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MASSMUTUAL INSTITUTIONAL FUNDS
This Prospectus describes Class S shares of the following Funds:
o MassMutual Prime Fund
seeks to maximize current income, consistent with liquidity and
capital preservation, by investing in money market instruments.
o MassMutual Short-Term Bond Fund
seeks a high total rate of return primarily from current income
while minimizing fluctuations in capital values by investing
primarily in short-term investment grade fixed income securities.
o MassMutual Core Bond Fund
seeks a high total rate of return, consistent with prudent
investment risk and capital preservation, by investing primarily in
investment grade debt securities.
o MassMutual Diversified Bond Fund
seeks a superior total rate of return by investing in fixed income
instruments.
o MassMutual Balanced Fund
seeks a high total rate of return over time, consistent with capital
preservation, by investing in stock, fixed income and money market
securities.
o MassMutual Core Equity Fund
seeks long-term growth of capital and income by investing primarily
in large company stocks.
o MassMutual Growth Equity Fund
seeks long-term growth of capital and future income.
o MassMutual Small Cap Value Equity Fund
seeks long-term growth of capital and income by investing primarily
in small company stocks.
o MassMutual Mid Cap Growth Equity Fund
seeks long-term capital growth.
o MassMutual Small Cap Growth Equity Fund
seeks long-term capital appreciation.
o MassMutual International Equity Fund
seeks a high total rate of return over time by investing primarily
in foreign stocks.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any statement to the
contrary is a crime.
PROSPECTUS
May 3, 1999
CLASS S SHARES
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Table Of Contents Page
Summary Information ....................................................... 3
About the Funds
MassMutual Prime Fund ............................................ 4
MassMutual Short-Term Bond Fund .................................. 6
MassMutual Core Bond Fund ........................................ 8
MassMutual Diversified Bond Fund ................................. 10
MassMutual Balanced Fund ......................................... 12
MassMutual Core Equity Fund ...................................... 14
MassMutual Growth Equity Fund .................................... 16
MassMutual Small Cap Value Equity Fund ........................... 18
MassMutual Mid Cap Growth Equity Fund ............................ 20
MassMutual Small Cap Growth Equity Fund .......................... 22
MassMutual International Equity Fund ............................. 24
Summary of Principal Risks ................................................ 26
About the Investment Advisers and Sub-Advisers
Massachusetts Mutual Life Insurance Company ...................... 30
David L. Babson and Company Incorporated ......................... 30
HarbourView Asset Management Corporation ......................... 31
Massachusetts Financial Services Company ......................... 31
Miller Anderson & Sherrerd, LLP .................................. 31
J.P. Morgan Investment Management Inc. ........................... 32
Waddell & Reed Investment Management Company ..................... 32
About the Classes of Shares - Multiple Class Information
Class S Shares ................................................... 33
Compensation to Intermediaries ................................... 33
Investing in the Funds
Buying, Redeeming and Exchanging Shares .......................... 34
Determining Net Asset Value ...................................... 34
How to Invest .................................................... 35
Taxation and Distributions ....................................... 35
Investment Performance .................................................... 36
Financial Highlights ...................................................... 38
Appendix - Additional Investment Policies and Risk Considerations ......... 42
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Summary Information
MassMutual Institutional Funds provide a broad range of investment choices
across the risk/return spectrum. The summary pages that follow describe each
Fund:
o Investment objectives.
o Principal Investment Strategies and Risks. A "Summary of Principal Risks"
of investing in the Funds begins on page 26.
o Investment return over the past ten years, or since inception if less than
ten years old.
o Average annual total returns for the last one, five and ten year periods
(or, shorter periods for newer Funds) and how the Fund did against a
comparable broad-based index.
o Fees and Expenses.
Past Performance is not an indication of future performance. There is no
assurance that a Fund's investment objective will be achieved, and you can lose
money by investing in the Funds.
Important Notes about performance information for the Funds.
Where indicated, performance information for a Fund includes the performance of
a predecessor separate investment account of MassMutual before those Funds were
created.
The Growth Equity Fund, Mid Cap Growth Equity Fund and Small Cap Growth Equity
Fund are new funds effective May 3, 1999. They do not have actual performance.
Instead, the performance of the Sub-Adviser is provided based on a composite of
portfolios managed by the Sub-Adviser with similar investment objectives as the
Fund. The Performance Charts for those Sub-Advisers reflect the Sub-Adviser's
composite performance, adjusted for class specific expenses of the particular
fund.
In all cases, investment returns assume the reinvestment of dividends and
capital gains distributions.
Important Note about Fees and Expenses.
As an investor, you pay certain fees and expenses in connection with your
investment. These fees and expenses will vary depending on the Fund in which you
invest and the class of shares that you purchase. The fee tables shown on the
following pages under "Expense Information" are meant to assist you in
understanding these fees and expenses. Each fee table shows two categories of
expenses, Shareholder Fees and Annual Fund Operating Expenses. Shareholder Fees
refer to fees paid directly from your investment, such as up front or contingent
sales charges. None of the Funds charges any Shareholder Fees for any class of
share. Annual Fund Operating Expenses refer to the costs of operating the Funds.
These costs are deducted from a Fund's assets, which means you pay them
indirectly.
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MassMutual Prime Fund
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Investment Objective
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This Fund seeks to maximize current income to the extent consistent with
liquidity and the preservation of capital by investing in a diversified
portfolio of money market instruments.
The Prime Fund is not a money market fund.
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Principal Investment Strategies and Risks
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The Fund invests in debt instruments that have a remaining maturity not
exceeding 397 days and that have one of the two highest ratings from at least
one nationally recognized statistical rating organization or, if unrated, that
the Adviser judges to be of equivalent quality. Generally, the majority of the
Fund's holdings do not have the highest rating. The Fund's principal investments
include:
o commercial paper and other corporate obligations;
o securities issued or guaranteed by the U.S. Government or its agencies;
o certificates evidencing participation in bank loans; and
o certificates of deposit and bankers' acceptances.
Some of these investments are subject to legal restrictions on resale.
The Principal Risks of investing in the Fund are Market Risk, Credit Risk and
Management Risk.
These Risks are described beginning on page 26.
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Annual Performance*
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The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.17% 8.15% 6.15% 3.75% 2.92% 4.01% 5.78% 5.24% 5.39% 5.39%
During the periods shown above, the highest quarterly return was 2.36% for the
quarter ended June 30, 1989 and the lowest was .71% for the quarter ended June
30, 1993.
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Average Annual Total Returns
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(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
One Five Ten
Year Years Years
Class S* 5.39% 5.16% 5.58%
91-day Treasury Bills+ 5.05% 5.11% 5.44%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ 91-day Treasury Bills are unmanaged and do not incur expenses. Treasury Bills
are backed by the full faith and credit of the United States government and
offer a fixed rate of interest, while the Fund's shares are not guaranteed.
-4-
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Expense Information
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Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .35%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .10%
Total Annual Fund Operating Expenses(1)(2) .45%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $46 $144 $252 $567
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-5-
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MassMutual Short-Term Bond Fund
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Investment Objective
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This Fund seeks to achieve a high total rate of return primarily from current
income while minimizing fluctuations in capital values by investing primarily in
a diversified portfolio of short-term investment grade fixed income securities.
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Principal Investment Strategies and Risks
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The Fund invests primarily in investment grade debt securities, including:
o commercial paper and other corporate obligations;
o securities issued or guaranteed by the U.S. Government or its agencies;
and
o mortgage-backed and other asset-backed securities.
The Fund's portfolio "duration" is the average of the periods remaining for
payments of principal and interest on the Fund's debt securities, weighted by
the dollar amount of each payment. The Fund's portfolio duration is estimated to
be generally less than three years. The Adviser may increase the portfolio's
duration when longer-term investments offer higher yields. When short-term
investments offer more attractive yields than longer-term investments, but with
less risk, the portfolio's duration may be decreased.
The Principal Risks of investing in the Fund are Market Risk, Credit Risk,
Management Risk and Prepayment Risk.
These Risks are described beginning on page 26.
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Annual Performance*
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The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A 8.89% 13.60% 6.72% 7.83% -0.99% 11.77% 5.57% 6.84% 6.29%
During the periods shown above, the highest quarterly return was 4.66% for the
quarter ended December 31, 1991 and the lowest was -1.56% for the quarter ended
March 31, 1994.
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Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
Since
One Five Inception
Year Years (5/89)
Class S* 6.29% 5.82% 7.42%
Lehman Brothers 1-3
Year Government
Bond Index+ 6.97% 5.96% 7.30%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The Lehman Brothers 1-3 Year Government Bond Index is an unmanaged index of
U.S. government bonds with 1-3 years remaining to the scheduled payment of
principal. The Index does not incur expenses and cannot be purchased directly by
Investors.
-6-
<PAGE>
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Expense Information
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Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .40%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .14%
Total Annual Fund Operating Expenses(1)(2) .54%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $55 $172 $299 $664
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-7-
<PAGE>
MassMutual Core Bond Fund
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Investment Objective
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This Fund seeks to achieve a high total rate of return consistent with prudent
investment risk and the preservation of capital by investing primarily in a
diversified portfolio of investment grade fixed income securities.
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Principal Investment Strategies and Risks
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The Fund invests primarily in investment grade debt securities, including:
o domestic and foreign corporate bonds;
o bonds issued or guaranteed by the U.S. Government or its agencies;
o mortgage-backed and other asset-backed securities; and
o money market securities, including commercial paper.
Some of these investments may be in securities that are not denominated in U.S.
dollars and others may be purchased subject to legal restrictions on resale,
although no more than 15% of the Fund's investments may be illiquid at the time
of purchase.
The Principal Risks of investing in the Fund are Market Risk, Credit Risk,
Management Risk, Prepayment Risk, Liquidity Risk, Foreign Investment Risk,
Currency Risk and Leveraging Risk.
These Risks are described beginning on page 26.
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Annual Performance*
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The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
12.86% 8.30% 17.58% 7.04% 11.34% -4.11% 19.15% 2.80% 9.78% 8.44%
During the periods shown above, the highest quarterly return was 6.91% for the
quarter ended June 30, 1989 and the lowest was -3.49% for the quarter ended
March 31, 1994.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
One Five Ten
Year Years Years
Class S* 8.44% 6.93% 9.12%
Lehman Brothers
Government/
Corporate Bond Index+ 9.47% 7.30% 9.34%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
major U.S. government and investment grade bonds with more than one year
remaining to the scheduled payment of principal. The Index does not incur
expenses and cannot be purchased directly by Investors.
-8-
<PAGE>
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Expense Information
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Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .48%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .11%
Total Annual Fund Operating Expenses(1)(2) .59%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Expenses
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $60 $188 $326 $724
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-9-
<PAGE>
MassMutual Diversified Bond Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks a superior total rate of return by investing in fixed income
instruments.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
This Fund seeks to achieve its investment objective by investing primarily in
the following types of fixed income instruments:
o Public bonds;
o Private placement bonds, including securities issued pursuant to Rule
144A;
o Mortgage-backed securities, including commercial mortgage-backed
securities;
o Asset-backed securities;
o Residential whole loan mortgage pools;
o Commercial mortgage loans;
o U.S. Treasury futures and forward contracts;
o Fully hedged foreign securities;
o Interest rate and currency swaps;
o Commercial paper; and
o Options on fixed income investments, including swaptions and interest rate
caps and floors.
The average credit quality of the Fund will not be less than BBB-/Baa3. In
determining the credit quality of assets that are not rated by an independent
credit rating firm, the Adviser will utilize its own proprietary credit rating
system. The Fund will also have specified liquidity and diversification
requirements for particular types of investments.
The duration of the Fund is intended to be within 5% of the duration of the
Lehman Brothers Intermediate Aggregate Bond Index.
The Principal Risks of investing in the Fund are Market Risk, Credit Risk,
Management Risk, Prepayment Risk, Liquidity Risk, Derivative Risk, Foreign
Investment Risk, Currency Risk and Leveraging Risk.
These Risks are described beginning on page 26.
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Annual Performance
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The Fund began operations May 3, 1999, and therefore has no performance history.
There will be risks of investing in the Fund because the returns would be
expected to vary from year to year.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Because this Fund is new, there is no table which shows how the Fund's returns
have deviated from the broad market.
-10-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
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Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .50%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .14%
Total Annual Fund Operating Expenses(1)(2) .64%
(1) Other Expenses and Total Annual Fund Operating Expenses are based on
estimated amounts for the first fiscal year of the Fund.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years
Class S $65 $204
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-11-
<PAGE>
MassMutual Balanced Fund
- --------------------------------------------------------------------------------
Investment Objective
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This Fund seeks to achieve a high total rate of return over an extended period
of time consistent with the preservation of capital values by investing in a
diversified portfolio of equity securities, fixed income securities and money
market instruments.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
The Fund's portfolio consists of three segments:
o The Prime Segment, which seeks to meet liquidity needs by investing in
diverse money market instruments.
o The Core Bond Segment, which invests primarily in investment grade debt
securities.
o The Core Equity Segment, which invests primarily in stocks and convertible
securities of large capitalized companies which have below average price
to earnings ratios and higher dividend yields relative to their industry
group.
The Fund adjusts the mix of investments among these three market segments based
on MassMutual's judgment about each segment's potential for returns in relation
to the corresponding risk. These adjustments normally will be made in a gradual
manner over a period of time. Under normal circumstances at least 25% of the
Fund's total assets will be invested in debt securities. In addition, under
normal circumstances, no investment will be made that would result in more than
35% of the Fund's net assets being invested in the Prime Segment, more than 35%
in the Core Bond Segment or more than 65% in the Core Equity Segment. In unusual
circumstances, the Fund may invest up to 70% of its total assets in the Equity
Segment or up to 50% of its total assets in the Core Bond Segment.
The Principal Risks of investing in the Fund are Market Risk, Credit Risk,
Management Risk, Prepayment Risk, Liquidity Risk, Derivative Risk, Foreign
Investment Risk, Currency Risk and Leveraging Risk.
These Risks are described beginning on page 26.
-12-
<PAGE>
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Annual Performance*
- --------------------------------------------------------------------------------
The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.83% 3.12% 22.47% 8.90% 9.09% 2.44% 21.31% 12.83% 18.72% 13.50%
During the periods shown above, the highest quarterly return was 9.37% for the
quarter ended December 31, 1998 and the lowest was -6.91% for the quarter ended
September 30, 1990.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
One Five Ten
Year Years Years
Class S* 13.50% 13.57% 12.91%
S&P 500(R) Index+ 28.58% 24.07% 19.20%
Lipper Balanced Fund
Index+ 15.37% 13.71% 13.19%
Lehman Brothers
Government/
Corporate Bond Index+ 9.47% 7.30% 9.34%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The S&P 500(R) Index is a widely recognized, unmanaged index of common stock
of the 500 largest capitalized U.S. companies. The Lipper Balanced Fund Index is
an unmanaged, equally weighted index of the 30 largest mutual Funds within each
of the investment objective categories for the Balanced Fund. The Lehman
Brothers Government/Corporate Index is an unmanaged index of major U.S.
government and investment grade corporate bonds with more than one year
remaining until the scheduled payment of principal. These Indices do not incur
expenses and cannot be purchased directly by Investors.
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .48%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .10%
Total Annual Fund Operating Expenses(1)(2) .58%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $59 $185 $321 $712
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-13-
<PAGE>
MassMutual Core Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks to achieve long-term growth of capital and income by investing
primarily in a diversified portfolio of equity securities of larger,
well-established companies.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
The Fund invests primarily in dividend paying stocks, securities convertible
into stocks, and other securities, such as warrants and stock rights whose value
is based on stock prices. The Fund's portfolio manager follows a "value"
approach that favors the stocks of companies having below average share price to
company earnings ("P/E") ratios and higher dividend yields relative to their
industry groups. The Fund generally invests in the publicly traded stock of
companies with market capitalizations greater than $2 billion and a history of
operations of five years or more.
The Principal Risks of investing in the Fund are Market Risk, Management Risk
and Leveraging Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance*
- --------------------------------------------------------------------------------
The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
23.02% -0.99% 25.50% 10.55% 9.55% 4.07% 31.54% 20.24% 29.01% 16.75%
During the periods shown above, the highest quarterly return was 16.49% for the
quarter ended December 31, 1998 and the lowest was -11.97% for the quarter ended
September 30, 1990.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
One Five Ten
Year Years Years
Class S* 16.75% 19.91% 16.46%
S&P 500(R) Index+ 28.58% 24.07% 19.20%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The S&P 500(R) Index is a widely recognized, unmanaged index of common stocks
of the 500 largest capitalized U.S. companies. The Index does not incur expenses
and cannot be purchased directly by Investors.
-14-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .50%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .08%
Total Annual Fund Operating Expenses(1)(2) .58%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $59 $185 $321 $712
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-15-
<PAGE>
MassMutual Growth Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks long-term growth of capital and future income.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
The Fund seeks to achieve its objective by investing its assets, except for
working cash balances, primarily in the common stocks and securities convertible
into common stocks of companies which the investment Sub-Adviser, Massachusetts
Financial Services Company ("MFS"), believes offer better than average prospects
for long-term growth.
The Sub-Adviser uses a bottom-up, as opposed to a top-down, investment style,
which means that securities are selected based upon fundamental analysis
performed by the portfolio manager and the Sub-Adviser's large group of equity
research analysts.
In managing the Fund, MFS seeks to purchase securities of companies which it
considers well-run and poised for growth, particularly companies which
demonstrate:
o a strong franchise, strong cash flows and a recurring revenue stream;
o a strong industry position, where there is potential for high profit
margins and/or substantial barriers to new entry in the industry;
o a strong management with a clearly defined strategy; and
o new products or services.
The Fund may invest up to 30% of its assets in foreign securities, including
companies in emerging markets, and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies, or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
The Principal Risks of investing in the Fund are Market Risk, Management Risk,
Liquidity Risk, Derivative Risk, Foreign Investment Risk, Currency Risk, Growth
Company Risk and Emerging Markets Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance
- --------------------------------------------------------------------------------
The Fund began operations May 3, 1999, and therefore has no performance history.
There will be risks of investing in the Fund because the returns would be
expected to vary from year to year.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Because this Fund is new, there is no table which shows how the Fund's returns
have deviated from the broad market.
-16-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .68%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .10%
Total Annual Fund Operating Expenses(1)(2) .78%
(1) Other Expenses and Total Annual Fund Operating Expenses are based on
estimated amounts for the first fiscal year of the Fund.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years
Class S $80 $249
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
- --------------------------------------------------------------------------------
MFS Prior Performance - Similar Accounts*
- --------------------------------------------------------------------------------
The bar chart is a composite of all accounts managed by MFS with substantially
similar investment objectives, adjusted for the fees and expenses of the Fund's
Class S shares. The bar chart illustrates the variability of returns achieved by
MFS for those accounts.
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
35.66% -5.04% 47.83% 6.44% 14.50% -6.83% 28.47% 22.98% 48.44% 40.84%
During the periods shown above, the highest quarterly return was 25.97% for the
quarter ended December 31, 1998 and the lowest was -25.19% for the quarter ended
September 30, 1990.
- --------------------------------------------------------------------------------
MFS Average Annual Total Returns for
Similar Accounts*
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table is based on the composite of all accounts managed by MFS with
substantially similar investment objectives, adjusted for the Fund's Class S
share fees and expenses. The table compares MFS' investment results for those
accounts to that of an index measuring the broad market over different time
periods.
One Five Ten
Year Years Years
MFS Accounts* 40.84% 25.21% 21.72%
S&P 500 Index+ 28.58% 24.07% 19.20%
* The MFS composite is based on the performance of all accounts managed by MFS
with substantially similar investment objectives and without significant
client-imposed restrictions. The MFS composite includes performance of the
Massachusetts Investors Growth Stock Fund, which is registered under the 1940
Act. The performance shown does not reflect fees that may be paid by Investors
for administrative services or group annuity contract charges. The quoted
performance does not represent the historical performance of the MassMutual
Growth Equity Fund and should not be interpreted as being indicative of the
future performance of the Fund. For a more detailed discussion, please refer to
"Investment Performance" in this Prospectus.
+ The S&P 500(R) Index is a widely recognized, unmanaged index representative of
the largest capitalized U.S. companies. The Index does not incur expenses and
cannot be purchased directly by Investors.
-17-
<PAGE>
MassMutual Small Cap Value Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks to achieve long-term growth of capital and income by investing
primarily in a diversified portfolio of equity securities of smaller companies.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
The Fund invests primarily in stocks, securities convertible into stocks and
other securities, such as warrants and stock rights, whose value is based on
stock prices. The Fund generally invests in publicly traded stocks of companies
with a market capitalization, at the time of purchase, of $750 million or less.
The Principal Risks of investing in the Fund are Market Risk, Management Risk,
Liquidity Risk, Derivative Risk, Leveraging Risk and Smaller Company Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance*
- --------------------------------------------------------------------------------
The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.33% -5.42% 29.34% 17.10% 14.08% -4.43% 20.01% 22.82% 36.36% -9.02%
During the periods shown above, the highest quarterly return was 18.72% for the
quarter ended June 30, 1997 and the lowest was -18.98% for the quarter ended
September 30, 1998.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
One Five Ten
Year Years Years
Class S* -9.02% 11.81% 12.95%
Russell 2000 Index+ -2.55% 11.88% 12.93%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The Russell 2000 Index is a widely recognized, unmanaged index representative
of small-capitalized U.S. companies. The Index does not incur expenses and
cannot be purchased directly by Investors.
-18-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .58%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .10%
Total Annual Fund Operating Expenses(1)(2) .68%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in the
management fees and administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $69 $217 $376 $835
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-19-
<PAGE>
MassMutual Mid Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks long-term capital growth.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
This Fund seeks to achieve its investment objective by investing primarily in
common stocks and other equity securities having capitalizations in the range of
companies included in the S&P Mid Cap 400 Index. The Sub-Adviser for the Fund,
Miller Anderson & Sherrerd, LLP ("MAS"), focuses particularly on the
expectations of stock analysts and invests the portfolio in stocks of companies
that it believes will report earnings growth exceeding analysts' expectations.
The Fund may invest to a limited extent in foreign equity securities. MAS may
use derivatives in managing the portfolio.
MAS uses a quantitative screen to sort stocks based on revisions to analysts'
earnings predictions. MAS then conducts extensive fundamental research into
those companies with the most attractive earnings revisions. Finally, MAS
evaluates the valuation of the stocks to eliminate from consideration the most
overvalued stocks. MAS also follows a strict sell discipline. The Fund will sell
stocks when their earnings revision scores fall to unacceptable levels,
fundamental research reveals unfavorable trends, or their valuations exceed
levels that are reasonable in relation to the stock's growth prospects.
The Principal Risks of investing in the Fund are Market Risk, Management Risk,
Liquidity Risk, Derivative Risk, Foreign Investment Risk, Smaller Company Risk,
Growth Company Risk, Currency Risk and Emerging Markets Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance
- --------------------------------------------------------------------------------
The Fund began operations May 3, 1999, and therefore has no performance history.
However, there will be risks of investing in the Fund because the returns would
be expected to vary from year to year.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Because this Fund is new, there is no table which shows how the Fund's returns
have deviated from the broad market.
-20-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .70%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .10%
Total Annual Fund Operating Expenses(1)(2) .80%
(1) Other Expenses and Total Annual Fund Operating Expenses are based on
estimated amounts for the first fiscal year of the Fund.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years
Class S $82 $255
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
- --------------------------------------------------------------------------------
MAS Prior Performance - Similar Accounts*
- --------------------------------------------------------------------------------
The bar chart is a composite of all accounts managed by MAS with substantially
similar investment objectives, adjusted for the fees and expenses of the Fund's
Class S shares. The bar chart illustrates the variability of returns achieved by
MAS for those accounts.
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A 59.50% 2.71% 18.12% -5.61% 36.24% 18.70% 33.07% 37.38%
During the periods shown above, the highest quarterly return was 35.87% for the
quarter ended December 31, 1998 and the lowest was -19.80% for the quarter ended
September 30, 1990.
