740,000 3,702,725
IMC Global Inc.
5.750% 2/22/1999 5,390,000 5,345,233
ORIX Credit Alliance,
Inc.
5.500% 2/16/1999 4,945,000 4,910,248
ORIX Credit Alliance,
Inc.
6.150% 1/08/1999 3,450,000 3,445,875
ORIX Credit Alliance,
Inc.
6.450% 1/07/1999 5,000,000 4,994,625
Pennsylvania Power &
Light Company
5.900% 2/19/1999 5,165,000 5,123,522
Procter & Gamble
Company, The
4.800% 3/19/1999 6,600,000 6,526,593
Public Service
Company of Colorado
6.000% 1/11/1999 5,115,000 5,106,475
Raytheon Company
5.750% 2/02/1999 4,730,000 4,705,825
Service Corporation
International
5.720% 2/26/1999 5,570,000 5,520,439
Service Corporation
International
5.800% 2/25/1999 4,985,000 4,940,827
Sonat Inc.
6.000% 1/06/1999 3,855,000 3,851,788
Textron Financial
Corporation
6.250% 1/12/1999 4,700,000 4,691,024
Textron Financial
Corporation
6.300% 1/14/1999 4,700,000 4,689,308
UOP
6.050% 1/04/1999 3,880,000 3,878,044
------------
186,953,242
------------
TOTAL SHORT-TERM
INVESTMENTS 199,790,442
(Cost $199,784,389) ------------
TOTAL INVESTMENTS -- 101.2% 782,158,484
(Cost $618,057,462)+
Other Assets/
(Liabilities) -- (1.2%) (9,166,865)
------------
Net Assets -- 100.0% $ 772,991,619
============
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.
*Non-income producing security.
. Represents investment of security lending collateral. (Note 2).
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, 1998
==========================
<S> <C>
Assets:
Investments, at value (cost $418,273,073) (Note 2) ............................................ $ 582,368,042
Short-term investments, at value (cost $199,784,389) (Note 2) ................................. 199,790,442
--------------------------
Total Investments ......................................................................... 782,158,484
Cash .......................................................................................... 86,171
Receivables from:
Investments sold .......................................................................... 666,656
Fund shares sold .......................................................................... 4,519,325
Interest and dividends .................................................................... 2,793,732
--------------------------
Total assets ........................................................................... 790,224,368
--------------------------
Liabilities:
Payables for:
Investments purchased ..................................................................... 2,342,330
Fund shares redeemed ...................................................................... 1,692,639
Securities on loan (Note 2) ............................................................... 12,837,200
Directors' fees and expenses (Note 3) ..................................................... 4,605
Affiliates (Note 3):
Investment management fees ............................................................. 287,182
Administration fees .................................................................... 49,799
Service fees ........................................................................... 107
Accrued expenses and other liabilities ........................................................ 18,887
--------------------------
Total liabilities ...................................................................... 17,232,749
--------------------------
Net assets .................................................................................... $ 772,991,619
==========================
Net assets consist of
Paid-in capital ............................................................................... $ 600,473,146
Undistributed net investment income ........................................................... 32,992
Accumulated net realized gain on investments .................................................. 8,384,459
Net unrealized appreciation on investments .................................................... 164,101,022
--------------------------
$ 772,991,619
==========================
Net assets:
Class A ....................................................................................... $ 177,010
==========================
Class Y ....................................................................................... $ 1,051,256
==========================
Class S ....................................................................................... $ 771,763,353
==========================
Shares outstanding:
Class A* ...................................................................................... 12,465
==========================
Class Y* ...................................................................................... 74,030
==========================
Class S ....................................................................................... 54,365,582
==========================
Net asset value, offering price and
redemption price per share:
Class A* ...................................................................................... $ 14.20
==========================
Class Y* ...................................................................................... $ 14.20
==========================
Class S ....................................................................................... $ 14.20
==========================
</TABLE>
*Amounts have been restated to reflect reverse stock splits (See Note 9).
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, 1998
==========================
<S> <C>
Investment income: (Note 2)
Interest (including securities lending income of $32,426) .................................. $ 19,869,037
Dividends (net of withholding tax of $14,570) .............................................. 8,159,456
--------------------------
Total investment income ................................................................. 28,028,493
--------------------------
Expenses (Note 2):
Investment management fees (Note 3) ......................................................... 3,182,481
Custody fees ................................................................................ 71,953
Audit and legal fees ........................................................................ 20,941
Directors' fees (Note 3) .................................................................... 17,776
--------------------------
3,293,151
Administration fees (Note 3):
Class A .................................................................................. 804
Class Y .................................................................................. 1,093
Class S .................................................................................. 549,081
Service fees (Note 3):
Class A .................................................................................. 414
--------------------------
Total expenses ....................................................................... 3,844,543
--------------------------
Net investment income ................................................................ 24,183,950
--------------------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions ............................................... 38,995,138
Net change in unrealized appreciation (depreciation)
on investments .......................................................................... 24,939,485
--------------------------
Net realized and unrealized gain .................................................. 63,934,623
--------------------------
Net increase in net assets resulting from operations ....................................... $ 88,118,573
==========================
</TABLE>
The accompanying notes are an integral part of the Financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Balanced Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
---------------------- ----------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income............................................... $ 24,183,950 $ 22,208,772
Net realized gain on investment transactions........................ 38,995,138 30,475,696
Net change in unrealized appreciation (depreciation)
on investments................................................... 24,939,485 53,068,589
---------------------- ----------------------
Net increase in net assets resulting from operations............. 88,118,573 105,753,057
---------------------- ----------------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1*............................................................ -- (3,540)
Class 2*............................................................ -- (4,381)
Class 3*............................................................ -- (4,913)
Class A............................................................. (6,590) --
Class Y.............................................................. (45,079) --
Class S............................................................. (24,100,466) (22,163,635)
---------------------- ----------------------
Total distributions from net investment income................... (24,152,135) (22,176,469)
---------------------- ----------------------
From net realized gains:
Class 1*............................................................ -- (6,158)
Class 2*............................................................ -- (6,204)
Class 3*............................................................ -- (6,230)
Class A............................................................. (11,583) --
Class Y............................................................. (61,093) --
Class S............................................................. (36,732,877) (26,240,454)
---------------------- ----------------------
Total distributions from net realized gains...................... (36,805,553) (26,259,046)
---------------------- ----------------------
Net fund share transactions (Note 5):
Class 1*............................................................ (156,975) 9,696
Class 2*............................................................ (159,724) 10,600
Class 3*............................................................ (161,227) 11,159
Class A............................................................. 175,148 --
Class Y............................................................. 1,104,224 --
Class $............................................................. 89,416,157 34,578,286
---------------------- ----------------------
Increase in net assets from net fund share
transactions................................................. 90,217,603 34,609,741
---------------------- ----------------------
Total increase in net assets........................................ 117,378,488 91,927,283
Net assets:
Beginning of period................................................. 655,613,131 563,685,848
---------------------- ----------------------
End of period (including undistributed net investment income
of $32,992 and $0, respectively)................................. $ 772,991,619 $ 655,613,131
====================== ======================
</TABLE>
* Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were
terminated (See Note 1).
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 A Class Y
------- -------
Year ended Year ended
12/31/98 + 12/31/98 +
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 14.03 $ 14.06
----------- -----------
Income (loss) from investment operations:
Net investment income 0.41 *** 0.48 ***
Net realized and unrealized gain (loss) on
investments 1.36 1.36
----------- -----------
Total income (loss) from investment
operations 1.77 1.84
----------- -----------
Less distributions to shareholders:
From net investment income (0.58) (0.67)
From net realized gains (1.02) (1.03)
----------- -----------
Total distributions (1.60) (1.70)
----------- -----------
Net asset value, end of period $ 14.20 $ 14.20
=========== ===========
Total Return 12.78% 13.23%
Ratios / Supplemental Data:
Net assets, end of period (000's) $177 $1,051
Net expenses to average daily net assets # 1.20% 0.76%
Net investment income to average daily net assets 2.76% 3.21%
Portfolio turnover rate 30% 30%
<CAPTION>
Class S (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.59 $ 12.34 $ 11.51 $ 9.92 $ 10.00
----------- ----------- ----------- ------------ ------------
Income (loss) from investment operations:
Net investment income 0.49 *** 0.48 0.46 0.44 0.11
Net realized and unrealized gain (loss)
on investments 1.33 1.82 1.02 1.68 (0.08)
----------- ----------- ----------- ------------ ------------
Total income (loss) from investment operations 1.82 2.30 1.48 2.12 0.03
----------- ----------- ----------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.48) (0.48) (0.46) (0.44) (0.11)
From net realized gains (0.73) (0.57) (0.19) (0.09) --
----------- ----------- ----------- ------------ ------------
Total distributions (1.21) (1.05) (0.65) (0.53) (0.11)
----------- ----------- ----------- ------------ ------------
Net asset value, end of period $ 14.20 $ 13.59 $ 12.34 $ 11.51 $ 9.92
=========== =========== =========== ============ ============
Total Return @ 13.50% 18.72% 12.83% 21.31% 0.29%
Ratios/Supplemental Data:
Net assets, end of period (000's) $771,763 $655,135 $563,280 $456,773 $349,688
Net expenses to average daily net assets # 0.5433% 0.5389% 0.5120% 0.5120% 0.5120% *
Net investment income to average daily net assets 3.42% 3.57% 3.83% 4.18% 4.29% *
Portfolio turnover rate 30% 28% 26% 23% 2%
# 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: N/A 0.5510% 0.5522% 0.5514% 0.5650% *
</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.
+ Amounts have been restated to reflect reverse stock splits (see Note 9).
(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.
44
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund - Portfolio Manager Report
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
What are the investment The objective and policies of the Fund are to:
objectives and policies . achieve long-term growth of capital and income
for the MassMutual Core . invest primarily in a diversified portfolio of
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 perform The Fund performed reasonably well, given the backdrop
over the past year? of 1998's volatile markets. For the 12 months ended
December 31, 1998, the Fund's Class S shares had a net
return of 16.75%. The Fund's return trailed the 28.58%
return of the S&P 500 Index, a market capitalization-
weighted, unmanaged index of 500 common stocks, while
surpassing the 14% gain of the average diversified
equity fund monitored by Lipper Analytical Services.
The gains in the S&P 500 Index in 1998 were driven
primarily by the 20 largest companies in that Index,
many of which the fund cannot invest in because their
stock prices exceed our value parameters.
What was the investment It was a tumultuous year, to be sure. After
environment in 1998? superlative gains in the previous three years, it
looked as though the stock market would be
hard-pressed to perform well again in 1998. Against
those odds, however, popular averages such as the Dow
Jones Industrial Average and the S&P 500 Index surged
ahead through mid-July, gaining in excess of 20%. At
that point, however, many multinational companies
began to report lower earnings or to scale back their
earnings forecasts due to the Asian financial crisis.
The most negative news during the period, though, came
from Russia, which substantially devalued its currency
and defaulted on much of its foreign debt. Worldwide
equity markets responded by plunging in August, as the
S&P 500 Index relinquished all of the ground it had
gained earlier in the year.
In September, October and November, the Federal
Reserve Board (Fed) moved aggressively to cut
short-term interest rates, which helped to get the
markets back on track. The October easing had a
particularly beneficial effect because it was a
surprise move that occurred between meetings of the
Fed's Open Market Committee, the group that decides
the fate of short-term interest rates. As a result,
stocks came roaring back in the fourth quarter, with
the S&P 500 Index gaining 21.3% in that quarter alone.
However, the lion's share of the gains was once again
concentrated in the Index's larger growth stocks. More
than 200 stocks in the S&P 500-about 40%-posted price
declines during 1998, and operating earnings for the
companies in the Index as a whole are likely to be
flat or slightly down for the year.
How was the Fund's Shortly after mid-year, we reduced some of the
strategy employed industrial exposure in the portfolio, selling
during the year? positions in specialty chemical companies Occidental
Petroleum, Lubrizol and Nalco Chemical. With the
economy appearing to be slowing down, we felt that the
earnings of these companies would suffer significantly
in the short term. After stocks retreated in the third
quarter, most stocks were far more attractive on a
value basis. Our buying was selective and included
Burlington Resources, Conoco (which was spun off from
Dupont), Newell Corp, Pharmacia & Upjohn and American
Home Products.
45
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund - Portfolio Manager Report (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Which stocks did well Schering Plough, part of a strong health care sector,
for the Fund, and which was our top performer for the year, with a gain of
were disappointing? 79%. Although we took profits on some of this position
when the stock reached what we considered to be
relatively high valuation levels, it is still one of
the Fund's top-ten holdings. Bristol Myers-Squibb and
Becton, Dickinson were two other health care holdings
that turned in strong performances for the year. IBM
was part of a strong technology group, gaining 77%.