- --------------------------------------------------------------------------------
MAS Average Annual Total Returns for
Similar Accounts*
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table is based on the composite of all accounts managed by MAS with
substantially similar investment objectives, adjusted for the Fund's Class S
share fees and expenses. The table compares MAS' investment results for those
accounts to that of an index measuring the broad market over different time
periods.
Since
One Five Inception
Year Years (4/90)
MAS Accounts* 37.38% 22.78% 22.53%
Russell 2500 Index+ .38% 14.13% 14.88%
* The MAS composite is based on the performance of all accounts managed by MAS
with substantially similar investment objectives and without significant
client-imposed restrictions. The MAS composite includes performance of the MAS
Funds Mid Cap Growth Portfolio, which is registered under the 1940 Act. The
performance shown does not reflect fees that may be paid by Investors for
administrative services or group annuity contract charges. The quoted
performance does not represent the historical performance of the MassMutual Mid
Cap Growth Equity Fund and should not be interpreted as being indicative of the
future performance of the Fund. For a more detailed discussion, please refer to
"Investment Performance" in this Prospectus.
+ The Russell 2500 Index is an unmanaged index representative of mid-capitalized
U.S. companies. The Index does not incur expenses and cannot be purchased
directly by Investors.
-21-
<PAGE>
MassMutual Small Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks long-term capital appreciation.
- --------------------------------------------------------------------------------
Principal Investment Strategies and Risks
- --------------------------------------------------------------------------------
The Fund seeks to achieve its objective by investing primarily in common stocks
and equity securities of smaller companies which the managers believe offer
potential for long-term growth. The Fund may maintain cash reserves for
liquidity purposes. The Fund will generally buy companies whose market
capitalization is greater than $100 million, but less than $1.5 billion at the
time of purchase. The Fund is not required to invest in dividend paying stocks,
since current income is not an objective of the Fund. Two Sub-Advisers manage
the Fund, each being responsible for a portion of the portfolio.
The investment process of J.P. Morgan Investment Management Inc. ("J.P. Morgan")
emphasizes: in-depth proprietary research and stock valuation and selection;
insight into companies' real growth potential by forecasting prospects over
periods often up to 5 years; quantifying research results with rankings
according to relative value, and buying undervalued or fairly valued companies
poised for long-term growth; focusing on each company's business strategy and
competitive environment; and high growth sectors such as technology, health care
and consumer services.
Waddell & Reed Investment Management Company ("Waddell & Reed") uses a bottom-up
process, generally emphasizing long-term growth potential and superior financial
characteristics, such as: annual revenue and earnings growth rate of 25%+,
pre-tax margins of 20%+, and debt-free capital structure. Generally, companies
also are considered which are strong niche players with a defensible market
position, have active involvement of the founder-entrepreneur, and demonstrate
commitment to their employees, customers, suppliers and shareholders.
Waddell & Reed buys companies with an anticipated three year holding period, and
therefore expects this portion of the Fund's portfolio to typically have lower
than 50% annual turnover.
The Principal Risks of investing in the Fund are Market Risk, Management Risk,
Liquidity Risk, Derivative Risk, Foreign Investment Risk, Smaller Company Risk,
Growth Company Risk, Currency Risk and Emerging Markets Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance
- --------------------------------------------------------------------------------
The Fund began operations May 3, 1999, and therefore has no performance history.
However, there will be risks of investing in the Fund because the returns would
be expected to vary from year to year.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Because this Fund is new, there is no table which shows how the Fund's returns
have deviated from the broad market.
-22-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .82%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .13%
Total Annual Fund Operating Expenses(1)(2) .95%
(1) Other Expenses and Total Annual Fund Operating Expenses are based on
estimated amounts for the first fiscal year of the Fund.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years
Class S $97 $303
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
- --------------------------------------------------------------------------------
J.P. Morgan and Waddell & Reed Prior
Performance - Similar Accounts*
- --------------------------------------------------------------------------------
The bar charts show the respective composites of all accounts managed by each
Sub-Adviser with substantially similar investment objectives, adjusted for the
fees and expenses of the Fund's Class S shares. The bar chart illustrates the
variability of returns achieved by each Sub-Adviser and how they have differed.
J.P. Morgan Waddell & Reed
1989 N/A N/A
1990 N/A 2.39%
1991 N/A 89.51%
1992 N/A 4.80%
1993 N/A 11.40%
1994 N/A 12.25%
1995 42.29% 34.38%
1996 24.39% 6.87%
1997 29.24% 37.11%
1998 1.19% 55.13%
Highest Quarter Lowest Quarter
J.P. Morgan 24.02%, 4Q 1998 -21.94%, 3Q 1998
Waddell & Reed 36.68%, 4Q 1998 -18.05%, 3Q 1990
- --------------------------------------------------------------------------------
J.P. Morgan and Waddell & Reed Average
Annual Total Returns for Similar Accounts*
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The tables are based on the respective composites of all accounts managed by
each Sub-Adviser with substantially similar investment objectives, adjusted for
the Fund's Class S share fees and expenses. Each table compares the
Sub-Adviser's investment results for its those accounts to an index measuring
the broad market over different time periods.
Since
One Year Inception (9/94)
J. P. Morgan Accounts* 1.19% 21.80%
Russell 2000 Index+ -2.55% 13.71%
Since
One Five Inception
Year Years (4/89)
Waddell & Reed
Accounts* 55.13% 27.95% 24.21%
Russell 2000 Index+ -2.55% 11.88% 12.41%
* Each Sub-Adviser's composite is based on the performance of all accounts
managed by that Sub-Adviser with substantially similar investment objectives and
without significant client-imposed restrictions. The performance shown does not
reflect fees that may be paid by Investors for administrative services or group
annuity contract charges. The quoted performance does not represent the
historical performance of the MassMutual Growth Equity Fund and should not be
interpreted as being indicative of the future performance of the Fund. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ The S&P 500(R) Index is a widely recognized, unmanaged index representative of
the largest capitalized, U.S. companies. The Index does not incur expenses and
cannot be purchased directly by Investors.
-23-
<PAGE>
MassMutual International Equity Fund
- --------------------------------------------------------------------------------
Investment Objective
- --------------------------------------------------------------------------------
This Fund seeks to achieve a high total rate of return over the long term by
investing in a diversified portfolio of foreign and domestic equity securities.
The Fund seeks to achieve its objective by having at least 75% of its total
assets invested in stocks traded primarily in foreign markets, including markets
in Europe, Latin America and Asia. The Fund's Sub-Adviser, HarbourView Asset
Management Corporation ("HarbourView") focuses on well-positioned, well-managed
businesses that have strong revenue growth, sustainable profit margins, capital
efficiency and/or business integrity. HarbourView also considers the
macroeconomic outlook for various regional economies. The Fund tends to favor
companies involved in the following businesses:
o Capital Market Development;
o Telecommunications/Media;
o Efficiency Enhancing Technologies and Services;
o Healthcare and Biotechnology;
o Infrastructure Spending;
o Emerging Consumer Markets;
o Corporate Restructuring; and
o Natural Resources.
The Principal Risks of investing in the Fund are Market Risk, Management Risk,
Liquidity Risk, Derivative Risk, Foreign Investment Risk, Currency Risk,
Leveraging Risk and Emerging Markets Risk.
These Risks are described beginning on page 26.
- --------------------------------------------------------------------------------
Annual Performance*
- --------------------------------------------------------------------------------
The bar chart shows the risks of investing in the Fund because the returns vary
from year to year.
Class S Shares
1989 N/A
1990 N/A
1991 N/A
1992 -2.37%
1993 59.84%
1994 -4.96%
1995 5.13%
1996 18.51%
1997 15.79%
1998 5.05%
During the periods shown above, the highest quarterly return was 21.33% for the
quarter ended December 31, 1993 and the lowest was -21.54% for the quarter ended
September 30, 1998.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
(for the periods ended December 31, 1998)
The table shows the risks of investing in the Fund because the Fund's returns
may deviate from the broad market over different time periods.
Since
One Five Inception
Year Years (8/91)
Class S* 5.05% 7.57% 12.29%
MSCI EAFE+ 19.99% 9.19% 9.05%
* Performance for Class S shares of the Fund includes performance of a
predecessor separate investment account of MassMutual for periods prior to
October 3, 1994. The performance shown does not reflect fees that may be paid by
Investors for administrative services or group annuity contract charges. For a
more detailed discussion, please refer to "Investment Performance" in this
Prospectus.
+ MSCI EAFE is a widely recognized, unmanaged index representative of foreign
securities in the major non-U.S. markets of Europe, Australia and the Far East.
The Index does not incur expenses and cannot be purchased directly by Investors.
-24-
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
Class S
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) (% of
average net assets)
Management Fees .85%
Distribution and Service (Rule 12b-1) Fees None
Other Expenses .23%
Total Annual Fund Operating Expenses(1)(2) 1.08%
(1) The expenses in the above table are based on expenses for the fiscal year
ended December 31, 1998, but restated to give effect to a change in
administrative fees effective on May 3, 1999.
(2) Employee benefit plans which invest in the Fund through MassMutual
separate investment accounts may pay additional charges under their group
annuity contract or services agreement. Investors who purchase shares
directly from the Fund may also be subject to charges imposed in their
administrative services or other agreement with MassMutual or MassMutual
affiliate. None of these charges are deducted from Fund assets.
Examples
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in Class S shares of the Fund for the time periods indicated,
that your investment earns a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class S $110 $344 $597 $1326
Since the Fund does not impose any Shareholder Fees, the figures shown would be
the same whether you sold your shares at the end of a period or kept them.
-25-
<PAGE>
Summary of Principal Risks
The value of your investment in a Fund changes with the values of the
investments in a Fund's portfolio. Many factors can affect those values. Factors
that may affect a particular Fund's portfolio as a whole are called "principal
risks". They are summarized in this section. The chart at the end of this
section displays similar information. All Funds could be subject to additional
principal risks because the types of investments made by each Fund can change
over time. Although the Funds strive to reach their stated goals, they cannot
offer guaranteed results. You have the potential to make money in these Funds,
but you can also lose money.
o Market Risk - Prime/Bond Funds
All the Funds are subject to market risk, which is the general risk of
unfavorable market-induced changes in the value of a security. The Prime
Fund, the Short-Term Bond Fund, the Core Bond Fund, the Balanced Fund's
Core Bond Segment and the Diversified Bond Fund are subject to market risk
because they invest some or all of their assets in debt securities. Debt
securities are obligations of an issuer to pay principal and/or interest
at a specified interest rate over a predetermined period. If interest
rates rise close to or higher than the specified rate, those securities
are likely to be worth less and the value of the Funds will likely fall.
If interest rates fall, most securities held by Funds paying higher rates
of interest will likely be worth more, and the Fund's value will likely
increase.
This kind of market risk, also called interest rate risk, is generally
greater for debt securities with longer maturities and portfolios with
longer Durations. Even the highest quality debt securities are subject to
interest rate risk and market risk is generally greater for lower-rated
securities or comparable unrated securities.
o Market Risk - Equity Funds
The Core Equity Fund, the Small Cap Value Equity Fund, the International
Equity Fund, the Core Equity Segment of the Balanced Fund, the Growth
Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth
Equity Fund are subject to market risk. Market risk arises since stock
prices can fall for any number of factors, including general economic and
market conditions, prospects of the securities issuer, changing interest
rates, and real or perceived economic and competitive industry conditions.
These Funds maintain substantial exposure to equities and do not attempt
to time the market. Because of this exposure, the possibility that stock
market prices in general will decline over short or even extended periods
subjects these Funds to unpredictable declines in the value of their
shares, as well as periods of poor performance. Market risk also includes
specific risks affecting the companies whose shares are purchased by the
Fund, such as management performance, financial leverage, industry
problems and reduced demand for the issuer's goods or services.
o Credit Risk. All the Funds are subject to credit risk. This is the risk
that the issuer or the guarantor of a debt security, or the counterparty
to a derivatives contract or securities loan, will be unable or unwilling
to make timely principal and/or interest payments, or to otherwise honor
its obligations. There are varying degrees of credit risk, which are often
reflected in credit ratings. Credit risk is particularly significant for
the Prime Fund, the Core Bond Fund, the Diversified Bond Fund and the
Prime Segment and the Core Bond Segment of the Balanced Fund to the extent
they invest in below investment grade
Terms appearing in bold type are discussed in greater detail under "Appendix -
Additional Investment Policies and Risk Considerations". Those sections also
include more information about the Funds, their investments and the related
risks.
-26-
<PAGE>
securities. These debt securities and similar unrated securities, which
are commonly known as "junk bonds," either have speculative elements or
are predominantly speculative investments. The Core Bond Fund, the Core
Bond Segment of the Balanced Fund and the Diversified Bond Fund invest in
foreign debt securities and, accordingly, are also subject to increased
credit risk because of the difficulties of requiring foreign entities,
including issuers of sovereign debt, to honor their contractual
commitments, and because a number of foreign governments and other issuers
are already in default.
o Management Risk. Each Fund is subject to management risk because it is an
actively managed investment portfolio. Management risk is the chance that
poor security selection will cause the Fund to underperform other Funds
with similar investment objectives. The Funds' investment advisers and
Sub- Advisers manage the Funds according to the traditional methods of
active investment management, which involves the buying and selling of
securities based upon economic, financial and market analysis and
investment judgment. The Funds' investment advisers and Sub-Advisers apply
their investment techniques and risk analyses in making investment
decisions for the Funds, but there can be no guarantee that they will
produce the desired result.
o Prepayment Risk. Prepayment risk is the risk that principal will be repaid
at a different rate than anticipated, causing the return on
mortgage-backed securities to be less than expected when purchased. The
interest rate risk described above may be compounded for the Short-Term
Bond Fund, the Core Bond Fund, the Core Bond Segment of the Balanced Fund
and the Diversified Bond Fund to the extent that these Funds invest to a
material extent in mortgage-related or other asset- backed securities that
may be prepaid. These securities have variable maturities that tend to
lengthen when interest rates are rising, which is the least desirable
time. These Funds are also subject to reinvestment risk, which is the
chance that cash flows from securities will be reinvested at lower rates
if interest rates fall.
o Liquidity Risk. Liquidity risk exists when particular investments are
difficult to sell. A Fund may not be able to sell these illiquid
securities at the best prices. Investments in derivatives, foreign
investments and securities having small market capitalization, substantial
market and/or credit risk tend to involve greater liquidity risk.
Accordingly, the Core Bond Fund, the Mid Cap Growth Equity Fund, the
Diversified Bond Fund, the Growth Equity Fund, the Small Cap Value Equity
Fund, the Small Cap Growth Equity Fund, the International Equity Fund and
the Core Bond Segment of the Balanced Fund may be subject to liquidity
risk.
o Derivatives Risk. All Funds may use derivatives, which are financial
contracts whose value depends on, or is derived from, the value of an
underlying asset, interest rate or index. The Funds will sometimes use
derivatives as part of a strategy designed to reduce other risks and
sometimes will use derivatives for leverage, which increases opportunities
for gain but also involves greater risk. In addition to other risks such
as the credit risk of the counterparty, derivatives involve the risk of
mispricing or improper valuation and the risk that changes in the value of
the derivative may not correlate perfectly with relevant assets, rates and
indices. In addition, a Fund's use of derivatives may affect the timing
and amount of taxes payable by shareholders.
o Foreign Investment Risk. Funds investing in foreign securities may
experience more rapid and extreme changes in value than Funds which invest
solely in U.S. companies. This is because the securities markets of many
foreign countries are relatively small, with a limited number of companies
representing a small number of industries. In addition, foreign companies
are usually not subject to the same degree of regulation as U.S.
companies. Reporting, accounting and auditing standards of foreign
countries differ, in some cases
-27-
<PAGE>
significantly, from U.S. standards. Also, nationalization, expropriation
or confiscatory taxation, currency blockage, political changes or
diplomatic developments could adversely affect a Fund's non-U.S.
investments. In the event of nationalization, expropriation or other
confiscation, a Fund could lose its entire investment. Economic downturns
in certain regions, such as Southeast Asia, can also adversely affect
other countries whose economies appear to be unrelated. The Core Bond
Fund, the International Equity Fund, the Diversified Bond Fund, the Core
Bond Segment of the Balanced Fund, the Growth Equity Fund, the Mid Cap
Growth Equity Fund and the Small Cap Growth Equity Fund are subject to
foreign investment risk.
These Funds may also invest in foreign securities known as American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"). ADRs, GDRs and EDRs represent
securities or a pool of securities of an underlying foreign or, in the
case of GDRs and EDRs, U.S. or non-U.S. issuer. They are subject to many
of the same risks as foreign securities. ADRs, GDRs and EDRs are more
completely described in the Statement of Additional Information.
o Emerging Markets Risk. The Growth Equity Fund, the Mid Cap Growth Equity
Fund, the Small Cap Growth Equity Fund and the International Equity Fund
may invest in emerging markets, subject to the applicable restrictions on
foreign investments, when the Sub-Adviser deems those investments are
consistent with the Fund's investment objectives and policies. Emerging
markets are generally considered to be the countries having "emerging
market economies" based on factors such as the country's foreign currency
debt rating, its political and economic stability, the development of its
financial and capital markets and the level of its economy. Investing in
foreign securities in emerging markets involves special risks, including
less liquidity and more price volatility than securities of comparable
domestic issuers or in established foreign markets. Emerging markets also
may be concentrated towards particular industries. There may also be
different clearing and settlement procedures, or an inability to handle
large volumes of transactions. These could result in settlement delays and
temporary periods when a portion of a Fund's assets are not invested, or a
loss in value due to illiquidity.
o Currency Risk. The Core Bond Fund, the International Equity Fund, the
Diversified Bond Fund, the Core Bond Segment of the Balanced Fund, the
Growth Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap
Growth Equity Fund are subject to currency risk to the extent that they
invest in securities of foreign companies that are traded in, and receive
revenues in, foreign currencies. Currency risk is caused by uncertainty in
foreign currency exchange rates. Fluctuations in the value of the U.S.
dollar relative to foreign currencies may enhance or diminish returns that
a U.S. investor would receive on foreign investments. The Funds may, but
will not necessarily, engage in foreign currency transactions in order to
protect against fluctuations in the value of holdings denominated in other
currencies. Those currencies can decline in value relative to the U.S.
Dollar, or, in the case of hedging positions, the U.S. Dollar can decline
in value relative to the currency hedged. A Fund's investment in foreign
currencies may increase the amount of ordinary income recognized by the
Fund.
o Smaller Company Risk. Market risk and liquidity risk are particularly
pronounced for stocks of smaller companies. These companies may have
limited product lines, markets or financial resources or they may depend
on a few key employees. The Small Cap Value Equity Fund, Mid Cap Growth
Equity Fund and Small Cap Growth Equity Fund generally have the greatest
exposure to this risk.
o Growth Company Risk. Market risk is also particularly pronounced for
"growth" companies. The prices of growth company securities may fall to a
greater extent than
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<PAGE>
the overall equity markets (represented by the S&P 500 Index) due to
changing economic, political or market factors. Growth company securities
tend to be more volatile in terms of price swings and trading volume.
o Leveraging Risk. When a Fund borrows money or otherwise leverages its
portfolio, the value of an investment in that Fund will be more volatile
and all other risks will tend to be compounded. All of the Funds may take
on leveraging risk by investing collateral from securities loans, by using
derivatives and by borrowing money to repurchase shares or to meet
redemption requests.
Principal Risks by Fund
The following chart summarizes the Principal Risks of each Fund. A particular
Fund may, however, still have risks even if not marked.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Management Prepayment Derivative
Fund Market Risk Credit Risk Risk Risk Liquidity Risk Risk
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Fund X X X X
Short-Term Bond Fund X X X X X
Core Bond Fund X X X X X X
Diversified Bond Fund X X X X X X
Balanced Fund X X X X X X
Core Equity Fund X X X X
Growth Equity Fund X X X X X
Small Cap Value Equity Fund X X X X X
Mid Cap Growth Equity Fund X X X X X
Small Cap Growth Equity Fund X X X X X
International Equity Fund X X X X X
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Foreign Growth Emerging
Investment Leveraging Smaller Company Markets
Fund Risk Currency Risk Risk Company Risk Risk Risk
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Fund X
Short-Term Bond Fund X
Core Bond Fund X X X
Diversified Bond Fund X X X
Balanced Fund X X X
Core Equity Fund X
Growth Equity Fund X X X X X
Small Cap Value Equity Fund X X
Mid Cap Growth Equity Fund X X X X X X
Small Cap Growth Equity Fund X X X X X X
International Equity Fund X X X X
</TABLE>
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<PAGE>
About the Investment Advisers and Sub-Advisers
MassMutual is the Funds' investment adviser and is responsible for providing all
necessary investment management and administrative services. Founded in 1851,
MassMutual is a mutual life insurance company that provides a broad range of
insurance, money management, retirement and asset accumulation products and
services for individuals and businesses. MassMutual, together with its
subsidiaries, has assets of $67 billion and assets under management in excess of
$176 billion. MassMutual contracts with its subsidiaries, David L. Babson and
Company, Incorporated and HarbourView Asset Management Corporation to help
manage certain Funds. In 1998, MassMutual was paid an investment management fee
based on a percentage of its average daily net assets as follows: .45% for the
Prime Fund, the Short-Term Bond Fund, the Core Bond Fund, the Balanced Fund and
the Core Equity Fund; .55% for the Small Cap Value Equity Fund; and .85% for the
International Equity Fund. The current investment management fee paid by each
Fund to MassMutual is identified under "Expense Information" for each Fund. The
Funds also pay MassMutual an administrative and shareholder services fee at an
annual rate based on a percentage of their average daily net assets for the
applicable class of shares. In 1998, the fee ranges for each share class of
those funds were .0774% to .0777% for Class S shares; .0823% to .2875% for Class
Y shares; and .4752% to .4875% for Class A shares. At the date of this
Prospectus, the fee ranges for each share class of all Funds is .0675% to .1232%
for Class S shares; .1432% to .2575% for Class Y shares; .2932% to .4075% for
Class L shares; and .2932% to .4075% for Class A shares. There were no Class L
shares offered for sale in 1998. The Diversified Bond Fund, the Growth Equity
Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth Equity Fund were
not in operation in 1998.
Mary Wilson Kibbe
Principally responsible for the day-to-day management of the Prime Fund,
the Core Bond Fund, the Prime and Core Bond Segments of the Balanced Fund
and the Diversified Bond Fund. She has managed these Funds since their
inception. She has been associated with MassMutual since 1982 and is
responsible for overseeing all public fixed income trading for MassMutual
and its insurance company subsidiaries.
Ronald Desautels
Principally responsible for the day-to-day management of the Short-Term
Bond Fund. He has managed the Fund since its inception. He has 22 years of
investment experience and has been associated with MassMutual since 1989.
David L. Babson and Company Incorporated manages the investments of the Core
Equity Fund, the Small Cap Value Equity Fund and the Core Equity Segment of the
Balanced Fund. David L. Babson has provided investment advice to individual and
institutional investors for more than 50 years and manages more than $21
billion.
Walter T. McCormick
Principally responsible for the day-to-day management of the Core Equity
Fund and the Core Equity Segment of the Balanced Fund. Mr. McCormick, who
has 14 years of investment experience, joined David L. Babson in June,
1998. He began managing these Funds in July 1998. Prior to that, he
managed equity portfolios for Keystone Investments, Inc.
George M. Ulrich
Principally responsible for the day-to-day management of the Small Cap
Value Equity Fund. He has managed the Fund since its inception and has 32
years of investment experience. He joined David L. Babson in 1996 and has
been associated with the MassMutual organization as a portfolio manager
since 1983.