General Electric, another top-ten holding, also helped
the Fund's performance. Although one of the largest
companies in the world, GE is also one of the best
managed and has actually accelerated its earnings
growth rate in the past five years, a rarity for a
company of GE's size. McGraw-Hill and Pitney Bowes
were two other top-ten holdings that finished the year
with good gains.
Many of our laggards this year were energy stocks that
were hurt by weak oil and gas prices. Kerr-McGee,
Unocal, and USX-Marathon Group all exemplified this
trend. Minnesota Mining & Manufacturing, a diversified
manufacturing company, was hurt by its Asian exposure.
How is the Fund Like other businesses and governments around the
Administrator preparing world, the Fund could be adversely affected if the
for the Year 2000 Issue? computer systems used by the Fund's service providers
and those with which they do business do not properly
recognize the Year 2000. This is commonly known as the
"Year 2000 issue." In 1996, MassMutual began an
enterprise-wide process of identifying, evaluating and
implementing changes to its computer systems to
address the Year 2000 issue. MassMutual is addressing
the Year 2000 issue internally with modifications to
existing programs and conversions to new programs.
MassMutual has advised the Fund that the Year 2000
issue is one of MassMutual's highest business
operational priorities. MassMutual is also seeking
assurances from the Fund's other service providers in
order to identify and resolve Year 2000 issues. In
addition, because the Year 2000 issue affects
virtually all organizations, the companies in which
the Fund invests could be adversely impacted by the
Year 2000 issue. The extent of such impact cannot be
predicted.
What is your outlook? Looking ahead to 1999, we have some concerns. The
market is unlikely to deliver yet another year of
above-20% gains. With the U.S. economy apparently
slowing, corporations may not be able to deliver the
kind of earnings growth that Wall Street wants to see.
Furthermore, as mentioned previously, the exceptional
performance of the S&P 500 Index has been concentrated
in relatively few large-capitalization growth stocks.
In order for the market's advance to have staying
power, it must expand to include more than a select
few issues. Such an expansion should likely benefit
the Fund, which sticks to moderately valued securities
that could be attractive to investors who become
disenchanted with those highly valued issues that have
been market leaders for the past several years.
On the positive side, inflation remains low and
interest rates are favorable. The Federal Reserve
Board has shown its determination to keep the economy
from falling into recession, and 1998's three interest
rate cuts may be followed by more if economic growth
shows signs of faltering. In a slower-growth
environment such as we seem to be entering, the Fund's
emphasis on value should enable it to continue to
deliver competitive returns for shareholders.
46
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund -- Portfolio Manager Report (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Core Equity
Fund Class S and the Standard & Poor's 500 Composite Index
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 16.75% 22.63%
- --------------------------------------------------------------------------------
Standard & Poor's
500 Composite Index 28.58% 28.47%
- --------------------------------------------------------------------------------
Hypothetical Investments in MassMutual Core Equity
Fund Class A and Class Y and the Standard & Poor's 500
Composite Index
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund
Total Return One Year
1/1/98 - 12/31/98
Class A 15.96%
Class Y 16.49%
- --------------------------------------------------------------------------------
Standard & Poor's
500 Composite Index 28.58%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
CLASS S S&P 500 INDEX
------- -------------
10/3/94 10,000 10,000
12/94 9,990 9,998
6/95 11,613 12,021
12/95 13,141 13,755
6/96 14,276 15,144
12/96 15,802 16,915
6/97 18,435 20,401
12/97 20,386 22,559
6/98 22,196 26,554
12/98 23,801 29,006
[LINE GRAPH APPEARS HERE]
CLASS A CLASS Y S&P 500 INDEX
------- ------- -------------
12/97 10,000 10,000 10,000
3/98 11,140 11,160 11,395
6/98 10,860 10,880 11,771
9/98 9,970 10,005 10,600
12/98 11,596 11,649 12,858
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.
- --------------------------------------------------------------------------------
-------------------------------------------
MassMutual Core Equity Fund
Largest Stock Holdings (12/31/98)
-------------------------------------------
Bristol-Myers Squibb Company
General Electric Company
International Business Machines Corporation
Schering-Plough Corp.
Albertson's, Inc.
Becton, Dickinson and Company
Hewlett-Packard Company
The McGraw-Hill Companies, Inc.
Amoco Corporation
Pitney Bowes, Inc.
-------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund - Portfolio of Investments
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Portfolio of Investments December 31, 1998
Number of
Shares Market Value
--------- ------------
EQUITIES - 99.1%
Aerospace & Defense - 3.0%
Raytheon Company
Class A 283,000 $ 14,627,563
Raytheon Company -
Class B 780,200 41,545,650
TRW Inc. 921,500 51,776,781
------------
107,949,994
============
Apparel, Textiles & Shoes - 1.0%
VF Corporation 735,400 34,471,875
============
Automotive & Parts - 3.7%
Ford Motor Company 680,300 39,925,106
Genuine Parts
Company 1,290,000 43,134,375
Goodyear Tire &
RubberCompany 962,500 48,546,094
------------
131,605,575
============
Banking, Savings & Loans - 6.3%
The Bank of New York
Company,
Incorporated 1,673,000 67,338,250
Comerica,
Incorporated 680,200 46,381,138
Pacific Century
Financial
Corporation 1,271,600 30,995,250
Wachovia Corp. 497,900 43,535,131
Wells Fargo &
Company 977,700 39,046,894
------------
227,296,663
============
Beverages - 1.5%
Brown-Forman
Corporation
(Class B) 688,100 52,080,569
Chemicals - 3.9%
Air Products and
Chemicals, Inc. 806,300$ 32,252,000
Engelhard 1,738,200 33,894,900
Corporation
Rohm & Haas
Company 1,520,700 45,811,088
USEC Inc. 2,023,800 28,080,225
------------
140,038,213
============
Commercial Services - 0.8%
Pinnacle West Capital
Corporation 641,668 27,190,682
============
Computers & Office Equipment - 10.0%
Electronic Data
Systems Corporation 937,000 47,084,250
Hewlett-Packard
Company 1,128,500 77,090,656
International
Business
Machines
Corporation 530,042 97,925,260
Pitney Bowes, Inc. 1,092,400 72,166,675
Xerox Corporation 552,300 65,171,391
------------
359,438,232
============
Containers - 2.6%
Bemis Company, Inc. 782,100 29,670,919
Crown Cork & Seal
Company, Inc. 1,091,900 33,644,169
Temple-Inland, Inc. 528,800 31,364,450
----------
94,679,538
============
Cosmetics & Personal Care - 1.9%
Kimberly-Clark
Corporation 1,240,600 67,612,700
============
Drugs - 1.3%
Pharmacia & Upjohn,
Inc. 798,000 45,186,750
------------
Electric Utilities - 1.4%
Dominion Resources,
Inc. 730,600 34,155,550
SCANA Corporation 523,743 16,890,712
------------
51,046,262
============
Electrical Equipment & Electronics - 6.0%
AMP, Incorporated 882,428$ 45,941,408
General Electric
Company 1,035,000 105,634,688
Honeywell Inc. 407,000 30,652,188
Hubbell,
Incorporated
(ClassB) 918,471 34,901,898
------------
217,130,182
============
Energy - 5.8%
Amoco Corporation 1,239,800 73,148,200
Kerr-McGee
Corporation 362,800 13,877,100
Mobil Corporation 690,400 60,151,100
Teco Energy, Inc. 1,007,800 28,407,363
Unocal Corporation 1,097,600 32,036,200
------------
207,619,963
============
Financial Services - 1.2%
American Express
Company 423,700 43,323,325
------------
Foods - 4.5%
Archer-Daniels-
Midland Company 1,575,425 27,077,617
Bestfoods 599,400 31,918,050
ConAgra, Inc. 2,005,000 63,157,500
General Mills, Inc. 489,000 38,019,750
------------
160,172,917
============
Forest Products & Paper - 1.7%
Westvaco Corporation 855,000 22,924,688
Weyerhaeuser
Company 727,700 36,976,256
------------
59,900,944
============
Healthcare - 9.5%
American Home
Products Corporation 605,600 34,102,850
Becton, Dickinson
and Company 1,859,600 79,381,675
Bristol-Myers Squibb
Company 1,032,700 138,188,169
Schering-Plough 1,645,700 90,924,925
Corp. ------------
342,597,619
------------
(Continued)
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund - Portfolio of Investments (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
------- --------------
Industrial Distribution - 0.9%
W.W. Grainger, Inc. 806,300 $ 33,562,238
============
Industrial Transportation - 2.5%
Burlington Northern
Santa Fe Corp. 1,296,600 43,760,250
Norfolk Southern
Corporation 1,456,100 46,140,169
-------------
89,900,419
=============
Insurance - 7.4%
American General
Corporation 589,600 45,988,800
CIGNA Corporation 249,300 19,274,006
Jefferson-Pilot
Corporation 509,600 38,220,000
Marsh & McLennan
Companies, Inc. 1,224,300 71,545,031
MBIA, Inc. 675,200 44,267,800
SAFECO Corporation 1,148,600 49,318,013
-------------
268,613,650
=============
Machinery & Components - 1.1%
Dover Corporation 1,087,900 39,844,338
=============
Manufacturing - 0.9%
Armstrong World
Industries, Inc. 519,000 31,302,188
=============
Metals - 0.3%
Newell Co. 279,100 11,512,875
-------------
Miscellaneous - 1.0%
Minnesota Mining &
Manufacturing
Company 482,900 34,346,263
-------------
Oil & Gas - 2.7%
Burlington Resources
Inc. 626,600 22,440,113
Conoco Inc. Cl. A* 708,400 14,787,850
ENI SPA, Sponsored
ADR 543,200 36,801,800
USX-Marathon Group 699,800 21,081,475
-------------
95,111,238
=============
Publishing & Printing - 2.9%
The McGraw-Hill
Companies, Inc. 745,700 $ 75,968,188
R.R. Donnelley & Sons
Company 634,700 27,807,794
-------------
103,775,982
=============
Retail - 2.3%
The May Department
Stores Company 650,000 39,243,750
Sears Roebuck and
Co. 980,500 41,671,250
-------------
80,915,000
=============
Retail - Grocery - 4.1%
Albertson's, Inc. 1,425,200 90,767,425
American Stores
Company 1,543,600 57,016,725
-------------
147,784,150
Telecommunications - 1.8%
GTE Corporation 973,500 63,277,500
-------------
Telephone Utilities - 3.2%
Ameritech Corporation1 112,600 70,511,025
Frontier Corporation1 329,400 45,199,600
-------------
115,710,625
=============
Tobacco - 1.9%
FortuneBrands, Inc. 968,900 30,641,463
UST Inc. 1,126,800 39,297,150
-------------
69,938,613
=============
TOTAL EQUITIES 3,554,937,082
=============
(Cost $2,143,781,057)
SHORT-TERM INVESTMENTS - 3.4%
Cash Equivalents - 2.8%
BankBoston
Eurodollar Time
Deposit
5.630% 4/30/1999 $40,082,900 $ 40,082,900
General America Life
Funding Agreement
5.240% 4/22/1999 50,000,000 50,000,000
Janus Money Market
Fund . 11,000,000 11,000,000
-------------
101,082,900
=============
Discount Note - 0.6%
Federal Home Loan
Mortgage
Corporation
4.500% 1/04/1999 19,965,000 19,957,513
-------------
TOTAL SHORT-TERM
INVESTMENTS 121,040,413
(At Amortized Cost) =============
TOTAL INVESTMENTS - 102.5% 3,675,977,495
(Cost $2,264,821,470)
Other Assets/
(Liabilities) - (2.5%) (88,818,613)
=============
NET ASSETS - 100.0% $3,587,158,882
=============
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
.Non-income producing security.
.Represents investment of security lending collateral. (Note 2).
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund -- Financial Statements
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1998
-----------------
Assets:
Investments, at value (cost $2,143,781,057) (Note 2) .. $3,554,937,082
Short-term investments, at amortized cost (Note 2) .... 121,040,413
-----------------
Total Investments .................................. 3,675,977,495
Cash .................................................. 3,775
Receivables from:
Investments sold ................................... 12,109,524
Fund shares sold ................................... 3,747,757
Interest and dividends ............................. 5,454,870
-----------------
Total assets ................................... 3,697,293,421
-----------------
Liabilities:
Payables for:
Investments purchased ........................... 717,456
Fund shares redeemed ............................... 6,672,390
Securities on loan (Note 2) ....................... 101,082,900
Directors' fees and expenses (Note 3) .............. 4,605
Affiliates (Note 3):
Investment management fees ..................... 1,338,251
Administration fees ......................... 231,266
Service fees ................................ 134
Accrued expenses and other liabilities ................ 87,537
-----------------
Total liabilities .............................. 110,134,539
-----------------
Net assets ............................................ $3,587,158,882
Net assets consist of
Paid-in capital ....................................... $2,154,856,647
Undistributed net investment income ................... 106,352
Accumulated net realized gain on investments .......... 21,039,858
Net unrealized appreciation on investments ............ 1,411,156,025
-----------------
$3,587,158,882
=================
Net assets:
Class A ............................................... $ 227,342
=================
Class Y ............................................... $ 754,054
=================
Class S ............................................... $3,586,177,486
=================
Shares outstanding:
Class A* .............................................. 12,354
=================
Class Y* .............................................. 40,993
=================
Class S ............................................... 194,978,032
=================
Net asset value, offering price and
redemption price per share:
Class A* .............................................. $ 18.40
=================
Class Y* .............................................. $ 18.39
=================
Class S ............................................... $ 18.39
=================
*Amounts have been restated to reflect reverse stock splits (See Note 9).