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<PAGE>
HarbourView Asset Management Corporation manages the investments of the
International Equity Fund. HarbourView Asset Management is a subsidiary of
OppenheimerFunds, Inc., which together with its subsidiaries, manages mutual
Funds with assets of more than $99 billion.
George Evans
Primarily responsible for the day-to-day management of the International
Equity Fund. Mr. Evans, has managed the Fund since its inception. He has
been an officer and portfolio manager for OppenheimerFunds for the past
five years, and prior to that was an international equities portfolio
manager/analyst for Brown Brothers, Harriman & Co.
William Wilby
A HarbourView investment professional, Mr. Wilby assists George Evans in
managing the International Equity Fund. He is a senior vice president of
Oppenheimer Funds, Inc. and has been a portfolio manager for
OppenheimerFunds for more than five years.
Massachusetts Financial Services Company manages the investments of the Growth
Equity Fund. MFS has approximately $100 billion in assets under management. MFS
is an indirect, wholly-owned subsidiary of Sun Life Assurance Company of Canada.
Stephen Pesek
Primarily responsible for the day-to-day management of the portfolio of
the Growth Equity Fund. Mr. Pesek has been a portfolio manager with MFS
since 1994. Mr. Pesek is a vice president of MFS and manages other
portfolios with similar investment objectives to the Fund.
Miller Anderson & Sherrerd, LLP manages the investments of the Mid Cap Growth
Equity Fund. Miller Anderson & Sherrerd, LLP ("MAS"), a Pennsylvania limited
liability partnership founded in 1969, is a wholly-owned indirect subsidiary of
Morgan Stanley Dean Witter & Co., and a division of Morgan Stanley Dean Witter
Investment Management. As of December 31, 1998, Morgan Stanley Dean Witter
Investment Management had in excess of $163 billion in assets under management.
Arden Armstrong
Primarily responsible for the day-to-day management of the portfolio of
the Mid Cap Growth Equity Fund. Ms. Armstrong, a managing director of
Morgan Stanley & Co., Incorporated, joined Miller Anderson & Sherrerd, LLP
in 1986. She joined the Mid Cap Growth management team in 1990.
David P. Chu
A vice president of Morgan Stanley Dean Witter & Co., Mr. Chu assists Ms.
Armstrong in the day-to-day management of the Mid Cap Growth Equity Fund.
Mr. Chu joined Miller Anderson & Sherrerd, LLP and the Mid Cap Growth
management team in 1998. He served as senior equity analyst from 1992 to
1997 and as co-portfolio manager in 1997 for NationsBank and its
subsidiary TradeStreet Investment Associates.
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<PAGE>
J.P. Morgan Investment Management Inc. manages a portion of the portfolio of the
Small Cap Growth Equity Fund. J.P. Morgan manages over $300 billion in assets,
and $65 billion in U.S. equity assets.
Candice Eggerss
Primarily responsible for the day-to-day management of the portfolio of
the Small Cap Growth Equity Fund. Ms. Eggerss has been with J.P. Morgan
since May of 1996 as a member of the U.S. small company portfolio
management team, and from June of 1993 to May of 1996 held a similar
position with Weiss, Peck and Greer. Ms. Eggerss is a vice president of
J.P. Morgan and manages other portfolios for J.P. Morgan with similar
investment objectives to the Fund.
Saira Malik
A J.P. Morgan professional, Ms. Malik assists Ms. Eggerss with the
day-to-day management of the portfolio of the Small Cap Growth Equity
Fund. Ms. Malik has been with J.P. Morgan since July of 1995 as a small
company equity analyst and portfolio manager after graduating from the
University of Wisconsin with an M.S. in finance. Ms. Malik is a vice
president of J.P. Morgan and manages or assists with managing other
portfolios for J.P. Morgan with similar investment objectives to the Fund.
Waddell & Reed Investment Management Company manages a portion of the portfolio
of the Small Cap Growth Equity Fund. Waddell & Reed has approximately $27
billion in assets under management, including approximately $3.4 billion in
institutional assets.
Mark Seferovich, CFA
Primarily responsible for the day-to-day management of the portfolio of
the Small Cap Growth Equity Fund. Mr. Seferovich is a senior vice
president of Waddell & Reed and the lead portfolio manager of its small
cap style. He joined Waddell & Reed in February 1989 as manager of small
capitalization growth equity funds. From 1982 to 1988 he was a portfolio
manager for Security Management Company and prior to that was security
analyst/portfolio manager with Reimer & Koger Associates.
Grant Sarris
A vice president and portfolio manager for Waddell & Reed, Mr. Sarris
assists Mr. Seferovich in the day-to-day management of the portfolio of
the Small Cap Growth Equity Fund. He joined Waddell & Reed in 1991 as an
investment analyst. In 1996 he was named assistant portfolio manager of
the small capitalization growth equity style. Prior to joining Waddell &
Reed, he was an intern with Shin-Nihon Kohan, Ltd. in Tokyo.
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<PAGE>
About the Classes of Shares - Multiple Class Information
The Funds offers four Classes of shares: Class S, Class Y, Class L and Class A.
The shares offered by this Prospectus are Class S shares. None of the Classes of
shares has up-front or deferred sales charges. Only Class A shares charge a
distributed and service (Rule 12b-1) fee.
Class S, Class Y and Class L shares are primarily offered to institutional
investors through institutional distribution channels, such as
employer-sponsored retirements plans or through broker-dealers, financial
institutions or insurance companies. Class A shares are primarily offered
through retail distribution channels, such as broker-dealers or financial
institutions. The different Classes have different fees, expenses and/or minimum
investor size requirements. The difference in the fee structures among the
Classes is the result of their separate arrangements for shareholder and
distribution services and not the result of any difference in amounts charged by
the Adviser for investment advisory services. Accordingly, investment advisory
expenses do not vary by Class. Different fees and expenses of a Class will
affect performance of that Class. For additional information about the other
Classes not offered by this Prospectus, call us at 1-888-743-5274 or contact a
sales representative or financial intermediary who offers the Classes.
Except as described below, all Classes of shares of a Fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the various Classes are: (a) each Class
may be subject to different expenses specific to that Class; (b) each Class has
a different Class designation; (c) each Class has exclusive voting rights with
respect to matters solely affecting such Class; (d) each Class offered in
connection with a 12b-1 Plan will bear the expense of the payments that would be
made pursuant to that 12b-1 Plan, and only that Class will be entitled to vote
on matters pertaining to that 12b-1 Plan, and only that Class will be entitled
to vote on matters pertaining to that 12b-1 Plan; and (e) each Class will have
different exchange privileges.
Each Class of a Fund's shares invests in the same portfolio of securities.
Because each Class will have different expenses, they will likely have different
share prices. All Classes of shares are available for purchase by insurance
company separate investment accounts
Class S Shares
Eligible Purchasers. Class S shares may be purchased by:
o Qualified plans under Section 401(a) of the Internal Revenue Code of 1986
(the "Code"), Code Section 403(b) plans, Code Section 457 plans and other
retirement plans, where plan assets of the employer generally or are
expected to exceed $100 million;
o Registered mutual funds; and
o Other institutional investors with assets generally in excess of $100
million.
These Eligible Purchasers must have an agreement with MassMutual or a MassMutual
affiliate to purchase Class S Shares.
Shareholder and Distribution Fees. Class S shares of each Fund are purchased
directly from the Trust without a front-end sales charge. Therefore, 100% of an
Investor's money is invested in the Fund or Funds of its choice. Class S shares
do not have deferred sales charges or any Rule 12b-1 distribution or services
fees.
Compensation to Intermediaries
MassMutual does not expect to pay compensation on account of sales of Class S
shares. The Funds may pay brokerage commissions to Advest, Inc. ("Advest") and
Jefferies & Co., Inc. ("Jefferies"). Jefferies and Advest are each wholly-owned
subsidiaries of companies for which one Trustee serves as director. Each Fund
may also pay brokerage commissions to affiliates of its Sub-Adviser.
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<PAGE>
Investing In The Funds
Buying, Redeeming and Exchanging Shares
The Funds sell their shares at a price equal to their net asset value (NAV). The
Funds' generally determine their NAV at 4:00 p.m. Eastern standard time every
day the New York Stock Exchange is open. Your purchase order will be priced at
the next net asset value calculated after the transfer agent accepts your
purchase order. The Funds will suspend selling their shares during any period
when the determination of NAV is suspended. The Funds can reject any purchase
order and can suspend purchases if it is in their best interest.
The Funds redeem their shares at their next NAV computed after the Funds'
transfer agent receives your redemption request. You will usually receive
payment for your shares within 7 days after the transfer agent receives your
written redemption request. If, however, you request redemption of shares
recently purchased by check, you may not receive payment until the check has
been collected, which may take up to 15 days from receipt of the check. The
Funds can also suspend or postpone payment, when permitted by applicable law and
regulations.
You can exchange shares of one Fund for the same class of shares of another
Fund. An exchange is treated as a sale of shares in one Fund, and a purchase of
shares in another Fund at the NAV next determined after the transfer agent
received the exchange request. Your right to exchange shares is subject to
applicable regulatory requirements or contractual obligations. The Funds may
limit or refuse exchanges, if, in the opinion of MassMutual:
o you have engaged in excessive trading;
o a Fund receives or expects simultaneous orders affecting significant
portions of the Fund's assets;
o a pattern of exchanges occurs which coincides with a market timing
strategy which may be disruptive to the Fund; or
o the Fund would be unable to invest the Funds effectively based on its
investment objectives and policies, or if the Fund would be adversely
affected.
The Funds reserve the right to modify or terminate the exchange privilege on 60
days written notice.
The Funds do not accept purchase, redemption or exchange orders or compute their
NAVs on days when the NYSE is closed. This includes: weekends, Good Friday and
all federal holidays other than Columbus Day and Veterans Day. Certain foreign
markets may be open on days when the Funds do not accept orders or price their
shares. As a result, the NAV of a Fund's shares may change on days when you will
not be able to buy or sell shares.
Determining Net Asset Value
We calculate the net asset value of each class of shares of each Fund
separately. The net asset value (closing price) for shares of a class of a Fund
is determined by adding the current value of all of the Fund's assets
attributable to that Class, subtracting the liabilities attributable to that
class and then dividing the resulting number by the total outstanding shares of
the class.
Each Fund's assets are valued based on market value of the Fund's total
portfolio. The Fund's valuation methods are defined in the Statement of
Additional Information.
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<PAGE>
How to Invest
When you buy shares of the Fund through an agreement with MassMutual, your
agreement will describe how you need to submit buy, sell and exchange orders.
Purchase orders must be accompanied by sufficient Funds. You can pay by check or
Federal Funds wire transfer. You must submit any buy, sell or exchange orders in
"good form" as described in your agreement.
Taxation and Distributions
Each Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. As a regulated investment company, a
Fund will not be subject to Federal income taxes on its ordinary income and net
realized capital gain distributed to its shareholders. In general, a Fund that
fails to distribute at least 98% of such income and gain in the calendar year in
which earned will be subject to a 4% excise tax on the undistributed amount.
Many investors, including most tax qualified plan investors, may be eligible for
preferential federal income tax treatment on distributions received from a Fund
and dispositions of Fund shares. This Prospectus does not attempt to describe in
any respect such preferential tax treatment. Any prospective investor that is a
trust or other entity eligible for special tax treatment under the Code that is
considering purchasing shares of a Fund, including either directly or indirectly
through a life insurance company separate investment account, should consult its
tax advisers about the federal, state, local and foreign tax consequences
particular to it, as should persons considering whether to have amounts held for
their benefit by such trusts or other entities investing in shares of a Fund.
Investors that do not receive preferential tax treatment are subject to federal
income taxes on distributions received in respect of their shares. Distributions
of the Fund's ordinary income and short-term capital gains (i.e. gains from
capital assets held for one year or less) are taxable to the shareholder as
ordinary income whether received in cash or additional shares. Certain
designated Investment Performance dividends may be eligible for the
dividends-received deduction for corporate shareholders. Designated capital gain
dividends (relating to gains from capital assets held for more than one year)
are taxable as long-term capital gains in the hands of the investor whether
distributed in cash or additional shares and regardless of how long the investor
has owned shares of the Fund. The nature of each Fund's distributions will be
affected by its investment strategies. A Fund whose investment return consists
largely of interest, dividends and capital gains from short-term holdings will
distribute largely ordinary income. A Fund whose return comes largely from the
sale of long-term holdings will distribute largely capital gain dividends.
Distributions are taxable to a shareholder even though they are paid from income
or gains earned by a Fund prior to the shareholder's investment and thus were
included in the NAV paid by the shareholder.
Any gain resulting from the exchange or redemption of an investor's shares in a
Fund will generally be subject to tax. A loss incurred with respect to shares of
a Fund held for six months or less will be treated as a long-term capital loss
to the extent of capital gains dividend with respect to such shares.
The Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. Shareholders of the Funds other than the International Equity Fund
generally will not be entitled to claim a credit or deduction with respect to
foreign taxes. Shareholders of the International Equity Fund however, may be
entitled to claim a credit or deduction with respect to foreign taxes. In
addition, the Fund's investments in foreign securities or foreign currencies may
increase or accelerate the Fund's recognition of ordinary income and may affect
the timing or amount of the Fund's distributions.
Shareholders should consult their tax adviser for more information on their own
tax situation, including possible state, local and foreign taxes.
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<PAGE>
Investment Performance
The registration statement for the Prime Fund, Short-Term Bond Fund, Core Bond
Fund, Balanced Fund, Core Equity Fund, Small Cap Value Equity Fund and
International Equity Fund became effective, and those Funds commenced
operations, on October 3, 1994. Those Funds were the successors to seven
separate investment accounts of MassMutual having corresponding investment
objectives, policies and limitations. Class S shares of the Funds were exchanged
for the assets of the separate investment accounts, and while the separate
investment accounts continue to exist, their assets consist solely of Class S
shares of the corresponding Funds. Except for the seed capital provided by
MassMutual, each Fund's portfolio of investments on October 3, 1994 was the same
as the portfolio of the corresponding separate investment account immediately
prior to the transfer.
The quoted performance data in this Prospectus for those funds includes the
performance of the separate investment accounts for periods before the
Registration Statement became effective on October 3, 1994. The separate
investment accounts were not registered under the Investment Company Act of 1940
and thus were not subject to certain investment restrictions that are imposed by
this Act. If the separate investment accounts had been registered under the
Investment Company Act, their performance might have been adversely affected.
The historical performance of the separate investment accounts have been
restated to reflect the Funds' expenses, as described in the Fees and Expenses
section of the prospectus.
Sub-Adviser Performance
MFS. Performance data shown for the Growth Equity Fund is based on a composite
of all other substantially similar portfolios managed by MFS, the Fund's
substantially Sub-Adviser, adjusted to reflect the fees and expenses of each of
the Fund's share classes. Some of these portfolios are mutual funds registered
with the SEC, including Massachusetts Investors Growth Stock Fund, and some are
private accounts. All the portfolios have substantially the same investment
objectives and policies and are managed in accordance with essentially the same
investment strategies and techniques as those of the Fund. However, the private
account portfolios are not registered with the SEC and therefore are not subject
to the limitations, diversification requirements and other restrictions which
the Fund, as a registered mutual fund, will be subject to. The performance of
the private accounts may have been adversely affected if they had been
registered with the SEC.
MAS. Performance data shown for the Mid Cap Growth Equity Fund is based on a
composite of all other substantially similar portfolios managed by Miller
Anderson & Sherrerd, LLP, the Fund's Sub-Adviser, adjusted to reflect the fees
and expenses of each of the Fund's share classes. One of these portfolios is the
MAS Funds Mid Cap Growth Portfolio, a mutual fund registered with the SEC. All
the portfolios have substantially the same investment objective and policies and
are managed in accordance with essentially the same investment strategies and
techniques as those of the Fund. However, the private account portfolios are not
registered with the SEC and therefore are not subject to the limitations,
diversification requirements and other restrictions which the Fund, as a
registered mutual fund, will be subject to. The performance of the private
accounts may have been adversely affected if they had been registered with the
SEC.
J.P. Morgan and Waddell & Reed. J.P. Morgan and Waddell & Reed each manage a
portion of the Small Cap Growth Equity Fund. The J.P. Morgan performance
information is shown based on the historical performance of all discretionary
investment management accounts under the management of J.P. Morgan with
substantially similar investment objectives and policies as the Fund, adjusted
to reflect the fees and expenses of each of the Fund's share classes. Some of
these portfolios are mutual funds registered with the SEC, including the J.P.
Morgan U.S. Small Company Opportunities Fund, and some are private accounts. The
private account portfolios are not registered with
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<PAGE>
the SEC and therefore are not subject to the limitations, diversification
requirements and other restrictions which the MassMutual Small Cap Growth Equity
Fund, as a registered mutual fund, will be subject to. The performance of the
private accounts may have been adversely affected if they had been registered
with the SEC.
From January 1, 1996, the Waddell & Reed performance information shown is based
on a composite of accounts it manages with substantially similar investment
objectives and policies as the Fund, adjusted to reflect the fees and expenses
of each of the Fund's share classes. From inception of Waddell & Reed's Small
Cap Composite on 4/1/89 through 12/31/95, performance is based on data of Small
Cap style mutual fund portfolios managed by the Waddell & Reed. The private
account portfolios are not registered with the SEC and therefore are not subject
to the limitations, diversification requirements and other restrictions which
the Fund, as a registered mutual fund, will be subject to. The performance of
the private accounts may have been adversely affected if they had been
registered with the SEC.
Composite performance for each of the Sub-Adviser's portfolios is provided
solely to illustrate that Sub-Adviser's performance in managing portfolios with
investment objectives similar to the applicable Fund. Such performance is not
indicative of future rates of return. Prior performance of the Sub-Advisers is
no indication of future performance of any of the Funds.
-37-
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the Funds'
financial performance for Class S shares for the past 5 years. The total returns
in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the Funds' financial statements, are included in the
Annual Report, which is available on request. Financial information for the
other share classes of the Funds is available in the Funds' Annual Report.
PRIME FUND
<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.
(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.
-38-
<PAGE>
SHORT-TERM BOND FUND
<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 $ 10.23 $ 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.
(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.
CORE BOND FUND
<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%*
</TABLE>
* Annualized
** For the period from October 3, 1994 (commencement of operations) through
December 31, 1994.
*** Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of
the undistributed income method does not accord with the results of
operations.
(1) Class S shares were previously designated as Class 4 shares.
@ Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth
in their respective Plan Documents. Total return figures would be lower
for the periods presented if they reflected these charges.
-39-
<PAGE>
BALANCED FUND
<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 $ 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 3.42% 3.57% 3.83% 4.18% 4.29%*
assets
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.
(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.
CORE EQUITY FUND
<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 1.67% 1.91% 2.42% 2.72% 3.20%*
assets
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.
(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.
-40-
<PAGE>
SMALL CAP VALUE EQUITY FUND
<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 $ 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 / 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, 1994 (commencement of operations) through
December 31, 1994.
*** Per share amount calculated on the average shares method, which more
appropriately presents the per share data for the period since the use of
the undistributed income method does not accord with the results of
operations.
(1) Class S shares were previously designated as Class 4 shares.
@ Employee retirement benefit plans that invest plan assets in the Separate
Investment Accounts (SIAs) may be subject to certain charges as set forth
in their respective Plan Documents. Total return figures would be lower
for the periods presented if they reflected these charges.
INTERNATIONAL EQUITY FUND
<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 $ 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.
(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.
-41-
<PAGE>
APPENDIX
ADDITIONAL INVESTMENT POLICIES
AND RISK CONSIDERATIONS
The Funds may invest in a wide range of investments and engage in various
investment-related transactions and practices. These practices are pursuant to
non-Fundamental policies and therefore may be changed by the Board of Trustees
without the consent of shareholders. Some of the more significant practices and
some associated risks are discussed below.
Euro Risk
The International Equity Fund and, to a lesser extent, the other Funds,
including the Growth Equity Fund, may be subject to an additional risk regarding
their foreign securities holdings. 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 lire) 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 Funds operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o Issuers in which the Funds invest, 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.
o Vendors the Funds depend on to carry out their business, such as
custodians (which hold the foreign securities the Funds buy), the Fund's
managers and Sub-Advisers (which must price the Funds' 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 Funds.
o 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 Funds' contracts could pose
extra costs to the Funds.
The Sub-Adviser to the International Equity Fund is upgrading (at its expense)
its computer and bookkeeping systems to deal with the conversion. The Funds'
custodian has advised MassMutual of its plans to deal with the conversion
including how it will update its recordkeeping 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 their operational costs.
Year 2000 Issue
Like other businesses and governments around the world, the Funds could be
adversely affected if the computer systems used by the Funds' 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 Funds that the Year 2000
issue is one of MassMutual's highest business operational priorities. MassMutual
is also seeking assurances from the Funds' other service providers, including
the Sub-Advisers, and others with which MassMutual and the Funds conduct
business 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 Funds invest could be adversely impacted by
-42-
<PAGE>
the Year 2000 issue. The extent of such impact cannot be predicted.
Repurchase Agreements and Reverse Repurchase Agreements
Each Fund may engage in repurchase agreements and reverse repurchase agreements.
A repurchase agreement is a contract pursuant to which a Fund agrees to purchase
a security and simultaneously agrees to resell it at an agreed-upon price at a
stated time, thereby determining the yield during the Fund's holding period. A
reverse repurchase agreement is a contract pursuant to which a Fund agrees to
sell a security and simultaneously agrees to repurchase it at an agreed-upon
price at a stated time. The Statement of Additional Information provides a
detailed description of repurchase agreements, reverse repurchase agreements and
related risks.
Securities Lending
Each Fund may seek additional income by making loans of portfolio securities of
not more than 33% of its total assets taken at current value. Although lending
portfolio securities may involve the risk of delay in recovery of the securities
loaned or possible loss of rights in the collateral should the borrower fail
financially, loans will be made only to borrowers deemed by MassMutual and the
Fund's Sub-Adviser to be in good standing.
Under applicable regulatory requirements and securities lending agreements
(which are subject to change), the loan collateral received by a Fund when it
lends portfolio securities must, on each business day, be at least equal to the
value of the loaned securities. Cash collateral received by a Fund will be
reinvested by the Fund's securities lending agent in high quality, short term
instruments, including bank obligations, U.S. Government Securities, repurchase
agreements, money market Funds and U.S. dollar denominated corporate instruments
with an effective maturity of one-year or less, including variable rate and
floating rate securities, insurance company Funding agreements and asset-backed
securities. All investments of cash collateral by a Fund are for the account and
risk of that Fund.
Hedging Instruments and Derivatives
Each Fund may buy or sell forward contracts and other similar instruments and
may engage in foreign currency transactions (collectively referred to as
"hedging instruments" or "derivatives"), as more fully discussed in the
Statement of Additional Information.
The portfolio managers may normally use derivatives:
o to protect against possible declines in the market value of a Fund's
portfolio resulting from downward trends in the markets (for example, in
the debt securities markets generally due to increasing interest rates);
o to protect a Fund's unrealized gains or limit its unrealized losses; and
o to manage a Fund's exposure to changing securities prices.
Our portfolio managers may also use derivatives to establish a position in the
debt or equity securities markets as a temporary substitute for purchasing or
selling particular securities and to manage the effective maturity or duration
of fixed income securities in a Fund's portfolio.
(1) Forward Contracts - Each Fund may purchase or sell securities on a "when
issued" or delayed delivery basis or may purchase or sell securities on a
forward commitment basis ("forward contracts"). When such transactions are
negotiated, the price is fixed at the time of commitment, but delivery and
payment for the securities can take place a month or more after the
commitment date. The securities so purchased or sold are subject to market
fluctuations and no interest accrues to the purchaser during this period.
While a Fund also may enter into forward contracts with the initial
intention of acquiring securities for its portfolio, it may dispose of a
commitment prior to settlement if MassMutual or the Fund's Sub-Adviser
deems it appropriate to do so.
-43-
<PAGE>
(2) Currency Transactions - The International Equity Fund, the Growth Equity
Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth Equity Fund
may, but will not necessarily, engage in foreign currency transactions
with counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative
value. The Short-Term Bond Fund, the Core Bond Fund, the Core Bond Segment
of the Balanced Fund and the Diversified Bond Fund may invest in foreign
securities that are not denominated in U.S. dollars only if the Fund
contemporaneously enters into a foreign currency transaction to hedge the
currency risk associated with the particular foreign security.
Certain limitations apply to the use of forward contracts by the Funds. For
example, a Fund will not enter into a forward contract if as a result more than
25% of its total assets would be held in a segregated account covering such
contracts. For more information about forward contracts and currency
transactions and the extent to which tax considerations may limit a Fund's use
of such instruments, see the SAI.
There can be no assurance that the use of hedging instruments and derivatives by
a Fund will assist it in achieving its investment objective. Risks inherent in
the use of these instruments include the following:
o the risk that interest rates and securities prices will not move in the
direction anticipated;
o the imperfect correlation between the prices of a forward contract and the
price of the securities being hedged; and
o the Fund's portfolio manager may not have the skills needed to manage
these strategies.
Therefore, there is no assurance that hedging instruments and derivatives will
assist the Fund in achieving its investment objective. As to forward contracts,
the risk exists that the counterparty to the transaction will be incapable of
meeting its commitment, in which case the desired hedging protection may not be
obtained and the Fund may be exposed to risk of loss. As to currency
transactions, risks exist that purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments
which could result in losses to the Fund if it is unable to deliver or receive
currency or Funds in settlement of obligations. It also could cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs.
Restricted and Illiquid Securities
None of the Funds currently expects to invest in restricted or illiquid
securities except for the Diversified Bond Fund. However, each Fund may invest
not more than 15% of its net assets in illiquid securities. These policies do
not limit the purchase of securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended, provided that such securities are determined to be liquid by the Fund
or its adviser or Sub-Adviser pursuant to Board-approved guidelines. If there is
a lack of trading interest in particular Rule 144A securities, a Fund's holdings
of those securities may be illiquid, resulting in the possibility of undesirable
delays in selling these securities at prices representing fair value.
Foreign Securities
Investments in foreign securities offer potential benefits not available from
investing solely in securities of domestic issuers, such as the opportunity to
invest in foreign issuers that appear to offer growth potential, or to invest in
foreign countries with economic policies or business cycles different from those
of the United States or foreign stock markets that do not move in a manner
parallel to U.S. markets, thereby diversifying risks of fluctuations in
portfolio value.
Investments in foreign securities, however, entail certain risks, such as: the
imposition of dividend or interest withholding or confiscatory taxes; currency
blockages or transfer
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restrictions; expropriation, nationalization, military coups or other adverse
political or economic developments; less government supervision and regulation
of securities exchanges, brokers and listed companies; and the difficulty of
enforcing obligations in other countries. Certain markets may require payment
for securities before delivery. A Fund's ability and decision to purchase and
sell portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. Further, it may be more
difficult for a Fund's agents to keep currently informed about corporate actions
which may affect the prices of portfolio securities. Communications between the
United States and foreign countries may be less reliable than within the United
States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities.
Portfolio Management
The Fund's Adviser and Sub-Advisers may use trading as a means of managing the
portfolios of the Funds in seeking to achieve their investment objectives.
Transactions will occur when MassMutual or Sub-Advisers believes that the trade,
net of transaction costs, will improve interest income or capital appreciation
potential, or will lessen capital loss potential. Whether the goals discussed
above will be achieved through trading depends on the manager's or Sub-Adviser's
ability to evaluate particular securities and anticipate relevant market
factors, including interest rate trends and variations from such trends. If such
evaluations and expectations prove to be incorrect, a Fund's income or capital
appreciation could fall and its capital losses could increase. In addition, high
portfolio turnover in any Fund can result in additional brokerage commissions to
be paid by the Fund.
Cash Positions
Each Fund may hold cash or cash equivalents to provide for expenses and
anticipated redemption payments and so that an orderly investment program may be
carried out in accordance with the Fund's investment policies. To provide
liquidity or for temporary defensive purposes, each Fund may invest in
investment grade debt securities, government obligations, or money market
instruments.
Industry Diversification
As a general rule, a Fund will not acquire securities of issuers in any one
industry (as determined by the Board of Trustees) if as a result more than 25%
of the value of the total assets of the Fund would be invested in such industry,
with the following exceptions:
(1) There is no limitation for U.S. Government Securities.
(2) In the case of the Prime Fund and the Short-Term Bond Fund, there is no
industry concentration limitation for certificates of deposit and bankers'
acceptances.
Mortgage-Backed U.S. Government Securities and CMOs
The Funds may invest in mortgage-backed U.S. Government Securities and
collateralized mortgage obligations ("CMOs"). These securities represent
participation interests in pools of residential mortgage loans made by lenders
such as banks and savings and loan associations. The pools are assembled for
sale to investors (such as the Funds) by government agencies and also, in the
case of CMOs, by private issuers, which issue or guarantee the securities
relating to the pool. Such securities differ from conventional debt securities
which generally provide for periodic payment of interest in fixed or
determinable amounts (usually semi-annually) with principal payments at maturity
or specified call dates. Some mortgage-backed U.S. Government Securities in
which a Fund may invest may be backed by the full faith and credit of the U.S.
Treasury (e.g., direct pass-through certificates of Government
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National Mortgage Association); some are supported by the right of the issuer to
borrow from the U.S. Government (e.g., obligations of Federal Home Loan Mortgage
Corporation); and some are backed by only the credit of the issuer itself (e.g.,
Federal National Mortgage Association). Those guarantees do not extend to the
value or yield of the mortgage-backed securities themselves or to the net asset
value of a Fund's shares. These government agencies may also issue derivative
mortgage backed securities such as CMOs.
The expected yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal. Principal prepayments generally result from the sale of the
underlying property or the refinancing or foreclosure of underlying mortgages.
The occurrence of prepayments is affected by a wide range of economic,
demographic and social factors and, accordingly, it is not possible to predict
accurately the average life of a particular pool. Yield on such pools is usually
computed by using the historical record of prepayments for that pool, or, in the
case of newly-issued mortgages, the prepayment history of similar pools. The
actual prepayment experience of a pool of mortgage loans may cause the yield
realized by a Fund to differ from the yield calculated on the basis of the
expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates, while
during periods of rising interest rates prepayments may likely decline. When
prevailing interest rates rise, the value of a pass-through security may
decrease as do the values of other debt securities, but, when prevailing
interest rates decline, the value of a pass-through security is not likely to
rise to the extent that the values of other debt securities rise, because of the
risk of prepayment. A Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at times when available
investments offer higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by the Fund
have a compounding effect which may increase the yield to the Fund more than
debt obligations that pay interest semi-annually. Because of these factors,
mortgage-backed securities may be less effective than Treasury bonds of similar
maturity at maintaining yields during periods of declining interest rates. A
Fund may purchase mortgage-backed securities at a premium or at a discount.
Accelerated prepayments adversely affect yields for pass-through securities
purchased at a premium (i.e., at a price in excess of their principal amount)
and may involve additional risk of loss of principal because the premium may not
have been fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
Asset-Backed Securities
These securities, issued by trusts and special purpose entities, are backed by
pools of assets, such as automobile and credit-card receivables and home equity
loans, which pass through the payments on the underlying obligations to the
security holders (less servicing fees paid to the originator or fees for any
credit enhancement). The value of an asset-backed security is affected by
changes in the market's perception of the asset backing the security, the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing any credit enhancement, and is
also affected if any credit enhancement has been exhausted. Payments of
principal and interest passed through to holders of asset-backed securities are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or by having a priority
to certain of the borrower's other assets. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an asset-backed security
held by a Fund has been exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the Fund may
experience losses or delays in receiving payment.
The risks of investing in asset-backed securities are ultimately dependent upon
payment of consumer loans by the individual borrowers. As
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a purchaser of an asset-backed security, the Funds would generally have no
recourse to the entity that originated the loans in the event of default by a
borrower. The underlying loans are subject to prepayments, which shorten the
weighted average life of asset-backed securities and may lower their return, in
the same manner as described above for prepayments of a pool of mortgage loans
underlying mortgage-backed securities. However, asset-backed securities do not
have the benefit of the same security interest in the underlying collateral as
do mortgage-backed securities.
Roll Transactions
To take advantage of attractive financing opportunities in the mortgage market
and to enhance current income, each of the Funds may engage in dollar roll
transactions. A dollar roll transaction involves a sale by a Fund of a GNMA
certificate or other mortgage backed securities to a financial institution, such
as a bank or broker-dealer, currently with an agreement by the Fund to
repurchase a similar security from the institution at a later date at an agreed
upon price. The securities that are repurchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. Dollar roll
transactions involve potential risks of loss which are different from those
related to the securities underlying the transaction. The Statement of
Additional Information gives a more detailed description of dollar roll
transactions and related risks.
Certain Debt Securities
While the Funds, except for the Prime Fund, may invest in investment grade debt
securities that are rated in the fourth highest rating category by at least one
nationally recognized statistical rating organization (e.g., Baa3 by Moody's)
or, if unrated, are judged by MassMutual to be of equivalent quality, such
securities have speculative characteristics, are subject to greater credit risk,
and may be subject to greater market risk than higher rated investment grade
securities.
When Issued Securities
The Growth Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth
Equity Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, which means securities will be delivered to the Fund at a
future date beyond the settlement date. A Fund will not have to pay for
securities until they are delivered. While waiting for delivery of the
securities, the Fund will segregate sufficient liquid assets to cover its
commitments. Although the Funds do not intend to make such purchases for
speculative purposes, there are risks related to liquidity and market
fluctuations prior to the Fund taking delivery.
Options and Futures Contracts
The Growth Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth
Equity Fund may engage in options transactions, such as writing covered put and
call options on securities and purchasing put and call options on securities.
These strategies are designed to increase a Fund's portfolio return, or to
protect the value of the portfolio, by offsetting a decline in portfolio value
through the options purchased. Writing options, however, can only constitute a
partial hedge, up to the amount of the premium, and due to transaction costs.
These Funds may also write covered call and put options and purchase call and
put options on stock indexes in order to increase portfolio income or to protect
the Fund against declines in the value of portfolio securities. In addition,
these Funds and the International Equity Fund may also purchase and write
options on foreign currencies to protect against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired.
The Growth Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth
Equity Fund may also enter into stock index futures contracts. These Funds and
the International Equity Fund may enter into foreign currency futures contracts.
These transactions are hedging strategies. They are designed to protect a Fund's
current or intended investments from
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the effects of changes in exchange rates or market declines. A Fund will incur
brokerage fees when it purchases and sells futures contracts. Futures contracts
entail risk of loss in portfolio value, if the Sub-Adviser is incorrect in
anticipating the direction of exchange rates or the securities markets.
These Funds may also purchase and write options on these futures contracts. This
strategy also is intended to protect against declines in the values of portfolio
securities or against increases in the costs of securities to be acquired. Like
other options, options on futures contracts constitute only a partial hedge up
to the amount of the premium, and due to transaction costs.
While these strategies will generally be used by a Fund for hedging purposes,
there are risks. For example, the Sub-Adviser may incorrectly forecast the
direction of exchange rates or of the underlying securities index or markets.
When these hedging transactions are unsuccessful, the Fund may experience
losses. When a Fund enters into these transactions to increase portfolio value
(i.e., other than for hedging purposes), there is a liquidity risk that no
market will arise for resale and the Fund could also experience losses. Options
and Futures Contracts strategies and risks are described more fully in the
Statement of Additional Information.
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MASSMUTUAL INSTITUTIONAL FUNDS
1295 State Street
Springfield, Massachusetts 01111
Learning More About the Funds
You can learn more about the Funds by reading the Funds' Annual and Semiannual
Reports and the Statement of Additional Information (SAI).
This information is available free upon request. In the Annual and Semiannual
Reports, you will find a discussion of market conditions and investment
strategies that significantly affected each Fund's performance during the period
covered by the Report and a listing of portfolio securities. The SAI will
provide you more detail regarding the organization and operation of the Funds,
including their investment strategies. The SAI is incorporated by reference into
this Prospectus and is therefore legally considered a part of this Prospectus.
How to Obtain Information
From MassMutual Institutional Funds: You may request information about the Funds
(including the Annual/Semiannual Reports and the SAI) or make shareholder
inquiries by calling 1-888-743-5274 or by writing MassMutual Institutional
Funds c/o Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, Massachusetts 01111-0111, Attention: MassMutual Institutional Funds
Coordinator, MIP C218.
From the SEC: You may review information about the Funds (including the SAI) at
the SEC's Public Reference Room in Washington, D.C. (call 1-800-SEC-0330 for
information regarding the operation of the SEC's public reference room). You can
get copies of this information, upon payment of a copying fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. Alternatively, if
you have access to the Internet, you may obtain information about the Funds from
the SEC's Internet site at http://www.sec.gov. When obtaining information about
the Funds from the SEC, you may find it useful to reference the Funds' SEC file
number: 881-8274.
<PAGE>
MASSMUTUAL INSTITUTIONAL FUNDS
1295 State Street
Springfield, Massachusetts 01111
STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS OF MASSMUTUAL INSTITUTIONAL FUNDS
(THE "TRUST") DATED MAY 3, 1999, AS AMENDED FROM TIME TO TIME (THE
"PROSPECTUS"). THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES HEREIN THE
FINANCIAL STATEMENTS OF THE FUNDS BY REFERENCE TO THE FUNDS' ANNUAL REPORT AS OF
DECEMBER 31, 1998 (THE "ANNUAL REPORT"). TO OBTAIN A PROSPECTUS, CALL TOLL-FREE
1-888-743-5274, OR WRITE THE TRUST AT THE ABOVE ADDRESS.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
SAI or in the related Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representation must not be
relied upon as having been authorized by the Trust or the Distributor. This SAI
and the related Prospectus do not constitute an offer by the Trust or by the
Distributor to sell or a solicitation of any offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
This SAI relates to the following Funds:
o MassMutual Prime Fund
o MassMutual Short-Term Bond Fund
o MassMutual Core Bond Fund
o MassMutual Diversified Bond Fund
o MassMutual Balanced Fund
o MassMutual Core Equity Fund
o MassMutual Growth Equity Fund
o MassMutual Small Cap Value Equity Fund
o MassMutual Mid Cap Growth Equity Fund
o MassMutual Small Cap Growth Equity Fund
o MassMutual International Equity Fund
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TABLE OF CONTENTS
Page
----
GENERAL INFORMATION ....................................................... B-3
ADDITIONAL INVESTMENT POLICIES ............................................ B-3
FUNDAMENTAL INVESTMENT RESTRICTIONS ....................................... B-15
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS ................................... B-16
MANAGEMENT OF THE TRUST ................................................... B-16
COMPENSATION .............................................................. B-21
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES ....................... B-22
INVESTMENT MANAGER AND SUB-ADVISERS ....................................... B-23
ADMINISTRATOR AND SUB-ADMINISTRATOR ....................................... B-25
THE DISTRIBUTOR ........................................................... B-26
CLASS A DISTRIBUTION AND SERVICE PLANS .................................... B-26
CUSTODIAN, DIVIDEND DISBURSING AGENT AND TRANSFER AGENT ................... B-27
INDEPENDENT PUBLIC ACCOUNTANT ............................................. B-28
PORTFOLIO TRANSACTIONS AND BROKERAGE ...................................... B-28
SHAREHOLDER INVESTMENT ACCOUNT ............................................ B-29
DESCRIPTION OF SHARES ..................................................... B-29
REDEMPTION OF SHARES ...................................................... B-29
VALUATION OF PORTFOLIO SECURITIES ......................................... B-30
INVESTMENT PERFORMANCE .................................................... B-30
OTHER ADVERTISING ITEMS ................................................... B-34
TAXATION .................................................................. B-34
EXPERTS ................................................................... B-36
GLOSSARY .................................................................. B-36
APPENDIX - DESCRIPTION OF SECURITIES RATINGS .............................. B-38
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<PAGE>
GENERAL INFORMATION
MassMutual Institutional Funds (the "Trust") is a professionally managed,
open-end investment company. This SAI describes the following eleven separate
series of the Trust: (1) MassMutual Prime Fund ("Prime Fund"), (2) MassMutual
Short-Term Bond Fund ("Short-Term Bond Fund"), (3) MassMutual Core Bond Fund
("Core Bond Fund"), (4) MassMutual Diversified Bond Fund ("Diversified Bond
Fund"), (5) MassMutual Balanced Fund ("Balanced Fund"), (6) MassMutual Core
Equity Fund ("Core Equity Fund"), (7) MassMutual Growth Equity Fund ("Growth
Equity Fund"), (8) MassMutual Small Cap Value Equity Fund ("Small Cap Value
Equity Fund"), (9) MassMutual Mid Cap Growth Equity Fund ("Mid Cap Growth Equity
Fund"), (10) MassMutual Small Cap Growth Equity Fund ("Small Cap Growth Equity
Fund") and (11) MassMutual International Equity Fund ("International Equity
Fund") (each individually referred to as a "Fund" or collectively as the
"Funds"). Currently, the Trustees have authorized a total of sixteen separate
series. Additional series may be created by the Trustees from time-to-time.
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 from time to time (the "Declaration of Trust").
The investment manager for each Fund is Massachusetts Mutual Life Insurance
Company ("MassMutual"). The investment sub-adviser for the Core Equity Fund, the
Small Cap Value Equity Fund and the Core Equity Segment of the Balanced Fund is
David L. Babson and Company Incorporated ("Babson"), located at One Memorial
Drive, Cambridge, Massachusetts 02142. The investment sub-adviser for the Growth
Equity Fund is Massachusetts Financial Services Company ("MFS"), located at 500
Boylston Street, Boston, Massachusetts 19428. The investment sub-adviser for the
Mid Cap Growth Equity Fund is Miller Anderson & Sherrerd, LLP ("MAS"), located
at One Tower Bridge, West Conshohocken, Pennsylvania 19428. The sub-advisers for
the Small Cap Growth Equity Fund are J.P. Morgan Investment Management Inc.
("J.P. Morgan") located at 522 Fifth Avenue, New York, New York 10036 and
Waddell & Reed Investment Management Company ("Waddell & Reed"), located at 6300
Lamar, Overland Park, Kansas 66202. The investment sub-adviser for the
International Equity Fund is HarbourView Asset Management Corporation
("HarbourView"), located at Two World Trade Center, New York, New York 10048.
Babson and HarbourView are each indirect subsidiaries of MassMutual. MassMutual,
Babson, HarbourView, MFS, MAS, J.P. Morgan and Waddell & Reed are sometimes
referred to herein as the "Advisers."
ADDITIONAL INVESTMENT POLICIES
Each Fund has a distinct investment objective which it pursues through separate
investment policies, as described in the Prospectus and below. The investment
objective, fundamental investment policies and fundamental investment
restrictions of a Fund may not be changed without the vote of a majority of that
Fund's outstanding shares (which, under the Investment Company Act of 1940 (the
"1940 Act") and the rules thereunder and as used in this SAI and in the
Prospectus, means the lesser of (1) 67% of the shares of that Fund present at a
meeting if the holders of more than 50% of the outstanding shares of that Fund
are present in person or by proxy, or (2) more than 50% of the outstanding
shares of that Fund). The Board of Trustees of the Trust may adopt new or amend
or delete existing non-fundamental investment policies and restrictions without
shareholder approval.
The following discussion, when applicable, elaborates on the presentation of
each Fund's investment policies contained in the Prospectus. For a description
of the ratings of corporate debt securities and money market instruments in
which the various Funds may invest, reference should be made to the Appendix.
PRIME FUND
An instrument in which the Prime Fund may invest will be considered to be
short-term if its remaining maturity on the date of its purchase is 397 days or
less. In the case of a variable or floating rate obligation, the remaining
maturity will be deemed to be the period remaining until the next readjustment
of the interest rate or until maturity, whichever is less. In the case of an
obligation with a demand feature, the remaining maturity will be deemed to be
the period remaining until the principal amount may be recovered through the
demand provision or until the next readjustment of the interest rate or until
maturity, whichever is the shortest.
Certain money market instruments are available only in relatively large
denominations, and others may carry higher yields if purchased in relatively
large denominations. Also, MassMutual believes that an institutional purchaser
of money market instruments who can invest relatively large sums on a regular
basis may have investment opportunities that are not available to those who
invest smaller sums less frequently. Certain of the Prime Fund's investment
restrictions limit the percentage of the Fund's assets that may be invested in
certain industries or in securities of any issuer. Accordingly, if the Fund has
relatively small net assets and net cash flow from sales and
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redemptions of shares, the Fund may be unable to invest in money market
instruments paying the highest yield available at a particular time.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's duration management strategy currently uses a
quantitative, risk-averse discipline that balances generating a high total rate
of return primarily from current income with minimizing fluctuations in capital
values. The duration of the portfolio will be lengthened by extending average
maturities when sufficient additional yield can be obtained. Conversely, the
duration will be shortened when adequate compensation for the additional risk
associated with longer maturities cannot be realized.
CORE BOND FUND
The Core Bond Fund's duration management strategy is to match (within 10%) the
duration of the Lehman Brothers Government/Corporate Bond Index. MassMutual
seeks to add value compared to this index through the use of sector rotation,
yield curve management and asset selection. Neither market timing nor interest
rate anticipation methods are employed in managing the Fund.
DIVERSIFIED BOND FUND
The Diversified Bond Fund's duration management strategy is to match (within 5%)
the duration of the Lehman Brothers Intermediate Aggregate Bond Index.
MassMutual seeks to add value compared to this index through the use of sector
rotation, yield curve management and asset selection. Neither market timing nor
interest rate anticipation methods are employed in managing the Fund.
The Fund will also have specified liquidity and diversification requirements for
particular types of investments, including:
(a) Bond purchases for the Fund will be limited to 15% of any major industry
group;
(b) Below investment grade bonds cannot exceed 25% of the Fund's assets;
(c) Residential whole loan mortgage pools cannot exceed 15% of the Fund's
assets; these investments will also be limited geographically based on
population size of the area where the residences are located.
(d) Commercial mortgage loans cannot exceed 25% of the Fund's assets; these
investments will also be limited to 7% for each type of mortgaged
property, and geographically based on the population size of the area
where the properties are located.
INTERNATIONAL EQUITY FUND
The Trustees are authorized to determine what constitutes a "foreign security"
and to modify any such definition as they deem appropriate. Opportunities for
long-term capital appreciation will be stressed.
The Fund may, but will not necessarily, engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value.
FIXED INCOME SECURITIES
While the Prime Fund invests in high quality securities and the Short-Term Bond
Fund, the Core Bond Fund, the Core Bond Segment of the Balanced Fund invest in
investment grade securities, an investment in these Funds is not without risk.
The debt securities in which the Funds invest may not offer as high a yield as
may be achieved from lower quality instruments having less safety. If the Prime
Fund, the Short-Term Bond Fund, the Core Bond Fund, or the Core Bond Segment of
the Balanced Fund dispose of an obligation prior to maturity, it may realize a
loss or a gain. An increase in interest rates will generally reduce the value of
portfolio investments, and a decline in interest rates will generally increase
the value of portfolio investments. In addition, investments are subject to the
ability of the issuer to make payment at maturity. If an investment of the
Short-Term Bond Fund, the Core Bond Fund or the Core Bond Segment of the
Balanced Fund is downgraded below investment-grade level, the Adviser may
continue to hold such security if the Adviser determines that to do so is in the
Fund's best interest.
Although the Diversified Bond Fund may invest in investment grade securities, it
may also invest in securities below investment grade. Lower-grade debt
securities may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade securities. Securities that
are (or have fallen) below investment grade are exposed to a greater risk that
the issuers of those securities might not meet their debt obligations. These
risks can reduce the Fund's share prices and the income it earns.