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund -- Financial Statements (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Statement of Operations
Year ended
December 31, 1998
-----------------
Investment income: (Note 2)
Dividends (net of withholding tax of $125,902) ........... $ 69,992,420
Interest (including securities lending income of $118,344) 4,678,492
-----------------
Total investment income ............................... 74,670,912
-----------------
Expenses (Note 2):
Investment management fees (Note 3) ...................... 15,182,885
Custody fees ............................................. 287,608
Audit and legal fees ..................................... 80,187
Directors' fees (Note 3) ................................. 17,777
-----------------
15,568,457
Administration fees (Note 3):
Class A ............................................... 1,018
Class Y ............................................... 1,288
Class S ............................................... 2,621,067
Service fees (Note 3):
Class A ............................................... 522
-----------------
Total expenses ........................................ 18,192,352
-----------------
Net investment income ................................. 56,478,560
-----------------
Realized and unrealized gain (loss):
Net realized gain on investment transactions ............. 173,983,787
Net change in unrealized appreciation (depreciation)
on investments ........................................ 291,738,373
-----------------
Net realized and unrealized gain ...................... 465,722,160
-----------------
Net increase in net assets resulting from operations ..... $522,200,720
=================
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund -- Financial Statements (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ...................................... $ 56,478,560 $ 55,504,098
Net realized gain on investment transactions ............... 173,983,787 263,910,119
Net change in unrealized appreciation (depreciation)
on investments .......................................... 291,738,373 407,559,726
----------------- -----------------
Net increase in net assets resulting from
operations .......................................... 522,200,720 726,973,943
----------------- -----------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1* ................................................... -- (1,299)
Class 2* ................................................... -- (2,285)
Class 3* ................................................... -- (2,920)
Class A .................................................... (4,908) --
Class Y .................................................... (20,187) --
Class S .................................................... (57,644,450) (54,611,119)
----------------- -----------------
Total distributions from net investment income .......... (57,669,545) (54,617,623)
----------------- -----------------
From net realized gains:
Class 1* ................................................... -- (13,946)
Class 2* ................................................... -- (14,077)
Class 3* ................................................... -- (14,146)
Class A .................................................... (21,970) --
Class Y .................................................... (65,959) --
Class S .................................................... (202,715,885) (228,186,420)
----------------- -----------------
Total distributions from net realized gains ............. (202,803,814) (228,228,589)
----------------- -----------------
Net fund share transactions (Note 5):
Class 1* ................................................... (196,012) 15,245
Class 2* ................................................... (199,451) 16,362
Class 3* ................................................... (201,310) 17,066
Class A .................................................... 222,890 --
Class Y .................................................... 764,794 --
Class S .................................................... 126,595,972 268,059,999
----------------- -----------------
Increase in net assets from net fund share
transactions ........................................ 126,986,883 268,108,672
----------------- -----------------
Total increase in net assets ............................... 388,714,244 712,236,403
Net assets:
Beginning of period ........................................ 3,198,444,638 2,486,208,235
----------------- -----------------
End of period (including undistributed net investment income
of$106,352 and $1,297,337, respectively) ............... $ 3,587,158,882 $ 3,198,444,638
================= =================
</TABLE>
* Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were
terminated (See Note 1).
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Core Equity Fund -- Financial Statements (Continued)
(Formerly known as MassMutual Value Equity Fund)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
Class A Class Y
------- -------
Year ended Year ended
12/31/98+ 12/31/98+
--------- ---------
Net asset value, beginning of period $ 18.02 $ 18.03
--------- ---------
Income (loss) from investment operations:
Net investment income 0.19*** 0.27***
Net realized and unrealized gain (loss) on
investments 2.60 2.63
--------- ---------
Total income (loss) from investment
operations 2.79 2.90
--------- ---------
Less distributions to shareholders:
From net investment income (0.43) (0.56)
From net realized gains (1.98) (1.98)
--------- ---------
Total distributions (2.41) (2.54)
--------- ---------
Net asset value, end of period $ 18.40 $ 18.39
========= =========
Total Return 15.96% 16.49%
Ratios / Supplemental Data:
Net assets, end of period (000's) $ 227 $ 754
Net expenses to average daily net assets # 1.20% 0.75%
Net investment income to average daily net assets 1.01% 1.43%
Portfolio turnover rate 12% 12%
<TABLE>
<CAPTION>
Class S(1)
----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.00 $ 14.46 $ 12.63 $ 9.91 $ 10.00
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.31 0.32 0.34 0.31 0.08
Net realized and unrealized gain (loss) on
investments 2.49 3.83 2.22 2.82 (0.09)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 2.80 4.15 2.56 3.13 (0.01)
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.31) (0.31) (0.34) (0.31) (0.08)
From net realized gains (1.10) (1.30) (0.39) (0.10) --
---------- ---------- ---------- ---------- ----------
Total distributions (1.41) (1.61) (0.73) (0.41) (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 18.39 $ 17.00 $ 14.46 $ 12.63 $ 9.91
========== ========== ========== ========== ==========
Total Return @ 16.75% 29.01% 20.24% 31.54% (0.10)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $3,586,177 $3,197,848 $2,485,743 $2,125,248 $1,563,563
Net expenses to average daily net assets# 0.5391% 0.5378% 0.5067% 0.5067% 0.5067%*
Net investment income to average daily net assets 1.67% 1.91% 2.42% 2.72% 20%*
Portfolio turnover rate 12% 20% 13% 16% 3%
# 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: N/A 0.5512% 0.5534% 0.5528% 0.5681%*
</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.
+ Amounts have been restated to reflect reverse stock splits (see Note 9).
(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.
53
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund - Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the investment The objective and policies of the Fund are to:
objectives and policies . achieve long-term growth of capital and income
for the MassMutual . invest primarily in a diversified portfolio of
Small Cap Value Equity equity securities of smaller companies (companies
Fund? 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 The Fund's performance was disappointing but
perform over the past understandable, given the difficult market
year? environment of 1998. For the 12 months ended December
31, 1998, the Fund's Class S shares had a return of -
9.02%, compared to -2.55% for the Russell 2000 Index,
a broadly based, unmanaged index of 2000 medium- and
small-capitalization common stocks. After staying
approximately even with the Index over the first
three quarters of 1998, the Fund lost ground in the
fourth quarter, when the Index-led by technology
growth issues-rallied sharply from its lows in the
second week of October. The Index has a much heavier
technology weighting than the Fund does, because many
technology issues have price-to-earnings and
price-to-book value ratios that exceed the Fund's
value parameters.
What was the investment Volatility continued to increase in 1998, and overall
backdrop during 1998? the small-cap market underperformed large-cap issues.
In the first four months of the year, both the Fund
and the Russell 2000 Index enjoyed solid gains. From
April through mid-July, small-cap stocks trended
lower even as the S&P 500 Index and the Dow Jones
Industrial Index, both representative of large-
capitalization stocks, advanced. From mid-July
through mid-October the entire U.S. stock market
suffered a substantial decline, as the Asian
financial crisis began to make its presence known in
the form of lower earnings or scaled-back earnings
forecasts for many international companies. Another
factor undermining the markets at that time was
Russia, which surprised the international investment
community by substantially devaluing its currency and
defaulting on much of its foreign debt. A flight to
quality followed in which investors fled stocks in
general, especially small-cap issues.
In the fourth quarter, the Federal Reserve Board
reassured investors by cutting short-term interest
rates in September, October and November. U.S. equity
markets obliged by staging a massive rally that saw
the Russell 2000 Index vault approximately 30% higher
in the fourth quarter alone.
How was the Fund's The Fund typically has about one-quarter of its
strategy employed holdings in financial services stocks, and we added
during the year? to that sector during 1998. Small-cap banks, for
example, do not have the international exposure that
the large commercial banks do, and therefore are less
risky to hold in the current environment. SIS Bancorp
was one purchase we made near the end of the year. We
also increased our holdings of Pioneer Group, a
mutual fund management company.
On the other hand, many companies in the industrial
sector have, in response to weak demand from Asia,
cut back on capital spending-apparently in
anticipation of lower earnings growth for the next
few quarters. Accordingly, with overall U.S. economic
growth somewhat questionable for the short term, we
eliminated or reduced positions in Gleasonworks,
Columbus McKinnon, DT Industries, and Omniquip
International-all industrial machinery and equipment
manufacturers.
We also increased our energy holdings. We especially
like companies in the gas business because we think
the industry has good long-term growth potential.
Newfield Exploration is one gas holding added during
the year.
54
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Which stocks did well Harte Hanks Communications, Inc. turned in a strong
for the Fund, and which performance during 1998. The for the Fund, and
were disappointing which largest direct mail advertising company in
the country, Harte Hanks Communications, Inc. was
undergoing a restructuring process that involved
selling off some non-core businesses and refocusing
on its strengths. Spartech also helped the Fund's
performance. The company is a specialty chemical
producer that expanded into many new markets and
established joint ventures with several major
suppliers and customers. Another holding making a
positive contribution was Nationwide Financial
Services. The company, which is the annuity arm of
a major insurance company, saw healthy earnings and
sales growth from a solid book of business in
annuities for teachers and other government
employees.
On the negative side, Analysts International, a
computer support services film, detracted from
performance. The company lost a contract with a
major client during the year, and we sold the
stock. Another underperforming stock was Herbalife,
which suffered from substantially reduced short-
term growth prospects because of the weakness in
Asian currencies. Finally DT Industries, mentioned
earlier, experienced a reduction in orders from the
major electronics and consumer companies that are
its customers, and we reduced the Fund's holdings
of this stock.
How is the Fund Like other businesses and governments around the
Administrator preparing world, the Fund could be adversely affected if the
for the Year 2000 Issue? computer systems used by the Fund's service
providers and those with which they do business do
not properly recognize the Year 2000. This is
commonly known as the "Year 2000 issue." In 1996,
MassMutual began an enterprise-wide process of
identifying, evaluating and implementing changes to
its computer systems to address the Year 2000
issue. MassMutual is addressing the Year 2000 issue
internally with modifications to existing programs
and conversions to new programs. MassMutual has
advised the Fund that the Year 2000 issue is one of
MassMutual's highest business operational
priorities. MassMutual is also seeking assurances
from the Fund's other service providers in order to
identify and resolve Year 2000 issues. In addition,
because the Year 2000 issue affects virtually all
organizations, the companies in which the Fund
invests could be adversely impacted by the Year
2000 issue. The extent of such impact cannot be
predicted.
What is your outlook? We think there is real value in the small-cap
market. When you compare the price-to-earnings
ratios of the Russell 2000 Index and the S&P 500
Index, small stocks are cheap on both a current and
historical basis. As the most favored large-cap and
technology stocks have their valuations pushed
higher, there will come a point at which investors
will be forced to recognize the values inherent in
the kind of stocks held by the Fund.
1999 looks to be a year of slower economic growth.
However, we are not expecting an outright
recession, especially in light of the Federal
Reserve Board's commitment to keeping the economy
growing-evidenced by its aggressive lowering of
interest rates in the second half of 1998. To sum
up, then, we are cautiously optimistic for 1999.
55
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual Small Cap
Value Equity Fund Class S and the Russell 2000 Index
- --------------------------------------------------------
MassMutual Small Cap Value Equity Fund
Total Return One Year Average Annual
1/1/98- 1/1/98-
12/31/98 12/31/98
Class S -9.02% 14.53%
- --------------------------------------------------------
Russel
2000 Index -2.55% 14.09%
Hypothetical Investments in MassMutual Small Cap
Value Equity Fund CLass A and Class Y and the
Russel 2000 Index
- --------------------------------------------------------
MassMutual Small Cap Value Equity Fund
Total Return One Year
1/1/98-12/31/98
Class A -9.58%
Class Y -9.25%
- --------------------------------------------------------
Russel
2000 Index -2.55%
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
Class S Russell 2000
[GRAPH APPEARS HERE]
10/3/94 $10,000 $10,000
12/94 9,734 9,813
6/95 10,507 11,228
12/95 11,681 12,604
6/96 12,794 13,912
12/96 14,346 14,683
6/97 16,664 16,181
12/97 19,562 17,966
6/98 20,010 18,897
12/98 17,797 17,508
Class A Class Y Russell 2000
[GRAPH APPEARS HERE]
12/97 $10,000 $10,000 $10,000
1/98 10,740 10,750 11,006
6/98 10,200 10,220 10,493
9/98 8,245 8,276 8,379
12/98 9,042 9,075 9,745
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 Russel 2000 Index is unmanaged and does not incur
expenses, and purchased directly by investors.