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WARRANTS AND RIGHTS
A warrant typically gives the holder the right to purchase underlying stock at a
specified price for a designated period of time. Warrants may be a relatively
volatile investment. The holder of a warrant takes the risk that the market
price of the underlying stock may never equal or exceed the exercise price of
the warrant. A warrant will expire without value if it is not exercised or sold
during its exercise period. Rights are similar to warrants, but normally have a
short duration and are distributed directly by the issuer to its shareholders.
Warrants and rights have no voting rights, receive no dividends, and have no
rights to the assets of the issuer.
The Core Equity Segment of the Balanced Fund, the Core Equity Fund, the Small
Cap Value Equity Fund, the Growth Equity Fund, the Mid Cap Growth Equity Fund,
the Small Cap Growth Equity Fund and the International Equity Fund may each
invest up to 5% of the value of their respective assets in warrants in an effort
to build a position in the underlying common stocks and, of such 5%, no more
than 2% may be invested in warrants that are not listed on the New York Stock
Exchange ("NYSE") or the American Stock Exchange.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement transaction, a Fund acquires a security from, and
simultaneously resells it to, an approved vendor (a U.S. commercial bank or the
U.S. branch of a foreign bank, or a broker-dealer which has been designated a
primary dealer in government securities and which must meet the credit
requirements set by the Trust's Board of Trustees from time to time) for
delivery on an agreed-upon future date. The resale price exceeds the purchase
price by an amount that reflects an agreed-upon interest rate effective for the
period during which the repurchase agreement is in effect. The majority of these
agreements run from day to day, and delivery pursuant to the resale agreement
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the 1940 Act, collateralized by the
underlying security. A Fund's repurchase agreements require that at all times
while the repurchase agreement is in effect, the value of the collateral must
equal or exceed the repurchase price to fully collateralize the loan.
Additionally, a Fund's adviser will impose creditworthiness requirements to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security. In addition, if the seller should
be involved in bankruptcy or insolvency proceedings, the Fund may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required to
return the underlying securities to the seller's bankruptcy estate.
A reverse repurchase agreement is a contract pursuant to which a Fund agrees to
sell a security and simultaneously agrees to repurchase it at an agreed-upon
price at a stated time. A Fund engaging in reverse repurchase agreements will
maintain a segregated account with its custodian containing cash or liquid
securities, having a current market value at all times in an amount sufficient
to repurchase securities pursuant to outstanding reverse repurchase agreements.
Reverse repurchase agreements are borrowings subject to Restriction (2) under
"Fundamental Investment Restrictions."
ROLL TRANSACTIONS
To take advantage of attractive financing opportunities in the mortgage market
and to enhance current income, each of the Funds may engage in dollar roll
transactions. A dollar roll transaction involves a sale by a Fund of a GNMA
certificate or other mortgage-backed securities to a financial institution, such
as a bank or broker-dealer, concurrently with an agreement by the Fund to
repurchase a similar security from the institution at a later date at an agreed
upon price. The securities that are repurchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. During the period
between the sale and repurchase, the Fund will not be entitled to receive the
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in additional instruments for the Fund. A Fund is compensated
for agreeing to repurchase the security by the difference between the current
sales price and the price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. Dollar rolls may be renewed over a period of several months with a
different repurchaser or repurchase price and a cash settlement made at each
renewal without physical delivery of securities. Moreover, a Fund may enter into
a dollar roll transaction involving a security not then in the Fund's portfolio
so long as the transaction is preceded by a firm commitment agreement pursuant
to which the Fund has agreed to buy the securities on a future date.
The Funds will not use such transactions for leveraging purposes and,
accordingly, will segregate cash or other liquid securities in an amount
sufficient to meet its obligations under the roll transactions. Dollar roll
transactions
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involve potential risks of loss which are different from those related to the
securities underlying the transaction. For example, if the counterparty were to
become insolvent, the Fund's right to purchase from the counterparty may be
restricted. Additionally, the market value of the securities sold by the Fund
may decline below the repurchase price of those securities to be purchased.
Dollar roll transactions are borrowings subject to Restriction (2) under
"Fundamental Investment Restrictions."
CERTAIN DEBT SECURITIES
Some U.S. Government Securities are backed by the full faith and credit of the
U.S. Government; others are secured by the right of the issuer to borrow from
the U.S. Treasury; while others are supported only by the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. Government
will pay interest and principal on securities on which it is not legally
obligated to do so.
The Funds will limit their investments in certificates of deposit and bankers'
acceptances to U.S. dollar denominated obligations of U.S. banks and savings and
loan associations, London branches of U.S. banks ("Eurodollar obligations") and
U.S. branches of foreign banks ("Yankeedollar obligations"). In the case of
foreign banks, the $1 billion deposit requirement will be computed using
exchange rates in effect at the time of the banks' most recently published
financial statements. Eurodollar obligations and Yankeedollar obligations will
not be acquired if as a result more than 25% of a Fund's net assets would be
invested in such obligations. Obligations of foreign banks and of foreign
branches of U.S. banks may be affected by foreign governmental action, including
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium or restriction on payments
of principal or interest. Foreign banks and foreign branches of U.S. banks may
provide less public information than, and may not be subject to the same
accounting, auditing and financial recordkeeping standards as, domestic banks.
SECURITIES LENDING
A Fund may seek additional income by making loans of portfolio securities of not
more than 33% of its total assets taken at current market value. Under
applicable regulatory requirements and securities lending agreements (which are
subject to change), the loan collateral must, on each business day, be at least
equal to the value of the loaned securities and must consist of cash (which may
be invested by the Fund in any investment not otherwise prohibited by the
Prospectus or this SAI), bank letters of credit or securities of the U.S.
Government (or its agencies or instrumentalities), or other cash equivalents in
which the Fund is permitted to invest. The terms of a Fund's loans must also
meet certain tests under the Internal Revenue Code and permit the Fund to
reacquire loaned securities on five business days' notice or in time to vote on
any important matter.
HEDGING INSTRUMENTS AND DERIVATIVES
The Funds currently may use the hedging instruments and derivatives discussed
below. In the future, a Fund may employ hedging instruments and strategies that
are not currently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objective, legally
permissible and adequately disclosed.
(1) Forward Contracts - Each Fund may purchase or sell securities on a forward
commitment basis ("forward contracts"). When such transactions are negotiated,
the price is fixed at the time of commitment, but delivery and payment for the
securities can take place a month or more after the commitment date. The
securities so purchased or sold are subject to market fluctuations and no
interest accrues to the purchaser during this period. At the time of delivery
the securities may be worth more or less than the purchase or sale price. While
a Fund also may enter into forward contracts with the initial intention of
acquiring securities for its portfolio, it may dispose of a commitment prior to
settlement if MassMutual deems it appropriate to do so. The Funds may realize
short-term gains or losses upon the sale of forward contracts. If a Fund enters
into a forward contract, it will establish a segregated account with its
custodian consisting of cash or liquid securities, having a current market value
equal to or greater than the aggregate amount of that Fund's commitment under
forward contracts (that is, the purchase price of the underlying security on the
delivery date). As an alternative to maintaining all or part of the segregated
account, a Fund could buy call or put options to "cover" the forward contracts.
A Fund will not enter into a forward contract if as a result more than 25% of
its total assets would be held in a segregated account covering such contracts.
(2) Currency Transactions - Each Fund may engage in currency transactions with
counterparties in order to convert foreign denominated securities or obligations
to U.S. dollar denominated investments. Further, the International Equity Fund
may engage in currency transactions to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value.
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Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap. A Fund may enter into currency transactions with counterparties which
have received (or the guarantors of the obligations of which have received) a
credit rating of A-1 or P-1 by Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), respectively, or that have an
equivalent rating from a nationally recognized statistical rating organization
("NRSRO") or (except for OTC currency options) are determined to be of
equivalent credit quality by the adviser.
The Growth Equity Fund, the Mid Cap Growth Equity Fund, the Small Cap Growth
Equity Fund and the International Equity Fund may deal in forward currency
contracts and other currency transactions such as futures, options, options on
futures, and swaps, but will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of a Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency. For example, if the
Fund believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The Funds may also
cross-hedge currencies by entering into transactions to purchase or sell one or
more currencies that are expected to decline in value relative to other
currencies to which the Fund has or in which the Fund expects to have portfolio
exposure.
A Fund will not enter into a transaction to hedge currency exposure to an extent
greater, after netting all transactions intended wholly or partially to offset
other transactions, than the aggregate market value (at the time of entering
into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Funds may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the adviser considers that the Austrian schilling is
linked to the German deutsche mark (the "D-mark"), the Fund holds securities
denominated in schillings and the adviser believes that the value of schillings
will decline against the U.S. dollar, the Adviser may enter into a contract to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived linkage between various currencies
may not be present during the particular time that the Fund is engaging in proxy
hedging.
(3) Risks Regarding Hedging Instruments and Derivatives - Some of the general
risks associated with hedging and the use of derivatives include: (a) the
possible absence of a liquid secondary market for any particular hedging
instrument at any time; (b) these instruments can be highly volatile; and (c)
the possible need to defer closing out certain positions to avoid adverse tax
consequences. More specific risks are set forth below.
(i) Forward Contracts: Forward contracts involve a risk of loss if
the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in
value of the Funds' other assets.
(ii) Currency Transactions: Currency transactions are subject to
risks different from those of other portfolio transactions. Because
currency control is of great importance to the issuing governments
and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or
exchange restrictions imposed by governments. These can result in
losses to a Fund if it is unable to deliver or receive currency or
funds in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency
exposure as well as incurring transaction costs. Buyers
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and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must
occur at a bank based in the issuing nation. Trading options on
currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of
a liquid market which may not always be available. Currency exchange
rates may fluctuate based on factors extrinsic to that country's
economy.
THE GROWTH FUNDS' USE OF DERIVATIVES
(1) Options and Futures Transactions. The Growth Equity Fund, the Mid Cap Growth
Equity Fund and the Small Cap Growth Equity Fund (the "Growth Funds") may (a)
purchase and sell exchange traded and over-the-counter (OTC) put and call
options on equity securities or indexes of equity securities, (b) purchase and
sell futures contracts on indexes of equity securities and (c) purchase and sell
put and call options on futures contracts on indexes of equity securities. Each
of these instruments is a derivative instrument as its value derives from the
underlying asset or index.
The Growth Funds may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge a Fund's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of a Fund's overall strategy in a manner deemed appropriate to
the Advisor and consistent with a Fund's objective and policies. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase a Fund's return. While the use of these instruments by the Growth
Funds may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor applies a
strategy at an inappropriate time or judges market conditions or trends
incorrectly, options and futures strategies may lower a Fund's return. Certain
strategies limit a Fund's possibilities to realize gains as well as limiting its
exposure to losses. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. In addition, a Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options
transactions and these transactions could significantly increase a Fund's
turnover rate.
The Growth Funds may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of a
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of a Fund's total
assets.
(2) Purchasing Put and Call Options. The Growth Funds may purchase put and call
options. By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the instrument underlying the option at a fixed strike
price. In return for this right, a Fund pays the current market price for the
option (known as the option premium). Options have various types of underlying
instruments, including specific securities, indexes of securities, indexes of
securities prices, and futures contracts. A Fund may terminate its position in a
put option it has purchased by allowing it to expire or by exercising the
option. A Fund may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, a Fund will lose the entire premium it paid. If a Fund exercises a put
option on a security, it will sell the instrument underlying the option at the
strike price. If a Fund exercises an option on an index, settlement is in cash
and does not involve the actual sale of securities. If an option is American
style, it may be exercised on any day up to its expiration date. A European
style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
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The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
(3) Selling (Writing) Put and Call Options. The Growth Funds may also "write"
put and call options. When a Fund writes a put option, it takes the opposite
side of the transaction from the option's purchaser. In return for receipt of
the premium, a Fund assumes the obligation to pay the strike price for the
instrument underlying the option if the other party to the option chooses to
exercise it. A Fund may seek to terminate its position in a put option it writes
before exercise by purchasing an offsetting option in the market at its current
price. If the market is not liquid for a put option a Fund has written, however,
a Fund must continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to post margin as
discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
(4) Options on Indexes. The Growth Funds may also purchase options on indexes.
Options on securities indexes are similar to options on securities, except that
the exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Fund, in purchasing or selling index options, is subject to the risk that the
value of its portfolio securities may not change as much as an index because a
Fund's investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus a Fund may not
be able to close out an option position that it has previously entered into.
When a Fund purchases an OTC option, it will be relying on its counterparty to
perform its obligations, and a Fund may incur additional losses if the
counterparty is unable to perform.
(5) Exchange Traded and OTC Options. All options purchased or sold by the Growth
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet creditworthiness standards approved
by a Funds' Board of Trustees. While exchange-traded options are obligations of
the Options Clearing Corporation, in the case of OTC options, a Fund relies on
the dealer from which it purchased the option to perform if the option is
exercised. Thus, when a Fund purchases an OTC option, it relies on the dealer
from which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by a Fund as well as loss of the expected benefit of the
transaction.
Provided that a Fund has arrangements with certain qualified dealers who agree
that the Fund may repurchase any option it writes for a maximum price to be
calculated by a predetermined formula, a Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
(6) Futures Contracts and Options on Futures Contracts. The Growth Funds may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and
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bills, Eurodollar certificates of deposit and on indexes of fixed income
securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a security
or make a cash settlement payment based on changes in a financial instrument or
securities index on an agreed date, an option on a futures contract entitles its
holder to decide on or before a future date whether to enter into such a
contract. If the holder decides not to exercise its option, the holder may close
out the option position by entering into an offsetting transaction or may decide
to let the option expire and forfeit the premium thereon. The purchaser of an
option on a futures contract pays a premium for the option but makes no initial
margin payments or daily payments of cash in the nature of "variation" margin
payments to reflect the change in the value of the underlying contract as does a
purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid by the
purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by a Fund into a segregated account, in the
name of the Futures Commission Merchant, as required by the 1940 Act and the
SEC's interpretations thereunder.
(7) Combined Positions. The Growth Funds are permitted to purchase and write
options in combination with each other, or in combination with futures or
forward contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
(8) Risks Regarding Options and Futures Transactions. Some of the general risks
associated with the use of options and futures include:
(a) Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that
the standardized options and futures contracts available will not match a
Fund's current or anticipated investments exactly. The Growth Funds may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which
it typically invests, which involves a risk that the options or futures
position will not track the performance of a Fund's other investments.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match a
Fund's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates,
changes in volatility of the underlying instrument, and the time remaining
until expiration of the contract, which may not affect security prices the
same way. Imperfect correlation may also result from differing levels of
demand in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. A Fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not
be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
(b) Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at
any particular time even if the contract is traded on an exchange. In
addition, exchanges may establish daily price fluctuation limits for
options and futures contracts and may halt trading if a contract's price
moves up or down more than the limit in a given day. On volatile trading
days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and could potentially require a Fund
to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, a Fund's access to other assets held to
cover its options or futures positions could also be impaired. (See
"Exchange Traded and OTC Options" above for a discussion of the liquidity
of options not traded on an exchange.)
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(c) Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity.
If an adequate exemption cannot be obtained, a Fund or the Advisor may be
required to reduce the size of its futures and options positions or may
not be able to trade a certain futures or options contract in order to
avoid exceeding such limits.
(d) Asset Coverage for Futures Contracts and Options Positions. The Funds
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Fund can commit assets to
initial margin deposits and option premiums. In addition, the Funds will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so
require, will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
Fund's assets could impede portfolio management or a Fund's ability to
meet redemption requests or other current obligations.
(9) Swaps and Related Swap Products: The Growth Funds may engage in swap
transactions, including, but not limited to, interest rate, currency, securities
index, basket, specific security and commodity swaps, interest rate caps, floors
and collars and options on interest rate swaps (collectively defined as "swap
transactions").
The Growth Funds may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by institutional
counterparties for periods ranging from a few weeks to several years. In a
standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) that would be earned or realized on specified
notional investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis for
calculating the payments that the parties have agreed to exchange. For example,
one swap counterparty may agree to pay a floating rate of interest (e.g., 3
month LIBOR) calculated based on a $10 million notional amount on a quarterly
basis in exchange for receipt of payments calculated based on the same notional
amount and a fixed rate of interest on a semi-annual basis. In the event a Fund
is obligated to make payments more frequently than it receives payments from the
other party, it will incur incremental credit exposure to that swap
counterparty. This risk may be mitigated somewhat by the use of swap agreements
which call for a net payment to be made by the party with the larger payment
obligation when the obligations of the parties fall due on the same date. Under
most swap agreements entered into by a Fund, payments by the parties will be
exchanged on a "net basis", and a Fund will receive or pay, as the case may be,
only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction is not
subject to any fixed limit. Nor is there any fixed limit on a Fund's potential
loss if it sells a cap or collar. If the Fund buys a cap, floor or collar,
however, the Fund's potential loss is limited to the amount of the fee that it
has paid. When measured against the initial amount of cash required to initiate
the transaction, which is typically zero in the case of most conventional swap
transactions, swaps, caps, floors and collars tend to be more volatile than many
other types of instruments.
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The use of swap transactions, caps, floors and collars involves investment
techniques and risks which are different from those associated with portfolio
security transactions. If the Advisor is incorrect in its forecasts of market
values, interest rates, and other applicable factors, the investment performance
of a Fund will be less favorable than if these techniques had not been used.
These instruments are typically not traded on exchanges. Accordingly, there is a
risk that the other party to certain of these instruments will not perform its
obligations to a Fund or that a Fund may be unable to enter into offsetting
positions to terminate its exposure or liquidate its position under certain of
these instruments when it wishes to do so. Such occurrences could result in
losses to a Fund.
The Advisers to the Growth Funds will, however, consider such risks and will
enter into swap and other derivatives transactions only when they believe that
the risks are not unreasonable.
The Growth Funds will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
The Growth Funds will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Adviser. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
During the term of a swap, cap, floor or collar, changes in the value of the
instrument are recognized as unrealized gains or losses by marking to market to
reflect the market value of the instrument. When the instrument is terminated, a
Fund will record a realized gain or loss equal to the difference, if any,
between the proceeds from (or cost of) the closing transaction and a Fund's
basis in the contract.
The federal income tax treatment with respect to swap transactions, caps,
floors, and collars may impose limitations on the extent to which the Growth
Funds may engage in such transactions.
RESTRICTED AND ILLIQUID SECURITIES
With the exception of the Diversified Bond Fund, none of the Funds currently
expects to invest in restricted or illiquid securities. However, each Fund may
invest not more than 15% of its net assets in illiquid securities. These
policies do not limit the purchases of securities eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, provided that such securities are determined to be liquid by the Board of
Trustees, or the Adviser if such determination is pursuant to Board-approved
guidelines. Such guidelines shall take into account trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in particular Rule 144A
securities, a Fund's holdings of those securities may be illiquid, resulting in
undesirable delays in selling these securities at prices representing fair
value. Additionally, this policy is not intended to apply to securities which
become illiquid, i.e., difficult to sell at a favorable price, as a result of
market conditions.
Investments may be illiquid because there is no active trading market for them,
making it difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction on its
resale or which cannot be sold publicly until it is registered under the
Securities Act of 1933. The Funds will not invest more than 15% of their
respective net assets in illiquid or restricted securities. Certain restricted
securities that are eligible for resale to qualified institutional purchasers
may not be subject to that limit. The Advisers monitor holdings of illiquid
securities on an ongoing basis to determine whether to sell any holding to
maintain adequate liquidity.
FOREIGN SECURITIES
The International Equity Fund, the Growth Equity Fund, the Mid Cap Growth Equity
Fund and the Small Cap Growth Equity Fund, and, to a lesser extent, each of the
other Funds are permitted to invest in foreign securities. With the exception of
the International Equity Fund, the Growth Equity Fund, the Mid Cap Growth Equity
Fund and the Small Cap Growth Equity Fund, each Fund intends to invest in
foreign securities only if: (i) such securities are U.S.
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denominated; or (ii) if such securities are not U.S. denominated, the Fund
contemporaneously enters into a foreign currency transaction to hedge the
currency risk associated with the particular foreign security. If a Fund's
securities are held abroad, the countries in which such securities may be held
and the sub-custodian holding them must be approved by the Board of Trustees or
its delegate under applicable rules adopted by the Securities and Exchange
Commission (the "SEC"). In buying foreign securities, a Fund may convert U.S.
dollars into foreign currency, but only to effect securities transactions on
foreign securities exchanges and not to hold such currency as an investment.
Foreign securities include debt, equity and hybrid instruments, obligations and
securities of foreign issuers, including governments of countries other than the
United States and companies organized under the laws of countries other than the
United States that are traded on foreign securities exchanges or foreign
over-the-counter markets. Foreign securities also include securities of foreign
issuers (i) represented by American Depositary Receipts ("ADR's"), (ii) traded
in the United States over-the-counter markets, or (iii) listed on a U.S.
securities exchange.
ADR's are issued by a U.S. depository institution, but they represent a
specified quantity of shares of a non-U.S. stock company. ADR's trade on U.S.
securities exchanges, and therefore are not treated as "foreign securities" for
purposes of the limitations on a Fund's investments in foreign securities,
although they are subject to many of the same risks as foreign securities as
described below.
The Growth Equity Fund, the Mid Cap Growth Equity Fund, the Small Cap Growth
Equity Fund and the International Equity Fund also may invest in sponsored or
unsponsored Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs") to the extent they come available. GDRs and EDRs are typically issued
by foreign depositaries and evidence ownership interests in a security or pool
of securities issued by either a foreign or a U.S. corporation. Holders of
unsponsored GDRs and EDRs generally bear all the costs associated with
establishing them. The depositary of an unsponsored GDR or EDR is under no
obligation to distribute shareholder communications received from the underlying
issuer or to pass through to the GDR or EDR holders any voting rights with
respect to the securities or pools of securities represented by the GDR or EDR.
GDRs and EDRs also may not be denominated in the same currency as the underlying
securities. Registered GDRs and EDRs are generally designed for use in U.S.
securities markets, while bearer form GDRs and EDRs are generally designed for
non-U.S. securities markets. The Funds will treat the underlying securities of a
GDR or EDR as the investment for purposes of its investment policies and
restrictions.
Investments in foreign securities involve special risks and considerations. As
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. For example,
foreign markets have different clearance and settlement procedures. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested. The inability of a Fund to make intended security purchases due to
settlement problems could cause it to miss certain investment opportunities.
They may also entail certain other risks, such as the possibility of one or more
of the following: imposition of dividend or interest withholding or confiscatory
taxes, higher brokerage costs, thinner trading markets, currency blockages or
transfer restrictions, expropriation, nationalization, military coups or other
adverse political or economic developments; less government supervision and
regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, a Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. Further, it
may be more difficult for a Fund's agents to keep currently informed about
corporate actions which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
A Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility of currencies and
repatriation of assets.
A number of current significant political, demographic and economic developments
may affect investments in foreign securities and in securities of companies with
operations overseas. Such developments include dramatic political changes in
government and economic policies in several Eastern European countries and the
republics composing the former Soviet Union, as well as the unification of the
European Economic Community. The course of any one or more of these events and
the effect on trade barriers, competition and markets for consumer goods and
services are uncertain. Similar considerations are of concern with respect to
developing countries. For example, the possibility of revolution and the
dependence on foreign economic assistance may be greater in these countries than
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in developed countries. Management seeks to mitigate the risks associated with
these considerations through diversification and active professional management.
In addition to the general risks of investing in foreign securities, investments
in emerging markets involve special risks. Securities of many issuers in
emerging markets may be less liquid and more volatile than securities of
comparable domestic issuers. Emerging markets may have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The inability of a Fund to
make intended security purchases due to settlement problems could cause a Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to a Fund due to
subsequent declines in values of the portfolio securities, decrease in the level
of liquidity in a Fund's portfolio, or, if a Fund has entered into a contract to
sell the security, possible liability to the purchaser. Certain markets may
require payment for securities before delivery, and in such markets a Fund bears
the risk that the securities will not be delivered and that the Fund's payments
will not be returned. Securities prices in emerging markets can be significantly
more volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economics. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economics of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. A Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to that Fund of any
restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of a Fund.
WHEN-ISSUED SECURITIES
The Short-Term Bond Fund, the Core Bond Fund, the Balanced Fund, the Growth
Equity Fund, the Mid Cap Growth Equity Fund and the Small Cap Growth Equity Fund
may purchase securities on a "when-issued" or on a "forward delivery" basis.
Generally, under normal circumstances, a Fund is expected to take delivery of
securities purchased. When a Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it will set up procedures
consistent with SEC policies, which currently recommend that an amount of the
Fund's assets equal to the amount of the purchase be held aside or segregated to
be used to pay for the commitment. Therefore, the Fund will always have liquid
assets sufficient to cover any commitments or to limit any potential risk.
However, although the Funds do not intend to make such purchases for speculative
purposes, there are risks. For example, a Fund may have to sell assets which
have been set aside in order to meet redemptions. Also, if a Fund determines it
necessary to sell the "when-issued" or "forward delivery" securities before
delivery, the Fund may incur a loss because of market fluctuations since the
time the commitment to purchase the securities was made.
PORTFOLIO MANAGEMENT
MassMutual, Babson, HarbourView, MFS, MAS, J.P. Morgan and Waddell & Reed may
use trading as a means of managing the portfolios of the Funds in seeking to
achieve their investment objectives. Transactions will occur when the Adviser or
Sub-Adviser believes that the trade, net of transaction costs, will improve
interest income or capital appreciation potential, or will lessen capital loss
potential. Whether the goals discussed above will be achieved through trading
depends on the Adviser's or Sub-Adviser's ability to evaluate particular
securities and anticipate relevant market factors, including interest rate
trends and variations from such trends. If such evaluations and expectations
prove to be incorrect, a Fund's income or capital appreciation may be reduced
and its capital losses
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may be increased. In addition, high turnover in any Fund could result in
additional brokerage commissions to be paid by the Fund. See also "Taxation"
below.
The Funds may pay brokerage commissions to Advest, Inc. ("Advest") and Jefferies
& Co., Inc. ("Jefferies"). Jefferies and Advest are each wholly-owned
subsidiaries of companies for which one Trustee serves as director.
CASH POSITIONS
Each Fund may hold cash or cash equivalents to provide for expenses and
anticipated redemption payments and so that an orderly investment program may be
carried out in accordance with the Fund's investment policies. To provide
liquidity or for temporary defensive purposes, each Fund may invest in
investment grade debt securities, government obligations, or money market
instruments.
SHORT SALES AGAINST-THE-BOX
Selling short "against-the-box" refers to the sale of securities actually owned
by the seller but held in safekeeping. In such short sales, while the short
position is open, a Fund must own an equal amount of such securities, or by
virtue of ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of securities sold short. Short sales
against-the-box generally produce current recognition of gain (but not loss) for
federal income tax purposes on the constructive sale of securities "in the box"
prior to the time the short position is closed out. None of the Funds currently
intends to engage in short sales against-the-box.
INVESTMENT BASKET
Notwithstanding any Fund's fundamental investment restrictions (except those
imposed as a matter of law), the Board of Trustees may authorize one or more of
the Funds to invest in any security or investment-related instrument, or to
engage in investment-related transactions or practices, such as newly developed
debt securities or hedging programs, provided that the Board of Trustees has
determined that to do so is consistent with the Fund's investment objectives and
policies and has adopted reasonable guidelines for use by the Fund's advisers,
and provided further that at the time of making such investment or entering into
such transaction, such investments or instruments account for not more than 10%
of the Fund's total assets. The Trust has no current intention of using this
investment basket authority.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund is subject to certain fundamental restrictions on its investments,
which may not be changed without the affirmative vote of a majority of the
outstanding shares of that Fund. Investment restrictions that appear below or
elsewhere in this SAI and in the Prospectus which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by or on behalf of, a
Fund. The Trust may not, on behalf of any Fund:
(1) Purchase any security (other than U.S. Treasury securities or U.S.
Government Securities) if as a result, with respect to 75% of the Fund's
assets, more than 5% of the value of the total assets (determined at the
time of investment) of a Fund would be invested in the securities of a
single issuer.
(2) Borrow money, except from banks for temporary or emergency purposes
not in excess of one-third of the value of a Fund's assets, except that a
Fund may enter into reverse repurchase agreements or roll transactions.
For purposes of calculating this limitation, entering into portfolio
lending agreements shall not be deemed to constitute borrowing money. A
Fund would not make any additional investments while its borrowings
exceeded 5% of its assets.
(3) Issue senior securities (as defined in the 1940 Act) except for
securities representing indebtedness not prevented by paragraph (2) above.
(4) Make short sales, except for sales "against-the-box."
(5) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, a Fund may be deemed an
underwriter under applicable laws.
(6) Invest in oil, gas or other mineral leases, rights, royalty contracts
or exploration or development programs, real estate or real estate
mortgage loans. This restriction does not prevent a Fund from purchasing
readily marketable securities secured or issued by companies investing or
dealing in real estate
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and by companies that are not principally engaged in the business of
buying and selling such leases, rights, contracts or programs.
(7) Purchase physical commodities or commodity contracts (except futures
contracts, including but not limited to contracts for the future delivery
of securities and futures contracts based on securities indices).
(8) Make loans other than by investing in obligations in which a Fund may
invest consistent with its investment objective and policies and other
than repurchase agreements and loans of portfolio securities.
(9) Pledge, mortgage or hypothecate assets taken at market to an extent
greater than 15% of the total assets of the Fund except in connection with
permitted transactions in options, futures contracts and options on
futures contracts, reverse repurchase agreements and securities lending.
(10) With the exception of the Growth Equity Fund, the Mid Cap Growth
Equity Fund, and the Small Cap Growth Equity Fund, purchase any security
(other than securities issued, guaranteed or sponsored by the U.S.
Government or its agencies or instrumentalities) if, as a result, a Fund
would hold more than 10% of the outstanding voting securities of an
issuer. This restriction is applicable to 75% of the assets of the Growth
Equity Funds.
(11) With the exception of the Growth Equity Fund, the Mid Cap Growth
Equity Fund, and the Small Cap Growth Equity Fund, purchase or retain
securities of any issuer if, to the knowledge of the Trust, more than 5%
of such issuer's securities are beneficially owned by officers and
trustees of the Trust or officers and directors of its adviser who
individually beneficially own more than 1/2 of 1% of the securities of
such issuer.
Notwithstanding any fundamental investment restriction set forth above or in the
Prospectus, each Fund may: (1) engage in hedging transactions, techniques, and
practices using forward contracts and similar instruments, to the extent and in
a manner permitted by law; and (2) invest in any security or investment-related
instrument, or engage in any investment-related transaction or practice,
provided that the Board of Trustees has determined that to do so is consistent
with the investment objective and policies of the Fund and has adopted
reasonable guidelines for use by the Fund's Adviser, and provided further that
at the time of entering into such investment or transaction, such investments or
instruments account for no more than 10% of the Fund's total assets.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the fundamental investment restrictions described above, the
Trustees of the Trust have voluntarily adopted certain policies and restrictions
which are observed in the conduct of the affairs of the Funds. These represent
intentions of the Trustees based upon current circumstances. They differ from
fundamental investment restrictions in that the following additional investment
restrictions may be changed or amended by action of the Trustees without
requiring prior notice to or approval of shareholders.
In accordance with such policies and guidelines, each Fund may not:
(1) Invest for the purpose of exercising control over, or management of,
any company.
(2) Invest in securities of other investment companies, except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition or except shares of money market funds
advised by MassMutual or an affiliate thereof. It is expected that a Fund
would purchase shares of such money market funds only if arrangements are
made to eliminate duplicate advisory and distribution fees.
(3) To the extent that shares of the Fund are purchased or otherwise
acquired by other series of the Trust, acquire any securities of
registered open-end investment companies or registered unit investment
trusts in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the
1940 Act.
MANAGEMENT OF THE TRUST
The Trust has a Board of Trustees, a majority of which must not be "interested
persons" (as defined in the 1940 Act) of the Trust. The Board of Trustees of the
Trust is generally responsible for management of the business and affairs of the
Trust. The Trustees formulate the general policies of the Trust and the Funds,
approve contracts and authorize Trust officers to carry out the decisions of the
Board. As Adviser and Sub-Advisers to the Funds, MassMutual, Babson,
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HarbourView, MFS, MAS, J.P. Morgan and Waddell & Reed may be considered part of
the management of the Trust. The Trustees and principal officers of the Trust
are listed below together with information on their positions with the Trust,
address, age, principal occupations during the past five years and other
principal business affiliations.
Stuart H. Reese* Chairman, Trustee and President of the Trust
1295 State Street
Springfield, MA 01111
Age: 44
Chief Investment Officer (since 1999), Chief Executive Director
(1997-1999), Executive Director (1996-1997), Senior Vice President
(1993-1997), MassMutual; President (since 1995), Executive Vice President
(1993-1995), MassMutual Corporate Investors and MassMutual Participation
Investors (closed-end investment companies); Director (since 1996),
Antares Capital Corporation (finance company) and Charter Oak Capital
Management, Inc. (investment adviser); Director (since 1996), HYP
Management, Inc. (managing member of MassMutual High Yield Partners LLC),
and MMHC Investment, Inc. (investor in funds sponsored by MassMutual);
Director (since 1994), MassMutual Corporate Value Partners Limited
(investor in debt and equity securities) and MassMutual Corporate Value
Limited (parent of MassMutual Corporate Value Partners Limited); Director
(1994-1996), Pace Industries (aluminum die caster); Advisory Board Member
(since 1995), Kirtland Capital Partners; President (since 1994), MML
Series Investment Fund (open-end investment company).
Ronald J. Abdow Trustee of the Trust
1400 Elm Street
West Springfield, MA 01089
Age: 68
President, Abdow Corporation (operator of restaurants); General Partner,
Grove Investment Group (apartment building syndicator); Trustee, Abdow G&R
Trust and Abdow G&R Co. (owners and operators of restaurant properties);
Partner, Abdow Partnership, Abdow Auburn Associates, and Abdow Hazard
Associates (owners and operators of restaurant properties); Trustee (since
1993), MML Series Investment Fund (open-end investment company).
Richard H. Ayers Trustee of the Trust
176 Sewall Road
Wolfreboro, NH 03894
Age: 57
Retired; former adviser to Chairman (1997), Chairman and Chief Executive
Officer (1989-1996) and Director (1985-1996), The Stanley Works
(manufacturer of tools, hardware and specialty hardware products);
Director, Southern New England Telecommunications Corp. and Perkin Elmer
Corp.; Trustee (since 1999), Advisory Board Member (1996-1999), MML Series
Investment Fund (open-end investment company).
Mary E. Boland Trustee of the Trust
67 Market Street
Springfield, MA 01102
Age: 60
Attorney at Law, Egan, Flanagan and Cohen, P.C. (law firm), Springfield,
MA; Director (1995-1999), Trustee (until 1995), SIS Bank (formerly,
Springfield Institution for Savings); Director (since 1999), SIS and
Family Bank, F.S.B. (formerly SIS Bank); Trustee (since 1973), MML Series
Investment Fund (open-end investment company).
- ----------
*Trustee who is an "interested person" of the Trust with the definition set
forth in Section 2(a)(19) of the 1940 Act.
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David E.A. Carson Trustee of the Trust
850 Main Street
Bridgeport, CT 06604
Age: 65
Chairman and Chief Executive Officer (since 1997), President and Chief
Executive Officer (1985-1997), People's Bank; Director, United
Illuminating Co. (electric utility); Trustee, American Skandia Trust
(open-end investment company); Trustee (since 1999), Advisory Board Member
(1996-1999), MML Series Investment Fund (open-end investment company).
Robert J. O'Connell* Trustee of the Trust
1295 State Street
Springfield, MA 01111
Age: 55
President, Chief Executive Officer, Director, Member, Board Affairs
Committee and Dividend Policy Committee, Chairman Investment Committee
(since 1999) MassMutual; Director (since 1999), C.M. Life Insurance
Company and MML Bay State Life Insurance Company (wholly-owned insurance
company subsidiaries of MassMutual), Cornerstone Real Estate Advisers,
Inc. (wholly-owned real estate investment advisory subsidiary of
MassMutual Holding Trust I), One Financial Plaza, Suite 1700, Hartford,
Connecticut, DLB Acquisition Corporation (holding company for investment
advisers), MassMutual Holding MSC, Inc.; Trustee (since 1999) , MassMutual
Holding Trust II (wholly-owned holding company subsidiary of MassMutual
Holding Co.), MassMutual Holding Trust I (wholly-owned holding company
subsidiary of MassMutual Holding Co.); Director (since 1999), MassMutual
International, Inc., (wholly-owned subsidiary of MassMutual Holding
Company to act as service provider for international insurance companies),
MassMutual Holding Company (wholly-owned holding company subsidiary of
MassMutual), MassMutual Benefits Management, Inc.; Director, Life Office
Management Association; Director, President and Chief Executive Officer
(1991-1998), AIG Life Insurance Company, American International Life
Assurance of New York, Delaware American Life Insurance Co., Pacific Union
Assurance Company; Director (1991-1998), AIG Life Insurance Company of
Puerto Rico; Senior Vice President (1991-1998), Life Insurance of American
International Group, Inc., and American Life Insurance Company, DE; Senior
Vice President, Group Management Division (1991-1998) of American
International Group, Inc.; Trustee (since 1999), MML Series Investment
Fund (open-end investment company).
Richard W. Greene Trustee of the Trust
University Of Rochester
Rochester, NY 14627
Age: 63
Vice President for Investments and Treasurer (since 1998); Executive Vice
President and Treasurer (1986-1998), University of Rochester (private
university); Trustee (since 1999), Advisory Board Member (1996-1999), MML
Series Investment Fund (open-end investment company).
Beverly L. Hamilton Trustee of the Trust
515 South Flower Street
Los Angeles, CA 90017
Age: 53
President (since 1991), ARCO Investment Management Co.; Director,
Connecticut Natural Gas; Director, Emerging Markets Growth Fund
(closed-end investment company); Director (since 1997), United Asset
Management Corp. (investment management); Trustee (since 1999), Advisory
Board Member (1996-1999), MML Series Investment Fund (open-end investment
company).
- ----------
*Trustee who is an "interested person" of the Trust with the definition set
forth in Section 2(a)(19) of the 1940 Act.
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<PAGE>
F. William Marshall, Jr. Trustee of the Trust
1441 Main Street
Springfield, MA 01102
Age: 57
Chairman, SIS and Family Bank, F.S.B. (formerly SIS Bank); President,
Chief Executive Officer and Director (1993-1999), SIS Bancorp, Inc. and
SIS Bank (formerly, Springfield Institution for Savings); Director (since
1999), Peoples Heritage Financial Group, Inc.; Chairman and Chief
Executive Officer (1990-1993), Bank of Ireland First Holdings, Inc. and
First New Hampshire Banks; Trustee (since 1996), MML Series Investment
Fund (open-end investment company).
Charles J. McCarthy Trustee of the Trust
181 Eton Road
Longmeadow, MA 01106
Age: 76
Proprietor, Synectics Financial Company (venture capital activities,
business consulting and investments); Trustee, MML Series Investment Fund
(open-end investment company).
Richard G. Dooley* Trustee of the Trust
1295 State Street
Springfield, MA 01111
Age: 70
Consultant (since 1993), MassMutual; Director (since 1996), Investment
Technology Group Inc.; Director, The Advest Group, Inc. (financial
services holding company), HSB Group Inc. (formerly known as Hartford
Steam Boiler Inspection and Insurance Co.), Nellie Mae; Director, Kimco
Realty Corp. (shopping center ownership and management); Director (since
1993), Jefferies Group, Inc. (financial services holding company); Vice
Chairman (since 1995), Chairman (1982-1995), Director (since 1974),
MassMutual Corporate Investors, and Vice Chairman (since 1995), Director
(since 1988), Chairman (1988-1995), MassMutual Participation Investors
(closed-end investment companies); Vice Chairman (since 1995), Chairman
(1988-1995), Trustee (since 1995) MML Series Investment Fund (open-end
investment company); Director (since 1996), Charter Oak Capital
Management, Inc.
John H. Southworth Trustee of the Trust
195 Eton Road
Longmeadow, MA 01106
Age: 71
Chairman (since 1994), Southworth Company (manufacturer of paper and
calendars); Director (since 1995), Trustee (until 1995), SIS Bank
(formerly, Springfield Institution for Savings); Trustee, MML Series
Investment Fund (open-end investment company).
Michael D. Hays Chief Financial Officer of the Trust
1295 State Street
Springfield, MA 01111
Age: 56
Senior Vice President (since 1998), Senior Vice President and Actuary
(1986-1998), MassMutual.
Mary Wilson Kibbe Senior Vice President of the Trust
1295 State Street
Springfield, MA 01111
Age: 45
Executive Director (since 1982), Senior Managing Director (1996-1997),
Vice President and Managing Director (1991-1996), MassMutual; Senior Vice
President (since 1996), HYP Management, Inc. (managing member of
MassMutual High Yield Partners LLC) and MMHC Investment, Inc. (investor in
funds sponsored by MassMutual); Senior Vice President (since 1994), MML
Series Investment Fund (open-end
- ----------
*Trustee who is an "interested person" of the Trust with the definition set
forth in Section 2(a)(19) of the 1940 Act.
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<PAGE>
investment company); Vice President, MassMutual Participation Investors
and MassMutual Corporate Investors (closed-end investment companies); Vice
President (1991-1995), Oppenheimer Investment Grade Bond Fund (open-end
investment company).
Stephen L. Kuhn Vice President and Secretary of the Trust
1295 State Street
Springfield, MA 01111
Age: 52
Vice President and Deputy General Counsel (since 1998), MassMutual; Vice
President and Associate General Counsel (1992-1998), MassMutual; Vice
President and Secretary, MassMutual Participation Investors and MassMutual
Corporate Investors (closed-end investment companies); Assistant Secretary
(since 1996), Antares Capital Corporation (finance company); Chief Legal
Officer and Assistant Secretary (since 1995), DLB Acquisition Corporation
(holding company for investment advisers); Assistant Secretary (since
1997), Oppenheimer Acquisition Corporation (holding company for investment
advisers); Vice President and Secretary (since 1989), MML Series
Investment Company (open-end investment company).
Charles C. McCobb, Jr. Vice President of the Trust
1295 State Street
Springfield, MA 01111
Age: 55
Managing Director (since 1997), MassMutual; Managing Director and Vice
President (1994-1997), Citicorp, Inc. (banking); Managing Director
(1973-1994), Aetna Life & Casualty Company (insurance company); Vice
President (since 1996), and Chief Financial Officer (since 1998),
MassMutual Corporate Investors and MassMutual Participation Investors
(closed-end investment companies); Chief Financial Officer (since 1998)
MMHC Investment, Inc., HYP Management, Inc., MMCI Subsidiary Trust and
MMPI Subsidiary Trust (wholly-owned subsidiaries of MassMutual Corporate
Investors and MassMutual Participation Investors, respectively).
Edmond F. Ryan Vice President of the Trust
1295 State Street
Springfield, MA 01111
Age: 50
Senior Vice President (since 1995), Vice President (1985-1995),
MassMutual.
Vernon J. Meyer Vice President of the Trust
1295 State Street
Springfield, MA 01111
Age: 34
Vice President (since 1998), Second Vice President (1994-1998), Assistant
Vice President and Director (1993-1994), MassMutual.
Mark B. Ackerman Treasurer of the Trust
1295 State Street
Springfield, MA 01111
Age: 34
Investment Director (since 1996), Associate Investment Director
(1994-1996), MassMutual; Controller (1998), Treasurer (since 1998),
Associate Treasurer (1995-1997), MassMutual Participation Investors and
MassMutual Corporate Investors (closed-end investment companies);
Comptroller (since 1997), Associate Treasurer (1995-1996), MML Series
Investment Fund (open-end investment company); Vice President (since
1998), HYP Management, Inc.; Comptroller (1998) and Treasurer (since
1998), MMCI Subsidiary Trust, MMPI Subsidiary Trust (wholly-owned
subsidiaries of MassMutual Corporate Investors and MassMutual
Participation Investors, respectively).
The Audit Committee makes recommendations to the Trustees as to the engagement
or discharge of the Trust's independent auditors, supervises investigations into
matters relating to audit functions, reviews with the Trust's independent
auditors the results of the audit engagement, and considers the audit fees. The
Nominating Committee
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consists of Trustees who are not "interested persons" (as defined in the 1940
Act) of the Trust or any adviser and considers making all nominations for
non-interested members of the Board of Trustees. The selection and nomination of
management nominees for such vacancies is committed to the discretion of the
Nominating Committee. The Pricing Committee determines the fair value of
securities for which market quotations are not readily available.
COMPENSATION
The Trust, on behalf of each Fund, pays each of its Trustees who is not an
officer or employee of MassMutual a fee of $2,000 per quarter plus $2,000 per
meeting attended. Such Trustees who serve on the Audit Committee of the Trust
are paid an additional fee of $1,000 per year. Such Trustees who serve on the
Nominating Committee or the Pricing Committee are paid an additional fee of $500
per meeting attended. In addition, the Trust reimburses out-of-pocket business
travel expenses to such Trustees. Trustees who are officers or employees of
MassMutual receive no fees from the Trust.
The following table discloses the compensation paid to the Registrant's
non-interested trustees for the 1998 fiscal year. The Registrant has no pension,
retirement, or deferred compensation plans. Each of the non-interested Trustees
also serve as a Trustee of one other registered, open-end investment company
managed by MassMutual. Total Compensation from Registrant and Fund Complex
reflects compensation paid in the 1998 fiscal year.
- --------------------------------------------------------------------------------
Total Compensation
Aggregate From Registrant and
Name/Position Compensation from Registrant Fund Complex
- --------------------------------------------------------------------------------
Ronald J. Abdow $16,000 $32,000
Trustee
- --------------------------------------------------------------------------------
Richard H. Ayers 17,000 34,000
Trustee
- --------------------------------------------------------------------------------
Mary E. Boland 16,000 32,000
Trustee
- --------------------------------------------------------------------------------
David E.A. Carson 16,000 32,000
Trustee
- --------------------------------------------------------------------------------
Richard W. Greene 16,000 32,000
Trustee
- --------------------------------------------------------------------------------
Beverly L. Hamilton 16,000 32,000
Trustee
- --------------------------------------------------------------------------------
F. William Marshall, Jr. 16,000 32,000
Trustee
- --------------------------------------------------------------------------------
Charles J. McCarthy 17,000 34,000
Trustee
- --------------------------------------------------------------------------------
John H. Southworth 17,000 34,000
Trustee
- --------------------------------------------------------------------------------
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The officers and Trustees of the Trust as a group own less than 1% of any series
of outstanding shares of the Trust.
The Trust's shareholders have the right, upon the declaration in writing or vote
of at least two-thirds of the votes represented by its outstanding shares, to
remove a Trustee. The Trustees shall call a meeting of shareholders to vote on
the removal of a Trustee upon the written request of the record holders of
shares representing at least 10% of all of the votes represented by all
outstanding shares of the Trust. In addition, whenever ten or more shareholders
of record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net asset
value of at least $25,000 or at least 1% of the Trust's outstanding shares,
whichever is less, shall apply to the Trustees in writing, stating that they
wish to communicate with other shareholders with a view to obtaining signatures
for a request for a meeting for the purpose of voting upon the question of
removal of any Trustee or Trustees and accompanied by the form of communication
and request which they wish to transmit, the Trustees shall within five business
days after receipt of such application either: (1) afford to such applicants
access to a list of the names and addresses of all shareholders as recorded on
the books of the Trust; or (2) inform such applicants as to the approximate
number of shareholders of record, and the approximate cost of mailing to them
the proposed communication and form of request. If the Trustees elect to follow
the latter course, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such material to
all shareholders of record at their addresses as recorded on the books of the
Trust, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
After opportunity for hearing regarding the objections specified in the written
statement so filed, the SEC may, and if demanded by the Trustees or by such
applicants shall, enter an order either sustaining one or more of such
objections, or refusing to sustain any of them. If the SEC shall enter an order
refusing to sustain any such objections or if, after the entry of an order
sustaining one or more of such objections, the SEC shall find, after notice and
opportunity for hearing, that all objections so sustained have been met, and
shall enter an order so declaring, the Trustees shall mail copies of such
material to all shareholders with reasonable promptness after the entry of such
order and the renewal of such tender.