- --------------------------------------------------------------------------------
- ---------------------------------------
MassMutual Small Cap Value Equity Fund
Largest Stock Holdings (12/31/98)
- ---------------------------------------
Graco, Incorporated
M.S. Carriers, Inc.
Houghton Mifflin Company
CCB Financial Corporation
Reliance Steel & Aluminum Company
True North Communications, Inc.
Service Experts, Inc.
OM Group, Inc.
Rollins Truck Leasing Company
Teleflex, Incorporated
- ---------------------------------------
56
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund - Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1998
Number of
Shares Market Value
--------- ------------
EQUITIES -88.9%
Aerospace & Defense - 0.2%
TriStar Aerospace Co.* 154,700 $ 1,082,900
-----------
Air Transportation - 1.6%
Atlantic Southeast
Airlines, Inc. 365,600 11,150,800
Automotive & Parts - 4.7%
Dura Automotive
Systems, Inc.* 271,400 9,261,525
Keystone Automotive
Industries, Inc.* 387,700 8,117,469
Myers Industries, Inc. 353,268 10,134,376
Titan Wheel
International, Inc. 479,100 4,551,450
-----------
32,064,820
===========
Banking, Savings & Loans - 12.5%
Astoria Financial
Corporation 160,900 7,361,175
Bank United Corp.
Class A 122,200 4,796,350
Banknorth Group, Inc. 174,500 6,565,563
CCB Financial
Corporation 279,800 15,948,600
Commercial Federal
Corporation 250,606 5,810,930
First Republic Bank* 275,100 6,894,694
Keystone Financial,
Inc. 151,250 5,596,250
One Valley Bancorp of
West Virginia, Inc. 155,687 5,118,210
SIS Bancorp, Inc. 216,500 9,796,625
Sovereign Bancorp,
Inc. 517,296 7,371,468
Webster Financial
Corporation 381,400 10,464,663
-----------
85,724,528
===========
Beverages - 0.2%
The Robert Mondavi
Corporation* 41,000 1,675,875
-----------
Building Materials & Construction - 2.7%
Crossmann
Communities, Inc.* 204,200 5,641,025
Service Experts, Inc.* 426,900 12,486,825
-----------
18,127,850
===========
Chemicals - 4.0%
Cambrex Corporation 269,200 6,460,800
OM Group, Inc. 340,500 12,428,250
Spartech Corporation 393,200 8,650,400
-----------
27,539,450
===========
Communications - 1.9%
True North
Communications,
Inc. 478,900 12,870,438
===========
Computer Software/Services - 0.3%
Pomeroy Computer
Resources Inc.* 88,400 1,989,000
===========
Computers & Office Equipment -0.8%
Cognex Corporation* 285,900 5,718,000
===========
Containers - 0.9%
U.S. Can Corporation* 337,200 6,027,450
===========
Diversified Operations - 1.0%
SPS Technologies,
Inc.* 117,400 6,647,775
===========
Drugs- 1.1%
Herbalife
International, Inc. -
Cl B 666,833 7,626,902
===========
Electrical Equipment & Electronics - 3.7%
AFC Cable Systems,
Inc.* 211,075 7,097,397
Dallas Semiconductor
Corporation 164,900 6,719,675
Teleflex, Incorporated 256,200 11,689,125
-----------
25,506,197
===========
Financial Services - 1.8%
Eaton Vance Corp. 278,700 5,817,863
Healthcare Realty
Trust Incorporated 294,100 6,562,106
The Pioneer Group,
Inc.* 1,100 21,725
-----------
12,401,694
===========
Foods - 3.0%
International Home
Foods, Inc.* 407,900 6,883,313
Morrison Health Care,
Inc. 356,400 6,793,875
Richfood Holdings,
Inc. 337,100 6,994,825
-----------
20,672,013
===========
Forest Products & Paper - 2.8%
Day Runner, Inc.* 537,000 7,786,500
Wausau-Mosinee
Paper Corporation 654,363 11,574,046
-----------
19,360,546
===========
Gas Distribution - 1.5%
WICOR, Inc. 466,000 10,164,625
===========
Industrial Transportation - 1.7%
ABC Rail Products
Corporation* 445,000 5,423,438
The Greenbrier
Companies, Inc. 429,400 6,065,275
-----------
11,488,713
===========
Insurance - 4.5%
Executive Risk Inc. 156,200 8,581,238
HCC Insurance
Holdings 459,500 8,098,688
Highlands Insurance
Group, Inc.* 495,500 6,472,469
Nationwide Financial
Services, Inc. Class A 146,400 7,567,050
-----------
30,719,445
===========
(Continued)
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund - Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
Investment Management Services - 1.2%
Conning Corporation 410,200 $ 8,511,650
Leasing Companies - 1.8%
Rollins Truck Leasing
Company 825,075 12,169,856
-------------
Machinery & Components - 10.0%
Columbus McKinnon
Corporation 256,700 4,620,600
DT Industries, Inc. 333,000 5,244,750
Graco, Incorporated 632,700 18,664,650
Hardinge, Inc. 328,650 6,059,484
Helix Technology
Corporation 494,600 6,429,800
Omniquip
International Inc 245,800 3,687,000
Regal-Beloit
Corporation 290,750 6,687,250
Roper Industries, Inc. 500,300 10,193,613
Watsco,Inc. 373,950 6,263,663
-------------
67,850,810
=============
Medical Supplies - 1.0%
Invacare Corporation 297,600 7,142,400
=============
Metals & Mining -3.4%
CompX International
Inc.* 377,000 9,943,375
Reliance Steel &
Alluminum Company 489,300 13,516,913
-------------
23,460,288
=============
Miscellaneous Distributor Wholesale - 1.6%
Hughes Supply, Inc. 380,100 11,117,925
=============
Oil & Gas-3.7%
The Houston Exploration
Company* 556,800 11,066,400
Newfield Exploration
Company* 302,800 6,320,950
Stone Energy
Corporation* 268,500 7,719,375
-------------
25,106,725
=============
Other Services - 2.7%
Analysts International
Corporation 510,300 9,823,275
Landauer, Inc. 256,800 8,313,900
-------------
18,137,175
=============
Publishing & Printing - 6.2%
Banta Corporation 284,250 7,781,344
Harte Hanks
Communications,
Inc. 379,200 10,807,200
Houghton Mifflin
Company 346,400 16,367,400
McClatchy
Newspapers, Inc. 196,950 6,967,106
-------------
41,923,050
=============
Real Estate - 1.7%
Captec Net Lease
Realty, Inc. 379,000 4,737,500
Mid- Atlantic Realty
Trust 546,400 6,727,550
-------------
11,465,050
=============
Transportation - 4.7%
C.H. Robinson
Worldwide, Inc. 344,400 8,932,875
Hub Group, Inc. Class A* 252,200 4,886,375
M.S. Carriers, Inc.* 554,600 18,267,132
-------------
32,086,382
-------------
TOTAL EQUITIES 607,530,332
(Cost $488,365,193) =============
SHORT-TERM INVESTMENTS - 12.0%
Cash Equivalents - 1.0%
BankBoston
Eurodollar Time
Deposit @
5.630% 4/30/1999 2,015,456 2,015,456
Janus Money Market
Fund. @ 5,000,000 5,000,000
-------------
7,015,456
=============
Commercial Paper - 10.4%
Caterpillar Financial
Services Corp.
5.100% 1/28/1999 $ 8,000,000 $ 7,969,400
E. I. du Pontde
Nemours and
Company
5.110% 1/27/1999 8,688,000 8,655,936
Heinz (H. J.) Company
5.220% 1/19/1999 5,000,000 4,986,950
IBM Credit
Corporation
5.160% 1/20/1999 9,000,000 8,975,490
Lucent Technologies
Inc.
5.250% 1/29/1999 9,000,000 8,963,250
PepsiCo, Inc.
5.100% 1/19/1999 9,000,000 8,977,050
Procter & Gamble
Company, The
5.050% 2/11/1999 7,000,000 6,959,741
Shell Oil Company
5.000% 1/04/1999 11,325,000 11,320,281
Walt Disney Company,
The
4.830% 4/13/1999 4,000,000 3,941,067
-------------
70,749,165
=============
Discount Note -0.6%
Federal National
Mortgage Association
4.980% 3/25/1999 4,000,000 3,952,044
-------------
TOTAL SHORT-TERM
INVESTMENTS 81,716,665
(Cost $81,722,887) -------------
TOTAL INVESTMENTS - 100.9% 689,246,997
(Cost $570,088,080)+
Other Assets/
(Liabilities) - (0.9%) (5,927,212)
-------------
NET ASSETS - 100.0% $683,319,785
=============
Notes to Portfolio of Investments
+Aggregate cost for Federal tax purposes (Note 7)
*Non-income producing security.
@Represents investment of security lending collateral. (Note 2).
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31,1998
----------------
<S> <C>
Assets:
Investments, at value (cost $488,365,193) (Note 2) ............................. $607,530,332
Short-term investments (cost $81,722,887) (Note 2) ............................. 81,716,665
------------
Total Investments ........................................................... 689,246,997
Cash ........................................................................... 669
Receivables from:
Investments sold ............................................................ 626,250
Fund shares sold ............................................................ 2,143,252
Interest and dividends ...................................................... 524,854
------------
Total assets ............................................................ 692,542,022
------------
Liabilities:
Payables for:
Investments purchased ....................................................... 747,964
Fund shares redeemed ........................................................ 1,084,598
Securities on loan (Note 2) ................................................. 7,015,456
Directors' fees and expenses (Note 3) ....................................... 4,605
Affiliates (Note 3):
Investment management fees .............................................. 306,912
Administration fees ..................................................... 43,503
Service fees ............................................................ 102
Accrued expenses and other liabilities ......................................... 19,097
------------
Total liabilities ....................................................... 9,222,237
------------
Net assets ..................................................................... $683,319,785
============
Net assets consist of
Paid-in capital ................................................................ $563,375,053
Undistributed net investment income ............................................ 126,877
Accumulated net realized gain on investments ................................... 658,938
Net unrealized appreciation on investments ..................................... 119,158,917
------------
$683,319,785
============
Net assets:
Class A ........................................................................ $173,948
============
Class Y ........................................................................ $568,113
============
Class S ........................................................................ $682,577,724
============
Shares outstanding:
Class A* ....................................................................... 12,364
============
Class Y* ....................................................................... 40,399
============
Class S ........................................................................ 48,544,773
============
Net asset value, offering price and
redemption price per share:
Class A* .......................................................................... $ 14.07
============
Class Y* .......................................................................... $ 14.06
============
Class S ........................................................................... $ 14.06
============
</TABLE>
*Amounts have been restated to reflect reverse stock splits (See Note 9)
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Investment income: (Note 2)
Dividends ...................................................................... $ 7,790,961
Interest (including securities lending income of $10,992) ...................... 2,524,506
------------
Total investment income ..................................................... 10,315,467
------------
Expenses (Note 2):
Investment management fees (Note 3) ............................................ 3,775,176
Custody fees ................................................................... 71,938
Audit and legal fees ........................................................... 18,129
Directors' fees (Note 3) ....................................................... 17,776
------------
3,883,019
Administration fees (Note 3):
Class A ..................................................................... 887
Class Y ..................................................................... 1,134
Class S ..................................................................... 532,878
Service fees (Note 3):
Class A ..................................................................... 458
------------
Total expenses .......................................................... 4,418,376
------------
Net investment income ................................................... 5,897,091
------------
Realized and unrealized gain (1oss):
Net realized gain on investment transactions ................................... 38,416,378
Net change in unrealized appreciation (depreciation) on
investments ................................................................. (108,654,819)
------------
Net realized and unrealized loss ..................................... (70,238,441)
------------
Net decrease in net assets resulting from operations ........................... $(64,341,350)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
Increase (Decrease) in Net Assets: December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Operations:
Net investment income ............................................. $ 5,897,091 $ 5,076,360
Net realized gain on investment transactions ...................... 38,416,378 56,071,743
Net change in unrealized appreciation (depreciation) on investments (108,654,819) 116,404,168
------------- ------------
Net increase (decrease) in net assets resulting from operations (64,341,350) 177,552,271
------------- ------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1* .......................................................... -- --
Class 2* .......................................................... -- (449)
Class 3* .......................................................... -- (1,067)
Class A .......................................................... (1,413) --
Class Y .......................................................... (7,850) --
Class S .......................................................... (5,891,102) (5,267,208)
------------- ------------
Total distributions from net investment income ................. (5,900,365) (5,268,724)
------------- ------------
From net realized gains:
Class 1* .......................................................... -- (16,515)
Class 2* .......................................................... -- (16,672)
Class 3* .......................................................... -- (16,782)
Class A .......................................................... (17,099) --
Class Y .......................................................... (54,356) --
Class S .......................................................... (39,773,593) (58,776,388)
------------- ------------
Total distributions from net realized gains .................... (39,845,048) (58,826,357)
------------- ------------
Net fund share transactions (Note 5):
Class 1* .......................................................... (192,471) 16,505
Class 2* .......................................................... (195,879) 17,114
Class 3* .......................................................... (198,007) 17,846
Class A .......................................................... 210,983 --
Class Y .......................................................... 654,505 --
Class S .......................................................... 102,162,760 120,087,619
------------- ------------
Increase in net assets from net fund share
transactions ............................................... 102,441,891 120,139,084
------------- ------------
Total increase (decrease) in net assets ........................... (7,644,872) 233,596,274
Net assets:
Beginning of period ............................................... 690,964,657 457,368,383
------------- ------------
End of period (including undistributed net investment income
of $126,877 and $0, respectively)............................... $ 683,319,785 $690,964,657
============= ============
</TABLE>
*Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were terminated
(See Note).