On any matters submitted to a vote of shareholders, all shares of the Trust then
entitled to vote shall be voted in the aggregate as a single class without
regard to series or class, except that: (i) when required by the 1940 Act or
when the Trustees shall have determined that the matter affects one or more of
the series or classes materially differently, shares will be voted by individual
series or class; and (ii) when the Trustees have determined that any matter
affects only the interests of one or more series or classes, then only
shareholders of such series or class shall be entitled to vote thereon.
Shareholder inquiries should be directed to MassMutual Institutional Funds, 1295
State Street, Springfield, Massachusetts 01111.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
MassMutual may be deemed a control person (as that term is defined in the 1940
Act) of the Trust in that certain of its separate investment accounts and its
provision of seed money for the Trust together constituted 100% of the shares of
the Class A and Class S shares of each Fund of the Trust as of March 31, 1999.
The following shareholders may be deemed control persons (as defined in the Act)
of the Trust in that they beneficially own more than 25% of the Class Y shares
of the Funds indicated as of March 31, 1999: CGB Enterprises, Inc., P.O. Box
249, Mandeville, LA 70470-0249 owned 48.35% of the Class Y shares of the Prime
Fund; Novus International, Inc., 530 Maryville Center Drive, St. Louis, MO 63141
owned 29.99% of the Class Y shares of the Core Bond Fund; Alamo Cement Co., LTD,
6055 West Green Mountain Road, San Antonio, TX 78266 owned 28.54% of the Class Y
shares of the Core Bond Fund; Zen-Noh Grain Corporation, P.O. Box 39,
Mandeville, LA 70470-0249 owned 26.21% of the Class Y shares of the Core Equity
Fund; Novus International, Inc., 530 Maryville Center Drive, St. Louis, MO 63141
owned 31.50% of the Class Y shares of the Small Cap Value Equity Fund;
Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA
01111 owned 97.78% of the Class Y shares of the Balanced Fund; and Novus
International, Inc., 530 Maryville Center Drive, St. Louis, MO 63141 owned
42.67% of the Class Y shares of the International Equity Fund.
B-22
<PAGE>
The following shareholders may be deemed principal holders of the Trust because
of their beneficial ownership of more than 5% of the Class Y shares of certain
Funds as of March 31, 1999: Arthur J. Gallagher & Co., Two Pierce Place, Itasca,
IL 60143 owned 6.60% of the Class Y shares of the Core Bond Fund; Arthur J.
Gallagher & Co., Two Pierce Place, Itasca, IL 60143 owned 13.12% of the Class Y
shares of the Core Equity Fund; CGB Enterprises, Inc., P.O. Box 249, Mandeville,
LA 70470-0249 owned 10.70% of the Class Y shares of the Small Cap Value Equity
Fund; Arthur J. Gallagher & Co., Two Pierce Place, Itasca, IL 60143 owned 10.69%
of the Class Y shares of the Small Cap Value Equity Fund; CGB Enterprises, Inc.,
P.O. Box 249, Mandeville, LA 70470-0249 owned 8.20% of the Class Y shares of the
International Equity Fund; Arthur J. Gallagher & Co., Two Pierce Place, Itasca,
IL 60143 owned 5.66% of the Class Y shares of the International Equity Fund; and
Novus International, Inc., 530 Maryville Center Drive, St. Louis, MO 63141 owned
8.23% of the Class Y shares of the Short Term Bond Fund.
INVESTMENT MANAGER AND SUB-ADVISERS
INVESTMENT MANAGER
MassMutual serves as investment manager to each Fund pursuant to an Investment
Management Agreement with the Trust on behalf of each Fund dated May 3, 1999
(each an "Advisory Agreement"), with the exception of the International Equity
Fund, which agreement is dated September 30, 1994. Under each Advisory
Agreement, MassMutual is obligated to provide for the management of each Fund's
portfolio of securities and makes investment decisions with respect to the
purchase and sale of investments for the Prime Fund, the Short-Term Bond Fund,
the Core Bond Fund, the Prime and Core Bond Segments of the Balanced Fund and
the Diversified Bond Fund, subject to policies established by the Trustees of
the Trust and in accordance with each Fund's investment objective, policies and
restrictions as set forth herein and in the Prospectus.
Each Advisory Agreement may be terminated at any time without the payment of any
penalty by the Trustees, or by vote of a majority of the outstanding shares of
the Fund, or by MassMutual, on sixty days' written notice. In addition, each
Advisory Agreement automatically terminates if it is assigned or if its
continuance is not specifically approved at least annually (1) by the
affirmative vote of a majority of the Trustees or by the affirmative vote of a
majority of the Fund's shares, and (2) by an affirmative vote of a majority of
the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust. Under the terms of each Advisory Agreement, a Fund recognizes
MassMutual's control of the name "MassMutual" and the Trust agrees that its
right to use such name is non-exclusive and can be terminated by MassMutual at
any time. MassMutual's liability regarding its investment management obligations
and duties is limited to situations involving its willful misfeasance, bad
faith, gross negligence or reckless disregard of such obligations and duties.
MassMutual also serves as investment adviser to: MassMutual Corporate Investors
and MassMutual Participation Investors, closed-end management investment
companies; MML Money Market Fund, MML Equity Fund, MML Managed Bond Fund, MML
Blend Fund, MML Equity Index Fund, MML Small Cap Value Equity Fund, MML Growth
Equity Fund and MML Small Cap Growth Equity Fund, which are series of MML Series
Investment Fund, an open-end management investment company; certain wholly owned
subsidiaries of MassMutual; various private domestic and offshore investment
funds and partnerships; and various employee benefit plans and separate
investment accounts in which employee benefit plans invest.
The Trust, on behalf of each Fund, pays MassMutual an investment advisory fee
monthly, at an annual rate based upon the average daily net assets of that Fund
as follows: .35% for the Prime Fund, .40% for the Short-Term Bond Fund, .48% for
the Core Bond Fund, .50% for the Diversified Bond Fund, .48% for the Balanced
Fund, .50% for the Core Equity Fund, .58% for the Small Cap Value Equity Fund;
.68% for the Growth Equity Fund, .70% for the Mid Cap Growth Equity Fund, .82%
for the Small Cap Growth Equity Fund, and .85% for the International Equity
Fund.
For the last three fiscal years, the Funds have paid the following amounts as
investment advisory fees to MassMutual pursuant to each Advisory Agreement:
Gross Waiver* Net
Prime Fund
Year ended 12/31/96 $1,150,292 ($ 89,223) $1,061,069
Year ended 12/31/97 $1,155,353 ($ 29,758) $1,125,595
Year ended 12/31/98 $1,143,154 -- $1,143,154
B-23
<PAGE>
Short-Term Bond Fund
Year ended 12/31/96 $ 606,206 ($ 47,791) $ 558,415
Year ended 12/31/97 $ 769,014 ($ 18,246) $ 750,768
Year ended 12/31/98 $1,163,327 -- $1,163,327
Core Bond Fund
Year ended 12/31/96 $1,375,667 ($ 128,270) $1,247,397
Year ended 12/31/97 $1,869,877 ($ 49,361) $1,820,516
Year ended 12/31/98 $2,419,080 -- $2,419,080
Balanced Fund
Year ended 12/31/96 $2,271,174 ($ 203,071) $2,068,103
Year ended 12/31/97 $2,799,328 ($ 74,994) $2,724,334
Year ended 12/31/98 $3,182,481 -- $3,182,481
Core Equity Fund
Year ended 12/31/96 $10,377,627 ($1,077,667) $9,299,960
Year ended 12/31/97 $13,063,454 ($ 391,015) $12,672,439
Year ended 12/31/98 $15,182,885 -- $15,182,885
Small Cap Value Equity Fund
Year ended 12/31/96 $2,298,488 ($ 182,305) $2,116,183
Year ended 12/31/97 $3,149,017 ($ 65,671) $3,083,346
Year ended 12/31/98 $3,775,176 -- $3,775,176
International Equity Fund
Year ended 12/31/96 $2,398,114 ($ 196,769) $2,201,345
Year ended 12/31/97 $4,149,537 ($ 50,753) $4,098,784
Year ended 12/31/98 $5,327,317 -- $5,327,317
*MassMutual's voluntary agreement to waive a portion of its management fee
terminated May 1, 1997. See "Financial Highlights" in the Prospectus.
The Diversified Bond Fund, the Growth Equity Fund, the Mid Cap Growth Equity
Fund and the Small Cap Growth Equity Fund commenced operations on May 3, 1999.
AFFILIATED INVESTMENT SUB-ADVISERS
Babson is a wholly-owned subsidiary of DLB Acquisition Corporation, an indirect,
controlled subsidiary of MassMutual. HarbourView is a wholly owned subsidiary of
OppenheimerFunds, Inc. ("OFI"), which is a wholly owned subsidiary of
Oppenheimer Acquisition Corporation, a holding company owned in part by senior
management of OFI and ultimately controlled by MassMutual.
MassMutual pays to Babson a sub-advisory fee equal to an annual rate of .13% of
the average daily net asset value of the Core Equity Fund, .13% of the average
daily net asset value of the Core Equity Segment of the Balanced Fund and .25%
of the average daily net asset value of the Small Cap Value Equity Fund.
MassMutual pays to HarbourView a sub-advisory fee equal to an annual rate of
.50% of the average daily net asset value of the International Equity Fund.
Securities held by the Funds are also frequently held by MassMutual investment
accounts and by other investment companies and accounts for which MassMutual,
Babson or HarbourView act as investment adviser or sub-adviser. If the same
security is purchased or sold for any Fund and such accounts or companies at or
about the same time, such purchases or sales normally will be combined, to the
extent practicable, and will be allocated as nearly as practicable on a pro rata
basis in proportion to the amounts to be purchased or sold for each. In
determining the amounts to be purchased and sold, the main factors to be
considered will be the investment objectives of the respective portfolios, the
relative size of portfolio holdings of the same or comparable security,
availability of cash for investment by the various portfolios and the size of
their respective investment commitments. It is believed that
B-24
<PAGE>
the ability of the Funds to participate in larger volume transactions will, in
most cases, produce better execution for the Funds. In some cases, however, this
procedure could have a detrimental effect on the price and amount of a security
available to a Fund or the price at which a security may be sold. It is the
opinion of the Trust's management that such execution advantage and the
desirability of retaining MassMutual, Babson, and HarbourView as advisers of the
Funds outweigh the disadvantages, if any, which might result from this
procedure.
UNAFFILIATED INVESTMENT ADVISERS
MFS is an indirect, wholly-owned subsidiary of Sun Life Assurance Company of
Canada, and is registered with the SEC as an investment adviser. MFS is
sub-adviser for the Growth Equity Fund. MassMutual pays to MFS a sub-advisory
fee equal to an annual rate of .40% on the first $300 million of aggregate net
assets under management, .37% on the next $300 million of aggregate net assets
under management, .35% on the next $300 million of aggregate net assets, .32% on
the next 600 million of aggregate net assets under management, and .25% on
aggregate net assets in excess of $1.5 billion of aggregate net assets under
management. As used in this section, aggregate net assets under management means
the aggregate of (i) average daily net assets of the specified Fund, plus (ii)
the average daily net assets of other funds or accounts of MassMutual or its
affiliates, including other funds registered under the 1940 Act, for which the
sub-adviser provides investment sub-advisory services. MFS also provides
investment sub-advisory services for MML Growth Equity Fund, a series of MML
Series Investment Fund, an open-end investment company for which MassMutual acts
as investment manager.
MAS is a subsidiary of Morgan Stanley Dean Witter Investment Management Inc. and
is registered with the SEC as an investment adviser. MAS is sub-adviser for Mid
Cap Growth Equity Fund. MassMutual pays to MAS a sub-advisory fee equal to an
annual rate of .55% on the first $150 million of aggregate net assets under
management, and .50% on aggregate net assets in excess of $140 million. MAS does
not provide any such services for other funds managed by MassMutual.
J.P. Morgan and Waddell & Reed both act as sub-advisers for Small Cap Growth
Equity Fund, and both are registered with the SEC as investment advisers. Each
sub-adviser will manage a portion of the net assets of the Fund's portfolio.
Initially, each sub-adviser will be allocated their portion of the Fund's net
assets based on cash flow received by the Fund. The Fund's portfolio will be
rebalanced by MassMutual from time to time. MassMutual pays J.P. Morgan an
investment sub-advisory fee at an annual rate of .60% on the first $200 million
of aggregate net assets under management and .50% on aggregate net assets in
excess of $200 million. MassMutual pays Waddell & Reed an investment
sub-advisory fee at an annual rate of .75% on the first $100 million of
aggregate net assets under management and, thereafter, .70% on aggregate net
assets in excess of $100 million. J.P. Morgan and Waddell & Reed both provide
sub-advisory services for MML Small Cap Growth Equity Fund, a series of MML
Series Investment Fund, an open-end investment company for which MassMutual acts
as investment manager.
YEAR 2000 ISSUE
Like other businesses and governments around the world, the Trust could be
adversely affected if the computer systems used by MassMutual (and those with
which it does business on behalf of the Trust) and the Trust's other service
providers do not properly recognize the Year 2000. This is commonly known as
"Year 2000 issue." In 1996, MassMutual began an enterprise-wide process of
identifying, evaluating and implementing changes to computer systems and
applications software to address the Year 2000 issue. MassMutual has informed
the Trust that this is one of MassMutual's highest business operational
priorities. MassMutual is addressing the Year 2000 issue internally with
modifications to existing programs and conversions to new programs. MassMutual
is also seeking assurances from vendors, service providers, including a Fund's
investment sub-adviser, and others with which MassMutual and the Trust conduct
business in order to identify and resolve Year 2000 issues.
ADMINISTRATOR AND SUB-ADMINISTRATOR
MassMutual has entered into a separate administrative services agreement (each
an "Administrative Services Agreement") with each Fund pursuant to which
MassMutual is obligated to provide all necessary administrative and shareholder
services and to bear some Class expenses, such as federal and state registration
fees, printing and postage. MassMutual may, at its expense, employ others to
supply all or any part of the services to be provided to the Funds pursuant to
the Administrative Services Agreements. The Trust, on behalf of each Fund, pays
MassMutual an administrative services fee monthly at an annual rate based upon
the average daily net assets of the applicable class of shares of the Fund which
range from .2932% to .4075% for Class A shares; .1432% to .2575% for Class Y
shares; .0675% to .1232% for Class S shares and .2932% to .4075% for Class L
shares. MassMutual has entered into a sub-administration agreement with
Investors
B-25
<PAGE>
Bank & Trust Company ("IBT"). As sub-administrator, IBT generally assists in all
aspects of fund administration and is compensated by MassMutual for providing
administrative services to the Funds.
For the last three fiscal years, the Funds have paid the following amounts as
administrative services fees to MassMutual pursuant to each Administrative
Services Agreement:
Prime Fund
Year ended 12/31/96 $208,805
Year ended 12/31/97 $209,004
Year ended 12/31/98 $198,633
Short-Term Bond Fund
Year ended 12/31/96 $106,637
Year ended 12/31/97 $134,919
Year ended 12/31/98 $201,862
Core Bond Fund
Year ended 12/31/96 $258,828
Year ended 12/31/97 $348,743
Year ended 12/31/98 $418,822
Balanced Fund
Year ended 12/31/96 $431,541
Year ended 12/31/97 $527,470
Year ended 12/31/98 $550,978
Core Equity Fund
Year ended 12/31/96 $2,088,712
Year ended 12/31/97 $2,594,600
Year ended 12/31/98 $2,623,373
Small Cap Value Equity Fund
Year ended 12/31/96 $361,815
Year ended 12/31/97 $490,532
Year ended 12/31/98 $534,899
International Equity Fund
Year ended 12/31/96 $275,670
Year ended 12/31/97 $467,044
Year ended 12/31/98 $486,162
THE DISTRIBUTOR
The Trust's shares are continuously distributed by MML Distributors, LLC (the
"Distributor"), located at 1414 Main Street, Springfield, Massachusetts
01144-1013, pursuant to a General Distributor's Agreement with the Trust dated
as of May 3, 1999 (the "Distribution Agreement"). The Distributor pays
commissions to its selling dealers as well as the costs of printing and mailing
Prospectuses to potential investors and of any advertising incurred by it in
connection with distribution of shares of the Funds. The Distributor is a
majority-owned subsidiary of MassMutual.
The Distribution Agreement will continue in effect for an initial two-year
period, and thereafter for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Trustees or by a vote of a majority of the shares of the Trust; and (ii) by a
majority of the Trustees who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any such person, cast in
person at a meeting called for the purpose of voting on such approval.
CLASS A DISTRIBUTION AND SERVICE PLANS
The Trust has adopted, with respect to the Class A shares of each of the Funds,
an Amended and Restated Distribution and Service Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Trustees of the Trust, including
a majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plans, by
vote cast in person at a meeting called for the purpose of voting on the Plans,
approved the Plans on May 3, 1999. Under the terms of each of the Plans, the
Trust is permitted to compensate, out of the assets attributable to the Class A
shares of the Fund, in an amount up to .25%, in the aggregate, on an annual
basis of the average daily net assets attributable to that Class, (i) the
Distributor for
B-26
<PAGE>
services provided and expenses incurred by it in connection with the
distribution of Class A shares of the Fund ("Distribution Fee") and (ii)
MassMutual for services provided and expenses incurred by it for purposes of
maintaining or providing personal services (the "Servicing Fee") to Class A
shareholders. The Distribution Fee may be spent by the Distributor on any
activities or expenses primarily intended to result in the sale of Class A
shares of the Fund, including, but not limited to, compensation to, and expenses
(including overhead and telephone expenses) of, financial consultants or other
employees of the Distributor or of participating or introducing brokers who
engage in the distribution of Class A shares, preparing, printing and delivering
prospectuses and reports for other than existing Class A shareholders, providing
facilities to answer questions from other than existing Class A shareholders,
advertising and preparation, printing and distribution of sales literature,
receiving and answering correspondence, including requests for prospectuses and
statements of additional information, and complying with Federal and state
securities laws pertaining to the sale of Class A shares. The Servicing Fee may
be spent by MassMutual on personal services rendered to Class A shareholders of
a Fund and/or maintenance of Class A shareholder accounts. MassMutual's
Servicing Fee expenditures may include, but shall not be limited to,
compensation to, and expenses (including telephone and overhead expenses) of
agents or employees of MassMutual or the Distributor, pension consultants or
participating or introducing brokers and other financial intermediaries who
assist investors in completing account forms and selecting dividend and other
account options; who aid in the processing of redemption requests for Class A
shares or the processing of dividend payments with respect to Class A shares;
who prepare, print and deliver prospectuses and shareholder reports to Class A
shareholders; who oversee compliance with federal and state laws pertaining to
the sale of Class A shares; who provide information periodically to Class A
shareholders showing their position in Class A shares; who issue account
statements to Class A shareholders; who furnish shareholder sub-accounting; who
forward communications from a Fund to Class A shareholders; who render advice
regarding particular shareholder account options offered by a Fund in light of
shareholder needs; who provide and maintain elective shareholder services; who
provide and maintain pre-authorized investment plans for Class A shareholders;
who respond to inquiries from Class A shareholders relating to such services;
and/or who provide such similar services as permitted under applicable statutes,
rules or regulations.
Each Plan provides that it may not be amended to materially increase the costs
which Class A shareholders may bear under the Plan without the approval of a
majority of the outstanding Class A shares of the Fund.
Each Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Trustees of the Trust and (ii) the Trustees of the
Trust who are not interested persons of the Trust and have no direct or indirect
financial interest in the operation of the Plan or any agreements related to it.
Each Plan provides that it shall continue in effect so long as such continuance
is specifically approved at least annually by (i) Trustees of the Trust and (ii)
the Trustees of the Trust who are not interested persons of the Trust and have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it. Each Plan provides that MassMutual shall provide to
the Trustees, and the Board shall review at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
The Conduct Rules of the NASD limit the amount of distribution fees that may be
paid by mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services), are not subject to the limits. The Trust believes that all of the
fees paid pursuant to the Plans will qualify as "service fees" and therefore
will not be limited by NASD rules.
Under the 12b-1 plans for Class A shares of the Funds, the Trust paid service
fees in 1998 of approximately $292 for the Prime Fund, $315 for the Short-Term
Bond Fund, $341 for the Core Bond Fund, $414 for the Balanced Fund, $522 for the
Core Equity Fund, $458 for the Small Cap Value Equity Fund, and $345 for the
International Equity Fund, all of which was paid to MassMutual.
CUSTODIAN, DIVIDEND DISBURSING AGENT AND TRANSFER AGENT
IBT, located at 200 Clarendon Street, Boston, Massachusetts 02116, is the
custodian of the Funds' investments (the "Custodian") and is the Funds' transfer
agent and dividend disbursing agent (the "Transfer Agent"). As custodian, IBT
has custody of the Funds' securities and maintains certain financial and
accounting books and records. The Custodian and the Transfer Agent do not assist
in, and are not responsible for, the investment decisions and policies of the
Funds.
INDEPENDENT PUBLIC ACCOUNTANT
Deloitte & Touche LLP, located at Two World Financial Center, New York, New
York, 10281, is the Trust's independent public accountant.
B-27
<PAGE>
PricewaterhouseCoopers LLP ("PwC") resigned as the Trust's independent public
accountant, effective February 23, 1999, after consultation with the staff of
the Securities and Exchange Commission ("SEC") on the issue of its independence
to the Trust. Deloitte & Touche LLP was approved as the Trust's independent
public accountant by the Board of Trustees for fiscal years 1998 and 1999. PwC
did not resign as a result of a disagreement on any matters relating to
accounting principles or practices, financial statement disclosures or auditing
scope or procedure.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchases and sales of securities on a securities exchange are effected by
brokers, and each Fund which purchases or sells securities on a securities
exchange pays a brokerage commission for this service. In transactions on stock
exchanges in the United States, these commissions are negotiated, whereas on
many foreign stock exchanges these commissions are fixed. In the
over-the-counter markets, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. Each adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on the basis of their
professional capability, the value and quality of their brokerage services and
the level of their brokerage commissions.
Under each Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, an Adviser may cause a Fund to pay a
broker-dealer which provides brokerage and research services to the adviser an
amount of commission for effecting a securities transaction for a Fund in excess
of the amount other broker-dealers would have charged for the transaction if the
adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the adviser's overall responsibilities to the Trust and to its other clients.
The term "brokerage and research services" includes: advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers (except the Distributor) who were selected to execute
transactions on behalf of the Trust and the Adviser's other clients in part for
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to an adviser for no consideration other
than brokerage or underwriting commissions. Securities may be bought or sold
through such broker-dealers, but at present, unless otherwise directed by the
Trust, a commission higher than one charged elsewhere will not be paid to such a
firm solely because it provided Research to the adviser. Research provided by
brokers is used for the benefit of all of the Adviser's clients and not solely
or necessarily for the benefit of the Trust. The Adviser attempts to evaluate
the quality of Research provided by brokers. Results of this effort are
sometimes used by the Adviser as a consideration in the selection of brokers to
execute portfolio transactions.
The investment advisory fee that the Trust pays on behalf of each Fund to
MassMutual will not be reduced as a consequence of an adviser's receipt of
brokerage and research services. To the extent the Trust's portfolio
transactions are used to obtain such services, the brokerage commissions paid by
the Trust will exceed those that might otherwise be paid, by an amount which
cannot now be determined. Such services would be useful and of value to an
adviser in serving both the Trust and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients would
be useful to an adviser in carrying out its obligations to the Trust.
Subject to the overriding objective of obtaining the best execution of orders,
the Funds may use broker-dealer affiliates of their respective Sub-Advisers to
effect portfolio brokerage transactions under procedures adopted by the
Trustees. Pursuant to these procedures, the commission rates and other
remuneration paid to the affiliated broker-
B-28
<PAGE>
dealer must be fair and reasonable in comparison to those of other
broker-dealers for comparable transactions involving similar securities being
purchased or sold during a comparable time period. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker.
Brokerage commissions paid by the Funds for the fiscal years ended December 31,
1998, December 31, 1997, and December 31, 1996, respectively, were as follows:
Balanced Fund $212,554.36, $174,902, and $115,756; Core Equity Fund
$1,030,560.95, $1,494,262, and $933,716; Small Cap Value Equity Fund
$638,429.88, $423,705, and $430,964; and International Equity Fund
$2,377,044.12, $2,025,648, and $1,103,103. Approximately $8,193 and $35,000 of
the brokerage commissions paid by the Fund for the fiscal years ended December
31, 1998 and 1997, respectively, were paid to Jefferies & Co., Inc.
("Jefferies") and Advest, Inc. Jefferies and Advest, Inc. are wholly-owned
subsidiaries of a company for which one Trustee serves as a director.
SHAREHOLDER INVESTMENT ACCOUNT
A Shareholder Investment Account is established for each Investor in the Funds.
Each account contains a record of the shares of each Fund maintained by the
Transfer Agent. No share certificate will be issued. Whenever a transaction
takes place in the Shareholder Investment Account, the Investor will be mailed a
statement showing the transaction and the status of the account.
DESCRIPTION OF SHARES
The Trust is a series company. The Trust may issue an unlimited number of shares
of multiple classes, in one or more series as the Trustees may authorize, with
or without par value as the Trustees may prescribe. Each share of a particular
class of a series represents an equal proportionate interest in that series with
each other share of the same class, none having priority or preference over
another. Each series is preferred over all other series in respect of the assets
allocated to that series. Each share of a particular class of a series is
entitled to a pro rata share of any distributions declared in respect of that
class and, in the event of liquidation, a pro rata share of the net assets of
that class remaining after satisfaction of outstanding liabilities. When issued,
shares are fully paid and nonassessable and have no preemptive or subscription
rights. Under the Trust's Declaration of Trust, the Board of Trustees is
authorized to create new series and classes without shareholder approval. To
date shares of sixteen separate series have been authorized, eleven of which
constitute the interests in the Funds described in the Prospectus. Shares of
each Fund entitle their holder to one vote for each dollar (or proportionate
fractional vote for each fraction of a dollar) of net asset value per share of
each Fund or class for each share held as to any matter on which such shares are
entitled to vote.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims liability of the shareholders, Trustees, or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Trust's Declaration of Trust provides
for indemnification out of the Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and the Trust itself is unable to meet its
obligations.
REDEMPTION OF SHARES
With respect to each Fund, the Trustees may suspend the right of redemption,
postpone the date of payment or suspend the determination of net asset value (a)
for any period during which the NYSE is closed (other than for customary weekend
and holiday closing), (b) for any period during which trading in the markets the
Fund normally uses is restricted, (c) when an emergency exists as determined by
the SEC so that disposal of the Fund's investments or a determination of its net
asset value is not reasonably practicable, or (d) for such other periods as the
SEC by order may permit for the protection of the Trust's shareholders. While
the Trust's Declaration of Trust would permit it to redeem shares in cash or
other assets of the Fund or both, the Trust has filed an irrevocable election
with the SEC to pay in cash all requests for redemption received from any
shareholder if the aggregate amount of such requests in any 90-day period does
not exceed the lesser of $250,000 or 1% of a Fund's net assets.
VALUATION OF PORTFOLIO SECURITIES
The net asset value per share of each Fund is determined by the Custodian at
4:00 p.m., Eastern Time, on each day the NYSE is open for trading and the
Custodian is open for business. The NYSE currently is not open for trading on
New
B-29
<PAGE>
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on
occasion is closed early or entirely due to weather or other conditions.
Equity securities are valued on the basis of valuations furnished by a pricing
service, authorized by the Board of 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 Board of
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 amortized cost unless such value does not represent fair
value. All other securities and other assets, including debt securities the
prices for which supplied by a pricing agent are deemed by MassMutual not to be
representative of market values, but excluding money market instruments with a
remaining maturity of sixty days or less and including some 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 U.S. national securities exchange
or foreign 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.
The proceeds received by each Fund for each issue or sale of its shares, and all
net investment income, realized and unrealized gain will be specifically
allocated to such Fund and constitute the underlying assets of that Fund. The
underlying assets of each Fund will be segregated on the books of account, and
will be charged with the liabilities in respect of such Fund and with a share of
the general liabilities of the Trust. Expenses with respect to any two or more
Funds are to be allocated in proportion to the net asset values of the
respective Funds except where allocations of direct expenses can otherwise be
fairly made. Each class of shares of a Fund will be charged with liabilities
directly attributable to such class, and other Fund expenses are to be allocated
in proportion to the net asset values of the respective classes.
INVESTMENT PERFORMANCE
The yield of the Prime Fund, the Short-Term Bond Fund, the Core Bond Fund and
the Diversified Bond Fund, as well as total return figures for all of the Funds,
may be provided in reports, sales literature and advertisements. Any performance
information with respect to any class of Fund shares will be provided net of any
Fund expenses for that class.
Yield for each class of shares of such Funds will be based upon a stated 30-day
period and will be computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:
YIELD = 2 [(a - b + 1) to the sixth power - 1 ]
-----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements,
if any).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price (which is the net asset value)
per share on the last day of the period.
Set forth below is the yield for Class S shares of the Prime Fund, Short-Term
Bond Fund and Core Bond Fund for the 30-day period ended December 31, 1998. The
Diversified Bond Fund commenced operations as of May 3, 1999.
Yield for the 30-Day Period Ended December 31, 1998
Class S Shares* (Unaudited)
Fund Yield
B-30
<PAGE>
Prime Fund 5.41%
Short-Term Bond Fund 4.89%
Core Bond Fund 5.69%
*Yield for Class A, Y and S shares may differ due to different expense
structures. Class L shares had not been established as of December 31, 1998.
Each of the Funds may also advertise its total return for each class of shares.
Total return quotations will be based upon a stated period and will be computed
by determining the average annual compounded rate of return over the stated
period that would equate an initial amount invested to the ending redeemable
value of the investment (assuming reinvestment of all distributions), according
to the following formula:
P(1 + T) to the nth power = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the stated period
of a hypothetical $1000 payment
ERV = made at the beginning of the stated period.
The Funds may show total return calculated without giving effect to the
voluntary partial waiver of management fee by MassMutual, which terminated May
1, 1997 ("Standardized Total Return Without Reduction in Management Fee"). See
"Financial Highlights" in the Prospectus. Each investment performance figure
will be carried to the nearest hundredth of one percent.
A Fund's yield or total return is not fixed or guaranteed and the Fund's
principal is not insured. Investment performance quotations should not be
considered to be representations of the performance for any period in the
future. The yield is a function of available interest rates on securities in
which the Fund invests, which can be expected to fluctuate, as well as of the
quality, maturity and types of portfolio instruments held by the Fund and of the
Fund's operating expenses. The yield may be affected if, through net sales of
its shares, there is a net investment of new money in the Fund which the Fund
invests at returns different from those being earned on current portfolio
instruments. Yield may also vary if the Fund experiences net redemptions, which
may require the disposition of some of the Fund's current portfolio instruments.
Total return is a function of the value of the Fund's portfolio securities over
time, which may be expected to fluctuate, as well as of income earned by the
Fund on such securities and of the Fund's operating expenses.
B-31
<PAGE>
Average Annual Total Return for the periods ended December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1 YEAR
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Class A Class Y Class S
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Fund and its predecessor SIA G 4.60% 5.14% 5.39%
- ------------------------------------------------------------------------------------------
Short-Term Bond Fund and its predecessor SIA F 5.75% 6.12% 6.29%
- ------------------------------------------------------------------------------------------
Core Bond Fund and its predecessor SIA E 7.75% 8.25% 8.44%
- ------------------------------------------------------------------------------------------
Balanced Fund and its predecessor SIA M 12.78% 13.23% 13.50%
- ------------------------------------------------------------------------------------------
Core Equity Fund and its predecessor SIA A 15.96% 16.49% 16.75%
- ------------------------------------------------------------------------------------------
Small Cap Value Equity Fund and its predecessor SIA S -9.58% -9.25% -9.02%
- ------------------------------------------------------------------------------------------
International Equity Fund and its predecessor SIA I 4.40% 4.84% 5.05%
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
3 YEARS
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Class A Class Y Class S
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Fund and its predecessor SIA G 4.63% 5.11% 5.34%
- ------------------------------------------------------------------------------------------
Short-Term Bond Fund and its predecessor SIA F 5.60% 6.03% 6.23%
- ------------------------------------------------------------------------------------------
Core Bond Fund and its predecessor SIA E 6.27% 6.75% 6.96%
- ------------------------------------------------------------------------------------------
Balanced Fund and its predecessor SIA M 14.25% 14.74% 14.99%
- ------------------------------------------------------------------------------------------
Core Equity Fund and its predecessor SIA A 21.10% 21.63% 21.89%
- ------------------------------------------------------------------------------------------
Small Cap Value Equity Fund and its predecessor SIA S 14.35% 14.81% 15.06%
- ------------------------------------------------------------------------------------------
International Equity Fund and its predecessor SIA I 12.25% 12.73% 12.96%
- ------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
5 YEARS
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Class A Class Y Class S
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Fund and its predecessor SIA G 4.46% 4.93% 5.16%
- ------------------------------------------------------------------------------------------
Short-Term Bond Fund and its predecessor SIA F 5.16% 5.60% 5.82%
- ------------------------------------------------------------------------------------------
Core Bond Fund and its predecessor SIA E 6.24% 6.72% 6.93%
- ------------------------------------------------------------------------------------------
Balanced Fund and its predecessor SIA M 12.84% 13.33% 13.57%
- ------------------------------------------------------------------------------------------
Core Equity Fund and its predecessor SIA A 19.14% 19.65% 19.91%
- ------------------------------------------------------------------------------------------
Small Cap Value Equity Fund and its predecessor SIA S 11.10% 11.57% 11.81%
- ------------------------------------------------------------------------------------------
International Equity Fund and its predecessor SIA I 6.88% 7.35% 7.57%
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
10 YEARS (or since inception)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Class A Class Y Class S
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Fund and its predecessor SIA G 4.89% 5.36% 5.58%
- ------------------------------------------------------------------------------------------
Short-Term Bond Fund and its predecessor SIA F N/A N/A N/A
- ------------------------------------------------------------------------------------------
Core Bond Fund and its predecessor SIA E 8.42% 8.90% 9.12%
- ------------------------------------------------------------------------------------------
Balanced Fund and its predecessor SIA M 12.19% 12.67% 12.91%
- ------------------------------------------------------------------------------------------
Core Equity Fund and its predecessor SIA A 15.71% 16.21% 16.46%
- ------------------------------------------------------------------------------------------
Small Cap Value Equity Fund and its predecessor SIA S 12.23% 12.71% 12.95%
- ------------------------------------------------------------------------------------------
International Equity Fund and its predecessor SIA I N/A N/A N/A
- ------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE COMPARISONS
From time-to-time and only to the extent the comparison is appropriate for the
Funds, the Trust may quote the performance of the Funds in advertising and other
types of literature and may compare the performance of the Funds to the
performance of various indices and investments for which reliable performance
data is available. The performance of the Funds may be compared in advertising
and other literature to averages, performance rankings and other information
prepared by recognized mutual fund statistical services.
Performance information for the Funds may be compared, in reports and
promotional literature, to the S&P 500 Index, the Russell 2000 Index, Russell
2500 Index, the Lehman Brothers 20+ Treasury Index, Donoghue's Money Fund
Averages, the Lehman Brothers 5-7 Year Treasury Index, Lehman Brothers
Government Bond Index, Lehman Brothers Intermediate Aggregate Bond Index, Lehman
Brothers Treasury Bond Index, Lipper Balanced Fund Average, Lipper Growth Fund
Average, Lipper Flexible Portfolio Fund Average, Lehman Brothers Intermediate
Treasury Index, 91-Day Treasury Bill Average, Morgan Stanley Capital
International Index for Europe, Australia and the Far East ("MSCI EAFE Index"),
or other appropriate managed or unmanaged indices of the performance of various
types of investments, so that investors may compare a Fund's results with those
of indices widely regarded
B-33
<PAGE>
by investors as representative of the security markets in general. Unmanaged
indices may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses. Managed indices
generally do reflect such deductions.
The Trust also may use the following information in advertisements and other
types of literature, but only to the extent the information is appropriate for
the Funds: (1) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (2) other government statistics, including,
but not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a Fund or the general economic, business, investment,
or financial environment in which the Fund operates; (3) the effect of
tax-deferred compounding on the investment returns of a Fund, or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in the
Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (4) the sectors or industries in which a Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate the Fund's historical performance or current or potential
value with respect to the particular industry or sector.
Each of the Fund's performance also may be compared to those of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., (including the Lipper
General Bond Fund Average, the Lipper Intermediate Investment Grade Debt Fund
Average, the Lipper Bond Fund Average, the Lipper Growth Fund Average, the
Lipper Flexible Fund Average), Donoghue's Money Fund Report, including
Donoghue's Taxable Money Market Fund Average or Morningstar, Inc., independent
services which monitor the performance of mutual funds. Any such comparisons may
be useful to investors who wish to compare a Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of future
results.
OTHER ADVERTISING ITEMS
The Trust may discuss in advertising and other types of literature that a Fund
has been assigned a rating by a NRSRO, such as S&P. Such rating would assess the
creditworthiness of the investments held by such Fund. The assigned rating would
not be a recommendation to purchase, sell or hold the Fund's shares since the
rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Trust may compare a Fund's performance with other investments
which are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with other rated
investments. Of course past performance cannot be a guarantee of future results.
General mutual fund statistics provided by the Investment Company Institute may
also be used.
TAXATION
Each Fund intends to qualify each year and elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify as a "regulated investment company," a
Fund must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities, or foreign currencies, and other
income (including gains from forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies; and (b)
diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash, cash
items, U.S. Government securities, and other securities limited generally with
respect to any one issuer to not more than 5% of the total assets of the Fund
and not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total assets is invested in the
securities of any issuer (other than U.S. Government securities). If a Fund
fails to qualify as a regulated investment company, it will be treated as an
ordinary corporation for federal income tax purposes.
As a regulated investment company electing to have its tax liability determined
under Subchapter M, in general a Fund will not be subject to federal income tax
on its ordinary income or capital gains that are distributed. As a Massachusetts
business trust, a Fund under present law will not be subject to any excise or
income taxes imposed by Massachusetts.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
B-34
<PAGE>
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 (or December 31, if the Fund so
elects) plus undistributed amounts from prior years. Each Fund intends to make
distributions sufficient to avoid imposition of the excise tax. Distributions
declared by a Fund during October, November or December to shareholders of
record on a date in any such month and paid by the Fund during the following
January will be treated for federal tax purposes as paid by the Fund and
received by shareholders on December 31 of the year in which declared.
Except in the case of certain shareholders eligible for preferential tax
treatment, e.g., qualified retirement or pension trusts, shareholders of each
Fund will be subject to federal income taxes on distributions made by the Fund
whether received in cash or additional shares of the Fund. Distributions by each
Fund of net income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Designated distributions of long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the Fund. Under the
Taxpayer Relief Act of 1997, long-term capital gains generally will be subject
to a 28% or 20% tax rate, depending on the holding period in the portfolio
investment.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes. Investment income and gains received by a Fund from sources outside the
United States might be subject to foreign taxes which are withheld at the
source. The effective rate of these foreign taxes cannot be determined in
advance because it depends on the specific countries in which its assets will be
invested, the amount of the assets invested in each such country and the
possible applicability of treaty relief.
The International Equity Fund may be eligible to make an election under Section
853 of the Code so that any of its shareholders subject to federal income taxes
will be able to claim a credit or deduction on their income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries. The
ability of shareholders of the Fund to claim a foreign tax credit is subject to
certain limitations imposed by Section 904 of the Code, which in general limits
the amount of foreign tax that may be used to reduce a shareholder's U.S. tax
liability to that amount of U.S. tax which would be imposed on the amount and
type of income in respect of which the foreign tax was paid. In addition, the
ability of shareholders to claim a foreign tax credit is subject to a holding
period requirement. A shareholder who for U.S. income tax purposes claims a
foreign tax credit in respect of Fund distributions may not claim a deduction
for foreign taxes paid by the Fund, regardless of whether the shareholder
itemizes deductions. Also, under Section 63 of the Code, no deduction for
foreign taxes may be claimed by shareholders who do not itemize deductions on
their federal income tax returns. It should also be noted that a tax-exempt
shareholder, like other shareholders, will be required to treat as part of the
amounts distributed to it a pro rata portion of the income taxes paid by the
Fund to foreign countries. However, that income will generally be exempt from
U.S. taxation by virtue of such shareholder's tax-exempt status and such a
shareholder will not be entitled to either a tax credit or a deduction with
respect to such income. The International Equity Fund will notify shareholders
each year of the amount of dividends and distributions and the shareholder's pro
rata share of qualified taxes paid by the Fund to foreign countries. Investment
by a Fund in "passive foreign investment companies" could subject the Fund to a
U.S. federal income tax or other charge on the proceeds from the sale of its
investment in such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat the passive
foreign investment company as a "qualified electing fund."
Redemptions and exchanges of each Fund's shares are taxable events and,
accordingly, shareholders subject to federal income taxes may realize gains and
losses on these transactions. If shares have been held for more than one year,
gain or loss realized will be long-term capital gain or loss, provided the
shareholder holds the shares as a capital asset. Under the Taxpayer Relief Act
of 1997, long-term capital gains generally will be subject to a 28% or 20% tax
rate depending on the Investor's holding period in Fund shares. However, a loss
on the sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain dividend paid to the
shareholder with respect to such shares. Furthermore, no loss will be allowed on
the sale of Fund shares to the extent the shareholder acquired other shares of
the same Fund within 30 days prior to the sale of the loss shares or 30 days
after such sale. The state and local tax effects of distributions received from
a Fund, and any special tax considerations associated with foreign investments
of the Fund, should be examined by investors with regard to their own tax
situation.
A Fund's transactions in foreign currency-denominated debt instruments and its
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's
distributions of book income to constitute returns of capital for tax purposes
or require the Fund to make
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distributions exceeding book income in order to permit the Fund to continue to
qualify, and be taxed under Subchapter M of the Code, as a regulated investment
company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Fund has invested and their face
value ("original issue discount") is considered to be income to the Fund each
year even though the Fund will not receive cash interest payments from these
securities. This original issue discount (imputed income) will make up a part of
the net investment income of the Fund which must be distributed to shareholders
in order to maintain the qualification of the Fund as a regulated investment
company and to avoid federal income tax at the level of the Fund.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and regulations currently in effect. For the complete provisions,
reference should be made to the pertinent Code sections and regulations. The
Code and regulations are subject to change by legislative or administrative
action. This discussion of the federal income tax treatment of the Fund and its
shareholders does not describe in any respect the tax treatment of any
particular arrangement, e.g., tax-exempt trusts or insurance products, pursuant
to which or by which investments in the Fund may be made.
EXPERTS
The financial statements of each of the Funds are set forth in the Funds' Annual
Report as of December 31, 1998, and are incorporated herein by reference in
reliance on the report of Deloitte & Touche LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing. A copy of
the Funds' Annual Report as of December 31, 1998 is available, without charge,
upon request.
GLOSSARY
Currency Transactions: include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swamps. A forward currency contract involves a privately negotiated obligation
to purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap.
Duration: indicates how interest rate changes will affect a debt instrument's
price. As a measure of a fixed-income security's cash flow, duration is an
alternative to the concept of "term to maturity" in assessing the price
volatility associated with changes in interest rates. Generally, the longer the
duration, the more volatility an investor should expect. For example, the market
price of a bond with a duration of two years would be expected to decline 2% if
interest rates rose 1%. Conversely, the market price of the same bond would be
expected to increase 2% if interest rates fell 1%. The market price of a bond
with a duration of four years would be expected to increase or decline twice as
much as the market price of a bond with a two-year duration. Duration measures a
security's maturity in terms of the average time required to receive the present
value of all interest and principal payments as opposed to its term to maturity.
The maturity of a security measures only the time until final payment is due; it
does not take account of the pattern of a security's cash flow over time, which
would include how cash flow is affected by prepayments and by changes in
interest rates. Incorporating a security's yield, coupon interest payments,
final maturity and option features into one measure, duration is computed by
determining the weighted average maturity of a bond's cash flows, where the
present values of the cash flows serve as weights. Determining duration may
involve the Adviser's estimates of future economic parameters, which may vary
from actual future values.
Investor: includes a plan sponsor, plan fiduciary, trustee, institutional
investor, insurance company separate investment account and/or any other person
or entity described in the Prospectus as an eligible purchase of shares, that
purchases shares of the Trust and is hereinafter referred to as Investor or
collectively referred to as Investors.
NRSRO: means a nationally recognized statistical rating organization. For a
description of the ratings of two NRSROs, Standard & Poor's Ratings Group
("S&P") and Moody's Investors Service, Inc. ("Moody's"), see the Appendix to the
SAI. For example, the four investment grade ratings in descending order for debt
securities as rated by Moody's are Aaa, Aa, A and Baa -- including Baa3. The
four investment grade ratings for debt securities as rated by S&P are AAA, AA, A
and BBB -- including BBB-. For commercial paper, Moody's two highest ratings are
P-1 and P-2 and S&P's two highest ratings are A-1 and A-2.
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U.S. Government Securities: include obligations issued, sponsored, assumed and
guaranteed as to principal and interest by the Government of the United States,
its agencies and instrumentalities, and securities backed by such obligations,
including FHA/VA guaranteed mortgages.
The name MassMutual Institutional Funds is the designation of the Trustees under
a Declaration of Trust dated May 28, 1993, as amended from time to time. The
obligations of such Trust are not personally binding upon, nor shall resort be
had to the property of any of the Trustees, shareholders, officers, employees or
agents of such Trust, but only the property of the relevant Fund shall be bound.
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APPENDIX - DESCRIPTION OF SECURITIES RATINGS
Although the ratings of fixed-income securities by S&P and Moody's are a
generally accepted measurement of credit risk, they are subject to certain
limitations. For example, ratings are based primarily upon historical events and
do not necessarily reflect the future. Furthermore, there is a period of time
between the issuance of a rating and the update of the rating, during which time
a published rating may be inaccurate.
The descriptions of the S&P and Moody's commercial paper, bond and municipal
securities ratings are set forth below.
Commercial Paper Ratings:
S&P commercial paper ratings are graded into four categories, ranging from A for
the highest quality obligations to D for the lowest. Issues assigned the highest
rating of A are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety. The A-1 and A-2 categories are described
as follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics will be noted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment ability of rated issuers. The two highest
designations are as follows:
Issuers (or supporting institutions) rated Prime-1 (or P-1) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 (or P-1) repayment ability will normally be evidenced by many of
the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or supporting institutions) rated Prime-2 (or P-2) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Bond Ratings:
S&P describes its four highest ratings for corporate debt as follows:
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such debt normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Moody's describes its four highest corporate bond ratings as follows:
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Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they compose what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and may
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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