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
- --------------------------------------------------------------------------------
MassMutual Small Cap Value Equity Fund -- Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Class Y
------- -------
Year ended Year ended
12/31/98 + 12/31/98 +
------------ -----------
<S> <C> <C>
Net asset value, beginning of period $ 17.48 $ 17.51
------------ -----------
Income (loss) from investment operations:
Net investment income 0.03 *** 0.11 ***
Net realized and unrealized gain (loss) on
investments (1.78) (1.81)
------------ -----------
Total income (loss) from investment
operations (1.75) (1.70)
------------ -----------
Less distributions to shareholders:
From net investment income (0.12) (0.21)
From net realized gains (1.54) (1.54)
------------ -----------
Total distributions (1.66) (1.75)
------------ -----------
Net asset value, end of period $ 14.07 $ 14.06
============ ===========
Total Return (9.58)% (9.25)%
Ratios I Supplemental Data:
Net assets, end of period (000's) $174 $568
Net expenses to average daily net assets # 1.30% 0.85%
Net investment income to average daily net assets 0.19% 0.67%
Portfolio turnover rate 31% 31%
</TABLE>
<TABLE>
<CAPTION>
Class $ (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.61 $ 13.43 $ 11.44 $ 9.69 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income 0.13 0.13 0.31 0.19 0.04
Net realized and unrealized gain (loss)
on investments (1.67) 4.73 2.29 1.75 (0.31)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations (1.54) 4.86 2.60 1.94 (0.27)
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.13) (0.14) (0.30) (0.19) (0.04)
From net realized gains (0.88) (1.54) (0.31) -- --
------------ ------------ ------------ ------------ ------------
Total distributions (1.01) (1.68) (0.61) (0.19) (0.04)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 14.06 $ 16.61 $ 13.43 $ 11.44 $ 9.69
============ ============ ============ ============ ============
Total Return @ (9.02)% 36.36% 22.82% 20.01% (2.66)%
Ratios I Supplemental Data:
Net assets, end of period (000's) $682,578 $690,378 $456,935 $380,398 $310,789
Net expenses to average daily net assets # 0.6434% 0.6400% 0.6110% 0.6110% 0.6110% *
Net investment income to average daily net
assets 0.86% 0.89% 2.40% 1.78% 1.78% *
Portfolio turnover rate 31% 31% 28% 28% 4%
# 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: N/A 0.6515% 0.6546% 0.6553% 0.6681% *
</TABLE>
* Annualized
** For the period from October 3, ]994 (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.
+ Amounts have been restated to reflect reverse stock splits (see Note 9).
(1) Class 5 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.
62
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio Manager Report
- --------------------------------------------------------------------------------
What are the The objective and policies of the Fund are to:
investment objectives . achieve a high total rate of return over the long term
and policies . invest in a diversified portfolio of foreign and
for the MassMutual domestic equity securities
International . utilize dominant themes to guide investment decisions
Equity in foreign with respect to risks of investing
Fund? . securities (economic, political and social influences
that are expected to dictate long-term growth trends)
How did the Fund It was a disappointing year. For the 12 months ended
perform over the December 31, 1998, the Fund's Class S shares had a
past year? return of 5.05%, trailing the 19.99% return of the
Morgan Stanley Europe, Australia, Far East (EAFE)
Index, a market capitalization-weighted, unmanaged
index of over 1,000 foreign stocks. Although the Fund
did reasonably well in the first half of the year, our
emphasis on certain investment themes was not well
rewarded in the volatile second half of 1998.
After a good There were a number of factors at work. One of the key
run of performance investment themes for the Fund was Capital Market
in the previous Development. Our interpretation of this theme involved
couple of years, considerable exposure to European financial services
why did the Fund companies, especially banks. However, in the third
falter in 1998? quarter, Russia unexpectedly devalued its currency and
defaulted on much of its foreign debt. This, together
with resurgent anxiety about the possibility of the
economic stagnation spreading from Asia, led to
plunging stock markets worldwide. European banks were
especially affected because of investors' concerns
about their exposure to emerging markets. Banks were
also hurt because of the near-failure of a prominent
U.S. hedge fund. A number of European banks either
loaned money to hedge funds or had direct investments
in them. Investors worried that bank earnings would be
at risk in the event of a hedge fund debacle, and the
entire sector declined as a result.
Moreover, the Fund owns many medium- and small-
capitalization stocks. In the risk-averse market
environment of late 1998, investors punished those
stocks most during the pullback in equities and favored
large-capitalization stocks during the subsequent
recovery in November and December. Finally, the Fund
had some holdings in Latin America that were hurt-
unjustifiably, we think-in the general exodus from
emerging market investments that occurred in the third
quarter.
What strategy We tend to emphasize our investment themes and
did the Fund individual companies' basic business prospects rather
employ during than allocating capital strictly according to
the period? geographical preferences. However, during 1998 the
Fund's highest concentrations of holdings were in the
U.K., Europe and South America. For the most part, we
avoided Southeast Asia, Eastern Europe, South Africa
and other emerging markets. We believe South America
constitutes a special case. There are many world-class
corporations there that we feel have been substantially
undervalued by most market participants.
With respect to our dominant investment themes, we
adjusted our allocations in response to the
developments of the latter part of the year. At the end
of 1998, those allocations were roughly as follows:
Telecommunications & Media-26%, Emerging Consumer
Markets- 14.8%, Health Care-14.5%, Efficiency-Enhancing
Technology-13.9%, and Capital Market Development-13.3%.
In the latter half of 1998, we reduced Capital Market
Development-mostly by selling banks-by about 7% and
added approximately the same amount to
Telecommunications & Media. Within that last category,
we see substantial opportunities in three
sub-categories, all pertaining to Europe: digital
television, cellular telecommunications, and digital
fixed-line communications.
63
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
Which stocks did well Canal Plus is a French media company involved in pay
for the Fund, and which TV. Investors were attracted to the company because of
were disappointing? its involvement in the digital television market.
Energis is a digital telecommunications company in the
U.K, and Sonera is a Finnish telecommunications utility
that participates in the booming cellular
telecommunications market there. Both stocks helped the
Fund's performance. In Finland, virtually 100% of the
under-30 population uses the technology. Another solid
U.K performer was Cadbury Schweppes, which has a very
progressive, shareholder-friendly management. During
1998, the company took some positive steps to focus its
business and cut costs, including buying some bottlers
in the United States and selling Schweppes, its
non-U.S. soft drink business.
On the negative side, banks like Credit Suisse, Union
Bank of Switzerland, and Societe Generale did poorly
for the reasons mentioned earlier, and we sold those
holdings. Boskalis, a Dutch-based dredging company,
also turned in a disappointing performance. However,
the company is the world leader in its field, its
prospects remained good and the stock was selling for
about six times earnings--and yielding close to 5%--
near the end of 1998, so we held onto it.
What issues surround The International Equity Fund may be subject to an
the introduction of the additional risk regarding foreign securities holdings.
new European Currency? On January 1, 1999, eleven countries in the European
Monetary Union adopted the euro as their official
currency. However, their current currencies (for
example, the franc, the mark and the lira) will also
continue in use until January 1, 2002. After that date,
it is expected that only the euro will be used in those
countries. A common currency is expected to confer some
benefits in those markets, by consolidating the
government debt market for those countries and reducing
some currency risks and costs. But the conversion to
the new currency will affect the Fund operationally and
also has potential risks, some of which are listed
below. Among other things, the conversion will affect:
. Issuers in which the Fund invests, because of
changes in the competitive environment from a
consolidated currency market and greater
operational costs from converting to the new
currency. This might depress stock values.
. Vendors the Fund depends on to carry out its
business, such as custodians (which hold the
foreign securities the Funds buy), the Adviser and
Sub-Advisers (which must price the Fund's
investments to deal with the conversion to the
euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there
could be delays in settlements and additional
costs to the Fund.
. Exchange contracts and derivatives that are
outstanding during the transition to the euro. The
lack of currency rate calculations between the
affected currencies and the need to update the
Fund's contracts could pose extra costs to the
Fund.
The Sub-Adviser to the International Equity Fund is
upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund custodian
has advised the Adviser of its plans to deal with the
conversion including how it will update its record
keeping systems and handle the redenomination of
outstanding foreign debt. The possible effect of these
factors on the Funds' investments cannot be determined
at this time, but they may reduce the value of some of
the Funds' holdings and increase operational costs.
64
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
How is the Fund Like other businesses and governments around the world,
Administrator preparing the Fund could be adversely affected if the computer
for the year 200 Issue? systems used by the Fund's service providers and those
with which they do business do not properly recognize
the Year 2000. This is commonly known as the "Year 2000
issue." In 1996, MassMutual began an enterprise-wide
process of indentifying, evaluating and implementing
changes to its computer systems to address the Year
2000 issue. MassMutual is addressing the Year 2000
issue internally with modifications to existing
programs and conversions to new programs. MassMutual
has advised the Fund that the Year 2000 issue is one of
MassMutual's highest business operational priorities.
MassMutual is also seeking assurances from the Fund's
other service providers in order to identify and
resolve Year 2000 issues. In addition, because the Year
2000 issue affects virtually all organizations, the
companies in which the Fund invests could be adversely
impacted by the Year 2000 issue. The extent of such
impact cannot be predicted.
What is your outlook? Our outlook is positive for the geographical areas and
investment themes we targeted in 1998. Western Europe,
especially the U.K., and South America are expected to
do well. The outlook for Europe is especially bright if
interest rates there continue to trend lower. Strength
in the Euro, the common currency for countries in the
European Monetary Union that began trading on January
1, 1999, would also help to attract investment capital
to the region.
Although we are not certain of the timing, we believe
that equity markets in Brazil and Argentina have the
potential to perform explosively on the upside within
the next year or two. We would continue to avoid Japan
and the rest of Asia because of the region's current
financial problems and the many structural obstacles--
political and social as well as financial--that will
likely prevent those problems from being solved
expeditiously. Within our preferred markets, our
investment themes should reward shareholders with
competitive returns over the long term.
65
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Portfolio Manager Report (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Hypothetical Investments in MassMutual International Equity Fund Class S and the
Morgan Stanley Capital International Index for Europe, Australia and the Far
East (MSCI EAFE)
- -------------------------------------------------------------------------------
MassMutual International Equity Fund
Total Return One Year Average Annual
1/1/98 - 12/31/98 10/3/94 - 12/31/98
Class S 5.05% 8.36%
- -------------------------------------------------------------------------------
MSCI EAFE
Index 19.99% 8.70%
- -------------------------------------------------------------------------------
Hypothetical Investments in MassMutual International Equity Fund Class A and
Class Y and the Morgan Stanley Capital International Index for Europe, Australia
and the Far East (MSCI EAFE)
- -------------------------------------------------------------------------------
MassMutual International Equity Fund
Total Return One Year
1/1/98 - 12/31/98
- -------------------------------------------------------------------------------
Class A 4.40%
Class Y 4.84%
- -------------------------------------------------------------------------------
MSCI EAFE
Index 19.99%
- -------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE INCEPTION
[LINE GRAPH APPEARS HERE]
CLASS S MCSI EAFE
------- ---------
10/3/94 10,000 10,000
12/94 9,280 9,898
6/95 9,510 10,155
12/96 9,756 11,008
6/96 10,734 11,504
12/96 11,562 11,672
6/97 13,476 12,981
12/97 13,388 11,880
6/98 15,788 13,772
12/98 14,064 14,255
[LINE GRAPH APPEARS HERE]
CLASS A CLASS Y MSCI
------- ------- ----
12/97 10,000 10,000 10,000
3/98 11,380 11,390 11,471
6/98 11,760 11,780 11,593
9/98 9,208 9,242 9,945
12/98 10,440 10,484 11,999
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.
----------------------------------------
MassMutual International Equity Fund
Largest Country Weightings (12/31/98)
----------------------------------------
% of Fund
United Kingdom 33.74%
France 17.60%
The Netherlands 7.33%
Germany 6.93%
Switzerland 4.80%
Brazil 4.49%
Portugal 4.27%
Australia 2.59%
Italy 2.55%
Japan 2.33%
---------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio of Investments
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1998
Number of
Shares Market Value
--------- ------------
EQUITIES - 98.5%
Banking - 6.2%
Banco de Galicia y
Bueno Aires SA de
CV, Sponsored ADR 312,254 $ 5,503,477
Banco Espirito Santo e
Comercial de Lisboa,
SA 232,000 7,200,793
Banco Pinto & Sotto
Mayor, SA 277,080 5,253,465
Bank Austria AG 110,000 5,596,668
National Westminster
Bank PLC 360,000 6,942,024
Societe Generale 20,000 3,240,238
Unibanco-Uniao de
Banco Brasileiros SA,
Sponsored GDR 410,500 5,926,594
----------
39,663,259
Computer Hardware - 1.4%
Imagineer Co. Ltd. 205,000 1,726,551
Psion PLC 759,100 7,350,593
----------
9,077,144
==========
Computer Software/Services - 4.7%
Cap Gemini SA 48,000 7,707,830
JBA Holdings PLC 795,000 2,513,154
Lernout & Hauspie
Speech Products NV* 78,900 2,574,113
Misys PLC 1,339,080 9,752,921
Unit 4* 301,300 7,722,470
----------
30,270,488
==========
Diversified Financial - 3.1%
Julius Baer Holding
AG, Cl. B 4,250 14,125,591
Singer & Friedlander
Group PLC 3,133,400 5,682,421
----------
19,808,012
==========
Electric Utilities - 0.4%
Cia Paranaense
Energia, Sponsored
ADR, Preference B
Shares 380,000 2,707,500
==========
Electrical Equipment - 1.2%
Halma PLC 3,682,900 7,414,414
----------
Electronics - 2.4%
ST Microelectronics
NV, NY Shares* 200,000 15,612,500
----------
Energy Services & Producers - 1.5%
Cie Generate de
Geophysique SA* 59,000 3,440,078
Coflexip SA,
Sponsored ADR 200,000 6,425,000
----------
9,865,078
----------
Food & Beverage - 3.8%
Cadbury Schweppes
PLC 1,430,000 24,387,077
----------
Healthcare/Drugs - 7.3%
Biocompatibles
International PLC* 4,545,626 6,731,163
Genset Sponsored
ADR* 213,300 5,892,413
Glaxo Wellcome PLC 500,481 17,220,250
Novartis AG 8,236 16,190,379
Oxford Molecular
Group PLC* 1,153,000 968,751
----------
47,002,956
----------
Healthcare/Supplies & Services - 6.1%
Fresenius Medical
Care AG 216,000 15,043,903
Fresenius Medical
Care AG Preference 11,000 501,944
Nichii Gakkan
Company 150,000 6,250,185
Novogen Ltd.* 1,845,000 3,111,962
Ortivus AB, A Shares* 228,600 1,494,747
Ortivus AB, B Shares* 609,010 4,432,984
Ortivus AB, B Shares* 80,000 582,320
Pliva d.d., Sponsored
GDR 144A 455,200 7,513,339
----------
38,931,384
==========
Industrial Services - 4.7%
Aegis Group PLC 5,761,400 8,339,627
Ban Holdings AF,
Preference 145,611 5,467,533
Boskalis Westminster 481,735 7,777,901
ICTS lnternational NV* 245,000 1,240,313
VBH Holding AG 352,000 7,291,398
----------
30,116,772
==========
Insurance - 4.0%
Axa 55,000 7,975,286
Istituto Nazionale delle
Assicurazioni 3,400,000 9,000,480
Ockham Holdings PLC 2,505,000 3,250,989
Reinsurance Australia
Corp. Ltd. 3,678,414 5,642,687
----------
25,869,442
==========
Leisure & Entertainment - 4.0%
Granada Group PLC 682,580 12,066,581
Lusomundo SGPS SA* 538,400 6,751,805
Nintendo Co. Ltd. 69,400 6,737,172
----------
25,555,558
==========
Manufacturing - 3.1%
Chargeurs
International SA 115,600 6,394,622
Saner, Inc. 200,000 1,475,000
Williams PLC 2,127,638 12,080,090
----------
19,949,712
==========
(Continued)
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Portfolio of Investments (Continued)
- --------------------------------------------------------------------------------
Number of
Shares Market Value
--------- ------------
Media -- 10.5%
Canal Plus 108,500 $ 29,620,891
Carlton
Communications PLC 900,000 8,280,720
Grupo Televisa SA,
Sponsored GDR* 295,000 7,282,813
ProSieben Media AG,
Preferred 181,300 8,686,591
Roto Smeets de Boer 135,000 5,323,266
TeleWest
Communications plc* 2,753,255 7,947,821
-------------
67,142,102
=============
Non-Durable Household Goods -- 1.9%
Wella AG 2,000 1,368,938
Wella AG Preference 12,900 10,843,429
-------------
12,212,367
=============
Oil & Gas -- 1.5%
Expro International
Group PLC 1,175,000 5,767,135
Petroleo Brasileiro SA,
Preference 33,233,000 3,768,622
-------------
9,535,757
=============
Publishing & Printing -- 0.9%
Singapore Press
Holdings Ltd. 511,200 5,545,907
=============
Real Estate -- 1.4%
Brazil Realty SA,
GDR 144A 176,000 2,214,203
IRSA Inversiones V
Representaciones, SA 2,399,324 6,580,147
-------------
8,794,350
=============
Retail: General -- 2.9%
SkyePharma PLC* 8,390,700 10,854,210
Sonae Investimentos 160,000 7,778,512
-------------
18,632,722
Retail: Specialty -- 1.3%
Dixons Group PLC 600,000 8,440,440
-------------
Telecommunications -- 11.0%
Altran Technologies
SA 103,000 24,855,672
British Sky
Broadcasting Group
PLC 1,770,000 13,443,504
Cable & Wireless
Optus Limited* 3,600,000 7,573,680
Kinnevik Investments
AB Free, Series B 280,000 6,563,424
Societe Europeene de
Communication SA, A
Shares, Sponsored
ADR* 12,000 223,500
Societe Europeene de
Communication SA,
B Shares, Sponsored
ADR* 108,000 1,903,500
Sonera Group 0YJ* 485,550 8,630,651
Tandberg Television
ASA* 785,000 6,491,244
-------------
69,685,175
=============
Telephone Utilities -- 9.4%
ASM lithography
Holding NV* 243,300 7,441,598
COLT Telecom Group
PLC* 600,000 8,949,600
Embratel Partipacoes
SA* 137,000 1,909,438
Energis PLC* 1,105,000 24,635,865
Tele Centro Oeste
Celular Participacoes
SA* 45 132
Tele Centro Sul
Participacoes SA* 27,400 1,145,663
Tele Norte Leste
Participacoes SA* 137,000 1,703,938
Tele Sudeste Celular
Participacoes SA* 27,400 566,838
Telecom Italia Mobile
SpA 960,000 7,102,944
Telecomunicacoes
Brasileiras SA,
Sponsored ADR 137,000 14,988
Telesp Celular
Partcipacoes SA* 54,800 959,000
Telesp Celular SA,
Cl. B* 68,680,000 3,124,940
Telesp Participacoes
SA* 137,000 3,031,125
-------------
60,586,069
=============
Transportation -- 3.6%
lnternatio-Muller NV 266,799 6,610,746
MIF Ltd.* 334,194 6,579,645
Smit Internationale
NV 462,500 10,178,284
-------------
23,368,675
=============
Water Companies -- 0.2%
CIA de Saneamento
Basico do Estado de
SanPaulo 17,304,800 1,309,973
-------------
TOTAL EQUITIES 631,484,833
(Cost $618,650,923) -------------
WARRANTS -- 0.0%
Healthcare/Drugs -- 0.0%
Biocompatibles
International PLC
Wts., Exp. 4/99* 449,700 $ 52,390
-------------
TOTAL WARRANTS 52,390
(Cost $10,675) -------------
Principal
Amount Market Value
--------- ------------
SHORT-TERM INVESTMENTS -- 1.6%
Commercial Paper -- 1.6%
Countrywide Funding
Corp.
5.050% 1/04/1999 $ 10,200,000 10,195,708
-------------
TOTAL SHORT-TERM
INVESTMENTS 10,195,708
-------------
(At Amortized Cost)
TOTAL INVESTMENTS -- 100.1% 641,732,931
(Cost $628,857,306)+
Other Assets/
(Liabilities) -- (0.1%) (597,581)
-------------
NET ASSETS -- 100.0% $ 641,135,350
=============
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. 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.
68
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund -- Financial Statements
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Assets:
Investments, at value (cost $618,661,598) (Note 2) ................. $631,537,223
Short-term investments, at amortized cost (Note 2) ................. 10,195,708
------------
Total Investments .............................................. 641,732,931
Cash ............................................................... 107,516
Foreign currency, at value (cost $184,767) ......................... 182,919
Receivables from:
Fund shares sold ................................................ 1,295,426
Dividends ....................................................... 245,760
Foreign taxes withheld .......................................... 755,566
------------
Total assets ................................................ 644,320,118
------------
Liabilities:
Payables for:
Investments purchased .......................................... 168,505
Fund shares redeemed ........................................... 2,452,537
Directors' fees and expenses (Note 3) .......................... 4,066
Affiliates (Note 3):
Investment management fees .................................. 455,526
Administration fees ......................................... 41,523
Service fees ................................................ 79
Accrued expenses and other liabilities ............................. 62,532
------------
Total liabilities ........................................... 3,184,768
------------
Net assets ......................................................... $641,135,350
============
Net assets consist of
Paid-in capital .................................................... $623,001,417
Accumulated net realized gain on investments and
foreign currency translations .................................. 5,183,290
Net unrealized appreciation on investments, forward foreign currency
contracts, foreign currency and other assets and liabilities ... 12,950,643
------------
$641,135,350
============
Net assets:
Class A ............................................................ $134,583
============
Class Y ............................................................ $502,918
============
Class S ............................................................ $640,497,849
============
Shares outstanding:
Class A* ........................................................... 11,834
============
Class Y* ........................................................... 44,247
============
Class S ............................................................ 56,352,157
============
Net asset value, offering price and
redemption price per share:
Class A* .......................................................... $ 11.37
============
Class Y* ........................................................... $ 11.37
============
Class S ............................................................ $ 11.37
============
</TABLE>
*Amounts have been restated to reflect reverse stock splits (See Note 9).
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
Year ended
December 31,1998
----------------
<S> <C>
Investment income: (Note 2)
Dividends (net of withholding tax of $1,271,518) .................... $ 10,018,541
Interest ............................................................ 1,134,798
--------------
Total investment income ...................................... 11,153,339
--------------
Expenses (Note 2):
Investment management fees (Note 3) ................................ 5,327,317
Custody fees ....................................................... 660,393
Audit and legal fees ............................................... 19,817
Directors' fees (Note 3) ........................................... 17,773
--------------
6,025,300
Administration fees (Note 3):
Class A ......................................................... 655
Class Y ......................................................... 817
Class S ......................................................... 484,690
Service fees (Note 3):
Class A ......................................................... 345
--------------
Total operating expenses .................................... 6,511,807
--------------
Interest Expense (Note 8) .......................................... 88,828
--------------
Net investment income ....................................... 4,552,704
--------------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain on:
Investment transactions ........................................ 62,572,519
Foreign currency transactions .................................. 3,025,643
--------------
Net realized gain ........................................... 65,598,162
--------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................... (45,841,444)
Translation of assets and liabilities in foreign currencies .... (2,136,855)
--------------
Net unrealized loss ......................................... (47,978,299)
--------------
Net realized and unrealized gain from investments
and foreign currency ........................................ 17,619,863
--------------
Net increase in net assets resulting from operations ............... $ 22,172,567
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income ............................................... $ 4,552,704 $ 2,575,473
Net realized gain on investments and foreign currency transactions... 65,598,162 46,842,567
Net change in unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies.. (47,978,299) 13,026,206
------------- ------------
Net increase in net assets resulting from operations ............ 22,172,567 62,444,246
------------- ------------
Distributions to shareholders (Note 2):
From net investment income:
Class 1* ............................................................ -- (91)
Class 2* ............................................................ -- (133)
Class 3* ............................................................ -- (256)
Class A ............................................................. (1,652) --
Class Y ............................................................. (6,174) --
Class S ............................................................. (7,863,557) (3,046,471)
------------- ------------
Total distributions from net investment income .................. (7,871,383) (3,046,951)
------------- ------------
From net realized gains:
Class 1* ............................................................ -- (4,184)
Class 2* ............................................................ -- (4,229)
Class 3* ............................................................ -- (4,243)
Class A ............................................................. (15,476) --
Class Y ............................................................. (57,831) --
Class S ............................................................. (73,650,942) (17,495,727)
------------- ------------
Total distributions from net realized gains ..................... (73,724,249) (17,508,383)
------------- ------------
Net fund share transactions (Note 5):
Class 1* ............................................................ (128,942) 4,275
Class2* ............................................................. (131,194) 4,362
Class 3* ............................................................ (132,039) 4,499
Class A ............................................................. 149,376 --
Class Y ............................................................. 549,024 --
Class S ............................................................. 153,070,256 148,628,074
------------- ------------
Increase in net assets from net fund share
transactions ................................................ 153,376,481 148,641,210
------------- ------------
Total increase in net assets ........................................ 93,953,416 190,530,122
Net assets:
Beginning of period ................................................. 547,181,934 356,651,812
------------- ------------
End of period (including undistributed net investment
income of $0 and $293,037 ....................................... $ 641,135,350 $547,181,934
============= ============
</TABLE>
* Effective January 1, 1998, Class 1, Class 2, and Class 3 shares were
terminated (See Note 1).
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
- --------------------------------------------------------------------------------
MassMutual International Equity Fund - Financial Statements (Continued)
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Class A Class Y
------- -------
Year ended Year ended
12/31/98 + 12/31/98 +
----------- ------------
<S> <C> <C>
Net asset value, beginning of period $ 12.81 $ 12.83
----------- ------------
Income (loss) from investment operations:
Net investment income 0.01*** 0.06***
Net realized and unrealized gain (loss) on
investments and foreign currency 0.53 0.55
----------- ------------
Total income (loss) from investment
operations 0.54 0.61
----------- ------------
Less distributions to shareholders:
From net investment income (0.12) (0.21)
From net realized gains (1.86) (1.86)
----------- ------------
Total distributions (1.98) (2.07)
----------- ------------
Net asset value, end of period $ 11.37 $ 11.37
=========== ============
Total Return 4.40% 4.84%
Ratios / Supplemental Data:
Net assets, end of period (000's) $135 $503
Net expenses to average daily net assets # 1.69% 1.23%
Net investment income to average daily net assets 0.10% 0.43%
Portfolio turnover rate 80% 80%
<CAPTION>
Class $ (1)
-----------
Year ended Year ended Year ended Year ended Period ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94**
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.38 $ 11.11 $ 9.58 $ 9.28 $ 10.00
------------- ------------- ------------- ------------- ------------
Income (loss) from investment operations:
Net investment income 0.10 0.06 0.06 0.07 0.00
Net realized and unrealized gain (loss) on
investments and foreign currency 0.51 1.69 1.71 0.41 (0.72)
------------- ------------- ------------- ------------- ------------
Total income (loss) from investment
operations 0.61 1.75 1.77 0.48 (0.72)
------------- ------------- ------------- ------------- ------------
Less distributions to shareholders:
From net investment income (0.17) (0.07) (0.24) (0.07) --
In excess of net investment income -- -- -- (0.11) --
From net realized gains (1.45) (0.41) -- -- --
------------- ------------- ------------- ------------- ------------
Total distributions (1.62) (0.48) (0.24) (0.18) --
------------- ------------- ------------- ------------- ------------
Net asset value, end of period $ 11.37 $ 12.38 $ 11.11 $ 9.58 $ 9.28
============= ============= ============= ============= ============
Total Return @ 5.05% 15.79% 18.51% 5.13% (7.20)%
Ratios / Supplemental Data:
Net assets, end of period (000's) $640,498 $546,790 $356,311 $220,718 $150,199
Net expenses to average daily net assets # 1.0389% 1.0580% 1.0020% 1.0020% 1.0020%*
Net investment income to average daily net assets 0.73% 0.53% 0.59% 0.76% 0.04%*
Portfolio turnover rate 80% 83% 58% 121% 18%
# 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 N/A 1.0684% 1.0718% 1.0920% 1.0877%*
</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.
+ Amounts have been restated to reflect reverse stock splits (See Note 9).
(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.
72
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. The Fund 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. On October 3, 1994, the following seven series of the
Trust (each individually referred to as a "Fund" or
collectively as the "Funds") commenced operations: 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 Core Equity Fund ("Core Equity Fund") formerly
known as MassMutual Value Equity Fund, MassMutual Small Cap
Value Equity Fund ("Small Cap Value Equity Fund"), and
MassMutual International Equity Fund ("International Equity
Fund"). A new series of the Trust, MassMutual Indexed Equity
Fund ("Indexed Equity Fund"), commenced operations March 1,
1998. Separate financial statements are prepared for the
Indexed Equity Fund, which has a February 28 fiscal year end.
During the reporting period, each Fund had three classes of
shares: Class A, Class Y, and Class S. Class A and Y shares
began operations January 1, 1998. Class 4 shares of the Funds
were redesignated as Class S shares. The Class 1, Class 2, and
Class 3 shares were subsequently terminated by the Board of
Trustees ("Trustees"). The principal economic difference among
the Classes is the level of service and administration fees
borne by the Classes. Class A shares also bear a Contingent
Deferred Sales Charge (See Note 3). The classes of shares are
offered to different types of investors, as outlined in the
Trust's Prospectus. The Trust has approved an additional share
class (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 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, 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.
73
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
Securities Each Fund may lend its securities to qualified brokers. The
Lending loans are collateralized at all times with cash or securities
with a market value at least equal to 102% of the market value
of the securities on loan. As with other extensions of credit,
the Funds may bear the risk of delay in recovery or even loss
of rights in the collateral should the borrower of the
securities fail financially. The Funds receive compensation
for lending their securities. At December 31, 1998, the Funds
loaned securities having the following market values,
collateralized by cash, which were invested in short-term
instruments in the following amounts:
Securities
on loan Collateral
Core Bond $ 65,767,484 $ 67,482,850
Balanced 12,504,119 12,837,200
Core Equity 98,249,513 101,082,900
Small Cap Value Equity 6,756,985 7,015,456
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 Internal Revenue Code of
1986, as amended (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 any
Distributions to net realized capital gains of each Fund are declared and paid
Shareholders 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.
74
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Forward Each Fund may enter into forward foreign currency contracts in
Foreign order to convert foreign denominated securities or obligations
Currency to U.S. dollar denominated investments. The International
Contracts 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.
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. There
are no obligations for the International Equity Fund under
these financial instruments at December 31, 1998.
Forward Each Fund may purchase or sell securities on a "when issued"
Commitments or delayed delivery or on a forward commitment basis. The
Funds use forward commitments to manage interest rate exposure
or as a temporary substitute for purchasing or selling
particular debt securities. 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. There are no open
obligations under these forward commitments at December 31,
1998.
Allocation of In maintaining the records for the Funds, the income and
Operating expense accounts are allocated to each class of shares.
Activity 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 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.
75
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
3. Management
Fees and Other
Transactions
With Affiliates
Investment Under an agreement between the Trust and MassMutual,
Management Fees MassMutual is responsible for providing investment management
for 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%
Core 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) Babson
manage the investment and reinvestment of the assets of the
Core Equity Fund, the Small Cap Value Equity Fund and the Core
Equity sector of the Balanced Fund, and (2) HarbourView manage
the investment and reinvestment of the assets of the
International Equity Fund.
MassMutual pays Babson a fee equal to an annual rate of .13%
of the average daily net asset value of the Core Equity Fund
and the Core 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 Under separate administrative and shareholder services
Fees 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 A Class Y Class $
------- ------- -------
Prime Fund .4823% .2823% .0777%
Short-Term Bond Fund .4767% .2767% .0777%
Core Bond Fund .4832% .2832% .0777%
Balanced Fund .4852% .2852% .0777%
Core Equity Fund .4875% .2875% .0777%
Small Cap Value Equity Fund .4845% .2845% .0777%
International Equity Fund .4752% .2752% .0774%
At December 1, 1998, the administrative services fee for Class
Y shares of the MassMutual Prime Fund, Short Term-Bond Fund,
Core Bond Fund and International Equity Fund was adjusted to
.0823%, .1767%, .1832% and .1752% respectively.
Service Fees OppenheimerFunds Distributor, Inc. ("OFDI") acts as
distributor to each Fund. MML Investor Services, Inc.
("MMLISI") serves as sub-distributor to each Fund. MassMutual
has a controlling interest in OFDI and MMLISI is a wholly
owned subsidiary of MassMutual. Pursuant to separate Rule
12b-1 Plans adopted by the Funds, Class A shares of each Fund
pay a service fee (the "Service Fee") at the annual rate of
.25% of the Fund's average daily net assets attributable to
the Class A shares. The Adviser receives the Service Fee and
may pay all or a portion to brokers and other financial
intermediaries, including the distributor or the
sub-distributor, for personal services rendered to Investors
in Class A shares and/or maintenance of Class A shareholder
accounts.
76
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Contingent A Class A Contingent Deferred Sales Charge may be deducted
Deferred Sales from the proceeds on any redemption made within 12 months of
Charge the date on which the investor first purchased Class A shares
of any series of the Trust. If imposed, the Class A Contingent
Deferred Sales Charge will be equal to 1.00% of the lesser of:
(1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or
capital gains distributions); and (2) the original offering
price (which is the original net asset value of the redeemed
shares). No Class A Contingent Deferred Sales Charge is
charged on exchange of shares, as described in the Trust's
Prospectus. However, if the shares acquired by exchange are
redeemed within 12 months of the initial purchase of the
exchanged shares, the Class A Contingent Deferred Sales Charge
will apply.
Other Certain officers and trustees of the Funds are also officers
of MassMutual. The compensation of unaffiliated directors of
the Funds is borne by the Funds.
At December 31, 1998, MassMutual or separate investment
accounts thereof owned 99.92% of the outstanding shares of the
Trust.
Affiliate As of the close of business on July 31, 1998, MassMutual
Transaction separate investment accounts purchased Class S shares of
certain Funds in exchange for the contribution of securities
having equivalent value, as determined in accordance with the
procedures adopted by the Funds to value assets pursuant to
Rule 17a-7 under the Investment Company Act of 1940, as
amended. These separate investment accounts had been
established and maintained by Connecticut Mutual Life
Insurance Company, which was merged with and into MassMutual
as of February 29, 1996. MassMutual succeeded to these
separate investment accounts by operation of law.
Each MassMutual separate investment account had the identical
investment adviser, portfolio manager and similar investment
objective as the Fund to which it contributed securities.
MassMutual separate investment accounts purchased 67,513.069
Class S shares of MassMutual Prime Fund in exchange for
securities having a value of $10,497,607, MassMutual separate
investment accounts purchased 1,764,834.394 Class S shares of
MassMutual Short-Term Bond Fund in exchange for securities
having a value of $18,671,948, MassMutual separate investment
accounts purchased 2,916,145.299 Class S shares of MassMutual
Core Bond Fund in exchange for securities having a value of
$32,835,796, MassMutual separate investment accounts purchased
1,889,423.457 Class S shares of MassMutual Core Equity Fund
(previously known as MassMutual Value Equity Fund) in exchange
for securities having a value of $33,896,257, and MassMutual
separate investment accounts purchased 1,344,543.249 Class S
shares of MassMutual International Equity Fund in exchange for
securities having a value of $20,006,804.
4. Purchases And Cost of purchases and proceeds from sales of investment
Sales Of securities (excluding short-term investments) for the year
Investments ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Long-Term U.S.
Government Other Long-term
Securities Securities
--------------- -----------------
<S> <C> <C>
Purchases Short-Term Bond Fund $ 69,830,344 $ 20,995,879
Core Bond Fund 279,324,620 170,783,725
Balanced Fund 80,497,294 119,459,904
Core Equity Fund - 407,930,326
Small Cap Value Equity Fund - 210,784,662
International Equity Fund - 617,808,132
Sales Short-Term Bond Fund $ 51,093,375 $ 12,501,681
Core Bond Fund 182,610,065 60,517,219
Balanced Fund 42,738,232 108,513,284
Core Equity Fund - 443,388,514
Small Cap Value Equity Fund - 198,736,424
International Equity Fund - 479,487,824
</TABLE>
77
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
5. Capital Share The Funds are authorized to issue an unlimited number of
Transactions 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, 1998 December 31, 1997 December 31, 1998 December 31, 1997
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 -- -- 36 $ 5,393
Redeemed (758) $(114,315) -- -- (770) $(116,323) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (758) $(114,315) 31 $ 4,723 (770) $(116,323) 36 $ 5,393
======== ========= ========= ========= ========= ========= ========= =========
Short-Term Bond Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 501 5,151 -- -- 571 5,867
Redeemed (11,916) (122,436) -- -- (12,115) (124,585) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (11,916) $(122,436) 501 $ 5,151 (12,115) $(124,585) 571 $ 5,867
======== ========= ========= ========= ========= ========= ========= =========
Core Bond Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 561 6,094 -- -- 634 6,894
Redeemed (12,073) (131,171) -- -- (12,265) (133,481) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase(decrease) (12,073) $(131,171) 561 $ 6,094 (12,265) $(133,481) 634 $ 6,894
======== ========= ========= ========= ========= ========= ========= =========
Balanced Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 722 9,696 -- -- 787 10,600
Redeemed (11,560) (156,975) -- -- (11,735) (159,724) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (11,560) $(156,975) 722 $ 9,696 (11,735) $(159,724) 787 $ 10,600
======== ========= ========= ========= ========= ========= ========= =========
Core Equity Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 915 15,245 -- -- 979 16,362
Redeemed (11,555) (196,012) -- -- (11,719) (199,451) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (11,555) $(196,012) 915 $ 15,245 (11,719) $(199,451) 979 $ 16,362
======== ========= ========= ========= ========= ========= ========= =========
Small Cap Value Equity Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 1,011 16,505 -- -- 1,042 17,114
Redeemed (11,677) (192,471) -- -- (11,809) (195,879) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (11,677) $(192,471) 1,011 $ 16,505 (11,809) $(195,879) 1,042 $ 17,114
======== ========= ========= ========= ========= ========= ========= =========
International Equity Fund
Sold -- -- -- -- -- -- -- --
Issued as reinvestment
of dividends -- -- 350 4,275 -- -- 354 4,362
Redeemed (10,526) (128,942) -- -- (10,635) (131,194) -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (10,526) $(128,942) 350 $ 4,275 (10,635) $(131,194) 354 $ 4,362
======== ========= ========= ========= ========= ========= ========= =========
</TABLE>
78
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 3 Class A
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1998
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Prime Fund
Sold -- -- -- -- 165 $ 114,317
Issued as reinvestment of dividends -- -- 39 $ 5,838 629 94,657
Redeemed (777) $(117,416) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (777) $(117,416) 39 $ 5,838 794 $ 208,974
======== ========= ======= ========= ======== =========
Short-Term Bond Fund
Sold -- -- -- -- 11,943 122,436
Issued as reinvestment of dividends -- -- 614 6,313 598 6,169
Redeemed (12,213) (125,819) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (12,213) $(125,819) 614 $ 6,313 12,541 $ 128,605
======== ========= ======= ========= ======== =========
Core Bond Fund
Sold -- -- -- -- 12,081 131,171
Issued as reinvestment of dividends -- -- 680 7,406 693 7,660
Redeemed (12,379) (134,838) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (12,379) $(134,838) 680 $ 7,406 12,774 $ 138,831
======== ========= ======= ========= ======== =========
Balanced Fund
Sold -- -- -- -- 11,185 156,981
Issued as reinvestment of dividends -- -- 826 11,159 1,280 18,167
Redeemed (11,820) (161,227) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (11,820) $(161,227) 826 $ 11,159 12,465 $ 175,148
======== ========= ======= ========= ======== =========
Core Equity Fund
Sold -- -- -- -- 10,877 195,979
Issued as reinvestment of dividends -- -- 1,020 17,066 1,477 26,911
Redeemed (11,813) (201,310) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (11,813) $(201,310) 1,020 $ 17,066 12,354 $ 222,890
======== ========= ======= ========= ======== =========
Small Cap Value Equity Fund
Sold -- -- -- -- 11,008 192,471
Issued as reinvestment of dividends -- -- 1,085 17,846 1,356 18,512
Redeemed (11,922) (198,007) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (11,922) $(198,007) 1,085 $ 17,846 12,364 $ 210,983
======== ========= ======= ========= ======== =========
International Equity Fund
Sold -- -- -- -- 10,066 128,943
Issued as reinvestment of dividends -- -- 365 4,499 1,768 20,433
Redeemed (10,680) (132,039) -- -- -- --
-------- --------- ------- --------- -------- ---------
Net increase (decrease) (10,680) $(132,039) 365 $ 4,499 11,834 $ 149,376
======== ========= ======= ========= ======== =========
</TABLE>
79
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Y Class S
Year ended Year ended Year ended
December 31, 1998 December 31, 1998 December 31, 1997
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Prime Fund
Sold 3,752 $ 2,693,260 4,115,282 $ 638,299,753 2,313,757 $ 356,901,047
Issued as reinvestment
of dividends 2,924 440,359 84,589 12,743,282 89,849 13,552,104
Redeemed (2,987) (2,160,066) (4,129,942) (641,242,129) (2,516,899) (387,704,105)
------- ------------- ---------- ------------- ------------ -------------
Net increase (decrease) 3,689 $ 973,553 69,929 $ 9,800,906 (113,293) $ (17,250,954)
======= ============= ========== ============= ============ =============
Short-Term Bond Fund
Sold 24,718 253,405 17,247,226 181,488,648 9,428,262 98,207,327
Issued as reinvestment
of dividends 1,355 13,960 1,435,196 14,781,099 1,038,249 10,611,443
Redeemed -- -- (10,729,747) (113,935,929) (5,254,453) (54,663,274)
------- ------------- ---------- ------------- ------------ -------------
Net increase 26,073 $ 267,365 7,952,675 $ 82,333,818 5,212,058 $ 54,155,496
======= ============= ========== ============= ============ =============
Core Bond Fund
Sold 34,044 376,986 38,073,055 432,227,434 18,573,681 200,529,976
Issued as reinvestment
of dividends 2,137 23,662 3,534,486 39,029,032 2,529,434 27,329,767
Redeemed -- -- (19,631,777) (221,930,815) (13,062,080) (141,570,384)
------- ------------- ---------- ------------- ------------ -------------
Net increase 36,181 $ 400,648 21,975,764 $ 249,325,651 8,041,035 $ 86,289,359
======= ============= ========== ============= ============ =============
Balanced Fund
Sold 66,553 998,046 20,316,077 292,097,210 15,490,780 208,070,969
Issued as reinvestment
of dividends 7,477 106,178 4,299,084 60,833,346 3,601,954 48,404,059
Redeemed -- -- (18,473,081) (263,514,399) (16,501,676) (221,896,742)
------- ------------- ---------- ------------- ------------ -------------
Net increase 74,030 $ 1,104,224 6,142,080 $ 89,416,157 2,591,058 $ 34,578,286
======= ============= ========== ============= ============ =============
Core Equity Fund
Sold 36,358 680,054 44,529,203 800,704,772 42,809,442 708,198,212
Issued as reinvestment
of dividends 4,711 86,146 14,432,891 260,360,335 16,938,371 282,797,539
Redeemed (76) (1,406) (52,073,640) (934,469,135) (43,586,898) (722,935,752)
------- ------------- ---------- ------------- ------------ -------------
Net increase 40,993 $ 764,794 6,888,454 $ 126,595,972 16,160,915 $ 268,059,999
======= ============= ========== ============= ============ =============
Small Cap Value Equity Fund
Sold 35,834 592,343 17,908,247 280,817,097 14,575,709 230,041,190
Issued as reinvestment
of dividends 4,565 62,162 3,355,752 45,664,695 3,890,912 64,043,615
Redeemed -- -- (14,284,755) (224,319,032) (10,914,681) (173,997,186)
------- ------------- ---------- ------------- ------------ -------------
Net increase 40,399 $ 654,505 6,979,244 $ 102,162,760 7,551,940 $ 120,087,619
======= ============= ========== ============= ============ =============
International Equity Fund
Sold 38,055 478,075 24,866,276 327,156,692 22,135,252 274,603,312
Issued as reinvestment
of dividends 6,192 70,949 7,099,782 81,504,250 1,662,863 20,542,197
Redeemed -- -- (19,794,239) (255,590,686) (11,688,395) (146,517,435)
------- ------------- ---------- ------------- ------------ -------------
Net increase 44,247 $ 549,024 12,171,819 $ 153,070,256 12,109,720 $ 148,628,074
======= ============= ========== ============= ============ =============
</TABLE>
80
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, the cost of securities and the
Income Tax unrealized appreciation (depreciation) in the value of
Information investments owned by the Funds, as computed on a Federal
income tax basis, are as follows:
<TABLE>
<CAPTION>
Federal Tax Basis Tax Basis
Income Tax Unrealized Unrealized Net Unrealized
Cost Appreciation Depreciation Appreciation
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Prime Fund $ 247,916,928 $ 43,019 $ (2,118) $ 40,901
Short-Term Bond Fund 280,602,336 2,922,744 (77,984) 2,844,760
Core Bond Fund 750,101,064 22,852,821 (1,615,264) 21,237,557
Balanced Fund 618,073,733 169,212,379 (5,127,628) 164,084,751
Core Equity Fund 2,264,821,470 1,458,500,913 (47,344,888) 1,411,156,025
Small Cap Value Equity Fund 570,047,081 153,443,089 (34,243,173) 119,199,916
International Equity Fund 629,851,111 96,672,796 (84,790,976) 11,881,820
</TABLE>
At December 31, 1998, the following Funds had available, for Federal income tax
purposes, unused capital losses:
<TABLE>
<CAPTION>
Amount Expiration Date
------------- ---------------------
<S> <C> <C>
Prime Fund $ 2,082 December 31, 2003
Prime Fund 2,368 December 31, 2004
Prime Fund 7,761 December 31, 2005
Prime Fund 8,471 December 31, 2006
Short-Term Bond Fund 75,661 December 31, 2006
</TABLE>
For corporate shareholders, a portion of the ordinary dividends paid during the
Fund's year ended December 31, 1998 qualified for the dividends received
deduction, as follows:
Balanced Fund 31.85%
Core Equity Fund 100.00%
Small Cap Value Equity Fund 100.00%
International Equity Fund 0.11%
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the
following capital gain dividends for the year ended December 31, 1998:
Capital gain dividends
----------------------
Short-Term Bond Fund $ 77,588
Core Bond Fund 1,418,858
Balanced Fund 35,870,407
Core Equity Fund 202,004,724
Small Cap Value Equity Fund 39,980,718
International Equity Fund 39,245,555
81
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
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 $25,000,000 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, 1998. Average daily borrowings for the year ended
December 31, 1998 were $5,944,444 and the average interest
rate was 6.03%. The maximum borrowing outstanding during the
year ended December 31, 1998 was $13,300,000. There was no
balance outstanding as of December 31, 1998.
9. Subsequent On February 1, 1999 the Trustees of the Funds approved changes
Events to the management and administrative fees payable to
MassMutual. The changes become effective on May 3, 1999. The
Trustees also approved the creation of an additional class of
shares (Class L) for each of the Funds, and approved the
creation of four additional Series.
On February 1, 1999, the Trustees of the Funds approved a
reverse stock split for Class A and Class Y shares of the
Prime Fund, Short-Term Bond Fund, Core Bond Fund, Balanced
Fund, Core Equity Fund, Small Cap Value Equity Fund and
International Equity Fund. The reverse stock split was
effective as of February 5, 1999. The reverse stock split for
Class A and Class Y shares was effected in connection with
MassMutual's decision to adjust the net asset value ("NAV")
for each Class A and Class Y share of each of those Funds to
the NAV for the Class S share of the applicable Fund. Each
Fund's Class A and Class Y shares were given a conversion
factor based on the closing NAV for that Fund's Class S shares
on February 4, 1999. The conversion factors for Class A and
Class Y shares of each Fund are as follows:
Name of Fund and Share Class Conversion Factor
---------------------------------------- -----------------
Prime Fund Class A .014467354962913
Prime Fund Class Y .014476455941847
Short-Term Bond Fund Class A .975895602770351
Short-Term Bond Fund Class Y .976348446108085
Core Bond Fund Class A .921339124098803
Core Bond Fund Class Y .920821459897991
Balanced Fund Class A .712545629080524
Balanced Fund Class Y .711379099293889
Core Equity Fund Class A .555030465318217
Core Equity Fund Class Y .554699319689711
Small Cap Value Equity Fund Class A .572029161851185
Small Cap Value Equity Fund Class Y .571097238765261
International Equity Fund Class A .780667933040925
International Equity Fund Class Y .779709996060320
Each shareholder may determine the number of shares it owns as
a result of the reverse stock split by multiplying the number
of shares owned immediately prior to the reverse stock by the
above conversion factor. The reverse stock split has not
resulted in a change to shareholder account balances.
The Financial Statements have been restated to reflect the
reverse stock splits.
82
<PAGE>
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Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
of MassMutual Institutional Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the MassMutual Institutional Funds (the
"Trust"), comprised of the Prime Fund, Short-Term Bond Fund, Core Bond Fund,
Balanced Fund, Core Equity, Small Cap Value Equity and Institutional Equity
Funds, as of December 31, 1998, and the related statements of operations,
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
statements of the Trust for the year ended December 31, 1997 and the financial
highlights for each of the years in the three-year period then ended and the
period October 3, 1994 (commencement of operations) to December 31, 1994 were
audited by other auditors whose report, dated February 6, 1998, expressed an
unqualified opinion on those financial statements and financial highlights.
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 at December
31, 1998 by correspondence with the custodian and brokers, and where replies
were not received, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MassMutual
Institutional Funds as of December 31, 1998, the results of their operations,
the changes in their net assets, and their financial highlights for the year
then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
March 26, 1999
83
<PAGE>
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus, 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.
<PAGE>
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
March 29, 1999
